Liabilities and Provisions Quiz
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Questions and Answers

What is the definition of account payables?

  • Liabilities for which invoices have not been received and liabilities for goods and services received that have been matched with related invoices.
  • Liabilities for which invoices have not been received and liabilities for goods and services received that have not been matched with related invoices.
  • Liabilities for which invoices have been received and liabilities for goods and services received that have not been matched with related invoices. (correct)
  • Liabilities for which invoices have been received and liabilities for goods and services received that have been matched with related invoices.

    • What is the classification of trade payables in the balance sheet?

  • Assets
  • Non-current liabilities
  • Current liabilities (correct)
  • Equity

    • What is the definition of fair value?

  • Represents the market value of an asset/liabilities.
  • Represents the book value of an asset/liabilities.
  • Represents the historical value of an asset/liabilities.
  • Represents the intrinsic value of an asset/liabilities. (correct)

    • What is the definition of a provision?

    <p>A liability that is recognized when there is a probable outflow of resources that embodies economic benefits.</p> Signup and view all the answers

    What is the definition of a debit note?

    <p>A commercial formal document issued by the seller to the buyer.</p> Signup and view all the answers

    What is the definition of a possible liability?

    <p>When the probability is lower than 50%, but the event may happen, it is considered possible and should be disclosed but not recorded.</p> Signup and view all the answers

    What is the definition of a probable liability?

    <p>When it is more likely than not that the event will occur (probability greater than 50%).</p> Signup and view all the answers

    What is the definition of a remote liability?

    <p>If the risk is remote, the company shall do nothing: no disclosure, no recording.</p> Signup and view all the answers

    What is the definition of the best estimate of a provision?

    <p>The amount recognized as a provision shall be the best estimate of the expenditure required to settle the present obligation at the end of the reporting period.</p> Signup and view all the answers

    What is the classification of trade payables in the balance sheet?

    <p>Current liabilities</p> Signup and view all the answers

    What is the definition of account payables?

    <p>Liabilities for which invoices have been received and liabilities for goods and services received that have not been matched with related invoices.</p> Signup and view all the answers

    What is the definition of fair value?

    <p>Represents the intrinsic value of an asset/liabilities.</p> Signup and view all the answers

    What is the definition of a provision?

    <p>A liability that is recognized when there is a probable outflow of resources that embodies economic benefits.</p> Signup and view all the answers

    What is the definition of a debit note?

    <p>A commercial formal document issued by the seller to the buyer.</p> Signup and view all the answers

    What is the definition of a possible liability?

    <p>When the probability is lower than 50%, but the event may happen, it is considered possible and should be disclosed but not recorded.</p> Signup and view all the answers

    What is the definition of a probable liability?

    <p>When it is more likely than not that the event will occur (probability greater than 50%).</p> Signup and view all the answers

    What is the definition of a remote liability?

    <p>If the risk is remote, the company shall do nothing: no disclosure, no recording.</p> Signup and view all the answers

    What is the definition of the best estimate of a provision?

    <p>The amount recognized as a provision shall be the best estimate of the expenditure required to settle the present obligation at the end of the reporting period.</p> Signup and view all the answers

    Which of the following is an example of account payables?

    <p>A liability for goods and services received that have not been matched with related invoices</p> Signup and view all the answers

    What is the fair value of an asset/liability?

    <p>The intrinsic value</p> Signup and view all the answers

    What is the difference between account payables and trade payables?

    <p>Account payables include liabilities for which invoices have been received and liabilities for goods and services received that have not been matched with related invoices, while trade payables are recognized in consideration of a commercial transaction</p> Signup and view all the answers

    What is a provision according to IAS 37?

    <p>A liability that is recognized when there is a probable outflow of resources that embodies economic benefits</p> Signup and view all the answers

    When is a liability considered probable?

    <p>When it is more likely than not that the event will occur (probability greater than 50%)</p> Signup and view all the answers

    What should a company do if the probability of a liability is lower than 50%, but the event may happen?

    <p>Disclose but not record</p> Signup and view all the answers

    When should future events that may affect the amount required to settle an obligation be reflected in the amount of a provision?

    <p>Where there is sufficient objective evidence that they will occur</p> Signup and view all the answers

    What is reverse factoring or indirect factoring?

    <p>An operation in which a company transfers its payables to another entity against cash</p> Signup and view all the answers

    What is the best estimate of the expenditure required to settle the present obligation at the end of the reporting period?

    <p>The amount recognized as a provision according to IAS 37</p> Signup and view all the answers

    What is the difference between account payables and trade payables?

    <p>Account payables include liabilities for which invoices have been received and liabilities for goods and services received that have not been matched with related invoices, while trade payables are recognized in consideration of a commercial transaction, meaning an exchange of goods or services.</p> Signup and view all the answers

    What is reverse factoring?

    <p>An operation where a company transfers its payables to another entity against cash.</p> Signup and view all the answers

    What is the definition of a provision?

    <p>A liability that is recognized when there is a probable outflow of resources that embodies economic benefits.</p> Signup and view all the answers

    What is the difference between a probable liability and a possible liability?

    <p>A probable liability is more likely than not to occur (probability greater than 50%), while a possible liability may happen but has a probability lower than 50%.</p> Signup and view all the answers

    What is the use of estimates in preparing financial statements?

    <p>An essential part of preparing financial statements that does not undermine their reliability.</p> Signup and view all the answers

    What is a debit note?

    <p>A commercial formal document issued by the seller to the buyer.</p> Signup and view all the answers

    What is the definition of fair value?

    <p>The intrinsic value of an asset/liability.</p> Signup and view all the answers

    When can a liability be derecognized?

    <p>When it is paid or transferred to another party.</p> Signup and view all the answers

    What is the best estimate of the expenditure required to settle a present obligation at the end of the reporting period?

    <p>The amount recognized as a provision.</p> Signup and view all the answers

    Which of the following is true about account payables?

    <p>They include both liabilities for which invoices have been received and liabilities for goods and services received that have not been matched with related invoices</p> Signup and view all the answers

    What is the difference between account payables and trade payables?

    <p>Trade payables are related to commercial transactions, while account payables are not</p> Signup and view all the answers

    What is a debit note?

    <p>A formal document issued by the seller to the buyer</p> Signup and view all the answers

    Under what circumstances can a provision be recognized according to IAS 37?

