Pas 32 Flashcards
What does a financial instrument create?
A) Only financial assets
B) Only financial liabilities
C) A financial asset for one entity and a financial liability or equity for another entity
D) Only equity instruments
C
Which of the following is not considered a financial asset?
A) Cash
B) A company’s own inventory
C) Equity instrument of another entity
D) A contractual right to receive cash
B
When does an entity classify an instrument as a financial liability?
A) When it has a contractual obligation to pay cash or another financial asset
B) When it holds equity instruments of another entity
C) When it can voluntarily decide whether to make a payment
D) When it has no contractual obligation to settle in cash
A
A financial liability is an obligation to:
A) Issue new shares to investors
B) Pay cash or exchange financial instruments under unfavorable conditions
C) Receive cash from another entity
D) Transfer goods and services
B
How is an instrument classified if an entity does not have a contractual obligation to pay cash?
A) Financial liability
B) Financial asset
C) Equity instrument
D) Non-financial liability
B
Offsetting a financial asset and financial liability is permitted if:
A) The entity has only the legal right of setoff
B) The entity intends to settle the amounts separately
C) The entity has both the legal right of setoff and the intention to settle on a net basis
D) The entity has a financial liability that exceeds the financial asset
C
A contractual right to receive cash in the future is classified as:
A) A financial liability
B) A financial asset
C) An equity instrument
D) A non-financial liability
B
What happens when an entity has both a legal right of setoff and the intention to settle net?
A) The financial asset and liability must be recorded separately
B) The financial asset and liability can be offset
C) The financial liability is written off completely
D) The entity must classify both as equity
B
True or False - A financial instrument gives rise to a financial asset of one entity and a financial liability or equity instrument of the same entity.
True
True or False – A financial asset includes cash, equity instruments of another entity, and a contractual obligation to pay cash.
False
True or False – A financial liability arises when an entity has a contractual obligation to pay cash or exchange a financial instrument under unfavorable conditions.
False
True or False – A financial asset includes a contractual right to exchange financial instruments under favorable conditions.
True
True or False– An instrument is classified as equity if the entity does not have a contractual obligation to pay cash or another financial asset.
True
True or False – Offsetting a financial asset and a financial liability is permitted even if the entity does not intend to settle on a net basis.
False
