IAS 39 Financial Instruments Recognition and Measurement II

In order to be awarded CPD units you must answer the following five random questions correctly. If you fail the test, please re-read the article before attempting the questions again.

  1. A should continue to recognize the transferred receivables because it has retained substantially all the risks and rewards of the receivables. It has kept all the expected credit risk

  2. Company A has a loan asset whose initial carrying amount is GBP 500,000 and whose effective interest rate is GBP 6. On 1 January 2006, A is given information that the borrower will probably enter into bankruptcy, and expects to collect only GBP 200,000 of the remaining principal and interest. Entity A expects to recover this amount on 31 December 2006

  3. Which of the following characteristics is not one that relates to a derivative?

  4. On 1 July 2006, a company enters into a forward contract to purchase on 1 July 2009, a specified number of barrels of oil at a fixed price. The company is speculating that the price of oil will increase and plans to net settle the contract if the price increases. The forward contract has nil cost to the company. The forward contract is not designated as a hedging instrument. At 30 June 2007, the fair value of the forward contract has increased to GBP 700,000. At 30 June 2008, the fair value of the forward contract has declined to GBP 550,000. Show the journal entries for the derivative financial instrument at the company’s year ends of 30 June 2007 and 30 June 2008

  5. A company owns a GBP 5 fixed rate loan asset that is measured at amortised cost at GBP 1million The company wants to eliminate the risk of changes in the fair value of the loan asset and so enters into an interest rate swap agreement. The swap is designated as a hedging instrument in a fair value hedge of the loan asset. Market interest rates increase. At the end of the financial year, the company receives GBP 50,000 in interest income on the loan .The change in the fair value of the interest rate swap is an increase of GBP 13,000. At the same time, the fair value of the loan asset decreases by GBP 13000. Which of the following entries are correct at the company’s year end?

  6. The fundamental difference between a cash flow hedge and a fair value hedge is -

  7. Which of the following is not objective evidence of the impairment of a financial asset?

  8. Which of the following is not a condition for hedge accounting?

  9. Hedges of a net investment in a foreign operation are accounted for like a -

  10. In which of the following circumstances would de-recognition of a financial liability not occur?