    <p>If the entity has a present obligational rising from the law or an existing contract as a result of a past event</p> Signup and view all the answers

    What is the difference between a possible liability and a remote liability?

    <p>A possible liability is more likely to occur than a remote liability</p> Signup and view all the answers

    What is reverse factoring?

    <p>A company transferring its payables to another entity against cash</p> Signup and view all the answers

    What is the best estimate of a provision?

    <p>The amount that is most likely to be required to settle the obligation</p> Signup and view all the answers

    What is the use of estimates in preparing financial statements according to the text?

    <p>Estimates are an essential part of preparing financial statements</p> Signup and view all the answers

    Under what circumstances can future events affect the amount required to settle an obligation?

    <p>Only when there is sufficient objective evidence that they will occur</p> Signup and view all the answers

    Which of the following accurately describes trade payables?

    <p>They are recognized at fair value and then measured at amortized cost according to IFRS 9</p> Signup and view all the answers

    What is the difference between account payables and trade payables?

    <p>Account payables include liabilities for which invoices have been received and liabilities for goods and services received that have not been matched with related invoices, while trade payables are recognized in consideration of a commercial transaction.</p> Signup and view all the answers

    What is the difference between a probable liability and a possible liability?

    <p>A probable liability is more likely than not to occur (probability greater than 50%), while a possible liability may happen but is less likely to occur (probability lower than 50%).</p> Signup and view all the answers

    What is the purpose of a debit note?

    <p>A debit note is a commercial formal document issued by the seller to the buyer to request payment for goods or services that have been delivered or rendered.</p> Signup and view all the answers

    When can a provision be recognized according to IAS 37?

    <p>When the entity has a present obligational rising from the law or an existing contract as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.</p> Signup and view all the answers

    What is the difference between a liability that is probable and a provision?

    <p>A liability that is probable is recognized when there is a probable outflow of resources that embodies economic benefits, while a provision is recognized when there is a possible outflow of resources that embodies economic benefits.</p> Signup and view all the answers

    What is the difference between a remote liability and a provision?

    <p>A remote liability is recognized when there is a possible outflow of resources that embodies economic benefits, while a provision is recognized when there is a probable outflow of resources that embodies economic benefits.</p> Signup and view all the answers

    What is reverse factoring or indirect factoring?

    <p>An operation by which a company elects for transferring its payables to another entity against cash.</p> Signup and view all the answers

    What is the purpose of estimating provisions in financial statements?

    <p>To recognize a liability that is probable and quantify the amount of the obligation.</p> Signup and view all the answers

    What is the criteria for recognizing a provision for onerous contracts?

    <p>When the unavoidable costs exceed the economic benefits expected to be received</p> Signup and view all the answers

    What is the difference between OIC 31 and IAS 37 when it comes to provisions?

    <p>OIC 31 does not require actualization of amounts</p> Signup and view all the answers

    What are the types of employee benefits?

    <p>Short-term, post-employment, other long-term, and termination benefits</p> Signup and view all the answers

    What is the timeline for short-term employee benefits to be settled?

    <p>Wholly before twelve months after the end of the annual reporting period</p> Signup and view all the answers

    What is the difference between defined contribution and defined benefit plans?

    <p>Accounting for defined contribution plans is straightforward, while accounting for defined benefit plans is complex</p> Signup and view all the answers

    What contracts are excluded from IFRS 15?

    <p>Lease contracts within the scope of IFRS 16, insurance contracts within the scope of IFRS 4, and financial instruments and other contractual rights or obligations within the scope of other standards</p> Signup and view all the answers

    What are the five steps involved in recognizing revenue according to IFRS 15?

    <p>Identifying the contract with the customer, identifying performance obligations, determining the transaction price, allocating the transaction price to performance obligations, and recognizing revenue when the performance obligation is satisfied</p> Signup and view all the answers

    What is the criteria for recording a contract as revenue?

    <p>Approval and commitment from both parties, identification of each party's rights and payment terms, commercial substance, and probability of collecting consideration</p> Signup and view all the answers

    What is the purpose of the collectability assessment in revenue recognition?

    <p>To determine the amount the company is entitled to receive before recognizing revenue</p> Signup and view all the answers

    What is the definition of an onerous contract in accounting?

    <p>A contract that is more expensive to fulfill than the economic benefits expected from it</p> Signup and view all the answers

    When must provisions be reviewed and adjusted?

    <p>At the end of each reporting period</p> Signup and view all the answers

    Can provisions be used for expenditures other than those for which they were originally recognized?

    <p>No</p> Signup and view all the answers

    Can provisions be recognized for future operating losses?

    <p>No</p> Signup and view all the answers

    What are the different types of employee benefits?

    <p>Short-term, post-employment, other long-term, and termination benefits</p> Signup and view all the answers

    When are short-term employee benefits expected to be settled?

    <p>Within twelve months after the end of the annual reporting period</p> Signup and view all the answers

    What is the difference between defined contribution plans and defined benefit plans?

    <p>Defined contribution plans are simpler to account for than defined benefit plans</p> Signup and view all the answers

    What are the excluded contracts under IFRS 15?

    <p>Lease contracts, insurance contracts, financial instruments, and other contractual rights or obligations</p> Signup and view all the answers

    What are the criteria that must be met before an entity can record a contract as revenue?

    <p>Approval and commitment from both parties, identification of each party's rights, and payment terms</p> Signup and view all the answers

    What is an onerous contract?

    <p>A contract where the unavoidable costs of meeting the obligations exceed the economic benefits expected to be received under it</p> Signup and view all the answers

    What are the types of employee benefits?

    <p>Short-term benefits, post-employment benefits, other long-term benefits, and termination benefits</p> Signup and view all the answers

    What is the difference between short-term and post-employment benefits?

    <p>Short-term benefits are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service, while post-employment benefits are payable after the completion of employment</p> Signup and view all the answers

    What is the difference between defined contribution plans and defined benefit plans?

    <p>Accounting for defined contribution plans is straightforward, while accounting for defined benefit plans is complex</p> Signup and view all the answers

    What is the scope of IFRS 15?

    <p>IFRS 15 regulates revenue from contracts with customers, excluding lease contracts within the scope of IFRS 16, insurance contracts within the scope of IFRS 4, and financial instruments and other contractual rights or obligations within the scope of other standards</p> Signup and view all the answers

    What are the five steps in the revenue recognition model?

