ACIS+3115+Ch07+Student+Fall+2010

ACIS+3115+Ch07+Student+Fall+2010 - CHAPTER 7 CASH AND...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: CHAPTER 7 CASH AND RECEIVABLES Intermediate Accounting 13th Edition Kieso, Weygandt, and Warfield Chapter 7 -1 What is Cash? Cash Most liquid asse t S tandard m diumof e e xchange Basis for m asuring and accounting for all ite s e m C nt asse urre t Exam s: coin, curre availablefunds on de ple ncy, posit at thebank, m y one orde ce rs, rtifie che cashie che pe d cks, r’s cks, rsonal che bank drafts and cks, savings accounts. Ce ash quivale nts Chapter 7 -2 LO 1 Identify items considered as cash. Reporting Cash Restricted Cash C panie se gatere om s gre stricte cash from“re d gular” cash for re porting purpose s. Exam s, re ple stricte for: d (1) plant e xpansion, (2) re m nt of long-te de and (3) com nsating tire e rm bt, pe balance s. I llustration 7-1 Chapter 7 -3 LO 2 Indicate how to report cash and related items. Receivables C s he against custom rs and othe laim ld e rs f or m y, goods, or se s. one rvice Oral prom s of thepurchase to ise r pay for goods and se s sold. rvice Writte prom s to pay a sumof n ise m y on a spe d futuredate one cifie . Accounts Accounts Receivable Receivable Notes Notes Receivable Receivable Chapter 7 -4 LO 3 Define receivables and identify the different types of receivables. Receivables Nontrade Receivables Exam s: ple 1. Advance to office and e ploye s. s rs m e 2. Advance to subsidiarie s s. 3. De posits to cove pote r ntial dam s or losse age s. 4. De posits as a guarante of pe e rform anceor paym nt. e 5. Divide and inte st re ivable nds re ce . 6. C s laim Chapter 7 -5 LO 3 Define receivables and identify the different types of receivables. Recognition of Accounts Receivables Trade Discounts Re ductions fromthelist price Not re cognize in the d accounting re cords C ustom rs arebille ne of e dt discounts 10 % Discount for new Retail Store Customers Chapter 7 -6 LO 4 Explain accounting issues related to recognition of accounts receivable. Recognition of Accounts Receivables Cash Discounts I nduce e for prom paym nt m nts pt e Gross Me Gross thod vs. Me thod Me Ne t Paym nt te s e rm are2/10, n/30 Chapter 7 -7 LO 4 Explain accounting issues related to recognition of accounts receivable. Recognition of Accounts Receivables Example: On June3, Be dict Corp. sold to Chester I nc., me ne rchandise having a salepriceof $5,000 with te s of 2/10,n/60, f.o.b. shipping point. On rm June12, Be dict re ive a che for thebalanceduefromC ste Pre ne ce d ck he r. pare re quire journal e s assum Be dict re d ntrie ing ne cords thesaleat gross. gross Gross Me thod June3 Accounts re ivable ce Ss ale 5,000 5,000 4,900 100 5,000 June12 C ($5,000 x 98%) ash S s discounts ale Accounts re ivable ce Chapter 7 -8 LO 4 Explain accounting issues related to recognition of accounts receivable. Recognition of Accounts Receivables Example: On June3, Be dict Corp. sold to Chester I nc., me ne rchandise having a salepriceof $5,000 with te s of 2/10,n/60, f.o.b. shipping point. On rm June12, Be dict re ive a che for thebalanceduefromC ste Pre ne ce d ck he r. pare re quire journal e s assum Be dict re d ntrie ing ne cords thesaleat net. net Ne Me t thod June3 Accounts re ivable ce Ss ale 4,900 4,900 4,900 June12 C ash Accounts re ivable ce 4,900 Chapter 7 -9 LO 4 Explain accounting issues related to recognition of accounts receivable. Recognition of Accounts Receivables Example: On June3, Be dict Corp. sold to Chester I nc., me ne rchandise having a salepriceof $5,000 with te s of 2/10,n/60, f.o.b. shipping point. On rm June 29, Be dict re ive a