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FAR 4 Flashcards

1
Q

Present value concepts

A

Based on the principle that they received in future is worth less than equal sum received today

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2
Q

Annuity types

A

Ordinary annuity and annuity due

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3
Q

Ordinary annuity

A

Payment made at end of each period

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4
Q

Annnuity due

A

Payment made at beginning of each period

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5
Q

PV $1

A

Use for single future cash flow

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6
Q

PV of an ordinary annuity

A

Use for a stream of future cash flow

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7
Q

Stimulation problem spread sheet formula

A

=pv(rate,nper,pmt,(fv),(type))
Rate - is the rate of interest
Nper - no. Of periods
Pmt- is the amt of periodic cash flow written as negative
FV- is the amt of one time cash inflow at the end of the period
Type - is 0 for ordinary annuity

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8
Q

For PV of $1 enter pmt as ——- and FV as ———-

A

0 and -1

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9
Q

Types of bonds

A

Based on maturity and security

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10
Q

Based on maturity bonds are

A

Term bonds and series bonds

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11
Q

Term bonds are

A

Single maturity date

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12
Q

Series bond

A

It is paid in a series of instalments

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13
Q

Based on security bonds are

A

Secured bonds- collateral and unsecured bonds - debenture bonds

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14
Q

Callable bonds

A

Issuer has right to redeem (call ) before the maturity date

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15
Q

Stated /cintract/ face/ coupon / nominal

A

Rate of interest printed on the bonds represents interest payable by the borrower

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16
Q

Market / effective / yield / yield to maturity/ real rate

A

Prevailing market rate of interest for bonds

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17
Q

Stated rate = market rate

A

Bonds will sell at face value

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18
Q

Stated rate < market rate

A

Bonds will sell at discount

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19
Q

Stated > market rate

A

Bonds will sell at premium

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20
Q

Take market rate to calculate the

A

Carrying value of bonds

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21
Q

Stated rate is used to calculate to

A

Interest cash flows

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22
Q

Cv and f bonds payable =

A

Face value + unamortised premium - unamortised discount

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23
Q

Unamortised discount

A

Contra liability

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24
Q

Unamortised premium is

A

Adjunct liability

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25
J/e of bond issuance
Cash Bonds issue cost Discount Premium Bonds payable Accrued interest
26
Effective interest rate
Market rate
27
Interest paid
Face value * stated interest
28
Effective interest rate
Carrying value * market interest rate
29
Amortizatuon of premium
Interest paid - effective interest
30
The market price of bond is equal to the
Present value of the principle amount and the present valuation of all future interest payments irrespective of whether it is issued at a discount or a premium
31
Carrying value of bond payable =
Value of bonds at the beginning of the period + amortisation of discount
32
Carrying value of retirement bonds =
Face + unamortised premium - unamortised discount
33
Debt restructuring
Accounting for troubled debts
34
Accounting for troubled debts is divided into two categories
1. Impairment recognised only by creditor ( affect only creditor book) 2. Restructurings agreed mutually (affect both debtor and creditor books)
35
Restructurings is divided into two categories
1. settlement 2. Modification of debts
36
Settlement of debt is divided into two categories
1. Debtor transfer an asset to creditor 2. Debtors give a stock to creditor
37
Impairment discount j/e creditor
N/r To Discount on n/r To Cash
38
Impairment discount on debtor j/e
Cash Discount on n/p N/p
39
Debt restructuring- settlement
Debt is paid off in full settlement generally by transfer of non cash assets or stocks to the creditor
40
Accounting by debtor - settlement
1. Gain 1 - revalue non cash asset and stick to FV 2. Gain 2 - determine restructuring= cv of debt - FV of consideration
41
Accounting of creditors- settlement
Loss - record assets received at FV Recognise loss - cv of debts - FV consideration received
42
Debt restructuring - modification of terms
Debt is not paid off, but terms are modified in favour of the debtor - reduction is stated interest rate , face value of debt , or wavier of accrued interest - extension if maturity period
43
Accounting by debtor - modification
If cv > non discounted future payments Then recognise a gain and reduce debt If cv < non discounted future payment Then reduce the interest rate
44
Lessor
Landlord or supplier
45
Lessee
Tenant or customer
46
Lease
A contract between the lessor and the lessee the right to control the use of identified lessors pp&e for a period of time in exchange for consideration
47
Lease classification for both lessee and lessor shall classify each separate lease component at the
Commencement date
48
For lessee the classification
Finance lease Operating lease
49
For lessors classification
Sales type lease Direct financing lease s Operating lease
50
Lease payment for lessee
For both operating and finance lease, lessee is required to recognize a lease liability @pv
51
Lease payment - lessor
For sales tips and direct finance method , lessor recognize lease receivable & @ PV
52
Discount rate for the lease - used by lessee
To calculate & amortised the lease liability
53
Discount rate for the lease - used by lessor
To calculated and amortize the net investment in lease (lease receivable)
54
Operating lease - accounting by lessee
Any lease other than finance lease
55
Operating lease - accounting by lessor
Any lease other than sale type lease and direct financing lease
56
Operating lease at the commencement date captilize
Right to use on b/s and a corresponding lease liability J/e Right to use assets Lease liability
57
Operating lease after commencement date record
Lease payment and single lease cost
58
Lease payment j/e
Lease liability Cash
59
Expense a Single lease cost
Lease expense Lease liability Lease right of use assets (plug)
60
Lessee exception for short term operating lease
Lessee will not recognize any lease right to use assets or lease liability It will recognize the lease payments on I/s J/e Lease payment Cash
61
Finance lease - accounting by lessee
Must meet one of the criteria to treat the lease as finance lease or else treat them as operating lease
62
Criteria to meet as them as finance lease
OWNER O - ownership transfer W - written purchase option N - no alternative use E - equal or excess of FV R - remaining economic life
63
Finance lease - accounting by lessee at commencement capitalize
Right of use assets and corresponding lease liability
64
Finance lease after commencement record
Amortize lease liability and right of use assets
65
Amortize lease liability
J/e Interest to lease liability Lease liability To cash
66
Amortisation of right of use assets
J/e Amortisation Accumulated amortisation

FAR (5 decks)

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