1. Working capital and its components Flashcards
When can a short-term obligation be excluded from current liabilities and included in non-current/long term debt?
If the company has both the intent (a noncancelable agreement), AND the ability to refinance the debt on a long-term basis .
Define cash and cash equivalents
Cash - unrestricted cash.
Cash equivalents - short-term, liquid investments that are so near maturity (original maturity date w/in 3 months of purchase date)
How do you find the Quick Ratio?
(Cash+ Net receivables+ marketable securities) / Current Liabilities
Under the aging method, how do you find the balance in the allowance account?
what if there is already a balance in the allowance account?
By multiplying the receivable balance times the uncollectible %.
The total balance in the allowance acct calculated as per above, minus the unadj bala (already in there) = bad debt expense for the year.
What methods of determining bad debt exp, properly match exp again rev? what method does not?
charging bad debts w: a % of AR under the allowance method, w an amount derived from aging AR under allow method, & w a % of sales under allow method.
charging bad debt as accounts are written off is a violation of the matching principle, the direct write-off method
fixed assets
fixed assets
A fixed asset is revalued at:
- a revaluation gain, where is it recorded?
- a revaluation loss, where is it recorded?
how about gains/loss from investment property? where are those recorded?
Gain: reported in other comprehensive income
Loss: reported on the income statement
G and L from investment property fv adjs, are both reported on the IS.
Under IFRS, what is investment property defines as?
Land or bldgs held by an entity to earn rentals or for capital appreciations. (ex: land held for rental income/ bldgs held for capital appreciation)
capitalization of interest costs. if borrowings not specifically tied to an asset, how should the interest rate be calculated?
with the weighted average interest rate:
ex. there are 2 debt issuances. $6K, 8% interest and $8K, 9% interest.
[(6,000/14,000).08]+[(8,000/14,000).09]=.0854 or 8.54%
How do you find depr exp under sum-of-the-years-digits method?
Depr exp= (cost-salv val)*remaining life/SYD
What is the formula for finding the sum-of-the-years-digits?
SYD= N(N+1)/2
Note: exam rarely tests SYD for asset lives longer than 5 yrs.
How must an entity that uses IFRS, record depr exp using strait-line depr?
Component depreciation. all parts of asset are recognized and depreciated separately.
fixed asset impairment
(F4-57)
how do you calculate impairment loss under IFRS?
fixed assets recoverable amount (great of NRV or PVFCF) - CV=(if negative then impairment loss)
what is the test for recoverability (GAAP)?
if the sum of undiscounted expected future cash flow is less than the CV (UFCF-CV is negative), then an impairment loss needs to be recognized.
step 1 of finding impairment loss under GAAP.
step 2: FV-CV=impairment loss
