F2 Flashcards
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
basically you identify and describe the measurement bases used in preparing the FS as well as the speicfic accounting principles and methods used
US GAAP has disclosure requirements for risks and uncertanties, what are they?
(CUNS)
Current Vulnerability
Use of estimates
Nature of operations
Significant estimates
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
management has to say, ok is there any SUBSTANTIAL DOUBT that this company will continue for ONE YEAR AFTER the FS has been ISSUED
Under what conditions would substantial doubt exist
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
What FOUR factors are considered when deciding if there is a substancial doubt regarding an entitys going concern
entitys current financial condition
Entitys obligations due or anticipated next year
fund needed to maintain operaitons next year
Both internal and external matters
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
whether its probable the plan can be properly implemented
Whether its probable that the plan can be successful in adverse conditions
So you have evaluated the mitigating planes, and then there are 3 evaluation terms, which are
No substantial doubt exists-nodisclosure needed
Substancial Doubt is alleviated-certain disclosures required
Substancial doubt is not aleiviated-certain disclosures required
What is a subsequent event and what are the two typs of subsequent events
its an event that occurs after the balance sheet date before FS are issued
- recoginzed subsequent events: provide additional details about conditions which existed at the BS date
- Non-recoginzed subsequent events: provide additional details about conditions which DID NOT exitst at the BS date
Define what Fair Value is
it is the price to sell an asset or transfer a liability between market participants at the measurement date
What are the three types of valuation techniques which can be used to measure fair value
MIC
Market approach - uses prices and info from market transactions
Income approach - PV of Future Cash Flows
Cost approach - replacement cost
There is a heirarchy of FAir Value Inputs, make a list from highest to lowest priority
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
So an enterprise has to disclose 4 segments….what are they
Operating Segments
Products and Services
Geographic Areas
Major Customers
What are the characteristics of an operating segment
nature of the products and services and production
methods of distribution
nature of regulatory environment
Can you name the two quantitative thresholds used in identifying reportable operating segments
10% size test and 75% reporting sufficiency test
Can you describe the 10% test for identifying reportable segments
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
What is the 75% test for identifying reportable segments
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
What’s the difference between the 10k and 10Q
10k is annual and is auditted using GAAP
10Q is quarterly and can use unauditted statements and is necessarilly GAAP
What tax rate is used on quarterly financial statements
best estimate of tax rate to be applicable for a full fiscal year
So a new partnership interest is created using additional capital. What are the three methods that can be used
Exact MEthod
Bonus Method
Goodwill Method
Describe what the exact method is please
its whree the purchase price equals the book value of the capital account being purchased.
There are no adjustments and no goodwill or bonuses
Describe what the bonus method is please
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
Describe what the goodwill method is please
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
Describe the bonus method of withdrawal of a partner
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
Describe the goodwill method of withdrawal of a partner
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
In liquidating a partnership what is the order of preference
- Creditors
- Loans and advances to partners
- Capital accounts for partners
Remember that all losses must be provided for before disposal; that is, maximum potential losses before distribution of cash.
What are three major differences between US GAAP and IFRS related to disclosures
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 .
Is fair Value measurement a market based or entity based price
MARKET BASED PRICE
Does Fair Value include transaction cost?
NO, but transportation costs are considered if location is an issue.
Does finding the most advantageous market include transaction costs?
YES THEY ARE, then the most advantegeous market is the highest price, or the highest value
What defines the principal market?
the market with the most volume or level of activity of sales
When talking about segments, what differs between GAAP and IFRS
IFRS requires the disclosure of segment liabilities while GAAP does not
How do you find the segment profit or loss, this is a step equation
Revenue
LESS: Direct Traceable costs (both internal and external)
LESS: Reasonably allocated costs
=Operating profit (cost)
What are the 3 different filing deadlines for 10k
60 days-LArge Accelerated
75 days-Accelerated
90 days-All others
What are the 3 different filing deadlines for 10Q
40 days for large accelerted and accelerated
45 days for all others
What is the form 20F and 40F
20F is the Auditted non-US 10-k
40F is the Auditted canadian form of US 10-k
What is a 6k
semi-annual unauditted international report
what is a 8k
major event report
what is a forms 3,4,5
where 10% or more owners file a report
What regulation document by the SEC sets forth the financial reporting requirements and disclosure requirements for SEC filing
Regulation S-X
Under regulation S-X how many Balance sheets have to be included? How many income statements and cash flows? What about under IFRS
2 BS’s
3 IS’s and Cash Flows
FOR IFRS: it’s 2 of everythin
What is the trick to converting cash basis to accrual basis
Add increases in CA
Subtract DEcreases in CA
Add decreases in CL
Subtract increases in CL
When a partnership is formed, for the assets contributed, what valuation method is used for GAAP and what is used for TAX basis
GAAP is Fair Value
Tax is NBV
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?
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
Under Bonus method, when does the exitsting shareholders get the bonus, when does the new person get the bonus
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
What new entries into a partnership require a JE
Exact method DOES NOT
Bonus and Goodwill DO REQUIRE
For the goodwill method, what value drives the calculation
the new partners contribution controls the computation
A partner is withdrawing under the bonus method, we need two entries what are they
one marks up assets to FV
the next is the actual payment of the withdrawing partner
A partner is withdrawing under the goodwill method, we need two entries what are they
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
How do you do the reportable segment test for 75%? Also called the “reporting sufficiency” test
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.
