NCL

Question 1

key points of financial liabilities

Answer 1

• a long term or short term obligation that generates interest
• recorded at net value (comissions reduce the initial liability amount)
  -> recorded seperately from asset financed
• expense recognised during accrual accounting

Question 2

initial measurement financial liabilities

Answer 2

fair value (amount of cash you receive) + transaction costs (commissions, legal fees, bank fees)

Question 3

ure

long term financing of purchases of NCA
example: buying machine at 10,000€
- payment: 2 years, 5% interest, annual repayments
- 5 years useful life

Answer 3

1. at purchase
D: machinery
C: current payables
NC payables
2. end of first year
D: interest expense
current payables
nc payables

C: cash
cash
current payables

3. end of second year
D: interest expense
current payables
C: cash
cash

Question 4

later measurement of financial liabilities

Answer 4

amortised cost (updating liability by applying effective interest rate)

Question 5

loans with constant installments
example:
- nominal amount: €21,475
- nominal interest rate = 5% per year (paid at end of year)
- 3 years
- 275€ upfront comission fee
- loan repayment: 3 constant installments
-> €7886 each (capital + interest)

Answer 5

1. recognising debt / recivieving loan
D: banks
C: LT debt financial institutions
ST debt financial institutions

2. first principal payment
D: interest expense
ST debt
LT debt

C: cash
ST debt

3. second payment
D: interest expense
ST debt
LT debt

C: cash
ST debt

4. final payment
D: interest expense
ST debt

C: cash

Question 6

overdrafts on credit facilities

Answer 6

1. upfront fee
D: bank comissions and fees (626)
C: cash

2. drawdown (when credint line/overdraft used)
D: cash
C: current payables for drawdowns on credit facilities (5201)

3. payment interest
D: interst expense
C: cash

4. termination
D: 5201
C: cash

Question 7

overdraft definition

Answer 7

the company goes into negative (no pre-approved limit)

Question 8

credit facilit / credit line definition

Answer 8

a pre-approved borrowing limit

Question 9

how to find effective interest rate

Answer 9

interest / amortised cost

Question 10

what are non current guarentees extended?

Answer 10

a long-term security deposit the company paid, and will get back (long term) eg. A rental contract where you must pay a security deposit for 5 years