IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

Wiley IFRS: Practical Implementation Guide and Workbook

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(b) The interest rate currently charged by the entity or by others for similar debt instru– ments (i.e., similar remaining maturity , cash flow pattern, currency, credit risk, collateral, and interest basis). (c) The interest rate that exactly discount s esti– mated future cash payments or receipts through the expected life of the debt instru– ment or, when appropriate, a shorter period to the net carrying amount of the instrument. (d) The basic , risk-free interest rate that is de– rived from observable government bond prices. Answer: (e) 15. Which of the following is not objecti ve evidence of impairment of a financial asset? (a) Significant financial difficulty of the issuer or obligor. (b) A decline in the fair value of the asset below its previous carrying amount. (c) A breach of contract, such as a default or de– linquency in interest or principal payments . (d) Observable data indicating that there is a Answer: (b) 16. Under lAS 39, all of the following are char– acteristics of a derivative except: (a) It is acquired or incurred by the entity for the purpose of generating a profit from short-term fluctuations in market factors. (b) Its value changes in response to the change in a specified underlying (e.g., interest rate, financial instrument price, commodity price, foreign exchange rate, etc.). (c) It requires no initial investment or an initial Answer: (a) 17. Under lAS 39, is a derivative (e.g., an equity conversion option) that is embedded in another con– tract (e.g., a convertible bond) accounted for sepa– rately from that other contract? (a) Yes. lAS 39 requires all derivatives (both freestanding and embedded) to be accounted for as derivatives. (b) No. lAS 39 precludes entities from splitting financial instruments and accounting for the components separately. (c) It depend s. lAS 39 requires embedded net investment that is smaller than would be required for other types of contracts that would be expected to have a similar re– sponse to change s in market factors. (d) It is settled at a future date. measurable decrease in the estimated future cash flows from a group of financial assets although the decrease cannot yet be associ– ated with any individual financial asset.

10. At what amount is a financial asset or financial liability measured on initial recognition? (a) The consideration paid or received for the fi– nancial asset or financial liability . (b) Acquisition cost. Acquisition cost is the con– sideration paid or received plus any directly attributable transaction costs to the acquisi– tion or issuance of the financial asset or fi– nancial liability. (c) Fair value. For items that are not measured Answer: (c) 11. In addition to financial assets at fair value through profit or loss. which of the following catego– ries of financial assets is measured at fair value in the balance sheet? (a) Available-for-sale financial assets. (b) Held-to-maturity investments. (c) Loans and receivables . (d) Investments in unquoted equity instruments. Answer: (a) 12. What is the best evidence of the fair value of a financial instrument? (a) Its cost, including transaction costs directly attributable to the purchase . origination. or issuance of the financial instrument. (b) Its estimated value determined using dis– counted cash flow techniques , option pricing models, or other valuation techniques . (c) Its quoted price, if an active market exists for the financial instrument. (d) The present value of the contractual cash flows less impairment. Answer: (c) 13. Is there any exception to the requirement to measure at fair value financial assets classified as at fair value through profit or loss or available for sale? (a) No. Such assets are always measured at fair value. (b) Yes. If the fair value of such assets increases above cost, the resulting unrealized holding gains are not recognized but deferred until realized. (c) Yes. If the entity has the positive intention and ability to hold assets classified in those categories to maturity, they are measured at amortized cost. (d) Yes. Investments in unquoted equity instru– at fair value through profit or loss. transac– tion costs are also included in the initial measurement. (d) Zero.

ments that cannot be reliably measured at fair value (or derivatives that are linked to and must be settled in such unquoted equity instruments) are measured at cost.

derivati ves to be accounted for separately as derivatives if, and only if, the entity has em– bedded the derivative in order to avoid de– rivatives accounting and has no substantive business purpose for embedding the deriva– tive.

Answer: (d) 14. What is the effective interest rate of a bond or other debt instrument measured at amortized cost? (a) The stated coupon rate of the debt instru– ment.