SBR Financial instruments

ACCA · Strategic Professional · 8 questions

Name: ____________________ Date: ____________

Under IFRS 9, a debt instrument held to collect contractual cash flows that are solely payments of principal and interest is measured at:
- A Cost less impairment only
- B Amortised cost
- C Fair value through profit or loss
- D Fair value through OCI always
A loan note is issued at $95,000 net of costs, with a nominal value of $100,000, a coupon of 5 percent and an effective rate of 8 percent. The liability at the end of year 1 is:
- A $100,000
- B $97,600
- C $102,600
- D $95,000
An equity investment not held for trading can be designated at initial recognition at:
- A Fair value through profit or loss only
- B Amortised cost
- C Fair value through other comprehensive income, irrevocably
- D Cost
In the general expected credit loss model, lifetime losses are recognised when:
- A Credit risk has increased significantly since initial recognition
- B The asset is derecognised
- C Credit risk is low
- D The asset is first recognised
In a cash flow hedge, the effective portion of the gain or loss on the hedging instrument is recognised in:
- A Other comprehensive income
- B Goodwill
- C Profit or loss immediately
- D Retained earnings directly
For a convertible bond, the equity component is measured as:
- A The coupon
- B The market value of the shares
- C The nominal value of the shares
- D The proceeds less the fair value of the liability component
A quoted price for an identical asset in an active market is which level of the IFRS 13 fair value hierarchy?
- A Level 3
- B Level 2
- C Level 1
- D Level 0
A financial liability is derecognised when:
- A The company has paid half of it
- B The liability is more than a year old
- C The creditor becomes a shareholder
- D It is extinguished, because the obligation is discharged, cancelled or has expired

Answer key

1. B, 2. B, 3. C, 4. A, 5. A, 6. D, 7. C, 8. D

The business model test (hold to collect) and the cash flow characteristics test give amortised cost.
Finance cost is 95,000 x 8% = 7,600. The liability is 95,000 + 7,600 - 5,000 = 97,600.
This option applies to equity instruments that are not held for trading, and gains are not recycled to profit.
Stage 1 uses 12-month ECL and stage 2 uses lifetime ECL after a significant increase in credit risk.
The ineffective portion goes to profit or loss. The OCI amount is later reclassified when the hedged item affects profit.
The liability is measured at the present value of cash flows at the market rate for a similar non-convertible debt, and the residual is equity.
Level 1 inputs are unadjusted quoted prices. Level 3 are unobservable inputs.
Derecognition requires the obligation specified in the contract to end.