QUESTION 3 (THEORY QUESTIONS ON FINANCIAL INSTRUMENTS- IAS39. IFR9) (25 marks)

Financial assets: basics terms Required: Indicate whether the above statements are true or false. If you believe the statement to be false or true, provide a brief explanation to support your answer.

a) Prepaid expenses are financial assets. (5) marks

b) Investments in convertible debentures will be classified as subsequently measured at amortized cost, if the business model of the entity is to hold convertible debentures until maturity, and the cash flows of the debentures are solely payments of the principal and interest on the principal. (5)marks

c) Financial assets are always initially measured at the acquisition price. (5) marks

d) Investments in equity instruments and investments in debt instruments that are classified as fair value through other comprehensive income are accounted for in exactly the same way as each other. (5) marks

e) An entity has several lease receivables, all of which have been accounted for in terms of IFRS 16 Leases. Since the entity has accounted for these in terms of IFRS 16 Leases, it means that IFRS 9 Financial instruments will have no impact on them. (5) mark