che for thebalanceduefromC ste Pre ne ce d ck he r. pare June Be re quire journal e s assum Be dict re d ntrie ing ne cords thesaleat net. net Ne Me t thod June3 Accounts re ivable ce Ss ale 4,900 4,900 5,000 June29 C ash Accounts re ivable ce S s discounts forfe d ale ite 4,900 100 Chapter 7-10 LO 4 Explain accounting issues related to recognition of accounts receivable. Recognition of Accounts Receivables Nonrecognition of Interest Element A com pany should m asurere ivable in te s of the pre nt value e ce s rm ir se . I n practice com , panie ignoreinte st re nuere d to accounts s re ve late re ivablebe ce causetheam ount of thediscount isnot usually material. Chapter 7-11 LO 4 Explain accounting issues related to recognition of accounts receivable. Assets Current Assets: Cash Accounts receivable Less allowance for doubtful accounts Less Inventory Prepaids Total current assets Fixed Assets: Office equipment Furniture & fixtures Less: Accumulated depreciation Total fixed assets Total Assets Total $ 346 500 25 475 812 _ 40 1,673 5,679 6,600 (3,735) 8,544 $10,217 Chapter 7-12 LO 4 Explain accounting issues related to recognition of accounts receivable. LO Assets Current Assets: Cash Accounts receivable, net of $25 allowance for doubtful accounts Inventory Prepaids Total current assets Fixed Assets: Office equipment Furniture & fixtures Less: Accumulated depreciation Total fixed assets Total Assets Total $ 346 475 475 812 _ 40 1,673 5,679 6,600 (3,735) 8,544 $10,217 Chapter 7-13 LO 4 Explain accounting issues related to recognition of accounts receivable. LO Accounting for Accounts Receivable Accounting Journal e for cre saleof $100? ntry dit Accounts re ivable ce Ss ale Accounts Receivable Beg. 500 100 100 Allowance for Doubtful Accounts 25 Beg. End. Chapter 7-14 500 25 End. LO 4 Explain accounting issues related to recognition of accounts receivable. Accounting for Accounts Receivable Journal e for cre saleof $100? ntry dit Accounts re ivable ce Ss ale Accounts Receivable Beg. Sale 500 100 100 100 Allowance for Doubtful Accounts 25 Beg. End. Chapter 7-15 600 25 End. LO 4 Explain accounting issues related to recognition of accounts receivable. Accounting for Accounts Receivable C ction of $333 on account? olle C ash Accounts re ivable ce Accounts Receivable Beg. Sale 500 100 333 333 Allowance for Doubtful Accounts 25 Beg. End. Chapter 7-16 600 25 End. LO 4 Explain accounting issues related to recognition of accounts receivable. Accounting for Accounts Receivable Accounting C ction of $333 on account? olle C ash Accounts re ivable ce Accounts Receivable Beg. Sale 500 100 333 Coll. 333 333 Allowance for Doubtful Accounts 25 Beg. End. Chapter 7-17 267 25 End. LO 4 Explain accounting issues related to recognition of accounts receivable. Accounting for Accounts Receivable Accounting Adjustm nt of $15 for e ate Bad-De e stim d bts? Bad de e nse Bad bt xpe Allowancefor Doubtful Accounts Accounts Receivable Beg. Sale 500 100 333 Coll. 15 15 Allowance for Doubtful Accounts 25 Beg. End. Chapter 7-18 267 25 End. LO 4 Explain accounting issues related to recognition of accounts receivable. Accounting for Accounts Receivable Accounting Adjustm nt of $15 for e ate Bad-De e stim d bts? Bad de e nse bt xpe Allowancefor Doubtful Accounts Accounts Receivable Beg. Sale 500 100 333 Coll. 15 15 Allowance for Doubtful Accounts 25 15 Beg. Est. End. Chapter 7-19 267 40 End. LO 4 Explain accounting issues related to recognition of accounts receivable. Accounting for Accounts Receivable Accounting Write of uncolle -off ctibleaccounts for $10? Allowancefor Doubtful accounts Accounts re ivable ce Accounts Receivable