Financial Reporting · Financial Instruments: Disclosures

Ind AS 107 Objective, Scope and Classes of Instruments

Updated 5 October 2026 · Fact-checked

Ind AS 107 requires disclosures that let users judge how significant financial instruments are to an entity's position and performance, and the nature and extent of risks arising from them. It applies to all entities and all financial instruments, except listed exclusions. To answer, check scope, then group instruments into classes by nature and measurement category, then disclose by class.

Understand Ind AS 107 Objective, Scope and Classes of Instruments

Ind AS 107 is a disclosure standard. It does not tell you how to recognise or measure a financial instrument. Ind AS 32 and Ind AS 109 do that. Ind AS 107 tells you what to show in the financial statements so that a reader can understand the instruments and the risks behind them.

The objective has two limbs. First, disclose information that lets users evaluate the significance of financial instruments for the entity's financial position and performance. Second, disclose information that lets users evaluate the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the reporting date, and how it manages those risks.

Scope: The standard applies to all entities, and to all types of financial instruments. This covers recognised instruments, such as loans, trade receivables, investments and borrowings. It also covers unrecognised instruments that are within the scope of Ind AS 109, such as some loan commitments. It also applies to contracts to buy or sell a non-financial item that are within the scope of Ind AS 109.

Exclusions broadly follow other standards that deal with the item. In plain words, the standard does not apply to:

Interests in subsidiaries, associates and joint ventures accounted under Ind AS 110, 27, 28 or 111 (with exceptions where those standards allow or require accounting under Ind AS 109).
Employers' rights and obligations under employee benefit plans (Ind AS 19).
Insurance contracts as defined in Ind AS 104, except derivatives embedded in them that fall under Ind AS 109 and certain financial guarantee contracts.
Financial instruments, contracts and obligations under share-based payment transactions (Ind AS 102), except contracts within the scope of Ind AS 109.

Classes: Many disclosures must be given by class of financial instrument. The entity groups instruments into classes appropriate to the nature of the information disclosed and the characteristics of the instruments. At a minimum, it distinguishes instruments measured at amortised cost from those measured at fair value, and treats instruments outside the scope of the standard as a separate class. The entity must give enough information to reconcile the classes to the line items in the balance sheet. Note that classes are different from categories (amortised cost, FVTPL, FVOCI). Categories are the measurement groups. Classes are the disclosure groups and are usually finer.

Key rules to remember

Objective of Ind AS 107: Disclose (1) significance of financial instruments + (2) nature and extent of risks, and how they are managed; Quote both limbs. Examiners often ask for the objective in a short answer.
Scope rule: Applies to all entities and all financial instruments, except the listed exclusions; Includes recognised and unrecognised instruments within Ind AS 109 scope.
Class rule: Class = group by nature of information and characteristics of the instrument; classes must reconcile to balance sheet line items; Minimum: amortised cost vs fair value, and out-of-scope instruments as a separate class.
Class vs category: Category = measurement basis under Ind AS 109; Class = disclosure grouping under Ind AS 107; Classes are usually finer than categories.

How to solve Ind AS 107 Objective, Scope and Classes of Instruments questions

Use this order for any question on scope, objective or classes.

1Identify the question type: objective, scope, exclusions, or classes of instruments.
2For scope, list each item in the case and ask: is it a financial instrument, and is it excluded under another standard?
3If excluded, name the standard that governs it (for example Ind AS 19 for employee benefit plans, Ind AS 102 for share-based payments).
4Check the exceptions to the exclusion, such as embedded derivatives in insurance contracts or contracts under Ind AS 109 scope.
5For classes, group the instruments by nature (for example trade receivables, borrowings, quoted investments) and by measurement basis.
6Keep out-of-scope items in a separate class, and ensure the classes reconcile to balance sheet line items.
7Write the conclusion in provision-facts-conclusion form: state the rule, apply it to the facts, then conclude.

Quickest way: Three-question screen

When to use it: Use it for short case-scenario MCQs and for quick scope calls in written answers.

Is it a financial instrument or a contract within Ind AS 109 scope? If no, Ind AS 107 does not apply.
Is it on the exclusion list (subsidiary interests, employee benefits, insurance contracts, share-based payments)? If yes, check the exception before excluding it.
If it is in scope, which class does it belong to, and is the class tied to a balance sheet line item?

