The term “cash-generating unit” or “CGU” is something you come upon when talking about performing an impairment tests for asset or group of assets, that is when you’re assessing whether the assets recoverable amount is lower of its carrying value and whether it is highest of the two, fair value less cost to sell or its value in use. Continue reading
Author Archives: Karl
Difference between “value in use” and “fair value less cost to sell”
There are two types of values one can find for an asset when we talk about an assets recoverable amount as compared to its carrying value. When we compare the carrying value with the recoverable amount, the latter is considered to be highest of the two, either “value in use” or “fair value less cost to sell”.
By definition “value in use” means the present value of the future cash flows expected to be derived from an asset, where “fair value less cost to sell” is defined as the price that would be received from selling the asset less any costs required and needed to make the sale. Continue reading
How should I treat spare parts for machinery in use?
Say you’re using machinery for which you occasionally need spare parts to keep the equipment up and running. It is one thing if you buy the spare parts as they’re needed (they’re expensed in such a situation as they’re bought), however what if you have stocked on some of the parts since they’re either harder to get or the shipment period is too long for the production / usage of the machine to be halted.
Those spare parts may “move” that is they’re used very rarely and only if your equipment breaks down. Should those items be accounted as slow moving stock and valued to zero in your inventory? It is one way to look at the matter, however there’s also another option. Continue reading
Assessing the collectability of an individual receivable balance
You’re required most likely by your local accounting policies to assess the collectability of your receivable balances. Normally it’s expected you make the assessment for individual balances based on conditions and indications present.
Such assessment should be made for each balance based on what you know of the client, the economic situation in general, of the client as well as factoring in the deadlines, the volumes and recent payment discipline. The easiest balances are those that are not overdue and you have no reason to think there might be a problem since the payment discipline is good, volumes are stable and so on. Continue reading
Writing down group of receivables
It is one thing to write down specific receivables, but what if you also have a considerable amount of smaller receivables (both the balance in total and the quantity of balances it comprises of)? You’re expected to assess each individual receivable balance when considering their collectability, but it’s not feasible that you go over each say 100 balances. Continue reading
What should I do when there’s a balance that’s very small but I don’t know what it relates to anymore?
Balances such some “leftovers” on prepayment accounts for an example or some accruals may at a certain point remain as such that you don’t know what’s behind them no longer.
They’re remains of entries once made and usually relate to either rounding up or down or some currency differences for an example. Be the reasons what they are however, what you should do, is get rid of them at some point to have the accounts accurate. Continue reading
Importance of order in your accounting and accounting records
Say you’re making your accounting entries daily, once in a few days or more irregular and over a longer period of time. Regardless and even more so, the less often you make the entries; make sure you’ve got one thing always happening.
Always have an order in performing the entries, accounting for them. What I mean by “order” is the following: Continue reading