    <p>Identifying the contract with the customer, identifying performance obligations, determining the transaction price, allocating the transaction price to performance obligations, and recognizing revenue when the performance obligation is satisfied</p> Signup and view all the answers

    What is a performance obligation?

    <p>The promise to transfer goods or services to a customer</p> Signup and view all the answers

    What is the transaction price?

    <p>The amount of consideration an entity expects to receive in exchange for transferring goods or services to the customer</p> Signup and view all the answers

    What is the basis for allocating transaction price to performance obligations?

    <p>Relative stand-alone selling prices</p> Signup and view all the answers

    What is an onerous contract?

    <p>A contract where the unavoidable costs of meeting the obligations exceed the economic benefits expected to be received under it.</p> Signup and view all the answers

    What is the difference between OIC 31 and IAS 37 in relation to provisions?

    <p>OIC 31 does not require actualization of amounts, while IAS 37 does.</p> Signup and view all the answers

    What are the different types of employee benefits?

    <p>Short-term, post-employment, other long-term, and termination benefits.</p> Signup and view all the answers

    What is the difference between defined contribution plans and defined benefit plans?

    <p>Accounting for defined contribution plans is straightforward, while accounting for defined benefit plans is complex.</p> Signup and view all the answers

    What is the five-step model for recognizing revenue?

    <p>Identifying the contract with the customer, identifying performance obligations, determining the transaction price, allocating the transaction price to performance obligations, and recognizing revenue when the performance obligation is satisfied.</p> Signup and view all the answers

    What is the collectability assessment for revenue recognition?

    <p>An assessment to determine the amount the company is entitled to receive before recognizing revenue.</p> Signup and view all the answers

    What is a performance obligation in revenue recognition?

    <p>The promise to transfer goods or services to a customer.</p> Signup and view all the answers

    What is the allocation in revenue recognition?

    <p>The process of allocating transaction price to each separate performance obligation.</p> Signup and view all the answers

    What is the criteria for recording a contract as revenue?

    <p>All criteria must be met, including approval and commitment from both parties, identification of each party's rights and payment terms, commercial substance, and probability of collecting consideration.</p> Signup and view all the answers

    When should variable consideration be included in transaction price in revenue recognition?

    <p>Variable consideration should only be included in transaction price if it is probable and can be reliably estimated.</p> Signup and view all the answers

    What is an onerous contract according to accounting standards?

    <p>A contract where the unavoidable costs of meeting the obligations exceed the economic benefits expected to be received under it</p> Signup and view all the answers

    What are the types of employee benefits recognized by accounting standards?

    <p>Short-term, post-employment, other long-term, and termination benefits</p> Signup and view all the answers

    When are short-term employee benefits expected to be settled?

    <p>Wholly before twelve months after the end of the annual reporting period in which the employees render the related service</p> Signup and view all the answers

    What is the difference between defined contribution plans and defined benefit plans in accounting?

    <p>Accounting for defined contribution plans is straightforward, while accounting for defined benefit plans is complex</p> Signup and view all the answers

    What is the scope of IFRS 15 in regulating revenue from contracts with customers?

    <p>Excludes lease contracts within the scope of IFRS 16, insurance contracts within the scope of IFRS 4, and financial instruments and other contractual rights or obligations within the scope of other standards</p> Signup and view all the answers

    What is the five-step model for recognizing revenue according to IFRS 15?

    <p>Identifying the contract with the customer, identifying performance obligations, determining the transaction price, allocating the transaction price to performance obligations, and recognizing revenue when the performance obligation is satisfied</p> Signup and view all the answers

    What does collectability refer to in revenue recognition?

    <p>A customer's intent and ability to pay the promised consideration</p> Signup and view all the answers

    What is a performance obligation in revenue recognition?

    <p>The promise to transfer goods or services to a customer</p> Signup and view all the answers

    When are maintenance services considered a separate performance obligation in revenue recognition?

    <p>When they are not considered to be part of the warranty</p> Signup and view all the answers

    What is the definition of cash equivalents according to the statement of cash flows?

    <p>Short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to a significant risk of changes in value.</p> Signup and view all the answers

    What are the three types of activities that cash flows should be classified by in the statement of cash flows?

    <p>Operating, investing, and financing activities.</p> Signup and view all the answers

    What are the principal revenue-producing activities of an entity?

    <p>Operating activities.</p> Signup and view all the answers

    What are examples of cash flows from operating activities?

    <p>All of the above.</p> Signup and view all the answers

    What are examples of cash flows from investing activities?

    <p>Cash payments to acquire property, plant and equipment, intangibles and other long-term assets.</p> Signup and view all the answers

    What is the basis for calculating taxes owed (or recoverable) for a period?

    <p>Taxable income</p> Signup and view all the answers

    What is a temporary difference in accounting and fiscal laws?

    <p>Difference in the value of an expense/income asset/liability between accounting and fiscal laws</p> Signup and view all the answers

    What is the purpose of recording deferred taxes?

    <p>To record future tax assets</p> Signup and view all the answers

    What is the difference between accounting and fiscal depreciation?

    <p>Fiscal depreciation is always higher than accounting depreciation</p> Signup and view all the answers

    What is the difference between current taxes and deferred taxes?

    <p>Current taxes are based on taxable income, while deferred taxes are based on accounting profit</p> Signup and view all the answers

    What is transaction price in revenue recognition?

    <p>The amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.</p> Signup and view all the answers

    What is variable consideration in revenue recognition?

    <p>Consideration that is contingent on the occurrence or nonoccurrence of future events.</p> Signup and view all the answers

    How should transaction price be allocated to separate performance obligations?

    <p>Based on the relative stand-alone selling prices of each performance obligation.</p> Signup and view all the answers

    What is control in revenue recognition?

    <p>The ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset.</p> Signup and view all the answers

    What is the purpose of disclosing cash flows arising from financing activities separately?

    <p>To predict claims on future cash flows by providers of capital to the entity</p> Signup and view all the answers

    Which method of reporting cash flows from operating activities is preferred and suggested by IFRS?

    <p>Direct method</p> Signup and view all the answers

    Which of the following is an example of cash flows arising from financing activities?

    <p>Cash proceeds from issuing shares or other equity instruments</p> Signup and view all the answers

    What is the difference between the direct method and the indirect method of reporting cash flows from operating activities?

    <p>The direct method reports major classes of gross cash receipts and gross cash payments, while the indirect method adjusts profit or loss for non-cash transactions</p> Signup and view all the answers

    What is the most common method of reporting cash flows from operating activities, despite being complex and onerous?

