F2 Flashcards
Disclosures included in Summary of Significant Accounting Policies
Measurement bases
Basis of Consolidation
Depreciation methods
Amortization of Intangibles
Inventory pricing
Use of estimates
Fiscal Year definition
Revenue recognition issues
Required Risk and Uncetainty disclosures
Nature of Operations- description of entity’s core products/ services
Use of Estimates
Significant Estimates- specific to estimates that will change materially in near term
Vulnerability to any concentrations (Ex. major customers, major products, major resources)
Differences between US GAAP and IFRS in disclosures of going concern
US GAAP requires liquidation basis of accounting when bankruptcy is imminent, IFRS provides no guidance
IFRS requires disclosures only when management is aware of substantial doubt
IFRS requires assessment of at least one year from the balance sheet date
Substantial doubt about going concern definition
When relevant conditions and events considered in the aggregate indicate it is probable that an entity will not be able to meet its obligations as they become due
Going concern evaluation factors
Entity’s current financial position
Sources of liquidity
Obligations due in the upcoming year
Funds and resources necessary to maintain operations in the upcoming year
Subsequent events are recognized if _________ and disclosed if ____________
The condition existed as of the balance sheet date;
Not disclosing the event would make the F/S misleading
Disclosure for a nonrecognized subsequent event should include
Nature of the subsequent event Estimate of the financial effect, if it can be made
Fair value measurements that do not require disclosure
Share based compensation
Measurements with vendor specific evidence
Leases
Principal market
Market with greatest volume or level of activity for the asset or liability
AFS securities are measured using ________ while held to maturity securities are measured using _________
Fair value; Amortized cost
A company that has elected the fair value measurement must apply the accounting on a basis of ______
Instrument by instrument. Measured for a specific asset or a specific liability, or group of assets or group of liabilities.
Fair Value (definition)
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement (balance sheet) date
Market approach
Uses prices and other relevant information generated by market transactions for identical or comparable assets/liabilities Level 1 or 2
Income approach
Converts future values (cash flows) into a single current value Level 2 or 3 (More likely level 3)
Cost approach
Fair value is based upon what it would cost to build an identical asset or replace the service capacity of an asset, adjusted for obsolescence Level 2 or 3
Valuation inputs
Assumptions that market participants would use in valuing the asset or liability, including assumptions about risk
Observable inputs
Assumptions market participants would use in pricing the asset or liability based on market data obtained from independent sources
Un-observable inputs
Company’s own assumptions about assumptions market participants would make to value an asset
Levels 1,2,3
Level 1- quoted market prices in active markets for identical assets
Level 2- quoted market price either in inactive markets or similar assets
Level 3- Unobservable imputs, management assumptions. Ex. projected growth rate
Operating segment characteristics
Engages in business activities and earns revenues and expenses
Operating results are reviewed regularly to make decisions about segment
Discrete financial information is available, traceable to the segment
10-K filing deadlines
Large accelerated filer- 60 days after fiscal year end
Accelerated (mid-sized)filer- 75 days after FYE
All others (small)- 90 days after FYE
10-Q filing deadlines
Accelerated/ Large accelerated filer- 40 days after FYE
All others- 45 days after FYE
What are forms 11-K, 20-F, 40-F, 6-K?
11-K: Employee benefit plan annual report
40-F: Canadian 10-K
20-F: 10-K for all countries besides US and Canada
6-K: Semi annual report for foreign private issuers
Events that must be reported on an 8-K
Corporate Asset acquisitions/disposals
Changes in securities or trading markets
Changes to accountants or financial statements
Changes in corporate governance or management
Large accelerated/ accelerated thresholds
Large accelerated filer- Common equity >= $700 million
Accelerated filer- Common equity btwn $75-$700 million
Smaller reporting company- Less than $75 million in common equity
Comprehensive bases of accounting (Special Purpose Frameworks)
Cash-basis
Tax-basis
Price level adjusted financial statements
Regulatory basis
Modified Cash Basis modifications
Capitalizing/depreciating fixed assets
Accrual of income taxes
Recording liabilities
Capitalizing inventory
Reporting investments at fair value
Recognizing gains/losses
Days Sales in A/R
Ending A/R (net)/
(Net Sales/365)
Days in Inventory
Ending Inventory/
(COGS/365)
Days of payables outstanding
Ending A/P/
(COGS/365)
Cash Conversion cycle
(Net Operating cycle)
How long it takes to generate cash from core business
Days sales in A/R + Days sales in Inventory - Days of payables outstanding
Return on Sales
Earnings before interest and taxes/
Net Sales
Equity Multiplier
Total Assets/
Total Equity
Times Interest Earned
Earnings before interest expense and taxes/
Interest expense
Dividend payout
Cash dividends/
Net income
Operating Cash Flow ratio
Cash flow from operations/
Current liabilities
DuPont ROA
Net Profit Margin x Asset Turnover
Working capital turnover
Net Sales/
Average working capital
3 methods to determine a new partner’s buy in
- Exact- Used when purchase price = BV of capital account purchased. Simply calculate current partners’ average capital accounts for each
- Bonus- Bonus goes to existing partners when new partner pays more than BV, and to new partner when new partner pays less
- Goodwill- Implied buy in value based on new partner’s offer - total partner’s capital accounts = Goodwill (given to old partners)
