INTRODUCTION TO NON PERFORMING ASSETS
MEANING OF NPA:
Non Performing Asset means an asset or account of borrower, which has been classified by a bank or financial institution as sub-standard, doubtful or loss asset, in accordance with the directions or guidelines relating to asset classification issued by RBI.
An amount due under any credit facility is treated as "past due" when it has not been paid within 30 days from the due date. Due to the improvement in the payment and settlement systems, recovery climate, up gradation of technology in the banking system, etc., it was decided to dispense with 'past due ' concept, with effect from March 31, 2001. Accordingly, as from that date, a Non performing asset (NPA) shell be an advance where:
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Interest and/ or installment of principal remains overdue for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for agricultural purpose, and
v. Any amount to be received remains overdue for a period of more than 90 days in respect of other accounts.
ASSET CLASSIFICATION:
Assets are classified into following four categories:
• Standard Assets:
• Sub-standard Assets
• Doubtful Assets
• Loss Assets
• Standard Assets:
Standard assets are the ones in which the bank is receiving interest as well as the principal amount of the loan regularly from the customer. Here it is also very important that in this case the arrears of interest and the principal amount of loan do not exceed 90 days at the end of financial year. If asset fails to be in category of standard asset that is amount due more than 90 days then it is NPA.
Provisioning Norms:
• From the year ending 31.03.2000, the banks should make a general provision of a minimum of 0.40 percent on standard assets on global loan portfolio basis.
• The provisions on standard assets should not be reckoned for arriving at net NPAs.
• The provisions towards Standard Assets need not be netted from gross advances but shown separately as 'Contingent Provisions against Standard Assets ' under 'Other Liabilities and Provisions - Others ' in Schedule 5 of the balance sheet.
Banks are required to classify non-performing assets further into the following three categories based on the
“A long-lived asset (asset group) shall be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.”
According to AASB 116 Property, plant and equipment held beyond the normal operating cycle of entity are deemed to be non-current assets. Here’s the extract from the report.
One assumption that should be clearly analyzed is that the collection period is of 30 days net. Not always customers have the ability and willingness to pay off their debts in 30 days, some may take more time, and some could incur in bad debt.
And relevant to (b) guaranteed payments were, in substance, loan principal repayments, Fox told the company’s outside consultants and external auditor that they were “prepaid production payments.” The consultants and auditor relied on Fox’s false characterization in recognizing the payments as an offset against the company’s oil-and-gas production revenues. As a result, Powder River recorded the working interest conveyance proceeds as revenue in the company’s annual and quarterly filings from year-end 2004 March 2008, and improperly recorded the minimum guaranteed payments as an asset – prepaid production payments – in the company’s quarterly filings for the first, second and third quarters.
Items included in other comprehensive income shall be classified based on their nature. For example, under existing accounting standards, other comprehensive income shall be classified separately into foreign currency items, minimum pension liability adjustments, and unrealized gains and losses on certain investments in debt and equity securities. Additional classifications or additional items within current classifications may result from future accounting standards.
As discussed above, if indicators of impairment exist for an asset (group) to be held and used, an entity determines whether the sum of the estimated undiscounted future cash flows attributable to the asset (group) in question is less than its carrying amount. If those undiscounted cash flows are less than
eventual disposition of the asset (asset group). That assessment shall be based on the carrying amount
Assets are to be recorded and valued based of the type of asset there are.
Again, using my carefully crafted Statement of Activities, I prepared the Statement of Changes in Net Assets. It was relatively easy in that I had already classified my assets by type. Under the temporarily restricted assets, the net assets released from restrictions are the sum of satisfaction of plant acquisition and satisfaction of program restrictions. Increase in Net Assets is the sum of increase/decrease in unrestricted net assets, increase in temporarily restricted net assets and increase in permanently restricted net assets. Net Assets, 12/31/15 is the sum of ending balances given in the exercise and the increase in net assets. Again it was important to check to make sure this tied back to the Statement of Activities and the Statement of Unrestricted Revenues, Expenses and Other Changes in Unrestricted Net Assets.
Source of payments: The petitioners claim liquidity and the ability to pay interest or principal on amount owed, but conclusive findings show the insufficiency to pay interest or principal balance. This factor supports the treatment of the advances as equity.
Dot Point, Inc. is a retailer of washers and dryers and offers a three-year service contract on each appliance sold. Although Dot Point sells the appliances on an installment basis, all service contracts are cash sales at the time of purchase by the buyer. Collections received for service contracts should be recorded when?
1. Current liabilities 2. Usual valuation of long-term liabilities 3. Disclosure notes 4. Long-term liabilities 5. Commercial paper
Assets and liabilities are bifurcated in current and non-current. Current asset is defined as any asset which can be converted into cash readily and will be used within one accounting period normally 1 year e.g. Receivables, Inventory, Prepaid Expenses.
Additionally, the terms of composed draws instruct that all sums are due on request; consequently, Buck ought to contemplate the draws as having unusual maturities of three months or less. ASC230-10-45-14 merely permits net exhibition when borrowings have actual maturities of three months or less.
Allow a 30-day grace period on all accounts receivable overdue at the end of the year. As these accounts will no longer be overdue, the company will not need an allowance for overdue accounts.