Question 1

The structure of futures contracts as they are traded in Australia is best described in which of the following?

Accepted Answer

A)  All parties that trade in futures make a (relatively small) specific deposit before they enter into the contract. The contract is marked to market on a daily basis and gains on the contract are added to the deposit and losses are deducted. When the deposit reaches a minimum level a margin call will be made to require the trader to reinstate the original deposit. 
B)  The purchaser of the futures contract is given a set price at which they can exercise the futures contract at or up to a specified date. If during that time or up to that date the buyer of the futures contract decides to exercise it, the buyer pays the exercise price and the seller of the contract agrees to deliver the item within a specified period of the exercise date. In the case of financial futures, they are often closed out before delivery is required. 
C)  All buyers of futures contracts make a specific deposit that is held in trust by the other party to the contract. As the buyer makes gains, these are deducted from the amount of deposit held by the seller. As the seller makes gains on the contract, the buyer is required to increase the deposit to maintain the same percentage value of deposit. At the delivery date on the contract the deposit has already accumulated the gains and losses and all that is required is for the seller to deliver on the contract. In the case of financial futures, they are often closed out before delivery is required. 
D)  A futures contract contains an agreement to buy and sell a specified item or financial asset or index at a future date and at an agreed price. The parties to the contract are not required to make any financial commitment at the beginning of the contract, hence futures contracts are considered highly levered and risky for speculation purposes. The buyer pays the agreed sum on delivery by the seller or the contract is closed out before the delivery date. 
A)  All parties that trade in futures make a (relatively small) specific deposit before they enter into the contract. The contract is marked to market on a daily basis and gains on the contract are added to the deposit and losses are deducted. When the deposit reaches a minimum level a margin call will be made to require the trader to reinstate the original deposit. 
B)  The purchaser of the futures contract is given a set price at which they can exercise the futures contract at or up to a specified date. If during that time or up to that date the buyer of the futures contract decides to exercise it, the buyer pays the exercise price and the seller of the contract agrees to deliver the item within a specified period of the exercise date. In the case of financial futures, they are often closed out before delivery is required. 
C)  All buyers of futures contracts make a specific deposit that is held in trust by the other party to the contract. As the buyer makes gains, these are deducted from the amount of deposit held by the seller. As the seller makes gains on the contract, the buyer is required to increase the deposit to maintain the same percentage value of deposit. At the delivery date on the contract the deposit has already accumulated the gains and losses and all that is required is for the seller to deliver on the contract. In the case of financial futures, they are often closed out before delivery is required. 
D)  A futures contract contains an agreement to buy and sell a specified item or financial asset or index at a future date and at an agreed price. The parties to the contract are not required to make any financial commitment at the beginning of the contract, hence futures contracts are considered highly levered and risky for speculation purposes. The buyer pays the agreed sum on delivery by the seller or the contract is closed out before the delivery date.

Question 2

Prepayments are:

Accepted Answer

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

Question 3

Identify which of the following financial instruments are required under AASB 139 Financial Instruments: Recognition and Measurement to be measured at fair value through profit and loss:
$\begin{array}{|l|l|}
\hline \text { I } & \text { Loans receivable } \
\hline \text { II } & \text { Shares held for trading } \
\hline \text { III } & \text { Loans payable } \
\hline \mathrm{IV} & \text { Favourable derivative instruments } \
\hline V & \text { Unfavourable derivative instruments } \
\hline
\end{array}$

Accepted Answer

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

Question 4

The market price of an option is a function of:

