FAR-Receivables and Liabilities

Question 1

With contingent liabilities, what is the difference between ‘probable’ and ‘reasonably possible’?

Answer 1

‘Probable’ is more likely than ‘reasonably possible’.

Question 2

What are the rules for the disclosure of contingent liabilities?

Answer 2

Accrue and include in notes if probable and estimable
Disclose, but do not accrue, if probable but NOT estimable
Disclose, but do not accrue, if reasonably possible

Question 3

What interest rate is used to find the accretion expense for an ARO (Asset Retirement Obligation)?

Answer 3

The credit-adjusted risk-free interest rate.

Question 4

In a factoring agreement, what is the name of the buyer/purchaser of the receivable?

Answer 4

It is called The Factor.

Question 5

How does a holdback affect a transaction for a factor?

Answer 5

It is subtracted to find the amount of cash received.

Question 6

What is a deferred asset?

Answer 6

A deferred asset is an expenditure that is made in advance, and is not yet consumed. It arises from one of two situations:

Example: Prepaid Rent

Question 7

What is a deferred liability

Answer 7

A deferred expense is a cost that has already been incurred, but which has not yet been consumed.

For example: Depreciation

Question 8

What method is used to value assets and liabilities when an acquirer purchases an acquiree?

Answer 8

The Acquisition Method. Assets and liabilities are acquired at their fair values and income of the acquiree is recognized from the acquisition date on-wards.

Question 9

In acquisitions, how is how are goodwill/gains calculated?

Answer 9

Consideration+FV of equity interests+Fair value of noncontrolling interest-FV of net identifiable assets of acquiree

Question 10

On a restructured debt, when should the debtor recognize a gain?

Answer 10

When the carry amount of the debt exceeds the total future cash payment specified by the new terms.

Question 11

When a Note Receivable does not come with an interest rate, how is the the value of the receivable treated?

Answer 11

1. If there is not an interest rate, use the FMV of the goods or the FMV of the note, whichever is more easily determinable.
2. If the interest rate is not stated, and the FMV of the asset and the note is not readily determinable, IMPUTE an interest rate. This can be done by taking the PV of the note.