Theories Questions
1. In an asset swap, the gain on extinguishment is
a. Excess of fair value of asset over carrying amount
b. Excess of carrying amount of the debt over the fair value of the asset
c. Excess of fair value of asset over the carrying amount of the debt
d. Excess of carrying amount of the debt over the carrying amount of the
asset
2. For a debt restructuring involving substantial modification of terms, it is appropriate
for a debtor to recognize a gain when the carrying amount of the debt
a. Exceeds the total future cash payments.
b. Is less than the total future cash payments.
c. Exceeds the present value of the future cash payments.
d. Is less than present value of future cash payments.
3. For substantial modification of terms, which would be compared to the carrying
amount of the debt to determine if the debtor should report a gain on
extinguishment?
a. The total future cash payments
b. The present value of the new debt at the original interest rate
c. The present value of the new debt at the market interest rate
d. The face amount of the new debt
4. Under a debt restructuring involving substantial modification of terms, the present
value of the new debt shall be determined using
a. Original effective interest rate
b. Interest rate under the new terms
c. Market rate of interest
d. Prime interest rate
5. There is nonsubstantial modification is
a. At least 10% of the old liability
b. Less than 10% of the old liability
c. At least 10% of the new liability
d. Less than 10% of the new liability
Q48-11
1. An entity shall initially measure equity instruments issued to extinguish a
financial liability at
a. Fair value of the equity instrument issued
b. Fair value of the liability extinguished
c. Par value of the equity instruments issued
d. Carrying amount of the liability extinguished
2. If the fair value of the equity instruments issued cannot be reliably
measured, the equity instruments issued to extinguished a financial
liability shall be measured at
a. Fair value of the liability extinguished
b. Par value of the equity instruments issued
c. Carrying amount of the liability extinguished
d. Book value of the equity instruments issued
3. If both the fair value of the equity instruments issued and fair value of the
financial liability extinguished cannot be measured reliably, the equity
instruments issued shall be measured at
a. Carrying amount of the liability extinguished
b. Par value of equity instruments issued
c. Carrying amount if the equity instruments issued
d. Value assigned by the Board of Directors
4. The difference between the carrying amount of liability extinguished and
the fair value of the equity instruments issued shall be recognized in
a. Profit or loss
b. Other comprehensive income
c. Retained earnings
d. Share premium
5. The gain or loss from extinguishment of a financial liability by issuing
equity instruments is presented as
a. Other income or other expenses
b. Separate line item in the income statement
c. Component of other comprehensive income
d. Component of finance cost
1. What is debt restructuring in the context described?
o A. A normal business transaction
o B. A situation where a creditor grants concessions due to the debtor's financial
difficulties
o C. A court-imposed financial arrangement
o D. An economic benefit for the debtor
Answer: B
2. What is the primary objective of a creditor in a debt restructuring scenario?
o A. Maximize recovery of investment
o B. Sustain an accounting gain
o C. Increase debtor's financial difficulties
o D. Avoid legal implications
Answer: A
3. What could be a reason for a creditor to grant concessions in debt restructuring?
o A. Maximizing debtor's financial difficulties
o B. Normal business relationship
o C. Economic or legal reasons related to debtor's financial difficulties
o D. Avoiding any form of agreement
Answer: C
4. How may a debt restructuring concession arise?
o A. Only through court orders
o B. Only through agreements between the creditor and debtor
o C. Either through an agreement between the creditor and debtor or imposed by law or
court
o D. Strictly from debtor's request
Answer: C
5. What is the typical outcome for a creditor in a debt restructuring scenario?
o A. Accounting gain
o B. Economic loss
o C. Maximized investment recovery
o D. Legal advantage
Answer: B
6. True or False: Debt restructuring concessions can only arise from agreements
between the creditor and debtor.
Answer: False
7. True or False: The debtor usually incurs an accounting loss in a debt
restructuring, while the creditor usually realizes an accounting gain.
Answer: True
8. True or False: Debt restructuring is a strategy for creditors to worsen the
financial difficulties of the debtor.
Answer: False
9. True or False: The primary objective of a creditor in debt restructuring is to
minimize recovery of investment.