Accepted Answer

A)  market expectations regarding the medium term dividend stream expected on the shares underlying the option. Where the exercise price is expected to be greater than the sum of 2 to 3 years' dividends the option will sell at a discount. Where the exercise price is less than 1 year's expected dividend it will sell at a premium. 
B)  the difference between the market price of the share and the exercise price on the option. The market price of the option will, however, be greater than this difference where the option does not expire for some time. All other things being equal, the greater the time until the option is to be exercised the greater the difference will be between the price of the option and the difference between the exercise price and the share price. 
C)  the liquidity of the shares underlying the options. Investors in the market are more interested in options over shares that are subsequently easily traded. A measure of the liquidity of a share is the average volume of shares turned over during a period. The higher this measure, the higher the market price of the option. 
D)  the market price as being closely linked to the exercise price and where it does not vary significantly from that. The only situation in which this ceases to be true is when significant impacts on the whole market shift the prices of many shares down at once (for example, in the case of a major impact to a whole economy such as was experienced in the September 2001 attack on the World Trade Center in New York). 
A)  market expectations regarding the medium term dividend stream expected on the shares underlying the option. Where the exercise price is expected to be greater than the sum of 2 to 3 years' dividends the option will sell at a discount. Where the exercise price is less than 1 year's expected dividend it will sell at a premium. 
B)  the difference between the market price of the share and the exercise price on the option. The market price of the option will, however, be greater than this difference where the option does not expire for some time. All other things being equal, the greater the time until the option is to be exercised the greater the difference will be between the price of the option and the difference between the exercise price and the share price. 
C)  the liquidity of the shares underlying the options. Investors in the market are more interested in options over shares that are subsequently easily traded. A measure of the liquidity of a share is the average volume of shares turned over during a period. The higher this measure, the higher the market price of the option. 
D)  the market price as being closely linked to the exercise price and where it does not vary significantly from that. The only situation in which this ceases to be true is when significant impacts on the whole market shift the prices of many shares down at once (for example, in the case of a major impact to a whole economy such as was experienced in the September 2001 attack on the World Trade Center in New York).

Question 5

Pigeon Ltd holds a well-diversified portfolio of shares with a current market value on 1 May 2014 of $900 000.On this date Pigeon Ltd decides to hedge the portfolio by taking a sell position in ten SPI futures units.The All Ordinaries SPI is 2980 on 1 May 2014.A unit contract in SPI futures is priced based on All Ordinaries SPI and a price of $25.The futures broker requires a deposit of $1500.On 30 June the All Ordinaries SPI has fallen to 2570 and the value of the company's share portfolio has fallen to $790 000.What is the gain or loss on the futures contract and the net gain or loss after hedging?

Accepted Answer

A)  loss on futures contract $102 500; net gain after hedging $6000 
B)  gain on futures contract $10 250; net loss after hedging $99 750 
C)  gain on futures contract $102 500; net loss after hedging $7500 
D)  gain on futures contract $164; net loss after hedging $109 836 
A)  loss on futures contract $102 500; net gain after hedging $6000 
B)  gain on futures contract $10 250; net loss after hedging $99 750 
C)  gain on futures contract $102 500; net loss after hedging $7500 
D)  gain on futures contract $164; net loss after hedging $109 836

Question 6

Partridge Ltd holds a well-diversified portfolio of shares with a current market value on 1 April 2014 of $1 million.On this date Partridge Ltd decides to hedge the portfolio by taking a sell position in 15 SPI futures units.The All Ordinaries SPI is 3130 on 1 April 2014.A unit contract in SPI futures is priced based on All Ordinaries SPI and a price of $25.The futures broker requires a deposit of $80 000.On 30 June the All Ordinaries SPI has fallen to 2980 and the value of the company's share portfolio has fallen to $950 000.On 1 July 2014 Partridge Ltd decides to sell its shares and close out its futures contract.At this date the portfolio has a market value of $925 000 and the All Ordinaries SPI is 2900.Assume all entries have been made mark to market on the futures contract and record changes in the deposit up to 1 July.What are the entries to record the transactions of 1 July 2014 (only)?

