Financial assets of a company may include cash or money. It also includes other financial instruments. Financial instruments, other than hedging instruments are classified into the following categories:

  • Financial Assets through a fair value through profit or loss
  • Loans and Receivables
  • Held to maturity investments
  • Available-for-sale financial Assets
  • Financial assets are assigned to different categories by the company’s management on initial recognition. This solely depends on the purpose for which the investments were acquired.

Explaining Financial Assets

A financial instrument may be classified also as a debt., otherwise as an equity if it has a contractual obligation to:

  • Deliver Cash or another entity
  • Exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the Company.