F2

Question 1

So there’s a note called the Summary of Significant Accounting Policies, this is usually the first note in the FS. can you tell me what the contents of that note are

Answer 1

basically you identify and describe the measurement bases used in preparing the FS as well as the speicfic accounting principles and methods used

Question 2

US GAAP has disclosure requirements for risks and uncertanties, what are they?

(CUNS)

Answer 2

Current Vulnerability
Use of estimates
Nature of operations
Significant estimates

Question 3

When evaluating a company, they look and see if its able to continue as a going concer, aka will it last…what does management have to do in this evaluation

Answer 3

management has to say, ok is there any SUBSTANTIAL DOUBT that this company will continue for ONE YEAR AFTER the FS has been ISSUED

Question 4

Under what conditions would substantial doubt exist

Answer 4

substantial doubt exists when there are conditions and events which indicate that it is probable that that the company wont be able to meet obligaitons as they come due within one year of the FS being issued

Question 5

What FOUR factors are considered when deciding if there is a substancial doubt regarding an entitys going concern

Answer 5

entitys current financial condition
Entitys obligations due or anticipated next year
fund needed to maintain operaitons next year
Both internal and external matters

Question 6

Ok, so they say that there is a substancial doubt about the entity being a going concern, management then has to consider they have any plans to mitigate these conditions/risks…so what two conditions should be considered during evaluations

Answer 6

whether its probable the plan can be properly implemented

Whether its probable that the plan can be successful in adverse conditions

Question 7

So you have evaluated the mitigating planes, and then there are 3 evaluation terms, which are

Answer 7

No substantial doubt exists-nodisclosure needed
Substancial Doubt is alleviated-certain disclosures required
Substancial doubt is not aleiviated-certain disclosures required

Question 8

What is a subsequent event and what are the two typs of subsequent events

Answer 8

its an event that occurs after the balance sheet date before FS are issued

1. recoginzed subsequent events: provide additional details about conditions which existed at the BS date
2. Non-recoginzed subsequent events: provide additional details about conditions which DID NOT exitst at the BS date

Question 9

Define what Fair Value is

Answer 9

it is the price to sell an asset or transfer a liability between market participants at the measurement date

Question 10

What are the three types of valuation techniques which can be used to measure fair value

MIC

Answer 10

Market approach - uses prices and info from market transactions
Income approach - PV of Future Cash Flows
Cost approach - replacement cost

Question 11

There is a heirarchy of FAir Value Inputs, make a list from highest to lowest priority

Answer 11

Level 1: quoted prices of identical products in the market
Level 2: inputs other than quoted market prices that are directly/indirectly observable
Level 3: unobserveable inputs that reflect the entities assumptions and based on available info

Question 12

So an enterprise has to disclose 4 segments….what are they

Answer 12

Operating Segments
Products and Services
Geographic Areas
Major Customers

Question 13

What are the characteristics of an operating segment

Answer 13

nature of the products and services and production
methods of distribution
nature of regulatory environment

Question 14

Can you name the two quantitative thresholds used in identifying reportable operating segments

Answer 14

10% size test and 75% reporting sufficiency test

Question 15

Can you describe the 10% test for identifying reportable segments

Answer 15

MUST ONLY MEET ONE OF THE FOLLOWING

Revenue: reported revenue (both external and internal sales) is 10% or more of the combined revneue (internal and external) of all operating segments

Reported Profit or Loss: absolute amount of its reported profit or loss is 10% or more of the greater, in absolute amount, of: combined reported profit of all operating segments that did not report a loss. OR combined reported loss of all segments that did report a loss

Assets: assets are 10% or more of the combined assets of all operating segments

Question 16

What is the 75% test for identifying reportable segments

Answer 16

combined external revenue of all reprotable segments must be at least 75% of all total consolidated revenue of the entity

The practical limit is 10 segments, but this is not precise

Question 17

What’s the difference between the 10k and 10Q

Answer 17

10k is annual and is auditted using GAAP

10Q is quarterly and can use unauditted statements and is necessarilly GAAP

Question 18

What tax rate is used on quarterly financial statements

Answer 18

best estimate of tax rate to be applicable for a full fiscal year

Question 19

So a new partnership interest is created using additional capital. What are the three methods that can be used

Answer 19

Exact MEthod
Bonus Method
Goodwill Method

Question 20

Describe what the exact method is please

Answer 20

its whree the purchase price equals the book value of the capital account being purchased.

There are no adjustments and no goodwill or bonuses

Question 21

Describe what the bonus method is please

Answer 21

New partners capital account = (A + B + C) x C’s % ownership

Excess of new partners contributions over the capital interest received is a bonus to the old partners

Excess cpaital interest reecieved over the new partners contribution is a bonus to the new partner

Question 22

Describe what the goodwill method is please

Answer 22

Goodwiill is recognized based on the total value of the partnership implied by the new partner’s contribution.

