WorksheetsFI1: Debts as Financial Assets
Total questions: 100
Worksheet time: 50mins
According to IFRS 9, when is a debt instrument classified at fair value through profit or loss (FVTPL)?
When the business intends to hold the instrument to maturity
When the business model is “hold to collect”
When the instrument fails the SPPI test or is held for trading
When the instrument is issued by a related party
What does the SPPI test assess under IFRS 9?
The credit risk of the instrument
Whether the contractual cash flows consist solely of principal and interest
The fair value volatility of the instrument
The presence of embedded derivatives
If a debt instrument passes the SPPI test and the business model is “hold to collect and sell,” how should it be classified?
Amortised cost
Fair value through OCI (FVOCI)
Fair value through profit or loss (FVTPL)
It must be derecognized
Unrealised gains or losses from debt instruments measured at FVOCI are:
Recognized in profit or loss
Recorded in other comprehensive income (OCI)
Included in retained earnings
Not recognized at all
Which of the following must be met for a debt instrument to be classified at amortised cost under IFRS 9?
The instrument passes the SPPI test and the business model is "hold to collect"
The instrument is traded frequently
The issuer is a listed company
The fair value is lower than the cost
On 1 Jan Year 1, a company purchases a bond for 950,000 with a face value of 1,000,000, 3-year term, and 5% annual coupon paid at year-end. Market rate is 6%. If the bond is classified at amortised cost, what is the interest income in Year 1 under the effective interest method?
$50,000
$57,000
$60,000
$45,000
A debt instrument is classified at FVOCI. Its fair value increases from 980,000 to 1,000,000 during the reporting period. What is the correct journal entry?
Dr Financial asset 20,000 / Cr Profit or loss 20,000
Dr Financial asset 20,000 / Cr OCI – FV gain 20,000
Dr Profit or loss 20,000 / Cr Financial asset 20,000
Dr Investment reserve 20,000 / Cr Retained earnings 20,000
A bond is measured at FVTPL. Its fair value increases from 1,000,000 to 1,060,000. What is the journal entry?
Dr Financial asset 60,000 / Cr Profit or loss 60,000
Dr OCI 60,000 / Cr Financial asset 60,000
Dr Investment income 60,000 / Cr Financial asset 60,000
Dr Revaluation surplus 60,000 / Cr Profit or loss 60,000
A company purchases a debt instrument for $500,000 with the intention to sell it in the short term. The instrument passes the SPPI test. Which classification is appropriate under IFRS 9?
Amortised cost
FVOCI
FVTPL
Not recognised
On 1 March Year 1, a company sells a bond investment that was classified as FVOCI for 1,050,000.Thebondhadanamortisedcostof 1,000,000, and during the holding period, an unrealised gain of $30,000 had been recorded in Other Comprehensive Income (OCI). What journal entry should the company make to reflect the sale of this bond?
Dr Cash 1,050,000 / Cr Financial asset 1,050,000
Dr Cash 1,050,000 / Cr Profit or loss 50,000
Dr Cash 1,050,000 / Cr Financial asset 1,000,000; Cr OCI (reclassified) 30,000; Cr Profit or loss 20,000
Dr OCI 30,000 / Cr Profit or loss 50,000
Under IFRS 9, what classification applies if a debt instrument fails the SPPI test, regardless of the business model?
Amortised cost
Fair value through OCI (FVOCI)
Fair value through profit or loss (FVTPL)
It can be designated at cost
What distinguishes a business model of “hold to collect and sell” from “other” under IFRS 9?
The instrument is held for speculative purposes
Sales are planned and integral to the portfolio strategy
The asset is not expected to earn interest
The asset is used as collateral
If a company manages a bond portfolio without a clear objective to either hold or sell, what classification is appropriate under IFRS 9?
FVOCI
FVTPL
Amortised cost
Not recognised
According to IFRS 9, which of the following debt instruments may be classified at amortised cost?
A bond held for trading
A loan receivable with fixed payments held to collect cash flows
A convertible bond with equity features
A corporate bond intended to be sold in the short term
A company buys a government bond for 980,000 with a face value of 1,000,000, 5% coupon, and plans to hold to collect contractual cash flows. The bond passes the SPPI test. What classification should be applied?
