Question 1

Financial instruments are separated into two categories. They are:

Accepted Answer

A)  financial and non-financial 
B)  derivative and non-derivative 
C)  primary and secondary 
D)  primary and derivative 
A)  financial and non-financial 
B)  derivative and non-derivative 
C)  primary and secondary 
D)  primary and derivative D

Question 2

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

Accepted Answer

A)  a financial liability. 
B)  an equity instrument. 
C)  a compound financial instrument. 
A)  a financial liability. 
B)  an equity instrument. 
C)  a compound financial instrument. A

Question 3

According to AASB 132 Financial Instruments: Presentation, which of the following items would be regarded as a financial liability?

Accepted Answer

A)  Ordinary shares held in another entity. 
B)  A contractual right to exchange under potentially favourable conditions, an option to purchase shares below the market price. 
C)  The right of a depositor to obtain cash from a financial institution with which it has deposited cash. 
D)  A contract that is a non-derivative for which the entity is obliged to deliver a variable number of its own equity instruments. 
A)  Ordinary shares held in another entity. 
B)  A contractual right to exchange under potentially favourable conditions, an option to purchase shares below the market price. 
C)  The right of a depositor to obtain cash from a financial institution with which it has deposited cash. 
D)  A contract that is a non-derivative for which the entity is obliged to deliver a variable number of its own equity instruments. D

Question 4

The classification of a financial instrument on the statement of financial position of an entity is governed by the principle of:

Accepted Answer

A)  legal form. 
B)  forfeiture. 
C)  net present value. 
D)  substance over form. 
A)  legal form. 
B)  forfeiture. 
C)  net present value. 
D)  substance over form.

Question 5

Which of the following is an example of an adverse effect of financial liabilities?

Accepted Answer

A)  Periodic payments on the financial instruments, such as dividends, may be recognised as a borrowing cost and therefore reduce the entity's profits. 
B)  A financial institution breaching regulations imposed on it to maintain a minimum level of capital. 
C)  An entity breaching their obligations under a debt covenant relating to its solvency. 
D)  All of the above options. 
A)  Periodic payments on the financial instruments, such as dividends, may be recognised as a borrowing cost and therefore reduce the entity's profits. 
B)  A financial institution breaching regulations imposed on it to maintain a minimum level of capital. 
C)  An entity breaching their obligations under a debt covenant relating to its solvency. 
D)  All of the above options.

Question 6

AASB 9 requires financial assets to be initially measured at:

Accepted Answer

A)  fair value 
B)  fair value plus directly attributable costs 
C)  historical cost 
D)  historical cost plus directly attributable costs 
A)  fair value 
B)  fair value plus directly attributable costs 
C)  historical cost 
D)  historical cost plus directly attributable costs

Question 7

AASB 9 provides examples of financial liabilities which are not required to be subsequently measured at amortised costs. These examples include:

Accepted Answer

A)  financial guarantees contracts. 
B)  commitments to provide loans below market interest rates. 
C)  holdings of derivatives. 
D)  all of the above 
A)  financial guarantees contracts. 
B)  commitments to provide loans below market interest rates. 
C)  holdings of derivatives. 
D)  all of the above

Question 8

AASB 9 requires subsequent measurement of a financial asset at amortised cost when two tests have been satisfied. Those two tests are:

Accepted Answer

A)  fair value test; impairment test 
B)  fair value test; business model test 
C)  fair value test; cash flows characteristics test 
D)  business model test; cash flows characteristics test 
A)  fair value test; impairment test 
B)  fair value test; business model test 
C)  fair value test; cash flows characteristics test 
D)  business model test; cash flows characteristics test

Question 9

Which of the following would not be regarded as a financial instrument?

Accepted Answer

A)  cash. 
B)  bank overdraft. 
C)  notes payable. 
D)  equipment. 
A)  cash. 
B)  bank overdraft. 
C)  notes payable. 
D)  equipment.

Question 10

Which of the following statements is incorrect?

Accepted Answer

A)  Trade debtors and trade creditors are treated as unconditional financial assets and financial liabilities. 
B)  Forward contracts covered by AASB 9 are recognised as financial assets or financial liabilities at the commitment date. 
C)  Option contracts covered by AASB 9 are recognised as financial assets or financial liabilities when the holder or writer becomes a party to the contract. 
D)  Planned future transactions are to be recognised as asset or liabilities at the date the plan is finalised. 
A)  Trade debtors and trade creditors are treated as unconditional financial assets and financial liabilities. 
B)  Forward contracts covered by AASB 9 are recognised as financial assets or financial liabilities at the commitment date. 
C)  Option contracts covered by AASB 9 are recognised as financial assets or financial liabilities when the holder or writer becomes a party to the contract. 
D)  Planned future transactions are to be recognised as asset or liabilities at the date the plan is finalised.

Question 11

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:

Accepted Answer

A)  market risk. 
B)  credit risk. 
C)  liquidity risk. 
D)  interest rate risk. 
A)  market risk. 
B)  credit risk. 
C)  liquidity risk. 
D)  interest rate risk.

Question 12

The AASB 132 Financial Instruments: Presentation definition of a financial asset does not include any asset that is:

Accepted Answer

A)  an equity instrument of another entity. 
B)  a contractual right to exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable to the entity. 
C)  a contract that will be settled in the entity's own equity instruments. 
D)  a contractual obligation to deliver cash or another financial asset to another entity. 
A)  an equity instrument of another entity. 
B)  a contractual right to exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable to the entity. 
C)  a contract that will be settled in the entity's own equity instruments. 
D)  a contractual obligation to deliver cash or another financial asset to another entity.

