Sample Questions and Answers
- Which of the following is the primary method used to value a financial asset?
- A) Cost method
- B) Market method
- C) Income method
- D) Fair value method
- Answer: D
- Which financial statement includes the valuation of financial assets?
- A) Balance sheet
- B) Income statement
- C) Cash flow statement
- D) Statement of retained earnings
- Answer: A
- Which of the following is true about the fair value of financial assets?
- A) It reflects the price at which an asset could be bought or sold in an active market.
- B) It always represents the asset’s historical cost.
- C) It is based only on the book value of the asset.
- D) It is determined by management’s discretion.
- Answer: A
- The cost method of valuation is typically used for:
- A) Fixed assets
- B) Investments in subsidiaries
- C) Financial instruments with active markets
- D) Goodwill
- Answer: B
- Which of the following is a method of valuing financial assets under IFRS?
- A) Book value method
- B) Historic cost method
- C) Amortized cost method
- D) Going concern method
- Answer: C
- A bond’s value is most commonly determined by which of the following?
- A) Market price
- B) Discounted cash flow model
- C) Book value
- D) Nominal value
- Answer: B
- The present value of a bond is calculated by discounting which of the following?
- A) Principal only
- B) Future interest payments and principal
- C) Principal minus interest
- D) Future dividends only
- Answer: B
- Under the market method of asset valuation, how are asset prices determined?
- A) By estimation based on future potential earnings
- B) By comparing to similar assets in active markets
- C) By calculating amortized cost
- D) By deducting liabilities from total assets
- Answer: B
- Which type of financial asset is valued at amortized cost under IFRS 9?
- A) Derivatives
- B) Equity instruments
- C) Debt instruments
- D) Non-monetary assets
- Answer: C
- Which method is typically used to value stocks and equity securities?
- A) Cost method
- B) Market method
- C) Fair value method
- D) Income approach
- Answer: B
- Which of the following is not typically a factor in determining the fair value of an asset?
- A) Market price
- B) Liquidity
- C) Historical cost
- D) Time to maturity
- Answer: C
- Which of the following financial instruments is valued using the fair value method?
- A) Investment in a subsidiary
- B) Held-to-maturity securities
- C) Available-for-sale securities
- D) Loan receivables
- Answer: C
- The value of a financial asset is reduced by the asset’s:
- A) Market price
- B) Amortization cost
- C) Dividends paid
- D) Uncollected interest
- Answer: B
- Which of the following is typically true for an asset classified as ‘available for sale’?
- A) It is carried at amortized cost.
- B) Its fair value is determined based on historical data.
- C) It is recorded at fair value, with unrealized gains and losses recognized in equity.
- D) It is only valued using the cost method.
- Answer: C
- When using discounted cash flow (DCF) analysis, which of the following is crucial for determining asset value?
- A) Future market interest rates
- B) Historical data of sales
- C) Future expected cash flows
- D) Asset depreciation schedule
- Answer: C
- Which of the following is NOT typically considered a financial asset?
- A) Stocks
- B) Bonds
- C) Fixed assets like property
- D) Derivatives
- Answer: C
- The yield to maturity (YTM) method is used to determine the value of:
- A) Equity shares
- B) Mutual funds
- C) Fixed income securities
- D) Derivatives
- Answer: C
- Which of the following best describes an asset valued using the ‘mark-to-market’ method?
- A) Valued based on historical cost
- B) Valued at its market price on a given date
- C) Valued based on book value adjustments
- D) Valued using average future cash flow projections
- Answer: B
- Under which circumstance would a financial asset be valued at fair value through other comprehensive income (OCI)?
- A) If it is classified as held-to-maturity
- B) If it is a short-term investment
- C) If it is an equity instrument with no active market
- D) If it is an equity instrument that the company does not plan to sell
- Answer: D
- A company uses the market value method to determine the valuation of a financial asset. This implies that:
- A) The valuation is based on projected future earnings.
- B) The asset is valued at its current price in an active market.
- C) The asset is valued based on historical cost.
- D) The asset is valued at the cost of acquisition.
- Answer: B
- Which of the following is true for the fair value method under IFRS 13?
- A) It excludes consideration of market volatility.
- B) It always requires valuation by an independent third party.
- C) It uses observable market prices when available.
- D) It only applies to non-financial assets.
- Answer: C
- Which of the following is a disadvantage of the market method for valuing financial assets?
- A) It does not reflect the asset’s actual purchase price.
- B) It may fluctuate based on market conditions and investor sentiment.
- C) It requires extensive internal data collection.
- D) It ignores changes in interest rates.
- Answer: B
- Which method involves discounting future cash flows to their present value?
- A) Amortized cost
- B) Fair value through OCI
- C) Discounted cash flow (DCF) method
- D) Cost method
- Answer: C
- Which of the following is used when valuing an asset with no active market?
- A) Historical cost
- B) Discounted cash flow
- C) Mark-to-market
- D) Nominal value
- Answer: B
- Which of the following financial assets is most likely to be classified as held-to-maturity?
- A) Equity shares in a competitor
- B) Corporate bonds purchased for long-term holding
- C) Real estate held for resale
- D) Derivatives contracts
- Answer: B
- Which of the following is used to determine the discount rate in DCF calculations?
- A) Future inflation rate
- B) Historical market prices
- C) Company’s weighted average cost of capital (WACC)
- D) Asset depreciation rate
- Answer: C
- Which of the following is a characteristic of financial assets classified as ‘trading securities’?
- A) Valued at cost
- B) Carried at fair value, with changes in value recognized in profit or loss
- C) Not subject to market fluctuations
- D) Held for more than one year
- Answer: B
- Which type of asset is not usually subject to the mark-to-market method?
- A) Bonds held to maturity
- B) Listed equity shares
- C) Currency forwards
- D) Futures contracts
- Answer: A
- In terms of asset valuation, which of the following provides the most accurate estimate for illiquid financial assets?
- A) Market value
- B) Discounted cash flow (DCF) analysis
- C) Historical cost
- D) Nominal value
- Answer: B
- Which valuation method is most commonly used for valuing derivatives?
- A) Fair value method
- B) Historical cost method
- C) Market method
- D) Income approach
- Answer: A
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