Amortised cost
FVOCI
FVTPL
Not recognised
On 1 Jan 20X1, Entity A purchases a 4-year bond for 96,000. The bond has a face value of 100,000, pays 5% annual interest (nominal rate), and has an effective interest rate of 6%. On 31 Dec 20X1, the company receives $5,000 in interest. What journal entries should be recorded on 31 Dec 20X1 under the amortised cost method?
Dr Cash 5,000 / Cr Interest income 5,000
Dr Cash 5,000 / Cr Financial asset 5,000
Dr Cash 5,000; Dr Financial asset 960 / Cr Interest income 5,960
Dr Cash 5,000; Cr OCI 960; Cr Interest income 5,000
A bond measured at FVTPL increases in fair value from 700,000 to 720,000. What is the journal entry?
Dr Financial asset 20,000 / Cr Profit or loss 20,000
Dr OCI 20,000 / Cr Financial asset 20,000
Dr Profit or loss 20,000 / Cr OCI 20,000
Dr FV reserve 20,000 / Cr P/L 20,000
A company sells a bond measured at FVOCI for $1,200,000. Its amortised cost was $1,150,000, and $40,000 had been recognised in OCI.
What is the profit or loss impact?
$50,000 gain in P/L
10,000 gain in P/L; 40,000 reclassified from OCI to P/L
$40,000 gain in P/L; $10,000 in OCI
No impact on P/L
A company purchases a bond on 1 Jan Year 1 for 960,000. The bond has a face value of 1,000,000, a 5% annual coupon, and matures in 4 years. The bond is classified as amortised cost. The effective interest rate is 6%. What is the interest income for Year 1 under the effective interest method?
$50,000
$60,000
$57,600 (960,000 × 6% = 57,600)
$40,000
On 1 Jan 20X1, Entity A purchases a bond for 96,000 with a face value of 100,000, maturing in 4 years. The bond pays annual interest of 5% on face value. The effective interest rate is 6%. What is the interest income for the year ended 31 Dec 20X1 under the amortised cost method?
$5,000
$5,760 (96,000 × 6% = 5,760)
$6,000
$4,000
Under IFRS 9, when an entity acquires an equity instrument that is not held for trading, it may make an irrevocable election at initial recognition to present changes in fair value in:
Profit or Loss
Other Comprehensive Income
Retained Earnings
Statement of Changes in Equity
An equity investment is classified as held for trading if:
The entity has a long-term strategic interest in the investee.
It is acquired principally for the purpose of selling it in the near term.
The investment is in the parent company's own shares.
The investment is designated at amortized cost.
Which of the following equity investments can be measured at amortized cost under IFRS 9?
Quoted equity shares held for trading
Unquoted equity investments with no active market
Equity instruments cannot be measured at amortized cost
Equity instruments with a fixed dividend
Which of the following statements about the irrevocable OCI election for equity instruments is TRUE?
It can be revoked if market conditions change.
It is available only for equity instruments that are unquoted.
It is available only for instruments not held for trading.
It applies to both equity and debt instruments.
Which of the following measurement bases is never allowed for equity instruments under IFRS 9?
Fair value through profit or loss
Fair value through other comprehensive income
Amortised cost
Fair value through retained earnings
Which of the following statements is TRUE regarding equity instruments under IFRS 9?
All equity instruments must be measured at amortised cost
Equity instruments held for trading are measured at FVOCI
Equity instruments must be measured at fair value, either through profit or loss or through OCI
Equity instruments can be measured at cost if there is no active market
Under IFRS 9, an equity instrument may be classified as FVOCI only if:
It is acquired for trading purposes
It has fixed interest and maturity date
The entity makes an irrevocable election at initial recognition
The market price is not available
Which of the following best describes a characteristic of equity instruments?
They include a contractual obligation to repay principal and interest
They provide fixed and predictable cash flows
They represent residual interest in the net assets of an entity
They are always held for trading
When is the fair value of an equity instrument not required to be updated at each reporting date?
When the instrument is measured at amortised cost
When there is no active market
When it is measured using the cost model under IAS 40
Fair value must always be updated, regardless of market activity
On 1 January 20X1, Alpha Ltd purchases 1,000 equity shares of Beta Ltd at 50pershareandincurstransactioncostsof 1,500. The shares are not held for trading, and Alpha makes an irrevocable FVOCI election. What is the initial carrying amount of the investment?
