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FAR > FAR 1 > Flashcards

FAR 1 Flashcards

1
Q

IFRS Treatment of Extraordinary Items

A

no items are classified as extraordinary in IFRS.

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2
Q

IFRS Treatment of Interim Financial Reporting

A

Each interim period is a discrete reporting period.

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3
Q

GAAP Treatment of Extraordinary Items

A

Some items that are both UNUSUAL IN NATURE and INFREQUENT IN OCCURRENCE in the environment in which the entity operates are classified as extraordinary items in the statement of income.

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4
Q

GAAP Treatment of Interim Financial Reporting

A

Each interim period is treated primarily as an integral part of an annual period.

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5
Q

Why isn’t the effect on prior periods of changes in an accounting principle included in net income?

A

Because net income is closed to retained earnings at the end of the period. So retained earnings and carrying values of assets, liabilities, and retained earnings are adjusted for a change in accounting principle but NOT net income.

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6
Q

Calculation of DEPS

A
  1. Calculate BEPS. 2. Determine if potential shares are dilutive. This effect is equal to the after-tax interest that would be added back to net income divided by the potential common shares that would be added to the denominator. If the incremental effect is less than BEPS, the shares ARE dilutive. 3. DEPS = (NI + after-tax interest) / (weighted avg # shares outstanding + # dilutive stocks)
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7
Q

Elements of PV measurement

A

Estimates of future cash flows,
Expected variability of their amount and timing,
The time value of money (risk-free interest rate),
The price of uncertainty inherent in an asset or liability, and
Other factors, such as liquidity or market imperfections.

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8
Q

Retrospective Application

A

requires that carrying amounts of (1) assets, (2) liabilities, and (3) retained earnings at the beginning of the first period reported be adjusted for the cumulative effect of the new principle on all periods not reported.

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9
Q

Discounting Notes Receivable

A

selling a note receivable (usually to a bank)

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10
Q

PBO

A

Projected Benefit Obligation

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11
Q

Defined Contribution plan

A

Provides an individual account for each participating employee. Employee bears the investment risk. Accounting is easy.

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12
Q

Defined Benefit Plan

A

defines an amount of pension benefit to be provided to each employee. Employer bears actuarial risk and investment risk. Accounting is complex.

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13
Q

Projected Benefit Obligation (PBO)

A

the actuarial present value of all benefits attributed by the pension benefit formula to employee services rendered prior to that date

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14
Q

Actuarial Present Value of a PBO

A

reflects the time value of money and the probability of occurrence of future events.

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15
Q

Required Minimum Periodic Pension Expense elements

A 
\+ service cost
\+ interest cost
- expected return on plan assets
\+/- amortization of net gain or loss
\+/- amortization of prior service cost or credit
= net periodic pension expense
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16
Q

Service Cost Component of PBO

A

actuarial present value of benefits attributed by the pension benefit formula to services rendered by employees during the current period. Unaffected by the funded status of the plan. Calculated by actuary. Increases PBO.

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17
Q

Interest Cost Component of PBO

A

increase in the PBO resulting from the passage of time.

Beg. PBO x discount rate = interest cost

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18
Q

Expected Return on Plan Assets Component of PBO

A

market-related value of plan assets (MRV) x long-term rate

decreases PBO.

This is the return that is expected on the assets that are already in the account. IT decreases PBO because they have to put less in since what is already in there is growing.

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19
Q

Interperiod Tax Allocation

A

accounting for the differences that arise when the tax return amounts do not equal the financial statement amounts for the same year. (like accelerated depreciation methods for tax purposes)

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20
Q

Intraperiod Tax Allocation

A

REQUIRED. Income tax expense (benefit) is allocated to:

  1. Continuing operations
  2. Discontinued operations
  3. Extraordinary items
  4. Other comprehensive income
  5. Items debited or credited directly to equity
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21
Q

Income Tax Expense or Benefit

A

current tax expense or benefit + deferred tax expense or benefit

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22
Q

current tax expense or benefit

A

amount of taxes paid or payable (or refundable) for the year as determined by applying the enacted tax law to the taxable income or excess of deductions over revenues for that year

23
Q

current tax liability

A

taxable income x the applicable tax rate

24
Q

deferred tax expense or benefit

A

the net change during the year in an entity’s deferred tax amounts

25
Q

deferred tax liability

A

records the deferred tax consequences of taxable temporary differences. Measured using the enacted tax rate and tax laws.

