Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Financial Reporting (FR) > Financial assets and financial liabilities > Flashcards

Financial assets and financial liabilities Flashcards

1
Q

What is the financial instrument?

A
  • is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What are the three reporting standards that deal with financial instruments:

A
  • IAS 32 Financial Instruments: Presentation
  • IFRS 7 Financial Instruments: Disclosures
  • IFRS 9 Financial Instruments
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What IAS 32 deals with?

A
  • the classification of financial instruments and their presentation in financial statements
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What IFRS 9 deals with?

A
  • how financial instruments are measured and when they should be recognised in financial statements
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What IFRS 7 deals with?

A
  • the disclosure of financial instruments in financial instruments in financial statements
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the financial asset?

A
  • cash
  • a contractual right to receive cash or another financial asset from another entity
  • a contractual right to exchange financial assets or liabilities with another entity under conditions that are potentially favourable
  • an equity instrument of another entity
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Examples of financial assets

A
  • trade receivables
  • options
  • investments in equity shares
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is financial liability?

A
  • any liability that is a contractual obligation to:
  • to deliver cash or another financial asset to another entity
  • to exchange financial assets or liabilities with another entity under conditions that are potentially unfavourable
  • that will or may be settled in the entity’s own equity instruments
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Examples of financial liabilities

A
  • trade payables
  • debenture loans
  • redeemable preference shares
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Initial recognition of financial liabilities

A
  • recognised at its fair value
  • usually the net proceeds of the cash received less any costs of issuing the liability
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Subsequent measurement of financial liabilities

A
  • will be carried at amortised cost
  • initial value + effective interest - interest paid
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Features of a Deep discount bonds

A
  • issued at a significant discount to its nominal value
  • typically it has a coupon rate of interest much lower than the market rate
  • full cost include:
  • issue costs
  • discount on issue
  • annual interest payments
  • premium on redemption
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is the other name of effective interest?

A

periodic rate of interest

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Preference share if irredeemable

A
  • contains no obligation to make nay payment, either of capital or dividend, they are classified as equity
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Preference share if redeemable

A
  • have a fixed cumulative dividend they are classified as a financial liability
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Treatment of interest and dividend

A
  • equity dividends declared are reported directly in equity
  • dividends on instruments classified as a liability are treated as a finance cost in the statement of profit or loss
17
Q

What is a compound instrument?

A
  • is a financial instrument that has characteristics of both equity and liabilities, such as a convertible loan
18
Q

Characteristic of a convertible loan

A
  • it is repayable, at the lender’s option, in shares of the issuing company instead of cash
  • the number of shares to be issued is fixed at the inception of the loan
  • the lender will accept a rate of interest below the market rate for non-convertible instruments
19
Q

What is split accounting?

A
  • there is a liability or debt element, as the issuer has the potential obligation to deliver cash
  • there is also an equity element, as the investors may choose to convert the loan into shares instead
20
Q

IFRS 9 Financial assets

A

An entity shall recognise a financial asset on its statement of financial position when, and only when, the entity becomes party to the contractual provisions of the instrument

21
Q

Equity instruments- Fair value through profit or loss

A
  • default category for equity investments
    -any transaction costs with the purchase are expensed to profit or loss
  • investments are revalued to fair value at each year-end, with any gain or loss being shown in the statement of profit or loss
22
Q

Equity instruments - Fair value through other comprehensive income

A
  • fair value through other comprehensive income
  • intended as a long - term investment
  • transaction costs are capitalised
  • each year end, with any gain or loss being shown in other comprehensive income and taken to an investment reserve in equity
23
Q

Categories of debt instruments

A
  • fair value through profit or loss
  • amortised cost
  • fair value through other comprehensive income
24
Q

Fair value through profit or loss FVPL

A

Business model test: purpose in holding the investment
Contractual cash flow characteristics test: cash received as a result of holding the investment

25
Q

Amortised cost

A

Business model test: must intend to hold the investment to maturity
Contractual cash flow test: solely of principal and interest

26
Q

Fair value though other comprehensive income FVOCI

A

Business model test: hold till maturity, but may sell the asset if the possibility of buying another asset with a higher return arises
Contractual cash flow characteristics test: cash flow solely of principal and interest, as for amortised cost

27
Q

What if a debt instrument is held at FVOCI

A
  • the asset is initially recognised at fair value plus transaction costs
  • interest income is calculated using the effective rate of interest
  • at the reporting date, the asset will be revalued to fair value with the gain or loss recognised in other comprehensive income
28
Q

When the financial instruments should be derecognised /financial asset

A
  • when, and only when, the contractual rights to the cash flows from the financial asset expire
29
Q

When the financial instruments should be derecognised/ financial liability

A
  • when, and only when, the obligation specified in the contract is discharged or cancelled or expires
30
Q

What is the factoring of receivables?

A
  • is where a company transfers its receivables balances to another organisation ( factor) for management and collection, and receives an advance on the value of those receivables in return
31
Q

Who bears risk in factoring of receivables?

A
  • a sale of receivables with recourse: factor can return any unpaid debts to the business, business retain risk of irrecoverable debts
  • a sale of receivables without recourse means the factor bears the risk of irrecoverable debts
32
Q

What is IFRS7?

A
  • provides the disclosure requirements for financial instruments

Financial Reporting (FR) (22 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions