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FAR OVERALL > F2 > Flashcards

F2 Flashcards

1
Q

Expenses?

A

Reduction of assets or increases in liabilities

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2
Q

Realization

A

Entity obtains cash or the right to receive cash

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3
Q

Recognition

A

Recording of transactions or events

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4
Q

Accrual and Examples?

A
  • Earned(Revenue) or Incurred (Expense), but no cash receipt/outlay yet
  • Revenue Ex: Sell an item on credit
  • Expense Ex: Monthly rent exp for December not paid until January
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5
Q

Deferral and Examples?

A
  • Cash receipt/outlay, but not earned(revenue) or Incurred(Exp)
  • Rev Ex: Customer pre-pays for a repair done to their car
  • Exp Ex: Company pre-pays insurance prem and is amort
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6
Q

Franchiser - Revenue Recognition

A

Initial Fee - Rev when substantially performed

Continuing Fees - Rev when earned

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7
Q

How to account for purchased intangible assets

A

Record at costs

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8
Q

How to account for internally developed assets? and Exceptions?

A
  1. Expense
  2. Exceptions - Legal fees (successful), registration or consulting fees, design costs, direct cost to secure the asset = capitalize
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9
Q

J/E - for the collection and recognizing of earned royalties

A

DR: Cash
CR: Unearned Royalty

DR: Unearned Royalty
CR: Earned Royalty

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10
Q

How is a patent amortized?

A

Over the shorter of its estimated life or remaining life via SL amort

Goodwill is not amortized

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11
Q

IFRS - Intangible assets - how are they reported?

A

Either Cost or revaluation method-

Cost - reported at cost adj for amort & impairment

Revaluation - Cost then revaluated to FV at revaluation date

   - Losses = IS (FV < CV before revaluation)
   - Gains = OCI (FV > CV before revaluation)
   - Impairment = First reduce revaluation surplus in equity to 0 with further impairment loss reported on IS
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12
Q

Franchisee - Expense

A

Initial Fee- Intangible asset and amortize

Continuing Fee - Expense as incurred

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13
Q

How to account for goodwill (expense)?

A
  • Acq Method - goodwill is the excess of an acquired entity’s FV over the FV of the entity’s net assets, including indentifiable intangible assets
  • Maintain goodwill - expense
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14
Q

How to account for R&D? and what are the exceptions?

A
  1. Expense

2. Exceptions - materials, equipment, facilities that have alternate future uses => capitalize

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15
Q

Computer Software Development Cost for External Use?

A

Expense cost as R& D (planning, design, coding, testing) until technologically feasibility (then capitalize)
-Amortize is the greater of: Percentage of Rev and SL

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16
Q

Computer Software Development Cost for internal use?

A
  • Expense-preliminary costs
  • Capitalize- technologically feasible
  • SL Basis of Amortization
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17
Q

Where is impairment loss reported?

A

Income from Continuing Operations

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18
Q

Steps to Impairment test?

A

Step 1: Determining the impairment = Undiscounted future net CF - Net Carrying Value (Positive result = no impairment, Negative = Impairment loss => move to next step)

Step 2: Asset Held for Use = FV - Net Carrying Value = Impairment loss (Restoration not permitted)

Step 2: Assets held for disposal =

  FV

 =Impairment Loss
 \+Cost of disposal
 =Total impairment loss (Restoration permitted)
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19
Q

Percentage of Completion Method Calculation Formulas?

A

Step 1: Computer GP of Completed Contract:

    Contract Price -  = GP

Step 2: Compute “% of Completion”

   Total Cost to date / Total Est Cost of Contract

Step 3: Compute GP earned (profit to date (PTD))

   Step 1 X Step 2 = PTD

Step 4: Compute GP earned for c/y:

   PTD at c/y - beg ptd = Current ytd GP
20
Q

When does a liability exist when using % of completion method?

A

When progress billings exceed costs and estimated earnings

21
Q

When are installment sales used?

A

When there is no reasonable basis for estimating the degree of collectibility

22
Q

Accounting for Installment Sales => Problem solving Formulas

A

GP = Sales - COGS

GP% = GP/ Sales Price

Earned GP = Cash Collections X GP %

DGP = Installment Receivable X GP %

Others:
Sales=DGP X GP%
DGP= Sales - (Collections + Write-offs)

23
Q

What is cost recovery method?

