1. With recourse - Sale or Loan 2. Without recourse - Sale (factor bears risk)

Chapter 4 Flashcards by Rachelle Yalung

Working Capital

Current Assets - Current Liabilities

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Current Ratio

Current Assets/Current Liabilities

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Quick Ratio

(Cash + Net Rec + ST Investments) / CL

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Current Assets

Longer of 1 year or normal business cycle

- Cash surrender value of life insurance is CA if surrendered within business cycle

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Current Liabilities

Liquidated with current assets or creation of other current liabilities
- Estimated or Accrued (1 year)

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ST Obligation classified as LT

US GAAP (Intent and ability)
1. Actual refinancing prior to F/S issuance
2. Non-cancellable financing agreement from lender with financial resources
IFRS (Current only)

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Cash and Cash equivalents

Unrestricted cash (bond sinking fund not included if legally restricted, CA or non-CA)
ST investments with maturity less than 90 days or 3 months from original purchase

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A/R Recovery

No effect on A/R

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A/R

Accounts Receivableh
(Allowance for Uncollectible Accounts)
(Sales Discounts)
(Sales Returns and Allowances)
--------------------------------------------
Net Realizable Value

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Sales Discounts

Gross - Sales Discount Taken (Contra-Revenue)

Net - Sales Discount NOT Taken (Revenue)

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Sales Returns and Allowances

- No allowances for exchanges

Dr Sales Returns and Allowances (contra-rev)

Cr Accounts Receivable

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Methods of Uncollectible Accounts

Direct Write-off (not GAAP)

Allowance Method

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Methods of Uncollectible Accounts

% of A/R (s/b end bal)
Aging of A/R (s/b end bal)
% of Sales

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Collection of A/R Write-offs - Direct Method

Dr Cash

Cr Uncollectible Accounts Recovered (Rev)

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Pledging of A/R

Loan

Note Disclosure, A/R not adjusted
Dr Cash
Cr Note Payable

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Factoring

With recourse - Sale or Loan

2. Without recourse - Sale (factor bears risk)

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Factoring Without Recourse

Dr Cash
Dr Due from Factor (Security)
Dr Loss
Cr Accounts Receivable

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Financial Assets considered surrendered

F/A isolated from transferor
Transferee has right to pledge or exchange F/A
Transferor does not control under repurchase agreement

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Surrendered F/A with NO Continuing Involvement

Sale with G/L
Dr Cash
Cr A/R
Cr Gain/Loss

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Surrendered F/A with Continuing Involvement

No retained interest, use financial component approach

- With retained interest, carried on transferor’s books with BV on relative value of all transferred assets

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Financial Assets NOT surrendered

Secured borrowing with pledged collateral

- Recognize as A/L and int exp/inc

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Notes Receivable valued @ PV

Notes Receivable, face value
(Unearned Interest)
(Finance Charges)
----------------------------------
Present Value

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Non-interest bearing note/below market

Impute market rate, effective interest method

Discounting Note Receivable

With Recourse (Holder contingently liable)
Without Recourse

Steps to Discounting Note

1. Maturity Value (include interest @ maturity 2. Discount based at Maturity Value 3. Proceeds = Maturity value - Discount 4. Interest Income = Proceeds - Face Value

Inventory LCM valuation - US GAAP

Replacement cost between: - CEILING: NRV (SP-disposal costs) - FLOOR: NRV-profit margin

Inventory LCM valuation - IFRS

Net Realizable Value

Inventory writedown

``` US GAAP - COGS or separate in I/S if material - Reversal of writedown is prohibited IFRS - no spefication - Reversal of writedown permitted up to original ```

Precious metals & Farm products

NRV = SP - disposal cost @ date of production

Perpetual | - Running balance

Dr A/R/Cash Cr Sales Dr COS Cr Inventory

Periodic | - Physical count

Dr Cash Cr Sales Dr Purchases Cr Cash

FIFO at rising prices

EI (inc) COS (dec) NI (inc)

LIFO at rising prices (not permitted IFRS)

EI (dec) COS (inc) NI (dec)

Average

``` Weighted Average (Periodic) Moving Average (Perpetual) ```

Dollar value LIFO

Price Index = EI @ CY Cost/ EI @ BY Cost

Conventional Retail

BI + P + MU

Cost Retail

BI + P + MU + MD

FIFO Cost Retail

P + MU + MD

LIFO Cost Retail

LIFO Conventional Retail

1. EI, Retail > BI, Retail LIFO Layer Added (B+P+MU+MD) added to BI, Cost 2. EI, Retail < BI, Retail LIFO Layer Depleted (BI) deducted from BI, Cost

Losses on purchase commitments

When price declines DR Estimated Loss on PC CR Estimated Liability on PC

Consigned goods

Inventory of consignor - transportation costs part of inventory costs

Donated Fixed Asset

FV Dr Fixed Asset Cr Gain on non-reciprocal transfer

Fixed Asset Valuation - IFRS

1. Cost 2. Revaluation Gain - OCI (reverse I/S loss first) Loss - I/S (reverse OCI surplus first) - revalued frequently as a class of asset - historical cost disclosed

Fixed Asset Valuation

``` Cost (Accumulated Depreciation) (Impairment) -------------------------------- Carrying Value ```

Extraordinary repairs

Increases life - DR Accum Depn | Increases utility - Dr Asset

Not part of Land cost

Excavation of building - Building cost | Improvement with definite life - Land improvement

Investment property - IFRS | For rental or appreciation

1. Cost 2. FV - not depreciated - G/L on I/S

Capitalized interest - during construction - ordinary delays - special orders

- Amount spent, not borrowed - Lower of actual interest incurred or capitalized/avoidable interest - Excess expenditure over borrowing, use weighted ave interest on general borrowing - Do not reduce capitalized interest by income

Construction period

Starts when company decides, expenditures made, activities started, interest incurred Ends when asset substantially complete and ready

Sum of the years digits

SY = N (N +1) / 2 | Dep Exp = Depreciable base x (Yrs remaining/SY)

Declining Balance | - SV not used in computation (as a limit only)

(Double) Dep Exp = NBV x (2/N)

Depreciation - IFRS vs US GAAP

US GAAP - composite or component IFRS - component only - should match pattern of fixed asset

Disposal

``` 1. Full Dr Accum Depn Cr Asset 2. Partial Dr Accum Depn Dr Loss Cr Asset ```

Depletion | REAL

(R Residual Interest) E Extraction/Development Cost A Anticipated Restoration Cost L Land Purchase Price

Impairment | - Test must be done annually

US GAAP - 2 steps - Reversal not permitted unless for Held for Sale IFRS - 1 step