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a. I only C. Both I and II b. II only d. Neither I nor II q Statement 1: : Gains and losses related to changes in the carrying amount of a financial liability are recognized as income or expense in profit or loss even when they relate to the instrument that includes a right to the residual interest in the asset of an entity in exchange for cash or another financial asset. Statement 2: A financial asset and a financial liability shall be offset and the net amount presented in the instrument of financial position when an entity currently has a legally enforceable right to sell off the recognized amount, and intends to settle on a net basis, or to realize the asset and settle the liability simultaneously. a. Only the first statement is correct. b. Only the second statement is correct. c. Both statements are correct. d. Neither of the statements is correct. 4Which of the following statements is correct? A financial instrument is any asset that is cash, an equity instrument of another entity, a contractual right to receive cash or to exchange financial asset or financial liability with another entity. 11. An issuer of a financial instrument shall classify the instrument, or its component parts, on initial recognition as a financial liability, a financial asset or an equity instrument in accordance with the substance of contractual agreement and the definitions of a financial liability, financial asset, and an equity instrument. a. I only C. Both I and II b. II only d. Neither I nor II 4. Which of the following statements is correct? I. An instrument is an equity instrument if it does not include a contractual obligation to deliver cash to another entity or to exchange financial assets to financial liabilities, and if the instrument will or may be settled in the issuer's own equity instrument. II. A puttable financial instrument includes a contractual obligation for the issuer to repurchase or redeem that instrument for cash or another financial asset on the exercise of the put. a. I only C. Both I and II b. II only d. Neither I nor II 5. Which of the following statements is correct? I. At the date of reclassification, the financial liability shall be measured at the instrument's fair value. II. At the date of reclassification, an equity instrument shall be measured at the carrying amount of the financial liability. a. I only C. Both I and II b. II only d. Neither I nor II 212.1 Multiple Choice Encircle the letter that corresponds to your answer. 1. Statement 1: The objective of PAS/ IAS 32 is to establish principles for presenting and measuring financial instruments as liabilities or equity. Statement 2: PAS/IAS 32 applies to the classification of financial instruments, from the perspective of the holder, into financial assets, financial liabilities, and equity instruments. a. Only the first statement is correct. b. Only the second statement is correct. c. Both statements are correct. d. Neither of the statements is correct. 2. The following statements are correct, except: a. The principles of PAS/IAS 32 apply to all types of entities except those interests in subsidiaries, associates, and joint ventures that are accounted for in accordance with other PFRS/IFRS. b. The principles of PAS/IAS 32 apply to those contracts that were entered into and continue to be held for the purpose of receipt and delivery of a non-financial item in accordance with the entity's purchase, sale, or usage requirements. c. The principles of PAS/IAS 32 shall be applied to those contracts to buy or sell a non-financial item that can be settled net in cash or another financial instrument, or by exchanging financial instruments, as if the contracts were financial instruments. d. A written option to buy or sell a non-financial item that can be settled net in cash or in another financial instrument or by exchanging financial instruments is within the scope of PAS/LAS 32. 7o. Statement 1: A critical feature in differentiating a financial liabij; from an equity instrument is the existence of Contractual obligation of one party to the financial Instrument either to deliver cash or to exchange financial assets or financial liabilities with the hold under conditions that are potentially unfavorable jo the issuer. Statement 2: The legal form of financial instrument, rather than its economic form, governs its classification in the entity, statement of financial position. a. Only the first statement is correct. b. Only the second statement is correct. c. Both statements are correct. d. Neither of the statements is correct. 7. Which of the following statements is correct? I. The existence of an option for the holder to put the instrument back to the issuer for cash or another financial asset means that the puttable instrument meets the definition of equity instruments. II. If the entity has an unconditional right to avoid delivering cash or another financial asset to settle a contract obligation, the equity meets the definition of financial liability. a. Only the first statement is correct. b. Only the second statement is correct. c. Both statements are correct. d. Neither of the statements is correct. 8. Which of the following statements is correct? I. On the purchase, sale, issue, or cancelation of an entity's own equity instrument, a gain or loss shall be recognized in profit or loss. II. The transaction costs of an equity instrument transaction are accounted for as an addition to the equity to the extent they are incremental costs directly attributable to the equity transaction that otherwise would have been avoided. 3