Accepted Answer

A) 
$$\begin{array} { | c | l | r | r | } 
\hline \text { Dr } & \text { Cash } & 925000 & \
\hline \mathrm { Cr } & \text { Share portfolio } & & 925000 \
\hline & & & \
\hline \text { Dr } & \text { Deposit held by broker } & 30000 & \
\hline \mathrm { Cr } & \text { Gain on futures contract } & & 30000 \
\hline & & & \
\hline \text { Dr } & \text { Cash at bank } & 166250 & \
\hline \mathrm { Cr } & \text { Deposit held by broker } & & 166250 \
\hline & & & \
\hline \text { Dr } & \text { Futures payable } & 1340000 & \
\hline \mathrm { Cr } & \text { Gain on futures contract } & & 166250 \
\hline \mathrm { Cr } & \text { Futures receivable } & & 1173750 \
\hline
\end{array}$$ 
B) 
$$\begin{array} { | c | l | r | r | } 
\hline \text { Dr } & \text { Cash } & 925000 & \
\hline \text { Dr } & \text { Loss on share portfolio } & 75000 & \
\hline \mathrm { Cr } & \text { Share portfolio } & & 1000000 \
\hline & & & \
\hline \mathrm { Dr } & \text { Deposit on futures contract } & 30000 & \
\hline \mathrm { Cr } & \text { Gain on futures contract } & & 30000 \
\hline & & & \
\hline \mathrm { Dr } & \text { Cash at bank } & 166250 & \
\hline \mathrm { Cr } & \text { Deposit on futures contract } & & 166250 \
\hline
\end{array}$$ 
C) 
$$\begin{array} { | c | l | r | r | } 
\hline \text { Dr } & \text { Cash } & 925000 & \
\hline \text { Dr } & \text { Loss on share portfolio } & 25000 & \
\hline \mathrm { Cr } & \text { Share portfolio } & & 950000 \
\hline & & & \
\hline \text { Dr } & \text { Deposit held by broker } & 30000 & \
\hline \mathrm { Cr } & \text { Gains on futures contract } & & 30000 \
\hline & & & \
\hline \mathrm { Dr } & \text { Cash at bank } & 166250 & \
\hline \mathrm { Cr } & \text { Deposit held by broker } & & 166250 \
\hline
\end{array}$$ 
D) 
$$\begin{array} { | l | l | r | r | } 
\hline \mathrm { Dr } & \text { Cash } & 925000 & \
\hline \mathrm { Dr } & \text { Loss on share portfolio } & 75000 & \
\hline \mathrm { Cr } & \text { Share portfolio } & & 1000000 \
\hline & & & \
\hline \mathrm { Dr } & \text { Deposit held by broker } & 30000 & \
\hline \mathrm { Cr } & \text { Cash at bank } & & 30000 \
\hline & & & \
\hline \mathrm { Dr } & \text { Futures payable } & 1340000 & \
\hline \mathrm { Cr } & \text { Deposit on futures contract } & & 166250 \
\hline \mathrm { Cr } & \text { Futures receivable } & & 1173750 \
\hline
\end{array}$$ 
A) 
$$\begin{array} { | c | l | r | r | } 
\hline \text { Dr } & \text { Cash } & 925000 & \
\hline \mathrm { Cr } & \text { Share portfolio } & & 925000 \
\hline & & & \
\hline \text { Dr } & \text { Deposit held by broker } & 30000 & \
\hline \mathrm { Cr } & \text { Gain on futures contract } & & 30000 \
\hline & & & \
\hline \text { Dr } & \text { Cash at bank } & 166250 & \
\hline \mathrm { Cr } & \text { Deposit held by broker } & & 166250 \
\hline & & & \
\hline \text { Dr } & \text { Futures payable } & 1340000 & \
\hline \mathrm { Cr } & \text { Gain on futures contract } & & 166250 \
\hline \mathrm { Cr } & \text { Futures receivable } & & 1173750 \
\hline
\end{array}$$ 
B) 
$$\begin{array} { | c | l | r | r | } 
\hline \text { Dr } & \text { Cash } & 925000 & \
\hline \text { Dr } & \text { Loss on share portfolio } & 75000 & \
\hline \mathrm { Cr } & \text { Share portfolio } & & 1000000 \
\hline & & & \
\hline \mathrm { Dr } & \text { Deposit on futures contract } & 30000 & \
\hline \mathrm { Cr } & \text { Gain on futures contract } & & 30000 \
\hline & & & \
\hline \mathrm { Dr } & \text { Cash at bank } & 166250 & \
\hline \mathrm { Cr } & \text { Deposit on futures contract } & & 166250 \
\hline
\end{array}$$ 
C) 
$$\begin{array} { | c | l | r | r | } 
\hline \text { Dr } & \text { Cash } & 925000 & \
\hline \text { Dr } & \text { Loss on share portfolio } & 25000 & \
\hline \mathrm { Cr } & \text { Share portfolio } & & 950000 \
\hline & & & \
\hline \text { Dr } & \text { Deposit held by broker } & 30000 & \
\hline \mathrm { Cr } & \text { Gains on futures contract } & & 30000 \
\hline & & & \
\hline \mathrm { Dr } & \text { Cash at bank } & 166250 & \
\hline \mathrm { Cr } & \text { Deposit held by broker } & & 166250 \
\hline
\end{array}$$ 
D) 
$$\begin{array} { | l | l | r | r | } 
\hline \mathrm { Dr } & \text { Cash } & 925000 & \
\hline \mathrm { Dr } & \text { Loss on share portfolio } & 75000 & \
\hline \mathrm { Cr } & \text { Share portfolio } & & 1000000 \
\hline & & & \
\hline \mathrm { Dr } & \text { Deposit held by broker } & 30000 & \
\hline \mathrm { Cr } & \text { Cash at bank } & & 30000 \
\hline & & & \
\hline \mathrm { Dr } & \text { Futures payable } & 1340000 & \
\hline \mathrm { Cr } & \text { Deposit on futures contract } & & 166250 \
\hline \mathrm { Cr } & \text { Futures receivable } & & 1173750 \
\hline
\end{array}$$

