F2

Question 1

Identity the contents of the Summary of Significant Accounting Policies

Answer 1

Identify and describe:

• Measurement bases used in preparing FS
• Specific accounting principles and methods used

Question 2

If there is substantial doubt about an entity’s ability to continue as a going concern, management should then consider whether entity has plans to mitigate these conditions and alleviate the substantial doubt. The mitigating effects should be evaluated on the basis of what two conclusion?

Answer 2

Whether it is probable that plans will be effectively implemented
Whether it is probable that implemented plans will be successful in mitigating adverse conditions

Question 3

What disclosures are required when substantial doubt is alleviated

Answer 3

• What caused the substantial doubt to be raised
• Mgmt evaluation of how those conditions relates to entity’s ability to meet its obligations
• Mgmt plans to alleviate the doubt

Question 4

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

Answer 4

S.E - An event that occurs after B.S date but BEFORE FS are issued.
Recognized S.E
Nonrecognized S.E - Conditions that occurred after BS and did not exist on B.S date

Question 5

Describe valuation techniques that can be used to measure fair value of an asset or liability

Answer 5

Market approach - Use market price

Income Approach - Discounts future CF to PV of FCF

Question 6

Describe the hierarchy of fair value inputs. Which inputs have the highest priority?

Answer 6

Level 1 (Highest priority) - Quoted prices in active market
Level 2 - Not level 1 that are directly or indirectly observable
Level 3- (Worse one) Unobservable inputs

Question 7

Name the four required disclosures for segments of an enterprise

Answer 7

• Operating segments
• Products and services
• Geographic areas
• Major customers

Question 8

Name two quantitative thresholds used in identifying reportable operating segment

Answer 8

10% test of revenue or assets or P/L (Remember revenue includes Intercompany sales + external sales)
- 75% “reporting sufficiency” test

Question 9

What is the 75% test of identifying reportable segments?

Answer 9

Combined external (consolidated) rev of all reportable segment must be at least 75% of total consolidated revenue. generally limit is usually 10 segments.

Question 10

What are the guidelines for interim reporting?

Answer 10

• Use same accounting principle as used in YE.
• Allocate expenses to interim period benefited
• A total for comprehensive income in condensed FS of interim periods.

Question 11

What income tax rate is used in interim financial reporting?

Answer 11

Use best estimate of effective tax rate to be applied for full fiscal year.

Question 12

In creating a new partnership interest with an investment of additional capital, what three methods can be used?

Answer 12

• Exact method
• Bonus method
• Goodwill method

Question 13

Describe the goodwill method of creating a new partnership interest with an investment of additional capital

Answer 13

Recognized based on total value of partnership implied by new partner’s contribution.
Goodwill is shared by existing partners using agreed profit/loss ratio

Question 14

In liquidating a partnership, what is the order of preference?

Answer 14

• Creditors
• Loans and advances to partners
• Capital accounts of partners