Chapter 10 Flashcards
True or False: Short-term investments have a lower level of risk but a lower level of return.
True
This means willing to accept a lower level of risk
Risk-averse
This means willing to accept a higher level of risk
Risk-seeking
True or False: Investments in stocks have a higher level of risk but a higher level of return.
True
Where are the investments that are classified as financial instruments accounted under?
PFRS 9, Financial Instruments
This is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Financial Instrument
This represents the medium of exchange.
Currency
Which PAS are financial instruments under?
PAS 32
These are basically the financial liabilities of another entity in the form of loans payable, notes payable, and bonds payable.
Investment in debt securities
These are considered as investments in the point of view of the shareholder owning shares of stock in a corporation; thus, it is the equity of another entity in the form of common share or preference share capital.
Investment in equity securities
These derive their value from changes in the specified underlying
Derivatives
True or False: Investments in equity securities can be classified at amortized cost.
False
True or False: Investment in debt securities cannot be irrevocably designated at FVTOCI.
True
True or False: Refundable prepaid expenses are not financial instruments.
False. They are.
These are classifications of financial assets under PFRS 9
FVTPL
FVTOCI
Amortized Cost
This is used by default for both debt and equity securities or by irrevocable designation on initial recognition for both debt and equity securities.
FVTPL
This is used by meeting certain conditions for debt securities or by irrevocable designation on initial recognition for equity securities.
FVTOCI
This is used by meeting certain conditions for debt securities only.
Amortized Cost
True or False: An entity shall only recognize a financial asset or financial liability in its statement of financial position when, and only when, the entity becomes party to the contractual provisions of the instrument.
True.
True or False: Planned future transactions are assets and liabilities of an entity.
False. The entity has not yet become part of a contract.
How are FVTPL financial assets measured at initial recognition?
at fair value (transaction costs are expensed outright)
How are FVTOCI and amortized cost financial assets measured at initial recognition?
at fair value plus transaction costs (transaction costs are capitalized)
This is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Fair value
These are incremental costs that are directly attributable to the acquisition, issue, or disposal of a financial asset or financial liability.
Transaction costs
True or False: Transaction costs include debt premiums or discounts, financing costs or internal administrative or holding costs.
False.
These are the approaches in computing the amount of fair value.
Quoted price approach
Present value approach
True or False: Regardless of the difference between the transaction price and fair value, a financial asset shall always be initially measured equal to its fair value.
True. The difference is accounted as unrealized gain or unrealized loss.
