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Questionnaire Intact

1. The document discusses accounting for investments in debt and equity securities. It addresses key questions around how investments should be classified and measured depending on factors like management's intentions and how changes in fair value are reported. 2. Common accounting classifications for investments include trading securities, available-for-sale securities, and held-to-maturity securities. The classification affects where changes in fair value are reported such as in net income or other comprehensive income. 3. Premiums and discounts on bonds purchased between interest dates are also addressed in terms of calculating amortized cost and interest income and expense over the life of the bond.

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0% found this document useful (0 votes)
2K views10 pages

Questionnaire Intact

1. The document discusses accounting for investments in debt and equity securities. It addresses key questions around how investments should be classified and measured depending on factors like management's intentions and how changes in fair value are reported. 2. Common accounting classifications for investments include trading securities, available-for-sale securities, and held-to-maturity securities. The classification affects where changes in fair value are reported such as in net income or other comprehensive income. 3. Premiums and discounts on bonds purchased between interest dates are also addressed in terms of calculating amortized cost and interest income and expense over the life of the bond.

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Any contract that gives rise to both a financial asset of one entity and a financial liability or equity

instrument of another entity?


ANSWER: Financial Instrument
Any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities
ANSWER: An equity instrument
The interest rate on the face of the bond is known as the ___________.
ANSWER: Nominal rate, coupon rate or stated rate
Which is not a category of financial assets?
ANSWER: Financial Asset Held for sale
A debt investment shall be measured subsequently at amortized cost _______________
ANSWER: When the business model is to hold the financial asset in order to collect contractual cash
flows on specified dates and they are solely payments of principal and interest on principal amount
outstanding.
Transaction costs directly related to acquisition of trading bond investments are:
ANSWER: Expensed immediately
The interest income for the year would be lower if the bond was purchased at
ANSWER: Premium
When an investor purchased a bond between interest dates at a premium, the cash paid to the seller is
ANSWER: More than the face amount of the bond
Bond usually sell at a premium
ANSWER: When the stated rate of interest on the bonds is greater than the market rate of interest.
To compute the price to pay for a bond, what present value concept is use?
ANSWER: The present value of 1 and the present value of an ordinary annuity of 1.
The Fair value option allows an entity to
ANSWER:
If a 5 year bond matures on October 1, 2025 and interest is payable semiannually, the interest dates are
ANSWER:
 All of the following are key questions that must be addressed when accounting for investments in
debt and equity securities except which one?
A) How long does management intend to hold the investment?
B) Is the fair value of the equity investment readily determinable?
C) How is the return on equity impacted by this investment?
 Fair values and subsequent growth of an investment are not relevant for reporting for which
category of investments?
A) held-to-maturity
B) securities accounted for under the equity method
C) trading
D) available for sale How much control does the investor have over the investee company for this equity
investment?
Ryan Corporation purchased 10,000 shares of Acme Stock. It plans to hold them for a short time and then
sell them at a gain. It should classify these securities as ________.
A) available for sale securities
B) held-to-maturity securities
C) trading securities
D) minority securities
 Where are changes in fair value for trading securities reported?
A) as operating income or loss on the income statement
B) as income or loss from peripheral activities on the income statement
C) as a component of accumulated other comprehensive income on the balance sheet
D) as a prior period adjustment to retained earnings on the balance sheet
 Investments in debt and equity securities that cannot be readily classified in the other reporting
categories are classified as ________.
A) securities available for sale
B) trading securities
C) held to maturity securities
D) minority securities
 Where are changes in fair value for available for sale securities reported?
A) as operating income or loss on the income statement
B) as income or loss from peripheral activities on the income statement
C) as a component of accumulated other comprehensive income on the balance sheet
D) as a prior period adjustment to retained earnings on the balance sheet
Which of the following is a debt security for which management has both the positive intent and ability to
hold the debt investment until all principal and interest is fully paid?
A) trading security
B) held-to-maturity security
C) available-for-sale security
D) Not enough information to classify this security.
 For available-for-sale debt securities included in noncurrent assets, which of the following
amounts should be included in the period's net income?
I. Unrealized holding losses during the period
II. Realized gains during the period
III. Changes in fair value during the period
A. I, II, and III.
B. III only.
C. I and II only.
D. II only.