$50,000
$51,500 (Initial carrying amount = 50,000 + 1,500 = 51,500)
$48,500
$1,500
Using the same investment in Question 10, at year-end 31 December 20X1, the fair value of the shares is $54 per share. What is the unrealized gain, and where should it be recorded?
$4,000 – in profit or loss
$4,000 – in OCI
$4,000 – in retained earnings
$2,500 – in OCI
On 1 January 20X1, a company buys 2,000 shares of a listed company for 40 each. The shares are held for trading. On 31 December 20X1, the fair value is 38. What amount of loss will be recognized in profit or loss?
$2,000
$4,000
$80,000
A company purchases 500 shares at 30 each and elects FVOCI. The fair value on 31 Dec is 28. What journal entry should be made to reflect this change in value?
Dr FV Loss $1,000; Cr Profit or Loss
Dr OCI $1,000; Cr Investment in Equity Instruments
Dr Investment $1,000; Cr OCI
Dr OCI $1,000; Cr Investment in Equity Instruments
An investor purchases shares for $10,000. On 31 Dec, fair value increases to $11,200. What is the carrying amount if the investment is:
(a) 10,000;(b) 11,200
(a) 11,200;(b) 11,200
(a) 10,000;(b) 10,000
(a) 11,200;(b) 10,000
On 1 January 20X2, Gamma Ltd purchases 2,000 equity shares of Delta Ltd at $25 per share. The company incurs $2,000 in transaction costs.
What is the initial carrying amount of the investment in each of the following cases?
Case A: The investment is not held for trading, and Gamma Ltd makes an irrevocable FVOCI election.
Case B: The investment is held for trading, and is therefore measured at FVPL.
What are the respective carrying amounts?
Case A: 50,000;CaseB: 50,000
Case A: 52,000;CaseB: 50,000
Case A: 50,000;CaseB: 52,000
Case A: 52,000;CaseB: 52,000
Omega Ltd purchased 3,000 equity shares of Alpha Ltd at 20 per share on 1 Jan 20X1. The shares are classified as FVPL. At 31 Dec 20X1, the fair value is 18. What amount of loss will be recognized in the profit or loss?
$6,000
$60,000
$54,000
$66,000
On 1 January 20X1, an entity purchases shares in ABC Ltd for 80,000 and classifies them as FVOCI (not held for trading).
At 31 December 20X1, the fair value rises to 90,000.
At 31 December 20X2, the fair value decreases to 70,000.
At 31 December 20X3, the fair value increases 75,000.
What is the cumulative balance in OCI as of 31 December 20X3?
$(5,000)
$(10,000)
$5,000
$15,000
An entity purchases shares in XYZ Co for 100,000 on 1 Jan 20X1. The investment is not held for trading, and the entity elects to classify it at FVOCI.
On 31 Dec 20X1, fair value increases to 120,000 on 1 Jan 20X1.
On 31 Dec 20X2, fair value falls to $90,000. What is the total balance in OCI by the end of 20X2?
$10,000
$(10,000)
$20,000
$(10,000) cumulative in OCI
Delta Ltd purchased shares at $45,000 (FVPL). At year-end, fair value = $47,200. What is the carrying amount and P&L impact?
Carrying amount = 45,000;Gain= 2,200
Carrying amount = 47,200;Gain= 2,200
Carrying amount = 47,200;Gain= 0
Carrying amount = 45,000;Gain= 0
On 1 Jan 20X1, a firm buys 800 shares for $75 each (FVOCI), and pays $800 transaction costs. At year-end, share price is $77. What is:
60,000and 1,600
60,800and 1,600
60,800and 800
60,000and 800
A company sells 1,000 identical products with warranty data:
80% no repair;
15% repair = 100;
5% repair = 300. What provision should be recognized?
$0
$10,500
$15,000
$30,000
A retailer offers a 1‑year warranty on 10,000 units. Based on history:
40% require no service;
35% incur 80 cost;
25% incur 150 cost. What is the appropriate provision?
$280,000
$375,000
$655,000
$0
Which of the following correctly differentiates a provision from other liabilities?
Provisions are always legally enforceable, while other liabilities are not.
Provisions are liabilities of uncertain timing or amount.
