Chapter 10

Question 1

True or False: Short-term investments have a lower level of risk but a lower level of return.

Answer 1

True

Question 2

This means willing to accept a lower level of risk

Answer 2

Risk-averse

Question 3

This means willing to accept a higher level of risk

Answer 3

Risk-seeking

Question 4

True or False: Investments in stocks have a higher level of risk but a higher level of return.

Answer 4

True

Question 5

Where are the investments that are classified as financial instruments accounted under?

Answer 5

PFRS 9, Financial Instruments

Question 6

This is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

Answer 6

Financial Instrument

Question 7

This represents the medium of exchange.

Answer 7

Currency

Question 8

Which PAS are financial instruments under?

Answer 8

PAS 32

Question 9

These are basically the financial liabilities of another entity in the form of loans payable, notes payable, and bonds payable.

Answer 9

Investment in debt securities

Question 10

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.

Answer 10

Investment in equity securities

Question 11

These derive their value from changes in the specified underlying

Answer 11

Derivatives

Question 12

True or False: Investments in equity securities can be classified at amortized cost.

Answer 12

False

Question 13

True or False: Investment in debt securities cannot be irrevocably designated at FVTOCI.

Answer 13

True

Question 14

True or False: Refundable prepaid expenses are not financial instruments.

Answer 14

False. They are.

Question 15

These are classifications of financial assets under PFRS 9

Answer 15

FVTPL
FVTOCI
Amortized Cost

Question 16

This is used by default for both debt and equity securities or by irrevocable designation on initial recognition for both debt and equity securities.

Answer 16

FVTPL

Question 17

This is used by meeting certain conditions for debt securities or by irrevocable designation on initial recognition for equity securities.

Answer 17

FVTOCI

Question 18

This is used by meeting certain conditions for debt securities only.

Answer 18

Amortized Cost

Question 19

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.

Answer 19

True.

Question 20

True or False: Planned future transactions are assets and liabilities of an entity.

Answer 20

False. The entity has not yet become part of a contract.

Question 21

How are FVTPL financial assets measured at initial recognition?

Answer 21

at fair value (transaction costs are expensed outright)

Question 22

How are FVTOCI and amortized cost financial assets measured at initial recognition?

Answer 22

at fair value plus transaction costs (transaction costs are capitalized)

Question 23

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.

Answer 23

Fair value

Question 24

These are incremental costs that are directly attributable to the acquisition, issue, or disposal of a financial asset or financial liability.

Answer 24

Transaction costs

Question 25

True or False: Transaction costs include debt premiums or discounts, financing costs or internal administrative or holding costs.

Answer 25

False.

Question 26

These are the approaches in computing the amount of fair value.

Answer 26

Quoted price approach
Present value approach

Question 27

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.

Answer 27

True. The difference is accounted as unrealized gain or unrealized loss.