 An investor purchased a bond as a long-term investment between interest dates at a premium. At


the purchase date, the cash paid to the seller is ____________

The same as the face amount of the bond plus accrued interest.
The same as the face amount of the bond.
More than the face amount of the bond.
Less than the face amount of the bond.

 Which one of the following statements with regard to marketable securities is incorrect?
The held-to-maturity portfolio consists only of debt securities.
In the portfolio of marketable equity securities, unrealized gains and losses are recorded on the income
statement.
In the available-for-sale portfolio of marketable debt securities, unrealized gains and losses are recorded
on the income statement.
Debt securities may be transferred from the held-to-maturity to the available-for-sale portfolio.

 Investments classified as held-to-maturity are measured at

Fair value, with unrealized gains and losses reported in net income.
Amortized cost, with no unrealized gains or losses reported.
Replacement cost, with no unrealized gains or losses reported.
Fair value, with unrealized gains and losses reported in other comprehensive income (OCI).
The amount by which the fair value of a debt security exceeds its cost should be accounted for in the
financial statements when the security is classified as
Trading
Available-for-Sale
A. Yes
No
B. No
Yes
C. No
No
D. Yes
Yes

An investor purchased a bond classified as a long-term investment between interest dates at a discount. At
the purchase date, the carrying amount of the bond is more than the
Cash Paid to Seller
Face Amount of Bond

A. Yes
No
B. Yes
Yes
C. No
No
D. No
Yes

An investor purchased a bond as a long-term investment on January 2. The investor's carrying amount at
the end of the first year will be highest if the bond is purchased at a ____________

Discount and amortized by the straight-line method.


Discount and amortized by the effective interest method.
Premium and amortized by the effective interest method.
Premium and amortized by the straight-line method.

Kale Co. purchased bonds at a discount on the open market as an investment and has the intent and ability
to hold these bonds to maturity. Absent an election of the fair value option, Kale should account for these
bonds at

Cost.
Fair value.
Lower of cost or market.
Amortized cost.

Unrealized gains and losses on trading debt securities should be presented in the

Statement of financial position.


Notes to the financial statements.
Income statement.
Statement of retained earnings.
Debt securities held primarily for sale in the near term to generate income on short-term price differences
are known as

Trading securities.
Available-for-sale securities.
Discontinued operations.
Held-to-maturity securities.

1. Under the cost model of accounting for an investment, changes to the carrying amount of the
investment occur if:
A. the investee earns post-acquisition profits or losses;
B. goodwill included in the investment is amortised;
C. the investment is impaired;
D. dividends are received from the investee.

The method of accounting that applies to an investor and associate relationship is the:

A. cost method;
B. fair value method;
C. consolidation method;
D. equity method.

For the purposes of equity accounting an associate is a business entity including:


A. an unincorporated entity;

4.
For the purposes of equity accounting, significant influence is regarded as the power of an investor to:

A. control the financial and operating policies of an associate;


B. participate in the financial and operating policy decisions of an investee;
C. participate in the day-to-day management of a joint venture interest;
D. dominate the financing decisions of an entity.

The equity method of accounting need not be applied where the investment:
A. represents more than 20% of the voting shares of an associate;
B. does not provide the investor with significant influence;
C. is held exclusively with a view to its disposal within 12 months;
D. is made by an investor who has no subsidiaries.

Where all of the following conditions apply an investor need not apply the equity method of accounting:

I. The investor is a wholly owned subsidiary or a partly owned subsidiary and its owners do not object
to the method not being used.
II. The investor's debt or equity securities are not traded in a public market.
III. The investor has not filed financial statements with a regulatory organisation for the purpose of
issuing any class of securities in a public market.
IV. The ultimate parent of the investor publishes consolidated financial statements that comply with
IFRS.
D. I, II, III and IV.

In respect to the equity method of accounting, where an investor has no subsidiaries the investor must
apply the:
A. cost method of accounting for investments in associates;
B. consolidated financial reporting
C. equity method in its own accounting records;
D. net present value method to measuring the expected cash flows from an associate.

The 'one-line' equity accounting method is used when accounting for an investment in:
D. an associate.

