Tag Archives: Ineligibles

Contras – Month end balances may not be enough

Posted on March 22, 2014 | Comments Off on Contras – Month end balances may not be enough

I recently completed an audit where the lender was backed into an over advance through contras. (the over advance occurred before ECG was called in)  The way that this occurred is pretty interesting.  When I was involved with training audit staffs, we often cautioned against this very thing happening.  This is one of the few times  that I have actually seen it occur. Continue reading →

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Accruals and Dilution

Posted on March 22, 2014 | Comments Off on Accruals and Dilution

When performing exams, a recurring conversation that we have with borrowers (and sometimes lenders) is the idea that accruals for potential offsets such as co-op advertising and volume rebates should not be reserved for because the subsequent credits are captured in dilution.  This is not the case.

The example below illustrates why the accrual should always be reserved for. Continue reading →

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Inventory – Standard Cost Systems and the Treatment of Variances

Posted on January 9, 2012 | Comments Off on Inventory – Standard Cost Systems and the Treatment of Variances

The purpose of this post is to discuss some of the possible pitfalls that a lender could encounter when lending on inventory that is managed with a standard cost system.  During this post we will discuss:

  • The difference between management and financial accounting, as it applies to inventory and standard cost systems.
  • The various components of inventory costs (materials, labor and overhead) and how they are impacted by manufacturing efficiencies (or more importantly inefficiencies).
  • The calculation of price and manufacturing variances and how to calculate appropriate borrowing base ineligibles if they exist.
  • The role of field exams and appraisals in mitigating the risks posed by inventory valued at standard costs. Continue reading →

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