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ADVANCED FINANCIAL ACCOUNTING
SESSION 2LIABILITIES &
INTEREST
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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
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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
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CURRENT LIABILITIES (2)
PAYROLL AND RELATED ACCRUED LIABILITIES SALARIES PAYABLE SOCIAL SECURITY EXPENSES
PAYABLE PAYROLL TAXES PAYABLE
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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)
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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
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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
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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
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ACCOUNTING FOR LOANS
SHORT TERM, MEDIUM TERM & LONG TERM
SOURCE DOCUMENTS: CONTRACT & SCHEDULE OF REPAYMENT
INTEREST, REPAYMENT OF PRINCIPAL, ADJUSTMENTS
ORDINARY LOAN VS BONDS
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BONDS
DEFINITIONINTEREST RATESTATUS
NEGOCIABLE PRIVATE PLACEMENT
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BONDS AND RISK
DIFFERENT LEVELS OF RISK MORTGAGE DEBENTURE SUBORDINATED
PROTECTION OF BONDHOLDERS COVENANTS SINKING FUND
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DISCOUNT & PREMIUM
DEFINITIONS ?
WHAT FOR ?
LINK WITH INTEREST RATE ?
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BOND ACCOUNTING
BONDS ISSUED AT PARBONDS ISSUED AT A DISCOUNT
SEE EXAMPLE DELTABONDS ISSUED AT A PREMIUM
SEE EXAMPLE DELTAZERO COUPON BONDS
SEE EXAMPLE
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ACCOUNTING FOR LEASES
DEFINITIONS LEASE CONTRACT LESSOR LESSEE OPERATING LEASE CAPITAL LEASE
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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
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ACCOUNTING FOR OPERATING LEASE
INCOME STATEMENT AMOUNTS PAID: RENT EXPENSE NO DEPRECIATION ITEM NO FINANCIAL EXPENSE ITEM
BALANCE SHEET ASSETS: NOTHING LIABILITIES: NOTHING
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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