F4 - Deck 1 Flashcards
What are considered costs associated with exit and disposal activities? Related to employees and Leases.
Exit and disposal costs include employee relocation and involuntary termination benefits, as well as non-capital lease termination costs. Costs for retiring fixed assets and capital lease terminations are not included.
When does an asset retirement obligation (ARO) exist and how is it recorded?
An ARO exists when there are legal obligations for removal costs of a constructed asset. It’s recorded as a liability at the asset’s service commencement, valued at the present value of the future obligation. The ARO increases the asset’s value and is expensed through depreciation over the asset’s life.
How is a change in the value of a liability recognized after the related asset is fully depreciated?
Changes in the value of a liability after full depreciation are recognized in profit or loss when reviewed and adjusted, not only at settlement. These changes are recorded on the income statement, not in other comprehensive income, and apply whether the liability increases or decreases.
What is accretion expense in relation to an asset retirement obligation (ARO)?
Accretion expense is the increase in the ARO liability due to the passage of time, calculated as the beginning ARO times the credit-adjusted accretion rate. It is not equal to the ARO itself or the ending carrying value of the asset.
When should gain contingencies be disclosed in financial statement notes?
Gain contingencies are disclosed unless realization is remote, with the full range of possible settlements noted. Actual settlements known post-issuance do not affect this requirement.
What is required for a ‘reasonably possible’ loss in terms of financial statement disclosure?
For a ‘reasonably possible’ loss, only footnote disclosure is required. No amount is accrued unless the loss is ‘probable.’
How should gain contingencies be disclosed and accrued in financial statements?
Gain contingencies should be disclosed with caution to avoid misleading users about the likelihood of realization. They are disclosed unless realization is remote and are not accrued until the transaction generating the gain is completed.
How are the likelihood of loss and gain contingencies treated in financial statements?
A ‘reasonably possible’ loss is disclosed in financial statement notes but not accrued. Gain contingencies are not recorded to prevent premature revenue recognition.
When are gain contingencies recognized in financial statements?
Gain contingencies are not recognized until the gain is realized. Probable and estimable gain contingencies may be disclosed in the notes, but not recorded. This contrasts with loss contingencies, which are recorded when probable and estimable.
What is a loss contingency and what are some examples?
A loss contingency is a possible future loss dependent on uncertain events. Examples include pending litigation, which may require payment if settled.
Receivables sold without recourse, pledged assets, and consigned goods are not loss contingencies.
When are contingent liabilities recorded and how is the amount determined?
Contingent liabilities are recorded when they are probable and estimable. If only a range is known, GAAP requires accruing the minimum amount.
The plaintiff’s assertion or the maximum amount of the range is not typically accrued.
How is the amount to recognize as a liability for a purchase commitment determined?
The liability for a purchase commitment is the committed purchase amount for the following year minus the new market value at year-end. A liability is recognized if the market value has declined from the committed price.
