Chapter 5

Question 1

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

Answer 1

Financial instrument

Question 2

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

Answer 2

Financial asset

Question 3

It is any contract that evidences residual interest in the asset of an entity after deducting all it’s liabilities

Answer 3

Equity instrument

Question 4

Are entity’s own shares that were previously issued but were subsequently reacquired but not retired

Answer 4

Treasury shares

Question 5

Gives at least three examples of financial asset

Answer 5

Cash and cash equivalents
Receivables
Equity investment
Debt investments
Sinking fund

Question 6

These are financial assets that represent a contractual right to receive cash or another financial assets from another entity

Answer 6

Receivables

Question 7

These are claims arising from the sale of merchandise or services in the ordinary course of business

Answer 7

Trade receivables

Question 8

These are open accounts arising from the sale of goods and services in the ordinary course of business and not supported by promissory note

Answer 8

Accounts receivable

Question 9

It is an account title used as a deduction from accounts receivable

Answer 9

Allowance for doubtful accounts

Question 10

These are claims supported by formal promise to pay usually in the form of notes

Answer 10

Note receivable

Question 11

These are financial assets arising from loan granted by a bank or other financial institution to a borrower or client

Answer 11

Loan receivable

Question 12

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

Answer 12

Equity securities

Question 13

It is a security that represents a creditor relationship with an entity

Answer 13

Debt security

Question 14

What are the three classification of a financial asset

Answer 14

Financial asset at amortized cost
Financial asset through other comprehensive income
Financial asset through profit or loss

Question 17

How should bond investment be classified as financial asset

Answer 17

Financial asset or amortized cost
Financial asset through other comprehensive income or financial asset through profit or loss

Question 18

Give at least two examples of non financial assets

Answer 18

(1) Intangible assets
(2) Physical asset (inventory, property plant and equipment)
(3) Prepaid expenses
(4) Leased assets

Question 19

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)

Answer 19

A. Fair value plus transaction cost
B. Fair value
C. Fair value plus transaction cost

Question 20

If the business model is both collecting the contractual cash flows and selling of the financial asset, the classification of financial asset will be

Answer 20

Financial asset through other comprehensive income (FA-FVOCI)

Question 21

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

Answer 21

Financial asset at amortized cost

Question 22

It is the first day of the first reporting period following the change in business model that results in an entity reclassifying financial assets

Answer 22

Reclassification date

Question 23

When should a financial asset be derecognized

Answer 23

When the contractual right to the cash flows from financial asset expire or it transfers the financial asset and such transfer qualifies as derecognition

Question 23

The removal of perviously recognized financial asset or financial liability from an entity’s statement of financial position

Answer 23

Derecognition

Question 24

Distributions of profits to holders of equity instruments in proportion to their holdings of a particular class or capital

Answer 24

Dividends

Question 25

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

Answer 25

Effective interest method

Question 26

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

Answer 26

Transaction cost

Question 27

What are the basis of classification of a financial asset

Answer 27

The entity business model for managing financial asset
The contractual cash flow characteristics of financial asset

Question 28

Give at least three examples of debt security

Answer 28

Corporate bonds
BSP Treasury Bills
Government Securities
Commerical Papers
Preference share with mandatory redemption date

Question 29

What time of financial asset subjected to impairment

Answer 29

Financial asset at amortized cost and financial asset through other comprehensive income only

Question 30

In the statement of financial position, trade receivables are presented as

Answer 30

Current assets

Question 31

I’m the statement of financial position, non trade receivables are presented as

Answer 31

Current or non current asset. If collectible within one year, it will be classified as current, otherwise non current

Question 32

In the statement of financial position, financial asset through profit or loss (FA-FVPL) is presented as

Answer 32

Current asset

Question 33

In the statement of financial position, financial asset at amortized cost is presented as

Answer 33

Non current asset

Question 34

In the statement of financial position, financial asset through other comprehensive income (FA-FVOCI) is presented as

Answer 34

Non current