PAS 39 – FINANCIAL INSTRUMENTS – RECOGNITION AND MEASUREMENT

1. Which of the following is not a category of financial assets under PAS 39?
a. Financial assets at fair value through profit or loss
b. Available for sale financial asset
c. Held for sale investments
d. Loans and receivable

2. All of the following are characteristics of held to maturity investments, except


a. The investments have fixed or determinable payments and a fixed maturity
b. The holder can recover substantially all of the investment unless there has been credit
deterioration
c. The investments are quoted in an active market
d. The holder has a demonstrated positive intention and ability to hold to maturity

3. All of the following are characteristics of loans and receivable, except


a. They have a fixed or determinable payments
b. The holder can recover substantially all of the investment unless there has been credit
deterioration
c. They are unquoted in an active market
d. The holder has a demonstrated positive intention and ability to hold to maturity
4. At the beginning of the current year, an entity purchased 3% of the equity shares with the
intention of holding this investment over the long term. The most appropriate classification of this
equity investment is
a. At fair value through profit or loss
b. Available for sale
c. Held to maturity
d. Amortized cost

5. An entity acquired equity shares representing 5% of the issued ordinary shares. The investee’s
shares are listed on a stock exchange. Which of the following categories could this investment in
equity shares be classified?
a. Held to maturity
b. Available for sale
c. At fair value through profit or loss
d. Either as available for sale or at fair value through profit or loss

PFRS 9 – FINANCIAL INSTRUMENTS


1. Which of the following is not correct in regard to trading investments?
a. Trading investments are held with the intention of selling them in a short period of time
b. Unrealized holding gains and losses are reported as part of net income
c. Any discount or premium is not amortized
d. All of these are correct

2. An entity may make an irrevocable election to present in other comprehensive income changes in
fair value of
a. An investment in equity instrument that is held for trading
b. An investment in equity instrument that is not held for trading
c. A financial asset measured at amortized cost
d. A financial asset measured at fair value through profit or loss

3. A financial asset shall be measured subsequently at amortized cost when


I. The business model of the equity is to hold the financial asset in order to collect
contractual cash flows on specified dates
II. The contractual cash flows are solely payments of principal and interest on the principal
amount outstanding
a. I only b. II only c. Neither I nor II d. Both I and II

4. Debt investments that meet the business model and contractual cash flow tests and therefore held
for collection are reported at
a. Net realizable value c. Amortized cost
b. Fair value d. The lower of amortized cost of fair value

5. Debt investments not held for collection are reported at


a. Amortized cost c. The lower of amortized cost or fair value
b. Fair value d. Net realizable value

6. Amortized cost is the initial recognition amount of the investment minus


a. Repayments and net of any reduction for uncollectibility
b. Cumulative amortization and net of any reduction for uncollectibility
c. Repayments plus or minus cumulative amortization and net of any reduction for
uncollectibility
d. Repayments plus or minus cumulative amortization

7. Which statement is correct about the effective interest method of amortization?


a. The effective-interest method applied to debt investments is different from that applied to
bonds payable
b. Amortization of discount decreases from period to period
c. Amortization of premium decreases from period to period
d. The effective interest method applies the effective interest rate to the beginning carrying
amount for each interest period.

8. Under the fair value option, an entity may


a. Irrevocably designate a financial asset as measured at fair value through profit or loss even if
the amortized cost measurement is satisfied
b. Irrevocably designate a financial asset as measured at fair value through other comprehensive
income
c. Revocably designate a financial asset as measured as fair value through profit or loss even if
the amortized cost measurement is satisfied
d. Designate all instruments as measured at fair value through profit or loss

9. The fair value option allows an entity to


a. Record income when the fair value of investment increases
b. Measure debt investments at fair value in some years but not other years
c. Report most financial instruments at fair value by recording gains and losses as a separate
component of shareholders’ equity
d. All of these are true of the fair value option

10. Equity investments acquired by an entity which are accounted for by recognizing unrealized
holding gains or losses as component of other comprehensive income are
a. Nontrading where an entity has holdings of less than 20%
b. Trading investments where an entity has holdings of less than 20%
c. Investments where an entity has holdings of between 20% and 50%
d. Investments where an entity has holdings of more than 50%

11. An impairment loss is the difference between the carrying amount of investment plus accrued
interest and the
a. Expected cash flows
b. Present value of the expected cash flows using historical effective interest rate
c. Contractual cash flows
d. Present value of the contractual cash flows using historical effective interest rate
12. Entities account for transfers of investments between categories
a. Prospectively, at the end of the period after the change in the business model
b. Prospectively, at the beginning of the period after the change in the business model
c. Retroactively, at the end of the current period after the change in the business model
d. Retroactively, at the beginning of the period after the change in the business model

