Financial Instruments - Cash and Receiables

Question 1

What is Cash?

Answer 1

IAS 7 Statement of Cash Flows, “Cash compromises of cash on hand and demand deposits… they are [also] readily convertible to a known amount of cash in which they are subject to an insignificant risk of change in value”. It is held for the purpose of meeting short-term cash commitments

Question 2

What is Restricted Cash?

Answer 2

Cash that is restricted and is unable to utilize for general purposes - usually a result of a legally binding agreement. It is not considered cash and cash equivalent

Question 3

Are T-bills, and term deposits considered cash and cash equivalent?

Answer 3

Depends. If it has a term of fewer than 3 months or less from the date of acquisition, then it is considered.

Question 4

Note: There are no significant differences between IFRS and ASPE for cash and cash equivalents.

Answer 4

Note: There are no significant differences between IFRS and ASPE for cash and cash equivalents.

Question 5

What are A/R?

Answer 5

IFRS 9 Financial instruments arise out of credit sale transactions from the normal course of business, and they are typically short-term and unsecured. IFRS 9 states that A/R is normally classified as “amortized cost”

Question 6

IFRS 9.4.1.2 Amortized Cost

Answer 6

(a) Financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows and…
(b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. ***

Question 7

What does $100 made on credit with terms 2/10 net 30 mean?

Answer 7

$100 is owed on credit unless it is paid within 10 days, then you will receive a 2% discount.

Question 8

What to do for collections on A/R for periods greater than one year

Answer 8

Future cash flows must be discounted at the effective interest rate based on the customer’s credit risk – there will be a financing component and interest revenue.

Question 9

Expected credit loss IFRS 9.5.5.17

Answer 9

If an expected credit loss is predicted to occur, then it must be measured in a way that:

(a) an unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes
(b) the TMV
(c) reasonable and supportable information that is available without undue cost at the reporting date about past events, current conditions, and forecasts of future economic conditions.

No event trigger

Question 10

ASPE 3856.17

Answer 10

Requires that an event trigger the recognition of an impairment loss (at year-end, it is applied retro).

AR should be adjusted to the highest of:

(a) Present value of the cash flows expected to be generated, discounted to the present value if the collection is expected longer to be one year
(b) Amount that could be realized by selling the AR at the BS date
(c) Amount that is expected to be realized by the exercising holder’s right to collect

Note: When it is known

Question 11

What are the journal entires for recording, and writing off bad debt and receivables?

Answer 11

Dr. BD
Cr. AFDA
Dr. AFDA
Cr. A/R