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BALIUAG

UNIVERSITY

CPA REVIEW 2014-15
JACF
THEORY OF
__________________________________________________________________________________________________

Financial Instruments
1. Which of the following statements is / are true?
STATEMENT 1: PAS 32 defines a financial instrument as any contract the gives rise to both a
financial asset of one entity and a financial liability or equity of another entity.
STATEMENT 2: Financial instrument encompasses financial asset, financial liability and an
equity instrument characterized by a contract that involves two parties; and which gives rise
to a financial asset of one party and financial liability or equity instrument of another party.
a. Statement 1 is true.
b. Statement 2: is true.
c. Both statements are true.
d. Both statements are false.
2. Which of the following is / are correct example / s of financial instrument?
1. Cash in the form of notes
and coins
2. Cash in the form of checks
3. Cash in bank
4. Trade accounts
5. Notes and loans
6. Debt securities
7. Equity securities
a.
b.
c.
d.

1,
1,
1,
1,

2,
2,
4,
3,

6,
3,
5,
5,

Asset
Bearer

Liability
Issuer

Payee
Depositor
Customer
Debtor
Issuer
Investor

Drawer
Bank
Seller
Lender
Investor
Issuer

7
7
6,
6,

3. Any asset that is cash; a contractual right to receive cash or another financial asset from
another entity; a contractual right to exchange financial instruments with another entity
under conditions that are potentially favorable; and an equity instrument of another entity.
a. Financial asset
b. Financial liability
c. Financial equity
d. All of the above
4. All of the following are examples of financial assets, except.
a. Option to purchase shares of another entity at less than market price.
b. A contractual right of a depositor to obtain cash from the bank or draw a check against the
balance in favor of a creditor in payment of financial liability.
c. Trade accounts receivable.
d. Gold bullion deposited in a bank.
5. All
a.
b.
c.
d.

of the following are not example of financial assets, except.
Gold bullion deposited in a bank.
Intangible assets.
The medium of exchange.
Usufructuary assets.

6. Any liability that is a contractual obligation to deliver cash or other financial asset to another
entity; or to exchange financial instruments with another entity under conditions that are
potentially unfavorable.
a. Financial asset
b. Financial liability
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Page 1 of 6 Never give up on something that you can’t go a day without thinking about. –

Winston Churchill

b. of the following are not examples of equity instruments. An instrument that provides the holder with the contractual right to give payments on account of interest at fixed dates extending into indefinite future either with right or no right to a return of principal. d. STATEMENT 2: Financial instruments that have the legal form of an equity instrument but in substance meet the definition of a financial liability are classified as current or noncurrent liability depending on the date maturity. 11. Which of the following could give rise to a financial liability? a. d. A potentially favorable Income taxes payable c. a. or b is met. Callable shares. c. Contractual obligation to deliver cash which may potentially bear unfavorable condition. Economic benefits associated with the delivery of goods and services. Which is a financial liability? a. All of the above 7. Statements 2 and 3 are true. Preference shares. When either a. The entity has a legally enforceable right of offset.Offsetting of a financial asset and a financial liability is allowed: a.Which statement is a correct definition of perpetual debt instrument? a. Statements 1 and 2 are true.Financial assets and liability are recognized: ________________________________________________________________________________________ Page 2 of 6 Never give up on something that you can’t go a day without thinking about. All statements are true. Bonds payables. b. STATEMENT 3: A contract that may be settled by either variable number of shares or in the amount of cash is a financial liability. d. 10. d. An instrument that provides the issuer with the contractual right to give payments on account of interest at fixed dates extending into definite future either with right or no right to a return of principal. Constructive obligations. b. STATEMENT 1: Warrants or call options that allow the holder to subscribe for or purchase a fixed number of ordinary shares of the issuing entity in exchange for a fixed amount are equity securities. except Redeemable preference shares. b. 9. When a.BALIUAG UNIVERSITY CPA REVIEW 2014-15 JACF THEORY OF __________________________________________________________________________________________________ c. d. r to realize the asset and settle the liability simultaneously. The entity intends either to settle on a net basis. A potentially unfavorable prepaid expenses 8.Analyze the following statements. A potentially favorable deferred revenue and warranty obligations b. – Winston Churchill . An instrument that provides the issuer with the contractual right to receive payments on account of interest at fixed dates extending into indefinite future either with right or no right to a return of principal. c. c. A potentially unfavorable bonds payable d. Statutory requirements imposed by government. 12. An instrument that provides the holder with the contractual right to receive payments on account of interest at fixed dates extending into indefinite future either with right or no right to a return of principal. All a. 13. c. b. c. Financial equity d. Statements 1 and 3 are true. and b are met.

