IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

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Wiley IFRS: Practical Implementation Guide and Workbook

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.

at fair value through profit or loss. transac–

tion costs are also included in the initial

measurement.

(d) Zero.

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.

(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 .

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.

and ability to hold assets classified in those

categories to maturity, they are measured at

amortized cost.

(d) Yes. Investments in unquoted equity instru–

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.

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.

(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).

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.

linquency in interest or principal payments .

(d) Observable data indicating that there is a

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.

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.).

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.

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.

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.