Module 13a

Question 1

What is the formula of present value

Answer 1

1 \ (1+i)^n

Question 2

In what type of transactions are the time value of money used?

Answer 2

Bonds, Debt restucturing, pensions, leases

Question 3

What is the present value?

Answer 3

that amount of future money that you would pay now, for an amount to be received in “n” periods in the future given an interest rate of “I”

Question 4

What is Compounding?

Answer 4

it is when interest is componded more than once a year. It involves extra steps needed. You would multiply the “n” by the # of times interest is compounded annually. Additionally you would divide “ I “ by the number of times interest is componded annuals.

Question 5

Which rate of interest do you use?

Answer 5

You would use the effective or market rate of interest in the tables

Question 6

What is a Ordinary annuity or an annuity in arrears?

Answer 6

It is one where payment is due at the end of the accounting period (This is more common)

Question 7

What is an annuity due or an annuity in advance?

Answer 7

It is one where payment is due at the beginning in the period

Question 8

In an annuity table what is the factors in the row of the table going to be less than?

Answer 8

The # of years in the factor.

Question 9

To convert either a future value of an annuity or the present vlaue of an ordinary annuity factor to a annuity due factor what do you do?

Answer 9

You multiply the ordinary annuity factor times (1+i)

Question 10

When do you have to consider the time value of money?

Answer 10

When time is greater than 1 year.

Question 11

How do you compute interest?

Answer 11

You take the rate times the carrying value of the note

Question 12

T/F When a note is exchanged for cash and no other rights or privileges are exchanged, the PV of the note is equivalent to the cash exchanged?

Answer 12

TRUE

Question 13

When the face amount of a the note exceeds its present value, what results?

Answer 13

a premium results.

Question 14

When the face amount of a note is less than its present value what is the result?

Answer 14

A discount on the premium

Question 15

What are loan origination costs?

Answer 15

Costs incurred by the bank (lender) as part of a loan being made. Direct costs for the lender are defers the costs over the loan. Indirect costs for the lender are expensed. And there is no affect for the borrower.

Question 16

What are loan origination fees (points) ?

Answer 16

Additional bank revenue that reduces what the borrower gets. For the lender and the borrower the amount of the fees are reduced from the cost of the loan.

Question 17

What is the disclosure required for loans, debts, leases?

Answer 17

a disclosure must be made for the aggregate amounts of maturities and the sinking fund requirements for all long-term borrowings for each of the 5 years following the balance sheet date.

Question 18

If you elect the fair value option (irrevocable) how do you report the items?

Answer 18

You report them at fair value with ang gains or losses being reported in plus other gains and losses on the income statement.

Question 19

If the company elects the fair value option, they would use the rate of interest applicable to its borrowings instead of the rate on the note.

Answer 19

TRUE

Question 20

If the company elects the fair value option, what is the discount used?

Answer 20

There is no discount using the fair value option

Question 21

How are borrowing costs treated under IFRS?

Answer 21

They must be capitalized if they are related to the acquisition, construciton or production of a qualifying asset?

Question 22

What is a qualifying asset for IFRS?

Answer 22

One that takes a substantial period of time to get ready for its intended use. Examples include: inventory, PPE, intangible assets, investment properties

Question 23

What if borrowing costs are not a qualifying asset under IFRS?

Answer 23

They are expensed in the current period.