Notes Payable and Debt Restructuring

Question 1

Are obligations accompanied by a written promise to pay a certain amount of money to the holder or bearer on a specified future date.

Answer 1

Notes Payable

Question 2

TRUE OR FALSE

Notes Payable may arise from certain transactions, such as purchases and financing.

Answer 2

TRUE

Question 3

TRUE OR FALSE

Notes are classified as current or non-current depending on its due date and may bear an interest or not.

Answer 3

TRUE

Question 4

TRUE OR FALSE

Notes Payable that are not designated at fair value shall be measured at FAIR VALUE less TRANSACTION COST, which are directly attributable to the issuance of the said notes.

Answer 4

TRUE

Question 5

TRUE OR FALSE

If the notes are DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS, the transaction cost shall be treated as an expense immediately.

Answer 5

TRUE

Question 6

The fair value of the Notes Payable is equal to the ______ of the future cash payment to settle that note liability.

Answer 6

Present Value

Question 7

After initial recognition, notes payable are measured either:

Answer 7

a. At amorized cost, using effective interest method

b. At fair value through profit or loss

Question 8

When a company issued notes payable for cash, the present value to be recognized is the _____

Answer 8

Cash Proceeds

Question 9

At initial measurement, an entity should record an interest bearing note at _______

Answer 9

Face Value

Question 10

After initial measurement, an interest-bearing note should be measured at___

Answer 10

Face Value plus accrued interest

Question 11

T OR F

A zero-interest-bearing note does have an interest component.

Answer 11

FALSE. Does NOT have interest component

Question 12

T OR F

The interest in a zero-interest-bearing note is included in the face amount.

Answer 12

TRUE

Question 13

In a zero-interest bearing note, interest is computed through the difference between the____

Answer 13

amount of cash received when note is signed and the higher face amount that is payable at maturity.

Question 14

Refers to the alteration made by the creditor to the terms of loan. This enables the debtor to pay the amount owed.

Answer 14

Debt Restructuring

Question 15

According to Valix, Peralta, & Valix, the objective of a creditor in a debt restructuring is to make the best out of a bad situation or _______.

Answer 15

maximize the recovery of investment

Question 16

3 types of debt restructuring:

Answer 16

A. Asset Swap

B. Equity Swap

C. Modification of Terms

Question 17

TYPE OF DEBT RESTRUCTURING

It is the transfer by the debtor to the creditor of any asset, such as real estate, inventory, receivables, and investment, in full payment of an obligation.

Answer 17

Asset Swap

Question 18

TYPE OF DEBT RESTRUCTURING

It is a transaction whereby a debtor and creditor may negotiate the terms of a financial liability with the result that the liability is fully or partially extinguished by the debtor issuing equity instrument to the creditor.

Answer 18

Equity Swap

Question 19

T OR F

Basically, an equity swap is the issuance of share as payment of asset.

Answer 19

FALSE. payment of OBLIGATION

Question 20

The equity instrument issued to extinguish a financial liability shall be measured at the following amounts in the order of priority:

Answer 20

A. Fair value of equity instrument issued

B. Fair value of liability extinguished

C. Carrying amount of liability

Question 21

In an EQUITY SWAP, the difference between the carrying amount of the financial liability and the initial measurement of the equity instruments issued shall be recognized in ______

Answer 21

profit or loss

Question 22

TYPE OF DEBT RESTRUCTURING

It is the change of either the interest, maturity value, or both.

Answer 22

Modification of Terms

Question 23

T OR F

Applying IFRS 9 , the substantial modification of terms of an existing financial liability shall be accounted for as an extinguishment of the old financial liability, and the recognition of a new financial liability.

Answer 23

TRUE

Question 24

There is substantial modification of terms if the gain or loss on extinguishment is at least ____ or more than 10% of the old financial liability.

Answer 24

10%