Accounts receivables

Question 1

Three ways to come with bad debt expense

Answer 1

Direct write off method
Income statement approach-% of cr.sales method
Balance sheet approach-% of receivables method

Question 2

Control of a financial instrument has been surrenderd only if three conditions are met

Answer 2

The transferred financial instrument has been isolated from the transferor and beyond the reach of the transferor or its creditors.
The transferees has the right of pledge or exchange
The transferor does not maintain effective control over the financial instrument

Question 3

Sale with or without recourse

Answer 3

If A/R is with recourse we assume responsibility for collecting and if it is without recourse we don’t assume responsibility.

Question 4

Interest only strips-I/O strips

Answer 4

Interest only strips are interest portion of mortgage which is separated and sold individually from the principal portion of those payments.

Question 5

Impairments-ASC 360

Answer 5

An receivable is tested for impairment at any time if the payment will be received as it is scheduled to

Question 6

Three ways to compute interest on receivables

Answer 6

at face value: If you know the reasonable interest rates then record at face value:
Non- interest bearing notes-If the interest is not mentioned or unreasonable- 2 situations- If we Know the FMV of the goods or FMV of the note, whichever is more easily dterminable, calculate discount based on that. Profit or loss is a plug.
If we don’t know face value of the note or the book value then we have to do imputed interest

Question 7

Under IFRS for receivables

Answer 7

Transaction costs attributable to acquisition of receivables is included in carrying value reducing effective interest rates