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FAR > F1 - Conceptual Framework and Financial Reporting > Flashcards

F1 - Conceptual Framework and Financial Reporting Flashcards

1
Q

Useful information must exhibit what?

A

Faithful representation and relevance.

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2
Q

What is the realization concept?

A

Revenues/Gains are realized when assets are sold for cash or claims to cash.

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3
Q

What are the “enhancing” qualitative characteristics that enhance the usefulness of information?

A

Timeliness, Understand-ability, comparability and verifi-ability.

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4
Q

Single source of US GAAP Codification that US companies are required to follow?

A

FASB Accounting Standards.

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5
Q

Five Elements of PV measurement?

A

Uncertainty, Variations, Other Factors, TVM (RFR), Estimate of Future Cash Flow

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6
Q

Timeliness does what for information?

A

Enhances relevance and faithful representation

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7
Q

When can a new FASB standard update be passed?

A

Only after majority vote by members of FASB

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8
Q

Relevant information should have what?

A

Predictive/confirming value and be material

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9
Q

What are the “fundamental” qualitative characteristics of useful information?

A

Faithful representation and relevance

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10
Q

Underlying assumption for IASB FS preparation and presentation?

A

Going concern

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11
Q

Useful accounting information described by “relevance” contemplates what?

A

Predictive and confirming value and materiality

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12
Q

Material transactions that are infrequent in occurrence but not unusual in nature and result in a gain or loss should be?

A

Presented separately as a component of “income from continuing operations”

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13
Q

Getting to NI (involved)

A 
Net Sales (net of returns)
-COGS
=GP
-SGA
=OI
\+/- Other Income (Gain/Loss)
=IFCO
(take out tax)
=IBDO
\+/- Gain/Loss from discontinued segment (net of tax)
=NI
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14
Q

SG&A Expense

A

Looked at differently:

G&A:
Legal/Accounting Fees
Office Salaries
Rent

Selling:
Advertising
Rent
Freight out
Sale Salaries/Commissions
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15
Q

Discontinued Operation vs. Income from Continued Operations

A

Discontinued Operations refers to the disposal of a component of a business. The gain/loss on this would not be included in Income From “Continuing” operations because one is being discontinued…

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16
Q

Minimum operating cycle to report a “prepaid” as a current asset?

A

12 months

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17
Q

“Income” loss from operations is shown when?

A

Before taxes are taken out on a single/multiple step income statement.

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18
Q

Royalty JE’s

A

dr Cash
cr Unearned Royalty

dr Unearned Royalty
cr Earned Royalty

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19
Q

Royalty Earnings

A

When royalties are received it is reflecting earnings from prior to that time. Typically received semi-annually.

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20
Q

Unlimited Right of Return and Revenue - 4 Conditions Needed in Order to Recognize Revenue

A
  1. Sales price is substantially fixed
  2. The buyer assumes all risk of loss
  3. The buyer has paid some form of consideration
  4. The amount of returns can be reasonably estimated
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21
Q

Service Contract

A

Deferred Revenue, it can’t be recognized until service is provided. (Overstating NI)

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22
Q

What is deferred revenue?

A

A liability until service is provided: service contracts, gift-cards

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23
Q

Non-refundable fees

A

Amortize over the life of the contract/lease (as the services are performed/provided)

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24
Q

Note: Revenue Recognition

A

Cash surrender: amount given up at the execution of a life insurance policy.
Example:
$300,000 life insurance policy executed with a $90,000 cash surrender value = $210,000 recognized as revenue

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25
Q

Deferred Gross Profit

A

Sales

  • Collections (for each year, Can collect year 2 sales in year 1)
  • Written off amount for each year
  • GP %

=Deferred GP

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26
Q

Cash Collections

A 
Sales 
/GP %
=Cash Collected
*GP %
=Realized GP
27
Q

Gross Profit
Gross Profit Rate
Deferred Gross Profit

A

Sales - COS
GP/Sales
GP Rate * AR Collectible

28
Q

When do you used installment/cash recovery method for recognizing revenue?

A

When there is no reasonable basis for estimating collectability and cash is to be collected over an extended period of time.

29
Q

Installment Method

A

Deferred GP =
Installment Receivable
*GP%

and

Deferred GP / AR = GP%

30
Q

Cost Recovery Method

A

All gross profit on the sale is deferred until the total cost of the item is recovered.

So if principal and interest collected during the period don’t reach/recover the cost of the product. Than no gross profit is recognized.

