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FAR 2014 > Current Assets & Liabilities > Flashcards

Current Assets & Liabilities Flashcards

1
Q

What is a current asset?

A

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

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2
Q

What is a current liability?

A

A liability expected to be paid within 12 months or less

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3
Q

How is the Quick Ratio calculated?

A

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

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4
Q

How is the Current Ratio calculated?

A

Currents Assets / Current Liabilities

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5
Q

How is Working Capital calculated?

A

Currents Assets - Current Liabilities

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6
Q

How is A/R Turnover calculated?

A

Credit Sales / Average A/R

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7
Q

How is Inventory Turnover calculated?

A

COGS / Average Inventory

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8
Q

How is Day Sales in Inventory calculated?

A

365 / Inventory Turnover

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9
Q

How is Days to Collect A/R calculated?

A

Average A/R / Average Sales per Day

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10
Q

How are gain contingencies recorded?

A

They are NOT accrued due to Conservatism

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11
Q

When are loss contingencies recorded?

A

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

If Reasonably Possible - they are disclosed

If Remote - don’t accrue or disclose

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12
Q

Recording legally restricted or segregated cash

A

As long term asset - Investment

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13
Q

Treatment of unmarked check

A

Not deducted from cash balance

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14
Q

Treatment of overdrawn bank balance

A

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

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15
Q

Examples of credits to AR

A

Sales returns, write-offs, collections

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16
Q

Treatment of interest from note receivable

A

Included as current asset in interest receivable

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17
Q

Calculate interest receivable

A

Face value x stated rate x time

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18
Q

Calculate interest revenue

A

Carrying amount x effective rate x time

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19
Q

Treatment of accounting loss

A

Cannot exceed the amount of AR recognized as an asset

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20
Q

Basis of aging receivables method of I collectible accounts

A

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

21
Q

Treatment of previously written of bad debts

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

2. DR - Cash ; CR - AR

22
Q

What is an assignment

A

Owner obtains loan by pledging receivable

23
Q

What is factoring

A

Sale of receivables

24
Q

Treatment of factored receivables and control surrendered

A

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

25
Q

Calculate cash for factoring

A

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

26
Q

What is financial component approach

A

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
Q

What is due from factor (holdback)

A

Account for probable sales discounts, returns, allowances.

28
Q

What is recourse liability

A

Recorded to indicate probable uncollectibles

29
Q

When is sale of receivables recognized?

A
  1. Receivables beyond reach of transferor and transferors creditors
  2. Transferor has no repurchase agreement
  3. Tranferee can resell or pledge receivables
30
Q

How should serving assets and liabilities be amortized?

A

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

31
Q

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

A

Held at difference between carrying value and amount de-recognized

32
Q

What is a pledge

A

An arrangement of having collateral transferred to secured party

33
Q

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

A

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

Gain = net proceeds - carrying value of loan sold

34
Q

How are financial assets subject to prepay measured

A

As investments in debt securities classified as AFS or trading

35
Q

Calculate effective interest rate

A

Effective interest rate = interest paid / cash received

36
Q

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

A

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

C%xIncome / (C + C%xC)

37
Q

Disclosure of aggregate amount of payments for unconditional purchase obligations

A

Disclose for each year for 5 years after balance sheet date

38
Q

Estimate to use when contingent liability is probable

A

Best estimate or lower range of estimate

39
Q

When are remote contingencies disclosed

A

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

40
Q

When to accrue vacation time?

A
  1. Obligation arises from prior services
  2. Arises from rights that vest or accumulate
  3. Payment probable
  4. Amount estimateable
41
Q

When can warranty obligation be recorded at FV?

A

Only if contract can be settled by 3rd party

42
Q

How is asset retirement obligation (ARO) recorded and adjusted

A

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

43
Q

Treatment of land held for resale

A

Included in current assets

44
Q

Examples of current liabilities

A

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

45
Q

Calculate operating cycle

A

days sales in inventory + # days sales in AR

46
Q

IFRS disclosure of contingent assets

A

Not accrued, disclose if probable

47
Q

Under IFRS, treatment of debt if covenant missed

A

Debt reclassified as current

48
Q

What are IFRS provisions

A

Accounts that are uncertain to amounts or timing

49
Q

What are IFRS contingencies

A

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

FAR 2014 (19 decks)

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