Beg. Sale 500 100 333 Coll. 10 10 Allowance for Doubtful Accounts 25 15 Beg. Est. End. Chapter 7-20 267 40 End. LO 4 Explain accounting issues related to recognition of accounts receivable. Accounting for Accounts Receivable Accounting Write of uncolle -off ctibleaccounts for $10? Write Allowancefor Doubtful accounts Allowance Accounts re ivable ce Accounts Receivable Beg. Sale 500 100 333 10 End. Chapter 7-21 10 10 Allowance for Doubtful Accounts 25 Beg. Est. 15 W/O 10 30 End. Coll. W/O 257 LO 4 Explain accounting issues related to recognition of accounts receivable. Assets Current Assets: Cash Accounts receivable, net of $30 allowance for doubtful accounts Inventory Prepaids Total current assets Fixed Assets: Office equipment Furniture & fixtures Less: Accumulated depreciation Total fixed assets Total Assets Total $ 346 227 812 _ 40 1,673 5,679 6,600 (3,735) 8,544 $10,217 Chapter 7-22 LO 4 Explain accounting issues related to recognition of accounts receivable. LO Valuation of Accounts Receivable Reporting Receivables C lassification Valuation (ne re t alizablevalue ) Uncollectible Accounts Receivable S s on account raisethepossibility of accounts not be ale ing colle d cte Chapter 7-23 LO 5 Explain accounting issues related to valuation of accounts receivable. Uncollectible Accounts Receivable Methods of Accounting for Uncollectible Accounts Direct Write-Off The tically unde ore sirable : no m atching re ivablenot state at ne ce d t re alizablevalue Allowance Method Losse areEstim d: s ate Pe ntage rce -of-sale s Pe ntage rce -of-re ivable ce s Chapter 7-24 LO 5 Explain accounting issues related to valuation of accounts receivable. Uncollectible Accounts Receivable Percentage of Sales Matching Sales --- Bad Debt Expense Income Statement Approach Percentage of Receivables Net Realizable Value Receivables - Allowance for Bad Debt Chapter 7-25 Balance Sheet Approach LO 5 Explain accounting issues related to valuation of accounts receivable. Uncollectible Accounts Receivable Example Data C dit sale re s Accounts re ivablebalance Accounts ce Estim d %of A/R not colle d ate cte $500,000 $72,500 8% Estim d %of cre sale not colle d 1.25% ate dit s cte Allowancefor Doubtful Accounts: CI ase $150 (cre balance dit ) C2 ase $150 (de balance bit ) Chapter 7-26 LO 5 Explain accounting issues related to valuation of accounts receivable. Uncollectible Accounts Receivable Percentage of Sales Method C hargesale s Estim d pe ntage ate rce Estim d e nse ate xpe x $500,000 1.25% $ 6,250 ================================================== = What should thee nding balancebefor theallowanceaccount? -- C 1 ase What and C 2 ase Chapter 7-27 LO 5 Explain accounting issues related to valuation of accounts receivable. Uncollectible Accounts Receivable Percentage of Sales C1 ase Actual balance(cre dit) Adjustm nt e Ending balance Journal entry: Bad de e nse bt xpe Allowancefor doubtful accounts Chapter 7-28 C2 ase 150 (6,250) (6,100) (150) (6,250) (6,400) 6,250 6,250 LO 5 Explain accounting issues related to valuation of accounts receivable. Uncollectible Accounts Receivable Percentage of Receivables Accounts re ivable ce Estim d pe ntage ate rce De d balance sire $ 72,500 x 8% $ 5,800 ================================================== = What should thee nding balancebefor theallowanceaccount? -- C 1 ase What and C 2 ase Chapter 7-29 LO 5 Explain accounting issues related to valuation of accounts receivable. Uncollectible Accounts Receivable Percentage of Receivables C1 ase Actual balance(cre dit) De d balance sire Adjustm nt e Journal entry – C 1: ase Bad de e nse bt xpe Allowancefor doubtful accounts Chapter 7-30 C2 ase 