Question 7

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

Accepted Answer

In determining the classification of a f

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Discuss the motivation of standard setters in releasing AASB 7 Financial Instruments:
 Disclosure and discuss how this standard differs from AASB 132 Financial Instruments:
 Presentation.

Accepted Answer

The motivation of standard setters in re

Question 10

What three characteristics must be established before an instrument is considered to be a derivative?

Accepted Answer

Before an instrument is considered to be

Question 11

Which of the following statements about a swap instrument is correct?

Accepted Answer

A)  A company may seek to swap a short-term loan for a long-term loan (or vice versa). Another type of swap is where a company swaps a loan denominated in local currency for a foreign currency loan. After the swap agreement has been made, the primary borrower no longer has a commitment to the primary lender. 
B)  A company may seek to swap a fixed interest loan for a variable rate interest loan (or vice versa). Another type of swap is where a company swaps a loan denominated in local currency for a foreign currency loan. After the swap agreement has been made, the primary borrower still has a commitment to the primary lender should the other party to the swap default on the arrangement. 
C)  A company may seek to swap a compound interest loan for a simple interest rate loan (or vice versa). Another type of swap is where a company swaps a fixed interest rate loan for a variable interest rate loan (or vice versa). The swap agreement is enforceable by both parties and the risk of default by either party is minimal. 
D)  A company may seek to swap a short-term loan for a long-term loan (or vice versa). Another type of swap is where a company swaps a portion of its shares for the shares in another company. After the swap agreement has been made, the relationship between the two companies is stronger and can form the basis of an ongoing strategic alliance. 
A)  A company may seek to swap a short-term loan for a long-term loan (or vice versa). Another type of swap is where a company swaps a loan denominated in local currency for a foreign currency loan. After the swap agreement has been made, the primary borrower no longer has a commitment to the primary lender. 
B)  A company may seek to swap a fixed interest loan for a variable rate interest loan (or vice versa). Another type of swap is where a company swaps a loan denominated in local currency for a foreign currency loan. After the swap agreement has been made, the primary borrower still has a commitment to the primary lender should the other party to the swap default on the arrangement. 
C)  A company may seek to swap a compound interest loan for a simple interest rate loan (or vice versa). Another type of swap is where a company swaps a fixed interest rate loan for a variable interest rate loan (or vice versa). The swap agreement is enforceable by both parties and the risk of default by either party is minimal. 
D)  A company may seek to swap a short-term loan for a long-term loan (or vice versa). Another type of swap is where a company swaps a portion of its shares for the shares in another company. After the swap agreement has been made, the relationship between the two companies is stronger and can form the basis of an ongoing strategic alliance.

