1.Fmk, 3.C/Equity, 4.MktS,6.FgnOps, 10.Rcvd Flashcards
Primary Characteristics
R-PC
Relevant: Predictive, and Confirmatory
FENCe
Faithful Rep: free from error, neutral, completeness
Govt:
RrC
CUT
Enhancing Qualitative Characteristics
CUT-like-a-V Comparability Understandability Timeliness Verifiability
Constraint
Cost-Benefit
IFRS:
Going Concern
Materiality
Elements of Financial Statements - GAAP 10
- Basic Elemts: A-L = Equity
- Elemts of Equity: Contrib., Distrib, and Comp Inc (N/I +OCI-dent)
- Elemts of Inc.: Rev + Exp + G + L (op/nonop)
= Net Income
Elements of Financial Statmts - IFRS 5
- Fin. Elemts: A-L = Equity
- Elemts: Inc+Exp
= Profit
Equity Method 20 - 50%
If elect fair value: recog g/l in i/s. And add share of dividends to the i/s. Thru n/i.
Effect on Investment or I/S:
+Acquisition
+(Earnings x %)
- (Depreciation x %)
- (Inventory Sold x %)
Investment - B/S:
+Acquisition
- (Dividends x %)
I/S: ni - share in dividends - dep - inv sold
Cost to Equity
Retro:
Dr Inv = (NI - div declrd) x % owned
Goodwill
PPandE, Investment, not land
Purchase > FMV
FMV > BV
No election:
Trading Sec/ AFS/ HTM
If FMV election:
I/S: FMV at year-end (this yr only). Need to recog g/l in i/s every year. So when actually sold, do not use orig cost.
B/S - OCI - SE (cumulative, or change in this yr in BS only)
B/S - OCI - CV @ B/S date FMV
All I/S
Reclass:
Trading Sec / AFS/ HTM
I/S
I/S, then B/S-OCI
at amortized cost - B/S - OCI at
IFRS
All to OCI
Derivatives characteristics
NUNS
Speculation/
Fair Value Hedge /
Cash Flow Hedge /
Foreign Currency Hedge
- I/S
- I/S - hedge against recog A or L. No n/i effect. Goal
- B/S - OCI - hedge against forecast future trans
- DENT - against currency risk
Transactional Currency
Functional Currency
Reporting Currency
I/S - Remeasurement
B/S - OCI - Translation at year end
Receivables
Income Statement Approach
Matching principle
% of credit sales:
Uncollectible act: credit sale x % est. not collectible
Receivables
Balance Sheet Approach
Always note the Q: adjustment or number?
Asset Valuation principle
B/D exp:
Dr B/D exp, Cr Allow d/a
Write off:
Dr Allow d/b, Cr A/R
No effect in N/I and Working Capital (not AR) and TA
❗️test! Recovery: zero effect on A/R balance
Recovery: Dr AR, Cr Allow; Dr Cash, Cr AR
Recovery of Accounts written off
NO EFFECT in A/R or N/I.
Net effect is zero
Dr AR
Cr Allow
Dr Cash
Cr AR
Non-Interest bearing note
SB discounted:
Face of note x disc rate% x period 6/8 mos…. =
Discount note sold to another bank
Gross proceeds - disct rate (x time)
Face of note + int. earned - (disct rate sold to bank x period 6/12 mos) = proceeds
Sold equip with CV for a nonint. bearing note. No established exch price for equip. Given prevailing rate and PV rate/period.
record at the pv of the pmt tb recvd… $600,000 x .75 = $450,000.
Int. in 1st yr wb $450k x 10%, or $45k
note 20. If asking for g/l of equip
compare
the pv of pmt
vs
the CV of equip.
Difference is g/l of equip
recvd $500k n/r at 8%. After hldg note 6mos, discount note to Bank at effectv irate 10%. What ant cash recvd from bank?
Calc maturity of note $500k + 1 yr int at 8% or $40k. Since note disct after 6 mos, bank will recv $540k.
The disct wb 540k x 10% x 6/12 or $27k.
Thus rcvd $540k - $27k or $513k from disctg
08/01/01 Vann Corp.’s $500k, one year, noninterest-bearing note due 07/31/02, was discounted at Homestead Bank at 10.8%. Vann uses the SL method amortizing bond discount. What amount should Vann report for NP in its 12/31/01 BS?
Note disc for 1 yr prior to maturity, proceeds from discout wb face $500k minus disct $500k x 10.8% = $54k for net amt of $446k. Disct wb amortiz over 1-yr NP at rate of $4,500 per month. As of 12/31/X1, 5 mos have elapsed.
Dr Orig CV $446,000
Dr Amortz disct (5 x $4,500) 22,500
Cr CV at 12/31/X1 $468,500
Oci vs aoci
Oci: fmv at b/s dates
Aoci: fmv at b/s date - cost
