IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

234

Wiley lFRS:

Practical Implementation

Guide and Workbook

I\IULTIPLE -CHOICE QUESTIONS

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.

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.

entity's own equity instrument and is not

classified as an equity instrument of the en–

tity.

(d) Prepaid expenses.

Answer : (d)

3. Which of the following liabilities is a financial

liability?

(a) Deferred revenue.

(b) A warranty obligation.

(d) An obligation

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.

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

the issuer for a fixed amount of cash on a

future date (i.e., the entity has an out-

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).

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.

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).

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.

Answer: (a)