Accounting For Financial Instruments

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Questions Bank

An Overview of the International External Reporting Environment
The Conceptual Framework of Accounting and Its Relevance to Financial Reporting
Theories of Financial Accounting
An Overview of Accounting for Assets
Depreciation of Property, Plant and Equipment
Revaluations and Impairment Testing of Non-Current Assets
Inventory
Accounting for Intangibles
An Overview of Accounting for Liabilities
Accounting for Leases
Share Capital, Reserves and Share Options Employee Bonus Schemes
Accounting for Financial Instruments
Revenue Recognition Issues
The Statement of Comprehensive Income and Statement of Changes in Equity
Accounting for Income Taxes
The Statement of Cash Flows
Events Occurring After the Reporting Date
Related-Party Disclosures
Earnings Per Share
Further Consolidation Issues I: Accounting for Intragroup Transactions
Further Consolidation Issues II: Accounting for Non-Controlling Interests
Further Consolidation Issues III: Accounting for Indirect Ownership Interest
Accounting for Foreign Currency Transactions
Translating the Financial Statements of Foreign Operations
Accounting for Corporate Social Responsibility

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Question 1

Free

True/False

In a convertible note,IAS 32 Financial Instruments:
Recognition and Measurement requires the holder of such a financial instrument to present the liability component and the equity component separately on the statement of financial position.

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True

False

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Question 2

Free

True/False

For a designated cash flow hedge,IAS 39 Financial Instruments:
Recognition and Measurement requires the gain or loss on the hedging instrument to be transferred initially to equity and subsequently to profit or loss to offset the gains or losses on the hedged item.

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True

False

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Question 3

Free

True/False

In a convertible note,the embedded option to convert the liability into the equity of the issuer has a fair value of zero on initial recognition when the option is out of the money.

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True

False

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Question 4

Free

True/False

Derivative instruments generally result in a transfer of the underlying primary financial instrument on maturity of the contract.

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False

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Question 5

Free

True/False

Under IFRS 9,an entity is required to recognise a financial asset or liability on its statement of financial position when,and only when,it becomes a party to the contractual provisions of the instrument.

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Question 6

Short Answer

An equity instrument of another entity is classified as a 'financial instrument'.
TRUE

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Question 7

True/False

The central issue in classifying a financial liability is the existence of a present obligation.

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True

False

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Question 8

True/False

Companies may be motivated to enter into a foreign currency swap in order to hedge receivables held in the currency of the loan,the obligations of which they will undertake in the swap.

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True

False

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Question 9

True/False

Compound instruments contain both a financial liability and equity component but exclude convertible notes.

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True

False

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Question 10

True/False

The most commonly issued equity instrument would be a redeemable preference share.

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True

False

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Question 11

True/False

Derivatives are sometimes called 'secondary' financial instruments.

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True

False

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Question 12

True/False

A change in classification of a financial instrument may occur as a result of 'revised probabilities' of,for example,conversion.

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True

False

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Question 13

True/False

When initially recognising the liability and equity components of a compound financial instrument,gains and losses arise and must be recognised.

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False

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Question 14

True/False

When offsetting financial assets and liabilities an entity must settle on a net basis.

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False

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Question 15

Multiple Choice

A derivative financial instrument is one which:

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creates a contractual link between two entities such that the financial asset or equity item of one entity becomes the financial liability of the other entity and there is a transfer of risks and returns.

creates rights and obligations that have the effect of transferring one or more of the financial risks inherent in an underlying primary financial instrument, and the value of the contract normally reflects changes in the value of the underlying financial instrument.

creates a contractual link between a secondary financial instrument and a primary financial instrument such that there is an ultimate transfer of a financial asset between the contracting parties.

creates rights and obligations that have the effect of transferring the financial returns inherent in an underlying primary financial instrument, and the value of the contract normally reflects changes in the value of the underlying financial instrument.

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Question 16

Multiple Choice

Which of the following are examples of derivative financial instruments?

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deferred tax and future income tax benefits

mortgage loans

participating, redeemable preference shares

share options

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Question 17

Multiple Choice

Which of the following are examples of primary financial instruments?

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futures contracts

unearned revenue

accrued rent

unearned revenue and accrued rent

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Question 18

Multiple Choice

In differentiating between a financial liability and equity,the report preparer must consider:

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the existence of a contractual obligation to deliver cash or another financial asset.

the consequences of recording a financial liability and the associated impacts on profit.

the substance of the agreement over its form.

the existence of a contractual obligation to deliver cash or another financial asset and the substance of the agreement over its form.

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Question 19

Multiple Choice

Financial instruments have recently been developed and used for what purposes?

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increasing the volatility of primary financial instruments

making speculative gains

reducing risks

making speculative gains and reducing risks

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Question 20

Multiple Choice

A compound financial instrument is one that:

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transfers the risks of a primary instrument to another entity.

effectively contains a financial liability and equity instrument.

ultimately requires the exchange of a financial asset for an equity instrument.

offers interest terms such that interest is paid on interest.

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Accounting For Financial Instruments

In a convertible note,IAS 32 Financial Instruments: Recognition and Measurement requires the holder of such a financial instrument to present the liability component and the equity component separately on the statement of financial position.

For a designated cash flow hedge,IAS 39 Financial Instruments: Recognition and Measurement requires the gain or loss on the hedging instrument to be transferred initially to equity and subsequently to profit or loss to offset the gains or losses on the hedged item.

In a convertible note,the embedded option to convert the liability into the equity of the issuer has a fair value of zero on initial recognition when the option is out of the money.

Derivative instruments generally result in a transfer of the underlying primary financial instrument on maturity of the contract.

Under IFRS 9,an entity is required to recognise a financial asset or liability on its statement of financial position when,and only when,it becomes a party to the contractual provisions of the instrument.

An equity instrument of another entity is classified as a 'financial instrument'.TRUE

The central issue in classifying a financial liability is the existence of a present obligation.

Companies may be motivated to enter into a foreign currency swap in order to hedge receivables held in the currency of the loan,the obligations of which they will undertake in the swap.

Compound instruments contain both a financial liability and equity component but exclude convertible notes.

The most commonly issued equity instrument would be a redeemable preference share.

Derivatives are sometimes called 'secondary' financial instruments.

A change in classification of a financial instrument may occur as a result of 'revised probabilities' of,for example,conversion.

When initially recognising the liability and equity components of a compound financial instrument,gains and losses arise and must be recognised.

When offsetting financial assets and liabilities an entity must settle on a net basis.

A derivative financial instrument is one which:

Which of the following are examples of derivative financial instruments?

Which of the following are examples of primary financial instruments?

In differentiating between a financial liability and equity,the report preparer must consider:

Financial instruments have recently been developed and used for what purposes?

A compound financial instrument is one that:

In a convertible note,IAS 32 Financial Instruments:
Recognition and Measurement requires the holder of such a financial instrument to present the liability component and the equity component separately on the statement of financial position.

For a designated cash flow hedge,IAS 39 Financial Instruments:
Recognition and Measurement requires the gain or loss on the hedging instrument to be transferred initially to equity and subsequently to profit or loss to offset the gains or losses on the hedged item.

An equity instrument of another entity is classified as a 'financial instrument'.
TRUE