F4 Flashcards
At what value is life insurance valued?
cash surrender value
Indications that Debt is Being Refinanced
(will allow the liability to continue to be classified as long-term)
- actual refinancing prior to the issuance of the financial statements
- existence of a noncancelable financing agreement from a lender having the financial resources to accomplish the refinancing
Refinancing under IFRS
*existence of a financing agreement is not enough; it must have been refinanced
Cash and Cash Equivalents
*must have a maturity date of 30 days or less FROM THE DATE IT WAS PURCHASED
Are legally restricted deposits equivalents?
No
How to classify restricted cash
based upon the current or noncurrent asset/liability
Bank’s Side - Bank Reconciliation
Add: Deposits in Transit
Subtract: Outstanding Checks
Adjust: errors
Company’s Side - Bank Reconciliation
service charges bank collections errors NSF interest income
Difference Between A/R and N/R
*notes are evidenced by a written promise
A/R Valuation Methods
Gross
Net
Are trade discounts reported gross or net?
- they are always recorded net because it is a quantity discount, not a timing discount
- do not add percentages together; take each percentage one at a time (40% and then 10%; not 50%)
Do expected exchanges affect sales, inventory, or COGS?
No
Accounts involved in Sales Return
DR: Sales Returns (contra-revenue)
CR: Accounts Receivable
Is the direct write-off method allowed for GAAP?
No
DR: Bad debt expense
CR: Accounts Receivable
3 Methods for Estimating Allowance for Doubtful Accounts
- % of sales
- % of A/R (balance sheet approach)
- aging (balance sheet approach)
Subsequent Collection under Direct Write-off Method
DR: Cash
CR: Uncollectible accounts recovered (revenue account)
Pledging (Assignment) vs. Factoring
pledging - disclosure only (collateral)
factoring - selling
Requirements for a Factoring with Recourse to be Considered a Sale
- seller’s obligation can be reasonably estimated
- transferor surrenders control of the future economic benefits
- transferor cannot be required to repurchase the receivables but may be required to replace the receivables with similar receivables
*otherwise it is treated as a loan (footnote)
Treatment of a Discounted Note Receivable with Recourse
DR: Cash
and
CR: note receivable discounted (contra-asset)
or
CR: not receivable and contingent liability
How to compute interest income earned when discounting note
- compare cash received to the face value of the note (difference is the interest income earned)
- in reality, this is the interest earned on the note minus the loss due to discounting
Should sales with the right to return be included in inventory?
Amount reasonably estimable? No
No reasonably estimable? Yes
How are Precious Metals and Farm Products valued?
Net realizable value
Where are inventory write-downs reflected?
Minor –> COGS
Material –> separate loss line item
Can you reverse an inventory write-down under IFRS?
Yes, but only to the extent of the write-down
Key to Perpetual Inventory System
COGS are recorded at the END of the period, not as each item is sold
Which inventory method is prohibited under IFRS?
LIFO
What is the LIFO conformity rule?
If you use LIFO for book purposes, then you must use LIFO for tax purposes
Dollar Value Price Index
Price Index = (Ending inventory at current year cost)/(Ending inventory at base year cost)
Firm Purchase Commitment Losses
*if the contracted price exceeds the market price and if losses are expected to occur when the purchase is made, the loss should be recognized at the time of decline in price
DR: Estimated loss on purchase commitment
CR: Estimated liability on purchase commitment
Donated Fixed Asset (GAAP) Journal Entry
DR: Fixed asset (FMV)
CR: Gain on nonreciprocal transfer
Two Methods for Valuing Inventory under IFRS
- cost
- revaluation (must be applied to all items in a class of fixed assets)
* *impairments first reduce the revaluation account
What must be disclosed if assets are reported at FMV or historical cost?
*the other choice (FMV if historical is reported)
Improvements that increase life vs improvements that increase usefulness
Increase life: reduce accumulated depreciation
Increase usefulness: capitalize
*if the carrying value of the old asset is known, remove it an recognize any gain or loss and then capitalize the improvement
Examples of land improvements
- fences
- water systems
- sidewalks
- paving
- landscaping
- lighting
Two Methods for Measuring Investment Property under IFRS
- Cost Model = depreciation recorded
2. Fair Value Model = depreciation is not recorded
If there are intentional delays in construction, can interest costs be capitalized?
No
What should determine the amount of interest that can be capitalized?
- weighted average of construction costs throughout the year
- apply it first to construction loan
- then use the average interest rate for remaining loans and capitalize that interest cost
Can capitalized interest costs ever exceed actual interest costs?
No (good check on work)
Most important item to remember for fixed assets and depreciation
CHECK THE DATES
Which method of depreciation does IFRS require?
IFRS requires component depreciation (composite is not allowed)
Composite vs Group Depreciation
Composite = dissimilar assets Group = similar assets
What to record when one asset in a group or composite is sold?
*do not report a loss; plug the difference between cash and cost to accumulated depreciation
How to compute average composite life
(Sum of Depreciable Cost)/(Sum of Annual Depreciation Expense)
Do you include residual value when calculating depletion?
Yes
Which method of depreciation does not directly take into account salvage value?
declining balance methods
Does IFRS allow reversals of impairment losses?
Yes
