F-2 Matching, FX, And Other FS Presentation Flashcards
What’s our liabilities
Liabilities are probable future sacrifices of economic benefits
Define revenue
Revenues are increases of assets or reductions of liabilities (possibly both) during a period of time
What are the four criteria to recognize when revenue is realized or realizable and when it is earned (for US GAAP)
Persuasive evidence of an arrangement exist
Delivery has occurred or services have been rendered
The price is fixed and determinable
Collection is reasonably assured
What are the revenue recognition rules for the sale of goods under IFR S
Revenue and cost incurred for the transaction can be measured reliably
Probable that economic benefit from the transaction
Entity transferred risk and rewards of ownership
Entity does not retain managerial involvement
What is the revenue recognition rules for rendering of services under IFR S
Recognized under the percentage of completion method when the outcome of the transaction can be reasonably estimated
Estimated lively when all of the following conditions have been met:
Measured reliably
Economic benefit
Determination of completion is reliable
What are the revenue recognition rules under IFR S for interest, royalties, and dividends
Revenue can be measured reliably
Probable economic benefit
Interest revenue is recognized using the effective interest method,
royalties are recognized on the accrual basis,
and dividends are recognize when the shareholders rights to receive payment are established
What are the revenue recognition rules under IFR S for construction contracts
Percentage of completion method only if estimated reliably
Both the contract cost to complete the contract and the stage of contract completion at the end of the reporting. Can be measured reliably
And expected loss on the construction contract is recognized immediately as an expense
What is a multi element arrangement
The fair value of the contract must be allocated to the separate contract element.
Revenue is then recognize separately for each element based on the revenue recognition criteria for each element
What is the definition of expenses
Expenses are reductions of assets or increases of liabilities (or possibly both] during a period of time.
What are expired costs
Expired cost [’s expenses]’s or costs that expire during the period and have no future benefit
Insurance expense
COGS allocated to the period in exhibition the sale takes place
Period costs
What are unexpired costs
Unexpired costs should be capitalized and matched against future revenues
Fixed assets
Inventory
When are royalty revenue is recognized
When earned usually earned realties based on stated percentage of sales. Reporting royalty revenue requires a cruel of the provision for revenues based on estimated sales
When a buyer has the right to return the product rep and you shall be recognized at the time of sale only if all required conditions are met
Sales price is substantially fixed at the date of sale
Buyer assumes all risk of lost
Buyer has paid some form of consideration
Products sold is substantially complete
Amount of future returns can be reasonably estimated
(This is not a contingent sale)
If all conditions are NOT met the. The revenue will need to be recognized as DEFERRED REVENVUE
what are assets
Assets are probable future economic benefits
What does a franchise operations include? (ASC 952)
A franchisee that received the right to operate one or more unit of a franchisor’s business.
Franchise accounting involves 2 types of fees:
Initial franchise fee - fees paid by the franchisee for receiving initial services from the franchisor.
Continuing franchise fee - fees are received for ongoing services provided by the franchisor to the franchisee.
How should the franchise or accounts for the initial franchise fee(This fee includes services provided to the franchisee include site selection, supervision of construction, bookkeeping services, and quality control)
The upfront fee is recognized as unearned revenue.
Dr. Cash
Cr unearned revenue
U earned revenue is recognized as revenue once substantial performance is completed.
Substantial performance means:
1) Franchisor has no obligation to refund any payment
2) Initial services requires of the franchisor have been performed
3) All other conditions of the sale have been met
Generally substantially performed means the first day the franchisee starts to operate
What are other acceptable methods of recognizing revenue on the franchisor’s books?
1) installment or cost recovery percentage methods may be used under certain circumstances.
2) early recognition of initial franchise fee revenue only when:
A) revenue is collectible over an extended period of time
B) these is no reasonable basis for estimating collectibility
House should intangible assets acquired from other companies be recorded
The intangible asset are recorded at cost
How should internally developed intangible assets be accounted for under US GAAP
These expenses should be expensed as incurred US GAAP prohibits the capitalization of research and development costs.
