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BECKER NOTES > Chapter 4 > Flashcards

Chapter 4 Flashcards

1
Q

Working Capital

A

Current Assets - Current Liabilities

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2
Q

Current Ratio

A

Current Assets/Current Liabilities

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3
Q

Quick Ratio

A

(Cash + Net Rec + ST Investments) / CL

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4
Q

Current Assets

A

Longer of 1 year or normal business cycle

- Cash surrender value of life insurance is CA if surrendered within business cycle

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5
Q

Current Liabilities

A

Liquidated with current assets or creation of other current liabilities
- Estimated or Accrued (1 year)

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6
Q

ST Obligation classified as LT

A

US GAAP (Intent and ability)
1. Actual refinancing prior to F/S issuance
2. Non-cancellable financing agreement from lender with financial resources
IFRS (Current only)

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7
Q

Cash and Cash equivalents

A
  • Unrestricted cash (bond sinking fund not included if legally restricted, CA or non-CA)
  • ST investments with maturity less than 90 days or 3 months from original purchase
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8
Q

A/R Recovery

A

No effect on A/R

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9
Q

A/R

A 
Accounts Receivableh
(Allowance for Uncollectible Accounts)
(Sales Discounts)
(Sales Returns and Allowances)
--------------------------------------------
Net Realizable Value
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10
Q

Sales Discounts

A

Gross - Sales Discount Taken (Contra-Revenue)

Net - Sales Discount NOT Taken (Revenue)

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11
Q

Sales Returns and Allowances

- No allowances for exchanges

A

Dr Sales Returns and Allowances (contra-rev)

Cr Accounts Receivable

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12
Q

Methods of Uncollectible Accounts

A

Direct Write-off (not GAAP)

Allowance Method

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13
Q

Methods of Uncollectible Accounts

A

% of A/R (s/b end bal)
Aging of A/R (s/b end bal)
% of Sales

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14
Q

Collection of A/R Write-offs - Direct Method

A

Dr Cash

Cr Uncollectible Accounts Recovered (Rev)

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15
Q

Pledging of A/R

Loan

A

Note Disclosure, A/R not adjusted
Dr Cash
Cr Note Payable

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16
Q

Factoring

A
  1. With recourse - Sale or Loan

2. Without recourse - Sale (factor bears risk)

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17
Q

Factoring Without Recourse

A

Dr Cash
Dr Due from Factor (Security)
Dr Loss
Cr Accounts Receivable

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18
Q

Financial Assets considered surrendered

A
  • F/A isolated from transferor
  • Transferee has right to pledge or exchange F/A
  • Transferor does not control under repurchase agreement
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19
Q

Surrendered F/A with NO Continuing Involvement

A

Sale with G/L
Dr Cash
Cr A/R
Cr Gain/Loss

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20
Q

Surrendered F/A with Continuing Involvement

A
  • No retained interest, use financial component approach

- With retained interest, carried on transferor’s books with BV on relative value of all transferred assets

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21
Q

Financial Assets NOT surrendered

A
  • Secured borrowing with pledged collateral

- Recognize as A/L and int exp/inc

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22
Q

Notes Receivable valued @ PV

A 
Notes Receivable, face value
(Unearned Interest)
(Finance Charges)
----------------------------------
Present Value
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23
Q

Non-interest bearing note/below market

A

Impute market rate, effective interest method

24
Q

Discounting Note Receivable

A 
With Recourse (Holder contingently liable)
Without Recourse
25
Q

Steps to Discounting Note

A
  1. Maturity Value (include interest @ maturity
  2. Discount based at Maturity Value
  3. Proceeds = Maturity value - Discount
  4. Interest Income = Proceeds - Face Value
26
Q

Inventory LCM valuation - US GAAP

A

Replacement cost between:

