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CPA- FAR > F2 > Flashcards

F2 Flashcards

1
Q

What is an asset?

A

A probable future economic benefit as a result of an event or transaction

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2
Q

What is an event?

A

Something that happens, internal or external

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3
Q

What is a transaction?

A

An external event

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4
Q

What is a liability?

A

A probable future sacrifice of economic benefit as a result of an event or transaction

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5
Q

What are revenues?

A

Increase an A or Decrease an L

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6
Q

What are the criteria for revenue recognition under US GAAP?

A

earned, and realized/realizable

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7
Q

What are the 4 criteria for GAAP revenue recognition?

A

Persuasive evidence of an arrangement exists (signed contract). Delivery occurred/services rendered (risk & reward transfer). Price is fixed and determinable (no price contingencies). Collection is reasonably assured (standard collection terms)

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8
Q

Under GAAP, when do you recognize revenue from sale of products?

A

on date of sale

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9
Q

Under GAAP, when do you recognize revenue from use of assets?

A

as time passes

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10
Q

Under GAAP, when do you recognize revenue from performance of services?

A

when rendered

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11
Q

What are the categories of revenue recognition under IFRS?

A

sale of goods. Rendering of services. Revenue from interest, royalties & dividends. Construction contracts.

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12
Q

What are the main concepts of IFRS revenue recognition under each category?

A

measured reliably. And economic benefits

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13
Q

How do you record revenues for multiple element arrangements under GAAP?

A

allocate FV & record rev separately

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14
Q

What are the exceptions/special treatments of revenue recognition?

A

Deferred credits/liability (earn it or return it). Installment sales. Cost recovery method. Non-monetary exchanges. Involuntary conversions. Net method of trade discounts. Percentage of completion

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15
Q

What are expenses?

A

Decrease an A or Increase an L

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16
Q

What is realization?

A

real world. Obtains cash or non cash. Or turns non cash into cash

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17
Q

What is recognition?

A

record

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18
Q

What is the matching principle?

A

matching revenues and relates expenses (costs)

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19
Q

What is Accrual Accounting?

A

IS impact, no current cash impact

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20
Q

What is a deferral?

A

no current IS impact or BS impact (cash)

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21
Q

Compare expired costs vs. unexpired costs/

A

expired (expense on IS): insurance, COGS, period costs. Unexpired costs (stay on BS for now): Asset or deferred/prepaid charge

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22
Q

When do you recognize royalty revenue?

A

when earned

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23
Q

How do you recognize revenue if a right of return exists?

A

Record @ time of sale if not contingency: sales price is substantially fied at date of sale. Buyer assumes risk of loss b/c has possession of goods. Buyer paid consideration. Product sold is substantially complete. Can reasonably estimate amt of future returns

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24
Q

Under franchisor accounting, what is unearned revenue and when does it become earned?

A

initial franchise fee, or prepaid continuing franchise fee. Revenue when substantial performance.

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25
Q

What constitutes substantial performance?

A

GR= 1st day of operations. Franchisor has no obligation to refund any payment received. Franchisor performed initial services required. All other conditions of the sale have been met

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26
Q

How are intangible assets classified?

A

Specifically Identifiable (patents, copyrights) or Not Specifically Identifiable (Goodwill)

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27
Q

If intangible assets are purchased, how do you recognize the expense?

A

Record @ cost

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28
Q

If intangible assets are internally developed, how do you recognize the expense?

A

Expensed normally. Exceptions (capitalized): legal fees related to successful defense, registration/consulting fees, design costs, other direct costs to secure the asset

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29
Q

How do you record research & development under GAAP?

A

R&D is expensed

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30
Q

How do you record research & development under IFRS?

A

research is expensed, and development is capitalized.

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31
Q

How do you measure capitalization of cost?

A

amt of cash disbursed or FV of asset distributed. PV of amts to be paid for L. FV of consideration received for stock issued.

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32
Q

How are costs assigned to unidentifiable intangibles?

A

cost of all A – costs assigned to identifiable intangibles – L assumed

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33
Q

How do you amortize intangibles?

A

use SL. For finite life intangibles only

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34
Q

If an intangible becomes worthless what do you do?

A

expense it

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35
Q

If an intangible becomes impaired what do you do?

A

expense it

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36
Q

If an intangible’s useful life changes, what do you do?

A

recalculate amortization

37
Q

If an intangible is sold what do you do?

A

calculate G/L

38
Q

What are the 2 methods to valuate intangibles under IFRS?

A

cost model or recalculation model

39
Q

What is the cost model for intangible valuation under IFRS?

A

Value = cost – amortization (finite life only) – impairment

40
Q

What is the revaluation model for intangible valuation under IFRS?

A

Value = FV @ revaluation date – subsequent amort – subsequent impairment

41
Q

Under the IFRS revaluation model for intangibles, how do you record G/L?

A

Increases in value (OCI) and decreases in value (IS). Impairment (first reduce OCI, then IS)

42
Q

Under Franchisee accounting, how do you record initial franchise fee?

A

intangible asset, amortized

43
Q

Under Franchisee accounting, how do you record continuing franchise fee?

A

expensed as incurred

44
Q

How are start-up costs recorded?

A

expensed as incurred

45
Q

How do you calculate goodwill under the acquisition method?

A

FV - net a (including identifiable intangibles)

46
Q

How do you record goodwill maintenance costs?

A

expense

47
Q

How do you record R&D costs under GAAP?