Except certain costs associated with intangibles that are specifically identifiable can be capitalized:
1) legal fees and other costs related to a successful defense of asset (not successful is expenses)
Under IFRS how are research and development costs accounted for
Research cost = expenses
Development costs = capitalize, if:
- technological feasibility
- intends to complete
- ability to use or sell
- future economic benefits
- complete the development
How is the cost of intangible assets acquired from other companies measured?
1) by the cash disbursed or FV of other assets distributed
2) by PV of amounts to be paid for liabilities incurred
3) by FV of consideration received for stock issued
What is the amort life of a patent?
The shorter of its estimated life or remaining legal life.
What is the income tax effect for the amortization of acquired intangible assets that are not identifiable?
Amort over 15-years. This will cause a temp difference and interpretive allocation of income taxes.
Under IFRS, intangible assets can be reported über what 2 methods?
1) cost method - intangibles are reported at cost and impairment
2) revaluation model - revalue intangible asset in each reporting date and adjust for amortization
CV = FV - amort - impairment
Revaluation losses - recorded in income statement , unless the revaluation loss reverses a previously recognized revaluation gain. Then it reported in OCI and reduces the surplus
Revaluation gains - same as losses
How should the franchisee account for the initial franchise fee?
As an intangible asset and amortize cost over the life of the franchise
How should the franchisee account for the continuing franchise fee?
Expense as incurred.
How should the franchisee account for start up costs?
Start up costs, including organizational costs are expenses as incurred.
Expenses such as:
Legal fees or corporation fees
Opening a new facility
Does not include:
Routing, ongoing efforts to refine, enrich, or improve the quality of existing products, services, processes, or facilities
Business merger or acquisition
Ongoing Customer acquisition
For tax purposes how are start up costs and operation expenditures recorded
Business may deduct $5k from $50k or start up cost. Any excess over 50k may be amortized over 180 months – temporary difference
Calculating goodwill under the acquisition method
Goodwill = FV - assets
Calculating goodwill under the equity method
Goodwill = stock purchase price - assets
How should R&d costs be accounted for under US GAAP?
Expenses as incurred
Except for,
- PPE, which are capitalized
- R&D costs are undertaken on behalf of others u see a contractual arrangement
Under IFR us how she computer software development cost be treated
I FRS does not provide separate guidance regarding computer software development costs. It is considered to be internally generated intangible, where research cost or expense and development costs are capitalized
What is technological feasibility
Technological feasibility is established upon completion of:
1) detailed program design or
2) completion of a working model
How to account for costs related to computer software developed for sale, lease or licensed?
Expense costs incurred until technological feasibility has been established
Capitalize costs incurred after technological feasibility has been established.
*** capitalized software cost is amortized on the GREATER of
% of revenue = capitalize amount X (current gross rev/total projected gross rev
Straight line = cap amount / estimated life
How are capitalized cost reported on the balance sheet?
At the lower of cost or market
How should computer software developed to be sold be amortized (there are 2 options):
Annual amortization is the GREATER of:
% of revenue = total capitalized amount X (current gross rev/projected gross rev)
Straight line
How should computer software developed internally or obtained for internal use only be accounted for
Expense cost incurred for the preliminary project state
Capitalize cost after the Preliminary Project State using straight line (cuz no revenue is being generated)
How should the software be treated if it internally develop software is subsequently sold to an outsider
If it ends up being sold you have to deplete the carry amounts of the internally developed software first then you can recognize revenue
Basically what you’re trying to do is recover the cost first
An intangible asset with a finite life is tested for impairment using a two-step impairment test:
Step one –
Carrying asset compared to undiscounted future cash flow
If carrying. Amount is > undiscounted FCF = impaired
Step two -
If impaired then carrying amount is compared to Fair value amount to determine the actual impairment to be recorded.
How shit intangible asset with indefinite life be tested for impairment
Using the one step impairment test which is typically used for meanly Goodwill so only step two of the two-step process is used
How is an impairment loss reported on the financial statements
Impairment loss is reported as a component of income from continuing operations before income taxes unless it relates to disc ops
Under IFR S and impairment loss for an intangible asset is calculated how
Intangible assets other than goodwill is calculated using it one step model in which the caring value of the intangible asset is compared to the intangible assets recoverable amount. I FRS defines the recoverable amount as the creator of the assets fair value less cost to sell and the assets of value in use. Valuing use is the present value of the future cash flow’s expected from the intangible asset. IFRS allows the reversal of impairment losses.
