A distinct business unit or other organization for which accounting records are kept and financial statements are prepared is an accounting entity. The business-entity assumption…
What are the asset valuation models?
The cost model and the revaluation model are the two models an entity may choose for the valuation of assets subsequent to their initial recognition. Under the cost model, an asse…
What are the advantages of ABSs for lessors?
Securitization provides several benefits to lessors, including: Transformation of illiquid nonnegotiable assets into marketable instruments; Removal of highly illiquid assets from…
What are retained earnings and comprehensive income?
Retained earnings reports the sum of a company’s net income since its founding less all amounts distributed in the form of dividends and transfers to the paid-in capital accounts,…
What are receivables?
Receivables are claims against customers and others for money, goods or services delivered, including accounts and notes receivable, receivables from affiliate companies, and offic…
What are provisions and contingent liabilities?
A provision is a liability recognized for a legal or constructive obligation arising from a past event if there is a probable outflow of resources and the amount can be estimated r…
What are post-employment benefits?
Pensions and other post-employment benefits are employee benefits other than termination benefits and short-term employee benefits that are payable after the completion of employme…
What are payables?
Obligations that arise in the normal course of business through credit purchase of goods delivered or services rendered on open account are accounts payable. They are usually paya…
What are P&P, springing and collection guarantees?
The residual value of a leased asset can be guaranteed by the lessee or a party related to the lessee or unguaranteed. If the value of the asset and/or the financial condition of…
What are other noncurrent assets?
The investments account shows equity ownership and other property rights held in unconsolidated entities with the intention of retaining them for a period exceeding one accounting…
What are net sales?
The first item in the income statement is operating revenue, which is the net amount of sales revenue after all reductions to gross sales, such as sales returns, allowances and dis…
What are material subsidiaries?
Loan agreements commonly assume that all borrower subsidiaries are original borrowers (i.e., obligors), which may be of particular concern when a borrower has a large number of sub…
What are majority and noncontrolling interests?
A majority interest reports the parent’s owner interest of less than 100% but more than 50% of the outstanding voting shares (control) in the subsidiaries that have been consolidat…
What are liabilities?
A liability is a probable future sacrifice of economic benefit owed by one entity (debtor) to another entity (creditor) resulting from the receipt of an asset or service or the inc…
What are lease progress payments?
An asset’s acquisition may involve progress payments, which are payments made to the manufacturer or constructor of the asset to be leased in its predelivery phase as it is being p…
What are lease payments in advance and in arrears?
Payment in advance is a payment structure in which lease payment is due and payable at the beginning of each payment period during the lease term, primarily to protect the lessor b…
What are lease installments?
A given scheduled payment made by a lessee to a lessor of an amount of a leased asset’s acquisition cost (principal), interest and any insurance premium and other costs according t…
What are lease end-of-term, early-termination and buyout options?
An end-of-term option (ETO) is the right of the lessee in a noncancellable finance lease to purchase or continue using a leased asset at the end of the lease term as specified in t…
What are intercreditor agreements?
An intercreditor agreement (ICA) is a contractual document separate to the underlying financing agreement that regulates the respective rights and ranking of the signatory creditor…
What are intercompany transactions?
An intercompany transaction is a transaction between affiliated companies (i.e., between a parent company and one of its subsidiaries or between a parent’s subsidiaries). The tran…
What are insolvency proceedings?
Insolvency proceedings are the collective judicial or administrative proceedings conducted under insolvency law in which the assets and affairs of insolvent debtors are subject to…
What are frozen and flexible GAAP?
A loan agreement may require specification of whether original financial statements are prepared under IFRS or a local (national) GAAP and may establishes whether the financial sta…
What are fixed and floating liens?
A lien can be either fixed or floating: Fixed lien – A lien on a specific fixed-asset (e.g., equipment or land) to secure the repayment of a loan, it attaching the asset until the…
What are deferred taxes? How do deferred taxes occur?
Taxes due for payment in future years as a result of timing differences when different depreciation methods are used for financial reporting and tax purposes are deferred taxes. W…
What are deferred tax liabilities?
Deferred taxes are taxes resulting from timing differences when a firm uses different methods for its financial accounting and tax accounting. Tax expense relates to the income st…