Other liabilities are optional, but provisions are mandatory.
Provisions do not require recognition in financial statements.
Under IAS 37, recognition of a provision is appropriate only when all of the following conditions are met EXCEPT:
There is a present obligation from a past event
It is possible that an outflow of resources will be required
The amount of the obligation can be estimated reliably
A future event is expected to confirm the obligation
A company has a 60% probability of incurring a $100,000 environmental cleanup cost. According to IAS 37 recognition criteria, what is the appropriate treatment?
Recognize a provision for $60,000
Disclose as a contingent liability only
Recognize a full provision of $100,000
No recognition or disclosure required
A company agrees to settle a legal claim for 80,000. Legal fees related to the case are 80,000. Legal fees related to the case are 15,000, and are required to fulfill the obligation. What is the total provision to be recognized under IAS 37?
$80,000
$15,000
$95,000
$65,000
A contingent asset of $300,000 is expected with a 55% chance of success in litigation. How should this be treated?
Recognize $165,000
Disclose $300,000
Recognize $300,000
Ignore
A company has $1,000,000 in receivables and expects 4% to be uncollectible. What is the allowance amount?
$4,000
$40,000
$960,000
$0
A provision of 600,000wasbookedlastyear. 400,000 was used. The new best estimate is $180,000. What amount should be reversed?
$20,000
$180,000
$200,000
$0
A legal obligation has a 40% chance of outflowing $500,000. How should this be reported?
No disclosure required
Recognize provision of $500,000
Disclose as a contingent liability
Record an expense
A company expects to clean up an oil spill costing $100,000 in 2 years. If the discount rate is 5%, what is the provision to recognize?
$100,000
$95,000
$90,703
$86,380
According to IAS 37, how should a contingent liability be treated in financial statements?
Recognized as a liability if the amount can be estimated
Disclosed in the notes unless the chance of outflow is remote
Included in the statement of financial position when probable
Recorded as an expense if the risk is more than 50%
What best describes a contingent liability under IAS 37?
A liability that is certain but not yet due
A legal obligation from a signed contract
A possible obligation depending on uncertain future events
A liability that must be paid within the next 12 months
A company is facing a lawsuit. The legal team assesses a 30% chance the company will lose, estimated loss is $400,000. How should this be treated?
Recognize a provision for $400,000
Disclose a contingent liability of $400,000
No disclosure is required
Record a loss in profit or loss
An environmental lawsuit has a 75% chance to pay, cost range 500,000–700,000 best estimate = $600,000. What is the appropriate accounting?
Disclose a contingent liability of $600,000
Recognize a provision of $600,000
Recognize a provision of $700,000
Wait until the court decision is made
A possible obligation arises from a past event, and its existence is confirmed only by future events. How to treated?
Recognized as a provision
Disclosed as a contingent liability
Ignored completely
Recognized as an asset
When is no disclosure required for a contingent liability?
When the obligation is probable
When the obligation is remote
When the obligation is legal
When the amount is immaterial
A company faces a legal obligation with wide‑ranging possible outcomes ( 50,000– 2,000,000) and cannot determine a reliable best estimate. Probability of outflow is high. What is the treatment?
Recognize a provision of $2,000,000
Recognize a provision using expected value
Disclose as a contingent liability
No recognition or disclosure requires
A company is being investigated for tax violations. 40% chance of being fined $300,000. What is the appropriate treatment?
Recognize a provision of $300,000
Disclose a contingent liability of $300,000
Ignore the situation until a decision is made
Record the loss immediately
A company is facing two legal claims:
• Claim A: 70% chance of losing, amount = $500,000
• Claim B: 40% chance of losing, amount = $900,000
What is the appropriate accounting treatment?
Recognize a provision of $500,000 and disclose a contingent liability of $900,000
Recognize provisions for both
Disclose both as contingent liabilities
Ignore both claims
Under IAS 37, how are reimbursements accounted for?
As a reduction in the provision amount
As a separate asset only when it is virtually certain the reimbursement will be received
As a deferred liability
Not recognized until received
When a provision is no longer required, IAS 37 requires it to be:
Converted into equity
Reclassified as a contingent liability
Reversed and recognized as income
Carried forward indefinitely
What is required under IAS 37 regarding disclosure of provisions and contingent liabilities in financial statements?
