Chapter 6 (FINANCIAL ASSETS)

Question 1

any contract that arises to both FA and FL or equity of another entity

Answer 1

Financial Instrument

Question 2

a. Cash
b. Equity instrument of other entity
c. contractual right receive cash/ fi from other entity
d. cr exchange fi under conditions (favourable)

Answer 2

Financial asset

Question 3

a. contractual obligation deliver cash or FA
b. co exchange Fa or fl (unfavorable)
c. settled in entity’s own equity

Answer 3

Financial liability

Question 4

• contract: residual interest in assets after deducting liab

Answer 4

Equity instrument

Question 5

• recognised when become a party to contractual provisions

Answer 5

Initial Recognition of FA

Question 6

Initial Measurement of FA

Answer 6

Initially measured at FV plus transaction costs

Question 7

• Incremental costs (attributable to the acquisition)
• Fees and commissions paid to broker

Answer 7

Transaction Costs

Question 8

cash on hand, cash in bank & cash treasury accounts

Answer 8

Cash

Question 9

CASH AND CASH EQUIVALENTS
RECEIVABLES
INVESTMENTS
DERIVATIVES

Answer 9

Division of Financial Asset

Question 10

• Drawn not yet given to payee at the end of period
• Reverted back to cash
  Cash in bank, local currency – current
  AP

Answer 10

Unreleased commercial checks

Question 11

• Cancelled when stale, void
• Stale – outstanding for 6 months
• Reverted back to cash

Answer 11

Cancelled checks

Question 12

• Amounted granted by petty cash fund custodian to pay miscellaneous that can’t be paid through checks or ADA

Answer 12

Petty Cash fund

Question 13

• Disbursing officer is liable (

Answer 13

(cash shortage)

Question 14

• Cannot explain; forfeited in favor gov

Answer 14

(cash overage)

Question 15

• not accepted for payment
• lack of sufficient funds ( bounced check)

Answer 15

Dishonored check

Question 16

a. Collecting officer shall:
1. issue notice of dishonored check (drawer and endorser)
2. cancel OR
b. fails issue (CO – personal liability); drawer and endorser (relieved)
c. check refused by bank within 90 days (prima facie) drawer has knowledge
d. DC settled payment in cash or certified check

Answer 16

Guidelines of Dishonored check

Question 17

prepared to reconcile cash per records and per bank statement

Answer 17

Bank reconciliation

Question 18

• report issued by bank that shows D and C and Cumulative balance of depositor

Answer 18

Bank Statement

Question 19

1) presented as internal control
2) Chief accountant – prepare bank recon within 10 days from receipt of monthly bank statement
3) Adjusted balance method shall be used
4) prepared in 4 copies; submitted within 20 days (Coa auditor, head of agency, accounting division, & bank)
5) Journal entry voucher shall be prepared

Answer 19

Guidelines in Bank reconciliation

Question 20

• Short term; highly liquid investment readily convertible
• Only debt instruments within 3 months

Answer 20

Cash equivalents

Question 21

• Claims for cash
  a. AR – amount due from customers (regular trade business transactions)
  b. NR – claims with interest (promissory notes)
  c. LR – recognize loans (gov – goccs)
  d. Other R – interest, lease and dividends receivables

Answer 21

RECEIVABLES

Question 22

Initial measurement of Receivables

Answer 22

FV plus TC

Question 23

Subsequent measurement of Receivables

Answer 23

Amortized cost

Question 24

a. Held for trading
b. on initial recognition (if can be reliably measured)

Answer 24

FA at FV through surplus or deficit

Question 25

are non-derivative financ assets with fixed or determinable payments and fixed maturity that an entity has the positive intention and ability t hold until maturity.

Answer 25

Held to maturity

Question 26

are non-derivative financial assets with fixed or determinable payments and are not quoted in an active market.

Answer 26

Loans and receivables

Question 27

are non-derivative financial assets that are designated as available for sale or are not classifiable under the other categories

Answer 27

Available for sale FA

Question 28

* Investments cannot be reliably measured

Answer 28

(COST)

Question 29

- Measure diff between carrying amount (allowance account) and present value of FA (discounted effective interest rate)

Answer 29

Impairment of Financial Assets

Question 30

- Removing previously recognized A, L or E from statement of FP - 1. Contractual rights to FA expire/waived - 2. FA transferred; risk and rewards (relinquished) - Subject to the state audit code of PH issued by COA

Answer 30

Derecognition of FA

Question 31

- FI or contract that derives its value from changes of value (underlying asset or underlying asset)

Answer 31

DERIVATIVES

Question 32

1. value changes in change of underlying 2. requires no initial inv (very minimal initial inv) 3. settled at future date

Answer 32

Characteristics of Derivatives

Question 33

- Specified price, rate or other variable w/ schedule event that may or may not occur

Answer 33

Underlying

Question 34

- Risk management (identifying the desired level of risk

Answer 34

Purpose of Derivatives

Question 35

- Method of offsetting a potential loss to reduce risk

Answer 35

Hedging

Question 36

1. FV hedge – exposure to changes in FV 2. Cash flow hedge – exposure to variability in cashflow 3. Hedge of a net investment in a foreign operation

Answer 36

Hedging relationship

Question 37

a. hedging instrument – derivative whose FV/ cashflow (offset change in FV or cashflow) b. Hedged item – A, L firm commitment, transaction (foreign operation) expose risk of change in FA or Fcf and designated being hedge

Answer 37

Component of hedging relationship

Question 38

exposure to changes in FV

Answer 38

FV hedge

Question 39

exposure to variability in cashflow

Answer 39

Cash flow hedge

Question 40

Other hedging relationship

Answer 40

Hedge of a net investment in a foreign operation

Question 41

derivative whose FV/ cashflow (offset change in FV or cashflow)

Answer 41

hedging instrument

Question 42

A, L firm commitment, transaction (foreign operation) expose risk of change in FA or Fcf and designated being hedge

Answer 42

Hedged item