Answer: False
10. True or False: Concessions in debt restructuring can be imposed by law or court,
even without an agreement between the creditor and debtor.
Answer: True
1. What is an asset swap in the context described?
A. The exchange of assets between two creditors
B. The transfer of assets by the debtor to the creditor in full payment of an obligation
C. The swapping of liabilities to reduce financial obligations
D. A financial transaction with no impact on accounting
Answer: B
2. Under PFRS 9, what is the impact of an asset swap on a financial liability?
A. Recognition as a new financial liability
B. Derecognition of the financial liability or extinguishment of an obligation
C. Increase in the carrying amount of the financial liability
D. No impact on financial liability
Answer: B
3. According to PFRS 9, where is the difference between the carrying amount of the financial
liability and the consideration given recognized?
A. In equity
B. In a separate asset account
C. In profit or loss
D. In a liability account
Answer: C
4. Under USA GAAP, how does asset swap recording differ from PFRS 9?
A. It doesn't differ; both follow the same accounting principles
B. It is recorded as a single transaction
C. It is recorded as if two transactions have taken place
D. It is not recognized in financial statements
Answer: C
5. In USA GAAP, what are the two gains or losses recognized in an asset swap?
A. Gain on sale and loss on extinguishment
B. Gain or loss on exchange and gain or loss from restructuring
C. Gain on asset transfer and loss on liability recognition
D. Gain from derecognition and loss from financial restructuring
Answer: B
6. True or False: In an asset swap, the debtor transfers assets to the creditor to partially settle
an obligation.
Answer: False
7. True or False: According to PFRS 9, the difference between the carrying amount of the
financial liability and the consideration given is recognized in equity.
Answer: False
8. True or False: Under USA GAAP, asset swap is recorded as a single transaction,
combining the sale of the asset and extinguishment of the liability.
Answer: False
9. True or False: The difference between the fair value of the asset and the carrying amount is
the only gain or loss recognized in an asset swap under USA GAAP.
Answer: False
10. True or False: Asset swaps have no impact on financial statements according to PFRS 9.
Answer: False
11. True or False: The transfer of inventory to settle an obligation is considered an asset swap
under the described context.
Answer: True
12. True or False: USA GAAP recognizes two distinct gains or losses in an asset swap, one
related to the fair value of the asset and the other related to the carrying amount of the
liability.
Answer: True
13. True or False: The derecognition of a financial liability is the primary focus of asset swaps
under PFRS 9.
Answer: True
14. True or False: Asset swaps involve the swapping of liabilities rather than assets.
Answer: False
15. True or False: The consideration given in an asset swap is always in the form of cash.
Answer: False
1. What is "Dacion En Pago" in the context described?
o A. A form of currency exchange
o B. Offering a mortgaged property in full settlement of a debt
o C. Swapping liabilities between debtor and creditor
o D. A type of insurance transaction
Answer: B
2. How is the transaction of "Dacion En Pago" accounted for?
o A. As an equity investment
o B. As a form of asset exchange
o C. As a liability on the debtor's side
o D. As an "Asset Swap" form of debt restructuring
Answer: D
3. What determines whether there is a gain or loss on extinguishment in "Dacion En
Pago"?
o A. The market value of the mortgaged property
o B. The balance of the obligation including accrued interest and other charges
o C. The debtor's credit score
o D. The original loan amount
Answer: B
4. When is there a gain on extinguishment in "Dacion En Pago"?
o A. When the balance of the obligation is more than the carrying amount of the
property mortgage
o B. When the balance of the obligation is less than the carrying amount of the
property mortgage
o C. When there is no balance of the obligation
o D. When the carrying amount of the property mortgage is zero
Answer: A
5. True or False: "Dacion En Pago" involves offering a mortgaged property as partial
settlement of a debt.
Answer: False
6. True or False: The recognition of gain or loss in "Dacion En Pago" is based solely
on the market value of the property.
Answer: False
7. True or False: If the balance of the obligation is less than the carrying amount of the
property mortgage, there is a gain on extinguishment in "Dacion En Pago".
Answer: False
8. True or False: The accounting treatment of "Dacion En Pago" is similar to an
equity swap.
