IFRS 9 Financial Instruments Quiz

Vertex Mutual Funds holds two main portfolios of debt securities. Both portfolios provide cash flows that meet the test of solely payments of interest and principal in IFRS 9.

 

Portfolio 1: These are sold on a regular basis in order to earn speculative gains due to fluctuations in market.

 

Portfolio 2: These are never sold but are held to maturity.

How should the portfolios be classified and measured in accordance with IFRS 9 Financial Instruments?

• Both at fair value

• Both at amortised cost

• Portfolio A at fair value and portfolio B at amortised cost

• Portfolio A at amortised cost and portfolio B at fair value

In accordance with the accounting required by IFRS 9, calculate the gain or loss to be recorded in the statement of profit or loss and other comprehensive income for Year 2?

• Loss of $15,000 taken to statement of profit or loss

• Loss of $15,000 taken to other comprehensive income

• Loss of $15,000 taken to other comprehensive income and subsequently reclassified

• No profit loss as the derivative is carried at cost

Under IFRS 9, which of the following assets should be classified under amortised costs?

i.      An investment in $1million ordinary shares of Edward Ltd

ii.     $3 million of 5% 2018 bonds. The company intends to sell the bonds within the next three years. Until then the company will receive interest.

iii.   $500,000 loan to a supplier. Interest charged at 4% and due for repayment in two years.

• i and ii

• ii and iii

• Only ii

• Only iii

From which category of financial instruments are transaction costs excluded from the initial value and instead expensed to profit or loss?

i.      Financial assets at amortised costs

ii.     Financial assets at fair value through other comprehensive income

iii.   Financial liabilities at amortised costs

• i and ii

• ii and iii

• Only iii

• None of the above

Polygon Ltd purchased a 5 year bond on the open market at a discount with a coupon rate of 6%. As the market rate for similar bonds is 6.55, the bond was purchased at a discount. Polygon Ltd plans to hold it to maturity and has the ability to do so. Which of the following most accurately describes the treatment of the bond in the financial statements?

• The bond should be accounted for at amortized cost and the effective interest method should be used in amortizing the discount.

• The bond should be accounted for at amortized cost.

• The bond can be accounted for at amortized cost or fair value and if amortized cost is used, the effective interest method should be used in amortizing the discount.

• The bond can be accounted for at amortized cost or fair value.

On 1 January 2010, Sonata Ltd issued a debt instrument with a coupon rate of 13.5% at a par value of $20 million. The directly attributable costs of issue were $1.1 million. The debt instrument is repayable on 31 December 2011 at a premium of $3.0 million. What is the total finance cost associated with the debt instrument at repayment date?

• $6.5 million

• $8.4 million

• $9.5 million

• $5.4 million

Given the definition adopted in IAS 32 Financial Instruments: Presentation, which one of the following would not be a financial instrument?

• Cash at bank

• Bill of exchange

• Prepaid insurance

• Forward exchange contract

A company has issued preference shares that are redeemable at the option of the holder. Three months before the end of the year, it was probable that the holders would require redemption. Which one of the following is the appropriate classification for the annual payment of $12 000 to preference shareholders at year end?

• Dividend $12 000

• Interest expense $12 000

• Dividend $3000, interest expense $9000

• Dividend $9000, interest expense $3000

According to IAS 32, which one of the following instruments would be classified as equity?

• Redeemable preference shares with a fixed redemption date

• Redeemable preference shares redeemable at the discretion of the issuer

• Redeemable preference shares redeemable in five years at the request of the holder

• Redeemable preference shares redeemable at the discretion of the issuer, who has given formal notification of such intention

A company issues $100 000 of convertible notes in 20X1. Holders of the notes have the right to convert the notes into shares only in December 20X3. At the date of issue, the fair value of a note without a similar conversion right was $90 000. The company considered that it was probable that all holders of the notes would convert their notes into shares. Under IAS 32, how should the convertible notes be recognised in the issuer's statement of financial position on the date of issue? Select which one of the following is correct.

• Liability $100 000

  Equity Nil

• Liability $90 000

  Equity $10 000

• Liability $10 000

  Equity $90 000

• Liability $90 000

  Equity Nil