Financial Instruments

Question 1

Definition of financial instrument

Answer 1

any contract that gives rise to BOTH financial ASSET of one entity and a financial LIABILITY or equity instrument of another entity

Question 2

Definition of FINANCIAL ASSET

Answer 2

Any asset that is CASH, EQUITY instrument, and CONTRACTUAL RIGHT to receive cash or another financial asset from another entity

Question 3

Definition of FINANCIAL LIABILITY

Answer 3

a CONTRACTUAL OBLIGATION to deliver cash or exchange financial instruments

Question 4

Definition of EQUITY INSTRUMENT

Answer 4

any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities

Question 5

Definition of AMORTISED COST

Answer 5

The amount at which financial asset is measured at initial recognition, minus the principal payments, plus the cumulative amortisation using EFFECTIVE INTEREST

OR

The amount at which financial liability is measured at initial recognition, minus the principal payments, minus the cumulative amortisation using the EFFECTIVE INTEREST

Question 6

Definition of EFFECTIVE INTEREST RATE

Answer 6

The rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the gross carrying amount of a financial asset

OR

The rate that exactly discounts estimated future cash payments through the expected life of the financial liability to the gross carrying amount of amortised cost of a financial liability