FAR EASTERN UNIVERSITY – MANILA

FAR-THEORIES Review Ÿ Batch 2023 Ÿ January 30, 2023

FINANCIAL ACCOUNTING & REPORTING - THEORIES G. Macariola

TFAR-2303: INVESTMENT IN DEBT SECURITIES

1. Debt securities may be classified as

a. IAC only c. FVOCI or IAC
b. FVPL or IAC d. FVPL, FVOCI or IAC

2. Equity securities at Fair value may be classified as

a. FVPL only c. FVPL, FVOCI, or IAC
b. FVPL or FVOCI d. FVPL, FVOCI or Investment in Associate

3. An entity purchased government bonds. The entity’s business model in

managing financial assets is achieved by collecting cash flows that are solely for
payment of principal and interest on the principal amount outstanding and by
selling the financial assets. Which of the following is the most appropriate
classification for the investment in bonds?
a. Held for trading
b. At fair value through profit or loss
c. At amortized cost
d. At fair value through other comprehensive income.

4. Under IFRS 9, investments in debt securities that meet the business model test
of collecting cash flows and for which the enterprise does not exercise its option
to measure at fair value shall be initially recognized at
a. Purchase price
b. Fair value
c. Purchase price plus transaction cost
d. Purchase price plus transaction cost plus accrued interest.

5. Which of the following statements is true concerning recognition of unrealized

gains and losses?
a. Unrealized gains and losses on financial assets held for trading shall be included in
profit or loss.
b. Unrealized gains and losses on financial assets measured at amortized cost are not
recognized.
c. Unrealized gains and losses on financial assets at fair value through other
comprehensive income are not recognized in the income statement.
d. All of the above statements are true.

6. Cumulative unrealized gains and losses which are recognized in the

Shareholders’ Equity section of the Statement of Financial Position are from
securities classified as
a. FVPL only
b. FVPL and FVOCI
c. FVOCI and Investment at Amortized Cost
d. FVOCI only

7. Unrealized Loss reported in the Equity section of the Statement of Financial

Position on Debt investment at FVOCI is
a. The excess of fair value over the original cost
b. The excess of fair value over the amortized cost
c. The excess of original cost over the fair value
d. The excess of amortized cost over the fair value

8. Subsequent to acquisition, these securities are generally reported in the

statement of financial position at AMORTIZED COST.
a. FVOCI only
b. FVPL and FVOCI
c. Investment at Amortized cost only
d. FVOCI and Investment at Amortized cost

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 9. If the financial asset is measured at fair value through profit or loss, transaction
costs directly attributable to the acquisition shall be
a. Capitalized as cost of the financial asset.
b. Expensed immediately when incurred.
c. Deferred and amortized over a reasonable period
d. Included as component of other comprehensive income.

10.Premium or discount on bonds purchased as trading investment is reported

a. As integral part of the cost of the asset acquired and amortized over the remaining life
of the bond.
b. As integral part of the cost of the asset acquired until such time the investment is
sold.
c. As expense or revenue in the period the bonds are purchased.
d. As integral part of the cost of the asset acquired and amortized over the original life of
the bond.

11.An investor purchased debt investments at amortized cost on January 1. Annual

interest was received on December 31. The investor’s interest income for the
year would be lower than the annual interest received if the debt instrument
was purchased at
a. A discount
b. A premium
c. Par
d. Face value

12.The bonds issued in June 1 of the current year have interest payment dates of
April 1 and October 1. Bond interest income for the current year ended
December 31 is for a period of
a. 3 months
b. 4 months
c. 6 months
d. 7 months

13.The bonds issued in June 1 of the current year have interest payment dates of
April 1 and October 1. Interest receivable on December 31 is for a period of
a. 3 months
b. 4 months
c. 6 months
d. 7 months

14.When an investor's accounting period ends on a date that does not coincide with
an interest receipt date for bonds held as an investment, the investor must
a. Make an adjusting entry to debit Interest Receivable and to credit Interest Revenue
for the amount of interest accrued since the last interest receipt date.
b. Notify the issuer and request that a special payment be made for the appropriate
portion of the interest period.
c. Make an adjusting entry to debit Interest Receivable and to credit Interest Revenue
for the total amount of interest to be received at the next interest receipt date.
d. Do nothing special and ignore the fact that the accounting period does not coincide
with the bond's interest period.

15.An entity made a year-end amortization for its only investment in bonds by
debiting Investment at amortized cost and crediting Interest income. The bond
investment must have been purchased at
a. Premium.
b. Discount
c.. Face value
d. At middle of nowhere

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 16.An entity made a year-end amortization for its only investment in bonds by
crediting Investment at amortized cost and debiting Interest income. The bond
investment must have been purchased at
a. Premium.
b. Discount
c. Face value
d. At middle of nowhere

17.An entity did not amortize the discount on trading bond investment. What effect
would this have on the investment and net income.

Investment Net income

a. Overstated Overstated
b. Understated Overstated
c. Understated Understated
d. No effect No effect

18.If an entity failed to amortize the premium on its investment in bond classified
as IAC, this may result to
a. Understatement of net income
b. Overstatement of net income
c. No effect on net income
d. Understatement on investment account

19. St. Donnalyn Bartolome Company purchased ten-year, 10% bonds that pay
interest semiannually. The bonds are sold to yield 8%. One step in calculating
the issue price of the bonds is to multiply the principal by the table value for
a. 10 periods and 10% from the present value of 1 table.
b. 10 periods and 8% from the present value of 1 table.
c. 20 periods and 5% from the present value of 1 table.
d. 20 periods and 4% from the present value of 1 table.

20. When investments in debt securities are purchased between interest payment
dates, preferably the
a. Securities account should include accrued interest
b. Accrued interest is debited to Interest Payable
c. Accrued interest is debited to Investment account
d. Accrued interest is debited to Interest Receivable

21.An investor purchased a bond classified as investment at amortized cost

between interest dates at a premium. At the purchase date, the initial cost of
investment is
a. Less than the bond face value and the cash paid to the seller
b. Less than the bond face value but more than the cash paid to the seller
c. More than the bond face value but less than the cash paid to the seller
d. More than the bond face value and the cash paid to the seller

22.When interest payment dates are February 1 and August 1 and a bond
investment is sold on June 1, the cash received from the sale
a. Excludes accrued interest
b. Does not include the accrued interest
c. Includes interest accrued for four (4) months
d. Includes accrued interest for seven (7) months

23.Gain or loss on disposal of investment in debt securities shall be recognized in

a. Profit or Loss for FVPL only
b. Profit or Loss for FVPL and FVOCI only
c. Other Comprehensive Income for FVOCI only
d. Profit or Loss regardless of designation

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 24.“Reclassification date” for purposes of reclassifying financial assets refers to
a. End of the current reporting period.
b. First day of the next reporting period following the change in business model.
c. Date when management decided to change the business model for managing financial
assets
d. No definition of reclassification date as this would depend on the judgment of
management.

25.A debt investment at Amortized cost is reclassified to debt investment at Fair

Value through Profit or Loss. What amount is used at the transfer date to record
the security in the amortized cost classification?
a. At amortized cost at the date of reclassification.
b. At fair value at date of reclassification and difference between the amortized cost and
fair value is taken to profit or loss.
c. At fair value at the date of reclassification and difference between the amortized cost
and fair value is taken to other comprehensive income.
d. At fair value at date of reclassification.

“I will persist until I succeed. The slaughterhouse of failure is not my

destiny “

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