Question 12

Two companies enter into loan agreements on 1 March 2013.On that date they also enter into an agreement to swap the loans.The details for each company and loan are: $$\begin{array} { | l | l | } 
\hline \text { Boris Ltd } & \text { Becker Ltd } \
\hline \text { Australian company } & \text { Australian company } \
\hline \text { Borrows UK£1500 000 } & \text { Borrows A\$4 } 980,000 \
\hline \text { Interest rate } 8 \% \text { payable annually } & \text { Interest rate } 11 \% \text { payable annually } \
\hline \text { Repayable in UK£ } & \text { Repayable in A\$ } \
\hline \text { Loan repayable in 3 years } & \text { Loan repayable in 3 years } \
\hline
\end{array}$$ Exchange rates:
$$\begin{array} { | l | l | } 
\hline 1 \text { July } 2012 & \text { A\$1.00 } = \text { UK£ } 0.3012 \
\hline 30 \text { June } 2013 & \text { A\$1.00 } = \text { UK£.0.2980 } \
\hline
\end{array}$$ The balance date for both companies is 30 June 2013.What are the accounting entries in the books of Boris Ltd on 1 March and 30 June 2013?

Accepted Answer

A) 
  
B) 
  
C) 
  
D) 
  
A) 
  
B) 
  
C) 
  
D)

Question 13

Racquet Ltd issued $20 million of convertible notes on 1 July 2013.The notes have a life of 6 years and a face value of $20 each.Annual interest of 5% is payable at the end of each year.The notes were issued at their face value and can be converted at any time over their lives.Organisations with a similar risk profile to Racquet Ltd have issued debt with similar terms but without the option to convert at the rate of 7%.What are the appropriate accounting entries to record the conversion of the notes to equity on 1 July 2014 (after interest has been paid and recorded)?

Accepted Answer

A) 
$$\begin{array} { | c | l | r | l | } 
\hline \text { Dr } & \text { Convertible notes liability } & 18359921 & \
\hline \text { Dr } & \text { Option to convert notes to equity } & 1906616 & \
\hline \mathrm { Cr } & \text { Share capital } & & 20266537 \
\hline
\end{array}$$ 
B) 
$$\begin{array} { | c | l | r | r | } 
\hline \text { Dr } & \text { Convertible notes liability } & 18093384 & \
\hline \mathrm { Dr } & \text { Option to convert notes to equity } & 1906616 & \
\hline \mathrm { Cr } & \text { Share capital } & & 20000000 \
\hline
\end{array}$$ 
C) 
$$\begin{array} { | c | l | r | r | } 
\hline \text { Dr } & \text { Convertible notes liability } & 18359921 & \
\hline \mathrm { Dr } & \text { Option to convert notes to equity } & 1906616 & \
\hline \mathrm { Cr } & \text { Gain on conversion of options } & & 266537 \
\hline \mathrm { Cr } & \text { Share capital } & & 20000000 \
\hline
\end{array}$$ 
D) 
$$\begin{array} { | l | l | l | l | } 
\hline \mathrm { Dr } & \text { Convertible notes } & 20000000 & \
\hline \mathrm { Cr } & \text { Share capital } & & 20000000 \
\hline
\end{array}$$ 
A) 
$$\begin{array} { | c | l | r | l | } 
\hline \text { Dr } & \text { Convertible notes liability } & 18359921 & \
\hline \text { Dr } & \text { Option to convert notes to equity } & 1906616 & \
\hline \mathrm { Cr } & \text { Share capital } & & 20266537 \
\hline
\end{array}$$ 
B) 
$$\begin{array} { | c | l | r | r | } 
\hline \text { Dr } & \text { Convertible notes liability } & 18093384 & \
\hline \mathrm { Dr } & \text { Option to convert notes to equity } & 1906616 & \
\hline \mathrm { Cr } & \text { Share capital } & & 20000000 \
\hline
\end{array}$$ 
C) 
$$\begin{array} { | c | l | r | r | } 
\hline \text { Dr } & \text { Convertible notes liability } & 18359921 & \
\hline \mathrm { Dr } & \text { Option to convert notes to equity } & 1906616 & \
\hline \mathrm { Cr } & \text { Gain on conversion of options } & & 266537 \
\hline \mathrm { Cr } & \text { Share capital } & & 20000000 \
\hline
\end{array}$$ 
D) 
$$\begin{array} { | l | l | l | l | } 
\hline \mathrm { Dr } & \text { Convertible notes } & 20000000 & \
\hline \mathrm { Cr } & \text { Share capital } & & 20000000 \
\hline
\end{array}$$

