IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

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Wiley lFRS: Practical Implementation Guide and Workbook

I\IULTIPLE -CHOICE QUESTIONS I. Are there any circumstances when a contract that is not a financial instrument would be accounted for as a financial instrument under lAS 32 and lAS 39? (a) No. Only financial instruments are ac– counted for as financial instruments. (b) Yes. Gold, silver, and other preciou s metals that are readily convertible to cash are ac– counted for as financial instruments. (c) Yes. A contract for the future purchase or delivery of a commodity or other nonfinan– cial item (e.g., gold, electricity, or gas) gen– erally is accounted for as a financial instru– ment if the contract can be settled net. (d) Yes. An entity may designate any nonfinan– cial asset that can be readily convertible to cash as a financial instrument. Answer: (c) 2. Wh ich of the following assets is not a financial asset? (a) Cash. (b) An equity instrument of another entity. (c) A contrac t that may or will be settled in the Answer : (d) 3. Which of the following liabilities is a financial liability? (a) Deferred revenue. (b) A warranty obligation. (c) A constructive obligation. (d) An obligation to deliver own shares worth a fixed amount of cash. Answer: (d) 4. Wh ich of the following statements best describes the principle for class ifying an issued financial in– strument as either a financial liability or equity? (a) Issued instruments are classified as liabilities or equity in accorda nce with the substance of the contractual arrangeme nt and the defi– nitions of a financial liability, financial as– set, and an equity instrument. (b) Issued instruments are classified as liabilities or equity in accordance with the legal form of the contractual arrangement and the defi– nitions of a financial liability and an equity instrument. (c) Issued instrument s are classified as liabilities or equity in accordance with management' s designation of the contractual arrangement. (d) Issued instruments are classified as liabilities or equity in accordance with the risk and rewards of the contractual arrangement. Answer : (a) 5. Wh ich of the following instrume nts would not be classified as a financial liability? (a) A preference share that will be redeemed by entity's own equity instrument and is not classified as an equity instrument of the en– tity. (d) Prepaid expenses.

standing share that it will repurchase at a future date). (b) A contract for the delivery of as many of the entity's ordinary shares as are equal in value to $ 100,000 on a future date (i.e., the entity will issue a variable number of own shares in return for cash at a future date). (c) A written call option that gives the holder the right to purchase a fixed number of the entity's ordinary shares in return for a fixed price (i.e., the entity would issue a fixed number of own shares in return for cash, if the option is exercised by the holder, at a future date). (d) An issued perpetual debt instrument (i.e., a debt instrument for which interest will be paid for all eternity, but the principal will not be repaid). Answer: (c) 6. What is the principle of accounting for a com– pound instrument (e.g., an issued convertible debt instrument )? (a) The issuer shall classify a compound instru– ment as either a liability or equity based on an evaluation of the predominant character– istics of the contractual arrangement. (b) The issuer shall classify the liability and eq– uity components of a compound instrument separately as financial liabilities, financial assets. or equity instruments. (c) The issuer shall classify a compound instru– ment as a liability in its entirety, until con– verted into equity, unless the equity compo– nent is detachable and separately transfer– able, in which case the liability and equity component s shall be presented separately. (d) The issuer shall classify a compound instru– ment as a liability in its entirety, until con– verted into equity. Answer: (b) 7. How are the proceeds from issuing a compound instrument allocated between the liability and equity components? (a) First, the liability component is measured at fair value, and then the remainder of the proceeds is allocated to the equity compo– nent (with-and-without method). (b) First, the equity component is measured at fair value, and then the remainder of the proceeds is allocated to the liability compo– nent (with-and-without method). (c) First, the fair values of both the equity com– ponent and the liability component are esti– mated. Then the proceeds are allocated to the liability and equity components based on the relation between the estimated fair val– ues (relative fair value method). (d) The equity component is measured at its in–

trinsic value. The liability component is measured at the par amount less the intrinsic value of the equity component.

the issuer for a fixed amount of cash on a future date (i.e., the entity has an out-

Answer: (a)