150 (5,800) (5,950) (150) (5,800) (5,650) 5,650 5,650 LO 5 Explain accounting issues related to valuation of accounts receivable. Uncollectible Accounts Receivable Percentage of Receivables C1 ase Actual balance(cre dit) De d balance sire Adjustm nt e Journal entry – C 2: ase Bad de e nse bt xpe Allowancefor doubtful accounts Chapter 7-31 C2 ase 150 (5,800) (5,950) (150) (5,800) (5,650) 5,950 5,950 LO 5 Explain accounting issues related to valuation of accounts receivable. Uncollectible Accounts Receivable Summary Percentage of Sales approach: Bad de e nsee ateis re d to a nom account (S s), any bt xpe stim late inal ale balancein theallowanceaccount is ignore d. The fore them thod achie s a prope m re , e ve r atching of cost and re nue ve s. Percentage of Receivables approach: Re sults in a m accuratevaluation of re ivable on thebalanceshe t. ore ce s e Me thod m also beapplie using an aging sche . ay d dule Chapter 7-32 LO 5 Explain accounting issues related to valuation of accounts receivable. LO Recognition of Notes Receivable Notes Receivable S upporte by a form prom d al issory note . A ne gotiableinstrum nt e Make signs in favor of a Paye r e I nte st-be re aring (has a state rateof inte st) OR d re Noninte st-be re aring (inte st include in faceam re d ount) Chapter 7-33 LO 6 Explain accounting issues related to recognition of notes receivable. Recognition of Notes Receivable Short-Term Record at Face Value, less allowance Long-Term Record at Present Value of cash expected to be collected NoteI ssue at d FaceValue Pre ium m Discount I nte st Rate re s S d rate= Marke rate tate t S d rate> Marke rate tate t S d rate< Marke rate tate t Chapter 7-34 LO 6 Explain accounting issues related to recognition of notes receivable. Note Issued at Face Value Note Exercise BalanceBar C le Bio Foods $100,000 in e o. nds xchangefor a $100,000, 5-ye notebe ar aring inte st at 8 pe nt annually. Them t re rce arke rateof inte st for a noteof sim risk is also 8 pe nt. How doe re ilar rce s BalanceBar re there ipt of thenote cord ce ? $100,000 $8,000 8,000 8,000 8,000 8,000 0 Chapter 7-35 1 2 3 4 5 6 LO 6 Explain accounting issues related to recognition of notes receivable. Note Issued at Face Value Table 6-4 Table Number of Periods 1 5 10 15 20 4% 0.96154 4.45183 8.11090 11.11839 13.59033 6% Discount Rate 8% 0.92593 3.99271 6.71008 8.55948 9.81815 PV of I nte st re 10% 0.90900 3.79079 6.14457 7.60608 8.51356 12% 0.89286 3.60478 5.65022 6.81086 7.46944 0.94340 4.21236 7.36009 9.71225 11.46992 $8,000 x 3.99271 = $31,942 Interest Chapter 7-36 Factor Present Value LO 6 Explain accounting issues related to recognition of notes receivable. Note Issued at Face Value Table 6-2 Table Number of Periods 1 5 10 15 20 4% 0.96154 0.82193 0.67556 0.55526 0.45639 6% Discount Rate 8% 0.92593 0.68058 0.46319 0.31524 0.21455 PV of Principal 10% 0.90909 0.62092 0.38554 0.23939 0.14864 12% 0.89286 0.56743 0.32197 0.18270 0.10367 0.94340 0.74726 0.55839 0.41727 0.31180 $100,000 x .68058 = $68,058 Principal Chapter 7-37 Factor Present Value LO 6 Explain accounting issues related to recognition of notes receivable. Note Issued at Face Value Summary Pre nt valueof I nte st se re Pre nt valueof Principal se Notecurre m t value nt arke Dat e J an. yr . 1 Cash Dec. yr . 