Module 12 - Monetary Current Assets & Current Liabilities

Front 1

Transferring & Servicing Monetary Assets - Criteria to account for transfer as Sale = meas SURRENDERING CONTROL

Back 1

1. Transferred financial asset(s) are isolated and beyond the reach of the transferor and its creditors, even in bankruptcy and receivership
a. means its a bonafide transfer

2. Transferee can pledge or exchange transferred financial assets w/o unreasonable constraints or conditions
a. can do whatever they want without any say from transferor

3. Transferor does not maintain effective control over transferred financial assets or 3rd-party beneficial interest in assets
a. so no repurchase or redemption agreements, or agreements that makes holder return asset or requires transferor to repurchase financial assets at a favorable price

***All criteria must be bet to be accounted for as a sale or else is a secured loan

Front 2

Servicing of Financial Assets:

More than Adequate = asset
Adequate Compensation = no asset or liability
Less than adequate = Liability

Back 2

Servicing Assets and Liabilities are accounted for as follows:

a. Assets and liabilities are reported separately
b. Initially measured servicing assets that are retained by the transferor by allocating the carrying amount based on relative fair values at the date of transfer
c. Initially measure at FV
d. Account separately for interest-only strips
**e. Measure servicing assets and liabilities using 1 of 2 methods: Either the AMORTIZATION method of FAIR VALUE method - know methods
f. Report on B/S in 1 of 2 ways
1. Display separate line items for amounts valued FV and amounts measured by amortization method OR
2. Display aggregate amounts for all servicing assets and liabilities and disclose parenthetically the amount that is measured at FV that is included in the aggregate amount

Front 3

Two Methods In Measuring Servicing Assets and Liabilities

***NEED TO KNOW

Back 3

Amortization Method:
1. Assets are initially recorded at FV
2. Assets are then amortized in proportion to, and over period of, receipt of estimated net servicing income or loss.
***End of each period assets must be tested for impairment or increased obligation based on FV - impairment recognized in a valuation allowance account

Fair Value Method:
1. Assets/Liabilities initially recorded at FV the FV is measured at each reporting date
a. changes in FV are REPORTED IN EARNINGS (remember b/c FV option is chosen, so not recorded in OCI)....FV also must be applied to whole class of asset/liability

Front 4

Required Disclosures for ALL Servicing Assets and Liabilities

Back 4

Include:
1. Mgmt's basis for determining classes
2. Description of risk
3. Instrument used to mitigate income statement effect of changes in FV
4. Amount of contractually specified servicing fees/late fees and ancillary fees for each period
5. Quantitative and qualitative information about assumptions used to estimate FV

***These are disclosures for all servicing Assets and Liabilities period

Those subsequently measured at FV require:
1. disclosures showing beg. and end. balances, additions, disposals, changes in FV inputs or assumptions used, and changes in FV

Amortization method disclosures require:
1. beg. and end. balances, additions, disposals, amortization, application of valuation allowance (all activity in this account) to adjust carrying value and other changes effect the balance - as well as a description of the changes

Front 5

Classification or S/T Obligations Expected to Be Refinanced (ASC 210 and 470) - SFAS 6

Back 5

S/T obligations can be classifiend as non-current liabilities long as entity has the INTENT and ABILITY to Refinance...
1. Intent is supported by Ability to Refinance
2. Ability means to:
a. Actually refinance post-B/S date OR
b. Have a finance agreement that clearly permits refinancing on a L/T basis - MEANING: 1.) Doesn't expire or not callable and 2.) No violation of agreement exist at B/S or has occurred to date

3. S/T obligation excluded from current liability SHOUDN'T EXCEED:
a. Net proceeds of debt/securities issued (meaning we can't refinance and get proceeds less then the amount that needs to be paid)
b. Net amounts available under refinancing agreements
1. Entity must intend to to exercise the financing agreement when the S/T obligations becomes due
4. Refinancing of S/T obligations is a F/S Classification Issue, not a recognition or measurement issue

Front 6

Contingencies:

One of Two Types of an Obligation

Back 6

Existing condition, situation or set of circumstances involving uncertainty as to a possible gain/loss to an entity that will ultimately be resolved basis on a future event happening or failing to happen

***The other type of obligation is one that is a determinable (fixed) liability - amount of cash and time of payment is know and reasonably precised

Front 7

Accounting for Contingencies:

Back 7

To record accrued loss of an Contingencies (remember this is putting in the F/S statement before results of event) the Contingency has to be BOTH PROBABLE and REASONABLY ESTIMABLE
1, Probable is more than 50% to occure
2, Reasonably Estimable requires entity to accrue amount that can be estimated.
a. if only a range can be estimated and no futher estimated amount can be determined from the range then the LOWER AMOUNT S/B ACCRUED

***If contingency is either Reasonably Possible or Remote than it is not appropriate to accrue a loss BUT DISCLOSURES may be NECESSARY

Front 8

IFRS - Big Differences From GAAP as opposed to Current Financial Assets and Liabilities

Refinancing S/T obligations and Provision/Contingent Liabilities

Back 8

Unlike GAAP IFRS requires entities to have refinance agreement in place prior to B/S date to reclass current obligation to non current liability

2nd big difference
A. Provisions - liabilities that are uncertain in TIMING and AMOUNT (They are Probable and Measurable) - In GAAP these are Contingencies

B. Contingencies in IFRS depends upon some future uncertainty or event
-These are neither Probable nor Estimable - Contingencies are not recognized in IFRS because they are not Probable and Measurable***BUT S/B disclosed with estimated financial effect in notes and indication of uncertainty
***Note this is completely different from GAAP

***Contingent Gains are similar to GAAP and are not recognized but can be disclosed