Online Assignment 2

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University of Ontario Institute of Technology *

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3130U

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Accounting

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Jan 9, 2024

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docx

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Uploaded by johnolarewaju77

Question 1 If Stowe follows ASPE, what amount should be reported as cash and cash equivalents? Item Readily convertible to cash Risk of change in value Cash and equivalent Cash in banking savings account Yes Low Yes- Easy accessibility Chequing a/c Balance Yes Low Yes- Because of it accessibility Cash on hand Yes Low Yes- cash on hand is highly liquid because of it availability to cash at a quick space of time. Postdated cheque from Yu co. No Moderate No- it is not a cash equivalent because it is postdate meaning a cheque for a future date and shouldn’t be withdrawn until after that date. Cash refund due (over payment of income taxes) Yes Low Yes- but the date in which the refund is due needs to be considered. is it due within 3 months. Cash in a foreign bank (CAD) Yes Moderate Yes- Since it is not a foreign currency then it would be

considered a cash equivalent. Preferred shares acquired shortly before their fixed maturity date No High No- Because of it flaunts over a short space of time. Debt instrument with maturity date of 3- month from the date acquired Yes Moderate Yes- Because it maturity date is within 3 months. Explain how your answer would differ if Stowe followed IFRS. If IFRS was used financial assets classification and measurement would include Amortized costs, FVOCI and FVTPL while ASPE would include Cots/ Amortized costs and FV-NI with. Under IFRS, Financial assets that are solely held for principal and interest and to be eventually sold are classified as FVOCI, with the transaction costs being capitalized, dispositions, unrealized gains/losses, subsequential measurement at fair value if it is not held to maturity. While under ASPE, financial assets are not classified under FVOCI but rather it uses amortized costs and FV-NI. And classification of restricted cash held in a foreign currency can be classified as cash while under ASPE, a foreign currency cannot be classified as cash it would be recorded as another financial asset.

Question 2 600,000 A/R collected by Liquidity financing. Transferred A/R Aug 15, 2020. Finance charge 2.5% of A/R, Reserves amount of 5.25% to cover probable adjustments. a). Sales receivables with a fair value of $6,000 Cash (600,000*92.25%)= 553,500 Due from factor (600,000*5.25%)= 31,500 Total sum (553,500 + 31,500)= 585,000 Less: Recourse liability 6,000 Net proceeds ($585,000-6000)= $579,000 Gain or loss Carrying value 600,000 Net proceeds 579,000 Loss on sale of receivables =(600,000-579,000)= $21,000 Aug 15, 2020 Journal entries DR. Cash 553,500 DR. Due factor 31,500 DR. Loss on sale of receivables 21,000 CR. A/R 600,000 CR. Recourse liability 6,000

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b) What conditions should be for transfer of receivables to be accounted for as for sale under IFRS? The 5-step revenue recognition would not be applied because it isn’t stated that chessman uses A/R as it revenue source. For a derecognition to be recorded as a sale under IFRS, both of the following conditions must be met: I) The A/R is transferred. The A/R is considered to be if either, the rights to the cash flows from the asset have been completely transferred, The transferee (Liquidity Financing) has the right to all cash flows and accepts all risks. The transferor (Chessman) is no longer involved in any way. And the transferor also retains the contractual rights to the cash flows but assumes a contractual obligation to pay the cash flows to the transferee (Liquidity financing). In the contractual obligation, the terms must represent a real transfer of the original A/R. II) The risks & rewards of ownership are passed to another party. The risks and rewards of ownership are passed to another party: - The cisany’s exposure to variability in the amounts and timing of cash flow are different before vs after transfer and - If transfer of risks and rewards is not clear-cut, then the company must assess control over the receivables, this is if control have not been retained. Question 3 (AFDA- allowance for doubtful expense) - Sales revenue 20x9 $2,950,000 (Credit 737,500) - AFDA Jan 1, 20x9 $22,700 credit - A/R balance 31 Dec, 20x9 $383,400 - Uncollectible accounts to be written off 31, Dec 20x9 $19,800. They were in the past due over 90 days. - Prior to write offs of uncollectible accounts. Ageing method 31 Dec 2019 A.R breakdown.

90 days= (23,500-19800) = 3,700 1. Write off uncollectible accounts 20x9.- amounts that are uncollectible 31, Dec 20x9 $19,800. DR. AFDA 19,800 CR. A/R 19,800 2. Give adjusting entries to record bad debts expense concerning bad debts loss rates: a.) Credit sales 1.8% Credit sales (2,950,000x 25%) in 20x9 one-quarter was already on credit = (737,500 x 1.8%) = $13,275 DR. Bad debt Expense 13,275 CR. AFDA $13,275 There was no indication that cash was paid yet in 20x9, so cash won’t be recorded until is paid then A/R is credited. Sales revenue was one quarter on credit= (2,950,000 x 0.25) 737,500, DR. A/R 737,500 CR. Sales revenue 737,500 b.) Total A/R after write-off 4.2% $383,400 x 4.2%= $16,102.80, Ending receivables after write-off c.) On aging schedule: not pass due 0.8%, past due 1-60 days 1.8%, past due over 60 days 11%, past due over 90 days 80%. Ageing balance Balance 31, Dec 20x9 Not past due Past due 1- 60 days Past due over 60 Past due over 90

days days A/R Amount 383,400 210,800 60,000 89,100 3,700 % estimated Uncollectibl e 0.80% 1.80% 11% 80% Amount estimated uncollectible 1686.4 1080 9801 2,960 Total amount in allowance= 15,527.4 (1686.40 + 1080 + 9801 + 2960) Opening balance Jan 1 20x9 $22,700 (less) Ending balance $15,527.4 Adjustments 7,172.6 DR. Bad debt 7,172.6 CR. AFDA 7,172.6 Total A/R= 210,800 + 60,000 + 89,100 + 23,500= 383,400 3. How should A.R be reported in the financial statements position 20x9? Net accounts receivable Gross Amount A/R (-19,800 + 13,275 + 737,500 + 16,102.80) = 747,077.80 Less: AFDA (22,700-13,275+ 7,172.6) = 16,597.6 Less: AF sales discount 0 Net A/R= 747,077.80-16,597.6= $730,480.20

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