1 Cash I nt er est r evenue ($ 100,000 x 8%) 8,000 8,000 Account Tit le N ot es r eceivable Debit 100,000 100,000 $ 31,942 68,058 $100,000 Credit Chapter 7-38 LO 6 Explain accounting issues related to recognition of notes receivable. Zero-Interest-Bearing Note Zero-Interest-Bearing Exercise BalanceBar C re ive a 5-ye $100,000 ze o. ce s ar, ro-inte st-be re aring note Them t rateof inte st for a noteof sim risk is 6 pe nt. How . arke re ilar rce doe BalanceBar re there ipt of thenote s cord ce ? Pre nt valueof Principle se : $100,000 (PVF5, 6%) = $100,000 x .74726 = $74,726 $100,000 $0 0 0 0 0 0 Chapter 7-39 1 2 3 4 5 6 LO 6 Explain accounting issues related to recognition of notes receivable. Zero-Interest-Bearing Note Zero-Interest-Bearing Amortization Schedule Non-Interest-Bearing Note 6% Interest Revenue $ 4,484 4,753 5,038 5,340 5,660 25,274 Carrying Amount of Note $ 74,726 79,210 83,962 89,000 94,340 100,000 Cash Received Date of issue End of yr. 1 End of yr. 2 End of yr. 3 End of yr. 4 End of yr. 5 - Discount Amortized $ 4,484 4,753 5,038 5,340 5,660 25,274 Chapter 7-40 LO 6 Explain accounting issues related to recognition of notes receivable. Zero-Interest-Bearing Note Journal Entries for Non-Interest-Bearing note Pre nt valueof Principal se Dat e J an. yr . 1 Account T it le N ot es r eceivable Discount on not es r eceivable Cash Dec. yr . 1 Disount on not es r eceivable I nt er est r evenue ( $ 74,726 x 6%) 4,484 4,484 Debit 100,000 25,274 74,726 $74,726 Credit Chapter 7-41 LO 6 Explain accounting issues related to recognition of notes receivable. Interest-Bearing Note Interest-Bearing Exercise BalanceBar C m a loan to Bio Foods and re ive in o. ade ce d e xchangea 5-ye $100,000 notebe ar, aring inte st 8 pe nt. Them t rateof re rce arke inte st for a noteof sim risk is 10 pe nt. How doe BalanceBar re re ilar rce s cord t here ipt of thenote ce ? Pre nt valueof Principle se : $100,000 (PVF5, 10%) = $100,000 x .62092 = $ 62,092 Pre nt valueof I nte st: se re $8,000 (PVF5, 10%) = $8,000 x 3.79079 = 30,326 Pre nt valueof note se Chapter 7-42 $ 92,418 LO 6 Explain accounting issues related to recognition of notes receivable. Interest-Bearing Note Interest-Bearing Amortization Schedule Interest-Bearing Note 10% Interest Revenue $ 9,242 9,366 9,503 9,653 9,818 47,582 Carrying Amount of Note $ 92,418 93,660 95,026 96,529 98,182 100,000 Cash Received Date of issue End of yr. 1 End of yr. 2 End of yr. 3 End of yr. 4 End of yr. 5 8,000 8,000 8,000 8,000 8,000 40,000 Discount Amortized $ 1,242 1,366 1,503 1,653 1,818 7,582 Chapter 7-43 LO 6 Explain accounting issues related to recognition of notes receivable. Interest-Bearing Note Journal Entries for Interest-Bearing Note Dat e J an. yr . 1 Account T it le N ot es r eceivable Discount on not es r eceivable Cash Dec. yr . 1 Cash Disount on not es r eceivable I nt er est r evenue ( $ 92,418 x 10%) 8,000 1,242 9,242 Debit 100,000 7,582 92,418 Cr edit Chapter 7-44 LO 6 Explain accounting issues related to recognition of notes receivable. Valuation of Notes Receivable S hort-Te re rm porte at Ne Re d t alizableValue(sam as accounting e f or accounts re ivable ce ). Long-Te noteis im rm paire whe colle d n cting all am ounts due (both principal and inte st) will like not occur. Accounting for re ly im pairm nts discusse in Appe e d ndix 14A. Chapter 7-45 LO 7 Explain accounting issues related to valuation of notes receivable. Disposition of Accounts and Notes Receivable Owne m transfe accounts or note re ivable to anothe com r ay r s ce s r pany f or cash. Re asons: C pe om tition. S ll re ivable be e ce s causem y is tight. one Billing / colle ction aretim -consum and costly. e ing Transfe accom r plishe by: d 1. S cure borrowing ed 2. S of re ivable ale ce s Chapter 7-46 LO 8 Explain accounting issues related to disposition LO of accounts and notes receivable. of Secured Borrowing - Exercise E7-13 On April 1, 2007, Rashe d Com e pany assigns $400,000 of its accounts re ivable ce t o theThird National Bank