Which of the following is an example of a financial liability?

A financial liability is defined as a present obligation that arises from past transactions, resulting in the transfer of economic benefits, typically in the form of cash or other financial assets, to the other party. Debenture loans serve as a perfect illustration of this definition. They are essentially long-term loans taken out by a company in exchange for cash, where the company agrees to pay interest over time and repay the principal amount at maturity. This obligation clearly fits the criteria of a financial liability, as it represents a future cash outflow that the company is bound to fulfill.

In contrast, shareholding in another company represents an equity investment, which is considered an asset rather than a liability. It does not create any obligation for the investing company to transfer cash or assets. Similarly, trade receivables are assets that represent amounts owed to a business by its customers for goods or services delivered, not obligations that require payment. Cash equivalents, on the other hand, are highly liquid investments that are also classified as assets, as they can be readily converted into cash without a significant risk of changes in value. Thus, the correct identification of debenture loans as a financial liability rests on their characteristic of obligating the company to future cash outflows.