Chapter 1 Flashcards
what are the fundamental qualitative characteristics of useful financial info? (2)
faithful representation and relevance
what is the objective of general purpose financial reporting?
to provide financial information that is useful to primary users.
three ingredients of faithful representation?
- completeness
- neutrality
- freedom from error
(COMPLETELY NEUTRAL IS FREE FROM ERROR)
three ingredients of relevance?
- predictive value
- confirming value
- materiality
(PASSING CONFIRMS MONEY)
when are revenues realized?
revenues and gains are realized when assets are exchanged for cash or claims to cash.
what are the four enhancing qualitative characteristics?
- timeliness
- understandability
- comparability
- verifiability
(COMPARE AND VERIFY IN TIME TO UNDERSTAND)
define monetary unit
monetary unit means that money is the common denominator for economic activity and provides an appropriate basis for accounting measurement and analysis.
define periodicity
The periodicity assumption is that economic activity can be divided into meaningful time periods.
define economic entity
The economic entity assumption is that economic activity can be accounted for when considering an identifiable set of activities.
does comprehensive income include investments by owners?
no. comp income is the change in equity of a business during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity except those resulting from investments by owners and distributions to owners.
ie - dividends paid to shareholders
what financial statement is AOCI reported on?
balance sheet/stmt of financial position
if Company A acquired 100% of Company B in the CY, what related party disclosures would need to be reported? (GAAP)
- officers’ salaries
- officers’ expenses
- loans to officers
- interco sales
only 3 (loans to officers) because that is considered outside the ordinary course of business.
if Company A acquired 100% of Company B in the CY, what related party disclosures would need to be reported? (IFRS)
- officers’ salaries
- officers’ expenses
- loans to officers
- interco sales
1 and 3 - under IFRS, loans to officers and key mgmt compensation would require disclosure
when should significant estimates be disclosed?
significant estimates should be disclosed when it is reasonably possible (not probable) that the estimate will change in the near term and that the effect of the change will be material. immaterial items are not disclosed.
when a change in accounting principle is inseparable from a change in estimate, how is the change handled?
the change is handled as a change in estimate - prospectively. no cumulative effect adjustment is made.
disclosed as component go continuing operations.
under US GAAP, a material loss OR gain should be presented separately as a component of income from continuing operations when it is…
not unusual in nature but infrequent in occurrence.
where is cumulative effect of a change in accounting principle shown?
as an adjustment to beginning RE
How should the effect of a change in accounting estimate be accounted for?
In the period of change and future periods if the change affects both.
how is change in depreciation method handled?
prospectively
where should the cumulative effect of a change in accounting estimate should be shown separately:
TRICK QUESTION!. It should not be recorded separately on any financial statement. A change in estimate is handled prospectively. No cumulative effect adjustment is made and no separate line item presentation is made on any financial statement. If a material change is being made, appropriate footnote disclosure is necessary.
when are foreign currency gains/losses extraordinary?
NEVER.
when can a liability be recognized associated with an exit or disposal plan?
- an obligating event has occurred.
- the event results in a present obligation to transfer assets or to provide services in the future.
- the entity has little or no discretion to avoid the future transfer of assets or providing of services.
when should an extraordinary loss be recorded? interim or YE stmts?
entirely in the quarter the loss occurs.
when should an extraordinary loss be recorded? interim or YE stmts?
entirely in the quarter the loss occurs.
how will a building held for sale be valued?
the building actively marketed for sale will be valued at lower of book value or NRV (FV less cost to sell)
should interest expense, income taxes, and general corp expenses be allocated to the divisions when determining operating profits per segment?
no.
operating profit by segments is based on the measure of profit reported to the “chief operating decision maker.”
int exp, income taxes, and general corp expenses are not allocated to the divisions solely for the purposes of segment disclosures; they may be allocated that is how the segments report to the “chief operating decision maker.”
what are segment reporting size rules
a segment meets the size test (10%) if the absolute amount of its reported profit or loss is 10% or more of the greater, ABSOLUTE VALUE, of
- the combined reported profit of all operating segments that did not report a loss OR
- the combined reported loss of all operating segments that did report a loss.
