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ICAS - FR > Module 12 - Financial Instruments: Presentation, classification and measurement > Flashcards

Module 12 - Financial Instruments: Presentation, classification and measurement Flashcards

1
Q

Financial instrument =

A

Contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another

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2
Q

Equity instrument =

A

Contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities eg ordinary shares

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3
Q

Primary financial instrument

A

Price based directly on market value

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4
Q

Derivative financial instrument

A

Price varies in response to underlying item, has little or no initial investment and will be settled at a future date

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5
Q

If there is a contractual obligation to deliver cash or another financial asset

A

Financial liability

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6
Q

If there is NO contractual obligation to deliver cash or another financial asset

A

Equity

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7
Q

Compound instruments

A

Has characteristics of both equity and financial liabilities

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8
Q

Convertible debt > liability > measurement

A

Initially measure at fair value of similar debt without conversion rights

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9
Q

Convertible debt > equity > measurement

A

Measure as residual of proceeds

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10
Q

Company recognises a financial asset or liability when

A

It becomes a party to the contractual provisions of the instrument

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11
Q

Derivatives measurement

A

Many have no initial cost or fair value therefore only recognised at a monetary amount when their fair value increases/ decreases

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12
Q

Three classifications for financial assets:

A
  • Amortised cost
  • Fair value through other comprehensive income
  • Fair value through profit or loss
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13
Q

Measure asset at FVTPL if

A

Intention to sell in the short term (held for trading)

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14
Q

Measure asset at FVTOCI if

A

Intention to hold and then sell before maturity

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15
Q

Measure asset at AC if

A

Intention to hold to maturity

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16
Q

Equity investments not held for trading

A

Should be measured at FVTOCI

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17
Q

Default classification for liabilities

A

Amortised cost

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18
Q

If liability:

  • Held for trading
  • Derivative
  • Designated at FVTPL
A

Classify as fair value through profit or loss

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19
Q

When accounting mismatch occurs

A

Elect to measure consistently

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20
Q

Initial measurement of financial assets: AC and FVTOCI

A

Fair value plus transaction costs

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21
Q

Initial measurement of financial assets: FVTPL

A

Fair value

22
Q

Initial measurement of financial liabilities: AC

A

Fair value less transaction costs

23
Q

Two classifications of financial liabilities:

A
  • AC

- FVTPL

24
Q

Initial measurement of financial liabilities: FVTPL

A

Fair value

25
Q

Subsequent measurement: equity > FVTOCI

A

Measure at fair value at each reporting date

26
Q

Subsequent measurement: equity > FVTOCI > increase

A

DR Financial asset

CR Revaluation surplus

27
Q

Subsequent measurement: equity > FVTOCI > decrease

A

DR Revaluation surplus

CR Financial asset

28
Q

Subsequent measurement: debt/ equity > FVTPL

A

Measure at fair value at each reporting date

29
Q

Subsequent measurement: debt/ equity > FVTPL > increase

A

DR Financial asset

CR SPL - Fair value increase

30
Q

Subsequent measurement: debt/ equity > FVTPL > decrease

A

DR SPL - fair value decrease

CR Financial asset

31
Q

Subsequent measurement: debt > AC

A

Apply effective interest method

32
Q

Trade receivables classified as

A

Amortised cost

33
Q

Selling costs > equity instruments

A

Don’t include as there has been no disposal

34
Q

Effective interest method > carrying amount of a debt investment =

A

Opening balance + interest at effective rate - nominal interest received

35
Q

Interest at effective rate (asset) =

A

Finance income

36
Q

Nominal interest =

A

Interest actually paid

37
Q

Bid- ask price spread

A

Pick lower

38
Q

Effective interest asset double entry

A

DR Financial asset

CR SPL - finance income

39
Q

Nominal interest asset double entry

A

DR Bank

CR Financial asset

40
Q

Subsequent measurement: liabilities > FVTPL > decrease

A

DR SPL - fair value decrease

CR Financial liability

41
Q

Subsequent measurement: liabilities > FVTPL > increase

A

DR Financial liability

CR SPL - fair value increase

42
Q

Subsequent measurement: liabilities > AC

A

Apply effective interest method

43
Q

Effective interest method > carrying amount of a financial liability =

A

Opening balance + interest at effective rate - nominal interest paid

44
Q

Interest at effective rate (liability)

A

Finance cost

45
Q

Effective interest liability double entry

A

DR SPL - Finance costs

CR Financial liability

46
Q

Nominal interest liability double entry

A

DR Financial liability

CR Bank

47
Q

Hedge accounting applied when

A

There is a designated hedging relationship between a hedged item and a hedging instrument

48
Q

3 types of hedging relationship:

A
  • Fair value hedge
  • Cash flow hedge
  • Net investment hedge
49
Q

Fair value hedge

A

Hedge of exposure to changes in the fair value of a recognised asset or liability that affect profit or loss

50
Q

Cash flow hedge

A

Hedge of exposure to variability in future cash flows. Attributable to a risk associated with a recognised asset or liability OR a highly probable forecast transaction.

51
Q

Non-hedge derivative classification

A

FVTPL

ICAS - FR (22 decks)

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