F1 - Accounting Standards & Concepts

Question 1

What is FASB accounting standard codification

Answer 1

Effectively July 2009, FASB accounting standard codification became the single authoritative nongovernmental US GAAP. Accounting & financial reporting practices not included in the codification are not GAAP.

Question 2

FASB members

Answer 2

FASB have 7 full time members who serves for 5 year term and maybe reappointed to one additional 5 year term

Question 3

IFRS Foundation consist of:

Answer 3

1) IASB established in 2001 to develop a single set of high quality global accounting standards and to issue IFRSs.
2) IFRIC established in 2002 to issue interpretations on IFRSs.

Question 4

IASB members

Answer 4

IASB have 15 full time members and 2 part time members

Question 5

what is SFAC

Answer 5

Serves as a basis for all FASB pronouncement.

Question 6

What are financial information provided in general purpose financial reports

Answer 6

Information about entity resources, claims against the entity and how effectively and efficiently managements discharges their responsibilities to manager the entity resources.

Question 7

Fundamental qualitative characteristics consist of:

Answer 7

1) Relevance; capable of making differences in decisions made by users.
2) Faithful representation; Reliable.

Question 8

Relevance consist of:

Answer 8

1) Predictive value.
2) Confirming value.
3) Materiality.

Question 9

Faithful representation consist of:

Answer 9

1) Completeness; includes description and explanation.
2) Neutrality; free from bias.
3) Free from error.

Question 10

Enhancing qualitative characteristics consist of:

Answer 10

1) Comparability; consistency
2) Verifiability.
3) Timeliness.
4) Understandability; classified, characterized and presented clearly.

• Compare & verify in time to understand.

Question 11

Characteristic of nonbusiness organization:

Answer 11

1) Significant portion of their resources come from contributions & grants.
2) Their operation purposes are other than to provide goods or services.
3) They lack ownership interests that can be sold, transferred or redeemed.

Question 12

Measurement attributes for assets & liabilities :

Answer 12

1) Historical Cost; PP&E
2) Current Cost (Replacement Cost); Inventory
3) Net realizable value; A/R = Gross - allowances.
4) Current Market Value (Fair Value); Marketable securities.
5) Present Value of future cash flow; Long term debt “bonds”

Question 13

Accrual for losses & gains occur when:

Answer 13

If the loss if probably we accrue for he loss, but if the loss is reasonable we don’t accrue.
An accrual for any contingent gain is prohibited.

Question 14

Elements of F/S under GAAP:

Answer 14

1) Revenue
2) Expenses
3) Gain
4) Losses
5) Assets.
6) Liabilities.
7) Equity.
8) Investments by owners.
9) distributions by owners.

REG ALE ID

Question 15

Elements of F/S under IFRS:

Answer 15

1) Revenue
2) Expenses
3) Gain
4) Losses
5) Assets.
6) Liabilities.
7) Equity.
8) Capital Maintenance Adjustments; any increase or decrease in equity resulting from revaluation or restatement of assets & liabilities.

Question 16

Present value computation methods:

Answer 16

1) Traditional method; one discount rate and scheduled known payments.
2) Expected cash flow method; uncertain future payments.

Question 17

Uses of the income statement:

Answer 17

1) Determine profitability.
2) Asses value of investment; stocks and bonds.
3) Credit worthiness.

Question 18

The loss from discontinued operations consist of:

Answer 18

1) Impairment loss; if the BV > net realizable value.
2) Gain/Loss from actual operations.
3) Gain/Loss on disposal = Selling price - carrying value after impairment.

Question 19

How Gain/Loss from actual operations in discontinued operation is calculated:

Answer 19

In the year of sell, loss from operation should be calculated into 12 month.
if the managements plans to sell the line in April and the operating loss was 200$ per month, the actual operating loss will be 200*12

Question 20

All criteria must met to classify as help for sale:

Answer 20

1) Management commits to a plan to sell the component.
2) The component is available for immediate sale.
3) Active program is set to locate a buyer.
4) The sale is probable and expected to be complete within one year.
5) The sale of the component is being actively marketed.
6) Actions required to complete the sale is unlikely to change.

Question 21

Difference between IFRS and GAAP in held for sale components

Answer 21

Under IFRS a component must be re-measured, while under GAAP its is not required to re-measure the component.

