f7课件f7课件13 off bs_W

1、Off-balance sheet financeLevel1Level 2OptionalOff-balance sheet financeYYConsignment inventoryYYSale and repurchase agreementsYYSale and (finance) leaseback transactionsYSale and (operating) leaseback transactionsYYFactoring of receivables/debtsYYOff-balance sheet financeOff-balance sheet financeOff

2、-balance sheet finance is the funding or refinancing of a companys operations in such a way that, under legal requirements and traditional accounting conventions, some or all of the finance may not be shown in its stateOff-balance sheet transactionsOff-balance sheet transactions are transactions whi

3、ch meet the above objective. These transactions may involve the removal of assets from the statement of financial position, as well as liabilities, and they are also likely to have a significant impact on profit or loss.Why off-balance sheet finance existsIn some countries, companies traditionally h

4、ave a lower level of gearing (ratio of debt to equity) than companies in other countries. Off balance sheet finance is used to keep gearing low, probably because of the views of analysts and brokers.A company may need to keep its gearing down in order to stay within the terms of loan covenants impos

5、ed by lenders.The off-balance sheet finance problemWhatever the purpose of such transactions, insufficient disclosure creates a problem. This problem has been debated over the years by the accountancy professionHowever, company collapses during recessions have often revealed much higher borrowings t

6、han originally thought, because part of the borrowing was off-balance sheet.The main argument used for banning off-balance sheet finance is that the true substance of the transactions should be shown, not merely the legal form, particularly when it is exacerbated by poor disclosure.Substance over fo

7、rmThe principle that transactions and other events are accounted for and presented in accordance with their substance and economic reality and not merely their legal form.Common forms of off-balance sheet financeConsignment inventorySale and repurchase agreements/sale and leaseback agreements Factor

8、ing of receivables/debtsYoure a Champion!Thanks for staying with us. You have finished this task.ConsignmentinventoryConsignmentinventoryConsignment inventory is an arrangement where inventory is held by one party (say a distributor) but is owned by another party (for example a manufacturer or a fin

9、ance company). Consignment inventory is common in the motor trade and is similar to goods sold on a sale or return basis.Indications that the inventory is not an asset of the dealer at deliveryManufacturer can require dealer to return inventory (or transfer inventory to another dealer) without compe

10、nsation.Dealer has unfettered right to return inventory to the manufacturer without penalty and actually exercises the right in practice.Required accountingWhere it is concluded that the inventory is not in substance an asset of the dealer, the following apply.a)The inventory should not be included

11、in the dealers statement of financial position until the transfer of risks and rewards has crystallised.Any deposit should be included under other receivables.b)Indications that the inventory is an asset of thedealer at deliveryManufacturer cannot require dealer to return or transfer inventory.Deale

12、r has no right to return inventory or is commercially compelled not to exercise its right of return.Required accountingThe following apply where it is concluded that the inventory is in substance an asset of the dealer.a)The inventory should be recognised as such in the dealers statement of financia

13、l position, together with a corresponding liability to the manufacturer.Any deposit should be deducted from the liability and the excess classified as a trade payable.b)Youre a Champion!Thanks for staying with us. You have finished this task.Sale and repurchase agreementsSale and repurchase agreemen

14、tsThese are arrangements under which the company sells an asset to another person on terms that allow the company to repurchase the asset in certain circumstances.A common example is the sale and repurchase of maturing whisky inventories. The key question is whether the transaction is a straightforw

15、ard sale, or whether it is, in effect, a secured loan.It is necessary to look at the arrangement to determine who has the rights to the economic benefits that the asset generates, and the terms on which the asset is to be repurchased.If the seller has the right to the benefits of the use of the asse

16、t, and the repurchase terms are such that the repurchase is likely to take place, the transaction should be accounted for as a loan.Required accountingWhere the substance of the transaction is that of a secured loan:a)The seller should continue to recognise the original asset and record the proceeds

17、 received from the buyer as a liability.Interest should be accrued.The carrying amount of the asset should be reviewed for impairment and written down if necessary.b)c)ExampleRevenue includes the sale of $10 million of maturing inventory made to Xpede on 1 October 2012. The cost of the goods at the

18、date of sale was $7 million and Atlas has an option to repurchase these goods at any time within three years of the sale at a price of $10 million plus accrued interest from the date of sale at 10% per annum.Youre a Champion!Thanks for staying with us. You have finished this task.Sale and (finance)l

19、easeback transactionsSale and leaseback transactionsA sale and leaseback transaction involves the sale of an asset and the leasing back of the same asset. The lease payment and the sale price are usually negotiated as a package. The accounting treatment depends upon the type of lease involved.If the

20、 transaction results in a finance lease, then it is in substance a loan from the lessor to the lessee (the lessee has sold the asset and then leased it back), with the asset as security. In this case, any profit on the sale should not be recognised as such, but should be deferred and amortised over

21、the lease term.QuestionCapital Co entered into a sale and finance lease on 1 April 20X7. It sold a lathe with a carrying amount of $300,00 for$400,00 and leased it back over a five-year period, equivalent to its remaining useful life. The finance lease provided for five annual payments in arrears of

22、 $90,000. The rate of interest implicit in the lease is 5%.RequiredWhat are the amounts to be recognised in the financial statements at 31 March 20X8 in respect of this transaction?AnswerStatement of profit or loss Profit on disposal (100,000/5) Depreciation (400,000/5) Interest (W)20,000(80,000)(20