31
Q

What is immediately recorded when using the Percentage Completion/Completed Contract Method

A

Losses

32
Q

% of Completion Method: What method is used to calculate income for a long-term contract? Final year?

A

Income previously recognized method for long term contract.

Actual total costs for final year

33
Q

Percentage of Completion:

How to calculate GP Earned

A

Contract Price
- Total Est Cost
= GP

Cost incurred / Total Cost
= %/Amount Complete

%Complete * GP
= GP Earned to Date

Can related to multiple years!!

34
Q

Completed Contract:

How to calculate GP

A

Total Contract Price
- Total Costs Incurred
= GP

35
Q

Formula for % of Completion

A

(Total Cost to date)

/ Total Estimated Cost

36
Q

% Completion last year of project, what is different?

A 
Total Price-TC
=  Est Total GP
*  %complete that period
= Cumulative GP recognized 
-  Prior recognized GP
37
Q

% of Completion: Asset vs Liability

A 
Sum of Cum. Costs
\+   Cum Recognized GP
=   > cumulative billings 
  = Asset
Opposite for liability
38
Q

How to get back to installment receivable from Deferred GP?

A

Balance at YE / GP %

39
Q

Realized GP (Earned) / GP%?

A

Total Collections

continued:

Sales - Total Collections = A/R Balance (uncollected)

40
Q

Deferred Gross Profit is calculated from what?

A

Amount of uncollected cash.

41
Q

GP Realized / GP %

A

Cash collected

Note:
Subtract this from PY AR Balance + CY Sales

Then Subtract CY cash collections

= A/R balance for CY

42
Q

When closing a segment you have to do what?

A

Retrospectively include the losses from that year on the CY income statement.

43
Q

Earliest you should classify a segment as a discontinued operation?

A

Classified as Held for Sale

44
Q

What costs are included in discontinued operations after the disposal of a segment/division?

A 
Gain/loss on sale
Operating Losses
Employee Term Benefits
Costs to Terminate lease
(exit/disposal costs)
45
Q

Discontinued Operations mid are initially recorded how?

A

Included in NI and disclosed in the notes of the interim F/S

46
Q

Effect of a change in accounting principle inseparable from the effect of a change in accounting estimate.. how should this be reported?

A

As a component of income from continuing operations.

47
Q

Cash basis of accounting: GAAP or nah?

A

Nahhh not accepted; if you change from Cash to Accrual, its an error correction

48
Q

Cumulative effect of a change in accounting principle is shown as what?

Example:
Changing from FIFO to WA

A

Adjustment to beg retained earnings

49
Q

How is a change in depreciation method different?

A

Its considered both a change in principle and estimate. No retrospective treatment and no adjustment to retained earnings

50
Q

Correcting an error, when a company is not presenting comparative F/S?

A

Shown in retained earnings as an adjustment to the opening balance.

51
Q

Prior period adjustment of depreciation expense:

A

Difference between:

(Original Cost - Depreciation Expense for period)

reported: net of tax

52
Q

When does the IFRS require you to show the cumulative effect adjustment in beginning retained earnings?

A

Beginning of the prior period.

53
Q

A change in accounting principle inseparable from a change in accounting estimate is treated how?

A

Prospectively as an estimate

54
Q

Changing inventory methods result in what?

A

Cumulative effect of a change in accounting principle, shown as an adjustment to beg retained earnings in the earliest period presented.

55
Q

If you can’t distuniguish between a change in estimate and principle, which treatment do you go with?

A

Change in estimate (prospectively)

56
Q

IFRS first time adopter: how do they recognize adjustments?

A

They go directly to RE.

57
Q

IFRS: One year of comparative information require how many financials? (minimum for companies switching to IFRS)

A

3 balance sheets:

end of current period, end of prior period, beginning of prior period

58
Q

Comprehensive income is what?

A

Change in equity of a business from transactions in a period that are not “owner” related.

Example of what isn’t included:
Dividends

59
Q

Things included in OCI?

A

Currency Translations, Gains/Losses on sale of AFS securities, minimum pension liability equity adjustment for DBP, Pension gains/losses

60
Q

Re classifications entries are required in F/S that include OCI, why?

A

To avoid double counting.

61
Q

Note: CI = what?

A

Net Income + OCI

62
Q

Note: Revaluations

A

Revaluation Surpluses are included in OCI but losses go to NI

63
Q

IFRS: Comprehensive Income

A

Foreign Exchange Gains/Losses on AFS securities are reported on IS. Unrealized gains/losses on AFS securities flow to OCI

FAR (10 decks)

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