Derivatives
In this lesson, you'll learn what derivatives are, how to identify them, and how to account for them under IFRS standards—essential knowledge for Financial Reporting and Advanced Financial Reporting papers.
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In this lesson
- 0:00 What are derivatives and their characteristics
- 1:47 Types of derivatives: forwards, futures, options and swaps
- 2:46 How to measure derivatives at fair value
- 3:12 Worked example: accounting for share options
About this lesson
Derivatives are financial instruments whose value changes in response to an underlying item (like interest rates, commodity prices, or exchange rates), require little initial investment, and are settled in the future. You'll explore the main types—forwards, futures, options, and swaps—and understand when non-financial asset contracts qualify as derivatives. The key is recognising that derivatives must always be measured at fair value, with all gains and losses flowing through profit or loss, never through other comprehensive income. Through a worked example of a share option, you'll see how to record the initial recognition, remeasure at each reporting date, and account for exercise or settlement, building the practical confidence you need to handle derivative questions in your exams.
Duration: 6m
Transcript
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