Question 13

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. The downgrade of an entity's credit rating.
IV. Significant financial difficulty of the issuer.

Accepted Answer

A)  I, II and IV only. 
B)  II, III and IV only. 
C)  I, III and IV only. 
D)  II and IV only. 
A)  I, II and IV only. 
B)  II, III and IV only. 
C)  I, III and IV only. 
D)  II and IV only.

Question 14

A contract that requires delivery of a financial asset within a time frame generally established by regulation or convention in the marketplace is what type of purchase?

Accepted Answer

A)  normal purchase. 
B)  regular way purchase. 
C)  abnormal purchase. 
D)  irregular way purchase. 
A)  normal purchase. 
B)  regular way purchase. 
C)  abnormal purchase. 
D)  irregular way purchase.

Question 15

Company A issued convertible notes 3 years ago and accounted for them as a compound financial instrument. Complete the following sentence. At the end of the three year period the portion of the component that relates to the notes which have been converted .

Accepted Answer

A)  liability, remains as a liability. 
B)  liability, is transferred to equity. 
C)  equity, is transferred to profit and loss. 
D)  liability, is transferred to profit or loss. 
A)  liability, remains as a liability. 
B)  liability, is transferred to equity. 
C)  equity, is transferred to profit and loss. 
D)  liability, is transferred to profit or loss.

Question 16

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

Accepted Answer

A)  deduct from equity, net of tax. 
B)  add to equity, net of tax. 
C)  expense in the period incurred. 
D)  defer as a contingent asset. 
A)  deduct from equity, net of tax. 
B)  add to equity, net of tax. 
C)  expense in the period incurred. 
D)  defer as a contingent asset.

Question 17

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, foreign exchange rate, credit rating or commodity price.
II. 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.
III. It is to be settled at a future date.
IV. It must be settled on a net basis.

Accepted Answer

A)  I, III and IV. 
B)  I, II and III 
C)  I, II and IV. 
D)  II, III and IV. 
A)  I, III and IV. 
B)  I, II and III 
C)  I, II and IV. 
D)  II, III and IV.

Question 18

The default subsequent measurement base for financial liabilities is:

Accepted Answer

A)  fair value using the effective interest rate. 
B)  amortised cost using the effective interest rate. 
C)  fair value through profit or loss. 
D)  amortised cost through profit or loss. 
A)  fair value using the effective interest rate. 
B)  amortised cost using the effective interest rate. 
C)  fair value through profit or loss. 
D)  amortised cost through profit or loss.

Question 19

Which of the following are examples where the conditions for offsetting a financial asset and a financial liability are generally not satisfied?
I. Financial assets pledged as collateral for non-recourse financial liabilities.
II. The combination of a number of different financial instruments to emulate the features of a single financial instrument.
III. Financial liabilities for obligations expected to be recovered from a third party such as an insurance company.

Accepted Answer

A)  I and III only 
B)  II and III only 
C)  I and II only. 
D)  I, II and III. 
A)  I and III only 
B)  II and III only 
C)  I and II only. 
D)  I, II and III.

Question 20

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

Accepted Answer

A)  A forward exchange contract. 
B)  A futures contract. 
C)  An option contract. 
D)  A commercial bill contract. 
A)  A forward exchange contract. 
B)  A futures contract. 
C)  An option contract. 
D)  A commercial bill contract.

Exam 11: Financial Instruments

Financial instruments are separated into two categories. They are:

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

According to AASB 132 Financial Instruments: Presentation, which of the following items would be regarded as a financial liability?

The classification of a financial instrument on the statement of financial position of an entity is governed by the principle of:

Which of the following is an example of an adverse effect of financial liabilities?

AASB 9 requires financial assets to be initially measured at:

AASB 9 provides examples of financial liabilities which are not required to be subsequently measured at amortised costs. These examples include:

AASB 9 requires subsequent measurement of a financial asset at amortised cost when two tests have been satisfied. Those two tests are:

Which of the following would not be regarded as a financial instrument?

Which of the following statements is incorrect?

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:

The AASB 132 Financial Instruments: Presentation definition of a financial asset does not include any asset that is:

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. The downgrade of an entity's credit rating. IV. Significant financial difficulty of the issuer.

A contract that requires delivery of a financial asset within a time frame generally established by regulation or convention in the marketplace is what type of purchase?

Company A issued convertible notes 3 years ago and accounted for them as a compound financial instrument. Complete the following sentence. At the end of the three year period the portion of the component that relates to the notes which have been converted .

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

The default subsequent measurement base for financial liabilities is:

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

Accounting Regulation and the Conceptual Framework

Application of Accounting Theory

Fair Value Measurement

Inventories

Property, Plant and Equipment

Intangible Assets

Impairment of Assets

Provisions, Contingent Liabilities and Contingent Assets

Employee Benefits

Leases

Income Taxes

Share Capital and Reserves

Share Based Payment

Revenue

Presentation of Financial Statements

Statement of Cash Flows

Accounting Policies and Other Disclosures

Earnings Per Share

Operating Segments

Related Party Disclosures

Sustainability and Corporate Social Responsibility Recording

Foreign Currency Transactions and Forward Exchange Contracts

Translation of Foreign Currency Financial Statements

Business Combinations

Consolidation: Controlled Entities

Consolidation: Wholly Owned Entities

Consolidation: Intragroup Transactions

Consolidation: Non-Controlling Interest

Consolidation: Other Issues

Associates and Joint Ventures

Joint Arrangements

Insolvency and Liquidation

Accounting for Mineral Resources

Agriculture

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