Goodwil is shared by existing partners using the agreed Profit/Loss ration

Question 23

Describe the bonus method of withdrawal of a partner

Answer 23

the difference between the balance of the withdrawing partners capital account and the amount that person is paid is the aount of the bonus

Bonus allocated among the remainging partners capital accounts in accordance with their remaining profit and loss ratios

Question 24

Describe the goodwill method of withdrawal of a partner

Answer 24

The partners may elect to record the implied goodwill in the partnership based on the payment to the withdrawing partner. The amount of the implied goodwill is allocated to all od the partners in accordance with their profit and loss ratios

After allocating goodwill the balance in the withdrawing partners captial account should equal the final distribution to the withdrawing partner

Question 25

In liquidating a partnership what is the order of preference

Answer 25

1. Creditors
2. Loans and advances to partners
3. Capital accounts for partners

Remember that all losses must be provided for before disposal; that is, maximum potential losses before distribution of cash.

Question 26

What are three major differences between US GAAP and IFRS related to disclosures

Answer 26

US GAAP requires liquidation method if liquidastion is immenent, IFRS doesnt outline a method.

US GAAP requires certain disclosures when there is substantial doubt, IFRS just wants material information to be made known

US GAAP assess going concern within one year of FS issued date. While IFRS is assessed AT LEAST ONE YEAR from the BALANCE SHEET DATE .

Question 27

Is fair Value measurement a market based or entity based price

Answer 27

MARKET BASED PRICE

Question 28

Does Fair Value include transaction cost?

Answer 28

NO, but transportation costs are considered if location is an issue.

Question 29

Does finding the most advantageous market include transaction costs?

Answer 29

YES THEY ARE, then the most advantegeous market is the highest price, or the highest value

Question 30

What defines the principal market?

Answer 30

the market with the most volume or level of activity of sales

Question 31

When talking about segments, what differs between GAAP and IFRS

Answer 31

IFRS requires the disclosure of segment liabilities while GAAP does not

Question 32

How do you find the segment profit or loss, this is a step equation

Answer 32

Revenue
LESS: Direct Traceable costs (both internal and external)
LESS: Reasonably allocated costs
=Operating profit (cost)

Question 33

What are the 3 different filing deadlines for 10k

Answer 33

60 days-LArge Accelerated
75 days-Accelerated
90 days-All others

Question 34

What are the 3 different filing deadlines for 10Q

Answer 34

40 days for large accelerted and accelerated

45 days for all others

Question 35

What is the form 20F and 40F

Answer 35

20F is the Auditted non-US 10-k

40F is the Auditted canadian form of US 10-k

Question 36

What is a 6k

Answer 36

semi-annual unauditted international report

Question 37

what is a 8k

Answer 37

major event report

Question 38

what is a forms 3,4,5

Answer 38

where 10% or more owners file a report

Question 39

What regulation document by the SEC sets forth the financial reporting requirements and disclosure requirements for SEC filing

Answer 39

Regulation S-X

Question 40

Under regulation S-X how many Balance sheets have to be included? How many income statements and cash flows? What about under IFRS

Answer 40

2 BS’s
3 IS’s and Cash Flows

FOR IFRS: it’s 2 of everythin

Question 41

What is the trick to converting cash basis to accrual basis

Answer 41

Add increases in CA
Subtract DEcreases in CA
Add decreases in CL
Subtract increases in CL

Question 42

When a partnership is formed, for the assets contributed, what valuation method is used for GAAP and what is used for TAX basis

Answer 42

GAAP is Fair Value

Tax is NBV

Question 43

For the exact method of bringing in a new partner, what is the trick to finding out what the new partner has to bring in to be admitted?

Answer 43

You take the percent of ownership as a fraction. Subtract one, and divide that by the amount of capital already in the agreement

EX: 3 people bringing in a new person who is taking over 25%, $100,000 already in partnership. 1/4 = 25%. 4-1 = 3. 100,000/3=33,000 required for 25% stake

Question 44

Under Bonus method, when does the exitsting shareholders get the bonus, when does the new person get the bonus

Answer 44

Old partner gets a bonus when the new guy pays more tahn NBV

NEW partner gets a bonus when the person pays less than NBV

Question 45

What new entries into a partnership require a JE

Answer 45

Exact method DOES NOT

Bonus and Goodwill DO REQUIRE

Question 46

For the goodwill method, what value drives the calculation

Answer 46

the new partners contribution controls the computation

Question 47

A partner is withdrawing under the bonus method, we need two entries what are they

Answer 47

one marks up assets to FV

the next is the actual payment of the withdrawing partner

Question 48

A partner is withdrawing under the goodwill method, we need two entries what are they

Answer 48

one marks up assets to FV
the next is the recording of goodwill and allocating the amount to the partners in order to get to the exact amount of the buy-out
third entry gets rid of the capital for withdrawling partner and pay off

Question 49

How do you do the reportable segment test for 75%? Also called the “reporting sufficiency” test

Answer 49

After the 10% test, all those companys that passed are clumped together and then we are like, “ ok but combined, are all external revenues greater than 75% of total revenue?” and if not, then we check to see what segments failed the 10% and can be added to the group in order to be reportable.