Deck #3 (F1) Flashcards
when is a component of an entity “held for sale”
- MGMT commits to a plan to sell the component
- Component is available for immediate sale
- Active program to locate a buyer
- Sale is probable within one year
- Sale of the component is marketed actively
what are 3 examples of strategic shift for a company? (discontinued ops)
disposal of:
- major geographic area
- major equity method investment
- major line of business
when is the earliest period a component can be considered discontinued?
when it is classified as held for sale
how do you calculate an impairment loss?
fair value less carrying (book) value
how should you depreciate a held for sale asset?
YOU DON’T
How do you treat the conversion from cash basis to accrual basis?
prior period adjustment as a result of an error correction
How do you treat a change in accounting principle? (i.e. going from FIFO to Weighted Average)
adjustment to BEGINNING retained earnings
How do you treat a change in accounting estimate?
account for the current period as well as future period if change affects both (DO NOT RESTATE)
Examples of estimate changes
- change in life of a FA
- settlement of litigation
- write down of obsolete inventory
What are the components of OCI (PUFIER)
Pension adjustments
Unrealized gains and losses (only available for sale)
Foreign currency items (gains/loss, or TRANSLATION)
Instrument specific credit risk
Effective portion of cash flow hedges
Revaluation Surplus (ONLY IFRS)
what is the nature of accumulated OCI?
what goes in will always come out
ENTRY:
- recording unearned revenue
- adjusting entry once revenue is earned
DR: Cash
CR: Unearned Revenue
DR: Unearned Revenue
CR: Revenue
ENTRY:
- recording prepaid expense
- adjusting entry once expense is incurred
DR: Prepaid Expense
DR: Cash
DR: Expense
CR: Prepaid Expense
ENTRY:
1. recording accrued revenue
DR: AR
CR. Revenue
ENTRY:
1. recording accrued expense
DR: Expense
CR: Accrued Liability
what is important to know about adjusting entries (3 things)?
- never involves a cash account
- must be recorded by the end of the fiscal year
- they will always hit one IS account and one BS account
ENTRY:
- recording a loan from a bank
- recording interest accrued from that loan
DR: Cash
CR: Note payable
DR: Interest Expense
CR: Interest Payable
Examples of error correction
- nonGAAP to GAAP policy
- corrections of error recognition, misuse of facts, etc.
Is change in depreciation method a change in estimate or a change in principle
ITS BOTH. Estimate supersedes. Only affects future periods.
how is a correction of an error reported?
net of tax, on the statement of retained earnings (affects the opening balance)
Under IFRS how many balance sheets must be present after an accounting principle change is reported
3
when a change in accounting entity is present, how is it treated?
retrospectively, including note disclosures, to all prior period statements presented
under GAAP, the effect of an inventory pricing change on prior years exists when
LIFO to weighted average
