all Flashcards
Real estate (plants)
Land and all instalments related permanently with land (buildings, constructions).
Technical equipment
Installed equipment that directly serves the operations of the entity
(technical devices, machinery, tools, transportation machinery, computers, etc.
Other equipment, machinery, vehicles
- Installed equipment indirectly supporting the activities of the entity
(office equipment, vehicles, etc.)
PP&E Investments, renovations
The value of tangible assets that are not installed yet plus the value
of renovations under construction. In-process PP&E.
cost principle
An item of property, plant and equipment that qualifies for recognition as an asset shall be measured at its cost
Correct amount
those expenditures that are ordinary and
necessary to bring the item in place and in condition to use
(should include all amounts that are paid to get the item
prepared for its intended use).
The cost of an item of property, plant and equipment
comprises:
(a) its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates.
(b) any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management
Lump sum acquisitions
Means buying a group of assets together for a
determined single purchase price
In what period are ordinary repairs and extraordinary repairs expensed?
Ordinary repairs are expensed in the current period
(revenue expenditures - OPEX)
* Extraordinary repairs and betterments are capitalized
(=debited to the asset account) as they provide benefits
in future periods and depreciated over the remaining
useful life (capital expenditures - CAPEX).
Carrying amount (‚net’ or ‚book value’)
the amount at
which an asset is recognised after deducting any
accumulated depreciation and accumulated impairment losses
* Book value reflects the cost of the asset that has not
been expensed (depreciated) yet.
Depreciation
- Depreciation is the systematic allocation of the
depreciable amount of an asset over its useful life
(the periods benefited). - Depreciation matches the asset’s expense against
the revenue generated from using the asset
Useful life is:
(a) the period over which an asset is expected to generate revenues (in years); or
(b) the number of production or similar units expected to be obtained from the asset by an entity (in units of output).
Depreciation methodology
The pattern by which cost is allocated to each of the
periods involved in the service life.
– Straight line (also known as linear)
–Units of output
–Double-declining balance
– Sum of the years’ digits
Natural Reserves
Assets that come from Earth = > resource deposit
* thermal energy, oil and gas, timber, minerals
Intangible assets
- These are fixed assets that lack physical substance
- Intangibles provide special rights to the owner
- Examples: patents, copyrights, trademarks, brands, franchises, etc.
Patents
Patents give their owners an exclusive right to use or manufacture a
particular product (innovations)
Copyrights
Copyrights give their owners an exclusive right to produce or sell an
artistic or published work.
Franchises and licences
Franchises and licences provide their owners the right to manufacture or sell certain products or perform certain services on under specified conditions.
Fair value
Fair value is the price that would be received to
sell an asset or paid to transfer a liability in an
orderly transaction between market participants
at the measurement date.
True or false (T)
If an item of property, plant and equipment is revalued, the entire class of property, plant and
equipment to which that asset belongs shall be revalued.
Revaluations
Effect:
Directly modifies the value of the asset (asset debited)
Constitutes part of the depreciable amount (higher depreciation)
Result of revaluation: unrealized profit =>Recognition against Revaluation
Surplus (Equity)
Through Other Comprehensive Income
Revaluations
Methods of recognition
Gross
Proportionate restatement of the change in the carrying amount (Gross value and depreciation)
Revaluations
Methods of recognition
Net
the accumulated depreciation is eliminated against the gross carrying amount of the asset and the carrying amount is restated
Government grants
assistance by government in the form of transfers
of resources to an entity in return for past or future compliance with certain conditions relating to the operating activities of the entity
Government grants, including non-monetary grants at fair value, shall not be recognised until there is reasonable assurance that:
the entity will comply with the conditions attaching to them; and
the grants will be received.
Types of Government Grants
Asset-related
Expense-related
Both gross and net are acceptable! Although, they result in a different structure of income and statement of financial position.
Merchants
purchasing inventories and reselling those at a
higher price to customers (wholesalers, retailers)
Perpetual Inventory Management
Provides real-time data on inventories and gross profit:
running record of inventory as it is bought or sold
Each purchase or sale results is an immediate update of
the inventory and cost of sales data
Allowance
Allowance is a reduction of the price previously agreed
– E.g. to avoid returns because of a minor quality problem
– The entry is the same but the buyer is keeping the merchandise
Both returns and allowances decrease the buyer’s cost of the inventory: credit inventory
Sales revenue
amount which a business earns
from selling its inventory.
