FACTORING

Question 1

If abc corp sells its receivables to xyz without recourse it is called

Answer 1

FACTORING/sales

Question 2

In factoring with recourse how to account contingent liability for a non interest bearing notes receivable..

Answer 2

Face value only is considered as it is a non interest bearing notes receivable.

Question 3

What is factoring without recourse and with recourse

Answer 3

It is considered sale because the factor has no recourse to the transferor for any uncollectible resources. The term without recourse means transferor transfers the receivables to factor(new creditor) factor now bears the responsibility of collecting the receivables and he cant get the relief from the transferor.

In with recourse the transferror has the responsibility to collect the uncollectible receivables. The transferror is responsible to do credit cheques and collect payments. The factor can get relief from the transferror or original creditor for any uncollectible receivables. It is not a sale. It is like a loan collatorized with transferor’s receivables.

Question 4

CASH DISCOUNT CALC
Golden co sold 20 elephants for 10000 on credit to cersai. Trade dis - 20%,
Pmt Terms - 1/15 net 30.. Pmt made within 12 days. Calculate the total cssh payment.

Answer 4

Term 1/15 net 30 means if pmt made within 15 days you get a discount of 1 percent. Else due date is 30 days.
First calc trade disc. 10000×20%=2000 less $10000= 8000 less 8K×1%=80 = 8000 less 80 = 7920

Question 5

Criteria for determining if a transferred asset is a sale

Answer 5

1. Transferred asset is isolated from the transferor even in bankruptcy
2. The transferee has the right to pledge or exchange the transferred assets.
3. The transferor doesnt maintain effective control over the transferred financial asset.
   If any of the conditions are not satisfied the transaction is accounted for as a secured borrowing with a pledge of collatoral.

Question 6

A Discounted with recourse at 5% a one year non interest bearing $10000 notes receivable. What contingent liability amount does aegon need to disclose in its dec 31st FS

Answer 6

The contingent amount for Aegon would be the FV, Since note is non interest bearing. So A’s contingent amount is 10000