IA 2 - Debt Restructuring (CHAP 9)

Question 1

In a debt restructuring considered an asset swap, the gain on extinguishment is equal to

a. Excess of fair value of asset over carrying amount

b. Excess of carrying amount of the debt over the fair value of the asset

c. Excess of fair value of asset over the carrying amount of the debt

d. Excess of carrying amount of the debt over the carrying amount of the asset

Answer 1

d. Excess of carrying amount of the debt over the carrying amount of the asset

Question 2

For a debt restructuring involving substantial modification of terms, it is appropriate for a debtor to recognize a gain when the carrying amount of the debt

a. Exceeds the total future cash payments.

b. Is less than the total future cash payments.

c. Exceeds the present value of the future cash payments.

d. Is less than present value of future cash payments.

Answer 2

c. Exceeds the present value of the future cash payments.

Question 3

For a debt restructuring involving a substantial modification of terms, which of the following specified by the new terms would be compared to the carrying amount of the debt to determine if the debtor should report a gain on extinguishment?

a. The total future cash payments

b. The present value of the new debt at the original interest rate

c. The present value of the new debt at the market interest rate

d. The face amount of a new debt

Answer 3

c. The present value of the new debt at the market interest rate

Question 4

Under a debt restructuring involving substantial modification of terms, the present value of the new terms shall be determined using

a. Original effective interest rate
b. Interest rate under the new terms
c. Market rate of interest
d. Prime interest rate

Answer 4

c. Market rate of interest

Question 5

An entity shall initially measure equity instruments issued to extinguish a financial liability at

a. Fair value of the equity instruments issued

b. Fair value of the liability extinguished

c. Par value of the equity instruments issued

d. Carrying amount of the liability extinguished

Answer 5

a. Fair value of the equity instruments issued

Question 6

If the fair value of the equity instruments issued cannot be reliably measured, the equity instruments issued to extinguish a financial liability shall be measured at

a. Fair value of the liability extinguished

b. Par value of the equity instruments issued

c. Carrying amount of the liability extinguished

d. Book value of the equity instruments issued

Answer 6

a. Fair value of the liability extinguished

Question 7

If both the fair value of the equity instruments issued and the fair value of the financial liability extinguished cannot be measured reliably, the equity instruments issued shall be measured at

a. Carrying amount of the liability extinguished

b. Par value of equity instruments issued

c. Carrying amount of the equity instruments issued

d. Value assigned by the Board of Directors

Answer 7

a. Carrying amount of the liability extinguished

Question 8

The difference between the carrying amount of the financial liability extinguished and the fair value of equity instruments issued shall be recognized in

a. Profit or loss
b. Other comprehensive income
c. Retained earnings
d. General reserve

Answer 8

a. Profit or loss

Question 9

The gain or loss from extinguishment of a financial liability by issuing equity instruments is presented as

a. Other income or other expense

b. Separate line item in the income statement

c. Component of other comprehensive income

d. Component of finance cost

Answer 9

b. Separate line item in the income statement

Question 10

There is nonsubstantial modification of terms if the gain or loss on modification is

a. At least 10% of the old liability
b. Less than 10% of the old liability
c. At least 10% of the new liability
d. Less than 10% of the new liability

Answer 10

b. Less than 10% of the old liability