A

Expense. Exception: capitalize tangible assets w/ alternate future use, or if R&D on behalf of others

48
Q

How do you account for costs of computer software developed for external use?

A

Before technological feasibility (expense). After technological feasibility (capitalize= greater of SL or % of revenue)

49
Q

How do you account for costs of computer software developed for internal use?

A

Before preliminary project state/training (expense). After preliminary project state (capitalize= SL amort). If change mind & sell, cost recovery then revenue

50
Q

How do you calculate impairment of intangible assets (non-goodwill) with finite lives?

A

The 2 step test. 1) if CV > Undisc FCF, then impairment. 2) impairment loss = CV-FV (or DFCF)

51
Q

How do you calculate impairment of intangible assets (non-goodwill) with indefinite lives?

A

The 1 step test. Step 2 only! Impairment loss = CV-FV (or DFCF)

52
Q

How do you calculate impairment loss under IFRS?

A

Step 2 only

53
Q

What is a reporting unit?

A

separate CF and regular review by management

54
Q

How do you calculate goodwill impairment under GAAP?

A

two steps. 1) FV-BV = potential impairment loss. 2) Goodwill Implied FV – Goodwill BV = impairment loss

55
Q

What are the different construction contract methods for revenue recognition under GAAP and IFRS?

A

GAAP = completed contract or percentage of completion. IFRS = percentage of completion ONLY

56
Q

When is income recognized under completed contract method?

A

income recognized at completion or substantial completion

57
Q

What is the CA account under completed contract and percentage of completion?

A

CIP, = cost – billings

58
Q

What is the CL account under completed contract and percentage of completion?

A

Advance on CIP, = Billings – cost

59
Q

Under completed contract and percentage of completion, when are losses recognized?

A

in full, in the year of discovery

60
Q

How do you determine revenue under percentage of completion?

A

% = costs incurred/total estimated costs

61
Q

When can you use the installment sale method or the cost recovery method?

A

only when there is no reasonable basis for estimating collectability

62
Q

What are the steps for installment sales?

A

four steps. 1) Sales – COGS = GP. 2) GP/Sales = GP%. 3) (Sales-End A/R) * GP% = GP earned. 4) End A/R * GP% = deferred GP (contra asset)

63
Q

How does the cost recovery method work?

A

at the time of sale, expected profit is recorded as deferred GP. Collections offset costs, then rest is GP

64
Q

In GAAP, what is the difference between non monetary exchanges having/lacking commercial substance?

A

Have = any change in FCF. Lack = no change in FCF, OR FV cannot be determined

65
Q

In IFRS, what is the difference between similar vs. dissimilar non monetary exchanges?

A

Dissimilar is same as GAAP Have commercial substance. Similar = no gains recognized

66
Q

In exchanges having commercial substance, how do you recognizance G/L?

A

FV – BV = Gain (ignore boot)

67
Q

In exchanges having commercial substance, what is the basis of the new A?

A

FV old + Boot paid – Boot received = AB new

68
Q

Under exchanges lacking commercial substance, when are losses recognized?

A

ALWAYS

69
Q

Under exchanges lacking commercial substance, when is no gain recognized?

A

when no boot is received, or boot is paid

70
Q

Under exchanges lacking commercial substance, if boot is received, how much gain is recognized?

A

If Boot received/FV asset received < 25%, then recognize proportional gain. If boot received / FV asset received >= 25%, all gains recognized by both parties

71
Q

With involuntary conversions, when are gains or losses recognized?

A

ALWAYS

72
Q

Compare historical cost vs. current cost.

A

current cost is adjusted for appreciation

73
Q

Compare nominal vs. constant dollars.

A

constant dollars are adjusted for inflation

74
Q

Compare monetary items vs. non-monetary items.

A

Monetary = fixed. Non-monetary = fluctuate w/ inflation & deflation

75
Q

What is the current exchange rate?

A

year end or spot rate

76
Q

What is the forward exchange rate?

A

Bet

77
Q

What is the historical exchange rate?

A

used for equity

78
Q

What is the reporting currency?

A

US $

79
Q

What is the functional currency?

A

local foreign currency or reporting currency

80
Q

Under GAAP, what are the conditions for determining the functional currency?

A

foreign operations are relatively self-contained & integrated, operations do not depend on parent’s or investor’s functional currency, and local economy is not highly inflationary

81
Q

What are the 2 methods to translate foreign financial statements?

A

Re-measurement Method and Translation Method

82
Q

What is the Re-measurement method?

A

Dysfunctional!

83
Q

What are the steps of the re-measurement method?

A

BS (monetary = YE rate, Non-monetary = historical), IS (non BS = WA rate, BS items = historical rate), G/L to IS

84
Q

What is the Translation method?

A

FUNCTIONAL/NORMAL

85
Q

What are the steps of the translation method?

A

IS (all = WA rate, NI to RE), BS (A&L = YE rate, CS/APIC = historical, RE roll forward), G/L to OCI (puFer)

86
Q

What is OCBOA?

A

Other Comprehensive Bases of Accounting: Cash, Modified Cash, Tax

87
Q

What is the BS under the cash basis?

A

Cash = equity

88
Q

What are some common modifications under modified cash basis?

A

Cap & dep fixed assets, accrue income taxes, record L & IE for ST & LT borrowing, Capitalize Inventory, record investments @ FV and record unrealized G/L

89
Q

Where to you report nontaxable rev & exp under tax basis?

A

separate line item on Statement of rev & exp, addition/deduction to NI, or disclose in a note

CPA- FAR (9 decks)

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