    <p>Indirect method</p> Signup and view all the answers

    What is the purpose of a cash flow statement?

    <p>To show the sources of inflow and outflow of cash</p> Signup and view all the answers

    What are non-taxable revenues?

    <p>Revenues that cannot be taxed</p> Signup and view all the answers

    What are non-deductible costs?

    <p>Costs that cannot be used to reduce the tax basis</p> Signup and view all the answers

    What is the purpose of recognizing Deferred Tax Assets (DTA)?

    <p>To have a better representation of tax incidence in the profit and loss</p> Signup and view all the answers

    What is the difference between balance sheet and cash flow statement?

    <p>Balance sheet shows the consistency of net assets, cash flow statement shows the sources of inflow and outflow of cash</p> Signup and view all the answers

    What are operating activities in a company's cash flow statement?

    <p>Activities that are at the core of the business of a company</p> Signup and view all the answers

    What must be considered when calculating cash flow from operating activities?

    <p>Non-cash expenses and revenue, changes in working capital, and cost included in investing activities</p> Signup and view all the answers

    What are non-cash expenses/revenues in a cash flow statement?

    <p>Expenses/revenues that didn't have any impact on cash available and didn't affect the working capital</p> Signup and view all the answers

    What are some examples of non-cash expenses in a cash flow statement?

    <p>Depreciation, provisions, impairment, revaluation of assets, non-distributed earnings related to investments evaluated with equity method</p> Signup and view all the answers

    Why must cash events that are not in the income statement but affected the working capital be considered in a cash flow statement?

    <p>To provide a more accurate picture of the cash inflows and outflows of the company</p> Signup and view all the answers

    What are the categories of costs usually classified in?

    <p>Cost of goods, Cost of services, Cost of personnel, Administrative costs, Finance costs, etc.</p> Signup and view all the answers

    What is the difference between variable and fixed costs?

    <p>Variable costs depend on volumes, while fixed costs are sustained independently of volumes.</p> Signup and view all the answers

    What is the influence of volumes on the profitability of a company with a high percentage of fixed costs?

    <p>The greater the volumes produced, the lower the average cost of item, leading to higher profitability.</p> Signup and view all the answers

    How are costs regulated by IFRS 15?

    <p>Costs are driven by revenues in order to respect the matching principle.</p> Signup and view all the answers

    What is the purpose of respecting the matching principle in accounting?

    <p>To ensure that expenses are recognized in the same period as the revenue they helped generate.</p> Signup and view all the answers

    What is the difference between deferred revenue and accrued revenue?

    <p>Deferred revenue is revenue that has been earned, but for which no cash has been received, while accrued revenue is an obligation on a company's balance sheet that receives the advance payment because it owes the customer products or services</p> Signup and view all the answers

    What is the difference between deferred expenses and accrued expenses?

    <p>Deferred expenses is a cost that has already been paid, but which has not yet been incurred, while accrued expenses is a cost that has been paid but not incurred yet</p> Signup and view all the answers

    What is the difference between deferred revenue and deferred expense?

    <p>Deferred revenue is revenue that has been earned, but for which no cash has been received, while deferred expense is a cost that has already been paid, but which has not yet been incurred</p> Signup and view all the answers

    What is the difference between accrued revenue and accrued expense?

    <p>Accrued revenue is revenue that has been earned but not yet received, while accrued expense is a cost that has been incurred but not yet paid</p> Signup and view all the answers

    What is the difference between deferred revenue and accounts payable?

    <p>Deferred revenue is revenue that has been earned, but for which no cash has been received, while accounts payable is an obligation on a company's balance sheet that receives the advance payment because it owes the supplier products or services</p> Signup and view all the answers

    What is transaction price in revenue recognition?

    <p>The amount of consideration an entity expects to receive in exchange for goods or services</p> Signup and view all the answers

    What is variable consideration in revenue recognition?

    <p>Consideration that may vary due to discounts, rebates, refunds, or performance bonuses</p> Signup and view all the answers

    How should transaction price be allocated to separate performance obligations?

    <p>In an amount that depicts the amount of consideration to which the entity expects to be entitled in exchange for transferring the promised goods or services to the customer</p> Signup and view all the answers

    What is control in revenue recognition?

    <p>The ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset</p> Signup and view all the answers

    What is the purpose of separately disclosing cash flows arising from financing activities in a company's cash flow statement?

    <p>To predict future claims on cash flows by providers of capital</p> Signup and view all the answers

    What are examples of cash flows arising from financing activities?

    <p>Cash proceeds from issuing shares or other equity instruments</p> Signup and view all the answers

    Which method of reporting cash flows from operating activities is preferred and suggested by IFRS?

    <p>Direct method</p> Signup and view all the answers

    What is the most common method of reporting cash flows from operating activities?

    <p>Indirect method</p> Signup and view all the answers

    What types of cash payments are excluded from cash flows arising from financing activities?

    <p>Payments for debt instruments considered to be cash equivalents</p> Signup and view all the answers

    What is the purpose of recognizing deferred tax assets (DTA)?

    <p>To improve the representation of tax incidence in the profit and loss statement</p> Signup and view all the answers

    What is the difference between non-taxable and non-deductible items in tax rules?

    <p>Non-taxable items cannot be taxed, while non-deductible items cannot be used to reduce the tax basis</p> Signup and view all the answers

    What is the purpose of a cash flow statement?

    <p>To show the sources of inflow and outflow of cash</p> Signup and view all the answers

    What is the regulation that requires entities to prepare a statement of cash flows?

    <p>IAS 7</p> Signup and view all the answers

    What is the difference between temporary and permanent differences in tax adjustments?

    <p>Temporary differences are eliminated in the calculation of taxable profit, while permanent differences are not</p> Signup and view all the answers

    What is the purpose of considering non-cash expenses and revenues in the cash flow statement?

    <p>To determine the cash generated by operating activities</p> Signup and view all the answers

    What kind of costs are included in non-cash expenses/revenues?

    <p>Depreciation, provision, impairment, revaluation of assets, non distributed earnings related to investments evaluated with equity method</p> Signup and view all the answers

    What must be considered in operating activities in order to determine the cash flow?

    <p>All changes in working capital, non-cash expenses and revenue, cost included in investing activities</p> Signup and view all the answers

    What are some examples of non-cash expenses?