as collate for a $200,000 loan dueJuly 1, 2007. The ral assignm nt agre m nt calls for Rashe d Com e ee e pany to continueto colle there ivable ct ce s. Third National Bank asse s a financechargeof 2%of theaccounts re ivable and sse ce , inte st on theloan is 10%(a re re alistic rateof inte st for a noteof this type re ). Instructions (a) Pre paretheApril 1, 2007, journal e for Rashe d C pany. ntry e om (b) Pre parethejournal e for Rashe d’s colle ntry e ction of $350,000 of theaccounts re ivableduring thepe fromApril 1, 2007, through June30, 2007. ce riod (c) On July 1, 2007, Rashe d paid Third National all that was duefromtheloan it e se d on April 1, 2004. cure Chapter 7-47 LO 8 Explain accounting issues related to disposition LO of accounts and notes receivable. of Secured Borrowing - Exercise Exercise 7-13 continued Dat e (a) Cash Finance Char ge N ot es Payable ($ 400,000 x 2% = $ 8,000) (b) Cash A ccount s Receivable (c) N ot es Payable I nt er est Expense Cash (10% x $ 200,000 x 3/ 12 = $ 5,000) Chapter 7-48 Account Tit le Debit 192,000 8 ,000 Credit 2 00,000 3 50,000 3 50,000 2 00,000 5 ,000 2 05,000 LO 8 Explain accounting issues related to disposition LO of accounts and notes receivable. of Sales of Receivables Factors arefinancecom panie or banks that buy re ivable from s ce s busine s for a fe . sse e I llustration 7-16 Chapter 7-49 LO 8 Explain accounting issues related to disposition LO of accounts and notes receivable. of Sales of Receivables Sale Without Recourse Purchase assum s risk of colle r e ction Transfe is outright saleof re ivable r ce S lle re e r cords loss on sale S lle useDuefromFactor (re ivable account to cove discounts, er ce ) r re turns, and allowance s Sale With Recourse S lle guarante s paym nt to purchase er e e r Financial com nts approach use to re transfe pone d cord r Chapter 7-50 LO 8 Explain accounting issues related to disposition LO of accounts and notes receivable. of Secured Borrowing versus Sale TheFAS conclude B d t hat a saleoccurs only if t hese r surre rs lle nde control of there ivable ce s t o thebuye Thre r. e conditions m bem t: ust e I llustration 7-21 Chapter 7-51 LO 8 Explain accounting issues related to disposition LO of accounts and notes receivable. of Presentation and Analysis General rule in classifying receivables are: 1. 2. 3. 4. 5. 6. S gre thediffe nt type of re ivable that a com e gate re s ce s pany posse s, if m rial. sse ate Appropriate offse thevaluation accounts against theprope re ivable ly t r ce accounts. De rm that re ivable classifie in thecurre asse se te ine ce s d nt ts ction will be conve d into cash within theye or theope rte ar rating cycle whiche r is longe , ve r. Discloseany loss continge s that e on there ivable ncie xist ce s. Discloseany re ivable de ce s signate or ple d as collate d dge ral. Discloseall significant conce ntrations of cre risk arising fromre ivable dit ce s. Chapter 7-52 LO 9 Explain how receivables are reported and analyzed. Presentation and Analysis Analysis of Receivables I llustration 7-23 This Ratio use to: d Asse theliquidity of there ivable ss ce s. Me asurethenum r of tim s, on ave , a com be e rage pany colle re ivable cts ce s during thepe riod. Chapter 7-53 LO 9 Explain how receivables are reported and analyzed. IFRS Unit 6 – Cash & Receivables Cash and cash equivalents defined similarly is treatment of bank overdrafts Difference Chapter 7-54 IFRS Unit 6 – Cash & Receivables Receivables IFRS IFRS Puts Puts Differences loans and receivables into one of four financial asset categories. Requires initial measurement at fair value. Amortize cost similar to effective interest