Financial Statement Accounts Flashcards
Define maker
A debtor who has borrow funds or purchases an asset and provided a note to the original creditor.
Describe a transaction without recourse
Transferor is not responsible for nonpayment in the part of the maker of the receivable.
What is the IFRS focus regarding sales or secure borrowing?
Whether the transferor has transferred the rights to receive the cash flows from the receivable and whether substantially all the risk and rewards of ownership were transferred.
Describe a transaction with recourse.
The transferor is responsible for nonpayment in the part of the original maker of the receivable.
In the transfer of receivables, if the 3 conditions for a sale are not met, what happens?
The receivable remains in the books of the transferor, and the transferor records a Kia unity related to the borrowing transaction
With respect to the transfer of receivable, what are the 3 conditions of a sale?
1) the transferred assets have been isolated from the transferor, even in bankruptcy
2) the transferee is free to pledge or exchange the assets
3) the transferor does not maintain effective control over the transferred assets through either an agreement that allows and requires the transferor to repurchase the assets or one which requires the transferor to return specific assets
Who bears the cost of bad debts when factoring without recourse?
The factor (transferee) bears the cost of uncollectible accounts, but the seller (transferor) bears the cost of sales adjustments
Who bears the costs of bad debts when factoring with recourse?
The seller (transferor) bears the cost of bad debts as well as the cost of sales adjustments
Define factoring
The transferor (original creditor) transfers the receivables to a factor (transferee, financial institution) immediately as a normal part of business.
List the methods through which interest revenue is recognized after a write-down has occurred.
Interest and cost recovery methods
When does loan impairment occur?
When the creditor believes the loan payments actually to be received have a lower fair value than under the original agreement.
When a receivable is impaired, what should it be written down to?
The PV of the future cash flows expected to be collected using original effective interest rate for the loan or market value if more determinable.
What is the accounting treatment for loan impairments?
Receivable should be written down to:
1) PV of future cash flows using original effective interest rate, or
2) mkt value, if it can be determined.
How is the loss on an impairment accomplished?
DR: bad debt expense
CR: a contra receivable account
What is the calculation for determining COGS?
Beginning inventory
+net purchases (gross+trans in-returns-discounts)
- ending inventory
= COGS
List the differences between moving & weighted average cost flow assumptions.
– moving average computes a new weighted average cost per unit after each purchase of inventory
– moving average results in lower COGS during period of rising prices
Weighted average cost per unit formula
COGS / # of units available for sale
LIFO in periods of rising prices
- lower NI
- lower ending inventory
- highest COGS
FIFO in periods of rising prices
- lowest COGS
- highest NI
- highest ending inventory
Differences between periodic & perpetual applications of LIFO
- in perpetual, each sale is costed with most recent purchase
- perpetual results In a lower COGS in a period of rising prices
List the cost flow assumptions of a perpetual inventory system
- specific identification
- moving average
- FIFO
- LIFO
Define “base-year dollars”
Price level for the pool at the beginning of the year Dollar Valued (DV) LIFO adopted.
Formula to get to ending dollar value LIFO
Ending DV LIFO = beginning DV LIFO + (increase @ base year dollars)(conversion index)
List the methods of recording Lower of Cost or Market
Direct method
Allowance method
