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CFA Level I > Vol. 3 LM2 Non-Current Assets: Financial Assets > Flashcards

Vol. 3 LM2 Non-Current Assets: Financial Assets Flashcards

1
Q

define (under IFRS)

financial instrument

Balance Sheet

A

a contract that gives to a financial asset of one entity, and a financial liability or equity instrument of another entity (per IAS 32, paragraph 11)

Balance Sheet

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2
Q

Concept

a contract that gives to a financial asset of one entity, and a financial liability or equity instrument of another entity (per IAS 32, paragraph 11)

Balance Sheet

A

financial instrument (per IFRS)

Blanace Sheet

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3
Q

Define

derivatives

Balance Sheet

A
  • financial instruments for which the value is derived based on some underlying factor (interest rate, exchange rate, commodity price, security price, or credit rating), and;
  • for which little or no initial investment is required.

Balance Sheet

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4
Q

Concept

  • financial instruments for which the value is derived based on some underlying factor (interest rate, exchange rate, commodity price, security price, or credit rating), and;
  • for which little or no initial investment is required.

Balance Sheet

A

derivatives

Balance Sheet

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5
Q

measurement method(s)

financial assets

Balance Sheet

A
  • amortized cost
  • fair value

Balance Sheet

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6
Q

measurement method

Financial assets classified as held-to-maturity investments

Balance Sheet

A

amortized cost

Balance Sheet

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7
Q

define (under US GAAP ASC 820)

fair value

Balance Sheet

A

the price that would be received to sell an asset or paid to transfer a liability in an orderly market transaction

Balance Sheet

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8
Q

measurement method

held-to-maturity financial assets

Balance Sheet

A

measured at amortized cost

Balance Sheet

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9
Q

measurement method

available-for-sale financial assets

Balance Sheet

A

measured at fair value

Balance Sheet

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10
Q

US GAAP vs IFRS

treatment of available-for-sale assets

Balance Sheet

A

under US GAAP, available-for-sale applies only to debt securities;
it is not permitted for investments in equity securities

Balance Sheet

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11
Q

measurement of financial assets

debt securities designated as trading securities (US GAAP only)

Balance Sheet

A

measured at fair value
* unrealized holding gains or losses recognized in the income statement

Balance Sheet

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12
Q

define

trading securities

Balance Sheet

A

pertains to a debt security that is acquired with the intent of selling it rather than holding it to collect the interest and principal payments.

Balance Sheet

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13
Q

measurement of financial assets

debt securities that are to be held to maturity

Balance Sheet

A

measured at cost or amortized cost

Balance Sheet

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14
Q

measurement of financial assets

loans and notes receivable

Balance Sheet

A

measured at cost or amortized cost

Balance Sheet

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15
Q

measurement of financial assets

unquoted equity instruments

Balance Sheet

A

measured at cost or amortized cost (IAS 39)

Balance Sheet

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16
Q

measurement of financial assets

available-for-sale debt securities under US GAAP

Balance Sheet

A

measured at fair value through other comprehensive income (FVOCI)

Balance Sheet

17
Q

measurement of financial assets

all equity securities unless the investment gives the investor significant influence (US GAAP only)

Balance Sheet

A

measured at fair value through profit and loss

Balance Sheet

18
Q

Name the US GAAP equivalent

Measured at Cost or Amortized Cost

Balance Sheet

A

Held to maturity

Balance Sheet

19
Q

Name the US GAAP equivalent

Measured at Cost or Amortized Cost

Balance Sheet

A

Held-to-Maturity Debt Securities

Balance Sheet

20
Q

Name the US GAAP equivalent

Measured at Fair Value through Profit and Loss

Balance Sheet

A

Trading Debt Securities

Balance Sheet

21
Q

ignoring taxes, calculate interest income on HTM, AFS, trading assets

Consider an entity that $100,000,000 on January 1, 200X in a fixed-income security investment, with a 5 percent coupon paid semi-annually.
After 6 months, the company receives the first coupon of $2,500,000.
Market interest rates have declined, increasing the value of the investment by $2,000,000 as of June 30, 200X.

Balance Sheet

A

included in Income Statement for period Jan 1-June 30, 200X
* HTM: $2,500,000
* AFS: $2,500,000
* Trading: $2,500,000

Balance Sheet

22
Q

ignoring taxes, calculate unrealized gains on HTM assets

Consider an entity that invests $100,000,000 on January 1, 200X in a fixed-income security investment, with a 5 percent coupon paid semi-annually.
After 6 months, the company receives the first coupon of $2,500,000.
Market interest rates have declined, increasing the value of the investment by $2,000,000 as of June 30, 200X.

Balance Sheet

A

included in Income Statement for period Jan 1-June 30, 200X
interest income: $0

because the securities are measured at cost rather than fair value, no unrealized gain is recognized

Balance Sheet

23
Q

ignoring taxes, calculate impact on proft and loss on HTM assets

Consider an entity that invests $100,000,000 on January 1, 200X in a fixed-income security investment, with a 5 percent coupon paid semi-annually.
After 6 months, the company receives the first coupon of $2,500,000.
Market interest rates have declined, increasing the value of the investment by $2,000,000 as of June 30, 200X.

