BALIUAG

UNIVERSITY

CPA REVIEW 2014-15

JACF
THEORY OF
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Financial Instruments
1. Which of the following statements is / are true?
STATEMENT 1: PAS 32 defines a financial instrument as any contract the gives rise to both a
financial asset of one entity and a financial liability or equity of another entity.
STATEMENT 2: Financial instrument encompasses financial asset, financial liability and an
equity instrument characterized by a contract that involves two parties; and which gives rise
to a financial asset of one party and financial liability or equity instrument of another party.
a. Statement 1 is true.
b. Statement 2: is true.
c. Both statements are true.
d. Both statements are false.
2. Which of the following is / are correct example / s of financial instrument?
1. Cash in the form of notes
and coins
2. Cash in the form of checks
3. Cash in bank
4. Trade accounts
5. Notes and loans
6. Debt securities
7. Equity securities
a.
b.
c.
d.

1,
1,
1,
1,

2,
2,
4,
3,

6,
3,
5,
5,

Asset
Bearer

Liability
Issuer

Payee
Depositor
Customer
Debtor
Issuer
Investor

Drawer
Bank
Seller
Lender
Investor
Issuer

7
7
6,
6,

3. Any asset that is cash; a contractual right to receive cash or another financial asset from
another entity; a contractual right to exchange financial instruments with another entity
under conditions that are potentially favorable; and an equity instrument of another entity.
a. Financial asset
b. Financial liability
c. Financial equity
d. All of the above
4. All of the following are examples of financial assets, except.
a. Option to purchase shares of another entity at less than market price.
b. A contractual right of a depositor to obtain cash from the bank or draw a check against the
balance in favor of a creditor in payment of financial liability.
c. Trade accounts receivable.
d. Gold bullion deposited in a bank.
5. All
a.
b.
c.
d.

of the following are not example of financial assets, except.

Gold bullion deposited in a bank.
Intangible assets.
The medium of exchange.
Usufructuary assets.

6. Any liability that is a contractual obligation to deliver cash or other financial asset to another
entity; or to exchange financial instruments with another entity under conditions that are
potentially unfavorable.
a. Financial asset
b. Financial liability
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Winston Churchill

BALIUAG
UNIVERSITY

CPA REVIEW 2014-15

JACF
THEORY OF
__________________________________________________________________________________________________
c. Financial equity
d. All of the above
7. Which is a financial liability?
a. A potentially favorable deferred revenue and warranty obligations
b. A potentially favorable Income taxes payable
c. A potentially unfavorable bonds payable
d. A potentially unfavorable prepaid expenses
8. Which of the following could give rise to a financial liability?
a. Economic benefits associated with the delivery of goods and services.
b. Statutory requirements imposed by government.
c. Constructive obligations.
d. Contractual obligation to deliver cash which may potentially bear unfavorable condition.
9. All
a.
b.
c.
d.

of the following are not examples of equity instruments, except

Redeemable preference shares.
Callable shares.
Preference shares.
Bonds payables.

10.Analyze the following statements.

STATEMENT 1: Warrants or call options that allow the holder to subscribe for or purchase a
fixed number of ordinary shares of the issuing entity in exchange for a fixed amount are
equity securities.
STATEMENT 2: Financial instruments that have the legal form of an equity instrument but in
substance meet the definition of a financial liability are classified as current or noncurrent
liability depending on the date maturity.
STATEMENT 3: A contract that may be settled by either variable number of shares or in the
amount of cash is a financial liability.
a. Statements 1 and 2 are true.
b. Statements 2 and 3 are true.
c. Statements 1 and 3 are true.
d. All statements are true.
11.Which statement is a correct definition of perpetual debt instrument?
a. An instrument that provides the issuer with the contractual right to give payments on
account of interest at fixed dates extending into definite future either with right or no right
to a return of principal.
b. An instrument that provides the holder with the contractual right to receive payments on
account of interest at fixed dates extending into indefinite future either with right or no
right to a return of principal.
c. An instrument that provides the issuer with the contractual right to receive payments on
account of interest at fixed dates extending into indefinite future either with right or no
right to a return of principal.
d. An instrument that provides the holder with the contractual right to give payments on
account of interest at fixed dates extending into indefinite future either with right or no
right to a return of principal.
12.Offsetting of a financial asset and a financial liability is allowed:
a. The entity has a legally enforceable right of offset.
b. The entity intends either to settle on a net basis, r to realize the asset and settle the
liability simultaneously.
c. When either a, or b is met.
d. When a, and b are met.
13.Financial assets and liability are recognized:
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Winston Churchill

