ADVANCED FINANCIAL ACCOUNTING

SESSION 2LIABILITIES &

INTEREST

LIABILITIES

PRESENT OBLIGATIONS OF AN ENTREPRISE AS A RESULT OF PAST EVENTS, THE SETTLEMENT OF WHICH IS EXPECTED TO RESULT IN AN OUTFLOW FROM THE ENTREPRISE OF ECONOMIC BENEFITS

ORIGIN : A TRANSACTIONLINKED TO ACCRUAL ACCOUNTING IMPORTANCE OF INFORMATION ON

LIABILITIESCURRENT VS LONG-TERM LIABILITIES

CURRENT LIABILITIES (1)

ACCOUNTS PAYABLE AMOUNTS OWED TO SUPPLIERS LARGE SUMS INVOLVED INTERNAL CONTROL

NOTES PAYABLE WRITTEN PROMISE TO REPAY A LOAN SHORT TERM LOANS & LINES OF CREDIT COMMERCIAL PAPER

CURRENT LIABILITIES (2)

PAYROLL AND RELATED ACCRUED LIABILITIES SALARIES PAYABLE SOCIAL SECURITY EXPENSES

PAYABLE PAYROLL TAXES PAYABLE

CURRENT LIABILITIES (3)

PRODUCT WARRANTIES WARRANTY CLAIMS WILL ARISE IN THE

FUTURE ; CAN BE ESTIMATED ON A STATISTICAL BASIS (PAST EXPERIENCE)

UNEARNED REVENUES REVENUES COLLECTED BEFORE DELIVERIES

CURRENT PORTION OF LT DEBT (SEE ACCOUNTING FOR LOANS)

INCOME TAX PAYABLE

INCOME TAX IS RECOGNISED ONCE A YEAR AFTER THE INCOME IS COMPUTED

INCOME TAX PAYMENTS IN FRANCE : 4 PERIODIC INSTALLMENT PAYMENTS

BASED ON INCOME OF THE PREVIOUS YEAR (MARCH, JUNE, SEPTEMBER, DECEMBER)

ADDITIONAL PAYMENT OR REFUND (IN APRIL)

ACCRUAL ADJUSTMENT AT YEAR END

VALUE ADDED TAX (1)

VAT IS AN INDIRECT TAX PAID BY THE FINAL USER

COMPANIES COLLECT VAT FROM CUSTOMERS IN ORDER TO REPAY IT TO TAX SERVICES

VAT IS NOT AN EXPENSE (NO VAT IN THE INCOME STATEMENT)

ONLY BALANCE SHEET ACCOUNTS

VALUE ADDED TAX (2)

VAT ON SALES INVOICES (COLLECTED FROM CUSTOMERS)

VAT ON PURCHASES (PAID TO SUPPLIERS, THEN TO BE DEDUCTED)

NET VAT TO BE PAIDVAT CREDIT TO BE REFUNDEDVAT IN THE BALANCE SHEET

ACCOUNTING FOR LOANS

SHORT TERM, MEDIUM TERM & LONG TERM

SOURCE DOCUMENTS: CONTRACT & SCHEDULE OF REPAYMENT

INTEREST, REPAYMENT OF PRINCIPAL, ADJUSTMENTS

ORDINARY LOAN VS BONDS

BONDS

DEFINITIONINTEREST RATESTATUS

NEGOCIABLE PRIVATE PLACEMENT

BONDS AND RISK

DIFFERENT LEVELS OF RISK MORTGAGE DEBENTURE SUBORDINATED

PROTECTION OF BONDHOLDERS COVENANTS SINKING FUND

DISCOUNT & PREMIUM

DEFINITIONS ?

WHAT FOR ?

LINK WITH INTEREST RATE ?

BOND ACCOUNTING

BONDS ISSUED AT PARBONDS ISSUED AT A DISCOUNT

SEE EXAMPLE DELTABONDS ISSUED AT A PREMIUM

SEE EXAMPLE DELTAZERO COUPON BONDS

SEE EXAMPLE

ACCOUNTING FOR LEASES

DEFINITIONS LEASE CONTRACT LESSOR LESSEE OPERATING LEASE CAPITAL LEASE

CAPITAL LEASE

The lessor transfers ownership of the asset to the lessee by the end of the lease contract

The lessee can purchase the asset at the end of the lease for substantially less than the asset’s fair value

The lease term equals or exceeds 75 % of the estimated economic life

At the start of the lease term, the present value of minimum lease payments is at least 90 % of the assets’s fai value

ACCOUNTING FOR OPERATING LEASE

INCOME STATEMENT AMOUNTS PAID: RENT EXPENSE NO DEPRECIATION ITEM NO FINANCIAL EXPENSE ITEM

BALANCE SHEET ASSETS: NOTHING LIABILITIES: NOTHING

ACCOUNTING FOR CAPITAL LEASE

INCOME STATEMENT NO RENT EXPENSE DEPRECIATION EXPENSE INTEREST EXPENSE

BALANCE SHEET THE FAIR VALUE APPEARS AS AN ASSET

(LEASEHOLD) DEPRECIATION CAPITAL LEASE OBLIGATIONS APPEAR AS

A LIABILITY