Chapter 5 Flashcards
It is any contract that gives rise to a financial asset of one entity and financial liability or equity instrument of another entity
Financial instrument
It is any asset that is cash; an equity instrument of another entity; a contractual right to receive cash or another financial asset from another entity and a contractual right to exchange financial instrument with another entity under conditions that are potentially favorable
Financial asset
It is any contract that evidences residual interest in the asset of an entity after deducting all it’s liabilities
Equity instrument
Are entity’s own shares that were previously issued but were subsequently reacquired but not retired
Treasury shares
Gives at least three examples of financial asset
Cash and cash equivalents
Receivables
Equity investment
Debt investments
Sinking fund
These are financial assets that represent a contractual right to receive cash or another financial assets from another entity
Receivables
These are claims arising from the sale of merchandise or services in the ordinary course of business
Trade receivables
These are open accounts arising from the sale of goods and services in the ordinary course of business and not supported by promissory note
Accounts receivable
It is an account title used as a deduction from accounts receivable
Allowance for doubtful accounts
These are claims supported by formal promise to pay usually in the form of notes
Note receivable
These are financial assets arising from loan granted by a bank or other financial institution to a borrower or client
Loan receivable
It encompasses any instruments representing ownership shares and rights, warrants and options to acquire or dispose of ownership shared at a fixed or determinable price
Equity securities
It is a security that represents a creditor relationship with an entity
Debt security
What are the three classification of a financial asset
Financial asset at amortized cost
Financial asset through other comprehensive income
Financial asset through profit or loss
How should bond investment be classified as financial asset
Financial asset or amortized cost
Financial asset through other comprehensive income or financial asset through profit or loss
Give at least two examples of non financial assets
(1) Intangible assets
(2) Physical asset (inventory, property plant and equipment)
(3) Prepaid expenses
(4) Leased assets
How should financial assets be initially measured? A. Financial asset at amortized cost B. Financial asset through profit or loss (FA-FVPL) C. Financial asset through other comprehensive income (FA-FVOCI)
A. Fair value plus transaction cost
B. Fair value
C. Fair value plus transaction cost
If the business model is both collecting the contractual cash flows and selling of the financial asset, the classification of financial asset will be
Financial asset through other comprehensive income (FA-FVOCI)
If the business model is to hold the financial asset until maturity to collect the principal and interest payments, the classification of financial asset is
Financial asset at amortized cost
It is the first day of the first reporting period following the change in business model that results in an entity reclassifying financial assets
Reclassification date
When should a financial asset be derecognized
When the contractual right to the cash flows from financial asset expire or it transfers the financial asset and such transfer qualifies as derecognition
The removal of perviously recognized financial asset or financial liability from an entity’s statement of financial position
Derecognition
Distributions of profits to holders of equity instruments in proportion to their holdings of a particular class or capital
Dividends
The method that is used in the calculation of the amortized cost of a financial asset or financial liability and in the allocation and recognition of the interest revenue or interest expense in profit or loss over the relevant period
Effective interest method
Incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or financial liability
Transaction cost
What are the basis of classification of a financial asset
The entity business model for managing financial asset
The contractual cash flow characteristics of financial asset
Give at least three examples of debt security
Corporate bonds
BSP Treasury Bills
Government Securities
Commerical Papers
Preference share with mandatory redemption date
What time of financial asset subjected to impairment
Financial asset at amortized cost and financial asset through other comprehensive income only
In the statement of financial position, trade receivables are presented as
Current assets
I’m the statement of financial position, non trade receivables are presented as
Current or non current asset. If collectible within one year, it will be classified as current, otherwise non current
In the statement of financial position, financial asset through profit or loss (FA-FVPL) is presented as
Current asset
In the statement of financial position, financial asset at amortized cost is presented as
Non current asset
In the statement of financial position, financial asset through other comprehensive income (FA-FVOCI) is presented as
Non current
