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FAR > F3 M4,M5,M6 > Flashcards

F3 M4,M5,M6 Flashcards

1
Q

What is the formula for double declining method

A

applies a factor of 2/n to the cost total, with n representing the useful life of the asset. Each year the 2/n factor will be applied to the adjusted cost total after taking into account depreciation from the period. Salvage value is not accounted for in the calculation.

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2
Q

Intangiles are depreciated or amortized

A

Amortized

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3
Q

Types of depreciation are physical and functional T or F

A

T Physical you can touch; Functional like a patent

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4
Q

Useful life is calculated by what formula?

A

Total depreciation cost/total depreciationi

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5
Q

Define asset retirement

A

when a group or composite asset is sold or retired

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6
Q

What is composite or group depreciation?

A

It is the process of averaging economic lives of a number of units and depreciating the entire class of assets over a single life

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7
Q

What is the “sum” of the years depreciation formula

A

n(n+1)/2. It is an accelerated method (front load expense) of depreciation that provides higher depreciation in the early years and lower charges in the later years. Deprec expense = (cost-SALVAGE FALUE) x Remaining life of asset/sum of the years digits Ex: A five year use life would be 1+2+3+4+5=15 or; 5(5+1)/2=15; so, Yr 1 5/15 x (cost-50), Yr 2 4/15 x (cost-50), yr 3 3/15 x (cost-50) etc.

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8
Q

What is the units of production formula

A

Cost-salvage value/estimated units or hours; then rate per unit x number of units produced = depreciation

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9
Q

Know that a company has options are are permissible to that partial year depreciation (use the date placed in service) or other ways of depreciation. What are the permissible ways?

A

Depreciation is typically taken for only the portion of the year the asset is used. Ex: asset placed in service July 1 and the company is on calendar year then 6 months of depreciation. But companies can take a half year convention which means one-half years depreciation is taken n both the year of purchase and year of disposal. Company can take no depreciation a in the year of purchase and a full year in the year of disposal, company can take a full year depreciation in the year of purchase and none in the year of disposal.

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10
Q

Gain or loss on an asset is recognized when

A

When depreciation is taken individually NOT as a group

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11
Q

Depletion is used of natural resources T or F

A

T such as oil, gas, timber, minierals

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12
Q

What is the formula for depletion base?

A

Unit Depletion rate = Depletion base/estimated recoverable or removable units

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13
Q

What is the formula for depletion base?

A

Cost to purchase property + development cost+estimated restoration cost - residual value of land after resources are extracted

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14
Q

What is the formula to calculate depletion?

A

Total depletion = unit depletion rate x number of units extracted

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15
Q

Land Capitalized cost are all cost up to the digging of the land T or F

A

T; All cost in the purchasing of land and its development are capitalized EXCEPT FOR DIGGING OF THE LAND (EXCAVATION) which is part of building cost. Ex of land costs: legal fees, draining of swamps, filling in/leveling, site development, existing obligations assumed by the buyer like mortgages and back taxes, cost of old building demolition, LESS proceeds from sale of existing buildings, timber etc.

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16
Q

Land improvements are depreciable and include the following

A

Fences, water systems, sidewalks, paving, landscaping, lighting

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17
Q

What are the key words that you should know that mean you need to capitalize vs expense?

A

Additions, Improvements (betterments) and Replacements

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18
Q

Costs of Equipment includes all expenditures related directly to the acquisition or construction of the equipment such as

A

Invoice price - cash discounts + freight in (and insurance while in transit) + installation charges + sales and federal excise taxes

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19
Q

The interest on the amount borrowed and USED (actually spent) that money is subject to interest and is capitalized T or F

A

T Construction period interest should be capitalized based on weighted average of accumulated expenditure as part of the cost of producing fixed assets

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20
Q

What are examples of costs to capitalize when a fixed asset is constructed by a company?

A

Direct materials and labor, repairs and maintenance expense that ADD VALUE to the fixed asset, overhead, construction period interest

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21
Q

The amount of capitalized interes is the lower of

A

actual interest incurred or computed capitalized interest (avoidable) interest

22
Q

T or F The installation date is when you start depreciation

A

T All equipment cost must be incurred before you begin the depreciation; basically the INSTALLATION date is the date when you start depreciation

23
Q

In terms of a note payable present value is also known as the

A

Selling price

24
Q

When you make an equipment/product purchased when is the liability recorded?

