Financial Instruments Flashcards

Under IFRS 13, fair value is defined as:

Answer: The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date

IFRS 13 defines fair value as an exit price in the principal (or most advantageous) market.

Under IFRS 13, Level 1 inputs in the fair value hierarchy are:

Answer: Quoted prices in active markets for identical assets or liabilities

Level 1 inputs are the most reliable—unadjusted quoted prices from active markets for identical items.

Under IAS 32, compound financial instruments (e.g., convertible bonds) should be presented:

Answer: Split between liability and equity components based on the fair value of the liability at issuance

IAS 32 requires split accounting: the liability component is fair valued first and the residual is equity.

Under IFRS 9, a financial guarantee contract is classified as:

Answer: A financial liability measured at the higher of ECL provision and initial recognition amount

IFRS 9 treats financial guarantee contracts as financial liabilities subject to ECL and fair value requirements.

Under IFRS 13, the 'highest and best use' concept applies to:

Answer: Non-financial assets only

IFRS 13 applies highest and best use only to non-financial assets as it reflects maximised value from market participants' perspective.

Under IFRS 9, the effective interest rate (EIR) method spreads:

Answer: Transaction costs and premium/discount over the life of the financial instrument

The EIR method allocates interest income/expense and amortises transaction costs and any premium or discount over the instrument's life.