Question 1

"Legal defeasance":

Accepted Answer

A)  Is not permitted under AASB 132. 
B)  Is a term explicitly used in AASB 132. 
C)  Is still acceptable under AASB 132. 
D)  Is not defined in the former AASB 1014. 
E)  All of the given answers. 
A)  Is not permitted under AASB 132. 
B)  Is a term explicitly used in AASB 132. 
C)  Is still acceptable under AASB 132. 
D)  Is not defined in the former AASB 1014. 
E)  All of the given answers.

Question 2

There were two methods of achieving an insubstance debt defeasance in accordance with the former AASB 1014's requirements:

Accepted Answer

A)  Having a risk-free entity assume responsibility for the debt or placing in trust assets adequate to meet the principal and interest servicing requirements of the debt. 
B)  Obtaining forgiveness of the debt or having a related entity assume the responsibility for the debt. 
C)  Having a related entity assume the debt or obtaining a legal judgement to extinguish the debt. 
D)  Placing sufficient assets in a secure offshore entity such that it is virtually certain that the responsibility for the debt will not revert to the reporting entity, or having a suitable entity assume responsibility for the debt. 
E)  None of the given answers. 
A)  Having a risk-free entity assume responsibility for the debt or placing in trust assets adequate to meet the principal and interest servicing requirements of the debt. 
B)  Obtaining forgiveness of the debt or having a related entity assume the responsibility for the debt. 
C)  Having a related entity assume the debt or obtaining a legal judgement to extinguish the debt. 
D)  Placing sufficient assets in a secure offshore entity such that it is virtually certain that the responsibility for the debt will not revert to the reporting entity, or having a suitable entity assume responsibility for the debt. 
E)  None of the given answers.

Question 3

Legal defeasance is not addressed in AASB 132 and will no longer be used in Australia.

Accepted Answer

A) True 
 B)False

Question 4

Pete Ltd's statement of financial position is shown below.   The above balances include a receivable from Patricia Ltd for an amount of $100,000 and a payable to Patricia Ltd for $50,000.A debt contract with ABC Bank signed by Pete Ltd requires a debt equity ratio of no more than 50%.
Based on the above information,which course of action will be consistent with positive accounting theory?

Accepted Answer

A)  Pete Ltd will re-negotiate the debt contract with ABC Bank to increase the required debt equity ratio. 
B)  Pete Ltd will offset the receivable from Patricia Ltd with the payable to Patricia Ltd. 
C)  Pete Ltd will offset the payable to Patricia Ltd with the receivable from Patricia Ltd. 
D)  Pete Ltd need not do anything as the entity is not in violation of a debt covenant. 
E)  All of the given answers. 
A)  Pete Ltd will re-negotiate the debt contract with ABC Bank to increase the required debt equity ratio. 
B)  Pete Ltd will offset the receivable from Patricia Ltd with the payable to Patricia Ltd. 
C)  Pete Ltd will offset the payable to Patricia Ltd with the receivable from Patricia Ltd. 
D)  Pete Ltd need not do anything as the entity is not in violation of a debt covenant. 
E)  All of the given answers.

Question 5

A futures contract is an example of a financial instrument where the net amount of a financial asset and a financial liability may be presented in the statement of financial position.

Accepted Answer

A) True 
 B)False

Question 6

Lynne and Tom Ltd's statement of financial position is shown below.   The above balances include a receivable from Melinda Ltd for an amount of $100,000 and a payable to Melinda Ltd for $50,000.
Assuming a right to set-off exists with Melinda Ltd the balances on the statement of financial position of Lynne and Tom Ltd after set-off will be:

Accepted Answer

A)    
B)    
C)    
D)    
E)  None of the given answers. 
A)    
B)    
C)    
D)    
E)  None of the given answers.

Question 7

The former AASB 1014 required that if a trust was established to assume the responsibility for a debt in an insubstance debt defeasance,that trust must:

Accepted Answer

A)  Be under the control of the debtor entity and have enough securities issued by a credit-worthy government to ensure that there is a very low probability that the debtor entity will have any further obligation in relation to the debt. 
B)  Be a company set up under the relevant state and federal statutes to administer the risk-free assets that are to be used to release the debtor entity from the primary obligation for the debt. 
C)  Have risk-free assets irrevocably transferred to it, which are of a type suited to the amount and timing so as to meet the servicing requirements of the debt.. 
D)  Be a government-guaranteed financial institution that is required to report annually to the Australian Securities and Investments Commission. 
E)  None of the given answers. 
A)  Be under the control of the debtor entity and have enough securities issued by a credit-worthy government to ensure that there is a very low probability that the debtor entity will have any further obligation in relation to the debt. 
B)  Be a company set up under the relevant state and federal statutes to administer the risk-free assets that are to be used to release the debtor entity from the primary obligation for the debt. 
C)  Have risk-free assets irrevocably transferred to it, which are of a type suited to the amount and timing so as to meet the servicing requirements of the debt.. 
D)  Be a government-guaranteed financial institution that is required to report annually to the Australian Securities and Investments Commission. 
E)  None of the given answers.

Exam 12: Set-Off and Extinguishment of Debt

"Legal defeasance":

There were two methods of achieving an insubstance debt defeasance in accordance with the former AASB 1014's requirements:

Legal defeasance is not addressed in AASB 132 and will no longer be used in Australia.

A futures contract is an example of a financial instrument where the net amount of a financial asset and a financial liability may be presented in the statement of financial position.

The former AASB 1014 required that if a trust was established to assume the responsibility for a debt in an insubstance debt defeasance,that trust must:

An Overview of the Australian External Reporting Environment

The Conceptual Framework of Accounting and Its Relevance to Financ

Theories of Financial Accounting

An Overview of Accounting for Assets

Depreciation of Property, plant and Equipment

Revaluation and Impairment Testing of Non-Current Assets

Inventory

Accounting for Intangibles

Accounting for Heritage Assets and Biological Assets

An Overview of Accounting for Liabilities

Accounting for Lease

Accounting for Employee Benefits

Share Capital and Reserves

Accounting for Financial Instruments

Revenue Recognition Issues

The Statement of Comprehensive Income and Statement of Changes in E

Accounting for Share-Based Payments

Accounting for Income Taxes

Cash-Flow Statements

Accounting for the Extractive Industries

Accounting for General Insurance Contracts

Accounting for Superannuation Plans

Events Occurring After Balance Sheet Date

Segment Reporting

Related-Party Disclosures

Earnings Per Share

Accounting for Group Structures

Further Consolidation Issues I: Accounting for Intragroup Transact

Further Consolidation Issues II: Accounting for Minority Interests

Further Consolidation Issues III: Accounting for Indirect Ownershi

Further Consolidation Issues Iv: Accounting for Changes in the Deg

Accounting for Equity Investments

Accounting for Equity Investments

Accounting for Foreign Currency Transactions

Translation of the Accounts of Foreign Operations

Accounting for Corporate Social Responsibility

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