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Flashcards in FAR 47 (2) Deck (21):
1

Which of the following is a category of financial assets under IFRS for which there is not a comparable category under U.S. GAAP?
A. Instruments held available-for-sale.
B. Loans and receivables.
C. Instruments held to maturity.
D. Instruments for which changes in value are reported in profit/loss.

B. U.S. GAAP does not have a category of financial assets for loans and receivables; IFRS does have such a category.

2

Under IFRS, which one of the following instruments is most likely to be treated in its entirety as a financial liability?
A. Convertible debt.
B. Convertible preferred stock.
C. Redeemable preferred stock.
D. Common stock with a preemptive right.

C. Under IFRS, redeemable preferred stock would likely be treated in its entirety as a financial liability because the stock can be redeemed (repurchased) by the issuing corporation at its discretion. Since the preferred shares can be redeemed at the discretion of the issuing corporation, it is not treated as equity, but rather as a liability.

3

Which of the following is the correct accounting measurement and treatment under IFRS for assets classified as "Loans and Receivables"?
A. Amortized cost, with interest and amortization recognized in current income.
B. Amortized cost, with interest and amortization recognized in other comprehensive income.
C. Fair value, with changes in fair value recognized in current income.
D. Fair value, with changes in fair value recognized in other comprehensive income.

A. Financial assets classified as "Loans and Receivables" are measured at amortized cost, with interest and amortization related to the instrument recognized in current income. This treatment is the same as the treatment under U.S. GAAP for investments held to maturity.

4

T/F: Under U.S. GAAP, an impairment loss on a financial asset is measured as the difference between the carrying value and the fair value of the asset; under IFRS, an impairment loss on a financial asset is measured as the difference between the carrying value and the recoverable amount of the asset.

True

5

T/F: Under IFRS, contracts involving an entity's own equity instruments cannot be financial instruments.

False.
They can be financial instruments

6

T/F: Under IFRS, changes in the fair value of assets held for trading are reported in profit or loss.

True

7

T/F: Under IFRS, if a significant amount of assets classified as held-to-maturity are sold before maturity, that category cannot be used by the entity for other instruments for at least two years.

True

8

T/F: Under IFRS, changes in the value of derivative assets and liabilities are reported in profit or loss.

True

9

T/F: Under IFRS, an impairment loss on a financial asset would be recognized as an item of other comprehensive income.

False.
Impairment losses are recognized in income under IFRS.

10

T/F: Under IFRS, a financial instrument could be treated as part liability and part equity.

True

11

If it is not practicable for an entity to estimate the fair value of a financial instrument, which of the following should be disclosed?

I. Information pertinent to estimating the fair value of the instrument.
II. The reasons it is not practicable to estimate fair value.

Both. When it is not practicable for an entity to estimate the fair value of a financial instrument, both information pertinent to estimating the fair value of the instrument and the reasons it is not practicable to estimate fair value must be provided.

12

Whether recognized or unrecognized in an entity's financial statements, disclosure of the fair values of the entity's financial instruments is required when:
A. It is practicable to estimate those values.
B. The entity maintains accurate cost records.
C. Aggregate fair values are material to the entity.
D. Individual fair values are material to the entity

A. Disclosure of the fair values of an entity's financial instruments is required when it is practicable to estimate those fair values.

13

When a concentration of credit risk must be disclosed and the exact amount is uncertain, which one of the following amounts must be disclosed?
A. Minimum amount at risk.
B. Current period average amount at risk.
C. Historic average amount at risk.
D. Maximum amount at risk.

D. When a concentration of credit risk exists, the maximum amount at risk must be disclosed. The maximum amount is measured as the gross fair value of all financial instruments that would be lost if the other parties fail completely to perform according to the terms of the contract(s) and assuming any collateral was of no value.

14

Fair value disclosure of financial instruments may be made in the:
1) Body of FS
2) FN to FS

Both. Fair value disclosure of financial instruments may be made in either the body of the financial statements or in the footnotes to the financial statements. If in the footnotes, one note must show fair values and carrying amounts for all financial instruments.

15

T/F: For disclosure purposes, the fair value of different financial instruments that are assets may be netted against those that are liabilities.

False.
May not be netted, even if they are of the same class or otherwise related.

16

T/F: If quoted market prices are not available for a financial instrument, the entity holding the instrument does not have to disclose its fair value.

False.

17

T/F: The concept of "practicable to estimate" implies a cost/benefit analysis.

True

18

T/F: Market risk associated with financial instruments must be disclosed.

False.
It is not required, but it is encouraged.

19

T/F: All financial instruments are assets.

False.
Financial instruments can be assets, liabilities, or equity.

20

T/F: Professional appraisal is the best source of fair value for a financial instrument.

False.
Quoted market prices in an active market would be the most reliable source of FV.

21

T/F: In most cases, an entity must disclose the fair value of its financial instruments.

True.

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