13. Transfers between categories


a. Result in entities omitting recognition of fair value in the year of the transfer
b. Are accounted for at fair value for all transfers
c. Are considered unrealized and unrecognized if transferred out of held for collection into fair
value
d. Will always result in an impact on net income

PFRS 13 – FAIR VALUE MEASUREMENT

1. Fair value is defined as


I. The price that would be received to sell an asset in an orderly transaction between market
participants at the measurement date
II. The price that would be paid to transfer a liability in orderly transaction between market
participants at the measurement date
a. I only c. Both I and II
b. II only d. Neither I nor II

2. The fair value at initial recognition is


a. The price paid to acquire the asset
b. The price paid to acquire the asset less transaction cost
c. The price paid to transfer or sell the asset
d. The carrying amount of the asset acquired

3. Fair value of an asset should be based upon


a. The replacement cost of an asset
b. The price that would be received to sell the asset at measurement date
c. The original cost of the asset plus an adjustment for obsolescence
d. The price that would be paid to acquire the asset

4. Which of the following statement is true for measuring an asset at fair value?
a. The price of the asset should be adjusted for transaction cost
b. The fair value of the asset should be adjusted for cost to sell
c. The fair value is based upon an entry price to purchase the asset
d. The price should be adjusted for transportation cost to transport the asset to its principal
market

5. Which level has the highest priority for fair value measurement?
a. Level 1
b. Level 2
c. Level 3
d. Level 4

6. It is defined as a market in which transactions for the asset or liability take place with sufficient
frequency and volume to provide pricing information on an ongoing basis.
a. Active market c. Global market
b. Principal market d. Stock market

7. What is a principal market for establishing fair value?


a. The market that has the greatest volume and level of activity for the asset
b. Any broker market
c. The most observable market
d. The market in which the amount received would be maximized

8. Which of the following is not a valuation technique used in fair value measurement?
a. Income approach c. Cost approach
b. Market approach d. Residual value approach

9. Valuation techniques for fair value that included the Black-Scholes model, binomial model or
discounted cash flow are known as
a. Income approach c. Cost approach
b. Market approach d. Exit value approach

10. What is the market approach for measuring fair value?


a. Present value of cash flows
b. Prices and other relevant information of transactions from identical or comparable assets
c. The price to replace the service capacity of the asset
d. The weighted average of present value of cash flows
When a debt investment at FVPL is reclassified to amortized cost, what is the new carrying
amount at amortized cost?
A. Fair value at reclassification date
B. Face amount of debt investment
C. Present value of the contractual cash flows
D. Original carrying amount of the debt investment

A financial instrument is any contract that gives rise to


A. A financial asset
B. A financial liability
C. A financial asset of one entity and a financial liability of another entity
D. A financial asset of one entity and a financial liability or equity instrument of another
entity

Which of the following cannot be considered a financial asset?


A. Cash
B. A contractual right to receive cash or another financial asset from another entity
C. A contractual right to exchange financial instruments with another entity under conditions
that are potentially unfavorable
D. An equity instrument of another entity

It is an entity over which the investor has significant influence.


A. Associate
B. Investee
C. Venture capital organization
D. Mutual fund

Which statement best describes "significant influence"?


A. The holding of a significant proportion of the share capital in another entity.
B. The contractually agreed sharing of control over an economic entity
C. The power to participate in the financial and operating policy…
D. The mutual sharing in the risks and benefits of a combined e…

Goodwill arising from an investment in associate is


A. Included in the carrying amount of the investment and amortized over the useful life
B. Included in the carrying amount of the investment and not amortized
C. Charged to retained earnings.
D. Charged to expense immediately

The equity method is not required when the associate has been acquired and held with a view
to disposal within what time period?
A. Six months from the end of reporting period
B. Twelve months from the end of reporting period
C. Twelve months from date of classification as held for sale
D. In the near future

A financial liability
A. Must be classified as noncurrent liability.
B. Is a contractual obligation to deliver cash or another financial asset to another entity.
C. a contractual obligation to exchange financial assts or financial liabilities with anothe…
D. Is a contractual obligation to deliver cash or any asset to a…

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