BALIUAG
UNIVERSITY

CPA REVIEW 2014-15

JACF
THEORY OF
__________________________________________________________________________________________________
a. When the entity becomes a party to the contractual provisions of the instrument.
b. When contractual rights to the cash flows of the financial asset have expired.
c. When the financial asset has been transferred and the transfer qualifies for recognition
based on the extent of transfer of risks and rewards of ownership.
d. When b, and c are met.
14.Which is not a basis for de-recognition when the basis are the extent of the transfer of risks
and rewards of ownership?
a. The entity has transferred substantially all risks and rewards on the asset.
b. The entity has neither transferred nor retained substantially all risks and rewards and the
entity has lost control of the asset.
c. The entity has either transferred or retained substantially all risks and rewards and the
entity has retained control over the asset.
d. The transferee has the practical ability to sell the asset in its entirety to a third party
without attaching any restriction to the transfer.
15.Analyze the following statements.
STATEMENT 1:
PFRS 7 requires that disclosures about financial instruments include
significance of financial instruments for an entitys financial position and financial
performance; and the nature and extent of risks.
STATEMENT 2: Disclosures about risks arising from financial instruments focus on credit risks,
liquidity risks, currency risks, interest risks, and price risks.
a. Statement 1 is true.
b. Statement 2 is true.
c. Both statements are true.
d. Both statements are false.
16.A required disclosure of quantitative information includes.
a. The exposure to risks and how they arise.
b. Summary of data about its exposure to risks at each reporting date.
c. Any change from previous period in the entitys exposure to risks.
d. The entitys objective, policy and process for managing the risks.

Financial Assets at Fair Value:

17.Which of the following represents the classifications of financial assets?
I.
Derivative asset
II.
Held for trading financial asset
III.
Financial asset at fair value
IV.
Held to maturity financial asset
V.
Financial assets at amortized costs
a. I, II, III, and IV
b. I, II, IV, and V
c. II, and V
d. I, and II
18.Which of the following financial assets includes both equity securities and debt securities?
a. Held for trading financial asset
b. Financial asset at fair value
c. Held to maturity financial asset
d. Financial assets at amortized costs
19.Equity securities encompasses any instruments representing ownership shares and right,
warrants or options to acquire or dispose of ownership shares at a fixed or determinable price.
Which is an example of equity securities?
a. Redeemable preference shares
b. Treasury shares
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Winston Churchill

BALIUAG
UNIVERSITY

CPA REVIEW 2014-15

JACF
THEORY OF
__________________________________________________________________________________________________
c. Convertible debt
d. Preference share
20.Which is not an example of debt security?
a. Corporate bonds
b. Commercial papers
c. BSP treasury bills
d. Ordinary shares
21.The following financial assets shall be measured at fair value through profit or loss, except.
a. Trading securities
b. Investment in bonds
c. Quoted equity securities
d. Investment in bonds
22.Financial assets are held for trading under the following PFRS 9 provisions, except.
a. It is acquired principally for purpose of selling or repurchasing it in the near term.
b. It is part of a portfolio of identified financial assets that are managed together and for
which there is evidence of a recent actual pattern of short-term profit taking on initial
recognition.
c. On initial recognition, it is part of a portfolio of identified financial assets that are managed
together and for which there is evidence of a recent usual pattern of short term profit
taking.
d. It is a derivative, except for derivative that is financial guarantee contract or a designated
and an effective hedging instrument.
23.Financial assets are initially measured at, except.
a. Fair value plus directly attributable acquisition transaction costs.
b. Transaction price plus directly attributable acquisition transaction costs.
c. Fair value of the consideration given, but excluding transaction costs if held for trading.
d. Transaction price plus any or all of the following cost items: debt premiums or discounts,
financing costs, administrative or holding costs, etc.
24.Which of the following statements is not true?
a. Financial assets are classified as subsequently measured depending on whether the entity
intends hold the investments in order to trade to realize fair value changes, or to hold
investments in order to collect contractual cash, which is determined by key management
personnel.
b. Financial assets are measured at amortized cost if the business model is to collect
contractual cash flows that are solely payments of principal and interest.
c. An entity may irrevocably designate a financial asset as measured at fair value through
profit or loss even if the financial asset satisfies the measurement at amortized costs.
d. At initial recognition, an entity may make an irrevocable election to present in other
comprehensive income subsequent changes in fair value of an investment in equity
instrument that is not held for trading.
25.Which of the following statements is false?
a. All investment in equity instruments and contracts on those instruments must be
measured at fair value although, in limited circumstances, cost may be an appropriate
estimate of fair value.
b. Investments in unquoted equity instruments are measured at cost.
c. Cost may be an appropriate estimate of fair value if there is a wide range of possible fair a
value measurement.
d. No statement is false.
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Page 4 of 6 Never give up on something that you cant go a day without thinking about.

