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Testbank

to accompany

Applying International
Accounting Standards
by
Alfredson, Leo, Picker, Pacter & Radford
Prepared by
Victoria Wise

John Wiley & Sons Australia, Ltd 2005

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CHAPTER 5 Financial instruments


Question 1
Which of the following items is classified as a financial asset?
A
B
C
D

ordinary shares of the issuer;


loans payable (owed by the borrower);
accounts receivable;
inventory.

Question 2
All of the following would be regarded as financial instruments except:
A
B
C
D

bank overdraft;
notes payable;
cash;
equipment.

Question 3
According to IAS 32 Financial Instruments: Disclosure and Presentation, which of the
following items would be regarded as a financial liability?
A
B
C
D

ordinary shares held in another entity;


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

Question 4
All of the following are regarded as financial instruments:
I.
II.
III.
IV.
V.

Deposits held by a financial institution;


Ordinary shares;
Raw materials inventories;
Property, plant and equipment.
Accounts receivable and accounts payable.

Applying International Accounting Standards Chapter 5

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B
C
D

I, II, IV and V only;


II, III and IV only;
I, II and V only;
I, IV and V only.

Question 5
The following events provide objective evidence that a financial asset has been impaired:
I.
II.
III.
IV.
A
B
C
D

A default in interest payments.


The borrower enters into bankruptcy.
Significant financial difficulty of the issuer.
The downgrade of an entitys credit rating.

I, II and III only;


II, III and IV only;
I, III and IV only;
II and IV only.

Question 6
IAS 39 Financial Instruments: Recognition and Measurement, requires that Held-to-maturity
investment be initially measured at:
A
B
C
D

fair value;
fair value plus transaction costs;
discounted future cash outflows;
discounted future net cash flows.

Question 7
The formal documentation of a hedging relationship must include identification of:
The hedging instrument
The hedged item
The nature of the risk being hedged
How the entity will assess hedge effectiveness
A
B
C
D

I
II
No No
No Yes
No Yes
Yes No

I;
II;
III;
IV.

Applying International Accounting Standards Chapter 5

III IV
Yes Yes
Yes No
Yes Yes
Yes No

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Question 8
To be regarded as highly effective in achieving offsetting changes in fair value or cash flows,
actual hedge results must be in the range:
A
B
C
D

70% - 100%;
80% - 125%;
90% - 100%;
20% - 50%.

Question 9
Whitnall Limited lost $150 on a hedging and had a corresponding gain on the hedged item of
$100. The effectiveness range for these associated transactions is:
A
B
C
D

100% - 150%;
20% - 30%;
0% - 15%;
66% - 150%.

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:
A
B
C
D

transaction exposure;
hedge ineffectiveness;
hedge effectiveness;
transaction variability.

Question 11
When accounting for a cash flow hedge, IAS 39 Financial Instruments: Recognition and
Measurement, requires that hedge ineffectiveness is:
A
B
C
D

recorded in profit or loss;


separately recorded in equity;
recorded separately as a financial liability;
capitalised as a deferred asset.

Applying International Accounting Standards Chapter 5

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Question 12
Under IAS 39 Financial Instruments: Recognition and Measurement, when a fair value hedge
instrument expires it:
A
B
C
D

must be transferred within equity to retained earnings;


remains permanently in equity;
must be discontinued retrospectively;
must be discontinued prospectively.

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ANSWERS
1

10

11

12

Applying International Accounting Standards Chapter 5