Question 22

Anticipated future gain/loss for discontinued operation are recognized when:

Answer 22

Gains/Losses anticipated to occur in future periods are not recognized until they occur.

Question 23

Measurement and valuation of held for sale

Answer 23

Held for sale component is measured at the lower if carrying value or fair value minus cost to sell (Net realizable value)

Question 24

Exit and disposal costs includes:

Answer 24

1) Involuntary employee termination plan
2) Cost to terminate a contract other than capital lease.
3) Other costs associated with exist or disposal activities.

Question 25

Entity commitment to exit or disposal plan by itself is not enough to result in a liability, criteria should be met to recognize liability:

Answer 25

1) An obligation event has occurred.
2) When the event occurs we should make a payment.
3) The entity has no discretion to avoid future payment.

Question 26

Anticipated future operation losses incurred as a prt of exit or disposal activates are recognized when:

Answer 26

Future operating losses expected to be incurred as a part of exist or disposal activity are recognized in the periods they occur.

Question 27

Liabilities occurred under exit or disposal activities should be measured at

Answer 27

Liabilities should be measured at fair value.

Question 28

Activities not considered extra ordinary items:

Answer 28

1) Gain/loss from sale or abandonment or property used in business.
2) large write - Offs
3) Gain/Loss from foreign currency translation.
4) Major strikes by employees.
5) Retirement of long term debt in the ordinary course of business.

Question 29

Classification of extra ordinary items under IFRS.

Answer 29

There is nothing called extra ordinary items under IFRS in the income statement; they are considered continuing operations before tax.

Question 30

Accounting changes classified as;

Answer 30

1) Change in accounting estimate.
2) Change in accounting principle.
3) Change in accounting entity.

Question 31

What is change in accounting estimate;

Answer 31

Occurs when the estimate previously used by the company is incorrect (Not an error) and is accounted for prospectively; effect current and future income from continuing operations.

Question 32

What is change in accounting principle;

Answer 32

Is a change in accounting from one accounting principle to other acceptable accounting principle; GAAP to GAAP, IFRS to IFRS and is accounted for retrospectively.

Question 33

When do we change accounting principle:

Answer 33

If required by GAAP/IFRS or the alternative principle is preferable & more fairly presented.

Question 34

Exceptions for general rule under change in accounting principle:

Answer 34

1) Changing to LIFO.
2) Change in depreciation method
under both changes will be accounted for prospectively.

Question 35

What is changes in accounting entity:

Answer 35

When there is a new entity we are consolidating with and when it occurs all previous F/S that are presented in comparative F/S along with current year should be restated.

Question 36

Change in accounting entity under IFRS

Answer 36

IFRS does not include the concept of change in accounting entity.

Question 37

Types of error correction:

Answer 37

1) Correction of recognition, measurement, presentation, or disclosure in F/S resulting from mathematical mistakes.
2) Change from non - GAAP/IFRS to GAAP/IFRS

Question 38

Where does the correction of error take effect

Answer 38

Correction or error of prior periods go to the retained earnings & don’t affect income statement.

Question 39

Retained earnings consist of :

Answer 39

1) beginning retained earning
\+
2) Net income
-
3) Dividends

will shows in the B/S under Equity.

Question 40

Other Comprehensive Income components:

Answer 40

1) Pension adjustments.
2) Unrealized gain or loss from available for sale securities; until the securities is sold.
3) Foreign currency items.
4) Effective cash flow portion.
5) Revaluation surplus (IRFS only); gains recognized when intangible or fixed assets are revaluated.

Question 41

Comprehensive income maybe presented in:

Answer 41

1) Single statement approach; starts with revenue until we reach net income & then OCI items
2) Two statement approach; starts with net income & then OCI items.

Question 42

How do we treat unrealized gain for trading securities

Answer 42

Unrealized gain/loss for trading securities goes directly to income statement

Question 43

Treatment of change in inventory value in accordance with lower cost of NRV

Answer 43

Any change in value for inventory will affect net income under IFRS, GAAP.

Question 44

Tax reporting issues for other comprehensive income

Answer 44

Maybe be reported:

1) Net of tax
2) Before tax with one amount shown for the aggregate income tax expenses.