    <p>Depreciation, provision, impairment, revaluation of assets, non distributed earnings related to investments evaluated with equity method</p> Signup and view all the answers

    What is the result of considering all changes in working capital, non-cash expenses and revenue, and cost included in investing activities in operating activities?

    <p>The cash flow</p> Signup and view all the answers

    What is the definition of cash equivalents according to the statement of cash flows?

    <p>Short-term, highly liquid investments that are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value</p> Signup and view all the answers

    Which of the following is an example of a cash flow from operating activities according to the statement of cash flows?

    <p>Cash payments to suppliers for goods and services</p> Signup and view all the answers

    What is the purpose of a statement of cash flows?

    <p>To provide information on a company's financial structure and liquidity</p> Signup and view all the answers

    Which of the following is an example of a cash flow from investing activities according to the statement of cash flows?

    <p>Cash payments to acquire property, plant and equipment</p> Signup and view all the answers

    What is the difference between cash and cash equivalents according to the statement of cash flows?

    <p>Cash comprises cash on hand and demand deposits, while cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value</p> Signup and view all the answers

    What is the basis for the calculation of taxes due (recoverable) for a period?

    <p>The taxable income</p> Signup and view all the answers

    What is an example of a temporary difference according to the text?

    <p>Fiscal value of an asset at initial recognition is different from accounting value</p> Signup and view all the answers

    When does a company record for deferred taxes?

    <p>When the recover of the asset or the reduction of the liability will influence future payment of taxes</p> Signup and view all the answers

    What is the difference between the accounting result and the fiscal cost?

    <p>The accounting result is the profit/loss for the period before the tax, while the fiscal cost is the total amount of taxes current and deferred included in the calculation of profit/loss for the period</p> Signup and view all the answers

    What happens when the value of an expense/income asset/liability is different between accounting laws and fiscal laws?

    <p>The GAAP and tax laws may lead to a different result</p> Signup and view all the answers

    What is the difference between deferred revenue and deferred expense?

    <p>Deferred revenue is an increase in liability, while deferred expense is an increase in asset</p> Signup and view all the answers

    What is the difference between accrued revenue and accrued expense?

    <p>Accrued revenue is an increase in asset, while accrued expense is an increase in liability</p> Signup and view all the answers

    What is the difference between deferred expenses and accrued expenses?

    <p>Deferred expenses are costs that have been paid but not yet incurred, while accrued expenses are costs that have already been paid but not yet incurred</p> Signup and view all the answers

    When is cost recognized according to the Italian GAAP?

    <p>When the service is rendered or the goods are received</p> Signup and view all the answers

    What is the difference between IFRS and OIC regarding the timing of recognition?

    <p>IFRS recognizes costs when the property is transferred, while OIC recognizes costs when the service is rendered or the goods are received</p> Signup and view all the answers

    What is the main purpose of IFRS 15 in relation to costs?

    <p>To match costs with revenues in order to respect the matching principle</p> Signup and view all the answers

    What is the difference between variable and fixed costs?

    <p>Variable costs are directly dependent on volumes, while fixed costs don't increase or decrease if production stops</p> Signup and view all the answers

    What is the relationship between volumes produced by a company and the incidence of fixed costs on profitability?

    <p>The higher the volumes, the lower the incidence of fixed costs on profitability</p> Signup and view all the answers

    What is the main reason for distinguishing between variable and fixed costs?

    <p>To understand how changes in production volumes affect costs and profitability</p> Signup and view all the answers

    What is the impact of a high percentage of fixed costs on a company's profitability?

    <p>Profitability will rise when business is running well and volumes are high</p> Signup and view all the answers

    What is the definition of working capital?

    <p>The composition of short-term assets and short-term liabilities</p> Signup and view all the answers

    Which of the following is considered a current asset?

    <p>Inventories</p> Signup and view all the answers

    How does a reduction in trade payables affect cash flow?

    <p>It is a cash inflow</p> Signup and view all the answers

    What is the purpose of vertical analysis in financial statement analysis?

    <p>To convert financial information into percentages using a common base</p> Signup and view all the answers

    What is the purpose of cash flow analysis in financial statement analysis?

    <p>To examine the inflow and outflow of cash from operating, investing, and financing activities</p> Signup and view all the answers

    What is the purpose of market ratios in financial statement analysis?

    <p>To evaluate the current share price of a publicly held company's stock</p> Signup and view all the answers

    What is the impact of an increase in trade receivables on cash flow?

    <p>It is a cash outflow</p> Signup and view all the answers

    What is the impact of an increase in inventory on cash flow?

    <p>It is a cash outflow</p> Signup and view all the answers

    Which of the following activities does NOT generate cash?

    <p>Depreciation</p> Signup and view all the answers

    What is the purpose of adjusting profit and loss for impairment and provisions?

    <p>To obtain a more accurate picture of cash flow</p> Signup and view all the answers

    What is the definition of valuation?

    <p>The process of estimating the market value of a financial asset or liability</p> Signup and view all the answers

    What is the difference between intrinsic value and utility value in valuation?

    <p>Intrinsic value reflects the objective, hard, visible, tangible, concrete, verifiable part of an asset, while utility value represents the extension of user's want/need fulfillment and satisfaction</p> Signup and view all the answers

    What is the difference between historical cost and present value in valuation?

    <p>Historical cost is the purchase or production cost plus other expenses, while present value is a variety of Fair Value</p> Signup and view all the answers

    When are valuations required in accounting?

    <p>Valuations are required in many contexts including investment analysis, capital budgeting, merger and acquisition transactions, financial reporting, taxable events to determine the proper tax liability, and in litigation</p> Signup and view all the answers

    What is the definition of solvency in financial analysis?

    <p>The ability to pay obligations in the long run and also to maintain a balance between assets and liabilities</p> Signup and view all the answers

    What is the difference between profitability and liquidity in financial analysis?

    <p>Profitability is the ability of a business to earn profits after paying all expenses directly related to the generation of the revenue, while liquidity regards the amount of cash and easily-convertible-to-cash assets a company owns to manage its short-term debt obligations</p> Signup and view all the answers

    What is the purpose of variance analysis in financial statement analysis?

    <p>To set performance targets and verify achievement</p> Signup and view all the answers

    What is the role of reasonable estimates in financial statement preparation?

    <p>To provide essential information for the preparation of financial statements</p> Signup and view all the answers

    What is the hierarchy of fair value inputs provided by IFRS 13?