Balance Sheet

A

included in Income Statement for period Jan 1-June 30, 200X
* Interest income + unrealized gains = impact on profit and loss
* 2,500,000 + 0 = $2,500,000
* HTM assets are not marked-to-market

Balance Sheet

24
Q

ignoring taxes, calculate impact on proft and loss on assets AFS

Consider an entity that invests $100,000,000 on January 1, 200X in a fixed-income security investment, with a 5 percent coupon paid semi-annually.
After 6 months, the company receives the first coupon of $2,500,000.
Market interest rates have declined, increasing the value of the investment by $2,000,000 as of June 30, 200X.

Balance Sheet

A

included in Income Statement for period Jan 1-June 30, 200X
* Interest income + unrealized gains = impact on profit and loss
* 2,500,000 + 0 = $2,500,000
* This is the same for HTM assets

Balance Sheet

25
Q

ignoring taxes, calculate impact on proft and loss on trading assets

Consider an entity that invests $100,000,000 on January 1, 200X in a fixed-income security investment, with a 5 percent coupon paid semi-annually.
After 6 months, the company receives the first coupon of $2,500,000.
Market interest rates have declined, increasing the value of the investment by $2,000,000 as of June 30, 200X.

Balance Sheet

A

included in Income Statement for period Jan 1-June 30, 200X
* Interest income + unrealized gains = impact on profit and loss
* 2,500,000 + 2,000,000 = $4,500,000

Balance Sheet

26
Q

ignoring taxes, calculate cash and cash equivalents assets HTM

Consider an entity that invests $100,000,000 on January 1, 200X in a fixed-income security investment, with a 5 percent coupon paid semi-annually.
After 6 months, the company receives the first coupon of $2,500,000.
Market interest rates have declined, increasing the value of the investment by $2,000,000 as of June 30, 200X.

Balance Sheet

A

Balance Sheet As of June 30, 200X
* cash and cash equivalents HTM = $2,500,000

Balance Sheet

27
Q

ignoring taxes, calculate cash and cash equivalents assets AFS

Consider an entity that invests $100,000,000 on January 1, 200X in a fixed-income security investment, with a 5 percent coupon paid semi-annually.
After 6 months, the company receives the first coupon of $2,500,000.
Market interest rates have declined, increasing the value of the investment by $2,000,000 as of June 30, 200X.

Balance Sheet

A

Balance Sheet As of June 30, 200X
* cash and cash equivalents AFS = $2,500,000

Balance Sheet

28
Q

ignoring taxes, calculate cash and cash equivalents trading assets

Consider an entity that invests $100,000,000 on January 1, 200X in a fixed-income security investment, with a 5 percent coupon paid semi-annually.
After 6 months, the company receives the first coupon of $2,500,000.
Market interest rates have declined, increasing the value of the investment by $2,000,000 as of June 30, 200X.

Balance Sheet

A

Balance Sheet As of June 30, 200X
* cash and cash equivalents trading debt securities = $2,500,000

Balance Sheet

29
Q

calculate cost of securities, HTM, AFS, Trading

Consider an entity that invests $100,000,000 on January 1, 200X in a fixed-income security investment, with a 5 percent coupon paid semi-annually.
After 6 months, the company receives the first coupon of $2,500,000.
Market interest rates have declined, increasing the value of the investment by $2,000,000 as of June 30, 200X.

Balance Sheet

A

Balance Sheet As of June 30, 200X
Cost of securities
HTM = $100,000,000
AFS = $100,000,000
Trading = $100,000,000

Balance Sheet

30
Q

ignoring taxes, calculate total assets HTM

Consider an entity that invests $100,000,000 on January 1, 200X in a fixed-income security investment, with a 5 percent coupon paid semi-annually.
After 6 months, the company receives the first coupon of $2,500,000.
Market interest rates have declined, increasing the value of the investment by $2,000,000 as of June 30, 200X.

Balance Sheet

A

Balance Sheet As of June 30, 200X
* cash and cash equivalents = $2,500,000
* Cost of securities = $100,000,000
* Unrealized gains on securities = $0

$102,500,000
in practice, unrealized gain would be listed on a separate line

Balance Sheet

31
Q

ignoring taxes, calculate total assets AFS

Consider an entity that invests $100,000,000 on January 1, 200X in a fixed-income security investment, with a 5 percent coupon paid semi-annually.
After 6 months, the company receives the first coupon of $2,500,000.
Market interest rates have declined, increasing the value of the investment by $2,000,000 as of June 30, 200X.

Balance Sheet

A

Balance Sheet As of June 30, 200X
* cash and cash equivalents = $2,500,000
* Cost of securities = $100,000,000
* Unrealized gains on securities = $2,000,000

$104,500,000
in practice, unrealized gain would be listed on a separate line

Balance Sheet

32
Q

ignoring taxes, calculate total trading assets

Consider an entity that invests $100,000,000 on January 1, 200X in a fixed-income security investment, with a 5 percent coupon paid semi-annually.
After 6 months, the company receives the first coupon of $2,500,000.
Market interest rates have declined, increasing the value of the investment by $2,000,000 as of June 30, 200X.

Balance Sheet

A

Balance Sheet As of June 30, 200X
* cash and cash equivalents = $2,500,000
* Cost of securities = $100,000,000
* Unrealized gains on securities = $2,000,000

$104,500,000
in practice, unrealized gain would be listed on a separate line

Balance Sheet

CFA Level I (64 decks)

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