A company takes a loan from a bank for five years, and an overdraft quota for...

A company takes a loan from a bank for five years, and an overdraft quota for a certain amount of time. is it a financial instrument?

according to NIC 39

Expert Solution

NIC 39
The standard intensifies the use of fair value for the treatment accounting of financial instruments.The following four categories of financial assets indicated : 

a) financial assets or liabilities held for trading; 
b) investments held until maturity; 
c) loans and accounts receivable originated by the company; 
d) financial assets available for sale;

RECOGNITION OF A FINANCIAL ASSET OR A FINANCIAL LIABILITY

Initial recognition.- The company recognizes a financial asset or liability when it becomes, in part, bound by the provisions of the contract of the respective financial instrument.

Subsequent measurement of a financial asset.- After the initial recognition of financial assets, the company must value them at fair value, except for the following categories of financial assets: 
a) loans and accounts receivable originated by the company and not held for trading ; 
b) investments held until maturity; and 
c) all financial assets that do not have a quoted price in the active market and whose fair value can not be reliably valued.

Conclusion, Since in the above case a company has taken a loan from a bank for five years, and an overdraft quota for a certain amount of time which does not qualify in any of the four categories .Hence, it is not a Financial Instrument according to NIC 39

ekkarill92 answered 1 year ago

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