method GAAP GAAP Does Does not include trade accounts receivable and loans receivable in the same category receivable Must separately disclose material related party Must receivables receivables Chapter 7-55 IFRS Unit 6 – Cash & Receivables Uncollectible Both Both Accounts Receivable require use allowance method to record uncollectible accounts receivable uncollectible Difference – IFRS refers to allowance as Difference “provision” “provision” Impairment Similar Similar of Notes Receivable to GAAP, but IFRS allows reversal of impairment, GAAP does not. impairment, Chapter 7-56 IFRS Unit 6 – Cash & Receivables Sale of Receivables Assets legally isolated from transferor Transferee has right to pledge or sell the asset Transferor does not maintain effective control through right Transferor or obligation to repurchase transferred asset or GAAP GAAP 1. 2. 3. uses control test to derecognize financial assets, must meet three tests: assets, IFRS IFRS 1. 2. 3. 4. uses test of risk and rewards first, then control test, meet any of these conditions test, Rights to cash flows from asset expire Rights to cash flows, all risks/rewards of ownership transfer Obliged to transfer assets cash flow, all risks/rewards and Obliged meet other criteria meet Control of asset is transferred even if risks/rewards are not Chapter 7-57 1. How do the standards differ related to classifying 1. bank overdrafts? Which standard would more frequently require bank overdrafts to be offset against the cash account? against US GAAP does not offset bank overdrafts against the cash US account. There is one exception to this rule. When there is cash available in another account in the same bank on which the overdraft occurred offsetting against the cash account is required. IFRS includes bank overdrafts in the cash and cash equivalents category if they are repayable on demand and form an integral part of an entity’s cash management. Entities following IFRS would classify bank overdrafts as cash and cash equivalents more frequently, because US GAAP rarely classifies bank overdrafts in this manner. Chapter 7-58 2. 2. Discuss the method used under IFRS and US GAAP to account for uncollectible accounts receivable. Entities Entities must follow the allowance method. Under the allowance method, entities estimate the amount of expected uncollectible accounts. The estimate is recorded as an expense and reduction in accounts receivable through an allowance account. Chapter 7-59 3. 3. Subsequent measurement of loans and receivables is at amortized cost using the effective interest method under IFRS. effective True or False True Chapter 7-60 4. 4. Is there a difference in terminology between US GAAP and IFRS regarding the allowance account? If yes, what is the difference? difference? Yes, IFRS uses the term provision to refer to the allowance account. Chapter 7-61 5. How should the following accounts be classified under IFRS? Is the classification the same under US GAAP? Chapter 7-62 A. Coins and currency B. Petty cash C. Saving account D. Checking account E. Deposits in transit F. Post dated check F. expected to be collected in one month one G. Bank overdrafts G. repayable on demand and an integral part of the entity’s cash management. H. Long term loan to H. another entity another I. Trade receivables due in I. two months two A. Cash B. Cash C. Cash D. Cash E. Cash F. Receivable G. Cash (offset) H. Loans and receivables I. Loans and receivables ...
View Full Document

This note was uploaded on 11/04/2010 for the course ACCT 2115 taught by Professor K during the Spring '10 term at Virginia College.

Ask a homework question - tutors are online