A

a liability is recorded NOT WHEN YOU MAKE A PURCHASE; but when you actually receive the machine

25
Q

When do you capitalize a construction project

A

Your capitalization dates are when the project starts and when it ends

26
Q

What conditions must be present to capitalize interest?

A

Expenditures for the asset have been made (building decision made), activities that are necessary to get the asset ready are in progress( permits filed), interest cost is being incurred; inspections; strike

27
Q

If a transaction is nonmonetary and lacks commercial substance then?

A

The assets are similar which is often an indication that the risk or the expected future cash flows from the asset received does not differ significantly than the risk. So there is no reporting of the GAIN or LOSS under U.S. GAAP. Instead the OLD NBV of the asset sold and the Cash paid for the new asset become the COST of the new asset and the gain is DEFERRED.

28
Q

FOB Shipping point means

A

buyer’s inventory upon shipment; as soon as the goods on in the truck it belongs to the buyer

29
Q

FOB Destination means

A

Sellers inventory until delivered to buyer

30
Q

Non conforming goods means

A

This means the seller shipped you something that you did not order so it is the sellers inventory

31
Q

Consignor is the owner or seller

A

Owner of the goods and the inventory belongs to the consinor

32
Q

Consignee is the onwer or seller

A

Seller of the goods

33
Q

What is the formula for Net Realizable Value

A

Selling price minus cost of disposal

34
Q

Lower of Cost and net realizable value is used for what inventory method

A

FIFO

35
Q

Lower of Cost or Market is used for what inventory method

A

LIFO

36
Q

Market Value generally means Replacement cost T or False

A

T market value is the middle value (median) value of an inventory item’s replacement cost, its market ceiling and its market floor

37
Q

For Market value you need to choose between which of the following options?

A

Replacement Costs, Market Celling (NRV), Market Floor (NRV less a normal profit margin)

38
Q

If inventory is overstated it means what for your income statement

A

This means your inventory is higher than it should be and It means your COGS is understated and your Net Income is overstated. Do a plug example if you need to.

39
Q

If inventory is understated it means what for your income statement

A

This means your inventory is lower than it should be and It means your COGS is overstated and your Net Income is understated

40
Q

T or False the perpetual system has no purchases

A

T the perpetual system has no purchases and there are 2 JEs at the time of sale for each purchase and sale as they occur. The COGS is determined with each sale and this system keeps a running total of inventory balances. D COGS C Inventory

41
Q

Periodic system has purchases T or F

A

T .ENDING INVENTORY IS COUNTED 1 TIME AT THE END OF THE PERIOD) the difference between the periodic system and the perpetual system is the periodic system has purchases the perpetual method will have inventory in its calculation/JES

42
Q

On the exam if you have to record a JE using the periodic method how many JEs do you record?

A

1 JE and your JE will be a D Cash C Sales; as cogs will be recorded AFTER the periodic inventory count

43
Q

Perpetual system has Inventory T or F

A

T the difference between the periodic system and the perpetual system is the periodic system has purchases the perpetual method will have inventory in its calculation/JES

44
Q

To do a weighted average method you have to be what? Periodic or Perpetual?

A

Periodic(meaning theres purchases); just take the total costs/ending inventory

45
Q

To do a moving average method you have to be what? Periodic or Perpetual?

A

Perpetual; the moving average method computes the weighted average cost after each purchase by dividing the total cost of inventory available after each purchase

46
Q

To compute the LIFO Layer the formula is

A

LIFO layer at base year cost * the price index

47
Q

To computte the dollar value LIFO the formula is

A

Current Year cost +Lifo Layer

48
Q

To Compute the price index the formula is

A

ending invenory at current year cost/ending inventory at base year cost

49
Q

Firm Purchase commitments must be disclosed T or F

A

T all material firm purchase commitments to purchases goods (inventory) at some time in the future must be disclosed. Companies do this when they think the prices are going up and they want to lock in a price. If a company takes a loss they have to book it immediately.

50
Q

T or F Under the LIFO method Perpetual and Periodic can be equal

A

FALSE; under the LIFO method perpetual and Periodic cannot be equal. Do your periodic first and then do your perpetual

FAR (10 decks)

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