IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

Chapter 25 / Financial Instruments: Recognition and Measurement (lAS 39)

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MULTIPLE·CHOI CE QUESTIONS

nomic benefits will flow to the entity and the cos t or value of the instrument can be mea– sured reliably. (b) A financial asset is recognized when. and only when. the entity obtains control of the instrument and has the ability to dispose of the financial asset independent of the actions of others. (c) A financia l asset is recognized when, and only when, the entity obtains the risks and rewards of ownership of the financial asset and has the ability to dispose the financial asset. (d) A financial asset is recognized when, and only when, the entity becomes a party to the contractual provisions of the instrument. Answe r : (d) 7, In which of the following circumstances is derec– ognition of a financial asset not appropriate? (a) The contra ctual rights to the cash flows of the financial assets have expi red. (b) The financial asset has been transferred and substantially all the risks and reward s of ownership of the transferred asset have also been transferred. (c) The financial asset has been transferred and the entity has retained substantially all the risks and rewards of ownership of the trans– ferred asset. (d) The financial asset has been transferred and Answer: (c) 8. Which of the following transfers of financial assets qualifies for derecog nition? (a) A sale of a financial asset where the entity retains an option to buy the asset back at its current fair value on the repurch ase date. (b) A sale of a financial asset where the entit y agrees to repurchase the asset in one year for a fixed price plus interest. (c) A sale of a portfolio of short-term accounts receiv ables where the entity guarantees to compen sate the buyer for any losses in the portfolio . (d) A loan of a security to another entity (i.e., a securities lending transac tion). Answer : (a) 9. Which of the following is not a relevant consid– eration when evaluating whether to derecognize a fi– nancialliability? (a) Whether the obligation has been dischar ged. (b) Whether the obligation has been canceled. (c) Whether the obligation has expired. (d) Whether substantially all the risks and re– wards of the obligation have been trans– ferred . Answer: (d) the entity has neither retained nor transferred substantially all the risks and rewards of ownersh ip of the transferred asset. In addi– tion, the entity has lost control of the trans– ferred asset.

~ . The scope of lAS 39 includes all of the following Items except: (a) Financial instruments that meet the defini– tion of a financial asset. (b) Financial instruments that meet the defini– tion of a financial liability. (c) Financial instrumen ts issued by the entity that meet the definition of an equity instru– ment. (d) Contracts to buy or sell nonfinancial items that can be settled net. Answer: (c) 2. Which of the following is not a category of fi– nancial assets defined in lAS 39? (a) Financial assets at fair value through profit or loss. (b) Available-for-sale financial assets. (c) Held-for-sale investments. (d) Loans and receivab les. Answer: (c) 3. All of the following are characteristics of finan– cial assets classified as held-to-maturity investments except: (a) They have fixed or determin able payments and a fixed maturity. (b) The holder can recover substantially all of its investment (unless there has been credit deterioration). (c) They are quoted in an active market. (d) The holder has a demonstrated positive intention and ability to hold them to matu– rity. Answer: (b) 4. Which of the following items is not precluded from classification as a held-to-maturity investment? (a) An investment in an unquoted debt instru– ment. (b) An investment in a quoted equ ity instru– ment. (c) A quoted derivative financial asset. (d) An investment in a quoted debt instrument. Answer : (d) 5. All of the following are characteristics of financial assets classified as loan and receivables except: (a) They have fixed or determinable payment s. (b) The holder can recover substantially all of its investment (unless there has been credit deterioration). (c) They are not quoted in an active market. (d) The holder has a demon strated positive intention and ability to hold them to matu– rity. Answe r : (d) 6. What is the principle for recognition of a finan– cial asset or a financial liability in lAS 39? (a) A financial asset is recognized when, and only when, it is probable that future eco-