Chapter 4 Flashcards
Asset
resources controlled by the company as a result of past events and from which future economic benefits are expected to flow to the entity
Liability
obligation of a company arising from past events, the settlement of which is expected to result in an outflow of economic benefits from the entity
equity
represent the owners’ residual interest in the company’s assets after deducting its liabilities
Equity in the B.s
BS is mixed measured (historical cost, fair value)
- BS is a static document
IFRS BALANCE sheet
from the least liquid to the higher liquid
GAAP B.S
from the higher liquid to the last liquid
classified balance sheet
balance sheet with separately classified current and non-current asset and liabilities
Current asset
asset expected to be sold, used up, or otherwise realised in cash within one year or one operating cycle of the business, whichever is greater, after the reporting period
Non current asset
asset not classified as current. also know as long-term or long-lived asset
current liabilities
liabilities expected to be settled within one year or within one operating cycle of the business
non current liabilities
all liabilities not classified as current
working capital
the excess of current assets over current liabilities
cash equivalent
highly liquid, short term investments that are so close to maturity that the risk of significant change in value from changes in int.rates is minimal
trade receivable
amounts owed to a company by its customer for products and services already delivered. also referred to A/R. typically reported at net realisable value
measurement base of current asset
GAAP
lower of cost or market
Market defined as replacement cost with a floor (NRV- profit margin) and a ceiling
NRV defined as estimated selling price less estimated cost of completion and sale
REVERSAL OR PRIOR WRITE-DOWNS are not allowed
yes LIFO
Measurement base of current asset under IFRS
lower cost or NRV
NRV defined as estimated selling-price estimated cost of completion and sale
reversal of prior write-downs can be made and recognise in Income
No LIFO
PP&E
Tangible asset that are mused in company operations over make than one fiscal period
PP&E under cost model
is reported at historical cost - any accumulated depreciation and less impairment losses
PP&E under the revaluation model
is reported at FAIR value at the date of te revaluation - ACC.deprecation
PP&E GAAP
permit only the cost model for reporting pp&e
reversal of prior impairment losses are not allowed
PP&E IFRS
permit either cost model or revaluation model
reversal of impairment losses are permitted
impairment
occur when a business asset suffers a deprecation in fair mkt value in excess of the book value of the asset on a company’s financial statement
book value formula
cost - depreciation
fair value is equal to
mkt value
intangible asset
non monetary asset without physical substance (trademarks, licenses..)
intangible asset IFRS
allow either cost model or revaluation model
intangible asset GAAP
allows only the cost model
intangible asset with indefinite useful life
do not amortise but asses for impairment (annually ifs; only after qualitative assessment us GAAP)
int asset with limit useful life
Amortize over useful life and asses for impairment when indicated
goodwill
arise when a company acquires another company for a price in excess of fair market value of net identifiable asset acquired
goodwill is equal
purchase price of business less mkt value of net asset acquired
goodwill is recorde
only when there is an exchange transaction that involves the purchase of an entire business
goodwill is amortised?
no, but assessed for impairment 2
accounting goodwill
represent the positive difference between the amount that was actually paid for asset and the book value of those assets when purchased in a business acquisition
economic goodwill
more than subjective value of the intangible advantages a company has over its competitors such as excellent reputation, strategic location, business connections and would represented in its higher mkt value if the company asset were sold
common type of current liabilities
trade payables
notes payable
accrued expenses
deferred income
trade payables
also know as account payable
amounts that a company owes its vendors for purchases of goods and services
notes payable
financial liabilities owed by a company to creditors, including trade creditors
accrued expenses
expenses that have been recognized on a company income statement but have not yet been paid as of the B.S date
Deferred income
arise when a company receives payment in advance of delivery of the goods and services associated with the payment
common type of non current liabilities
long-term financial liabilities
deferred tax lablites
long term financial liabilities
loans and notes or bond payable
usually reported at amortises cost on the BS
in some cases, liabilities such as bonds, ar reported at fair value
deferred tax liabilities
amount of income taxes payable in future periods with respect of taxable temporary differnces
result from temporary riming differences btw a company’s income as reported for tax purpose and income as reported for financial statement purpose
component of shareholder equity
capital contributed by owners
preferred shared
treasury shares
retained earnings
ACC.OCI
non controlling interest
liquidity analysis on the B:S
company’s ability to meet its short term financial commitments
the ability to convert assets to cash and pay fo operating needs
solvency analysis on the B:S
ability to meet it’s financial obligations over the long term
ability to pay long-term financing obligations
current ratio
current asset/current liability
quick ratio
cash + mkt securities + receivables/ current liability
cash
cash + mkt securities/curr.liabilites
long term deb to equity
tot long term debt/to equity
debt to equity
tot debt/tot equity
debt to asset
total debt/tot asset
debt to capital
total debt/(total debt + total equity )
financial leverage
tot asset/tot equity