Question 45

Where does income tax expense or benefit shows in OCI

Answer 45

1) On the face of he statement

2) Notes of the financial statements.

Question 46

Where does accumulated OCI be reported

Answer 46

Is shown in the balance sheet as an item of equity.

Question 47

AOCI calculation is

Answer 47

Beginning balance
(+ OCI for the current year
- reclassification from AOCI )
=Net current OCI
Ending balance = Beginning balance + Net current OCI.

Question 48

Equity Components

Answer 48

1) Capital stock
2) Retained earning.
3) AOCI
4) Treasury stock (Contra equity); is the repurchase of stock from shareholders.

Question 49

Both IFRS, GAAP must include notes to the financial statements, except for following differences

Answer 49

1) IFRS must contain unreserved statement of compliance with IFRS in the notes of the F/S while GAAP don’t include any statement of compliance.
2) IFRS requires disclosure of judgment & estimates that management has made while GAAP includes only significant estimates.

Question 50

Overall view for Interim F/S

Answer 50

Not required under IFRS,GAAP but should be viewed as reporting for an integral part of annual period.

Question 51

Why in Interim F/S timeliness is considered over reliability

Answer 51

Because it is unaudited F/S & it provides financial information based on actual performance to date & estimates to year end.

Question 52

Matching revenues & expenses also treatment of Income tax occurs quarterly in Interim F/S such as:

Answer 52

Income tax for Interim F/S is calculated by multiplying YTD income by the estimate effective tax rate and subtract the result from the provision included in the previous quarter.

Question 53

Types of segments;

Answer 53

1) Operating Segment

2) Reportable Segment.

Question 54

Criteria to be considered as Operating Segment:

Answer 54

1) Include revenue and expenses; headquarters are not considered operating segments because it only generates expenses.
2) Operating results are regularly reviewed by the Chief Operating Decision Maker.
3) Have detailed financial information is available.

Question 55

What is reportable segment;

Answer 55

Is an operating segment of an enterprise which meet the criteria for reportable segment.

Question 56

Criteria and Materiality test for reportable segment.

Answer 56

A) 10% size test;

1) Revenues; Internal + External revenue of all operating segments.
2) Reported Profit or Loss is 10% of all operating segments.
3) Assets is 10% of all operating segments (GAAP), also segment liability of 10% may be applicable under IFRS.

B) 75% reporting sufficiency test;
More than one segment reach 75% of total external revenue of all segments.

Question 57

Materiality for revenues to 1 external customer is

Answer 57

If a revenue from single external customer is 10% or more of total revenue it should be disclosed.

Question 58

Development stage enterprise is one in which either;

Answer 58

1) Principle operation have not yet commenced.

2) Principle Operations have not generated an insignificant amount of revenue or loss.

Question 59

Development stage F/S represents:

Answer 59

Represents F/S same as those required by GAAP plus cumulative effect of each financial statement.

Question 60

Expenses treatment in development stage;

Answer 60

1) Startup, organizational cost are expenses immediately under GAAP.
2) R&D should be expensed when incurred and not to be capitalized if they don’t have future inflow to the company..

Question 61

Criteria must be met to be considered first time adoption of IFRS:

Answer 61

1) Previous F/S are not in accordance with IFRS or previous F/S were prepared in accordance with IFRS but without an explicit and unreserved statement of compliance with IFRS.
2) F/S prepared in accordance with IFRS were for internal use only.
3) Prepare F/S in accordance with IFRS for consolidation purpose without preparing a complete set of F/S required by IFRS.

Question 62

An entity first time adoption of IFRS must include:

Answer 62

1) At least 3 Balance sheets
2) 2 statements of I/S, Comprehensive income, Cash flow, Changes in equity & related notes.

• 3 balance sheets and all other 2

Question 63

Assets and liabilities recognition under IFRS

Answer 63

All assets & liabilities must be re-measured to fair value in retained earnings in first time adoption of IFRS except for Inventory will remain to be measured at lower cost or NRV.

Question 64

Explanation of transition from GAAP to IFRS.

Answer 64

An entity should disclose how the transition from previous GAAP to IFRS affected its reported financial position (Balance sheet), financial performance (Income statement) and cash flow.