F4 Flashcards
Working Capital Formula
Current Assets - current liabilities
Current Ratio Formula
Current Assets / Current Liabilities
Quick Ratio Formula
(Cash + Net Receivables + Marketable Sec) / Current Liabilities
Bank Reconciliations
- Deposit in Transit
- Outstanding Checks
- Service Charges
- Bank Collections
- Errors
- NSF
- Interest Income
1.Add to Bank
2. Subtract from bank
3. Subtract from books
4. Add to Books
5. It can be either side that needs adjusting
6. Subtract from books
7. Add to books
=True Balance
T- Account for AR
Debit Credit
Beg Bal Write Off
Convert note
Credit Sales Cash Coll
=End BalAR: Base Formula
Beg Bal \+Credit Sales =Subtotal - Cash collected - AR converted to Note receivable (rare) - AR written off = Ending Balance
Valuation with AR J/E
- Sale
- Payment received w/n the discount period
- Payment is not received in discount period
Sale DR: AR CR: Sales If payment is received w/n the discount period DR: Cash DR: Sales Disc Taken CR: AR If payment is not received w/n discount period DR: Cash CR: AR CR: Sales Disc not taken
J/E for Sales Returns
DR: Sales Returns & Allowances (contra sales)
CR: AR
J/E for Direct Write off
NOT GAAP
DR: Bad Debt Exp (up) (=NI down)
CR: AR (down) (=Asset down)
Allowance method - 3types
J/E for Allowance Method
- % of Sales
- % of AR
- Aging of Receivables
DR: BDE
CR: Allowance for uncollectibles
J/E when receivable is uncollectible
DR: Allowance for doubtful accts (goes down)
CR: AR (goes down)
Subsequent Collection of AR Written off
Direct Method J/E
NOT GAAP
DR: Cash
CR: Uncollectible Accts Recovered
Subsequent Collection of AR Written off
Allowance Method GAAP
2-step and J/e
- Restore acct previously written off (reverse write off)
DR: AR (goes up)
CR: Allowance for Uncoll (goes up) - Cash Collection on the acct (offset AR)
DR: Cash
CR: AR (goes down)
Subsequent Collection of AR Written off
Allowance for Doubtful accounts analysis format
Use T-Account
J/E for adjustment
DR: Allow for uncoll (down) -NRV up
CR: BDE (down) profit up
Pledging?
Company uses existing AR as collateral for a loan
Factoring?
Can convert it receivables into cash by assigning them to a “factor”
Factoring w/o recourse?
J/E for factoring AR w/o recourse
True sale- sale is final and that the assignee (the factor) assumes the risk of any losses on collections
DR: Cash
DR: Due from factor (factors margin)
DR: Loss on sale of receivable
CR: AR
Factoring with recourse?
Sale or loan/AR collateral = factor has the option to re-sell any collectible receivable back to seller
Notes Receivable?
- Valuation & Presentation?
- With Recourse?
- W/o recourse?
Are written promises to pay debt
- unearned interest & finance charges are deducted from the face amt of the related promissory note
- With Recourse: Holder remains contingently liable
- W/O recourse: No further liability
.
J/E to write off a specific account under allowance method
DR:Allowance for uncollectible accts (down)
CR: AR (down)
Discounting a note at a bank
Face Value + int rate on note (face x time x int rate) = Payoff at maturity
Payoff at maturity - Discount by bank (discount x time x payoff at mat) = cash received from bank
Inventory - who accounts for
FOB Shipping
FOB Destination
Shipping = buyer Destinations = seller
Who accounts for consigned goods?
Consignor
GAAP : Valuation of Inventory
At Cost
Exceptions
~Lower of Market or Cost: when utility of goods is no longer as great as their cost
~Precious metals & farm products=NRV=Selling Price - Cost of disposal
How to calculate lower of cost or market for inventory?
- Recognize loss in current period
~GAAP=Market means current replacement cost if not higher than NRV (market ceiling) or lower than NRV - profit margin (market floor) - GAAP= Reversals of inventory write-downs are prohibited
- Market Ceiling = NRV
Market Floor = NRV - Profit Margin
Replacement Cost = Cost to purchase on valuation date
IFRS Valuation for Inventory
Lower of cost or NRV (selling price - cost to complete and dispose)
~Reversal is limited to original write-down
Inventory
J/E to write-down to a separate account:
DR: Inventory loss due to decline in market value
CR: Inventory
Periodic Inventory System Formula
Beginning Inventory \+ Purhcases (net of returns or discounts) = COG available for sale - EI (Physical Count) = COGS
Periodic Inventory System J/E
- Sale under periodic system
- Purchase under periodic system
Sale under periodic system:
DR: Cash
CR: Sales
Purchase under periodic system:
DR: Purchases
CR: Sales
Perpetual Inventory System J/E
- Sale under perpetual method
- Purchase under perpetual method
Sale under perpetual method: DR: Cash CR: Sales DR: COGS CR: Inventory
Purchase under perpetual method:
DR: Inventory
CR: Cash
FIFO
During Rising Prices?
