FAR 1 Flashcards
What are the qualitative characteristics of useful financial information?
relevance and faithful representation
What can be used to measure inventory?
Replacement cost, historical cost, and Net realizable value.
What is recognition?
The process of reporting an item in the financial statements of an entity.
What is the realization concept?
Revenues and gains are recognized when products, merchandise, or other assets are exchanged for cash or claims.
What are the economic measurement or present value to establish the value of assets or liabilities?
UVOTE
- the price for bearing uncertainty
- expectations about timing variations of future cash flows
- other factors
- time value of money
- estimate of future cash flows
What is the difference between managerial accounting and financial accounting?
Public companies must follow GAAP for external financial reporting purposes, but does not need to be followed for managerial.
What is the conservative principle?
It states that revenues and gains should be recognized when the earnings process is complete, but that expenses and losses should be recognized immediately.
What is the Replacement Cost?
The amount of cash or its equivalent that would be paid to acquire or replace an asset currently. Its an acquisition cost.
What is the underlying assumption of financial statement preparation and presentation under IASB framework?
Under IASB framework, going concern is the underlying assumption.
How do you handle a change in accounting principle inseparable from a change in accounting estimate?
Prospectively. No cumulative effect adjustment is made. It would be considered a component of income from continuing operations.
What are some criteria to classify a component as discontinued operation?
If it is held for sale, the operating results of the component for the period are reported on, gain or loss from the disposal.
Once these criteria are met should be shown separately from continuing operations (net of tax).
What is a change in depreciation considered?
A change in depreciation is an exception because it is no longer considered a change in accounting principle. It should be accounted for as a change in accounting estimate and handled prospectively.
Where should the correction of an error in the financial statements be reported?
It should be reported net of tax and in retained earnings as an adjustment to the opening balance.
What is included in general and administrative expense?
Officer salary, accounting and legal fees, and insurance.
What are some costs associated with exit or disposal costs?
Costs to terminate a contract that is not a capital lease, involuntary employee termination benefit, other costs associated with exit or disposal activities, including costs to consolidate facilities or relocate employees.