CFAS REVIEWER

Quiz 1: Financial Instruments

1. It is a financial instrument which value changes in response to the change in value of a specified
asset or interest rate, which is commonly referred to as underlying.

a) Financial equity
b) Financial asset
c) Financial liability
d) Derivatives

2. It is a financial asset or liability that is held for trading and is intended to be sold in the near term
but not until maturity.

a) equity instrument
b) financial instrument
c) financial liability at fair value through profit or loss
d) Financial asset at fair value through profit or loss

3. It is a financial asset that is acquired mainly for the purpose of selling it in the near term.

a) held for trading

b) held to maturity
c) available for sale
d) Financial asset at fair value through profit or loss

4. This is the amount at which a financial instrument is measured at transaction cost at initial
recognition plus or minus any amortization using effective interest method, plus or minus any
allowance for impairment or losses.

a) Amortized cost
b) fair value
c) carrying value
d) fair value through profit or loss
5. This is the method of calculating amortized cost of a financial instrument and allocating the
interest over the relevant period.

a) Effective interest method

b) Straight line method
c) Fair value through profit or loss
d) amortized cost

6. This is the process of removing a previously recognized financial asset or liability from an entity's
balance sheet.

a) Reporting
b) Measurement
c) Recognition
d) Derecognition

7. This is the amount for which an asset could be exchanged, or a liability settled, between
knowledgeable, willing parties in an arm's length transaction.

a) Fair value
b) Amortized cost
c) Cost
d) Net realizable value

8. These are incremental costs that are directly attributable to the acquisition, issue or disposal of a
financial instrument. This cost would not have been incurred if the entity had not acquired or
disposed of the financial instrument.

a) Effective interest method

b) Fair value
c) Amortized cost
d) Transaction costs

9. This is an agreement between two parties for the exchange of a specified quantity of resources
at a specific price on a specific future date.

a) financial instrument
b) Derivatives
c) contract
d) transaction cost
10. An entity recognizes a financial asset or a financial liability in its balance sheet when, and only
when, the entity…

a) fits the definition of an element.

b) becomes a party to the contractual provisions of the instrument.
c) has the proof of transaction.
d) has paid for the financial instrument.

11. An entity shall derecognize a financial asset when the following conditions are met, except one:

a) when the financial asset is given as a collateral.

b) the contractual rights expire
c) There is transfer which qualifies for derecognition
d) there is transfer of the certificate of claim

12. Which is not a financial asset?

a) Trademark
b) Derivative
c) Accounts Receivable
d) Cash equivalent

13. Which is not a financial liability?

a) Accounts Payable
b) Bonds Payable
c) Tax payable
d) Interest payable

14. As a result of a transfer, a financial asset is derecognized in its entirety from the books of an
entity, but the transfer resulted in the entity obtaining a new financial asset or assuming a new
financial liability, the entity shall recognize the financial asset at...

a) fair value
b) carrying cost
c) current cost
d) amortized cost
15. When a financial asset or financial liability is recognized initially, the entity shall measure the
financial instrument at its...

a) fair value
b) transaction cost
c) fair value plus transaction cost
d) current cost

16. The gain or loss due to valuation at fair value through profit and loss are recognized in the
income statement under the following categories:

I. Financial asset at fair value through profit or loss

II. Held for trading
III. Held to maturity
IV. Loans and receivables
V. Available for sale

a) I, II, III
b) I, II
c) I, II, and V
d) I, II, III, IV, V

17. Which of the following is not an equity instrument?

a) Preferred stock
b) Treasury stock
c) Common stocks
d) Options

18. After initial recognition, an entity shall measure receivables at

a) Effective interest method

b) Amortized cost
c) Fair value
d) Historical cost

19. After initial recognition, an entity shall measure held-to-maturity investments at

a) Fair value through profit or loss

b) Amortized cost
c) Fair value through other comprehensive income
d) Fair value
20. A gain or loss arising from change in fair value of an available for sale financial asset shall be
recognized...

a) in the income statement

b) in the balance sheet
c) in equity
d) in the statement of cash flow

21. A gain or loss arising from change in fair value of a financial asset through profit or loss shall be
recognized...

a) in the income statement

b) in the other comprehensive income statement portion of the comprehensive income
statement
c) in the statement of cash flow
d) in the balance sheet

22. Interests calculated on a held to maturity financial instrument using effective interest method is
recognized in

a) income statement
b) statement of cash flow
c) balance sheet
d) statement of changes in equity

23. Which of the following is not to be recognized as cash?

a) Postdated check
b) managers check
c) petty cash
d) checking account

24. Cash equivalent are

a) highly liquid assets which are to converted into cash within 120 days
b) Bonds payable
c) are financial asset which will mature within a year
d) investments which are maturing within 90 days or less

25. Petty cash fund is

a) Money kept on hand
b) set aside for emergency purposes
c) Cash on hand kept by a custodian for minor disbursements
d) small amount of money remaining in the bank and cannot be withdrawn
26. Which of the following transfers of financial assets would qualify for derecognition?

a) A sale of a portfolio of a current accounts receivable where the entity guarantees to

compensate the buyer for any losses in the portfolio.
b) A sale of a financial asset where the entity retains an option to buy the asset back at its
current fair value on repurchase date.
c) A loan of a security to another entity
d) A sale if financial asset where the entity agrees to repurchase the asset within one year for a
fixed price plus interest.

27. Under the debt for equity swap, how is the share premium determined when the share capital is
issued?

a) Difference between the carrying amount of the liability and fair value of the shares.
b) Difference between fair value of the shares and par value of the shares.
c) Difference between carrying amount of the liability and par value of the shares.
d) Difference between fair value of the liability and the par value of the shares.

28. All of the following financial assets are basic financial instruments except:

a) Equity swap
b) Notes Receivables
c) Cash
d) Bank loans

29. Other than financial liabilities measured at fair value through profit or loss, how are financial
liabilities subsequently measured under PFRS?

a) The amount of undiscounted cash that would be required to settle the obligation
b) Amortized cost using the stated interest rate of the debt
c) Fair value
d) Amortized cost using effective interest method

30. The residual interest in a corporation belongs to the

a) management
b) preferred shareholders
c) ordinary shareholders
d) creditors