What is the definition of a reporting unit
If the unit has separate cash flow and management regularly reviews it
Under US GAAP a private company may elect to play the following alternative methods of goodwill accounting
Amortize goodwill on a straight line basis over 10 years or less than 10 years if you can demonstrate that another use for life is more appropriate
Make an accounting policy election, disclose in the summary of significant accounting policies in the footnotes, to test Goodwill for impairment at either the entity level or the reporting unit level when I triggering event occurs
What is the completed contract method?
Recognition of income is recognized only when the contract has been completed (or substantially completed)
When is it acceptable to use the completed contract method
1) when it is difficult to estimate the cost of the contract in progress
2) there are many contracts in progress
3) The projects are short duration and collections are not assured
How should the completed contract method be presented on the balance sheet?
The excess of accumulated costs (expenses) that need to be billed stays on the balance sheet as a current asset (like AR).
Excess billing over the costs incurred = current liability
Both cases need to be presented separately on the balance sheet
What is the preferred terminology for the balance sheet presentation for completed contract method?
Costs (billings) of I completed contracts in excess of related billings (costs)
Shown. Net
What are the primary advantages and disadvantages to completed contract method
Primary advantage - based on final results rather than on estimates
Primary disadvantage – does not follow matching principle
Under IFR S how is the completed contract method accounted for
I FRS does not allow the completed contract method instead you must use the percentage of completion method or the cost recovery method.
Under the cost recovery method revenue can only be recognized to the extent that cash collected exceeds the cost incurred
The percentage of completion method follows what principal?
Matching
However it is an exception to the basic realization principal
What is the formula to determine the percentage of the job completed
Work done/total expected work = % of job earned
What is the installment method of accounting
It is used only when there are no reasonable basis for estimating the degree of collectibility
Revenue is not recognized at the time of sale is made but rather when cash is actually collected
How do you calculate the gross profit for an installment method
Gross profit equals sale minus cost of good sold
How do you calculate the gross profit percentage under installment sales
Gross profit percentage equals gross profit divided by sales price
How do you calculate earned gross profit under installment sales
Earned gross profit equals cash collected times gross profit percentage
How do you calculate for a gross profit under installment sales
Deferred gross profit equal installment receivable times gross profit percentage
What is the cost recovery
Under the cost recovery method no profit is recognizing to sale until all costs have been recovered. At the time of sale the expected profit on the sale is recorded as deferred gross profit. Cash collections our first applied to the recovery of the product costs. Collections after all costs have been recovered are recognized as profit.
When is the cost recovery method
It may only be used when receivables are collected over an extended period and there is no reasonable basis for estimating there collectibility
What are the two groups that US GAAP requires that exchanges of non-menterry assets be grouped
Those that have a commercial substance – gain/loss recognized
Those that black commercial substance – loss recognize/gain exceptions
How are gains and losses recognized in and exchange that has commercial substance
Gains and losses are always recognize in exchanges having commercial substance and her computed as the difference between fair value and book value of the asset given up
Under IFR S how are non-monetary exchange is
Similar assets and exchanges of dissimilar assets
Under IFR S how are Dissimilar similar assets accounted for ?
Dissimilar assets are regardless as exchanges that generate revenue and are accounted for in the same manner as exchange is having commercial substance under US GAAP
How under IFR S are similar exchanges accounted for
Exchanges of similar assets are not regarded as exchanges that generate revenue and no gains are recognized.
What are exchanges like a commercial substance
If projected cash flow after the exchange are not expected to change significantly, then the exchange lacks commercial substance
What are the acceptable accounting treatments used to record gains in exchanges lacking commercial substance
1) No boot = no gain
2) boot is paid = no gain
3) boot is received = recognize proration gain (=25% = total considerations
What is the acceptable accounting treatment to record losses for exchanges lacking commercial
Losses should be fully recognized
What is the accounting treatment for involuntary conversions for non-monetary
Whenever a non-monetary as it is involuntary converted (example fire loss theft or condemnation) to cash, the entire gain or loss is recognize for financial accounting purposes.
