F10 Flashcards
Fair value in the principal market vs in the most advantageous market, which one to use?
Always principal market if available. If no principal then use the most advantageous market, which is selected considering transaction cost.
Does fair value include transaction cost?
NO.
Observable VS unobservable inputs of fair value?
Observable is level 1 and level 2. Level 1 is quoted price in active market for identical assets or liabilities. Level 2 is not quoted price but are directly or indirectly observable for the assets(similar A/L in active market or identical A/L in nonactive market). Level 3 is unobservable (discount cash flow using models)
Upon formation of partnership, assets ans liabilities contributed are recorded at?
Fair value (or present value for liabilities).
How to record new partner’s capital account? What amount?
3 methods. 1. Exact method– capital account is the exact amount paid by new partner (=% book value of all capital account) 2. Bonus method– capital account is the % book value of all capital account, but does not = amount paid. Difference is considered “bonus” to old partner or new partner.3. Goodwill method–new capital account = amount paid, but goodwill needs to be increased to make it = % of total capital account. Implied goodwill should be assigned to old partners’ capital account.
How are partnership income or loss distrubited among partners in absence of an agreement?
Equally.
When a partner withdraw from partnership, if amount paid to him is higher than his capital account, the diff is charged to?
Fisrt adjust all assets to fair value (Dr asset, Cr all capital account), if still not enough. 2 methods. 1. Bonus method- other partners’ capital account Dr’d to make up the deficit. 2. goodwill method-Increase goodwill (Dr), Cr all capital accounts to get him the amount of buyout.
Upon liquidation, partner has a Dr balance capital account- owes money to partnership. How to treat this capital dificiency?
Partnership has the right of offset–using any loan account (payable to the partner) to offset the dificiency. If still not enough, the remaining partners must absorb the dificiency acording to their profit/loss ratio.
When to record asset retirement obligations and how?
When resonable estimate can be made. Use balance sheet approach(capitalize cost). Rec PV of obligation under Asset retirement cost (asset account) and under liability. Subsequently, asset is depreciated into I/S as depreciation expense and obligation is increased by accretion expense(interest exp).
With restructurings of troubled debt, how to record the gain by debtor and loss by creditor?
Difference between FV of asset given to creditor and debts forgiven is extraordinary(mostly) gain to debtor, BUT is ordinary loss to creditor.
How are notes receivable and payable valued at initial rec?
Present value at market rate(if stated rate is unreasonably low, rec at face value with diff as discount/premium, net is still PV). Use effective interest method for amortization later.
Should subsequent events that occur after the balance sheet date but before the financial statements date be added to F/S?
If providing add info to exsiting conditions/transactions–YES.
If completely new info– NO. May need to disclose in notes.
What investments can be elected to be measured by fair value?
Trading securities are required to use FV. AFS securities and equity method investments can be elected to be measured by FV, unrealized G/L goes into I/S instead of OCI or B/S. Consolidate/aquisition method investments can’t use FV.
How are derivative instruments measured? Subsequent?
All measured at FV on B/S. Changes in FV into I/S or OCI. No hedging and fair value hedging changes go into G/L in earnings. Effective portion of cash flow hedges go into OCI until the hedged transaction(future cash flow) impact earnings.