23、,000)Statement of financial positionNon-current assetProperty, plant and equipment(400,000-80,000)320,000Non-current liabilitiesFinance lease liability (W)Deferred income (100,000x3/5)256,50060,000Current liabilitiesFinance lease liability (330,000-256,500)(W) Deferred income(100,000/5)73,50020,000W

24、orking-lease liability$ 400,00020,000(90,000)330,00016,500(90,000)256,5001 April 20X7Interest 5% Instalment paidBalance 31 March 20X8 Interest 5%Instalment paidBalance 31 March 20X9Youre a Champion!Thanks for staying with us. You have finished this task.Sale and (operating)leaseback transactionsIf t

25、he transaction results in an operating lease and the transaction has been conducted at fair value, then it can be regarded as a normal sale transaction. The asset is derecognised and any profit on the sale is recognised. The operating lease instalments are treated as lease payments, rather than repa

26、yments of capital plus interest.If the sale price was above fair value any excess is deferred and amortised over the period for which the asset is expected to be used. The excess sale proceeds above the assets fair value is in substance a loan rather than part of the sale proceeds, given that it is

27、linked to the higher than market rental payments, and so it should be accounted for as a loan.ExampleOn 1 January 20X2 a company held a freehold building in its books with a carrying amount of $18m and a remaining useful life of 30 years. On the same date, it entered into an agreement to sell the bu

28、ilding to a bank for $30m, but to continue to occupy it for the next 6 years at an annual rental of $3m per annum payable in advance. The market value of the building at the date of sale was approximately$25m and an arms length rental would be approximately$2m per annum. Assume any finance costs are

29、 8% per annum.RequiredDescribe how the above transaction should be treated in the financial statements of the company for the year ended 31 December 20X2.1 January 20X2, sale should be accounted for as follows:CashPPE3018Income 7Loan51 January 20X2, first payment should be accounted for as follows:C

30、ashLoan31Prepayment 231 Dec 20X2, the transaction should be accounted for as follows:PrepaymentEx22LoanEx(5-1)*8%=0.320.32If the result is an operating lease and the sale price was below fair value, this may be being compensated for by lower rentals in the future. If this is the case, any loss on sa

31、le should be amortised over the period for which the asset is expected to be used.Youre a Champion!Thanks for staying with us. You have finished this task.Factoring ofreceivables/debtsFactoring ofreceivables/debtsWhere debts or receivables are factored, the original creditor sells the debts to the f

32、actor. The sales price may be fixed at the outset or may be adjusted later.In order to determine the correct accounting treatment it is necessary to consider whether the benefit of the debts has been passed on to the factor, or whether the factor is, in effect, providing a loan on the security of th

33、e receivable balances.If the seller has to pay interest on the difference between the amounts advanced to him and the amounts that the factor has received, and if the seller bears the risks of nonpayment by the debtor, then the indications would be that the transaction is, in effect, a loan.ExampleO

34、n 31 March 2011 Highwood factored (sold) trade receivables with a book value of $10 million to Easyfinance. Highwood received an immediate payment of $87 million and will pay Easyfinance 2% per month on any uncollected balances. Any of the factored receivables outstanding after six months will be re

35、funded to Easyfinance. Highwood has derecognised the receivables and charged $13 million to administrative expenses.SolutionSummary of off-balance transactionYoure a Champion!Thanks for staying with us. You have finished this task.OT1B65Sale and leaseback or sale and repurchase arrangements can be u

36、sed to disguise the substance of loan transactions by taking them off balance sheet. In this case the legal position is that the asset has been sold but the substance is that the seller still retains the benefits of ownership.Which one of the following is not a feature which suggests that the substa

37、nce of a transaction differs from its legal form?A. The seller of an asset retains the ability to use the asset.B. The seller has no further exposure to the risks of ownershipC. The asset has been transferred at a price substantially above or below its fair value.D.The sold asset remains on the sell

38、ers premises.(2 marks)B65Answer BThis feature suggests that the transaction is a genuine sale.If the seller retains the right to use the asset or it remains on his premises, then the risks and rewards have not been transferred. If the sale price does not equal market value, then the transaction is l

39、ikely to be a secured loan.B7-7Recognition is the process of including within the financial statements items which meet the definition of an element according to the IASBs Conceptual Framework for Financial Reporting.Which of the following items should be recognised as an asset in the statement of f

40、inancial position of a company?p A skilled and efficient workforce which has been very expensive to train. Some of these staff are still in the employment of the company.p A highly lucrative contract signed during the year which is dueto commence shortly after the year endp A government grant relati

41、ng to the purchase of an item of plant severalyears ago, which has a remaining life of four yearsp A receivable from a customer which has been sold (factored) to a finance company. The finance company has full recourse to the company foranylosses.(2 marks)B7AnswerA receivable from a customer which h

42、as been sold (factored) to a finance company. The finance company has full recourse to the company for any losses.The receivable has been factored with recourse so should continue to be recognised as an asset. The other options do not meet the criteria to be recognised as an asset.B157Tourmalet sold an item of plant for $50 million on 1 April 20X4. The plant had a carrying amount of $40 million at the date of sale, which was charged to cost of sales. On the same date, Tourmalet entered into an agreement to lease back the plant for the next five years (being the estimated rem