F10 Flashcards
What is FV?
Exit Price = is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction b/n market participants in the principal (or most advantageous) market at the measurement date under current market conditions
What are the 3 Valuations of FV
Market Approach
Income Approach =PV (discounted CF)
Cost Approach
What are the hierarchy of inputs?
Level 1 = Identical
Level 2 =Similar = other than quoted market prices that are directly or indirectly observable for the asset or liability
Level 3 = Discounted CF = Unobservable = Reporting entity’s assumptions
What is the most advantageous market?
is the market with the best price after considering transaction costs
Is FV the price to acquire an asset or assume a liability?
No- it is an exit price (the price to sell and asset or transfer a liability)
What costs does FV include?
Transportation cost but not transaction cost
What is the price in the principal market for an asset or liability?
FV measurement
How are remotely possible contingent liabilities treated?
Neither Accrued nor disclosed
~Unless it is a related party transaction
Fair Value
Exit Price = is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction b/n market participants in the principal (or most advantageous) market at the measurement date under current market conditions
What are the type of Valuations?
Market Approach
Income Approach =PV (discounted CF)
Cost Approach
What is the hierarchy of Inputs?
Level 1 = Identical
Level 2 =Similar = other than quoted market prices that are directly or indirectly observable for the asset or liability
Level 3 = Discounted CF = Unobservable = Reporting entity’s assumptions
How to account for a partnership by purchase or sale of existing
Outside Partnership Transaction
No J/E - Just change names on capital accts
How are assets and liabilities valued under partnership contributions
Assets = FV (GAAP Rule) / Tax = NBV
Liabilties = PV
Exact Method - Formation of a partnership
Equal to BV
Incoming parter’s capital acct is their actual contribution (you must calculate)
No adj to existing partner’s capital accts is required
Bonus Method - Formation of Partnership
Purchase price is more or less than the BV of the capital acct purchased, bonuses are adjusted b/n the old and new partners’ capital accts and do not affect partnership assets
Balance in total capital accts controls the computation
Incoming partner’s captial account is their % of the partnership total NBV (after their contribution)
Adj the existing partner’s capital accts to balance
J/E to record admission the admission of a new partner and the bonus to existing partners
DR: Cash
CR: A, Capital (Extra paid X %)
CR: B, Capital (Extra Paid X %)
CR: C, Capital (Cap A + Cap B + Cap C = total X ⅓)
J/E to record the partnership and recognize the bonus to new partners:
DR: Cash
DR: A, Capital (Difference X %)
DR: B, Capital (Difference X %)
CR: C, Capital (Cap A + Cap B+ Cap C = Total x ⅓)
Formation of a partnership–Goodwill Method
(recognize intangible assets) = is recognized based upon the total value of the partnership implied by the new partner’s contribution.
Going in investment (dollars) controls the computation
Incoming partner’s capital account is their actual contribution
Goodwill (implied) is determined based upon the incoming partner’s contribution, and shared by the existing partners
J/E to record the admission of new partner into partnership and recognize goodwill
DR: Cash
DR: Goodwill (Implied Value X # of partners)
CR: A, Capital (Goodwill x %)
CR: B, Capital (Goodiwll X %)
CR: C, Capital (equals amt contributed by C)
Withdrawal of a partner (Bonus Method)
J/E to revalue the assets to reflect FV:
J/E to payoff withdrawing partner
J/E to revalue the assets to reflect FV: DR: Asset Adj CR: A, Capital (%) CR: B, Capital (%) CR: C, Capital (%) J/E to payoff withdrawing partner DR: A, Capital (%) DR: B, Capital (%) DR: X, Capital (100%) buy him out CR: Cash
Withdrawal of a partner (Goodwill Method)
J/E to revalue assets to reflect FV
J/E to record goodwill to make withdrawing partner’s capital account equal payoff:
J/E to payoff withdrawing partner
J/E to revalue assets to reflect FV
DR: Asset Adj
CR: A, Capital (%)
CR: B, Capital (%)
CR: C, Capital (%)
J/E to record goodwill to make withdrawing partner’s capital account equal payoff:
DR: Goodwill
CR: A, Capital (%)
CR: B, Capital (%)
CR: X, Capital (%)
J/E to payoff withdrawing partner
DR: X, Capital (100%)
CR: Cash
