QUIZ NO.

06: FINANCIAL INSTRUMENTS

1. Financial assets include

a. Favorable interest rate swap
b. Inventories
c. Property, plant and equipment
d. Patent

2. Financial assets include

a. Favorable forward contract
b. Leased asset
c. Deferred tax asset
d. Prepaid rent

3. Which of the following assets is not a financial asset?

a. Cash.
b. An equity instrument of another entity.
c. A contract that may or will be settled in the entity's own equity instrument and is not classified as an
equity instrument of the entity.
d. Prepaid expenses.

4. Which of the following is not a financial asset?

a. Cash
b. Equity investment
c. Inventory
d. Receivables

5. ABC Ltd. paid P7,452 to purchase 6,000 stock options on the shares of Review Inc. How should this
investment be classified on ABC’s balance sheet?
a. Held-for-trading financial asset
b. Held-to-maturity financial asset
c. Available-for-sale financial asset
d. Loans and receivables

6. PFRS 9 requires companies to measure their financial assets based on all of the following except
a. The company’s business model for managing its financial assets.
b. Whether the financial asset is a debt or equity investment.
c. The contractual cash flow characteristics of the financial asset.
d. All of the choices are PFRS 9 requirements.

7. Match the investment accounting approach with the correct valuation approach:
Not held-for-collection Held-for-collection
a. Amortized cost Amortized cost
b. Fair value Fair value
c. Fair value Amortized cost
d. Amortized cost Fair value

8. What is the effective interest rate of a bond or other debt instrument measured at amortized cost?
a. The stated coupon rate of the debt instrument.
b. The interest rate currently charged by the entity or by others for similar debt instruments (i.e.,
similar remaining maturity, cash flow pattern, currency, credit risk, collateral, and interest basis).
c. The interest rate that exactly discounts estimated future cash payments or receipts through the
expected life of the debt instrument or, when appropriate, a shorter period to the net carrying
amount of the instrument.
d. The basic, risk-free interest rate that is derived from observable government bond prices.
9. When an impairment of an equity investment that is classified as available for sale occurs for a reason that is
judged to be "other than temporary," the investment is written down to its fair value and the amount of the
write-down is:
a. Recorded as a deferred credit.
b. Included in income.
c. Recorded as deferred asset.
d. Treated as unrealized.

10. If there is objective evidence that an impairment loss on financial assets measured at amortized cost has
been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount
and the present value of estimated future cash flows discounted at the financial asset’s
a. Effective interest rate computed at initial recognition
b. Market rate at the at initial recognition
c. Market rate at the date of impairment
d. Implicit rate at the date of impairment

11. ABC Inc. loaned P100,000 to Recto Ltd. Recto has not been making the interest and principal payments in
accordance with the timing specified in the loan contract. How should ABC handle this situation in its
financial statements?
a. ABC should write off the loan as a bad debt and adjust the loan account.
b. ABC should consider this an impaired loan and adjust the loan account.
c. ABC should sue Recto to ensure payment is made.
d. ABC should take this situation into account in determining whether the loan is impaired

12. Impairment losses recognized in profit or loss shall not be reversed through profit or loss for
a. Equity investment classified as available-for-sale
b. Debt instrument classified as available-for-sale
c. Held-to-maturity securities
d. Loans and receivables

13. Which of the following represents a liability?

a. The obligation to pay for goods that a company expects to order from suppliers next year.
b. The obligation to provide goods that customers have ordered and paid for during the current year.
c. The obligation to pay interest on a five-year note payable that was issued the last day of the current
year.
d. The obligation to distribute shares of a company's own common stock next year as a result of a stock
dividend declared near the end of the current year.

14. Which of the following does not meet the definition of a liability?
a. The signing of a three-year employment contract at a fixed annual salary
b. An obligation to provide goods or services in the future
c. A note payable with no specified maturity date
d. An obligation that is estimated in amount

15. Which of the following statements is not correct?

a. Conceptually, liabilities should be valued at the present value of all cash to be paid in the future.
b. All liabilities must have a definite amount owed and must not be contingent on a future event.
c. If a note payable is secured, disclosures must specify what assets are pledged.
d. Long-term debts should be reported at their present values computed on the basis of both principal
and interest.