  • CEILING: NRV (SP-disposal costs)
  • FLOOR: NRV-profit margin
27
Q

Inventory LCM valuation - IFRS

A

Net Realizable Value

28
Q

Inventory writedown

A 
US GAAP
-  COGS or separate in I/S if material
-  Reversal of writedown is prohibited
IFRS
-  no spefication
-  Reversal of writedown permitted up to original
29
Q

Precious metals & Farm products

A

NRV = SP - disposal cost @ date of production

30
Q

Perpetual

- Running balance

A

Dr A/R/Cash
Cr Sales

Dr COS
Cr Inventory

31
Q

Periodic

- Physical count

A

Dr Cash
Cr Sales

Dr Purchases
Cr Cash

32
Q

FIFO at rising prices

A

EI (inc) COS (dec) NI (inc)

33
Q

LIFO at rising prices (not permitted IFRS)

A

EI (dec) COS (inc) NI (dec)

34
Q

Average

A 
Weighted Average (Periodic)
Moving Average (Perpetual)
35
Q

Dollar value LIFO

A

Price Index = EI @ CY Cost/ EI @ BY Cost

36
Q

Conventional Retail

A

BI + P + MU

37
Q

Cost Retail

A

BI + P + MU + MD

38
Q

FIFO Cost Retail

A

P + MU + MD

39
Q

LIFO Cost Retail

A

BI

40
Q

LIFO Conventional Retail

A
  1. EI, Retail > BI, Retail
    LIFO Layer Added (B+P+MU+MD) added to BI, Cost
  2. EI, Retail < BI, Retail
    LIFO Layer Depleted (BI) deducted from BI, Cost
41
Q

Losses on purchase commitments

A

When price declines
DR Estimated Loss on PC
CR Estimated Liability on PC

42
Q

Consigned goods

A

Inventory of consignor - transportation costs part of inventory costs

43
Q

Donated Fixed Asset

A

FV
Dr Fixed Asset
Cr Gain on non-reciprocal transfer

44
Q

Fixed Asset Valuation - IFRS

A
  1. Cost
  2. Revaluation
    Gain - OCI (reverse I/S loss first)
    Loss - I/S (reverse OCI surplus first)
    - revalued frequently as a class of asset
    - historical cost disclosed
45
Q

Fixed Asset Valuation

A 
Cost
(Accumulated Depreciation)
(Impairment)
--------------------------------
Carrying Value
46
Q

Extraordinary repairs

A

Increases life - DR Accum Depn

Increases utility - Dr Asset

47
Q

Not part of Land cost

A

Excavation of building - Building cost

Improvement with definite life - Land improvement

48
Q

Investment property - IFRS

For rental or appreciation

A
  1. Cost
  2. FV
    - not depreciated
    - G/L on I/S
49
Q

Capitalized interest

  • during construction
  • ordinary delays
  • special orders
A
  • Amount spent, not borrowed
  • Lower of actual interest incurred or capitalized/avoidable interest
  • Excess expenditure over borrowing, use weighted ave interest on general borrowing
  • Do not reduce capitalized interest by income
50
Q

Construction period

A

Starts when company decides, expenditures made, activities started, interest incurred
Ends when asset substantially complete and ready

51
Q

Sum of the years digits

A

SY = N (N +1) / 2

Dep Exp = Depreciable base x (Yrs remaining/SY)

52
Q

Declining Balance

- SV not used in computation (as a limit only)

A

(Double) Dep Exp = NBV x (2/N)

53
Q

Depreciation - IFRS vs US GAAP

A

US GAAP - composite or component
IFRS - component only
- should match pattern of fixed asset

54
Q

Disposal

A 
1.  Full
Dr   Accum Depn
Cr   Asset
2.  Partial
Dr   Accum Depn
Dr   Loss
Cr   Asset
55
Q

Depletion

REAL

A

(R Residual Interest)
E Extraction/Development Cost
A Anticipated Restoration Cost
L Land Purchase Price

56
Q

Impairment

- Test must be done annually

A

US GAAP - 2 steps
- Reversal not permitted unless for Held for Sale
IFRS - 1 step

BECKER NOTES (7 decks)

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