Financial Instruments

Question 1

For financial assets classified as Fair Value Through Profit or Loss (FVTPL).
how are unrealized gains and losses reflected in shareholders’ equity?
A. They are not recognized
B They flow through income into retained earnings
C. As a separate line item (other comprehensive income)

Answer 1

B is correct. For financial assets classified as FVTPL, unrealized gains and losses are reported on the income statement and flow to shareholders’ equity as part of retained earnings.

Question 2

For financial assets classified as Fair Value Through Other Comprehensive
Income (FVOCI), how are unrealized gains and losses reflected in shareholders’ equity?
A. They are not recognized
B. They flow through income into retained earnings
C. As a separate line item (other comprehensive income)

Answer 2

C is correct. For financial assets classified as FVOCI, unrealized gains and losses are not recorded on the income statement but do appear on the balance sheet. Shareholders’ equity is adjusted through a separate line item for valuation
gains and losses termed «other comprehensive income»

Question 3

For financial assets classified in the Amortized Cost (AC) category, how are
unrealized gains and losses reflected in shareholders’ equity?
A. They are not recognized
B. They flow through income into retained earnings
C. As a separate line item (other comprehensive income)

Answer 3

A is correct. When financial assets are classified in the Amortized Cost category, gains and losses are recognized only when realized.

Question 4

For financial assets classified in the Amortized Cost (AC) category, how are
impairment losses reflected in shareholders’ equity?
A. They are not recognized
B. They flow through income into retained earnings
C. As a separate line item (other comprehensive income)

Answer 4

B is correct. When financial assets are classified in the Amortized Cost category, impairment losses are reported on the income statement and flow to shareholders’ equity as part of retained earnings.