Question

briefly explain five potential Balance sheet/ Income statement items that may have been impacted by COVID 19.

Answer 1

Balance sheet accounts that may be materially affected by the COVID 19 outbreak include:

1. Receivables

Customers adversely affected by the outbreak may be unable to pay outstanding invoices. This situation could result in additional credit and liquidity risks, higher than usual bad debt, and even impairments and write-offs. Cash flows from operations may also be affected.

2. Inventory

The outbreak may disrupt supply chains and productivity. Companies with reduced or idle production capacity may be unable to allocate overhead costs to inventory as they usually do. In addition, inventory that can’t be turned over because of travel restrictions may have to be evaluated for impairment.

3. Deferred Tax Assets

If estimates of earnings of foreign subsidiaries change, companies may have to reconsider some of their tax strategies, or they may not be able to realize all deferred tax assets.

4. Financial Assets

Companies should consider the potential for impairment, as well as the need to adjust cash flow projections and other assumptions used to measure non-quoted financial instruments. Financial assets reported at fair value on the balance sheet may result in realized and unrealized losses.

5. Goodwill and Other Indefinite-Lived Intangible Assets

Subsidiaries in areas heavily affected by COVID-19 may see their revenues or net income affected by the outbreak. This may trigger impairment testing for goodwill and other intangibles. The reassessment of key Accounting estimates and projections may result in an immediate impairment. Additionally, impairment testing may have to be done more than once this year if management considers that evolving circumstances result in more than one triggering event.