The following journal entry pertains to convertible notes with a face value of €10 million: \(\begin{array}{|l|l|r|r|} \hline \mathrm{Dr} & \text { Convertible notes liability } & 9814806 & \\ \hline \mathrm{Dr} & \text { Convertible notes (equity component) } & 662432 & \\ \hline \mathrm{Cr} & \text { Share capital } & & 10477238\\\hline \end{array}\) Which of the following statements are correct?

A) The instrument was over-valued when it was initially recognised. B) The convertible note has been converted. C) The value of the option to convert has increased over the period from initial recognition to conversion, by €477 238. D) The instrument was over-valued when it was initially recognised and the value of the option to convert has increased over the period from initial recognition to conversion, by €477 238. A) The instrument was over-valued when it was initially recognised. B) The convertible note has been converted. C) The value of the option to convert has increased over the period from initial recognition to conversion, by €477 238. D) The instrument was over-valued when it was initially recognised and the value of the option to convert has increased over the period from initial recognition to conversion, by €477 238. B

A) not financial instruments because they typically provide a right to future goods or services. B) financial instruments because they typically provide a right to future goods or services. C) not financial instruments because they typically provide a right to cash or another financial instrument. D) financial instruments because they typically provide a right to future goods or services A) not financial instruments because they typically provide a right to future goods or services. B) financial instruments because they typically provide a right to future goods or services. C) not financial instruments because they typically provide a right to cash or another financial instrument. D) financial instruments because they typically provide a right to future goods or services

Exam 12: Accounting for Financial Instruments

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.

Free

(True/False)

4.8/5

(77)

Question 1

Correct Answer:

Verified

True

Describe the key issue for determining the existence of a financial asset or financial liability.How does 'exchanging financial assets or financial liabilities with another entity under conditions that are potentially favourable or potentially unfavourable' help determine the classification of an instrument as an asset or liability?

Free

(Essay)

4.7/5

(80)

Question 2

Correct Answer:

Verified

According to IAS 32 Financial Instruments: Presentation a financial instrument is: any contract that gives rise to both a financial asset of one entity and a financial liability or equity instrument of another entity.If these components do not exist the item is not deemed to be a financial instrument.
Financial assets are defined from the perspective of the holder of the financial instrument,whereas financial liabilities and equity instruments are defined from the perspective of the issuing organisation.
Refer to paragraph 11 of IAS 32,'financial asset' means any asset that is (c)a contractual right (ii)to exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable to the entity
'Financial liability',on the other hand (and remember,a financial liability and equity instrument are defined from the perspective of the issuing entity),means any liability that is (a)a contractual obligation (ii)to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the entity.
For more information refer to 'Financial instruments defined'.

The following journal entry pertains to convertible notes with a face value of €10 million: Convertible notes liability 9814806 Convertible notes (equity component) 662432 Share capital 10477238 Which of the following statements are correct?

Free

(Multiple Choice)

4.9/5

Showing 1 - 20 of 70

Exam 12: Accounting for Financial Instruments

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.

The following journal entry pertains to convertible notes with a face value of €10 million: Convertible notes liability 9814806 Convertible notes (equity component) 662432 Share capital 10477238 Which of the following statements are correct?

The exercise price of an option:

Prepayments are:

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

The characteristics of a call option are best described as follows:

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

The market price of an option is a function of:

Distinguish futures contracts entered for hedge purposes from futures contracts entered for speculative purposes.

A potential downturn in the share market can be overcome by:

Explain how financial instruments would be classified as financial liabilities or equity instruments.

An attribute of an equity instrument is that:

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.

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

Financial assets do not include:

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

What is a foreign currency swap and discuss why organisations enter into swap arrangements with other parties?

Which of the following items is not a financial instrument?

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

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

Filters