Comprehensive A Flashcards
Gains and losses on derivatives are recognized where?
non-hedged derivatives-income
ineffective portion of hedges: income
effective portion of fair value hedges: income
cash flow hedges: OCI until recognized in income
Under IFRS what are the requirements for a security to be measured at amortized cost?
- Intent to hold the security to collect future cash flows.
2. Terms of instrument call for payments composed of interest and principal(bonds)
Formula for amortized cost approach
carrying value of bond x yield rate =total interest income(interest income+discount) Bond% x Face value of bond =interest income Total interest income -interest income =amortized discount amortized discount adds to bond's carrying value
What is a fair value hedge?
Derivative acquired to “hedge your bets” against a firm commitment.
What is a forward exchange contract?
Agreement to purchase foreign currency at a certain price on a certain future date.
When are franchise fees recognized?
When all franchise services are performed.
How are franchise fees recorded prior to substantial performance of service by franchisor?
It is recognized by Franchisor as unearned franchise revenue, a liability account.
Is land purchased to erect a building for business purposes capitalized or expensed?
Capitalized
When equipment is purchased what is included in capitalization?
Any costs incurred to get the equipment operating. This includes cash paid for equipment, costs incurred to get it ready for it’s intended use, and the present value of future payments on equipment.
Is shipping for inventory on consignment considered a selling expense?
No - included in cost of merchandise
What is FOB shipping point?
Title passes to buyer when goods delivered to a common carrier. Inlcuded in buyers books at year end.
What is FOB destination?
Title passes to buyer when received from common carrier. Included in sellers books until received by buyer.
What is asset retirement obligation?
Responsibility to restore an asset to prior condition. For example, Reclaiming the land after a strip mine is empty from coal.
How is an ARO valued?
Present value of future amount of obligation.
What is accretion expense?
Slowly bringing the present value of an ARO to its future value over the life of the asset. Accretion expense grows, and is like reverse depreciation.