Both statements are false. b. 14. I. Financial asset at fair value c. II. IV. Held to maturity financial asset V. Summary of data about its exposure to risks at each reporting date. The entity has transferred substantially all risks and rewards on the asset. a. liquidity risks. The exposure to risks and how they arise. warrants or options to acquire or dispose of ownership shares at a fixed or determinable price. – Winston Churchill . and V d. III. I. and V c. 16. The entity’s objective. c. b.A required disclosure of quantitative information includes. Financial assets at amortized costs a.Which of the following financial assets includes both equity securities and debt securities? a. and the nature and extent of risks. and price risks. Statement 2 is true. II. d. policy and process for managing the risks. Held for trading financial asset b. d. b. Both statements are true. Treasury shares ________________________________________________________________________________________ Page 3 of 6 Never give up on something that you can’t go a day without thinking about. c. b. c. Financial assets at amortized costs 19. d. Any change from previous period in the entity’s exposure to risks.“Equity securities” encompasses any instruments representing ownership shares and right. and IV b. Redeemable preference shares b. Financial Assets at Fair Value: 17. STATEMENT 1: PFRS 7 requires that disclosures about financial instruments include significance of financial instruments for an entity’s financial position and financial performance.Analyze the following statements. The entity has either transferred or retained substantially all risks and rewards and the entity has retained control over the asset. The transferee has the practical ability to sell the asset in its entirety to a third party without attaching any restriction to the transfer. Held to maturity financial asset d. c. a. The entity has neither transferred nor retained substantially all risks and rewards and the entity has lost control of the asset. Financial asset at fair value IV. When contractual rights to the cash flows of the financial asset have expired.Which is not a basis for de-recognition when the basis are the extent of the transfer of risks and rewards of ownership? a. When the entity becomes a party to the contractual provisions of the instrument. 15. I. STATEMENT 2: Disclosures about risks arising from financial instruments focus on credit risks.BALIUAG UNIVERSITY CPA REVIEW 2014-15 JACF THEORY OF __________________________________________________________________________________________________ a. interest risks. When the financial asset has been transferred and the transfer qualifies for recognition based on the extent of transfer of risks and rewards of ownership. and c are met.Which of the following represents the classifications of financial assets? I. currency risks. Held for trading financial asset III. Derivative asset II. II. Which is an example of “equity securities”? a. d. and II 18. When b. Statement 1 is true.

which is determined by key management personnel. Financial assets are classified as subsequently measured depending on whether the entity intends hold the investments in order to trade to realize fair value changes.The following financial assets shall be measured at “fair value through profit or loss”. financing costs. Cost may be an appropriate estimate of fair value if there is a wide range of possible fair a value measurement. etc. Ordinary shares 21. cost may be an appropriate estimate of fair value.BALIUAG UNIVERSITY CPA REVIEW 2014-15 JACF THEORY OF __________________________________________________________________________________________________ c. b. c. in limited circumstances. administrative or holding costs. d. except. Investment in bonds 22. Trading securities b. Investment in bonds c. ________________________________________________________________________________________ Page 4 of 6 Never give up on something that you can’t go a day without thinking about. a. Investments in unquoted equity instruments are measured at cost. All investment in equity instruments and contracts on those instruments must be measured at fair value although. it is part of a portfolio of identified financial assets that are managed together and for which there is evidence of a recent usual pattern of short –term profit taking. b. c. Convertible debt d. b.Financial assets are held for trading under the following PFRS 9 provisions. Quoted equity securities d. 24. At initial recognition. except. Corporate bonds b. Commercial papers c.Which of the following statements is not true? a. d. No statement is false. Fair value plus directly attributable acquisition transaction costs. or to hold investments in order to collect contractual cash. On initial recognition. 25. Preference share 20. Transaction price plus directly attributable acquisition transaction costs.Financial assets are initially measured at. – Winston Churchill . except for derivative that is financial guarantee contract or a designated and an effective hedging instrument. a. An entity may irrevocably designate a financial asset as measured at fair value through profit or loss even if the financial asset satisfies the measurement at amortized costs. but excluding transaction costs if held for trading.Which is not an example of debt security? a. Fair value of the consideration given. 23. b. d. Financial assets are measured at amortized cost if the business model is to collect contractual cash flows that are solely payments of principal and interest. It is part of a portfolio of identified financial assets that are managed together and for which there is evidence of a recent actual pattern of short-term profit taking on initial recognition. It is a derivative. except. c. c.Which of the following statements is false? a. Transaction price plus any or all of the following cost items: debt premiums or discounts. d. It is acquired principally for purpose of selling or repurchasing it in the near term. a. an entity may make an irrevocable election to present in other comprehensive income subsequent changes in fair value of an investment in equity instrument that is not held for trading. BSP treasury bills d.

