A financial asset is a non-physical

asset In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can b ...

whose value is derived from a contractual claim, such as bank deposits, bonds, and participations in companies'

share capital A corporation's share capital, commonly referred to as capital stock in the United States, is the portion of a corporation's equity that has been derived by the issue of shares in the corporation to a shareholder, usually for cash. ''Share ...

. Financial assets are usually more

liquid Liquid is a state of matter with a definite volume but no fixed shape. Liquids adapt to the shape of their container and are nearly incompressible, maintaining their volume even under pressure. The density of a liquid is usually close to th ...

than tangible assets, such as commodities or real estate. The opposite of financial assets is non-financial assets, which include both

tangible property In law, tangible property is property that can be touched, and includes both real property and personal property (or moveable property), and stands in distinction to intangible property. In English law and some Commonwealth legal systems, i ...

(sometimes also called real assets) such as land, real estate or commodities, and

intangible assets An intangible asset is an asset that lacks physical substance. Examples are patents, copyright, franchises, goodwill, trademarks, and trade names, reputation, R&D, know-how, organizational capital as well as any form of digital asset such ...

such as

intellectual property Intellectual property (IP) is a category of property that includes intangible creations of the human intellect. There are many types of intellectual property, and some countries recognize more than others. The best-known types are patents, co ...

, including copyrights, patents, trademarks and data.

Types

According to the

International Financial Reporting Standards International Financial Reporting Standards, commonly called IFRS, are accounting standards issued by the IFRS Foundation and the International Accounting Standards Board (IASB). They constitute a standardised way of describing the company's fi ...

(IFRS), a financial asset can be: * Cash or cash equivalent, * Equity instruments of another entity, * Contractual right to receive cash or another financial asset from another entity or to exchange financial assets or financial liabilities with another entity under conditions that are potentially favorable to the entity, * A contract that will or may be settled in the entity's own equity instruments and is either a non-derivative for which the entity is or may be obliged to receive a variable number of the entity's own equity instruments, or a derivative that will or may be settled other than by exchange of a fixed amount of cash or another financial asset for a fixed number of the entity's own equity instruments.

Treatment of financial assets under IFRS

Under IFRS, financial assets are classified into four broad categories which determine the way in which they are measured and reported: * Financial assets "held for

trading Trade involves the transfer of goods and services from one person or entity to another, often in exchange for money. Economists refer to a system or network that allows trade as a market (economics), market. Traders generally negotiate throu ...

" — i.e., which were acquired or incurred principally for the purpose of selling, or are part of a portfolio with evidence of short-term profit-taking, or are derivatives — are measured at

fair value In accounting, fair value is a rational and unbiased estimate of the potential market price of a good, service, or asset. The derivation takes into account such objective factors as the costs associated with production or replacement, market c ...

through profit or loss. * Financial assets with fixed or with determinable payments and fixed maturity which the company has to be willing and able to hold till maturity are classified as "held-to-maturity" investments. Held-to-maturity investments are either measured at fair value through profit or loss by designation, or determined to be financial assets available for sale by designation. * Financial assets with fixed or determinable payments which are not listed in an active market are considered to be " loans and receivables". Loans and receivables are also either measured at fair value through profit or loss by designation or determined to be financial assets available for sale by designation. * All other financial assets are categorized as financial assets "

available for sale Available for sale (AFS) is an accounting jargon, term used to classify financial assets. AFS is one of the three general classifications, along with held for trading and held to maturity, under US GAAP, U.S. Generally Accepted Accounting Principl ...

" and are measured at fair value through profit or loss by designation. For financial assets to be measured at fair value through profit or loss ''by designation'', designation is only possible at the amount the asset was initially recognized at. Moreover, designation is not possible for equity instruments which are not traded in an active market ''and'' the fair value of which cannot be reliably determined. Further (alternative) requirements for designation are e.g. at least a clear diminution of a "mismatch" with other financial assets or liabilities, an internal valuation and reporting and steering at fair value, or a combined contract with an embedded derivative which is not immaterial and which may be separated.International Accounting Standard (IAS) 32.11a Regarding financial assets available for sale ''by designation'', designation is only possible at the amount the asset was initially recognised at as well. However, there are no further restrictions or requirements.

References

{{reflist Asset

Types

Treatment of financial assets under IFRS

See also

References