F4 Flashcards
What’s working capital?
Current assets minus current liabilities. It is often a measure of the solvency of a company.
Difference between current assets and cash equivalents?
expected to realize within 1 year of balance sheet date VS original maturity date less than 90 days from the date issued.
What should be the balance of A/R account?
The Net Realizable Value–adjusted for allowances that may be uncollectible,sales discounts, and sales returns and allowances. Allowance method under GAAP.
How to value A/R with speed discounts?
Gross method–record without discount. If discount is used, Dr sales discount (contra revenue account).
or Net method–record net of discount. If discount is not taken after all, Cr sales discount not taken (revenue account)
With a returnable sale, how to record the sale and return?Revenue and inventory.
When buyer has the right to return and cannot be estimated–not a sale yet, inventory remain on seller’s B/S. If return can be estimated– sales returns and allowance (contra sales) account should be Dr at the date of sale. Inventory side: Cost of Sales on Estimated Returns should be Cr.
Allowance method for A/R, when to record bad debt expense?
% of sales method: at time of sale– Dr bad debt expense, Cr allowance for uncollectable accounts.
% of A/R at year end method: adjust allowance balance at year end(+or-).
Aging of receivables method: adjust balance(+ or -) at the date of the analysis (e.g. year end) , balance sheet approach, same with method 2.
Under allowance method, how is the balance sheet and income statement changed when A/R write-off happens? How about recovery of previous write-offs?
Write off: NRV of A/R is not changed. Dr allowance, Cr A/R. No change (in total) on either B/S or I/S.
Recovery: Dr A/R, Cr allowance. Dr cash, Cr A/R. No change (in total) on either.
What’s pledging(assignment) of A/R?
Company retains ownership of A/R but “pledges” that it will use the proceeds to pay the loan. A/R not adjust only footnote disclosure.
What’s factoring of A/R?
A company can convert (sell) its receivables into cash by assigning them to a ‘‘factor” either without or with recourse. Could be treated as a true sale or a loan.
Similar to Discounting Notes Receivable.
When notes receivable get discounted with recourse, are they removed from original holder’s balance sheet?
Could be removed with note disclousing contingent liability.
Or remain on B/S, but credit contra-asset account–N/R discounted.
How is inventory valued? GAAP vs IFRS.
GAAP: Lower of cost (GR) or market. “Market” normally equals current replacement cost, but is limited by NRV(ceiling) and NRV-profit margin(floor).
IFRS: lower of cost or NRV.
Write downs are recorded on I/S (increase cost of goods sold) in current period. GAAP requires separate reporting on I/S if substantial and unusual.
Can inventory write-downs be reversed?
GAAP No! IFRS yes-up to original write down.
How are fixed assets valued? GAAP, IFRS?
GAAP– historical cost adjusted for depreciation and impairment. IFRS– Cost or Revaluation (must be applied to all items in a class of assets). Revaluation-subsequent depreciation and impairment.
How are investment property valued under GAAP or IFRS?
GAAP– same as all fixed assets. No special rule. IFRS– cost or fair value model.Cost model is historical cost- depreciation; fair value is the end of period FV (not depreciated), G/L rec’d in earnings.
For constructed fixed assets, is the construction loan interest expensed or capitalized?
Capitalized based on weighted average of accumulated expenditures DURING the construction period, up to the actual interest incurred.