The first day of the reporting period following the change in business model that results in an entity reclassifying financial asset is the first day of the reporting period. PFRS 9 provides that an entity shall assess at the end of reporting period whether there is any objective evidence that a financial asset or group of financial assets measured at fair value is impaired. and quoted price of identical and similar asset in an inactive market. ________________________________________________________________________________________ Page 5 of 6 Never give up on something that you can’t go a day without thinking about. The difference between the consideration received and the carrying amount of the financial asset that is disposed should be recognized as gain or loss on disposal in the income statement. b. c. In the reclassification of financial asset from fair value to amortized cost. 28.Unrealized gains and losses on trading securities. 30. except. All statements are true. An unrealized gain if the fair value is higher than the carrying amount of securities. d.The following statements are false. 29. Fair value may be referred to as evidenced by the following in order of priority: quoted price of identical asset in an active market. b. b.Which of the following statements is true? a. – Winston Churchill . The impairment of financial assets at amortized cost is recognized either directly or through the use of allowance account in the profit or loss.Analyze the following statements. STATEMENT 2: The PFRSC concluded that reclassification based on the entity’s business model for managing financial assets provides a clear rationale for measurement and therefore rejects totally the tainting provision. d. An entity shall reclassify financial assets only when it changes its business model for managing the financial assets and the reclassification of financial assets shall apply prospectively from the reclassification date. knowledgeable and willing market participants in an arm’s length transaction. An unrealized loss if the fair value is lower than the carrying amount of the securities. Fair value is the price agreed upon by independent. 27. d.BALIUAG UNIVERSITY CPA REVIEW 2014-15 JACF THEORY OF __________________________________________________________________________________________________ 26. b. Realized gains and losses result from actual sales of securities. a. STATEMENT 1: If an entity sells or reclassifies more than an insignificant amount of financial asset at amortized cost.The following statements are true. c. c. Impairment loss on financial assets at fair value is measured as the difference between the carrying amount and the present value of estimated future cash flows discounted at the original effective interest rate. d. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. c. such sales or reclassifications normally will disqualify the entity from using the amortized cost classification during the current year and the next two years. the fair value at the reclassification date becomes the new carrying amount of the financial asset at amortized cost and the difference between the new carrying amount and the face value shall be amortized through profit or loss over the remaining life of the financial asset using effective interest method. except. It is not necessary to assess financial assets measured at fair value for impairment because the fair value at the reclassification date becomes the new carrying amount. Are included in profit or loss of the current period and arise from investments that are measured at fair value. a. quoted price of similar asset in an active market. a.

Statements 1 and 2 are true c. Date of the financial statements 32. Embedded derivative is separated if the host contract is a financial asset. An embedded derivative is a component of a hybrid or combined contract with the effect that some of the cash flows of the combined contract vary in a way similar to a stand – alone instrument. Stock rights may be recognized as embedded derivative but not a stand – alone derivative. and the host contract is measured at fair value through profit or loss END ________________________________________________________________________________________ Page 6 of 6 Never give up on something that you can’t go a day without thinking about. Stock warrant 34. Statements 2 and 3 are true d. – Winston Churchill . All statements are true Investment in equity securities: 31.PAS 18 provides that dividends shall be recognized as revenue when the shareholder’s right to receive payment is established.BALIUAG UNIVERSITY CPA REVIEW 2014-15 JACF THEORY OF __________________________________________________________________________________________________ STATEMENT 3: PFRS 9 requires an entity to present as a separate line item in the income statement all gains and losses from the derecognition of financial assets measured at amortized cost. a.It is a legal right granted to shareholders to subscribe for new shares issued by a corporation at a specified price during a definite period. Stock dividend b. Shares received in lieu cash dividend 33. Date of record c.Which statement is not true? a. Date of payment d. Stock right c. Stock split d.A dividend that is not an income: a. Date of declaration b. Statement 1 is true b. c. d. Cash dividend b. a. Property dividend c. b. and that is at: a. Stock rights are measured initially at fair value and normally classified as current assets if accounted for separately. Liquidating dividend d.