F3 - Assets and Related Topics Flashcards
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The negative bank balance will net with all other cash accounts
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540,000 is the amount to be received from the customer.
Roth Inc. has decided to sell this note to a bank, but the bank will need a discount to take on the risk of the loan. So, they are increasing the interest rate.
The bank will only need to hold the note for half a year, so the risk it will take on will only be the half of the 10% rate they discounted it as.
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It asks for what the balance should be, not for what the JE would be
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JE for recognizing the loss (writing accounts off), not recording the estimated allowance.
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FIFO vs LIFO
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FIFO - First In First Out
Oldest Items in Inv get sold first
LIFO - Last In First Out
Newest Items in Inv get sold first
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Perpetual vs Periodic Inventory
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Perpetual - Inventory is updated at each sale, so Inventory and COGS is adjusted each sale,
Periodic - Inventory and COGS is updated at the end of the accounting period (End of Month or Quarter) then the LIFO or FIFO method is used, instead of at each sale.
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Consignee vs. Consignor
Consignee is the person who received the goods to sell them. The consigned goods are not the property of the consignee.
Consignor is the person who shipped the goods to the consignee to be sold by them. Even though the goods are not physically present, they are the property of the consignor and need to be included in their inventory balance.
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Inventory Valuation Method for:
LIFO or Retail
FIFO or Weighted Average
LIFO = Lower of Cost or Market
FIFO = Lower of Cost or Net Realizable Value
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Lower of Cost or Net Realizable Value
NRV = Selling Price - Cost to Sell
You will choose whichever is lowest
FIFO
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Lower of Cost or Market
Market Price with be the middle value of these three:
1. Market Ceiling - NRV
2. Market Floor -
NRV - Normal Profit Margin
3. Replacement Cost
If cost is lower then you will choose that.
LIFO
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Weighted Avg COGS
Periodic - Sum of Total Costs / Sum of Total Units
Moving Weighted Avg (Perpetual) - Same as above but only for the inventory on hand at the time of the sale.
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The shipping costs are capitalized into inventory cost, so the % of the inventory sold should include the % of the shipping costs.
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You will take the Profit Margin amount from the Selling Price
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The valuation method is determined on inventory as a whole, not by individual inventory items. Whichever is lower after adding all inventory items.
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The value of CY Inventory with 20% inflation taken out is:
132,000 / 1.2 = 110,000
So the increase in inventory in base year dollars is 10,000.
If we add the 20% increase to it it becomes 12,000, so
100,000 + 12,000 = 112,000
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Weighted Average Accumulated Expenditures for Capitalizing Interest Costs into PPE Assets
The limit is the actual interest expense. This would be the interest rate on the construction loan specific to the project x WAAE.
Treat the expenditure amounts during the year like WACSO
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You will add the appraisal costs to the purchase price and assign costs to the items by the % of each item to their FV Market price.
If you don't assign the purchase cost of the items pro rata, you won't be able to enter a balanced JE or be able to calculate the gain/loss if the items are ever sold in the future.
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Double Declining (200%) Depreciation Method
Doesn't subtract the Salvage Value from the purchase price.
Carrying Amount x (2/Useful Life)
This would be the calculation for all the remaining years until the BV = zero.
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Depletion of Resources
Depletion Base =
Purchase Price + Developmental Costs + Estimated Restorations - Salvage Value
Depletion Rate =
Depletion Base / Estimate Amount of Resources then times that by the amount of resources extracted during that period.
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Half Year Convention
It assumes the asset being depreciated was only used for half of the first year, so only half of the depreciation is recorded. The remaining amount is depreciated the year subsequent to the asset being fully depreciated, i.e. 5 year useful life, year 6 the remaining amount of depr. is recorded.
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Sum of Years Depreciation Method
This method calculated more depreciation in the early years, assuming that the usefulness of the asset will decline as the asset ages. You will subtract the Salvage Value.
Sum of Years Digit =
n(n+1) / 2
Then you will multiply the Deprecation Basis by n/SoY Digit, then in the second year n-1/SoY Digit, etc.
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PP&E Assets that are being sold are valued on the BS as:
Assets Held for Sale
Valued at the lower of BV or Net Realizable Value (FV-Cost to Sell)
It will no longer be depreciated.
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Steps to Testing Impairment of PP&E Assets
1.) Compare the carry amount to the undiscounted expected future cash flows. If less impairment loss needs to be recognized.
2.) The loss will be the
BV - FV
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When will you record a Contingent Liability and a Contingent Gain?
Contingent Liability:
When probable and reasonable estimable (if there is a reasonable amount, record that amount. If a range of amounts is equally probable, you will record the lowest amount).
Contingent Gain:
Only when received.
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| Freight In - capitalize to consigned goods, so 2/3rds is COGS
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