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Exam 6: Financial Instruments

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Question 1

Multiple Choice

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When an entity has a legally enforceable right to set off the recognised amounts of a financial asset and financial liability and it intends to settle on a net basis, it:

A) can write off both the asset and the liability;
B) may offset the financial asset and liability;
C) is not entitled to offset the asset and liability;
D) need not present the asset, the liability or the net amount in its financial statements.

E) All of the above
F) A) and C)

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Question 2

Multiple Choice

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The degree to which changes in the fair value or cash flows of a hedge item that are attributable to a hedge risk are offset by the changes in the fair value or cash flows of a hedging instrument, describes:

A) transaction exposure;
B) hedge ineffectiveness;
C) hedge effectiveness;
D) transaction variability.

E) A) and B)
F) A) and C)

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Question 3

Multiple Choice

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Whitnall Limited lost $150 on a hedging instrument and had a corresponding gain on the hedged item of $100. The effectiveness range for the associated transactions is:

Company A issued convertible notes 3 years ago and accounted for them as a compound financial instrument. Complete the following: At the end of the three year period the portion of the (1) _______component that relates to the notes which have been converted (2)______- . $\quad$ ( 1 ) $\quad$$\quad$ $\quad$ ( 2 ) a. $\quad$ equity $\quad$ is transferred to profit & loss b. $\quad$ liability $\quad$ remains as a liability c. $\quad$ liability $\quad$ is transferred to equity d. $\quad$ liability $\quad$ is transferred to profit \& loss

The risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss is referred to as:

Which of the following are regarded as financial instruments: I Deposits held by a financial institution; II Ordinary shares; III Raw materials inventories; IV Property, plant and equipment. V Accounts receivable and accounts payable.

Which of the following items are regarded as a financial liability?

Which of the following events provide objective evidence that a financial asset has been impaired: I A default in interest payments. II The borrower enters into bankruptcy. III Significant financial difficulty of the issuer. IV The downgrade of an entity's credit rating.

Callas Corporation Limited buys an option that entitles it to purchase 2000 shares in Maria Limited at $5 per share at any time in the next 3 months. The derivative financial instrument in this transaction is the:

The classification of a financial instrument on the Statement of Financial Position of an entity is governed by the principle of:

When accounting for a cash flow hedge, IFRS 9 requires that hedge ineffectiveness is:

Which of the following items is classified as a financial asset?

Which of the following is NOT an example of a derivative financial instrument?

The appropriate accounting treatment for incremental costs directly attributable to an equity transaction that would otherwise have been avoided is to:

Company A issues preference shares to Company B, the terms of which entitle party B to redeem the preference shares for cash if Company A's revenues fall below a specified level. From Company A's perspective the preference shares are:

The definition of a derivative requires which of the following characteristics to be met? I its value must change in response to a change in an underlying variable such as a specified interest rate, price or foreign exchange rate. II it must be settled on a net basis III it must require no initial net investment or an additional net investment that is smaller than would be required for other types of contracts with similar responses to changes in market factors. IV it is to be settled at a future date

IFRS 9 requires that on initial recognition financial liabilities must be measured at:

Which of the following is within the scope of IFRS 9?

When first issued, IAS 39 was:

To be regarded as 'highly effective' in achieving offsetting changes in fair value or cash flows, actual hedge results must be in the range: