FQ2 - Investments

FQ2 Investments
1 Under PFRS NO. 9, which is not a category for accounting for

investments? a. Fair value through profit and loss.
b. Fair value through other comprehensive income.
c. Held-to-maturity.
d. Amortized cost.
2
If the combined market value of trading securities at the end of the year is less than the
market value of the same portfolio of trading securities at the beginning of the year, the
difference should be accounted for by
a.
Reporting an unrealized loss in security investments in the stockholders' equity
section of the balance sheet.
b. Reporting an unrealized loss in security investments in the income

statement. c. A footnote to the financial statements.
d. A credit to Investment in Trading Securities.
3 Significant influence as defined in PAS 28 is

a.
The power to participate in the financial and operating policy decisions of the
investee but is not control or joint control over those policies.
b.
Deemed to exist when the investor is exposed, or has rights, to variable returns
from its involvement with the investee and has the ability to affect those those
returns through its power over the investee.
c.
The contractually agreed sharing of control of an arrangement, which exists only
when decisions about the relevant activities require the unanimous consent of the
parties sharing control.
d.
The power to govern the financial and operating policies of an entity so as to obtain
benefits from its activities.
4 An entity over which the investor has significant influence is called

a (an) a. Associate
b. Subsidiary
c. Joint venture
d. Joint operation
5
Which statement is incorrect regarding the application of the equity method of
accounting for investments in associates?
a. The equity investment in initially recorded at cost.
b.
The equity investment is decreased by the investor's share of the net loss of the associate.
c. Distribution received from the investee reduce carrying amount of the investment.
d.
The investor's share profit or loss of the investee and of changes in the investee's
equity is determined on the basis of the total potential ownership interests.
6
Which statement is incorrect regarding the use of equity method for investments in ordinary
shares? a. The equity method is in many ways a partial consolidation.
b.
Under the equity method of accounting for a stock investment, cash dividends
received are considered a reduction of the investee's net assets.
c.
Companies must always use the equity method when they hold between 25% and
50% of the ordinary shares of the investee.
d. All of the above.
7
When a company holds between 20% and 50% of the outstanding ordinary shares of an
investee, which of the following statements applies?
a. The investor should always use the equity method to account for its investment.
b.
The investor should use the equity method to account for its investment unless
circumstances indicate that it is unable to exercise "significant influence" over the
investee.
c.
The investor must use the fair value method unless it can clearly demonstrate the
ability to exercise "significant influence" over the investee.
d. The investor should always use the fair value method to account for its investee.
8
Equity investment acquired by a corporation which are accounted for by recognizing
unrealized holding gains or losses as other comprehensive income and as a separate
component of equity are
a. Non-trading where a company has a holdings of less than 20%.

b. Trading investments where a company has holdings of less than 20%.
c. Investments where a company has holdings between 20% and 50%.
d. Investments where a company has holdings of more than 50%.
9
Under what circumstances under PFRS 9 can an entity classify financial assets that
meet the amortized cost criteria as at FVTPL?
a. Where the instrument is held to maturity.
b. Where the business model approach is adopted.
c. Where the financial asset passes the contractual cash flow
characteristics test. d. If doing so eliminates or reduces an accounting
mismatch.
10 Which of the following are reported at fair value?

a. Debt investments.
b. Equity investments.
c. Both debt and equity investments.
d. None of these.
11 A reclassification adjustment is reported in the
a. Income statement as an other income or expense.
b. Equity section of the statement of financial position.
c. Statement of comprehensive income as other comprehensive
income. d. Statement of changes in equity.
12
The covenants and other terms of the agreement between the issuer of bonds and the lender
are set forth in the
a. Bond indenture.
b. Bond debenture.
c. Registered bond.
d. Bond coupon.
13
When the interest payment dates of a bond are May 1 and November 1, and a bond
issue is purchased on June 1, the amount of cash paid will be
a. Decreased by accrued interest from June 1 to November 1.
b. Decreased by accrued interest from May 1 to June 1.
c. Increased by accrued interest from June 1 to November 1.
d. Increased by accrued interest from May 1 to June 1.
14
The market price of a bond acquired at a discount is the present value of its principal
amount at the market rate of interest
a.
Plus the present value of all future interest payments at the market (effective)
rate of interest.
b.
Plus the present value of all future interest payments at the rate of interest stated
on the bond.
c.
Minus the present value of all future interest payments at the market (effective)
rate of interest.
d.
Minus the present value of all future interest payments at the rate of interest stated
on the bond.
15 Bonds usually sell at a premium

a. When the market rate of interest is greater than the stated rate of interest on the
bonds. b. When the stated rate of interest on the bonds is greater than the market
rate of interest. c. When the price of the bonds is greater than their maturity value.
d. In none of these cases.
16
When bonds are acquired at a premium and the effective interest method is used, at each
interest payment date, the interest income:
a. Remains constant.
b. Is equal to the change in book value.
c. Increases.
d. Decreases.
17 Which of the following is not a

derivative? a. Equity contracts
b. Futures contracts
c. Option contracts
d. Swap contracts
18
An interest rate swap in which a company has a fixed rate of interest and pays a variable rate
is called a:
a. cash flow hedge.
b. fair value hedge.
c. deferred hedge.
d. hedge of foreign currency exposure of a net investment in foreign operations
19 A derivative may be:

a. An asset account
b. A liability account
c. An owner equity account
d. Either an asset of a liability account.
20 Which of the following is not a debt

security? a. Convertible bonds
b. Commercial paper
c. Loans receivable
d. Preferred shares

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FQ2 Investments

1 Under PFRS NO. 9, which is not a category for accounting for

b. Reporting an unrealized loss in security investments in the income

3 Significant influence as defined in PAS 28 is

4 An entity over which the investor has significant influence is called

shares? a. The equity method is in many ways a partial consolidation.

a. Non-trading where a company has a holdings of less than 20%.

10 Which of the following are reported at fair value?

15 Bonds usually sell at a premium

17 Which of the following is not a

19 A derivative may be:

20 Which of the following is not a debt

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