What is the tax treatment for involuntary conversion
The rules for involuntary conversion are different for tax purposes. If the game is recognized for financial purposes in one period And for tax purposes and another period a temporary different result. Interperiod tax allocation will be necessary.
What are the differences in accounting between the lacking commercial substance versus has commercial substance
What a transaction involving a non-monetary change locks commercial substance, the reported amount of the non-monetary assets surrendered is used to record the newly acquired assets.
If the transaction has commercial substance, the fair value approaches used
Under a transaction that lacks commercial substance how are the gains or losses calculated
Gain or loss is calculated by subtracting the netbook value of the asset surrendered from its fair value.
The fair value of assets surrendered must always equal the asset received even if only one of these amounts is given.
So I gain is recognize when boot is received. No boot equals no gain recognized
In order to have commercial substance either
The risk, timing, and amount of the expected future cash flow from the outside, transferred differs significantly from the risk, timing, and amount of the expected future cash flow from the asset received.
The entity specific value (based on the company’s expectations of value of the asset and not that of the marketplace) of the asset received differs significantly, in relation to the fair value of assets exchanged, from the assets transferred.
What are historical cost
The actual exchange of value at the time and asset or liability was acquired
What is current cost
The cost incurred at the present time it accounts for appreciation
What is nominal dollar
Nonnel dollar does not adjust for inflation and therefore is on adjusted in purchasing power
What is constant dollar
Adjust for inflation and calculations are based off of the CPI ratios
What are the four methods of measuring prices and effects of price changes
1) historical cost/nominal dollar (HCND) –> no adjustment for appreciation and inflation (GAAP basis)
2) historical cost/constant dollar (HCCD)
- -> adjust for inflation only
3) current cost/nominal dollar (CCND)
- -> adjusts for appreciation only
4) current cost/constant dollar (CCCD)
- -> adjusts for both appreciation and inflation
What are monetary assets and liabilities
Monetary assets and liabilities are fixed amounts.
Holding monetary assets jury periods inflation will result in a loss while holding liabilities will result in a gain of purchasing power
What are non-monetary assets my abilities
Non-monetary assets and liabilities fluctuate in value with inflation and deflation
What are foreign currency transactions
They are transactions with foreign entity the nominating in a foreign currency
So I buy something in Germany n EUR
What is foreign-currency translation
The conversion of financial statements for an entity into financial statement expressed in domestic currency
What is the direct method exchange rate
Direct method is the domestic price of one unit of another Currency
One euro costs $1.47
What is the indirect method exchange rate
The foreign price of one unit of the domestic currency
0.68 euros buys $1.00
What is the current exchange rate
It is the year-end spot rates
What is the full word exchange rate
The exchange rate existing now for exchanging to current sees any future date
What is the historical exchange rate
The rates in effect at the date of issuance of stock or acquisition of assets
What is the weighted average rate
This rate is calculated to take into account the exchange rate fluctuations for the.
What is reporting currency?
The currency of the entity reporting the financial statement results
What is functional currency
It is the current sea of the primary economic environment in which the Entity operates. usually the local currency or the reporting Currency
What is foreign Currency translation
The restatement of financial statements denominated in the functional currency to the reporting Currency using appropriate rates of exchange
What is foreign-currency remeasurement
Foreign Currensy is the remeasurement is the restatements of foreign financial statements from the foreign currency to the entities functional currency in the following situations:
1) the reporting currency is the functional currency
2) the FS must be restated j. The entity’s functional currency prior to translating the financial statements to the reporting currency
What conditions must exist for an entities local currency to qualify as the functional current see if it is the Currensy of the primary economic environment under US GAAP
The foreign operations are relatively self-contained and integrated with in the country
The day-to-day operations to not depend on the parents or investors functional currency
The local economy of the foreign entity is not highly inflationary which is the fine is cumulative information on the hundred percent over three years
Under IFR S what factors must be considered in determining and entities functional currency
Note: the first three factors have priority over the other factors
The current see that influences sales prices for goods and services
The Currensy of the country whose competitive forces and regulations mainly determine the sales price of goods and services
The current see that meanly influences labor material and other cost of goods and services
The Currensy in which funds from financing activities are generated
The current sea in which receipts from operating activities are usually retained
Whether the activities of the foreign operations are an extension of the parents activities or are carried out with a significant amount of a Autonomy
Whether transactions with the parents are a large or small portion of the foreign entities activities
Whether cash flow is generated by the for an operation directly affect the cash flow of the parents and are available to be remitted to the parents
Whether operating cash flow’s generated by the for an operation or sufficient to service existing and normally expected that or whether the foreign entity will need funds from the parent to service it’s debt
When is the re-measurement method or Temporel method used in translation
If the financial statements of the foreign subsidiary are not in the subsidiaries functional currency, the financial statements are remeasured to the functional currency starting with the balance sheet.
