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CHAPTER 3.0
PREPARATION FINANCIAL STATEMENT FOR COMPANY:
MFRS 101
LEARNING OBJECTIVE:
At the end of this chapter, students should be able to:
● Define types of liability instruments
● Describe the measurement of issuance of financial instruments
● Explain the treatment for issuance redeemable preference shares, debentures and
convertible loan stocks
● Discuss the redemption methods of redeemable preference shares and debentures
Introduction
Business liabilities are the debts of a business. A firm incurs liabilities when it borrows.
Businesses can incur both short-term liabilities, such as sales taxes payable and payroll taxes
payable, and long-term liabilities, such as loans and mortgages. An instrument is a liability
when the issuer is or can be required to deliver either cash or another financial asset to the
holder. This is the critical feature that distinguishes a liability from equity. An instrument is
classified as equity when it represents a residual interest in the net assets of the issuer.
Definition of a financial instrument, which is that a financial instrument is a contract that gives
rise to a financial asset of one entity and a financial liability or equity instrument of an other
entity.
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