IFRS 9

Question 1

IFRS 9 Financial instruments establishes principles for…

Answer 1

Recognizing and measuring financial assets and liabilities.

Question 2

IFRS 9 applies to all entities and to all financial instruments except…

Answer 2

those specifically excluded, for example investment in subsidiaries, associates, JV and other arrangements.

Question 3

A financial asset or financial liability should be recognized in SOFP when…

Answer 3

the entity becomes a party to the contractual provisions of the instrument.
In other words, when the Company must execute its contractual terms.

Question 4

On recognition, IFRS 9 requires that financial assets are classified as measured at either:

Answer 4

1. Amortized cost
2. FVPL
3. FVOCI

Question 5

Gain or Loss at amortized cost might happen in cases:

Answer 5

1. Changing a discount rate, which then require to remeasure. Where you should took gain or loss to PnL;
2. Derecognize

Question 6

The IFRS 9 classification is made on basis of both:

Answer 6

a) the entity’s business model;

b) the contractual cash flow characteristics of the financial asset.

Question 7

General principal roll forward for Financial instruments at amortized cost:

Answer 7

PV + Accrued interest - Coupon Payment

Question 8

Amortized cost measurement criteria:

Answer 8

1) Meets SPPI ( Solely Payment Principles & Interest);

2) Held to maturity in order to collect contractual cash flow.

Question 9

FVOCI measurement criteria:

Answer 9

a) Meets SPPI test (Solely Payment Principles & Interest);

b) Is held for both business model, either in order to collect contractual cash flows and for sale.

Question 10

FVPL measurement criteria:

Answer 10

All other financial assets that do not meet the criteria of amortized cost and FVOCI.
Where changes in FV recognized in PnL.

Question 11

IFRS 9 requires that financial liabilities are classified as measured either:

Answer 11

a) At FVPL;

b) At amortized cost.

Question 12

Reclassification under IFRS 9:

Answer 12

allowed for Financial assets, but not for liabilities.

Question 13

At initial recognition all financial assets measured…

Answer 13

at fair value. This is purchase paid to acquire the financial asset.
Transaction cost are included, unless the asset is FVPL.

Question 14

A financial liability is initially recognized at its fair value.
This is usually the net proceeds of the cash received less any costs of issuing the liability.

Question 15

Equity instruments after initial recognition are measured…

Answer 15

at FVOCI or FVPL.

Question 16

If equity instruments are held at FVPL…

Answer 16

no transaction cost are included in the carrying amount.

Question 17

FVPL for equity instruments

Answer 17

This is default category for equity instruments.

Any transaction costs with purchase are expensed to PL, and are Not included to initial value.

Question 18

Equity instruments at FVOCI

Answer 18

This can be done in acquisition, and..

can only be done, if the investment is intended as long term investment.

Question 19

Equity instrument under FVOCI

Answer 19

• Transaction cost are capitalized

- revalued to FV at each year end, with any gain or loss shown in OCI and taken to investment reserve in equity.

Question 20

Irrevocable choice means

Answer 20

once the entity decided to measure financial instrument at FVOCI, then further the entity can not to recycle measuring to FVPL.

Question 21

For financial liabilities at FVPL gain or loss must be classified

Answer 21

1) gain or loss due to change of credit risk;
2) Other gain or loss.

Where changes due to credit risk should be recognized in OCI.

Question 22

Compound instruments has characteristics of both…

Answer 22

equity and liabilities, such as convertible bond.

Question 23

Convertible loan has characteristics:

Answer 23

1) It is repayable at the lender’s option, in shares or in cash;
2) the number of shares is fixed;
3) the lender will accept interest rate below than market rate.

Question 24

Out of Scope of the impairment under IFRS 9

Answer 24

° equity instruments;
° loan commitments issued that are measured at FVPL;
° other financial instruments measured at FVPL.

Question 25

The new impairment model in IFRS 9 is based on providing for expected credit losses and applies to …

Answer 25

financial assets held at amortized cost and FVOCI.

Question 26

The stage approach prescribed as…

Answer 26

Stage 1: impairment for 12 month ECL

Stage 2: Lifetime ECL w/o objective evidence

Stage 3:

Question 27

When payments are 30 days past due…

Answer 27

a financial asset considered to be in stage 2 and lifetime ECL would be recognized.

Question 28

Hedge accounting exposures

Answer 28

1. Foreign currency exposures
2. Interest rate exposures
3. Commodity exposures

Question 29

Three types of hedges

Answer 29

Cash flow hedge
Fair value hedge
Net investment hedge

Question 30

2 reasons for hedge accounting:

Answer 30

1) timing - in order to cover the accounting mismatch

2) Presentation in FS (PL and OCI)

Question 31

3 reasons using hedge accounting

Answer 31

1) Mgmt understand the importance of risk management;
2) Mgmt taken measures to manage risks;
3) It shows the impact, activities of the management

Question 32

Hedge instruments:

Answer 32

1) Derivatives

2) Non derivative instruments

Question 33

The basin purpose of hedge accounting is

Answer 33

to manage volatility in PnL.

Question 34

By default formula for calculating convertible bond: ( for example with three years of maturity)

Answer 34

1. Coupon payable x discount factor
2. Coupon payable x discount factor
3. Redeemable nominal amount x discount factor + Coupon payable x discount factor

Question 35

30 million $ convertible bond issued worth maturity 3 years, eff rate 10%, Coupon rate 8%.

Answer 35

30,000 x 8% = 2,400

1. 2400 x 0.91= 2,184
2. 2,400 x 0.83 = 1,992
3. (30,000 + 2,400) * 0.75 = 24,300
   Total 28,476

30,000 - 28,475 = 1,524 is equity part. Balancing figure.

Question 36

Discount factor is calculating in the following manner: for example effective rate is 9% and for 5 years.

Answer 36

1 / (1+9%) ^ 5 = 0.65

Question 37

IFRS 9 Financial instruments does not applied

Answer 37

to non financial items which are for own use, because own use items are considered as executory contact and therefore they are beyond the scope of IFRS 9. An entity can declare them at FV with profit is loss.
However, there is an exception to such contacts, - if there is non financial items contact looks like an executory contact based on own use, but it is net settled in cash. At that circumstances it can be treated under IFRS 9 and would be classified FVPL.

Question 38

The loan notes are paid at par i.e …

Answer 38

nominal value plus a premium at the end of year

Question 39

The loan notes are repaid at par i.e

Answer 39

Nominal amount to repay at the end of year.

Question 40

Transaction costs are included when measuring all financial assets and liabilities at…..

Answer 40

amortized cost, and FA at FVOCI.

Transaction costs for financial assets valued at FVPL are expensed through PnL, and not included in the initial value of the asset

Question 41

If the issue costs incurred, then initial liability should be recognized at the…

Answer 41

net proceeds. Finance cost should then be accounted for using the effective rate of interest. 
For example, issued 20m $, 
costs - 600k$, 
20-6=19.4
19.4 x 7% = 1.380