Winston Churchill

BALIUAG
UNIVERSITY

CPA REVIEW 2014-15

JACF
THEORY OF
__________________________________________________________________________________________________
26.Which of the following statements is true?
a. Fair value is the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date.
b. Fair value may be referred to as evidenced by the following in order of priority: quoted
price of identical asset in an active market; quoted price of similar asset in an active
market; and quoted price of identical and similar asset in an inactive market.
c. Fair value is the price agreed upon by independent, knowledgeable and willing market
participants in an arms length transaction.
d. All statements are true.
27.Unrealized gains and losses on trading securities;
a. Are included in profit or loss of the current period and arise from investments that are
measured at fair value;
b. An unrealized gain if the fair value is higher than the carrying amount of securities;
c. An unrealized loss if the fair value is lower than the carrying amount of the securities;
d. Realized gains and losses result from actual sales of securities.
28.The following statements are true, except.
a. The difference between the consideration received and the carrying amount of the
financial asset that is disposed should be recognized as gain or loss on disposal in the
income statement.
b. An entity shall reclassify financial assets only when it changes its business model for
managing the financial assets and the reclassification of financial assets shall apply
prospectively from the reclassification date.
c. In the reclassification of financial asset from fair value to amortized cost, the fair value at
the reclassification date becomes the new carrying amount of the financial asset at
amortized cost and the difference between the new carrying amount and the face value
shall be amortized through profit or loss over the remaining life of the financial asset using
effective interest method.
d. The first day of the reporting period following the change in business model that results in
an entity reclassifying financial asset is the first day of the reporting period.
29.The following statements are false, except.
a. It is not necessary to assess financial assets measured at fair value for impairment
because the fair value at the reclassification date becomes the new carrying amount.
b. PFRS 9 provides that an entity shall assess at the end of reporting period whether there is
any objective evidence that a financial asset or group of financial assets measured at fair
value is impaired.
c. Impairment loss on financial assets at fair value is measured as the difference between the
carrying amount and the present value of estimated future cash flows discounted at the
original effective interest rate.
d. The impairment of financial assets at amortized cost is recognized either directly or
through the use of allowance account in the profit or loss.
30.Analyze the following statements.
STATEMENT 1: If an entity sells or reclassifies more than an insignificant amount of financial
asset at amortized cost, such sales or reclassifications normally will disqualify the entity from
using the amortized cost classification during the current year and the next two years.
STATEMENT 2: The PFRSC concluded that reclassification based on the entitys business
model for managing financial assets provides a clear rationale for measurement and therefore
rejects totally the tainting provision.

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Page 5 of 6 Never give up on something that you cant go a day without thinking about.

Winston Churchill

BALIUAG
UNIVERSITY

CPA REVIEW 2014-15

JACF
THEORY OF
__________________________________________________________________________________________________
STATEMENT 3: PFRS 9 requires an entity to present as a separate line item in the income
statement all gains and losses from the derecognition of financial assets measured at
amortized cost.
a. Statement 1 is true
b. Statements 1 and 2 are true
c. Statements 2 and 3 are true
d. All statements are true

Investment in equity securities:

31.PAS 18 provides that dividends shall be recognized as revenue when the shareholders right
to receive payment is established, and that is at:
a. Date of declaration
b. Date of record
c. Date of payment
d. Date of the financial statements
32.A dividend that is not an income:
a. Cash dividend
b. Property dividend
c. Liquidating dividend
d. Shares received in lieu cash dividend
33.It is a legal right granted to shareholders to subscribe for new shares issued by a corporation
at a specified price during a definite period.
a. Stock dividend
b. Stock right
c. Stock split
d. Stock warrant
34.Which statement is not true?
a. Stock rights are measured initially at fair value and normally classified as current assets if
accounted for separately.
b. Stock rights may be recognized as embedded derivative but not a stand alone
derivative.
c. An embedded derivative is a component of a hybrid or combined contract with the effect
that some of the cash flows of the combined contract vary in a way similar to a stand
alone instrument.
d. Embedded derivative is separated if the host contract is a financial asset, and the host
contract is measured at fair value through profit or loss

END

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Winston Churchill