F3 (Cash+CE, Inventory, PPE: cost basis) Flashcards
examples of CE’s:
- coin+currency on hand (petty cash)
- checking + savings accounts
- MMF
- deposits held as compensating balances (not restricted)
- negotiating paper (traveler’s checks, bank drafts, cashier’s checks, T-bills, certificate of deposit (OG maturity <90 days)
*NOT legally restricted deposits held as comp balances
2 forms of bank reconciliations:
- simple reconc:
- goal is to calculate “true balance”
- bank add it LOC (deposit - o/s checks)
- svc charges, errors, and NSF deduct from books and bank collections, errors, and interest income add to books
- steps = book bal adj’d to reflect correct bank bal, after adj’d book bal, it will equal true bal, then bank bal per bank statement is reconc’d to true bal
- reconc of CR and CD:
- shows proof of proper recording of cash transactions
perpetual vs periodic inventory:
- perpetual: running total of inventory (updated)
* periodic: no running total and COGS cannot be det’d til end of period when inv counted (includes purchases)
inventory valuation methods: [GAAP vs IFRS]
- GAAP: LCM using LIFO/retail inventory method
* IFRS: LC-NRV using FIFO/WA method
how to calculate LCM:
- ceiling = NRV
- replacement cost = given
- floor = NRV - NPM
Inventory Costing Methods:
- FIFO: EI and COGS are same under perpetual or periodic
- sell old; higher EI, CA, RE
- highest EI and highest NI
- LIFO: (US) tax advantage (better matching); need to use LIFO conformity rule (on FS as well)
- lowest EI and lowest NI
WA - used with periodic inventory:
WA cost per unit = COGAFS/# units available for sale
MA - used with perpetual inventory:
- unit cost changes each time there is a new purchase
* calculate new MA after every purchase (total COGAFS/# units)
DV LIFO:
- computed internally or obtained from external sources
- PI = EI CY/EI BY
- PI*layer = Y1 layer
- Y1 layer + Y1 DV LIFO = EB Y1 DV LIFO
retail method:
*at cost: BI + purch = AFS
- at retail:
- BI + purch + markups = AFS
- AFS - sales - markdowns = EI retail
- cost AFS/retail AFS = cost/retail ratio
- cost/retail ratio * EI retail = EI LCM
sales w/ ROR:
- GR: if goods are sold w/ ROR, they should be included in seller’s inv if amt of goods likely to be returned cannot be est’d
- if amt of goods likely to be returned CAN be est’d, transaction will be recorded as sale w/ allowance for est’d returns
- revenue from sales transaction w/ ROR should be recog’d at time of sale only if crtierias are met:
- SP substantially fixed at date of sale
- buyer assumes all ROL
- buyer has paid some form of consideration
- product sold is substantially complete and
- amt of future returns can be reasonably est’d (rev recognition rule)
exceptions to cost basis:
- precious metals and farm products:
- valued at NRV
*LCM and LC-NRV is used when loss on sale is expected
reversal of write-downs (GAAP vs IFRS):
- GAAP = no
* IFRS = yes (limited to amount of OG write-down)
Inventory write-down JE:
Dr Inv loss due to decline in MV
Cr Inv
Periodic vs. Perpetual JE for purchases:
*Periodic:
Dr Purchases
Cr Cash
*Perpetual:
Dr Inventory
Cr Cash
Specific Identification:
takes precedence over any other inventory costing method (cost of each item is uniquely identified)
- usually for HV items or physically large
Firm PC’s:
- legally enforceable agreements to purchase a specific amount of goods at some time in the future
- must be disclosed in FS or notes
- if price > MV and expected that loss will occur when purch is made, the loss should be recog’d at time of decline in price (conservatism)
FOB destination & shipping point costs:
- destination = packaging, shipping, and handling (seller)
* shipping = shipping cost is buyer’s cost
Ordinary vs. Extraordinary repairs:
- ordinary = expensed
* extraordinary = cap as inventory ONLY IF it increases usefulness of asset
land improvements:
fences, sidewalks, landscaping, etc
land costs:
all costs up to excavation (includes razing and real estate taxes in arrears)
Building costs:
excavation and forward
under IFRS, component depreciation is required (more accurate):
separate significant components of FA’s w/ diff lives should be recorded and dep’d separately; CV of components that are replaced should be derecog’d
Depreciation methods:
- SOY digits: rate = remaining life/SOY digits [n(n+1)/2]
- (cost - SV) * rate = DE
- DDB = highest DE initially, SL = lowest initially
*UOP:
Step 1 :
(cost-SV)/ units per hr = rate per unit/hr
Step 2:
rate per unit/hr * # units produced/hr worked = DE
Interest on Self-Constructed Assets:
- cap those interests on these assets based on (WAAE*int rate); cannot exceed actual interest costs; leftover is int exp
- this is an exception (permit filed and during construction for use in biz)
- we capitalize interest LOWER of actual int costs incurred or computed cap’d int (avoidable interest)
- interest on inventory routinely mfg’d is not cap’d
valuation of donated FA’s:
Dr FA (FMV) Cr Gain on nonreciprocal transfer
for a damaged portion of a Building that is known and uninsured:
recognize loss to CV of damaged portion and capitalize refurbished costs
WA int rate calculation:
[(6/14)8%] + [(8/14)9%] = 8.57%
disclosures for depreciable assets and DE should be made in FS or notes:
- DE for period
- balance of major classes of depreciable assets
- AD allowances by classes/total
- methods used by major classes in computing DE
