CHAPTER 24

1. A financial instrument is any contract that gives rise to A financial asset of one entity
and a financial liability or equity instrument of another entity

2. Which is not classified as a financial instrument? Warranty provision

3. Which cannot be considered a financial asset? A contractual right to exchange financial

instruments with another entity under conditions that are potentially unfavorable

4. Which should be classified as a financial asset? Trade accounts receivable

5. A financial liability Is a contractual obligation to deliver cash or another financial asset

to another entity

6. Financial liabilities include all of the following, except Income tax payable

7. It is any contract that evidences residual interest in the assets of an entity after deducting
all of the liabilities. Equity instrument

8. How should preference shares that are redeemable mandatorily be presented in the
statement of financial position? Either current or noncurrent liability depending on
redemption date

9. What is the presentation of preference dividend on mandatorily redeemable preference

shares? Interest expense

10. Which is not an equity instrument? Bond payable

11. What is the principal accounting for a compound instrument? The issuer shall classify
the liability and equity components of a compound instrument separately as
liability or equity.

12. How are the proceeds from issuing a compound instrument allocated between the
liability and equity components? First, the liability component is measured at fair
value, and then the remainder of the proceeds is allocated to the equity component.

13. When bonds are issued with share warrants, the equity component is equal to The excess
of the proceeds over the fair value of the bonds without the share warrants.
14. When bonds are issued with share warrants, a portion of the the proceeds should be
allocated to equity when the bonds are issued with Both detachable and
nondetachable share warrants

15. The proceeds from an issue of bonds payable with share warrants should not be
allocated between the liability and equity components when The proceeds should be
allocated between liability and equity under all of these circumstances.

16. A bond convertible by the holder into a fixed number of ordinary shares of the issuer is A
compound financial instrument

17. Convertible bonds May be exchanged for shares of the issuer

18. Convertible bonds Allow an entity to issue debt financing at lower rate

19. What is the accounting for issued convertible bond? The instrument should be
recorded part bond and part equity

20. Issued convertible bonds are Separated into liability and equity with the liability
recorded at fair value and the residual assigned to the equity