Questions and Answers
What type of activities may involve borrowing against long-term assets or investments?
What is the primary objective of borrowing against long-term assets or investments?
In the financial statements of a Life Insurance Company, where are unrealized gains or losses due to changes in fair value of listed equity and derivatives instruments recorded?
What is the treatment of unrealized gains or losses due to changes in fair value of listed equity and derivatives instruments in the financial statements of a Life Insurance Company?
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Which account is credited when provisions for doubtful debts are recorded?
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Why are unrealized gains or losses due to changes in fair value of listed equity and derivatives instruments not recognized in profit or loss in the financial statements of a Life Insurance Company?
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What is the purpose of provisioning for doubtful debts?
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What is the formula to calculate NAV of a mutual fund?
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Which of the following is not applicable to IFRS 4?
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What type of transactions results in the flow of funds?
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Which of the following is a consequence of provisioning for doubtful debts?
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What is the purpose of IFRS 4?
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What is the effect of provisioning for doubtful debts on the balance sheet?
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Study Notes
Accounting for Provisions for Doubtful Debts
- Provisions for Doubtful Debts are recorded by debiting the Profit and Loss Account and crediting the Provision for Doubtful Debts Account.
- This recognizes the expense and sets aside funds for potential bad debts.
Calculating NAV of a Mutual Fund
- NAV (Net Asset Value) is calculated by subtracting liabilities from assets and dividing by the number of outstanding units.
- Example: (Assets - Liabilities) / Number of units = NAV.
IFRS 4 Application
- IFRS 4 applies to Insurance contracts issued by an entity and Reinsurance contracts held by an entity.
- It does not apply to financial assets within the scope of IAS 39.
Flow of Funds
- Transactions between Current Assets and Long-term liabilities and capital can result in the flow of funds.
- Examples include borrowing against long-term assets or investments.
Treatment of Unrealized Gains or Losses
- Unrealized gains or losses due to changes in fair value of listed equity and derivatives instruments are transferred to equity under the head ‘Fair Value Change Account’ in the financial statements of a Life Insurance Company.
- They are not deferred under the head miscellaneous expenses or recognized in profit or loss.
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Description
Identify the correct accounting entry to record 'Provisions for Doubtful Debts'. Learn how to accurately record financial transactions in your accounting practice.