Question 14

A convertible note may be accurately described as:

Accepted Answer

A)  a derivative financial instrument that affords the holder a stream of cash flows and benefits associated with being a shareholder but transfers the risk to the holders of the convertible options. 
B)  a secondary financial instrument that from the perspective of the issuer contains a contractual obligation to deliver cash and a put option. 
C)  a simple financial instrument that affords the holder access to a stream of cash flows in the form of either dividends or interest payments. 
D)  a compound financial instrument that from the perspective of the issuer contains a contractual obligation to deliver cash and a call option. 
A)  a derivative financial instrument that affords the holder a stream of cash flows and benefits associated with being a shareholder but transfers the risk to the holders of the convertible options. 
B)  a secondary financial instrument that from the perspective of the issuer contains a contractual obligation to deliver cash and a put option. 
C)  a simple financial instrument that affords the holder access to a stream of cash flows in the form of either dividends or interest payments. 
D)  a compound financial instrument that from the perspective of the issuer contains a contractual obligation to deliver cash and a call option.

Question 15

Jackson Ltd has a US$50 000 receivable due at the end of March 2014 for the sale of a specialised piece of hydraulic equipment.The sale was made on 1 February 2014 and the equipment cost Jackson Ltd $560 000 to manufacture.In order to hedge the receivable,Jackson Ltd enters into a futures contract on that date to sell five US dollar futures contracts.Each contract is for an amount of US$100 000 and the market rate for each futures contract is A$1 = US$0.6778 on 1 February.Jackson pays a deposit of $25 000 on the contracts.The futures contracts are settled on 31 March 2014,when the debtor pays off the receivable.The spot exchange rates during the period were: $$\begin{array} { | l | l | } 
\hline 1 \text { February } 2014 & \text { A\$1 } = \text { US\$0.7020 } \
\hline 31 \text { March } 2014 & \text { A\$1 } = \text { USS\$.7350 } \
\hline
\end{array}$$ The market rate for the futures contracts is A$1 = US$0.7150 on 31 March 2014.What are the entries to record the sale,futures contracts,receipt of payment and the settling of the futures contracts (rounded to the nearest dollar)?

Accepted Answer

A) 
  
B) 
  
C) 
  
D) 
  
A) 
  
B) 
  
C) 
  
D)

Question 16

On 31 October 2012 DGC Investment Ltd purchased a well-diversified portfolio of shares that it is intending to sell in 3 months time.To hedge against the adverse movements in price of these shares,on the same date,the manager obtained four 'sell' contracts with DSI Futures.A deposit of $20 000 was required by the broker for the futures contract.A standard futures contract is $25 per basis point.On 31 January 2013,DGC Investment Ltd sold the portfolio and closed out all four contracts.The following information is provided. $$\begin{array} { | l | l | l | l | } 
\hline & 31 \text { October 2012 } & \text { 31 December 2012 } & 31 \text { January } 2013 \
\hline \text { Fair value–share portfolio } & \$ 350000 & \$ 335000 & \$ 330000 \
\hline \text { January 2013 DSI Futures price } & 3700 & 3600 & 3500 \
\hline
\end{array}$$ What is the financial effect of the above transactions on the statement of comprehensive income of DGC Investment Ltd for the reporting period ending 31 December 2012?

