6/15/2019

Question 1

Error Correction - US GAAP

Answer 1

Prior period adj.: 1. correction of mistake 2. change from non GAAP to GAAP If 1) Comparative F/S presented, and the year w/ errors presented — correct error in those PY F/S 2) Comparative F/S presented, but the year w/ errors does NOT present (because it’s too far back) — adjust the earliest year’s opening R/E (net of tax) 3) Comparative F/S does NOT present, error adjustment to opening R/E

Question 2

Error Correction - IFRS

Answer 2

When impartial to know period-specific effect or accumulative effect — restate info prospectively from the earliest period that’s practical; US GAAP does NOT have impractical assumption of error correction

Question 3

JE for collection of previously write off A/R

Answer 3

Write off recovery: AR: XXX Allowance: xxx Cash: xxx AR: XXX —> Cash: xxx Allowance: xxx

Question 4

Under allowance methods, what’s JE when accounts previously wrote off is subsequently collected?

Answer 4

J/E #1: Restore write-off A/R: XXX Allowance: xxx J/E #2: when cash is collected: Cash: xxx A/R: XXX —> therefore allowance increases, but A/R no effect when accounts previously wrote off is subsequently collected

Question 5

How to calculate the LIFO layer added in the current year dollar value LIFO?

Answer 5

step 1: price index = ending inventory at current year cost/ ending inventory at base year cost

step 2: LIFO layer added in current year at dollar-value LIFO = price index * the LIFO layer at base year cost

step 3: ending inventory = beginning inventory + LIFO layer added in current year at dollar-value LIFO

Question 6

Moving-average method - perpectual

Answer 6

Question 7

What’s the different between using “Lower of Cost and NRV” and using “lower of Cost or Market”?

Answer 7

1. Lower of Cost and NRV:
   - Uner U.S. GAAP, it’s used for all inventory that’s NOT costed using LIFO or the retail inventory method
   - It’s required to value ALL inventory under IFRS
2. Lower of Cost or Market:
   - under U.S. GAAP, it’s used when inventory is costed using LIFO or the retail inventory method
   - Market value: middle value of an inventory item’s 1) replacement cost, 2) market ceiling, and 3) market floor
   1) Replatement Cost: cost to purchase inventory as of the valuation date
   2) Market ceiling: NRV = net selling price - costs to complete&dispose
   3) Market Floor: NRV - Profit

Note: if given multiple inventory cost and NRV, ask for total of inventory, compare total cost with total NRV

Question 8

Can U.S GAAP or IFRS reverse inventory write down?

Answer 8

US GAAP prohibits reversal of inventory write down.

IFRS allows it, but the reversal could not exceed original write down..

Question 9

working capital turnover

Answer 9

working captal turnover = sales/ average working capital

Working capital = current asset - current liabilities

Question 10

under US GAAP, a gain that is both unusual and infrequent should be reported as?

Answer 10

under US GAAP, a gain that is both unusual and infrequent should be reported as income from continuing operation (pretax).

Question 11

How should interest be reported before, during and after construction period?

Answer 11

1) Before and after construction period (as well interest incurred during intentional construction delay) - interest should be expensed (GL: interest should be expensed as incurred except below)
2) During construction period - interest should be capitalized based on weighted average amount of accumulated depreciation

Question 12

2 rules concerning captitalizing interest cost

Answer 12

1. Only capticalize on money actually SPENT but NOT what is borrowed
2. interest should be capitalized as the lower of below:
   - actual interest incurred
   - computed capitalzied interect (avoidable interest)

Question 13

What are valuation of fixed assets under IFRS?

1) Cost - same as U.S.
2) Revaluation

Answer 13

1. Cost - same as U.S.

Cost Model Carrying Value (NBV) = historical cost - accumulated depreciation - impairment

2. Revaluation Modle

Revaluation Carrying Value = FAIR VALUE at revaluation date - SUBSEQUENT Accumulated depreciation - SUBSEQUENT Impairment

1) Revaluation Loss - IS; unlesss revaluation loss reverse previously recognized gain, then need to recognized in OCI and reduce revaluation surplus in AOCI
2) Revaluation Gain - OCI; unless revaluation gain reverse previously recognized loss, then need to recong’ in IS
3) Impairement - first reduce revaluation surplus to zero, and then recognize any further impairment in IS

Question 14

Interest rate to calculate capitalized interest on the construction

Answer 14

Question 15

Answer 15

Question 16

Sum of the year digits

Answer 16

step one: calculated base for depreciation

base = purchase price - salvage value

step two: claculate depreciation expense:

depreciation expense = base * (remaining assest life/sum of digit)

sum of digit = (n*(1+n)/2)

carrying value = purchase price - accumulative depreciation expense

Question 17

double declining balance depreciation

Answer 17

** the ONLY method that IGNORE salvage value**

depreciation expense = 2*(1/N) * book value

book value = cost - accumulated depreciation expense

Question 18

calculation of depletion

Answer 18

total depletion = unit depletion rate * # of units destracted

unit depletion rate = depletion base/ estimated recoverable amount

Depletion base = cost to purchase property + development cost to prepare the land for extraction + any estimated restoration costs - residule value of the land after the resource are extracted