Common mistakes in Ind AS 107 Objective, Scope and Classes of Instruments

Treating Ind AS 107 as a recognition and measurement standard.
Ind AS 107 sits beside Ind AS 32 and 109, so the three blur together.
Fix: Remember that 107 only governs disclosure. Cite Ind AS 109 for measurement and Ind AS 32 for presentation.
Excluding every investment in a subsidiary or associate.
Students memorise the exclusion without its exceptions.
Fix: State that the exclusion applies where interests are accounted under Ind AS 110, 27, 28 or 111. Where those standards permit or require Ind AS 109 accounting, Ind AS 107 applies.
Excluding all insurance-related items.
The exclusion for insurance contracts is remembered in a short form.
Fix: Mention that derivatives embedded in insurance contracts under Ind AS 109 scope are not excluded. Certain financial guarantee contracts also remain in scope.
Using measurement categories as classes.
Both words sound alike and both group instruments.
Fix: Choose classes by nature and characteristics, then show how they map to categories and balance sheet lines.
Giving only one limb of the objective.
The second limb on risk is forgotten because the standard is thought of as a fair value disclosure.
Fix: Always write both limbs: significance, and nature and extent of risks with management of those risks.

Worked examples

Example 1

Alpha Ltd, an Ind AS company, has these items at the year end: trade receivables, bank borrowings, a defined benefit gratuity obligation, an equity-settled employee stock option plan, and a 100% investment in a subsidiary accounted at cost in its separate financial statements. The CFO asks which items fall within Ind AS 107.

Show the solution

Rule: Ind AS 107 applies to all financial instruments of all entities, except items excluded because another standard governs them.
Trade receivables and bank borrowings are financial instruments. They are in scope.
The gratuity obligation is an employer's obligation under an employee benefit plan, governed by Ind AS 19. It is excluded.
The employee stock option plan is a share-based payment under Ind AS 102. It is excluded, since it is not a contract within the scope of Ind AS 109.
The investment in the subsidiary is accounted for at cost under Ind AS 27 in separate financial statements. It is an interest in a subsidiary accounted under that standard and is excluded. It would be in scope only if accounted under Ind AS 109.
Conclusion: only receivables and borrowings are within Ind AS 107.

Answer: Trade receivables and bank borrowings are in scope. The gratuity obligation, the stock option plan and the cost-method subsidiary investment are outside scope.

Example 2

Beta Ltd has these balances: trade receivables at amortised cost, term loans at amortised cost, quoted equity shares measured at fair value through profit or loss, and forward contracts measured at fair value through profit or loss. Advise how the instruments should be grouped into classes for disclosure.

Show the solution

Rule: Classes are chosen by the nature of the information disclosed and the characteristics of the instruments. At a minimum, instruments at amortised cost are distinguished from those at fair value.
Amortised cost group: trade receivables and term loans. Since one is an asset and the other a liability, and their nature differs, show them as separate classes, such as trade receivables and borrowings.
Fair value group: quoted equity shares and forward contracts differ in nature, so show them as separate classes, such as equity investments and derivatives.
Each class must be reconciled to the related balance sheet line item so a reader can tie the note to the balance sheet.
Note that the category (amortised cost or FVTPL) and the class (receivables, borrowings, investments, derivatives) are different concepts.

Answer: Four classes: trade receivables, borrowings, quoted equity investments and derivative contracts. The first two are at amortised cost and the last two at fair value, and each class reconciles to its balance sheet line item.

Exam tips

Write the two-limb objective in every theory answer. It is easy marks.
In scope questions, name the governing standard for each excluded item. A bare 'excluded' earns less.
Always mention the exceptions to the exclusions. Case MCQs are often built on them.
For classes, show the link to balance sheet line items. Use a small list of classes, not a long one.
Do not mix up classes and categories. Use the right word each time.

Practice questions from Financial Instruments: Disclosures

Ind AS 107 Objective, Scope and Classes of Instruments: frequently asked questions

What is the objective of Ind AS 107?

It requires disclosures that help users evaluate the significance of financial instruments for the entity's financial position and performance. It also helps them evaluate the nature and extent of risks from those instruments and how the entity manages them.

Which items are outside the scope of Ind AS 107?

Main exclusions are interests in subsidiaries, associates and joint ventures accounted under their own standards, employee benefit obligations under Ind AS 19, insurance contracts under Ind AS 104 and share-based payments under Ind AS 102. Each has exceptions, so check them before excluding an item.

What is a class of financial instrument?

A class is a disclosure grouping based on the nature of the information and the characteristics of the instruments. It is usually finer than a measurement category. Classes must reconcile to balance sheet line items.

Does Ind AS 107 apply to all entities?

Yes. It applies to all entities and to all types of financial instruments, other than the excluded items. It covers both recognised and certain unrecognised instruments.