F3 - Assets and Related Topics Flashcards
Cash, Receivables, Inventory , PPE, Nonmonetary transactions, Intangibles, and Impairments
In order to reconcile bank statements to match book cash and visa-versa - what amounts go to each?
Deposits in transit Outstanding checks Service Charges Bank Collections Non-sufficient Funds (NSF) Interest Income Errors
Also, how are negative balance (overdrafts) reported?
Only 2 items to reconcile bank statements:
Deposits in transit - ADD to bank
Outstanding checks - DEDUCT from bank
Service Charges - DEDUCT from book Bank Collections - ADD to books Non-sufficient Funds (NSF)- DEDUCT from books Interest Income - ADD to books Errors - ONLY fix for books
Negative balances (overdraft) - should be reported as a current liability
Factor with and without recourse
Without = sale is FINAL With = has option to re-sell back to seller
Direct Write-off vs Allowance
- JE for both situations
Allowance fomula?
How written off affect AR, Allowance, NI?
How recoveries previously written off affect?
Key factor to think about the difference between uncollectible for sales and AR?
Beg Allowance \+ Uncollectible Exp (% of sales) \+ Recoveries - Write-Offs = Ending Allowance (% of AR)
Write-offs
- Decrease Allowance
- Decrease AR
Recoveries
- Increase Allowance
- because you reverse the previous write off above then debit cash and credit AR (so 2 AR cancel out)
Net Income is never effected
Use IS approach - Sales is an uncollectible expense that is added to balance. ie so if allowance was 10 at beg. and expense was 5 then allowance balance is 15.
Under BS approach - the % of AR is just always the end balance of AR so you have to find out what the expense actually is.
LIFO under Perpetual and periodic inventory system? What does it mean and how to solve the below?
January
1/1 Purchased 2000 @ 1
1/17 Sold 1200
1/28 Purchased 800 @ 5
What would be the difference if using average-cost method?
For example, if 1/1 had a beg balance of 200 @ 4.
Perpetual LIFO because it is assigned after EACH sale. Last item purchased is the first one sold.
Periodic is calculating LIFO at the end of the month or quarter.
Perpetual:
800 x 5 = 4,000
800 x 1 = 800
Periodic:
1600 x 1 = 1600
you calculate what is left over not what is sold.
Average
- requires a new unit cost to be calculated every time inventory is purchased. So for this problem it would be total cost of 2,800 ((200x4) + 2000)) divided by 1200 = 2.3 per unit so use that.
Perpetual
800 x 2.3 = 1,840
200 x 2.3 = 460
800 x 5 = 4000
consgiment costs
Consignment shipping costs should be included in inventory value as its not sold yet
What are capitalized costs in assets?
Regarding interest payments, how should they be treated during and after construction?
How do you determine what amount of interest costs are capitalized on a $3mn loan at 8% where the company made a $1mn payment at the beginning of the year and $1mn at end?
Any costs to acquire or make ready a plan asset is capitalized.
- Interest incurred DURING construction is capitalized based on weighted average acc expenditures
- Interest incurred BEFORE/AFTER should be expensed
Capitalize a loan that was taken out (get the present value) which is full payment of 1 year and multiply by ordinary annuity factor at its interest rate and time period.
I.e if loan taken out was for 18,000 and a payment of 6,000 paid every year for 3 years at 8%. Ordinary annuity for 8% at 3 years is 2.58 so multiply 2.58 x 6,000 to get PV.
Capitalized interest is based on WEIGHTED AVERAGE of acc expenditures. Since
Permanent Impairement
When a permanent impairment occurs, the BV is reduce and a loss is recorded. The loss is credited to accumulated depreciation.
What kind of costs are capitalized and expensed when it comes to research?
What is specific about IFRS in relation to research and development?
What specific kind of costs is excluded from being expensed? And what is tricky about it?
- Research and development is EXPENSED
- IFRS: development costs may be capitalized
- Legal fees and other costs associated with registering the patent are CAPITALIZED
- BUT, unsuccessful legal fees are expensed
- Materials, equipment, and facilities that have alternative uses
- BUT, the depreciation expense is allocated to research and development while in use.
High level - how do you first determine what research and development is worth?
- Goodwill is determined by what you paid for it. recorded at COST.
- It cannot be internally generated. That is costs associated with increasing goodwill (research and development) are expensed.
Franchise accounting - how are initial fees and continuing (yearly) fees treated?
How are start-up costs treated?
Initial fees - PV of the amount paid (or to be paid) is recorded as the intangible asset
That intangible asset is amortized over its expected life
Start-up costs (incl. organizational costs) should be expensed as incurred.
What costs should be capitalized in PPE?
HOw do you report fixed assets under GAAP & IFRS?
Property, Plant and Equipment
1) Cost getting the land ready for use (development)
- Cost of the land
- RE taxes in arrears
- Attorney fees for title search / insurance
- Shipping / Installation / Testing
2) Cost to Increase useful life
3) Cost to increase efficiency
GAAP
- Valued at cost
CV = Cost - Acc Dep - Impairment
IFRS
- Value at cost
- OR revaluation model
- *revaluation loss on IS and revaluation surplus on OCI**
Difference between commercial substance and noncommercial substance (lacks)?
How to account for FV of new assets in commercial substance? And how to calculate gains/losses?
How are account for new asset recorded in Noncommercial Substance? And how to calculate gains/losses?
HIGHLY TESTED ~10%
- Noncommercial substance - Entity is not significantly affected by exchange and assets are not really different
~Commercial Substance~
If cash paid :
FV of new asset = FV old + cash paid
If cash received:
FV of new asset = FV old - cash received
Gain/loss = difference between BV and FV of asset given up
~Noncommercial Substance~
Incoming (new) asset is recorded at the sum of the BV of the OUTGOING (old) asset plus cash paid
Rules:
1) If loss is evident:
- Record the loss and the new asset at FV (same as commercial substance)
2) If gain is evident + cash is paid:
- No gain is recognized and the new asset is the sum of BV of asset exchanged + cash paid
3) If gain is evident + cash received <25%:
- Recognize the gain in proportion to the cash received and the new asset is at FV less the unrecognized portion of the gain
4) If gain is evident + cash received >25%:
- Recognize full gain and record the new asset at FV
Pledging accounts receivable
Factoring
- with recourse and without recourse
- Use AR as collateral for loans.
- Requires note disclose only
Factoring is selling AR fro cash
- With recourse seller retains the risk of any losses
- Without (sale) buyer assuming the risk of any losses so you REMOVE AR from books
Goods in Transit
FOB Shipping and FOB destination
FOB shipping point - in buyers inventory once “in truck” and is considered freight in (added to cost for buyer)
FOB Destination - even when its shipped its on Sellers books until buyer receives it.
- Freight out and is a selling expense for seller
How to value inventory in both US GAAP and IFRS?
US GAAP
- Lower of cost or market
- Lower of cost or NRV
IFRS
- lower of cost or NRV