Answer: False
9. True or False: "Dacion En Pago" can only be applied to financial obligations with
no accrued interest or charges.
Answer: False
10. What does a loss on extinguishment in "Dacion En Pago" indicate?
o A. The debtor has gained financially
o B. The carrying amount of the property mortgage is zero
o C. The balance of the obligation is less than the carrying amount of the property
mortgage
o D. The balance of the obligation is more than the carrying amount of the property
mortgage
Answer: C
1. What is an "Equity Swap" in the context described?
o A. Exchanging stocks between two companies
o B. Issuing share capital to settle a financial obligation
o C. Trading equity for debt securities
o D. A form of currency exchange
Answer: B
2. Under IFRIC 19, what is the order of priority for measuring equity instruments
issued to extinguish a financial liability?
o A. FV of Equity instruments issued, FV of liability extinguished, CA of liability
extinguished
o B. CA of liability extinguished, FV of Equity instruments issued, FV of liability
extinguished
o C. FV of liability extinguished, CA of liability extinguished, FV of Equity
instruments issued
o D. FV of liability extinguished, FV of Equity instruments issued, CA of liability
extinguished
Answer: C
3. What does "CA" in the order of priority stand for in the context of equity swap
measurement under IFRIC 19?
o A. Fair Value
o B. Current Asset
o C. Carrying Amount
o D. Creditworthiness Assessment
Answer: C
4. According to IFRIC 19, where is the difference between the carrying amount of the
financial liability and the initial measurement of the equity instruments recognized?
o A. In a separate equity account
o B. In a liability account
o C. In profit or loss on extinguishment of debt
o D. In a deferred income account
Answer: C
5. True or False: Equity swap involves the debtor exchanging shares with the creditor
in full or partial payment of an obligation.
Answer: True
6. True or False: According to IFRIC 19, the carrying amount of the financial liability
is the primary factor in determining the measurement of equity instruments issued.
Answer: False
7. True or False: The difference between the carrying amount of the financial liability
and the initial measurement of the equity instruments is recognized in a separate
equity account.
Answer: False
8. True or False: IFRIC 19 specifies a fixed order of priority for measuring equity
instruments issued, and this order cannot be adjusted based on specific
circumstances.
Answer: False
9. True or False: The measurement of equity instruments in an equity swap is
independent of the fair value of the liability extinguished.
Answer: True
10. In the context of an equity swap, what is the significance of the initial measurement
of equity instruments issued?
o A. It determines the maturity date of the equity instruments
o B. It influences the order of priority for measuring equity instruments
o C. It reflects the fair value of the financial liability
o D. It indicates the face value of the equity instruments
Answer: B
1. What aspects of a financial obligation can be involved in a modification of terms?
o A. Only interest rate
o B. Only maturity value
o C. Both interest and maturity value
o D. Neither interest nor maturity value
Answer: C
2. What is an example of an interest concession in a modification of terms?
o A. Increase in interest rate
o B. Forgiveness of unpaid interest
o C. Extension of maturity date
o D. Reduction of principal amount
Answer: B
3. In a maturity value concession, what may be involved?
o A. Increase in principal amount
o B. Reduction of interest rate
o C. Extension of the maturity date
o D. Forgiveness of unpaid interest
Answer: C
4. What does a maturity value concession typically involve?
o A. Reducing the principal amount
o B. Forgiving unpaid interest
o C. Accelerating the maturity date
o D. Extending the maturity date
Answer: A
5. In a modification of terms, what might be considered a form of interest concession?
o A. Reduction of principal amount
o B. Extension of maturity date
o C. Forgiveness of unpaid interest
o D. Acceleration of interest payments
Answer: C
6. True or False: Modification of terms can only involve changes to the interest rate
and not the maturity value.
Answer: False
7. True or False: A maturity value concession always involves an increase in the
principal amount.
Answer: False
8. True or False: Forgiveness of unpaid interest is an example of a maturity value
concession.
Answer: False
9. True or False: Extension of the maturity date is a form of modification that only
applies to interest concessions.
Answer: False
10. True or False: In a modification involving a reduction of principal amount, the
maturity date remains unchanged.
Answer: True
