Financial Reporting

Question 1

What is the purpose of cash and cash equivalents?

Answer 1

To meet short term cash commitments

Question 2

Name examples of cash

Answer 2

legal tender on hand, petty cash, chequing accounts, savings accounts, foreign currency easily converted to company’s operating currency

Question 3

name examples of cash equivalents

Answer 3

bank overdrafts, term deposits with maturity date 3 months or less
investments in money market funds
t-bills with maturity 3 months or less

Question 4

how are cash and cash equivalents presented in B/S?

Answer 4

Current Assets

Question 5

name examples of cash exclusions

Answer 5

• restricted cash
• foreign currency with limited market for exchange into the company’s operating currency
• foreign currency where exchange rate is unstable and subject to material fluctuations
• publicly traded shares and bonds
• term deposits with a maturity date of greater than 3 months

Question 6

Name examples of restricted cash

Answer 6

• minimum balance requiremnts in bank accounts
• funds held in escrow
• donations provided for a specific purpose in a not-for-profit organization

Question 7

On B/S how is restricted cash presented?

Answer 7

current or non-current assets (NOT cash or cash equivalent)

Question 8

what’s the difference between IFRS and ASPE regarding cash and cash equivalents

Answer 8

none

Question 9

Name examples of risky, non-cash items that is often mistaken as cash or cash equivalent?

Answer 9

Gold, investment in shares

Question 10

What are the 3 ways that one can classify Accounts Receivable and the associated model?

Answer 10

1) at amortized cost - the asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows and 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
2) FVTOCI - business model to hold receivables directs it not only to collect the contractual cash flows but also to sell
3) FVTPL - if the company will be holding the receivables to actively sell them as part of a portfolio

Question 11

what happens when AR collection period is longer than 1 year?

Answer 11

there is a financing component, interest revenue needs to be recognized. so collections will be discounted at the effective interest rate based on the creditor’s credit risk.

Question 12

what does A/R subsequent measurement entail?

Answer 12

as time goes on the risk, amount and timing of the expected cash inflows may change, so an IMPAIRMENT LOSS must be recognized

Question 13

true or false? Under IFRS, an event needs to occur to trigger the recognition of a loss.

Answer 13

false. this is only required under ASPE.

Question 14

Explain Loss Allowance and how the change in loss allowance is recognized

Answer 14

the expected credit losses are the present value of all cash shortfalls over the life of the receivable. the change in the loss allowance is recognized as loss/gain on the P&L. Impairment losses can be reversed up to the amount of the mortized cost that would have been if no impairment had been recognized. the reversal also flows through P&L. for AR, this impairment loss or gain is called a bad debt expense or bad debt recovery.

Question 15

Which classification of AR requires a recognition of loss allowance?

Answer 15

Amortized Cost

Question 16

when should AR be written off?

Answer 16

When there is evidence showing that AR is not collectable

Question 17

what are the 3 ways to categorize passive investments?

Answer 17

1) fvpl 2) amortized cost 3) fvoci

Question 18

how is lease liability calculated?

Answer 18

PV of lease rentals + PV of expected payments at end of the lease

Question 19

what are the key components of a lease?

Answer 19

a) asset is specifically identified b) lease conveys the right to control the use of the identified asset for a period of time c) customer right to control the use of the identified asset

Question 20

is the lease incentive included in the lease payment (ifrs)?

Answer 20

no

Question 21

is the variable lease payments included in the lease payments (ifrs)?

Answer 21

yes

Question 22

is the exercise price of a purchase option included in the lease payment (ifrs)?

Answer 22

yes, if reasonably certain the option is exercised

Question 23

is the penalties for terminating the lease included in lease payment (ifrs)?

Answer 23

yes

Question 24

is the residual value guarantees included in the lease payment (ifrs)?

Answer 24

yes

Question 25

what are the conditions required to use the useful life as the base depreciation calculation for leases?

Answer 25

1) ownership of asset transfer to lessee at end of the lease term 2) reasonably certain lessee will exercise a purchase option

Question 26

Finance lease factors

Answer 26

1) transfer of ownership of underlying asset to the lessee by end of lease term
2) lessee can purchase asset at price that is sufficiently lower than the FV
3) the leaese term is for the major part of the economic life of the asset, even if title is not transferred
4) at inception date, the PV of the lease payments are substantially all of the fair value of the asset
5) the underlying asset is of such a specialized nature, only the lessee can use it without major modifications