    <p>Level 1, Level 2, Level 3</p> Signup and view all the answers

    What are Level 2 inputs for fair value measurement?

    <p>Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability</p> Signup and view all the answers

    What are the conditions for market value to be accepted?

    <p>Items traded in the market are homogeneous, willing buyers and sellers can normally be found at any time, prices are available to the public</p> Signup and view all the answers

    What elements are subject to estimation according to the text?

    <p>Bad debts, inventory obsolescence, the fair value of financial assets or financial liabilities, the useful lives of, or expected pattern of consumption of the future economic benefits embodied in depreciable assets, warranty obligations</p> Signup and view all the answers

    What is the definition of working capital?

    <p>The composition of short-term assets and liabilities</p> Signup and view all the answers

    Which of the following is considered a current asset in the calculation of working capital?

    <p>Trade receivables</p> Signup and view all the answers

    How does a reduction in trade receivables affect cash flow?

    <p>It is a cash inflow</p> Signup and view all the answers

    What is the impact of an increase in inventory on cash flow?

    <p>It is a reduction in cash flow</p> Signup and view all the answers

    Which of the following activities is NOT generating cash according to the text?

    <p>Depreciation</p> Signup and view all the answers

    What is the purpose of adjusting profit and loss for impairment, provisions, and depreciation?

    <p>To obtain the cash flow</p> Signup and view all the answers

    What is the role of valuation, assumptions, and estimates in financial statements?

    <p>To measure economic and financial values</p> Signup and view all the answers

    What is the purpose of vertical analysis in financial statement analysis?

    <p>To convert financial information into percentages using a common base</p> Signup and view all the answers

    What is the main purpose of market ratios in financial analysis?

    <p>To determine the real value of a business' shares</p> Signup and view all the answers

    What is the main difference between horizontal and vertical analysis in financial statement analysis?

    <p>Vertical analysis converts financial information into percentages using a common base, while horizontal analysis facilitates the comparison of financial statements over time</p> Signup and view all the answers

    What is the definition of valuation?

    <p>The process of estimating the market value of a financial asset or liability</p> Signup and view all the answers

    What are the contexts in which valuations are required?

    <p>In investment analysis, capital budgeting, merger and acquisition transactions, financial reporting, taxable events, and in litigation.</p> Signup and view all the answers

    What is the difference between intrinsic value and utility value?

    <p>Intrinsic value generates patrimonial valuation methods and utility value generates non-patrimonial valuation methods</p> Signup and view all the answers

    What is the definition of fair value?

    <p>Present (market) value, a variety of Fair Value</p> Signup and view all the answers

    Which of the following is an example of a Level 2 input for fair value measurement?

    <p>Inputs derived from observable market data</p> Signup and view all the answers

    What conditions must be met for market value to be accepted as a fair value?

    <p>Willing buyers and sellers must be found at any time</p> Signup and view all the answers

    What are examples of elements subject to estimation in accounting?

    <p>Inventory obsolescence</p> Signup and view all the answers

    What is the purpose of estimation uncertainty in accounting?

    <p>To reflect inherent limitations in knowledge or data</p> Signup and view all the answers

    What is the purpose of financial statement analysis?

    <p>To assess a company's basic financial health</p> Signup and view all the answers

    What is the difference between liquidity and solvency?

    <p>Liquidity is the ability to pay obligations in the long run, while solvency regards the amount of cash and easily-convertible-to-cash assets a company owns to manage its short-term debt obligations</p> Signup and view all the answers

    What is the definition of profitability?

    <p>The ability of a business to earn profits after paying all expenses directly related to the generation of the revenue</p> Signup and view all the answers

    What is the role of estimates in financial statement preparation?

    <p>Estimates are an essential part of financial statement preparation</p> Signup and view all the answers

    Study Notes

    Understanding Liabilities: Account Payables, Trade Payables, Financial Payables, Provisions, and More

    • Account payables include liabilities for which invoices have been received and liabilities for goods and services received that have not been matched with related invoices.

    • Accounts payables represent the amount of cash that the companies owe to their suppliers as the result of purchasing goods or rendering the services on credits.

    • According to IFRS 9, trade payables are to be recognized at fair value and then measured at amortized cost.

    • Fair value represents the intrinsic value of an asset/liabilities.

    • Trade payables are classified in the balance sheet within the current liabilities and form part of the working capital.

    • Payables might be recorded also against a transaction different from a sale of goods and service.

    • Trade payable are recognized in consideration of a commercial transaction, meaning an exchange of goods or services.

    • A debit note, or debit memo, is a commercial formal document issued by the seller to the buyer.

    • Trade payables could be derecognized when are paid or transferred to another party.

    • A company may elect for transferring its payables to another entity against cash. This operation is known as reverse factoring or indirect factoring.

    • A company may raise capital through loans by financial institutions i.e. banks. Usually, loan is defined by an agreement between the bank (lender) and the company (borrower), by which this last is engaged in repaying the amount received plus a certain amount of interests.

    • According to IAS 37, a provision shall be recognized if: 1) The entity has a present obligational rising from the law or an existing contract as a result of a past event, 2) It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, 3) A reliable estimate can be made of the amount of the obligation.Guidelines for Recording and Estimating Provisions in Financial Statements

    • A provision is a liability that is recognized when there is a probable outflow of resources that embodies economic benefits.

    • The probability of a liability is analyzed, and the amount is quantified by the company.

    • A liability is probable when it is more likely than not that the event will occur (probability greater than 50%).

    • If the probability is lower than 50%, but the event may happen, it is considered possible and should be disclosed but not recorded.

    • If the risk is remote, the company shall do nothing: no disclosure, no recording.

    • If the company cannot quantify the amount, it must disclose the event but not record it.

    • The use of estimates is an essential part of preparing financial statements and does not undermine their reliability.

    • An entity will be able to determine a range of possible outcomes and can make an estimate of the obligation that is sufficiently reliable to use in recognizing a provision.

    • The amount recognized as a provision shall be the best estimate of the expenditure required to settle the present obligation at the end of the reporting period.

    • The estimates of outcome and financial effect are determined by the judgement of the management of the entity, supplemented by experience of similar transactions and, in some cases, reports from independent experts.

    • Future events that may affect the amount required to settle an obligation shall be reflected in the amount of a provision where there is sufficient objective evidence that they will occur.

