Finacial instruments

Question 1

Financial instruments

Answer 1

Any contract that gives rise to a financial asset of one entity & a financial liability or an equity instrument of another entity

Question 2

Financial asset

Answer 2

Cash or cash equivalent or an equity instrument of another entity or a contractual right to: Receive cash or another financial asset from another entity

Question 3

Recognition

Answer 3

Initially recognised when, and only when the entity becomes party to the contractual provisions of the instrument.

Question 4

Classification models

Answer 4

• Amortised cost
• Fair value :
  P/L
  OCI : Debt
  OCI: Equity

Question 5

Contractual cash flow test

Answer 5

Asses if the entity received:
*Cash flows on specify dates
* that are solely payments of principal & interest

Question 6

Business model test

Answer 6

Asses business model relevant to the asset to determine the objections:
* to hold the asset to sell the asset
* to collect the contractual cash flow
*to collect the contractual cash flows & to sell the asset

Question 7

Hold to sell

Answer 7

Asset classified at the fair value through P/L

Question 8

Just collect the contractual cash flow

Answer 8

Asset is classified at amortised cost

Question 9

Collect contractual cash flow & sell asset

Answer 9

Asset classified at the fair value through OCI

Question 10

Financial asset at amortised cost
Criteria

Answer 10

• Contractual cash flow
• Business model: collect contractual cash flows

Question 11

Financial assets at fair value through OCI
criteria

Answer 11

• Contractual cash flow
• BM: Both collect contractual cash flows & sell the asset

Question 12

Financial asset at FV through P/L
Criteria

Answer 12

Does not meet criteria for classification of:
- Amortised cost
- OCI

Question 13

Initial measurement of financial asset

Answer 13

• Initially measured at FV & some are adjusted for transaction
• Day-one gain or loss which arise if the FV does not equal the transaction price

Question 14

Measurement of FA at amortized cost

Answer 14

*Initially at FV + transaction cost
* Subsequently measured using effective interest method
* test for impairment
* all gains or losses recognised in P/L

Question 15

Financial asset: renegotiated

Answer 15

• If a renegotiation does not lead to the derecognition the entity would need to
• Calculated the revised gross CA &
• Recognised a modification gain or loss in P/L based on the difference between current CA & revised gross CA

Question 16

Measurement of FV through OCI - debt

Answer 16

• Initially: FV + transaction cost
• Subsequently:
  1- Effective interest rate method
  2- at Fair value
• Tested for impairment
  Gains & losses due to:
• Changes in FV: Recognised in OCI
• Anything else in P/L

Question 17

Measurement of FA through OCI - equity

Answer 17

*Initially: Fair value + transaction cost
* Subsequently measured at FV
* Not test for impairment
* Gains & losses: All on OCI
* Dividend income: recognised in P/L

Question 18

Measurement of FA at FV through P/L

Answer 18

• Initially: Fair value
• Transaction cost expensed
• Subsequently: Fair value
• Not test for impairment
• Gains & losses: All in P/L
  *Dividend income: P/L