Only provisions are disclosed
No disclosure is required if the provision is estimated
Entities must disclose nature, timing, uncertainties, and assumptions
Contingent liabilities should be recognized as liabilities
A company estimates a provision of $200,000 and expects to receive an 80% reimbursement from its insurer that is virtually certain. What amount should be recognized as a reimbursement asset?
$0
$40,000
$160,000
$200,000
A provision of 500,000 was recognized in 20X1. In20X2, only 320,000 was used. The remaining obligation is reassessed and is now only $150,000. What adjustment should be made in 20X2?
Increase the provision by $30,000
Reverse $30,000 into profit or loss
Reverse $180,000 into profit or loss
No adjustment required
A company discounts a provision of $110,000 to its present value using a discount rate of 5%. The obligation is expected to be settled in 2 years. What is the present value of the provision?
$95,000
$99,775
$100,000
$104,762
A company disclosed a contingent liability of 1,000,000. During the next year, the probability of loss becomes "probable" and the best estimate of the liability is 750,000. What is the correct treatment under IAS 37?
Continue disclosing $1,000,000 as a contingent liability
Recognize a provision of $750,000
Recognize a provision of $1,000,000
No action is required
A company estimates a provision at $250,000. The obligation will be settled in 3 years. If the appropriate discount rate is 4%, what is the present value of the provision?
$225,350
$222,390
$250,000
$231,482
A restructuring provision of $600,000 was recognized. In the following year, $420,000 was spent. The revised estimate for the remaining obligation is $150,000. What amount should be reversed?
$30,000
$150,000
$180,000
$450,000
A company provides a 3-year warranty. Estimated cost per unit is $75 in Year 1, $40 in Year 2, and $25 in Year 3. The company sold 1,000 units. What total provision should be recognized (undiscounted)?
$140,000
$75,000
$180,000
$170,000
The provision for an onerous contract is estimated at $90,000. However, management expects to recover $20,000 through reimbursement that is not virtually certain. How should this be reflected in the financial statements?
Recognize a net provision of $70,000
Recognize a provision of $90,000 and do not recognize the reimbursement
Do not recognize a provision
Disclose only
A provision recognized for litigation is $300,000. If a related reimbursement is virtually certain and receivable from a third party for $120,000, how should this be reflected in the income statement?
Show net expense of $180,000
Show provision of $300,000 and no reimbursement
Show provision expense of 300,000andreimbursementincomeof 120,000
Do not show any amount until the case is settled
A company faces environmental fine:
• 45% no fine
• 40% $200,000
• 15% $500,000
What is the appropriate treatment?
Recognize a provision of $230,000
Do not recognize; disclose as a contingent liability
Recognize a provision of $200,000
Do not disclose anything
Possible litigation outcomes:
• 10% no payment
• 30% pay $100,000
• 60% pay $600,000
What amount should be recognized as provision?
$600,000
$390,000
$430,000
$180,000
Dismantling cost in 5 years: likely $900,000 (range: $800K–$1M). What amount to recognize?
$800,000
$900,000
$1,000,000
Weighted average of the range
Legal dispute:
• 20% no payment
• 40% pay $300,000
• 40% pay $800,000
How to treat under IAS 37?
Do not recognize a provision
Recognize provision at $300,000
Disclose as contingent liability only
Recognize provision of $440,000
A company expects these outcomes:
• 40% no payment
• 50% pay $200,000
• 10% pay $1,000,000
Expected value = ?
$200,000
$260,000
$320,000
No provision
Most likely payment = $400,000, others remote. What provision to recognize?
$0
$400,000
Probability-weighted average
Median
A company is being sued. Outcomes range between 50,000and 200,000. No reliable estimate can be made. What is the appropriate treatment?
Recognize a provision of $125,000
Disclose as a contingent liability in the notes
Do not recognize or disclose anything
Recognize a provision only when the court rules
A company is involved in legal dispute:
• 33% pay $100,000
• 33% pay $500,000
• 34% pay $900,000
Management cannot determine a best estimate due to wide range. What is the treatment?
Recognize using expected value
Recognize provision of $900,000
Disclose as contingent liability
No recognition or disclosure required
Under IFRS 9, how are most non-derivative financial liabilities measured after initial recognition, if they are not held for trading and no fair value option is applied?
