Question 1

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

Accepted Answer

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

Question 2

The formal documentation of a hedging relationship must include identification of:

Accepted Answer

A)  I; 
B)  II; 
C)  III; 
D)  IV. 
A)  I; 
B)  II; 
C)  III; 
D)  IV. C

Question 3

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. D

Question 4

Which of the following items is classified as a financial asset?

Accepted Answer

A)  ordinary shares of the issuer; 
B)  loans payable (owed by the borrower); 
C)  accounts receivable; 
D)  inventory. 
A)  ordinary shares of the issuer; 
B)  loans payable (owed by the borrower); 
C)  accounts receivable; 
D)  inventory.

Question 5

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 6

According to IAS 32 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 7

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

Question 8

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 9

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 10

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 11

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 12

Which of the following is within the scope of IAS 39?

Accepted Answer

A)  a lease obligation to which IAS 17 applies 
B)  a lease renewal option within a lease agreement 
C)  a contract for contingent consideration payable in a business combination covered by IFRS 3 
D)  a share option issued under an employee share scheme which is covered by IFRS 2. 
A)  a lease obligation to which IAS 17 applies 
B)  a lease renewal option within a lease agreement 
C)  a contract for contingent consideration payable in a business combination covered by IFRS 3 
D)  a share option issued under an employee share scheme which is covered by IFRS 2.

Question 13

Under IAS 39 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 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

IAS 39 requires that on initial recognition, financial assets and liabilities be measured at:

Accepted Answer

A)  historic cost; 
B)  fair value; 
C)  lower of cost or market; 
D)  net present value. 
A)  historic cost; 
B)  fair value; 
C)  lower of cost or market; 
D)  net present value.

Question 16

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 17

A financial liability classified as fair value through profit and loss must be:

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

Question 18

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.

Question 19

Which of the following is excluded from the scope of IAS 39?

Accepted Answer

A)  a lease renewal option within a lease agreement. 
B)  a contract for contingent consideration receivable in a business combination covered by IFRS 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 IFRS 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.

Question 20

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

Exam 7: Financial Instruments

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

The formal documentation of a hedging relationship must include identification of:

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 items is classified as a financial asset?

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

According to IAS 32 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.

The classification of a financial instrument on the Statement of Financial Position of an entity is governed by the principle of:

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:

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.

Which of the following is within the scope of IAS 39?

Under IAS 39 Financial Instruments: Recognition and Measurement, when a fair value hedge instrument expires it:

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

IAS 39 requires that on initial recognition, financial assets and liabilities be measured at:

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

A financial liability classified as fair value through profit and loss must be:

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

Which of the following is excluded from the scope of IAS 39?

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:

The Conceptual Framework of the Iasb

Shareholders Equity: Share Capital and Reserves

Fair Value Measurement

Revenue

Provisions, Contingent Liabilities and Contingent Assets

Income Taxes

Share-Based Payments

Inventories

Employee Benefits

Property, Plant and Equipment

Leases

Intangible Assets

Business Combinations

Impairment of Assets

Accounting for Mineral Resources

Agriculture

Financial Statement Presentation

Statement of Cash Flows

Earnings Per Share

Operating Segments

Operating Segments

Consolidation: Controlled Entities

Consolidation: Wholly Owned Subsidiaries

Consolidation: Intragroup Transactions

Consolidation: Non-Controlling Interest

Consolidation: Other Issues

Translation of the Financial Statements of Foreign Entities

Associates and Joint Ventures

Joint Arrangements

Filters