F10

Question 1

Non-recognized Subsequent Event

Answer 1

Something that happened after the B/S date but does not relate to anything that was shown on the B/S either (conditions that existed prior to B/S date)… Disclose only! Still relevant to F/S users, but does not affect anything on the F/S’s for that year

Question 2

Describe interest rate swaps

Answer 2

Interest rate swaps are a contractual right for one party and a contractual obligation to the other. There is an off balance sheet risk involved, which has two components.

First, there is the risk of non-performance by the counterparty (Credit Risk)

Second, there is the risk of swapping a lower interest rate for a higher interest rate (Market Risk)

Question 3

How do you treat loss contingencies? Gain contingencies?

Answer 3

Gain contingencies are never recognized (conservatism)… They are only recognized as gains once the final settlement is reached and the result of the contingency is known.

Loss contingencies are recognized IF the likelihood of having to pay/incurring a loss is probable and the amount of the loss/payment is reasonably estimable.
- J/E: Contingency Expense? (DR), Contingency Loss (CR)

If it’s just likely, then disclose the contingency loss.

Question 4

A change from the cost approach to the market approach of measuring fair value is considered what type of accounting change?

Answer 4

Change in ESTIMATE

• Change in the valuation technique used to measure FV is a change in estimate

Question 5

Describe how the retirement of a partner is treated using the Bonus Method

Answer 5

Any premium that the retiring partner is paid above the amount in their capital account is allocated to the remaining partners’ capital accounts according to their P/L sharing ratio

No expense is recognized for the premium paid, and no goodwill is recognized.

Question 6

What are Level I, II, and III inputs for Fair Value measurement?

Answer 6

Level I –> Quoted market prices for identical assets or liabilities
Level II –> Quoted market prices for similar assets or liabilities
Level III –> Management’s best assumptions on Fair Value

Level III = least reliable input. If you use a level II input and level I inputs for an asset/liability’s fair value, it is a level II fair value measurement. If you use any level III inputs, it is a Level III fair value measurement.
- only allowed when it’s too costly or impractical to get a level I or level II fair value measurement

Question 7

IFRS partial goodwill method

Answer 7

• Record Goodwill = Acquisition Cost - your % ownership * FMV net assets
• Record NCI = FMV net assets * NCI %