    • The amount recognized reflects a reasonable expectation of technically qualified, objective observers, taking account of all available evidence.

    Understanding Liabilities: Account Payables, Trade Payables, Financial Payables, Provisions, and More

    • Account payables include liabilities for which invoices have been received and liabilities for goods and services received that have not been matched with related invoices.

    • Accounts payables represent the amount of cash that the companies owe to their suppliers as the result of purchasing goods or rendering the services on credits.

    • According to IFRS 9, trade payables are to be recognized at fair value and then measured at amortized cost.

    • Fair value represents the intrinsic value of an asset/liabilities.

    • Trade payables are classified in the balance sheet within the current liabilities and form part of the working capital.

    • Payables might be recorded also against a transaction different from a sale of goods and service.

    • Trade payable are recognized in consideration of a commercial transaction, meaning an exchange of goods or services.

    • A debit note, or debit memo, is a commercial formal document issued by the seller to the buyer.

    • Trade payables could be derecognized when are paid or transferred to another party.

    • A company may elect for transferring its payables to another entity against cash. This operation is known as reverse factoring or indirect factoring.

    • A company may raise capital through loans by financial institutions i.e. banks. Usually, loan is defined by an agreement between the bank (lender) and the company (borrower), by which this last is engaged in repaying the amount received plus a certain amount of interests.

    • According to IAS 37, a provision shall be recognized if: 1) The entity has a present obligational rising from the law or an existing contract as a result of a past event, 2) It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, 3) A reliable estimate can be made of the amount of the obligation.Guidelines for Recording and Estimating Provisions in Financial Statements

    • A provision is a liability that is recognized when there is a probable outflow of resources that embodies economic benefits.

    • The probability of a liability is analyzed, and the amount is quantified by the company.

    • A liability is probable when it is more likely than not that the event will occur (probability greater than 50%).

    • If the probability is lower than 50%, but the event may happen, it is considered possible and should be disclosed but not recorded.

    • If the risk is remote, the company shall do nothing: no disclosure, no recording.

    • If the company cannot quantify the amount, it must disclose the event but not record it.

    • The use of estimates is an essential part of preparing financial statements and does not undermine their reliability.

    • An entity will be able to determine a range of possible outcomes and can make an estimate of the obligation that is sufficiently reliable to use in recognizing a provision.

    • The amount recognized as a provision shall be the best estimate of the expenditure required to settle the present obligation at the end of the reporting period.

    • The estimates of outcome and financial effect are determined by the judgement of the management of the entity, supplemented by experience of similar transactions and, in some cases, reports from independent experts.

    • Future events that may affect the amount required to settle an obligation shall be reflected in the amount of a provision where there is sufficient objective evidence that they will occur.

    • The amount recognized reflects a reasonable expectation of technically qualified, objective observers, taking account of all available evidence.

    Understanding Liabilities: Account Payables, Trade Payables, Financial Payables, Provisions, and More

    • Account payables include liabilities for which invoices have been received and liabilities for goods and services received that have not been matched with related invoices.

    • Accounts payables represent the amount of cash that the companies owe to their suppliers as the result of purchasing goods or rendering the services on credits.

    • According to IFRS 9, trade payables are to be recognized at fair value and then measured at amortized cost.

    • Fair value represents the intrinsic value of an asset/liabilities.

    • Trade payables are classified in the balance sheet within the current liabilities and form part of the working capital.

    • Payables might be recorded also against a transaction different from a sale of goods and service.

    • Trade payable are recognized in consideration of a commercial transaction, meaning an exchange of goods or services.

    • A debit note, or debit memo, is a commercial formal document issued by the seller to the buyer.

    • Trade payables could be derecognized when are paid or transferred to another party.

    • A company may elect for transferring its payables to another entity against cash. This operation is known as reverse factoring or indirect factoring.

    • A company may raise capital through loans by financial institutions i.e. banks. Usually, loan is defined by an agreement between the bank (lender) and the company (borrower), by which this last is engaged in repaying the amount received plus a certain amount of interests.

    • According to IAS 37, a provision shall be recognized if: 1) The entity has a present obligational rising from the law or an existing contract as a result of a past event, 2) It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, 3) A reliable estimate can be made of the amount of the obligation.Guidelines for Recording and Estimating Provisions in Financial Statements

    • A provision is a liability that is recognized when there is a probable outflow of resources that embodies economic benefits.

    • The probability of a liability is analyzed, and the amount is quantified by the company.

    • A liability is probable when it is more likely than not that the event will occur (probability greater than 50%).

    • If the probability is lower than 50%, but the event may happen, it is considered possible and should be disclosed but not recorded.

    • If the risk is remote, the company shall do nothing: no disclosure, no recording.

    • If the company cannot quantify the amount, it must disclose the event but not record it.

    • The use of estimates is an essential part of preparing financial statements and does not undermine their reliability.

    • An entity will be able to determine a range of possible outcomes and can make an estimate of the obligation that is sufficiently reliable to use in recognizing a provision.

    • The amount recognized as a provision shall be the best estimate of the expenditure required to settle the present obligation at the end of the reporting period.

    • The estimates of outcome and financial effect are determined by the judgement of the management of the entity, supplemented by experience of similar transactions and, in some cases, reports from independent experts.

    • Future events that may affect the amount required to settle an obligation shall be reflected in the amount of a provision where there is sufficient objective evidence that they will occur.

    • The amount recognized reflects a reasonable expectation of technically qualified, objective observers, taking account of all available evidence.

    Accounting Standards: Provisions, Employee Benefits, and Revenues

    • Provisions must be reviewed at the end of each reporting period and adjusted to reflect the current best estimate.

    • Provisions can only be used for expenditures for which they were originally recognized.

    • Provisions cannot be recognized for future operating losses but can indicate impairment of certain assets.

    • An onerous contract is a contract where the unavoidable costs of meeting the obligations exceed the economic benefits expected to be received under it.

    • OIC 31 and IAS 37 define provisions similarly, but OIC 31 does not require actualization of amounts.

    • Employee benefits include short-term, post-employment, other long-term, and termination benefits.

    • Short-term employee benefits are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service.

    • Post-employment benefits are payable after the completion of employment.

    • Accounting for defined contribution plans is straightforward, while accounting for defined benefit plans is complex.

