Exam 14: Accounting for Financial Instruments

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.

When initially recognising the liability and equity components of a compound financial instrument,gains and losses arise and must be recognised.

The classification of a preference share as an equity instrument or financial liability is:

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

AASB 7 imposes further detailed disclosure requirements for which of the following credit risks?

According to AASB 132,which of the following are considered to be financial assets?

The characteristics of a swap agreement may be best described as:

When offsetting financial assets and liabilities an entity must settle on a net basis.

Layton Enterprises and Hewitt Ltd agree to swap their loans.The terms of the loans are: Layton Enterprises Hewitt Ltd Term: 4 years Term: 4 years Amount: \ 750000 Amount: \ 750000 Fixed interest rate: 10\% Floating: bank bill rate plus 0.8\% Under the swap agreement Layton Enterprises will make floating rate payments to Hewitt Ltd at the bank bill rate plus 0.8% and Hewitt will make fixed rate payments to Layton Enterprises at 12%. Layton Enterprises' alternative to the fixed interest loan was to pay the bank bill rate (a floating rate).Hewitt's alternative was to pay a fixed interest rate of 13.5%. Is each company better off under the swap agreement than if it had taken up the alternatives offered by the bank? What is the net difference in the interest rate paid under the swap and the alternative for each company?

Under AASB 123,interest incurred on a financial instrument,is able to be capitalised as part of a qualifying asset.When this is done: