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Becker FAR > F5 > Flashcards

F5 Flashcards

1
Q

Present Value Formula

A

PV = FV x PV Factor

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2
Q

How are bond issuance costs treated?

A

They are capitalized and must be proportionately removed for any amount of debt that is retired or extinguished early

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3
Q

How are bond issuance costs treated under IFRS?

A

*they decrease both cash and the carrying amount of the bond (through the discount or premium)

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4
Q

Shortcut to find payable or note amount when annuity is an annuity due

A
  • minus one from n and use n-1 periods under the ordinary annuity rate
  • add one to the PV factor of an ordinary annuity to compute the amount of the annuity due
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5
Q

Operating Lease: Lessee Rent Expense

A

*expensed over the lease term

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6
Q

Operating Lease: Lessee Bonus

A

*prepaid expense and amortized over the life of the lease

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7
Q

Operating Lease: Lessee Leasehold Improvements

A

*capitalize over the lesser of the useful life or lease life

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8
Q

Operating Lease: Rent Kicker

A

*period expense

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9
Q

Operating Lease: Lessee Refundable Security Deposit

A

*reported as an asset

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10
Q

Operating Lease: Lessor Rental Income

A

*over the life of the lease

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11
Q

Operating Lease: Lessor Fixed Asset

A

*keep asset on books and depreciates it normally

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12
Q

Operating Lease: Lessor Nonrefundable Security Deposit

A

*recorded as unearned revenue until it is deemed earned; doesn’t matter how many deposits are estimated to be kept; revenue from deposits cannot be estimated and recognized in this manner

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13
Q

Operating Lease: Lessor Lease Bonus

A

*recorded as unearned income and earned over the life of the lease on a straight-line basis

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14
Q

What expense should be included in calculating operating lessor income?

A

*depreciation expense

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15
Q

Lessee Capital Lease Criteria

A

O wnership transfers at the end of the lease
W ritten option for bargain purchase
N inety percent of the leased property FV s useful life

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16
Q

Lessor Capital Lease Criteria

A

L essee meets the capital lease criteria
U ncertainties do not exist as to unreimbursed expenses
C ollectibility is reasonably predictable

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17
Q

IFRS Finance Lease Criteria

A 
O wnership
W ritten bargain purchase 
E conomic life (major)
S ubstantially all of the fair value
F luctuation gains and losses accrue to lessee
A bility to continue the lease 
C an be canceled by the lessee
S pecialized nature of the assets involved in the lease
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18
Q

Sales Type vs Direct Financing Lease

A

Sales Type = record profit from sale and rental income

Direct Financing Lease = only record rental income

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19
Q

Executory Cost Treatment

A
  • not included in the PV of the minimum payments

* period expense

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20
Q

Initial direct costs of the lease paid by lessee: treatment by IFRS

A

*capitalized to the asset which may cause it to carry at a higher value than the corresponding liability

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21
Q

Items included in determining minimum lease payments

A
  • periodic payments
  • GUARANTEED residual value
  • bargain purchase option (payment amount)
22
Q

Depreciation Period for Lessee Under Capital Lease

A

O & W = economic life of asset

N & S = life of the lease (ONLY)

23
Q

Depreciation Period for Lessee under Capital Lease - IFRS

A

*shorter of lease or economic life of the asset

24
Q

Special Disclosure Rule under GAAP for Leases

A

FIVE YEAR RULE: show a period of at least the next five payments whether it is a capital lease or an operating lease

25
Q

Sales-Type Lease for Lessor

A

Gross Investment (lease receivable)
Lease Payment
+unguaranteed residual value
= gross investment

Net Investment
Gross Investment x PV
= net investment

Unearned Interest Revenue (contra-lease receivable)
Gross investment - net investment
= unearned interest revenue

COGS
COGS - PV of unguaranteed residual value (get it back)
= COGS

26
Q

Sales Revenue Rule for Sales-Type Lease

A

Cost + Profit = Selling Price = FV = PV

27
Q

PV = __________ in Sales-Type Lease

A

= Sales Revenue / Selling Price

28
Q

Direct Financing Lease for Lessor

A

*same as Sales-Type except no revenue or COGS

Gross investment (lease receivable)
Lease Payments
+ Unguaranteed residual value

Net Investment
PV of Gross Investment

Unearned Interest Revenue
Gross investment - Net Investment

29
Q

PV = ____________ in Direct Financing Lease

A

= Asset

30
Q

Rule for PV of Direct Financing Lease

A

PV = Carrying amount of receivable = cost of the asset

31
Q

Amount of Deferred Gain for Sale-Leasebacks

A
  1. Substantially All Rights Retained (PV >= 90% of FV of property) = DEFER ALL GAIN
  2. Middle (10% - 90%) = DEFER GAIN IN EXCESS OF PV
  3. Minor (< 10%) = RECOGNIZE ALL GAIN

*compare PV to FAIR VALUE (SALES PRICE) of property

32
Q

When do you recognize losses on Sale-Leasebacks?

A

Immediately

33
Q

Two Times Gain is Deferred for Sale-Leaseback under IFRS

A
  • financing lease

* operating lease where sales price exceeds the fair value

34
Q

Amortization of Deferred Gain for Sale Leaseback

A

DECREASES RENTAL EXPENSE

  • Capital = proportion to the amortization of the leased asset
  • Operating = proportion to the gross rental expense over the life of the lease
35
Q

What if no PV information is provided for a Sale-Leaseback problem?

A

*probably means it is either all deferred or all recognized

36
Q

Subleases and Lease Classification

A

Operating: also operating
Capital:
*O & W = capital
*N & S = operating

37
Q

Term Bond vs Serial Bond

A 
Term = set maturity date
Serial = redeemed pro rata
38
Q

What is an indenture?

A

A contract for a purchase of a bond

39
Q

To PV Components of Bonds

A
  1. PV of lump sum (face)

2. PV of annuity (interest payments)

40
Q

Two Things to Remember for Bonds

A
  • divide interest rate by two

* double the period to allow for semiannual payments

41
Q

How are bond issue costs amortized?

A

Straight-line over term of bonds

42
Q

Is the straight-line method of discount/premium amortization allowed under IFRS?

A

No

43
Q

How are bonds recorded by an investor?

A

*amortized cost; discount amortization for issuer will increase the asset for the holder

44
Q

Bonds issued between interest dates

A

*amount of interest accrued decreases interest expense (or is a payable); customer pays that much more to have the bond now

45
Q

Two items to accrue for at year-end for bonds

A

Interest Expense & Discount/Premium

46
Q

What is a bond sinking fund?

A

*account used to accrue payments for bond redemption at maturity; also will include interest revenue on funds in the account

47
Q

Bonds Outstanding Method for Amortization of Serial Bonds

A
  • add up outstanding value at each payment date (similar to sum of the years digits)
  • divide outstanding value by the summed value above and multiply it by the premium/discount
48
Q

Convertible Bonds = Two Methods

A
  1. Book Value Method

2. Market Value Method (will be a gain/loss)

49
Q

IFRS and Convertible Debt

A

*must show equity component based upon difference between FV and carrying value

50
Q

Two Methods for Accounting for Detachable Warrants

A
  1. warrants only

2. market value method

51
Q

Is it possible for bond extinguishment to be an extraordinary item?

A

Yes

Becker FAR (10 decks)

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