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Questions and Answers
What will happen if the current ratio of a Company falls below the bank's requirement?
What will happen if the current ratio of a Company falls below the bank's requirement?
How was the Company's current ratio on December 31, 2018?
How was the Company's current ratio on December 31, 2018?
When were the financial statements of the Company for the year ended December 31, 2018, authorized for issue?
When were the financial statements of the Company for the year ended December 31, 2018, authorized for issue?
What category will a long-term loan fall under in the statement of financial position if a breach in agreement is rectified within the next 12 months and immediate payment is not demanded?
What category will a long-term loan fall under in the statement of financial position if a breach in agreement is rectified within the next 12 months and immediate payment is not demanded?
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What are loan covenants in a commercial loan?
What are loan covenants in a commercial loan?
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What would be the classification of a long-term loan in the statement of financial position if a breach in agreement is not rectified within the next 12 months and immediate payment is demanded?
What would be the classification of a long-term loan in the statement of financial position if a breach in agreement is not rectified within the next 12 months and immediate payment is demanded?
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What is the main reason why the liability for damages cannot be recognized in the financial statements as of December 31, 2018?
What is the main reason why the liability for damages cannot be recognized in the financial statements as of December 31, 2018?
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What type of event is the court’s decision on January 15, 2019, requiring the company to pay damages of P600,000?
What type of event is the court’s decision on January 15, 2019, requiring the company to pay damages of P600,000?
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How should the initial recognition of the estimated liability for damages be recorded in the company's financial statements as of December 31, 2018?
How should the initial recognition of the estimated liability for damages be recorded in the company's financial statements as of December 31, 2018?
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What is the significance of an adjusting event in financial reporting?
What is the significance of an adjusting event in financial reporting?
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What is the main reason SCAR Company's serious financial deterioration is mentioned in the text?
What is the main reason SCAR Company's serious financial deterioration is mentioned in the text?
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Why does the text mention that SCAR Company has not yet filed for bankruptcy?
Why does the text mention that SCAR Company has not yet filed for bankruptcy?
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Based on PAS 10, an event that happens after the reporting period but requires the financial statements to be adjusted is known as a(n) ____________.
Based on PAS 10, an event that happens after the reporting period but requires the financial statements to be adjusted is known as a(n) ____________.
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In the context of the text, which of the following is NOT a reason for the time lag between preparing and issuing financial statements?
In the context of the text, which of the following is NOT a reason for the time lag between preparing and issuing financial statements?
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What criteria should be considered to determine if an event after the reporting period is an adjusting event or not?
What criteria should be considered to determine if an event after the reporting period is an adjusting event or not?
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According to PAS 10, an event after the reporting period that only requires disclosure in the notes to the financial statements is referred to as a ____________ event.
According to PAS 10, an event after the reporting period that only requires disclosure in the notes to the financial statements is referred to as a ____________ event.
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What type of event would SIMBA Company taking a 10-year loan from a bank in 2015 be classified as?
What type of event would SIMBA Company taking a 10-year loan from a bank in 2015 be classified as?
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If an event occurred after the reporting period that impacts the net profit margin of a company, but does not require adjustments to the financial statements, how is this event classified?
If an event occurred after the reporting period that impacts the net profit margin of a company, but does not require adjustments to the financial statements, how is this event classified?
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Study Notes
Financial Ratios and Loan Agreements
- A company's current ratio below a bank's requirement may lead to financial instability, increased borrowing costs, or restrictions on additional financing.
- The company's current ratio on December 31, 2018, is unspecified in the context but is key for assessing liquidity.
- Financial statements for the year ending December 31, 2018, were authorized for issuance on a later date, crucial for understanding reporting timelines.
Classification of Loans
- A long-term loan will remain classified as non-current in the statement of financial position if a breach is rectified within 12 months and immediate payment is not demanded.
- If a breach is not rectified within 12 months and immediate payment is demanded, the long-term loan will be reclassified as a current liability.
Loan Covenants
- Loan covenants are agreements between borrower and lender outlining specific actions or conditions a borrower must adhere to.
Financial Reporting and Liability
- Liability for damages cannot be recognized in financial statements as of December 31, 2018, primarily due to uncertainty or lack of legal obligation at that time.
- The court's decision on January 15, 2019, requiring payment of damages is an adjusting event as it provides new information impacting prior financial statements.
Recording Estimated Liabilities
- Initial recognition of the estimated liability for damages should reflect accurately on the financial statements as of December 31, 2018, highlighting the obligation incurred by the company.
Adjusting Events Significance
- Adjusting events are significant as they ensure that financial statements present a true and fair view of the company's financial position at the reporting period's end.
Financial Deterioration
- SCAR Company's financial deterioration is notable as it indicates underlying issues but it has not filed for bankruptcy, suggesting ongoing attempts to manage the situation.
Event Classifications
- According to PAS 10, an adjusting event is one that requires financial statements to reflect new information from events after the reporting period.
- Events affecting net profit margin but not requiring adjustments to financial statements are classified as non-adjusting events.
Application of PAS 10
- Under PAS 10, an event that needs only disclosure in notes is referred to as a disclosure event, distinguishing it from those that require adjustments.
Loan Events Classification
- SIMBA Company's action of taking a 10-year loan in 2015 would classify as a non-adjusting event, as it occurred prior to the reporting period in question.
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Description
Learn about PAS 10 which defines events after the reporting period as any event that occurs after the end of the reporting period and before the financial statements are issued. Understand the reasons for the time lag between preparation and issuance of financial statements.
