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FAR 2014 > Current Assets & Liabilities > Flashcards

Flashcards in Current Assets & Liabilities Deck (49):
1

What is a current asset?

Cash plus other assets that are expected to be sold or converted to cash during the current operating cycle

Includes: Demand deposits, cash equivalents, accounts receivable, inventory, pre-paids, and short-term investments

2

What is a current liability?

A liability expected to be paid within 12 months or less

3

How is the Quick Ratio calculated?

(Cash + A/R + Trading Securities) / Current Liabilities

4

How is the Current Ratio calculated?

Currents Assets / Current Liabilities

5

How is Working Capital calculated?

Currents Assets - Current Liabilities

6

How is A/R Turnover calculated?

Credit Sales / Average A/R

7

How is Inventory Turnover calculated?

COGS / Average Inventory

8

How is Day Sales in Inventory calculated?

365 / Inventory Turnover

9

How is Days to Collect A/R calculated?

Average A/R / Average Sales per Day

10

How are gain contingencies recorded?

They are NOT accrued due to Conservatism

11

When are loss contingencies recorded?

If Probable - they are accrued (if estimable) and disclosed

If Reasonably Possible - they are disclosed

If Remote - don't accrue or disclose

12

Recording legally restricted or segregated cash

As long term asset - Investment

13

Treatment of unmarked check

Not deducted from cash balance

14

Treatment of overdrawn bank balance

Presented as current liability unless other accounts at same bank have sufficient cash

15

Examples of credits to AR

Sales returns, write-offs, collections

16

Treatment of interest from note receivable

Included as current asset in interest receivable

17

Calculate interest receivable

Face value x stated rate x time

18

Calculate interest revenue

Carrying amount x effective rate x time

19

Treatment of accounting loss

Cannot exceed the amount of AR recognized as an asset

20

Basis of aging receivables method of I collectible accounts

Theory that bad debts are function of AR collections during the period

21

Treatment of previously written of bad debts

1. DR - AR ; CR - allowance for doubtful accounts

2. DR - Cash ; CR - AR

22

What is an assignment

Owner obtains loan by pledging receivable

23

What is factoring

Sale of receivables

24

Treatment of factored receivables and control surrendered

Treat as sale, risk of uncollectible accounts not retained by seller without recourse

25

Calculate cash for factoring

Ar - holdback - fee - interest expense ( AR x rate x avg days / 365

26

What is financial component approach

Seller has continued involvement, reduce AR, recog asset obtained and liabilities incurred, record g/l

DR - cash , holdback , loss
CR - AR , recourse liability at FV

27

What is due from factor (holdback)

Account for probable sales discounts, returns, allowances.

28

What is recourse liability

Recorded to indicate probable uncollectibles

29

When is sale of receivables recognized?

1. Receivables beyond reach of transferor and transferors creditors
2. Transferor has no repurchase agreement
3. Tranferee can resell or pledge receivables

30

How should serving assets and liabilities be amortized?

In proportion to and over period of estimated net servicing income or net servicing loss

31

Treatment of transfer of financial asset but continuing interest in serving asset

Held at difference between carrying value and amount de-recognized

32

What is a pledge

An arrangement of having collateral transferred to secured party

33

Calculate net proceeds and gain of loan sold with swaps and options

Net proceeds = cash received + call options + interest rate swaps - recourse obligation

Gain = net proceeds - carrying value of loan sold

34

How are financial assets subject to prepay measured

As investments in debt securities classified as AFS or trading

35

Calculate effective interest rate

Effective interest rate = interest paid / cash received

36

Calculate contributions (like a bonus) based on percentage of income after bonus

C = C% x (income - C)
C = C%xIncome - C%xC
C + C%x C = C%xIncome

C%xIncome / (C + C%xC)

37

Disclosure of aggregate amount of payments for unconditional purchase obligations

Disclose for each year for 5 years after balance sheet date

38

Estimate to use when contingent liability is probable

Best estimate or lower range of estimate

39

When are remote contingencies disclosed

Guarantee of others debts, standby letter of credit by bank, agreement to repurchase receivables, related party transactions

40

When to accrue vacation time?

1. Obligation arises from prior services
2. Arises from rights that vest or accumulate
3. Payment probable
4. Amount estimateable

41

When can warranty obligation be recorded at FV?

Only if contract can be settled by 3rd party

42

How is asset retirement obligation (ARO) recorded and adjusted

Recorded at FV and adjusted for estimates using discounted cash flows and accretion expense (increase in expense due to time)

43

Treatment of land held for resale

Included in current assets

44

Examples of current liabilities

AP, dividends payable, bonds payable in next year (less discounts)

45

Calculate operating cycle

# days sales in inventory + # days sales in AR

46

IFRS disclosure of contingent assets

Not accrued, disclose if probable

47

Under IFRS, treatment of debt if covenant missed

Debt reclassified as current

48

What are IFRS provisions

Accounts that are uncertain to amounts or timing

49

What are IFRS contingencies

Event which is not recognized on F/S because it is not probable that an outflow will be required or the amount cannot be reasonably estimated