FINANCIAL INSTRUMENTS : DISCLOSURE AND deliver cash or another financial asset to another entity

PRESENTATION and (b) if the instrument will or may be settled in the

issuer's own equity instruments.
1. According to IAS 39 Financial Instruments: Recognition
and Measurement, gains and losses on available-for-sale 8. Which statement is correct regarding the classification of
financial assets are recognised: financial instruments as liability or equity?
a. If an enterprise issues preferred shares that pay a fixed
a. directly in equity until the financial asset is derecognised rate of dividend and that have a mandatory redemption
b. in profit or loss of the period feature at a future date should be recognized as equity.
c. as part of interest revenue or interest expense of the period b. A financial instrument that gives the holder the right to
d. as deferred liabilities or assets until derecognised. return it to the issuer for cash or another financial asset
is a financial liability.
2. All of the following would be regarded as financial c. A contractual right or obligation to receive or deliver a
instruments except: number of its own shares or other equity instruments
that varies so that the fair value of the entity's own
a. bank overdraft; c. equipment. equity instruments to be received or delivered equals
b. cash; d. notes payable; the fixed monetary amount of the contractual right or
obligation is equity.
3. All of the following are regarded as financial instruments: d. When a derivative financial instrument gives one party
a choice over how it is settled, it is usually treated as
I. Deposits held by a financial institution; equity.
II. Ordinary shares;
III. Raw materials inventories; 9. Which statement is incorrect regarding compound financial
IV. Property, plant and equipment. instruments
V. Accounts receivable and accounts payable. a. Compound instruments have both a liability and an
equity component from the issuer's perspective.
a. I, IV and V only. c. II, III and IV only; b. The component parts should be accounted for and
b. I, II and V only d. I, II, IV and V only; presented separately according to their substance based
on the definitions of liability and equity.
4. The following events provide objective evidence that a c. The split is made at issuance and not revised for
financial asset has been impaired: subsequent changes in market interest rates, share
prices, or other event that changes the likelihood that
I. A default in interest payments. the conversion option will be exercised.
II. The borrower enters into bankruptcy. d. When the initial carrying amount of a compound
III. Significant financial difficulty of the issuer. financial instrument is required to be allocated to its
IV. The downgrade of an entitys credit rating. equity and liability components, the liability component
is assigned the residual amount after deducting from the
a. I, II and III only; c. II, III and IV only; fair value of the instrument as a whole the amount
b. I, III and IV only; d. II and IV only. separately determined for the equity component.

PAS 39 - FINANCIAL INSTRUMENTS : RECOGNITION

5. IAS 39 Financial Instruments: Recognition and AND MEASUREMENT
Measurement, requires that Held-to-maturity investment
be initially measured at: 10. Which statement is incorrect regarding derivatives?
a. Its value changes in response to the change in an
a. fair value; c. discounted future cash outflows; underlying variable such as an interest rate, commodity
b. discounted future net cash d. fair value plus transaction costs; or security price, or index.
flows. b. It requires no initial investment, or one that is smaller
than would be required for a contract with similar
response to changes in market factors.
6. A financial liability is any liability that is c. It is not settled.
I. A contractual obligation to deliver cash or another d. None of the above.
financial asset to another entity.
II. A contractual obligation to exchange financial assets or 11. Contracts to purchase or sell a specific quantity of a
financial liabilities with another entity under conditions financial instrument, a commodity, or a foreign currency at a
that are potentially favorable to the entity. specified price determined at the outset, with delivery or
III. A contract that will or may be settled in the entity's own settlement at a specified future date.
equity instruments. a. Forwards c. Interest rate
a. I, II and III b. I and II only c. swap
I and III only d. I only b. Options d. Caps and floors

7. Which statement is incorrect regarding the classification of
financial instruments as liability or equity?
a. The fundamental principle of PAS 32 is that a financial
instrument should be classified as either a financial
liability or an equity instrument according to the
substance of the contract.
b. The enterprise must make the decision every balance
sheet date.
c. The classification is not subsequently changed based on
changed circumstances.
d. A financial instrument is an equity instrument only if
(a) the instrument includes no contractual obligation to
12. Embedded derivative should be separated from its host
contract and accounted for as a derivative when:
a. The economic risks and characteristics of the embedded
derivative are not closely related to those of the host
contract.
b. A separate instrument with the same terms as the
embedded derivative would meet the definition of a
derivative.
c. The entire instrument is not measured at fair value with
changes in fair value recognized in the income
statement.
d. All of the above.
13. Which statement is incorrect regarding classification of b. Financial assets and liabilities that are designated as a
financial assets? hedged item or hedging instrument.
a. Financial assets at fair value through profit or loss has c. Investments in equity instruments with no reliable fair
two subcategories designated and held for trading. value measurement.
b. Available-for-sale financial assets (AFS) are any non- d. Financial assets acquired or held for the purpose of
derivative financial assets designated on initial selling in the short term.
recognition as available for sale.
c. Loans and receivables are non-derivative financial 15. Which statement is incorrect regarding measurement of
assets with fixed or determinable payments, originated financial assets?
or acquired, that are not quoted in an active market, not a. Derivatives are measured at fair value.
held for trading, and not designated on initial b. AFS financial assets are measured at fair value.
recognition as assets at fair value through profit or loss c. Loans and receivables are measured at cost.
or as available-for-sale. d. Held-to-maturity investments are measured at
d. Held-to-maturity investments are derivative financial amortized cost.
assets with fixed or determinable payments that an
entity intends and is able to hold to maturity and that do 16. Categories of hedges include
not meet the definition of loans and receivables and are a. Fair value hedge
not designated on initial recognition as assets at fair c. Cash flow hedge
value through profit or loss or as available for sale. b. Hedge of a net investment in a foreign operation d.
All of these
14. Which of the following should be valued at fair value
subsequent to initial recognition?
a. Held-to-maturity investments.