this is question 5 from CFAI Foster Wheeler entered into arrangements to sell receivables in 1998 and 1999. The accounts receivable footnote in the firm’s 1999 annual report noted that: As of December 31, 1999, and December 25, 1998, $50 million and $38.4 million, respectively, in receivables were sold under the agreement and are therefore not reflected in the accounts receivable-trade balance in the consolidated balance sheet. ________________________________________________________________ years ended december (in $millions) ________________________________________________________________ 1997 1998 1999 _________________________________________________________________ trade accounts receivable 664 720 739 CFO (113) (59) (6) __________________________________________________________________ what is the adjusted CFO over the period 1997 to 1999?
Adjustment: 1999 - Remove 50 from CFO(6) and add to CFF. CFO = -6-50= (56) 1998 - Remove 38.4 from CFO(59) and add to CFF. CFO = (97.4) So now CFO should be 1997 to 1999 -> (113) (97.4) (56) What’s the answer?
the answer is CFO 1997-1999 (113) (97.4) (17.6)
You will need to make an adjustment for CFO since sale of receivables is essentially a collateralized loan with the receivables being the collateral. 1998: Subtract 38.4M from CFO 1999: Subtract (50-38.4) = $11.6M from CFO This is because the sale of receivables is reported cumulatively over the years and not on a per-year basis (not sure if that’s exactly clear, think about the way you would treat a LIFO reserve.) So in 1998 $38.4M of receivables were sold, and in 1999 $11.6M of receivables were sold to arrive at a total of $50M at the end of 1999. Using the change in receivables sold: 1997 CFO: (113) 1998 CFO: (97.4) 1999 CFO: (17.6)
super, judge from the answer apparemently you are right on the point of cumulative report.
Is Sales of Accounts Receivable is reported cumulative? Then what abt Accounts Receivable? Is it also reported cumulative? Did i miss it book somewhere? Hey super - Just Curious - Are you reading CFAI or Schewesser? And any ref. where can I find this info?
Sale of A/R with recourse is a method of off-balance sheet financing covered in Leases/OBS debt (Reading #40)
Not sure about the cumulative part. Although it got the answer. There is no mention in the book that the sale of account receivable is cumulative.
The example on P.537 in CFAI #3 explains: “An adjustment is required to reclassify the change in the uncollected receivables sold from CFO to cash from financing.”