Cost of goods sold
the cost of the inventory
that has been sold to customers
Credit memorandum
a document that supports the
return of goods from the customer or an allowance and
the adjustment to the customer’s account balance
Sales Discounts
Sales discount is a contra-account to Sales revenue.
* It is used when a discount is granted on sales due to the
customer’s early payment within a discount period.
?= Netsales
Sales – Sales returns and allowances – Sales discount = Net sales
Freight charges/Shipping/Delivery
Cost of shipping the items to the place of business
Place of delivery
where the risk of loss shifts from the
seller to the buyer
F.O.B
F.O.B. is a common term (=Free on Board)
* F.O.B. is the place where ownership of goods (title)
transfer
Freight costs beyond the F.O.B. points are borne by the
purchaser
F.O.B Formulas
– F.O.B. Destination (freight borne by seller)
* Freight-out is accounted for as Delivery expense
– F.O.B. Shipping Point (freight borne by buyer)
* Freight-in is added to the cost of Inventory
– F.O.B. Shipping Point, Price prepaid (freight borne by buyer,
technically prepaid by seller)
Selling Expenses
cost related to the advertising and
selling of inventories
Raw material
Processed during manufacturing of goods or during the production of services.
What are inventorires? Inventories are assets:
- held for sale in the ordinary course of business;
– in the process of production for such sale; or
– in the form of materials or supplies to be consumed in the production process or in the rendering of services.
Goods in process
Partially completed goods (in process of
becoming finished goods).
Merchandise
Goods purchased with the purpose of selling
Finished goods
Finalized manufactured products ready for sale
The costs of purchase of inventories comprise:
the purchase price,
import duties and other taxes
transport, handling and other costs directly attributable to the acquisition of finished goods, materials and services
Cost of conversion (inventories)
Direct labour costs
Other costs (inventories)
– Other costs are included in the cost of inventories only to the
extent that they are incurred in bringing the inventories to
their present location and condition
Consistency in valuation (inventories)
An entity shall use the same cost formula for all inventories having a
similar nature and use to the entity
Cash components
coins and currency, bank accounts, checks from
customers, etc.
When do cash equivalents arise?
Cash equivalents arise when companies put their cash in shortterm interest-earning financial instruments that are deemed to be highly secure and will convert back into cash within 90 days.
What is cash management for?
To ensure that sufficient cash is available to meet the
obligations
* To ensure that the idle cash is appropriately invested to maximize the return to the company
Cash Flow Enhancing Strategies
External
Issuing stocks
Borrowing additional funds
Cash Flow Enhancing Strategies
Internal
Accelerate cash collections
Postponement of cash outflows
Petty Cash definiton
fund established for making small payments (postage, small purchases to office supplies, etc)
Treatment of Petty Cash
There must be a person (custodian) who is responsible for the box
When petty cash is taken out, a recept must be placed in the box
At any time: receipts + remaining petty cash = balance of the petty cash
Replenishment of Petty cash
It means the increase of the petty cash to the original level
Accounting Rules for Trading Securities
Initially recorded at cost
But subsequent to initial acquisition, these securities are reported at their fair value (mark to market approach).
* The fluctuation in value is reported in the income statemen
Notes receivable definiton
A written promise from a client or customer to pay a
definite amount of money on a specific future date is
called a note receivable.
Interest definition
Interest is the charge imposed on the borrower of funds to use the money
Interest = Principal X Rate X Time
E.g.: € 1000, 60-day note, bearing an interest of 12% per year:
Interest = 1 0000,122/12
Current Liabilities
Debts that are due to be paid within one year or the operating cycle, whichever is longer.
The operating cycle
The length of time it takes to turn cash back into cash.
* Starts with cash, buys inventory, sells goods, collects
receivables.
Accounts payable
the amounts due to suppliers relating to the
purchase of goods and services.
Notes payable
: formal short-term borrowings usually
evidenced by a specific written promise to pay. Typically
involves interest.
The current portion of Long-term Debt
the amount of principal which is to be paid within one year or the operating cycle, whichever is longer, should be separated and classified as a current liability.
Prepayments by customers
arise from transaction such as selling magazine subscriptions in advanced or gift-cards, etc.
Collections for third parties
arise when the recipient of some
payment is not the beneficiary of the payment.
