Which is a required characteristic in determining whether a financial instrument or contract qualifies as a derivative under US GAAP ASC 815 10 15? (2024)

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Which is a required characteristic in determining whether a financial instrument or contract qualifies as a derivative under US GAAP ASC 815 10 15?

While both ASC 815 and IFRS 9

IFRS 9 is an International Financial Reporting Standard (IFRS) published by the International Accounting Standards Board (IASB). It addresses the accounting for financial instruments.
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include required characteristics of a derivative instrument, there is only one common characteristic: the instrument or contract requires no initial net investment or an initial net investment that is smaller than would be required for a similar arrangement.

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What three characteristics must be met to meet the definition of a derivative under ASC 815?

ASC 815-10-15-83 defines a derivative instrument. A derivative instrument is a financial instrument or other contract with all of the following characteristics: Underlying, notional amount, payment provision.

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What are the characteristics of a derivative financial instrument?

Characteristics of derivatives

They derive their value (and risk) from the price movement of an underlying asset or group of assets. They are agreements (contracts) between two or more parties. They expire or settle on a particular date.

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What are the criteria for a derivative instrument?

A derivative is a financial instrument with the following three characteristics: Its value changes in response to a change in price of, or index on, a specified underlying financial or non-financial item or other variable; It requires no, or comparatively little, initial investment; and.

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What is the ASC for derivatives?

Accounting for derivatives in accordance with ASC 815 is one of the most complex areas of U.S. GAAP, primarily because of the nuances involved in evaluating whether an instrument meets the definition of a derivative and whether a scope exception is available.

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What is the fundamental requirement of ASC 815 as pertains to derivatives?

ASC 815 requires a derivative to be recorded on the balance sheet as an asset or liability and to be measured at fair value. Changes in fair value each period are reported in earnings, unless the derivative is designated in a qualifying hedge relationship.

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What are the key assumptions of ASC 815?

A key underlying principle of ASC 815 is that derivatives represent either assets or liabilities in the statement of financial position, and those assets or liabilities should be measured initially and subsequently at fair value by applying the concepts of ASC 820 (see Deloitte's Roadmap Fair Value Measurements and ...

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What is the difference between a financial instrument and a derivative instrument?

A derivative is a financial instrument that changes in value in response to an underlying share, interest rate etc. and creates the rights and obligations that usually have the effect of transferring between parties to the instrument one or more of the financial risks inherent in an underlying.

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What are the characteristics of a derivative contract?

Derivative Contracts are formal contracts that are entered into between two parties, namely one Buyer and other Seller acting as Counterparties for each other, which involves either physical transaction of an underlying asset in the future or pay off financially by one party to the other.

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What are derivative characteristics and its purposes?

Derivatives are financial contracts whose value is linked to the value of an underlying asset. They are complex financial instruments that are used for various purposes, including speculation, hedging and getting access to additional assets or markets.

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How do you determine if an instrument is a derivative?

If a contract has a value that depends on something outside the contract, such as a share index, commodity price, or interest rate, then it is likely to be a derivative. The term 'derivative' means that the instrument is 'deriving' its value from a change in the underlying asset.

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What is a derivative as a financial instrument?

Financial derivatives are financial instruments that are linked to a specific financial instrument or indicator or commodity, and through which specific financial risks can be traded in financial markets in their own right.

Which is a required characteristic in determining whether a financial instrument or contract qualifies as a derivative under US GAAP ASC 815 10 15? (2024)
Which of the following is a derivative financial instrument?

Some of the more common types of financial derivatives include call and put options, futures, forwards, and swaps. These financial derivatives are defined as follows.

What are the 4 main types of derivatives?

The four major types of derivative contracts are options, forwards, futures and swaps. Options: Options are derivative contracts that give the buyer a right to buy/sell the underlying asset at the specified price during a certain period of time.

What is the meaning of ASC in GAAP?

In US accounting practices, the Accounting Standards Codification (ASC) is the current single source of United States Generally Accepted Accounting Principles (GAAP). It is maintained by the Financial Accounting Standards Board (FASB).

Is ASC a part of GAAP?

The Accounting Standards Codification (ASC) is developed and maintained by the FASB. The ASC is the only source of authoritative GAAP in the US (other than SEC issued rules and regulations that only apply to SEC registrants).

What is the regulation for derivatives?

With the amendment in the definition of ''securities'' under SC(R)A (to include derivative contracts in the definition of securities), derivatives trading takes place under the provisions of the Securities Contracts (Regulation) Act, 1956 and the Securities and Exchange Board of India Act, 1992.

What is the basic derivative contract?

What Is a Derivative? The term derivative refers to a type of financial contract whose value is dependent on an underlying asset, group of assets, or benchmark. A derivative is set between two or more parties that can trade on an exchange or over-the-counter (OTC).

What are the criteria for a contract under ASC 606?

The essential criteria for a contract under ASC 606 are: All parties have approved the agreement (verbal or written agreement) All parties are committed to fulfilling their obligations. Each party's rights are identifiable.

What are the main points of ASC 842?

The primary objective of ASC 842 is to increase transparency and comparability in financial reporting related to leases. It requires lessees to recognize lease liabilities and right-of-use assets on their balance sheets for most leases including operating leases with a term greater than 12 months.

What are examples of financial instruments?

In simple words, any asset which holds capital and can be traded in the market is referred to as a financial instrument. Some examples of financial instruments are cheques, shares, stocks, bonds, futures, and options contracts.

What is a derivative instrument example?

Derivatives are financial instruments that derive their value from an underlying asset, index, or reference rate. Examples of derivatives include futures contracts, options contracts, swaps, and forward contracts.

What is the difference between a derivative and a non derivative financial instrument?

The main difference between financial derivatives and non-derivative securities is that derivatives are financial instruments whose value is derived from the underlying assets, while non-derivative securities are assets that have a value independent of any other security or asset.

Which of the following is not a characteristic of a derivative instrument?

Currency derivatives, such as forward contracts, options, and swaps, are commonly used to manage foreign exchange risk. Therefore, the statement that is not a characteristic of derivative instruments is: "All derivative instruments have the same accounting requirements."

What is a derivative and a contract for difference?

Understanding Contract for Differences (CFD)

Derivatives are financial investments that are derived from an underlying asset. Essentially, CFDs are used by investors to make price bets as to whether the price of the underlying asset or security will rise or fall.


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