Accepted Answer

A)  decrease by $5000 
B)  decrease by $15 000 
C)  increase by $5000 
D)  increase by $10 000 
A)  decrease by $5000 
B)  decrease by $15 000 
C)  increase by $5000 
D)  increase by $10 000

Question 17

A preference share is a financial liability:

Accepted Answer

A)  if it provides for mandatory redemption by the issuer for a fixed or determinable amount at a fixed or determinable future date. 
B)  if it gives the holder the right to require the issuer to redeem the instrument at or after a particular date for a fixed or determinable amount. 
C)  if it gives the issuer the sole discretion to redeem the instrument at a date of their choice for a fixed or determinable amount. 
D)  if it provides for mandatory redemption by the issuer for a fixed or determinable amount at a fixed or determinable future date and if it gives the holder the right to require the issuer to redeem the instrument at or after a particular date for a fixed or determinable amount. 
A)  if it provides for mandatory redemption by the issuer for a fixed or determinable amount at a fixed or determinable future date. 
B)  if it gives the holder the right to require the issuer to redeem the instrument at or after a particular date for a fixed or determinable amount. 
C)  if it gives the issuer the sole discretion to redeem the instrument at a date of their choice for a fixed or determinable amount. 
D)  if it provides for mandatory redemption by the issuer for a fixed or determinable amount at a fixed or determinable future date and if it gives the holder the right to require the issuer to redeem the instrument at or after a particular date for a fixed or determinable amount.

Question 18

In a convertible note,AASB 132 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.

Accepted Answer

A) True 
 B)False

Question 19

Under AASB 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.

Accepted Answer

A) True 
 B)False

Question 20

An attribute of an equity instrument is that:

Accepted Answer

A)  the holder is entitled to a fixed-rate return. 
B)  the holder is not entitled to a fixed-rate return. 
C)  it always confers voting rights upon the holder. 
D)  it is always issued at par value. 
A)  the holder is entitled to a fixed-rate return. 
B)  the holder is not entitled to a fixed-rate return. 
C)  it always confers voting rights upon the holder. 
D)  it is always issued at par value.

Exam 14: Accounting for Financial Instruments

The structure of futures contracts as they are traded in Australia is best described in which of the following?

Prepayments are:

The market price of an option is a function of:

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

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

Discuss the motivation of standard setters in releasing AASB 7 Financial Instruments: Disclosure and discuss how this standard differs from AASB 132 Financial Instruments: Presentation.

What three characteristics must be established before an instrument is considered to be a derivative?

Which of the following statements about a swap instrument is correct?

A convertible note may be accurately described as:

A preference share is a financial liability:

In a convertible note,AASB 132 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.

Under AASB 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 attribute of an equity instrument is that:

An Overview of the Australian External Reporting Environment

The Conceptual Framework of Accounting and Its Relevance to Financial Reporting

Theories of 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

Accounting for Heritage Assets and Biological Assets

An Overview of Accounting for Liabilities

Accounting for Leases

Accounting for Employee Benefits

Share Capital and Reserves

Revenue Recognition Issues

The Statement of Comprehensive Income and Statement of Changes in Equity

Accounting for Share-Based Payments

Accounting for Income Taxes

The Statement of Cash Flows

Accounting for the Extractive Industries

Accounting for General Insurance Contracts

Accounting for Superannuation Plans

Events Occurring After the End of the Reporting Period

Segment Reporting

Related Party Disclosures

Earnings Per Share

Accounting for Group Structures

Further Consolidation Issues I: Accounting for Intragroup Transactions

Further Consolidation Issues II: Accounting for Non-Controlling Interests

Further Consolidation Issues IV: Accounting for Changes in the Degree of Ownership of a Subsidiary

Accounting for Equity Investments,including Investments in Associates and Joint Arrangements

Accounting for Foreign Currency Transactions

Translating the Financial Statements of Foreign Operations

Accounting for Corporate Social Responsibility

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