PAF – Karachi Institute of Economics and Technology City Campus

Course: Financial Reporting F-7

Faculty: Jalal Ahmad Khan
Class ID: 111361
Semester : Fall 2022

NAME: HABIBA M FAROOQ.

STUDENTS ID # 64551

ASSIGNEMENT # 04:
Q1. Define revenues under IFRS 15?
A.1. Applying IFRS 15, an entity recognizes revenue to depict the transfer of promised goods or
services to the customer in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services.
Q2. What is the call option and put option?
A.2. A call option is the right to buy a stock at a specific price by an expiration date, and a put
option is the right to sell a stock at a specific price by an expiration date. That's the short
summary of these options contracts.
Q3. What is the consignment?
A3. Consignment arrangement is a legal arrangement. Consignment is an arrangement in which goods
are left in the possession of an authorized third party to sell. A consignment shop, for example, will sell
items produced or supplied by someone else, and pay them a portion of the profit.
Kit questions:
1. 159-162 MCQ bank- financial instruments.
159) An 8% $30 million convertible loan note was issued on 1 April 20X5 at par. Interest is
payable in arrears on 31
March each year. The loan note is redeemable at par on 31 March 20X8 or convertible into
equity shares at the option of the loan note holders on the basis of 30 shares for each $100 of
loan. A similar instrument without the conversion option would have an interest rate of 10% per
annum.
The present values of $1 receivable at the end of each year based on discount rates of 8% and
10% are:
8% 10%
End of year 1 0.93 0.91
2 0.86 0.83
Cumulative
0.79
2.58
0.75
2.49
 What amount will be credited to equity on 1 April 20X5 in respect of this financial instrument?

A) B $'000
Interest years 1–3 (30m × 8% × 2.49) 5,976
Repayment year 3 (30m × 0.75) 22,500
Debt component 28,476
Equity option
(β) 1,524
30,000

160) A 5% loan note was issued on 1 April 20X0 at its face value of $20 million. Direct costs of
the issue were $500,000. The loan note will be redeemed on 31 March 20X3 at a substantial
premium. The effective interest rate applicable is 10% per annum.
At what amount will the loan note appear in the statement of financial position as at 31 March
20X2?
A) D $'000
Proceeds (20m – 0.5m) 19,500 Interest 10%
1,950
Interest paid (20m × 5%) (1,000)
Balance 30 March 20X1 20,450 Interest 10%
2,045
Interest paid (20m × 5%) (1,000) 21,495

161) How does IFRS 9 Financial Instruments require investments in equity instruments to be
measured and accounted for (in the absence of any election at initial recognition)?
A) A Fair value with changes going through profit or loss. Fair value through OCI would be
correct if an election had been made to recognize changes in value through other
comprehensive income. Amortized cost is used for debt instruments, not equity instruments.

162) On 1 January 20X1 Penfold purchased a debt instrument for its fair value of $500,000. It
had a principal amount of $550,000 and was due to mature in five years. The debt instrument
carries fixed interest of 6% paid annually in arrears and has an effective interest rate of 8%. It is
held at amortized cost.
At what amount will the debt instrument be shown in the statement of financial position of
Penfold as at 31 December 20X2?

A) 162 A $
Less pre-acquisition retained earnings to
1.10.20
(12,000) (31,800)
Less pre-acquisition to 1.2.X1 (1,200 × 4/12) – (400)
 4,500 800

Saracen (4,500 × 80%) 3,600

Augusta (800 × 25%) 200
Impairment of investment in associate (W3) (2,500)
35,200

2. 163- 165 financial instrument.

163. Which of the following are NOT classified as financial instruments under IAS 32 Financial
instruments presentation?
A) The correct answer is:
Intangible assets.
These do not give rise to a present right to receive cash or other financial assets. The other options are
financial instruments.

164. Dexon's draft statement of financial position as at 31 March 20X8 shows financial assets at fair
value through profit or loss with a carrying amount of $12.5 million as at 1 April 20X7.
These financial assets are held in a fund whose value changes directly in proportion to a specified
market index. At 1 April 20X7 the relevant index was 1,200 and at 31 March 20X8 it was 1,296.
What amount of gain or loss should be recognized at 31 March 20X8 in respect of these assets?

A) $1,000,000 gain

$'000
$12,500 × 1,296 / 1,200 13,500
Carrying amount (12,500)
Gain 1,000

165 On 1 January 20X8 a company purchased 40,000 $1 listed equity shares at a price of $3 per share.
An irrevocable election was made to recognize the shares at fair value through other comprehensive
income. Transaction costs were $3,000. At the year end of 31 December 20X8 the shares were trading at
$6 per share.
What amount in respect of these shares will be shown under 'investments in equity instruments' in the
Statement of financial position as at 31 December 20X8?
A) $240,000
$40,000 shares @ $6=$ 240,000
3. 166-170 Bertrand MCQ case:
166. How should the convertible loan notes be accounted for?

A) B As debt and equity

167. What is the amount that will be recognized as finance costs for the year ended 30
September 20X1?
A) C
$'000
Interest payable ($10m × 5% × 2.58*) 1,290
Capital repayable ($10m × 0.79) 7,900
Debt element 9,190
Finance costs for year = 9,190 × 8% 735

168. What is the amount that should be shown under liabilities at 30 September 20X1?

A) A
$'000
1 October 20X0 9,190
Finance charge 8% 735
Interest paid (10,000 × 5%) (500) Balance 30 September 20X1 9,425

169. If Bertrand had incurred transaction costs in issuing these loan notes, how should these
have been accounted for?

A) B Deducted from the proceeds of the loan notes. The effective interest rate is then applied to
the net amount.
170. Later that year Bertrand purchased a debt instrument which will mature in five years' time.
Bertrand intends to hold the debt instrument to maturity to collect interest payments. How
should this debt instrument be measured in the financial statements of Bertrand?

A) D As a financial asset at amortized cost