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FAR > Concepts CH 3 > Flashcards

Concepts CH 3 Flashcards

1
Q

Changes in Accounting Principle

A

Accounted For Retrospectively

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2
Q

Type of Changes in Accounting Principle

A

Adopting Generally Accepted Principle from previously used one
Changes the Method of Applying GAAP
Change from Principle No longer accepted

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3
Q

Retroactive Application

A

Required for all direct effects and relate income tax effects
Requires carrying amounts of 1) assets 2) liabilities 3) Retained earnings at beginning of first period to be adj net of cummulative effects (CE)
All periods adjusted for period specific effects (PSE)

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4
Q

Changes in Accounting Estimate

A

Prospective Application - results from new information, reassessment of future status, benefits, obiligations, or assets & liabilities accounted for in

1) period of change
2) Any future affected periods
a) must be applied from beg of period
b) must not restate or retro adj prior period stmts

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5
Q

Change in Estimate inseparable from change in principle

A

Accounted for as a change in estimate

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6
Q

Change in Reporting Entity

A

Statements that are of those of a different entity

a) consolidated/combined replace individual

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7
Q

Error Correction

A

a) Math Mistake b) Mistake of application of GAAP c) Oversight, misuse of facts when statements are prepared.
Must not be in net income

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8
Q

Error correct after statements issued/available

A

Restate prior statements
a) carrying amounts of 1) assets 2) liabilities 3) retained earnings
beg period are adj for CE on prior periods

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9
Q

Error correction single period statement

A

as an adjustment to opening retained earnings

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10
Q

ASC 606

A

Single-principles based model for all entities regardless of industry

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11
Q

ASC 606 Steps

A

1 - ID Contract with Customer
2 - ID Performance obligations
3 - Determine transaction price
4 - Allocate transaction price to performance obligations
5 - Recognize Revenue as Performance obligation is satisfied

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12
Q

The income statement reports component results of operations including

A

1) Any gain or loss form measure component at fv - cost to sell
2) Any gain or loss on disposal in discountinued operations in the period in which they occur

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13
Q

Discontinued Operation include a component that meets 2 criteria

A

1) it has been disposed of or held for sale

2) It disposal is a strategic shift that has a major effect on entity’s operations and financial results

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14
Q

Material event or transaction that is unusual in nature, infrequent in occurrence or both must be

A

Reported as a separate component of income from continuing operations

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15
Q

If incremental effect is > BEPS

A

The PCS is antidilutitive

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16
Q

Dilution is a reduction in EPS (BEPS) resulting from assumption

A

1) Convertible Securities were converted
2) Options/Warrant were exercised
3) Contingent issuable shares were issued

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17
Q

Input method recognizes revenue

A

1) The entity’s inputs relative to performance obligation

2) the total expected inputs to performance obligation

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18
Q

An Accounting principle is changed

A

1) Transition to new pronouncement

2) when entity justifies the change on basis that it is preferable

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19
Q

Corp Sells Inventory on account and has delivered goods

A

realized and earned

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20
Q

Corp Rent extra space with yearly lease

A

Realizable

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21
Q

Sells Inventory for cash but has not delivered goods

A

Realizable

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22
Q

Corp have performed services but has not been paid

A

Realized and earned

23
Q

Corp agrees to perform services for Corp X at future time

A

Not realizable or earned

24
Q

Incremental cost of obtaining a contract with customer

A

must be capitalized if entity expects to recover them. These costs would not have been incurred if the contract had not be obtained

25
Q

The transaction price should be adjusted for the effect of

A

TMV when contract includes a significant financing component.

