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Chapter 13: Question 8Q (page 715)

How should a debt callable by the creditor be reported in the debtor’s financial statements?

Short Answer

Expert verified

Debt that is callable by the creditor should be grouped under current liability.

Step by step solution

01

Meaning of Financial Statements

Financial statements are the statements prepared by all forms of business organizations to ascertain the result of operating, financial and investment activities and to know the financial position on the date of closing of books of accounts.

02

Reporting of debtor’s financial statements

It is necessary to segregate debt as current as it is assumed that the existing working capital will be used to repay the loan. Liabilities usually become redeemable by the creditor in case of breach of the debt agreement. However, if it can be anticipated that the breach will be corrected within the trial period stipulated in these agreements, the debt may be listed as non-current.

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Most popular questions from this chapter

In determining the amount of a provision, a company using IFRS should generally measure:

(a) Using the midpoint of the range between the lowest possible loss and the highest possible loss.

(b) Using the minimum amount of the loss in the range.

(c) Using the best estimate of the amount of the loss expected to occur.

(d) Using the maximum amount of the loss in the range.

Consider the bond investment by Lady Gaga in IFRS17-5. Discuss the accounting for this investment if Lady Gaga’s

Business model is to hold the investment to collect interest while outstanding and to receive the principal at maturity.

Fairbanks Corporation purchased 400 ordinary shares of Sherman Inc. as a trading investment for \(13,200. During the year, Sherman paid a cash dividend of \)3.25 per share. At year-end, Sherman shares were selling for $34.50 per share. Prepare Fairbanks’ journal entries to record (a) the purchase of the investment, (b) the dividends received, and (c) the fair value adjustment

Question: In accounting for short-term debt expected to be refinanced to long-term debt:

  1. GAAP uses the authorization date to determine classification of short-term debt to be refinanced.
  2. IFRS uses the authorization date to determine classification of short-term debt to be refinanced.
  3. IFRS uses the financial statement date to determine classification of short-term debt to be refinanced.
  4. GAAP uses the date of issue, but only for secured debt, to determine classification of short-term debt to be refinanced.

Presented below are two independent cases related to available-for-sale debt investments.

Case 1 Case 2

Amortized cost \(40,000 \)100,000

Fair value 30,000 110,000

Expected credit losses 25,000 92,000

For each case, determine the amount of impairment loss, if any
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