ASC and Framework of Financial Reporting

Question 1

How to Research a Question

Answer 1

REVIEW and TRY THIS

Question 2

Codification Structure

Answer 2

Areas
Topics
Subtopics
Sections
Sub Sections
Paragraphs

Question 3

ASUs

Answer 3

Accounting Standard Updates are how GAAP is communicated, but are NOT GAAP

Question 4

Overriding Objective with Primary and Enhancing Characteristics of Financial Reporting

Answer 4

Decision Usefulness (Objective) from

PRIMARY

1. Faithful Representation (Complete,Neutral, Free from Error);
   Can I depend on it?
2. Relevance (Predictive, Confirmatory, Materiality)
   Does it relate to my decision?

ENHANCING

1. Comparability
2. Understandibility
3. Timliness
4. Verifiability

R oger is PC, although he is a little M aterialistic, however he is never on the FENCE, but E xercises to be CUT like a V.

1. Primary Characteristics: Relevant (Predictive, Confirmatory, Material) and Faithfully Represented ( Error, Neutrality, Completeness)
   a. (R: P / C / M) and F: E / N / C)
2. Enhancing Characteristics: Comparability, Understandibility, Timeliness, Verifiability)
   a. E: C / U / T / V)

Question 5

Assumptions

Answer 5

Entirely from your GUT

Entity
Going Concern
Unit of Measurement
Time Period

Question 6

Accounting Principles

Answer 6

Revenue Recognition
Expense Recognition (Matching)
Measurement
Full Disclosure

Revenue is Recognized (Recorded) when Realized (Cash or AR) and Earned (Good or Service delivered)

Question 7

Measurement

Answer 7

1. Net realizable value – This value is used to approximate liquidation value or selling price. It is the net value to be received after the costs of sale are deducted from the current market value
   a. Example: Lower cost or market for inventory valuation uses NRV.
2. Current replacement cost – This value represents how much you would have to pay to replace an asset. Current replacement cost would represent current market value from the buyer’s perspective.
   a. Example: Replacement cost is also used in inventory valuation.
3. Fair value – This value is also referred to as current market value. It is the price that would be received to sell an asset (or the price to settle a liability) in an orderly transaction from the perspective of a market participant at the measurement date (see the fair value lessons for further discussion of fair value).
   a. Example: Current market value (or fair value) is used to value trading and available-for-sale securities.
4. Amortized cost – This value is historical cost less the accumulated amortization or depreciation of the asset.
   a. Example: Buildings and equipment are reported at historical cost less accumulated depreciation.
5. Net present value – This is the value determined from discounting the expected future cash flows.
   a. Example: The discounted future cash flows are used in many capital budgeting decisions.

Question 8

What is the conceptual framework intended to establish?

Answer 8

The objectives and concepts for use in developing standards of financial accounting and reporting.

The concepts statements, also collectively called The Conceptual Framework, provide the general underpinnings for specific GAAP. In a way, it is a “constitution” for developing specific accounting principles. The concepts statements are not GAAP, however.

Question 9

According to the FASB conceptual framework, certain assets are reported in financial statements at the amount of cash or its equivalent that would have to be paid if the same or equivalent assets were acquired currently. What is the name of the reporting concept?

Answer 9

Replacement cost is the amount to be paid for an item at the current time. This concept is used in the lower-of-cost-or-market inventory valuation procedure. Replacement cost is an example of an entry price-the amount required to be paid currently to obtain an asset already held.