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Questions and Answers
Which of the following statements about receivables is true?
Which of the following is an example of a receivable?
How are trade receivables classified in the balance sheet?
Which of the following statements about VAT is true?
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When is VAT payable?
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How often is VAT reversed to the Government?
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Which financial statement(s) prompted the need for the expected credit loss (ECL) model?
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What is the purpose of the expected credit loss (ECL) model?
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What does the probability of default (PD) express?
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What is factoring in the context of account receivables?
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Which of the following is true about initial recognition of a receivable?
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How are trade discounts accounted for in the income statement?
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What are notes receivable?
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How are interests on notes receivable recorded?
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Which of the following is true about notes receivable?
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What is the maturity value of a note that was issued on 10/03/2020 with a due date 90 days from issuing date and an interest rate of 8%?
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When should a company calculate accrued interest for a note receivable if it needs to report its interim financial statement as of 31/03?
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What is a credit note used for in accounting?
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According to IFRS 9, what are the three areas of accounting for financial instruments?
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What is the purpose of the allowance for bad debts?
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How is the bad debt provision estimated based on the aging schedule?
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When is the write-off of account receivables authorized?
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Factoring accounts receivables means
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What does it mean when factoring is done on a without recourse basis?
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What is the purpose of VAT (value added tax)?
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Who assesses a finance charge and retains a portion of the accounts receivable in a factoring arrangement?
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Study Notes
Receivables
- A receivable is an example of an asset that a company expects to receive in the future.
- Trade receivables are classified in the balance sheet as current assets.
Value Added Tax (VAT)
- VAT is payable when the taxable supply is made.
- VAT is reversed to the government on a periodic basis, usually quarterly or monthly.
Expected Credit Loss (ECL) Model
- The ECL model was prompted by the need for a more accurate financial statement representation.
- The purpose of the ECL model is to estimate the expected credit loss on a financial instrument.
- The probability of default (PD) expresses the likelihood of a borrower defaulting on a loan.
Factoring
- Factoring is the process of selling receivables to a third party, known as a factor.
- Factoring can be done on a with recourse or without recourse basis.
- When factoring is done on a without recourse basis, the factor bears the risk of bad debt.
Notes Receivable
- Notes receivable are written promises to pay a certain amount of money at a future date.
- Interest on notes receivable is recorded as interest income.
- Notes receivable are initially recognized at their fair value.
- Trade discounts are accounted for in the income statement as a reduction of revenue.
- The maturity value of a note is the face value plus accrued interest.
- Accrued interest for a note receivable should be calculated at each interim reporting date.
Credit Notes
- A credit note is used to reduce the amount owed by a customer.
IFRS 9
- IFRS 9 classifies financial instruments into three categories: amortized cost, fair value through profit or loss, and fair value through other comprehensive income.
Allowance for Bad Debts
- The purpose of the allowance for bad debts is to estimate the amount of receivables that will not be collected.
- The bad debt provision is estimated based on the aging schedule of receivables.
- The write-off of account receivables is authorized when it is confirmed that the debt will not be collected.
Further Notes
- Factoring accounts receivables means selling the receivables to a third party.
- The factor assesses a finance charge and retains a portion of the accounts receivable in a factoring arrangement.
- The purpose of VAT is to tax the value added to goods and services at each stage of production and distribution.
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Description
Test your knowledge on factoring accounts receivables with this quiz! Learn about the process of collecting payments, handling uncollectible amounts, and remitting funds to the bank.