Financial Instruments - Cash & Receivables

Question 1

Cash definition

Answer 1

cash on hand and demand deposits

Question 2

Cash equivalents definition

Answer 2

short term liquid investments that are easily converted to cash, and have little risk of value change

Question 3

Exclusions from cash

Answer 3

• restricted cash (donations on NFPO, and cash in esgrow)

Question 4

Exclusions from cash

Answer 4

• restricted cash (donations on NFPO, and cash in escrow)
• foreign cash with limited market to exchange in
• public traded shares and bonds
• term deposits with maturity greater than 3 years
• t-bills with maturity greater than 3 months

Question 5

Accounts Receivable

Answer 5

• AR are financial instruments; they arise from a crefit sale in normal course of business, are short term and unsecured

Question 6

Accounts Receivable

Answer 6

• AR are financial instruments; they arise from a credit sale in normal course of business, are short term and unsecured
• Initial measurement at FV
• subsequent measurement: amortized cost using effective interest rate method, FVTOCI (IFRS only), FVTPL

Question 7

AR Subsequent measurement

Answer 7

1) Amortized cost using effective interest rate method (if 1) AR held in business when objective is to hold financial assets to collect cash flows and 2) contract terms give rise to specific payment dates that are solely principal and interest payments)
2) FVTOCI (if the business model for holding AR is to collect cash flows and sell
3) holding to actively sell

Question 8

Payment discounts on AR

Answer 8

• does not change initial measurement but will decrease revenue when cash is received
• Revenue will be lower and cash will be the debit entry difference

Question 9

When collection is greater than 1 year

Answer 9

• future cash flows should be discounted
• test for impairment each year

Question 10

Loss allowance

Answer 10

• when reporting under amortized cost, loss allowance, which must be checked at each reporting period, is recognized by assessing the credit risk of the customers
• credit loss: PV of all cash short falls - recognized amount in AFDA
• credit loss is measured by: unbiased probability (weighted amount), time and value of money, supportable public information

Question 11

Impairment loss

Answer 11

Loss: DR. BD expense, CR. AFDA
Gain: opposite of loss up to the amount of the loss initially recognized

Question 12

Aging of accounts method

Answer 12

• way of determining loss allowance for AR due in less than 1 year
• Amounts will be given to determine the loss amount which is: un-collectability rate x the balance during the time ranges (this will be given by the un-collectability of the AR for each time period during the year (ex: day 1 = 120k and day 20- 80k))

Question 13

Derecognition of AR

Answer 13

• initial: DR. BD expense, CR. AFDA
• derecognize: DR. AFDA, DR. BD expense

Question 14

ASPE differences

Answer 14

• impairment only tested based on triggering event (IFRS tested annually)
• NRV = highest of: PV of future cash flows, amount realized if sold, amount expected if exercised right to collateral (under IFRS, NRV = credit loss method)