Balance sheet
- monetary items = current rate (fixed)
- non-monetary items = historical rate (fluctuate)
Income statement
- non balance sheet items = weighted avg
- balance sheet items = historical rate
- ** deprecation
- **cOGS
- **amort
Remeausrement gain or loss: ==> plug in income statement and then plug in RE
When do you use the translation method or current rate method
If the financial statements of the foreign subsidiary are in the subsidiaries functional currency, the financial statements are translated to the reporting Currensy starting with the income statement
Income statement
- all income statement items = weighted avg
- transfer net income to RE
Balance sheet
- assets = current rate (spot)
- liabilities = current
- coming stock/APIC = historical rate
- retained earnings = roll forward
Translation gain and loss is recorded in OCI
What is OCBOA (other comprehensive bases of accounting)
Cash basis
Tax basis
A definite set of criteria that has substantial support
Regulatory basis
What are the OCBOA 5 guidelines
1- Financial statement titles should differ from the accrual basis financial statements
2- required financial statements are the equivalent of the accrual basis balance sheet and income statement
3- The financial statements should explain changes in equity accounts
4- cash flow is not required
5- disclosures in OC BOA financial statements should be similar to the disclosure in GAAP financial statements and should include:
Summary of significant policies
Informative disclosures Disclosures related to items not shown on the face of the financials (sub events and related parties)
How was the cash basis financial statement used
Under the cash basis of accounting, revenues are recognized when cash is received and expenses or recognize when cash paid. Cash basis financial statements are generally use by states and trusts, so they can ventures, and political campaigns and committees.
Cash basis financial statements include?
Statement of Cash and equity
Statement of Cash receipts and disbursements
What is a modified cash basis financial statements
The modified cash basis is a hybrid method that includes elements of those cash basis and accrual basis accounting. Modification should not be so extensive that the modified cash basis financial statements become accrual basis financial statements
What are some common modifications made to the modified cash basis financial statements
Capitalizing a depreciating fixed assets
Accrual of income taxes
Recording liabilities for long-term and short-term borrowings and deleted interest expense
Capitalizing inventory
Reporting investments at fair value and recognizing unrealized gains and losses
What is the income tax basis financial statements
Text bases financial statements are prepared on the methods and principles used to repair the entities tax return. Special accounting treatment must be given to nontaxable revenues and expenses not reporting on the tax returns.
Nontaxable revenues and expenses may be reported as:
1- separate line items in the revenue and expense sections of the statement of revenues and expenses
2- additions and deductions to net income, or
3- disclosure and a note
Note: text bases financial statements includes a statement of assets and liabilities and equity
What are personal financial statements
Personal financial statements are financial statements of individuals or groups of related individuals families and are generally prepared to organize and plan financial affairs.
Statement of financial condition = balance sheet
What is the statement of financial condition under personal financial statements
The statement of financial condition is the basic personal financial statement and presents as it’s liabilities current values rather than at historical cost. Assets and liabilities or recognize on the accrual basis and personal net worth is the difference between total assets and liabilities included in the statement
Under personal financial statements as it’s reported it estimated current fair value
1- The present value of projected cash receipts is appropriate for estimating the current value of monetary assets
2-Life insurance loans payable or not it against the cash surrender value of life insurance
3-A business interest accounts to the large part of an individual’s total asset should be presented as a single amount of estimated current value separately from other investments
4-vested pension plan benefits are reported fair value
Liabilities are reported estimated current amount
