Question 1

All of the following would be regarded as financial instruments except:

Accepted Answer

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

Question 2

Which of the following is within the scope of AASB 139?

Accepted Answer

A)  a lease obligation to which AASB 117 applies 
B)  a lease renewal option within a lease agreement 
C)  a contract for contingent consideration payable in a business combination covered by AASB 3 
D)  a share option issued under an employee share scheme which is covered by AASB 2. 
A)  a lease obligation to which AASB 117 applies 
B)  a lease renewal option within a lease agreement 
C)  a contract for contingent consideration payable in a business combination covered by AASB 3 
D)  a share option issued under an employee share scheme which is covered by AASB 2. B

Question 3

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

Accepted Answer

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

Question 4

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:

Accepted Answer

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

Question 5

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:

Accepted Answer

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. 
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.

Question 6

When accounting for a cash flow hedge, AASB 139 Financial Instruments: Recognition and Measurement, requires that hedge ineffectiveness is:

Accepted Answer

A)  recorded in profit or loss; 
B)  separately recorded in equity; 
C)  recorded separately as a financial liability; 
D)  capitalised as a deferred asset. 
A)  recorded in profit or loss; 
B)  separately recorded in equity; 
C)  recorded separately as a financial liability; 
D)  capitalised as a deferred asset.

Question 7

Under AASB 139 Financial Instruments: Recognition and Measurement, when a fair value hedge instrument expires it:

Accepted Answer

A)  must be transferred within equity to retained earnings; 
B)  remains permanently in equity; 
C)  must be discontinued retrospectively; 
D)  must be discontinued prospectively. 
A)  must be transferred within equity to retained earnings; 
B)  remains permanently in equity; 
C)  must be discontinued retrospectively; 
D)  must be discontinued prospectively.

Question 8

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

Question 9

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.

Accepted Answer

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

Question 10

When first issued, AASB 139 was:

Accepted Answer

A)  More rule-based than other AASB standards 
B)  Less rule-based than other AASB standards 
C)  Wider in scope that other AASB standards 
D)  Narrower in scope that other AASB standards 
A)  More rule-based than other AASB standards 
B)  Less rule-based than other AASB standards 
C)  Wider in scope that other AASB standards 
D)  Narrower in scope that other AASB standards

Question 11

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 12

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

Question 13

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 XXX component that relates to the notes which have been converted XXX.

Accepted Answer

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

Question 14

Which of the following categories of financial instruments is NOT subsequently measured at amortised cost?

Accepted Answer

A)  Held-to-maturity investments 
B)  Loans and receivables 
C)  Other financial liabilities 
D)  Available-for-sale financial assets 
A)  Held-to-maturity investments 
B)  Loans and receivables 
C)  Other financial liabilities 
D)  Available-for-sale financial assets

Question 15

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:

Accepted Answer

A)  an equity instrument 
B)  a financial liability 
C)  a compound financial instrument 
D)  a financial asset 
A)  an equity instrument 
B)  a financial liability 
C)  a compound financial instrument 
D)  a financial asset

Question 16

Company A has convertible notes on issue. These notes are convertible to ordinary shares of the Company after 3 years. The distributions made to the note holders by Company A are classified by Company A as follows:

Accepted Answer

A)  interest expense. 
B)  dividends distributed. 
C)  a portion representing interest expense and a portion representing dividends distributed 
D)  indeterminable based on the information provided. 
A)  interest expense. 
B)  dividends distributed. 
C)  a portion representing interest expense and a portion representing dividends distributed 
D)  indeterminable based on the information provided.

Question 17

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

Accepted Answer

A)  70% - 100%; 
B)  80% - 125%; 
C)  90% - 100%; 
D)  20% - 50%. 
A)  70% - 100%; 
B)  80% - 125%; 
C)  90% - 100%; 
D)  20% - 50%.

Question 18

Which of the following is NOT a condition for hedge accounting to be applied?

Accepted Answer

A)  There must be formal designation and documentation of the hedging relationship at the inception of the hedge. 
B)  The effectiveness of the hedge must be able to be reliably measured. 
C)  The hedge must be expected to be effective 
D)  For cash flow hedges, the forecast transaction must be highly probable. 
A)  There must be formal designation and documentation of the hedging relationship at the inception of the hedge. 
B)  The effectiveness of the hedge must be able to be reliably measured. 
C)  The hedge must be expected to be effective 
D)  For cash flow hedges, the forecast transaction must be highly probable.

Question 19

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

Question 20

Which of the following is excluded from the scope of AASB 139?

Accepted Answer

A)  a lease renewal option within a lease agreement. 
B)  a contract for contingent consideration receivable in a business combination covered by AASB 3 
C)  an investment in a controlled entity accounted for at cost in the investor's separate consolidated financial statements. 
D)  Loan commitments that cannot be settled in cash or another financial instrument. 
A)  a lease renewal option within a lease agreement. 
B)  a contract for contingent consideration receivable in a business combination covered by AASB 3 
C)  an investment in a controlled entity accounted for at cost in the investor's separate consolidated financial statements. 
D)  Loan commitments that cannot be settled in cash or another financial instrument.

Exam 8: Financial Instruments

All of the following would be regarded as financial instruments except:

Which of the following is within the scope of AASB 139?

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:

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:

When accounting for a cash flow hedge, AASB 139 Financial Instruments: Recognition and Measurement, requires that hedge ineffectiveness is:

Under AASB 139 Financial Instruments: Recognition and Measurement, when a fair value hedge instrument expires it:

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 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.

When first issued, AASB 139 was:

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

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

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 XXX component that relates to the notes which have been converted XXX.

Which of the following categories of financial instruments is NOT subsequently measured at amortised cost?

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:

Company A has convertible notes on issue. These notes are convertible to ordinary shares of the Company after 3 years. The distributions made to the note holders by Company A are classified by Company A as follows:

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

Which of the following is NOT a condition for hedge accounting to be applied?

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 is excluded from the scope of AASB 139?

Accounting Regulation and the Conceptual Framework

Application of Accounting Theory

Shareholders Equity: Share Capital and Reserves

Fair Value Measurement

Revenue

Provisions, Contingent Liabilities and Contingent Assets

Income Taxes

Share-Based Payments

Translation of the Financial Statements of Foreign Entities

Employee Benefits

Inventories

Property, Plant and Equipment

Leases

Understanding Australian Accounting Standards

Impairment of Assets

Accounting for Mineral Resources

Agriculture

Financial Statement Presentation

Statement of Cash Flows

Earnings Per Share

Operating Segments

Operating Segments

Business Combinations

Consolidation: Principles and Accounting Requirements

Consolidation: Intragroup Transactions

Consolidation: Non Controlling Interest

Joint Arrangements

Associates and Joint Ventures

Filters