ExpertMedium1 markMultiple Choice
CPA · Question 48 · Area II: Technical Accounting
Which of the following is a characteristic of a 'Derivative' under ASC 815?
Which of the following is a characteristic of a 'Derivative' under ASC 815?
Answer options:
A.
It requires a large initial net investment.
B.
It has an underlying and a notional amount (or payment provision).
C.
It must be settled by physical delivery of the asset.
D.
It is always measured at amortized cost.
How to approach this question
3 Characteristics: 1) Underlying + Notional, 2) No/Small Investment, 3) Net Settlement.
Full Answer
B.It has an underlying and a notional amount (or payment provision).✓ Correct
B
ASC 815 defines a derivative as a financial instrument with three characteristics: 1) It has one or more underlyings and one or more notional amounts; 2) It requires no initial net investment or a smaller one than would be required for other types of contracts; 3) Its terms require or permit net settlement.
Common mistakes
Thinking physical delivery is required (it's actually an exception called 'normal purchases and normal sales').
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