CRAM W2 Flashcards
(39 cards)
What is the central characteristic of a joint venture?
Shared control; not likely for one party to have unilateral control.
What method is least likely to be used to account for a joint venture?
FV method generally n/a because it is unlikely that a readily determinable value is available.
How are the initial investments into a joint venture accounted for?
Investments of assets (equipment and other property) should be accounted for at BV, NOT FV.
Under IFRS, how is the G/L on an investment in a joint venture determined?
G/L should be determined for the share of ownership held by the investor (likely 50%) attributable to the excess of FV over CV.
Under the equity method of accounting, are investments adjusted to FV at YE?
No. Equity method investments are never adjusted to FV, and no unrealized G/L’s are recognized.
How does an investor report stock rights in the YE Balance Sheet?
FV of rights/[current market value of orig. purch+FV of rights]*BB of investment
Under IFRS is it possible for a portion of a building to be considered/reported as investment property, while the other portion of the property is not?
Yes.
Under IFRS, what methods are allowed for reporting investments?
Cost and FV - Equity method is disallowed.
Under IFRS, when the cost method is used to account for an investment property, what disclosure is also required?
FV info is required.
If a rental lease is signed requiring first and last month’s rent and a deposit that is rarely returned in full (and the amount deducted from deposit can be estimated), what amount is recorded as deferred rental revenue at YE?
The last month’s rent and the full security deposit is recorded as deferred revenue @ YE. Even though the amount generally deducted from the deposit can be estimated, the damages associated cannot be anticipated.
What is the cash surrender value of a life insurance policy, and how does this figure affect the accounting for the revenue, asset, and expenses associated?
CSV is an asset built up/recorded over time that reduces insurance expense. To properly calculate insurance expense for a period, the change in CSV must be considered. Revenue to be recognized from payment of a life insurance policy is the proceeds less the CSV.
If an intangible asset can be renewed indefinitely, how is amortization recorded?
When an intangible can be renewed indefinitely and the co. has the positive intent and ability to renew continuously, the asset is instead tested for impairment annually.
What is another way to define an indefinite life intangible?
If cash flows are expected to be generated indefinitely, the asset qualifies as an indefinite life intangible and is not subject to amortization.
Is a customer list considered/recorded as an asset? If yes, how is amortization handled?
Yes; it is a definite life intangible that is amortized and tested for impairment based on the recoverable cost test.
What is the 2 step process required for GW impairment analysis?
- Is CV greater than the FV of the reporting unit?
- Determine the implied value of GW and calculate the loss.
* Implied Value is diff between FV of the unit and FV of its assets and liabilities.
What is the main criteria required for an asset to be considered an intangible under IFRS?
The item is identifiable and lacks physical substance.
Under IFRS, when can an entity use the revaluation model for subsequent measurement of an intangible?
When an active market exists for the asset.
When is recovery of of a previously recognized impairment loss allowed, under IFRS?
Whenever events and circumstances change, a previously recognized loss may be recovered.
The IFRS test for asset impairment involves comparing the CV of the intangible to the recoverable amount. What is the recoverable amount?
The greater of FV less cost to sell or value in use.
What is a balloon note and how is it classified in the Balance Sheet?
A note that does not fully amortize over the life of the loan. Thus, the entire balance of such a note is considered a long-term debt.
How does interest earned affect an escrow liability?
As the holder of funds for a mortgage company, the interest that is accrued on the escrow account increases the liability. It is money earned on the deposited funds that are still owed to the owner of the account.
What is included in a firm’s account for payroll tax liability?
The sum of income tax withheld, applicable FICA, and any other provided tax rates. The key is not to forget to include the amount withheld - that is a liability to the firm.
In the event of a short term NP that incurs a loan origination fee in addition to stated interest, is the effective rate equal to the % of the origination fee + the stated interest %?
No; the origination fee reduces the amount received by the borrower AND increases the interest to be paid by the same amount. The effective rate will be greater than the sum of these 2 rates.
When recording a NP, is interest expense/payable recorded at the market rate or the stated rate?
Interest expense should reflect the market rate at the date of issuance. If there is a difference from stated rate, a discount or premium should be recorded.
Interest payable is always recorded at the stated rate.
