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8 - Financial Instruments - TUTORIAL 1

This document contains a tutorial on financial instruments with 7 multiple choice and short answer questions. It covers topics such as categories of financial assets and liabilities, measurement of financial assets, classification of financial instruments, and journal entries for initial recognition of investments. Key points include: prepaid expenses are not a financial asset, equity instruments and convertible bonds are categories of financial assets, investments held for trading are measured at fair value, and classification depends on the entity's business model and contractual cash flows.

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Aina Saffiyah
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60 views3 pages

8 - Financial Instruments - TUTORIAL 1

This document contains a tutorial on financial instruments with 7 multiple choice and short answer questions. It covers topics such as categories of financial assets and liabilities, measurement of financial assets, classification of financial instruments, and journal entries for initial recognition of investments. Key points include: prepaid expenses are not a financial asset, equity instruments and convertible bonds are categories of financial assets, investments held for trading are measured at fair value, and classification depends on the entity's business model and contractual cash flows.

Uploaded by

Aina Saffiyah
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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FAR 570: TUTORIAL 1

Financial Instruments

QUESTION 1

Which of the following is not a financial asset or liability?

a. Cash
b. Prepaid expenses
c. An equity instrument of another entity
d. Deferred revenue
e. Trade receivables
f. A warranty obligation
g. Redeemable preference shares
h. Foreign currency contract
i. Convertible bond

QUESTION 2

Which of the following is not a category of financial assets?

a. Receivables
b. Investment in convertible debts
c. Issue of convertible bonds
d. Investment in equity instruments

QUESTION 3

Which of the following category of financial assets is measured at fair value in the statement of financial
position?

a. Debt instrument held for interest and principal


b. Equity instruments held for trading
c. Investments in financial instrument which met the business model and contractual cash flow
tests
d. Receivables

QUESTION 4

All the following are the characteristics of a derivative except:


a. It require no initial or small investment
b. Its value changes in response to the change in a specified underlying variable (e.g. interest rate,
foreign exchange rate, etc)
c. It is acquired to generate short-term profit taking
d. It is settled in the future date.

Lazar,J & Choo, H.C (2014) Page 1


QUESTION 5

An entity is considering how to classify the following financial assets and financial liabilities:

a. Investment in equity shares that has an active market and which the entity intends to take short-
term profits. It trades on these types of instruments

b. An account receivable that is not held for trading

c. Investment in equity shares quoted in an active market that is not held for trading but the entity
made an irrevocable election at initial recognition.

d. Purchase of convertible loan that is quoted in an active market and is not held for trading.

e. Purchase of debt instrument that is quoted in an active market and is not held for trading but the
entity intends to hold it to maturity. However, if the market interest rate fall, it intend to sell.

f. A „strategic‟ investment in an equity instrument that is not quoted in an active market and the
entity has no intention of selling it.

Required:
Indicate into which category or categories each instrument can be classified.

QUESTION 6

ACE acquired 1,000 shares of XYZ Bhd with a quoted price of RM5,500. In addition, ACE incurred
transaction cost of RM500. At the same time, ACE issued bonds for a total consideration of RM4 million
and incurred transaction costs of RM45,000 in issuing the bonds.

Additional information:

a. ACE classifies the shares of XYZ Bhd ac measured at “fair value through profit or loss”
b. ACE classified the shares of XYZ Bhd as measured at “fair value through OCI”
c. ACE measures the bonds at „amortised cost”

Required:

Prepare the journal entries on initial recognition

QUESTION 7

On 1 November x4, High acquired 5,000 quoted shares of Rainbow Bhd for RM25,000. It incurred
transaction costs of RM1,000. The fair value of these shares on 31 December x4 was RM26,200.
High wants to classify the investments as :
a. Fair value through profit or loss; r
b. Fair value through other comprehensive income.

Required:

Show journal entries to record the acquisition of the shares.

Lazar,J & Choo, H.C (2014) Page 2


Lazar,J & Choo, H.C (2014) Page 3

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