~First in first out
~Rising prices: FIFO results in the highest EI, Lowest COGS, Highest NI (curr costs not matched with curr rev)
~EI and COGS are the same with periodic & perpetual
Weighted Average Formula
Total cost of inventory available / Total # of units of inventory available
Periodic
What is moving average method?
Perpetual
Computes weighted average after each purchase
LIFO?
Rising Prices?
LIFO: Last In, First Out = Not permitted under IFRS
~Rising prices: LIFO method generally results in the lowest EI, highest COGS, lowest NI (Remember=LIFO Lowest)
Dollar Value LIFO
-Estimate of Change in price levels required
~Inventory is measure in dollars and is adj for changing price levels
Price Index Formula
EI at CY cost / EI at base year
Firm Purchase commitment
Legally enforceable agreement to purchase a specified amount of goods at some point in the future.
~If the contracted price exceeds the market prices → loss should be recognized at the time of decline
~Disclosure of loss = required
J/E to record loss on a purchase commitment
DR: Est loss on purchase commitment
CR: Est liab on purchase commitment
Characteristics of FA
~Acquired for use in operations and not for sale
~LT in nature and subject to depreciation
~Physical Substance
Classification of FA
~Land (property)
~Buildings (plant)
~Equipment
~Accum Dep (contra-asset)
Valuation of FA under GAAP
Historical Cost
J/E for Donated FA
DR: FA (FMV)
CR: Gain on nonreciprocal transfer (unusual or infrequent)
Valuation of FA under IFRS
~Cost: Cost Model CV = Historical Cost - Accm Dep - Impairment
~Revalaution: Revalued to FV
Revaluation model CV = FV at Revalue date - Subseq Accum Dep - Subseq Impairment
~Revaluation Loss = IS (FV < CV before revaluation)
~Revaluation Gain = OCI (FV > CV before revaluation)
~Impairment = OCI down to zero then less on IS
Cost of Equipment
All expenditures related directly to their acquisition or construction
J/E for Additions to FA
DR: Asset
CR: Cash/AP
J/E for Replacements of FA
~CV of old asset is known = removie it and recogn g/l
~CV unknown = increase NBV
DR: Accum Dep
CR: Cash/AP
How to account for Repairs on FA
~Ordinary = Expense ~Extraordinary = Capitalize
Cost of Land? Decipherable?
All costs incurred to excavation (digging/building)
~Land Cost = Not depreciable
~Land Improvements = Depreciable
Investment Property IFRS~
Capitalize or Expense
Capitalize
~Cost incurred to subsequently add to the property
~Cost to replace part of property
~Cost to service property
Expense
~Day to day servicing
~Repairs and maintenance
~Labor & Minor parts
Two models used for Investment property under IFRS
Cost Model
BS at historical cost less accum depreciation
FV Model
BS at FV and not depreciated
When do you capitalize construction interest?
During
~Based on weighted average of accum expenditures
What construction interest do you not capitalize?
~Inventory routinely manufactured
~FA held before or after construction period
~Intentional delays in construction
What are the 2 rules with construction interest capitalization?
- Only capitalize interest on money actually spent, not the total amt borrowed
- Amt of capitalized interest is the lower of:
~Actual interest cost incurred, or
~Computed capitalized interest (avoidable interest)
SL Formula
(Cost - SV) / Estimated useful life
Double Declining Balance
= 2 x (1/N) x (Cost - Accum Dep)
*Ignore SV
Sum of years Digits Formula
= (Cost - SV) X (remaining life of asset / sum of years digits)
Units of Productions Formula
- (Cost -SV) / Est Units = Rate per unit
2. Rate per unit X # of units produced = Dep Exp
Disposals: J/E
Sale of Asset during useful life
DR: Cash Received from sale
DR: Accum Dep of sold asset
CR: Sold asset at cost
DR/CR: G/L (Plug)
Disposals: J/E
Write off Fully dep asset
DR: Accum Dep (100%)
CR: Old Asset at full cost
Disposals: J/E
Total & Perm impairment
DR: Accm Dep
DR: Loss due to impairment (diff)
CR: Asset at full cost
When is depletion used?
For natural resources
Cost/Unit Depletion Formula
Base / Recoverable units = rate
Depletion Base Formula
Purchase Price \+ Develpment Cost \+ Restoration Cost - Residual Value = Depletion Base
IFRS: Partial Goodwill Method
Calculation for Goodwill and NCI
Partial goodwill = FV of net assets X ownership %
NCI = FV of net assets X NCI %