A
  • At Sale -> Expected Profit is recorded as DGP
  • Cash collections –> first applied to the recovery of product costs
  • After Costs have been recovered –> recognized as profit
24
Q
  1. J/E to record installment sale:
  2. J/E to recognize cash collections:
  3. : J/E to record profit on collections:
A
  1. DR: Installment sale receivable
    CR: Inventory
    CR: DGP (contra-receivable)
  2. DR: Cash
    CR: Installment Sale AR
  3. DR: DGP (off BS)
    CR: Realized GP on installment sales (into IS)
25
Q
  1. J/E to record sale under the cost recovery method
  2. J/E to record the collection (before cost recovered)
  3. J/E to record the cash collection and profit
A
  1. DR: Cost recovery receivable
    CR: Inventory
    CR: DGP
  2. DR: Cash
    CR: Cost recovery receivable
  3. DR: Cash
    CR: Cost recovery receivable
    DR: DGP
    CR: Realized GP on cost recovery sales
26
Q

According to the installment method of accounting, gross profit on an installment sale is recognized in income:

A

In proportion to the cash collection.

Under the installment method, total gross profit is deferred until cash payments are received. Realized gross profit equals the gross profit percentage on the sale times the cash received.

27
Q

What does “current cost/constant dollar” method include?

A

Specific and general price level changes

28
Q

What is the foreign subsidiary’s functional currency?

A

The currency of the environment in which the subs primarily generates and expends cash

29
Q

Where are g/l from foreign exchange transactions that are an “extension” of the parent’s domestic operations?

A

Included in the income from continuing operations

30
Q

Where should G/L from remeasuring the foreign subs FS from local currency to the functional currency?

A

Income from continuing operations of the parent company

31
Q

Where are translations g/l recorded?

A

As a component of OCI in consolidated equity until disposed of

32
Q

Where is cumulative foreign exchange translation loss?

A

Should be reported as a component of AOCI
(A cumulative foreign translation loss would be a debit to AOCI, therefore, contra to shareholders equity

Rule: “Translation” adj are not included in determining NI for the period but are disclosed and accumulated as a component of OCI in consolidated equity until sale or until liquidation of the investment takes place.

33
Q

Where are nondeductible portion of expenses be included?

A

In the expense category in the determination of income

34
Q

What does the effective income tax equal on a personal statement of financial condition

A

Difference between FVs and tax bases of assets and liabilities

35
Q

What are the assets and liabilities reported on personal financial statements?

A

FMV - Estimated current values

36
Q

Personal FS include

A

Statement of Financial Condition and a statement of changes in net worth

37
Q

Personal FS Reported-A business interest that constitutes a large part of an individual’s total assets?

A

A single amount equal to the estimated current value of the business interest

38
Q

What is the simple J/E framework for accounting for non-monetary exchanges?

A 
DR: New Asset (FV of Consideration given)
DR: Accum Dep of asset given up
DR: Cash Received
DR: Loss (if any)
CR: 	     Old asset at historical cost
CR: 	      Cash given
CR:	       Gain (if any)
39
Q

G/L for non-monetary exchanges that have commercial substance

A

G/L recognized

40
Q

G/L for non-monetary exchanges that lack commercial substance

A

L always recognize

Gain = 
No boot received = no gain
Boot is paid = no gain
Boot is received = recogn proportional gain (<25%)
Boot More than 25% = G/L recognized
41
Q

Functional Currency

A

Currency of primary economic environment in which the entity operates (usually local or reporting)

42
Q

Foreign Translation

A

Restatement of FS denominated in functional currency to the reporting currency using the appropriate exch rate

43
Q

Foreign Remeasurement

A

Restatement of foreign FS from the foreign currency to the reporting currency in the following situations (1) Reporting curr to Functional (2) need to be translated before remeasured

44
Q

Income-tax basis - how should nondeductible portion of expenses such as meals and entertainment be reported?

A

Included in the expense category in the determination of income

45
Q

What amount should be reported, between liabilities and net worth, as estimated income taxes?

A

On a personal FS of financial condition, estimated income taxes equar the difference between Fair values and tax bases of assets and liabilities

FAR OVERALL (18 decks)

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