26
Q

A change is warranty cost is considered

A

A change in estimate and not an error correction. Thus it affects current and future income from operations

27
Q

Corrections of errors of prior periods must be accounted for

A

As prior-period adjustments and thus excluded from determination of net income for current period

28
Q

Comparative Prior Periods statements stock dividend

A

Prior period BEPS and DEPS figures for comparative purposes must be retroactively adjusted for the effects of a stock dividend and stock split

29
Q

Transaction Price

A

is the amount of consideration to which an entity expects to be entitled in exchange for transferring good/services to customers. It excludes amount collected on behalf of third parties

30
Q

If a customer obtains control of goods at contract inception

A

Revenue from contract is recognized at inception

31
Q

Transaction price should be allocated based on

A

the standalone prices

32
Q

Contracts - Revenue must be recognized must reflect the price that customer would have paid for G&S if

A

cash payment had been made when G&S were transferred to customer (cash selling price)

33
Q

The transaction price should be adjusted if

A

There is an effect for TMV (significant financing component)

Variable consideration - (discounts, incentives)

34
Q

Contracts - Must be amortized after initial capitalization

A

Incremental Costs

Cost incurred to fulfill the contract

35
Q

Variable consideration must be estimated applying one of two methods

A

Expected Value

Most likely amount

36
Q

When the outcome of the contract is not reasonably measurable, but cost incurred satisfy the performance obligation are expected to recovered

A

Revenue must be recognized only to the extent of cost incurred

37
Q

Six Criteria to be held for sale

A

1) Management has committed to plan to sell
2) To sold immediately in current condition
3) Actions have begun to complete plan
4) Completion of sale within 1 year is probable
5) Price reasonably related to current market
6) likelihood of withdrawal low

38
Q

When component is classified as held for sale it is measured at

A

Lower of
Carrying amount or
FV - Cost to sell

39
Q

Acceptable estimates when price is not observable

A

Adjusted Market Assessment

Expected Cost plus appropriate margin

40
Q

Consideration Payable to Customer

A

Reduces transaction price

41
Q

Transaction Price should not be be adjusted for TVM iff

A

1) Time between payment and delivery or G&S is 1 year or less
2) Customer paid in advance and transfer of goods is at customer’s discretion
3) Substantial amount of consideration is variable and the amount or timing varies with future circumstances not within customer or entity control

42
Q

Variable Consideration - Contract price may vary because

A
  1. Refunds due to right of return provided to customers
  2. Sales incentives
  3. Prompt payment discounts
  4. Volume discounts
  5. Other uncertainties in contract price based on occurrence or nonoccurrence of some future event
43
Q

VC - Expected value

A

Sum of probability weighted amounts in range of possible consideration amounts - may be applied if an entity has many contracts with similar characteristics

44
Q

VC - Mostly Amount

A

Is the single most likely amount in a range of consideration amounts. - May be used if contract has only 2 outcomes

45
Q

VC - Constraint

A

Revenue from variable consideration is recognized only to the extent it is probable that a significant reversal will not occur when the uncertainty associated with the variable consideration is subsequently resolved

46
Q

Volume Discount

A
  1. Prospective discount that provides a material right to the customer is accounted for as a separate performance obligation in the contract
  2. Retrospective application are accounted for a variable consideration. The uncertainty of contact price for current goods sold is based on the occurrence or nonoccurrence of some future event
47
Q

Standalone price not observable - Adjusted Market Assessment

A

An entity evaluates the market in which it sells G & S and estimates the price a willing customer would pay

48
Q

Standalone price not observable - Estimated cost plus margin

A

An entity forecasts its expected costs to satisfy performance obligation and adds an appropriate margin

49
Q

Standalone price not observable - Residual

A

An entity estimates standalone prices by reference to total transaction price minus sum of observable standalone selling prices of other G & S promised in contract. Used in limited circumstances

50
Q

Performance obligations can be satisfied either

A

Over time

At a Point in time

51
Q

For Revenue Recognition over time a entity must meet one of the following criteria

A

i. The customer simultaneously receives and consumers the benefits provided by the entity’s performance as the entity performs. Cleaning service
ii. The entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced. Construction on land
iii. The asset created has no alternative use to the entity, and the entity has an enforceable right to payment for performance completed to date. Aerospace satellite

52
Q

Revenue Recognition at point in time

A

When performance obligation is not satisfied over time,

1) When customer obtains control over promised G/S

53
Q

Revenue Recognition at point in time - Transfer of control should be considered

A
  1. The entity has a present right to payment for the asset.
  2. The customer has legal title to the asset.
  3. The entity has transferred physical possession of the asset.
  4. The customer has the significant risks and rewards of ownership of the asset.
  5. The customer has accepted the asset.

FAR (22 decks)

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