Fair value through profit or loss
Amortised cost
Fair value through OCI
Historical cost
A company issues bonds to investors. It incurs $10,000 in transaction costs. The bonds are measured at amortised cost. What should the company do with the transaction costs?
Recognise them as an expense immediately
Add them to the bond premium
Deduct them from the bond’s initial carrying amount
Recognise them in OCI
Which of the following is NOT classified as a financial liability under IFRS 9?
Issued loan notes
Bank overdraft
Income tax payable
Trade payables
A company issues a financial liability but elects the fair value option at initial recognition to eliminate accounting mismatch. How is this liability measured subsequently?
At amortised cost
At cost less impairment
At fair value through profit or loss
At fair value through OCI
Which of the following best describes a financial liability under IFRS 9 and IAS 32?
A legal obligation to pay taxes
A contractual obligation to deliver cash or another financial asset
A contingent obligation disclosed in the notes
An intention to pay dividends in future
A company issues bonds with a face value of $100,000, 5% coupon rate, but the market rate is 6%. What is the issuance price (rounded)?
Less than $100,000
Equal to $100,000
More than $100,000
Cannot be determined
Under IFRS 9, how is a financial liability initially measured?
At nominal value and accrued interest, and shown in the financial statement notes
At fair value at initial recognition
At amortised cost calculated from future cash flows discounted at market rate
At issue price including legal, administrative, and placement fees incurred
If a financial liability is measured at amortised cost, how is the carrying amount adjusted each year under the effective interest method?
Increased by actual interest paid
Decreased by coupon payment
Increased by interest expense, decreased by coupon paid
Fixed and does not change
On 1 Jan 20X1, a company issues 4-year bonds with a face value of $200,000 and a coupon rate of 4% paid annually, but receives only $188,000 due to discount. The effective interest rate is 6%. What is the interest expense for Year 1?
$8,000
$11,280
$12,000
$10,000
A company issues a loan payable of $100,000 at a premium and receives $103,000. The loan carries a 5% annual interest, and the effective interest rate is 4%. What is the interest expense in Year 1?
$5,000
$4,000
$4,120
$5,150
Under IFRS 9, when can an entity elect the fair value option for a financial liability?
Always, regardless of circumstances
Only when the liability is held for trading
Only when it eliminates or significantly reduces an accounting mismatch
When the liability is repayable within 12 months
If an entity elects the fair value option for a financial liability, which portion of fair value change is presented in Other Comprehensive Income (OCI)?
The full fair value change
The portion attributable to changes in own credit risk
The coupon interest portion
None – all changes go to profit or loss
Which of the following is most likely measured at amortised cost under IFRS 9?
A bond payable held for trading
A bank loan payable
A written option
A financial guarantee contract
Under IFRS 9, which of the following is not considered a contractual obligation, and therefore not a financial liability?
An obligation to deliver cash
An obligation to deliver goods
An obligation to repay a loan
An obligation to settle a payable
What happens to transaction costs related to a financial liability measured at fair value through profit or loss (FVPL)?
They are added to the carrying amount
They are amortised over the life of the liability
They are expensed immediately in profit or loss
They are recognised in OCI
A company issues bonds with a face value of $100,000 at par on 1 Jan 20X1. The coupon rate is 6% paid annually, and the market (effective) rate is also 6%. What is the initial carrying amount of the liability?
$106,000
$100,000
$94,000
$96,000
A company issues a $50,000 loan at 8% coupon, but incurs $1,000 transaction costs. The loan is measured at amortised cost. What is the initial carrying amount?
$51,000
$49,000
$50,000
$48,000
A bond with a face value of $50,000 is issued for $47,000. The annual coupon is $2,500 and the EIR is 6%. What is the carrying amount at the end of Year 1?
$49,280
$47,500
$48,320
$45,000
A 3-year bond is issued at $95,000 with a face value of $100,000 and 5% annual interest, EIR = 6%. What is the total interest expense over the 3 years (rounded)?
$15,000
$18,000
$19,000
$20,000
A company issues a bond for $100,000 with transaction costs of $2,000. The bond is measured at amortised cost, EIR is 5%. What is the first year’s interest expense?
$5,000
$5,100
$4,900
$4,800