26
Q

deferred tax asset

A

records the deferred tax consequences of deductible temporary differences and carryforwards. measured using enacted tax rate and tax law.

27
Q

valuation allowance

A

portion of a deferred tax asset for which it is more likely than not that a tax benefit will not be realized.

28
Q

temporary difference (TD)

A

results when the GAAP basis and the tax basis of an asset or liability differ. A taxable or deducible amount will occur in future years when the asset is recovered or the liability is settled.

29
Q

permanent difference

A

event recognized in EITHER pretax financial income OR taxable income but NEVER in BOTH. DOES NOT result in a deferred tax amount.

30
Q

current tax liability or asset

A

recognized for the estimated taxes payable or refundable on current year tax returns

31
Q

deferred tax liability or asset

A

recognized for the estimated future tax effects of temporary differences and carryforwards.

32
Q

measurement of tax liabilities and assets- basis

A

enacted tax law.

33
Q

IFRS treatement of deferred tax amounts

A

measured based on the enacted tax rates or the substantively enacted tax rates at the end of the reporting period.

34
Q

PBO Liability gain or loss equation

A 
Beg. PBO
\+ service cost
\+ interest cost
\+ prior service cost
- prior service credit
- benefits paid
\+/- liability gain or loss
= ending PBO
35
Q

PBO Liability loss results from an unexpected _____ in the PBO

A

increase

36
Q

PBO Liability gain results from an unexpected _____ in the PBO

A

decrease

37
Q

plan assets equation

A 
Beg. FV of plan assets
\+ contributions
- benefits paid
\+/- actual return on plan assets
= ending FV of plan assets
38
Q

occurs when the actual return is greater than the expected return

A

asset gain

39
Q

occurs when the actual return is less than the expected return

A

asset loss

40
Q

IFRS Treatment of interest income on plan assets

A

a component of the return on plan assets. Recognized in profit or loss.

plan asset FV @ beg. of year
+ contributions
- benefits paid
x same rate used to discount defined benefit obligation

41
Q

IFRS treatment of remeasurement of plan assets

A 
beginning FV of plan assets
\+ contributions
- benefits paid
\+ interest income on plan assets
\+ remeasurement of plan assets
= ending FV of plan assets

Recognized in OCI
NEVER reclassified to profit or loss

42
Q

Three methods of accounting for net gain or loss for a PBO

A
  1. recognized immediately as a component of pension expense
  2. CORRIDOR METHOD - recognized initially in OCI, then laster as a component of net pension expense. This method determined the minimum required amortization of net gain or loss included in accumulated OCI that must be reclassified.
  3. Instead of minimum amount calc under corridor method, any systematic method of amortizing net gains or losses included in accum OCI may be used if the following conditions are met:
  4. min. amort of net gain or loss > amt calc under corridor method
  5. method is applied consistently
  6. method is applied similarly to both gains and losses.
43
Q

Corridor method - minimum required amortization

A

= net gain - (10% x greater of PBO or MRV)/ avg remaining service period

44
Q

amortization of a net gain- effect on pension expense

A

decrease (credit pension expense)

45
Q

amortization of a net loss- effect on pension expense

A

increase (debit pension expense)

46
Q

IFRS corridor approach

A

NOT USED

47
Q

prior service cost

A

the cost of an amendment to (or initiation of) a pension plan that increases pension benefits granted to employees or services already rendered. retroactive cost that increases the PBO.

48
Q

amortization of prior service cost

A

required, assigns an equal amount to each future period of service of each employee who is expected to receive benefits under the plan.

49
Q

IFRS past service cost

A

pension expense at earlier of 1. when plan amendment or curtailment accurs or 2. entity recognized related restructuring costs or termination benefits. NEVER included in OCI and NEVER reclassified to profit or loss as it is amortized.

50
Q

PBO at end of period formula

A 
Beg. PBO
\+ Service Cost
\+ Interest Cost
\+ Prior Service Cost
- Prior Service Credit
- Benefits Paid
\+/- Changes in the PBO resulting from a) experience diff from that assumed or b) changes in assumptions
= ending PBO
51
Q

Fair Value of the Plan Assets at the end of a period

A 
Beg. Fair Value
\+ Contributions
- Benefits Paid
\+/- Actual return on plan assets
= Ending Fair Value
52
Q

Pension Underfunded
deficit or excess?
liability or asset?

A

deficit
liability
= PBO - FV of plan assets

53
Q

Pension Overfunded
deficit or excess?
liability or asset?

A

excess
asset
= FV of plan assets - PBO

FAR (1 decks)

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