    • IFRS 15 regulates revenue from contracts with customers, excluding lease contracts within the scope of IFRS 16, insurance contracts within the scope of IFRS 4, and financial instruments and other contractual rights or obligations within the scope of other standards.

    • The five-step model for recognizing revenue involves identifying the contract with the customer, identifying performance obligations, determining the transaction price, allocating the transaction price to performance obligations, and recognizing revenue when the performance obligation is satisfied.

    • An entity can only record a contract as revenue when all criteria are met, including approval and commitment from both parties, identification of each party's rights and payment terms, commercial substance, and probability of collecting consideration.Key Considerations in Revenue Recognition

    • Collectability refers to a customer's intent and ability to pay the promised consideration.

    • Company must perform a collectability assessment to determine the amount it is entitled to receive before recognizing revenue.

    • Performance obligation refers to the promise to transfer goods or services to a customer.

    • In a contract to manufacture and install customized equipment, installation services cannot be sold separately from the equipment.

    • Maintenance services are considered a separate performance obligation.

    • To determine if performance obligations are distinct, two analyses are required.

    • Transaction price is the amount of consideration an entity expects to receive in exchange for transferring goods or services to the customer.

    • The estimation of transaction price should be consistent with the contract and similar transactions.

    • Variable consideration should only be included in transaction price if it is probable and can be reliably estimated.

    • Transaction price must be allocated to each separate performance obligation.

    • Allocation is generally based on relative stand-alone selling prices.

    • If a stand-alone selling price is not observable, the entity is required to estimate it.

    Accounting Standards: Provisions, Employee Benefits, and Revenues

    • Provisions must be reviewed at the end of each reporting period and adjusted to reflect the current best estimate.

    • Provisions can only be used for expenditures for which they were originally recognized.

    • Provisions cannot be recognized for future operating losses but can indicate impairment of certain assets.

    • An onerous contract is a contract where the unavoidable costs of meeting the obligations exceed the economic benefits expected to be received under it.

    • OIC 31 and IAS 37 define provisions similarly, but OIC 31 does not require actualization of amounts.

    • Employee benefits include short-term, post-employment, other long-term, and termination benefits.

    • Short-term employee benefits are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service.

    • Post-employment benefits are payable after the completion of employment.

    • Accounting for defined contribution plans is straightforward, while accounting for defined benefit plans is complex.

    • IFRS 15 regulates revenue from contracts with customers, excluding lease contracts within the scope of IFRS 16, insurance contracts within the scope of IFRS 4, and financial instruments and other contractual rights or obligations within the scope of other standards.

    • The five-step model for recognizing revenue involves identifying the contract with the customer, identifying performance obligations, determining the transaction price, allocating the transaction price to performance obligations, and recognizing revenue when the performance obligation is satisfied.

    • An entity can only record a contract as revenue when all criteria are met, including approval and commitment from both parties, identification of each party's rights and payment terms, commercial substance, and probability of collecting consideration.Key Considerations in Revenue Recognition

    • Collectability refers to a customer's intent and ability to pay the promised consideration.

    • Company must perform a collectability assessment to determine the amount it is entitled to receive before recognizing revenue.

    • Performance obligation refers to the promise to transfer goods or services to a customer.

    • In a contract to manufacture and install customized equipment, installation services cannot be sold separately from the equipment.

    • Maintenance services are considered a separate performance obligation.

    • To determine if performance obligations are distinct, two analyses are required.

    • Transaction price is the amount of consideration an entity expects to receive in exchange for transferring goods or services to the customer.

    • The estimation of transaction price should be consistent with the contract and similar transactions.

    • Variable consideration should only be included in transaction price if it is probable and can be reliably estimated.

    • Transaction price must be allocated to each separate performance obligation.

    • Allocation is generally based on relative stand-alone selling prices.

    • If a stand-alone selling price is not observable, the entity is required to estimate it.

    Accounting Standards: Provisions, Employee Benefits, and Revenues

    • Provisions must be reviewed at the end of each reporting period and adjusted to reflect the current best estimate.

    • Provisions can only be used for expenditures for which they were originally recognized.

    • Provisions cannot be recognized for future operating losses but can indicate impairment of certain assets.

    • An onerous contract is a contract where the unavoidable costs of meeting the obligations exceed the economic benefits expected to be received under it.

    • OIC 31 and IAS 37 define provisions similarly, but OIC 31 does not require actualization of amounts.

    • Employee benefits include short-term, post-employment, other long-term, and termination benefits.

    • Short-term employee benefits are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service.

    • Post-employment benefits are payable after the completion of employment.

    • Accounting for defined contribution plans is straightforward, while accounting for defined benefit plans is complex.

    • IFRS 15 regulates revenue from contracts with customers, excluding lease contracts within the scope of IFRS 16, insurance contracts within the scope of IFRS 4, and financial instruments and other contractual rights or obligations within the scope of other standards.

    • The five-step model for recognizing revenue involves identifying the contract with the customer, identifying performance obligations, determining the transaction price, allocating the transaction price to performance obligations, and recognizing revenue when the performance obligation is satisfied.

    • An entity can only record a contract as revenue when all criteria are met, including approval and commitment from both parties, identification of each party's rights and payment terms, commercial substance, and probability of collecting consideration.Key Considerations in Revenue Recognition

    • Collectability refers to a customer's intent and ability to pay the promised consideration.

    • Company must perform a collectability assessment to determine the amount it is entitled to receive before recognizing revenue.

    • Performance obligation refers to the promise to transfer goods or services to a customer.

    • In a contract to manufacture and install customized equipment, installation services cannot be sold separately from the equipment.

    • Maintenance services are considered a separate performance obligation.

    • To determine if performance obligations are distinct, two analyses are required.

    • Transaction price is the amount of consideration an entity expects to receive in exchange for transferring goods or services to the customer.

    • The estimation of transaction price should be consistent with the contract and similar transactions.

    • Variable consideration should only be included in transaction price if it is probable and can be reliably estimated.

    • Transaction price must be allocated to each separate performance obligation.

    • Allocation is generally based on relative stand-alone selling prices.

    • If a stand-alone selling price is not observable, the entity is required to estimate it.

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    Test your understanding of liabilities with this quiz covering account payables, trade payables, financial payables, provisions, and more. Learn about the classification of liabilities, recognition criteria, and guidelines for recording and estimating provisions in financial statements. Challenge yourself to identify key concepts and keywords specific to the topic. Improve your knowledge and enhance your financial literacy with this informative quiz.

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