FAR 10 Flashcards
With no principal market, what is the most advantageous market in FV measurement?
Use most favorable market (net of cost) however use the value not including cost when actually utilizing the market value.
Calculating how much partner should contribute to have x% ownership
Add total existing capital accounts of partners and divide by % difference of 100% - new partner’s % interest
ex: New partner 20%, add capital/.80 = total new capital
= New total equity and then use difference to determine contribution needed
Bonus method (new partners and contributed capital)
No goodwill involved, simply adjust capital accounts accordingly:
- Add all partner’s capital after contributions
- multiply new partner % by total capital to determine capital balance
* If (capital account) after calculation < than amount contributed, bonus to old partners
* If (capital account) after calculation > than amount contributed, bonus to new partner
Partnership distributions
Unless agreement states otherwise, payments for interest on capital, salaries, bonuses are deducted from total profit PRIOR to any distribution in the profit and loss ratio (that will give new base to distribute based on profit/loss ratio).
Partnership- Goodwill Method Calculation
- Compute implied value with new partner %
* Capital contributed / % interest - Add total partner’s accounts after contribution
- Difference b/t implied value & combined partner’s accounts = Goodwill
* multiply goodwill amount by pre-new partner’s % to calculate their capital account
Variable Interest Entity - Consolidation Required
All 3:
- Financial interest
- Company’s equity characteristics strange- no equity investors, voting rights, sufficient capital to support itself
- Have power over VIE and interest in P&L
IFRS name for Variable Interest Entity
Special purpose entity
Asset Retirement Obligation
Measured at PV of future obligation
Dr. asset
Cr. liability
Expense - accretion - similar to depreciation
At end of life, liability should = expected cost because accretion is amortized and liability increases until end of life.
ARO should equal total depreciation expense and accretion expense at end of period
TDR Gain calculated for debtor- transfer of assets
Excess of
Carrying amount of payable (face amount + accrued interest, premiums, etc) over FV of the assets given up.
Account separately, first gain/loss regarding asset - adjust from carrying to FV
and then gain/loss regarding restructuring. Aggregate both for total gain on restructuring and then asset transfer
TDR - gain calculated for transfer of equity interst
Difference b/t:
Carrying amount of payable and FV of the equity interest
(may be extraordinary gain in GAAP)
TDR- gain on modification
- account prospectively
* if total future cash payments < carrying amount, debtor to reduce carrying amount, recognize difference as gain
TDR- impairment by creditor
Excess of recorded receivable over FV of asset received= ordinary gaine
Modification- based on loan’s PV of expected future cash flows discounted at loan’s historical effective interest rate.
Dr. bad debt expense
Cr. allowance for credit losses
Measurement of current liabilities
settlement values aka net realizable value
Property Taxes Payable - Methods of accrual
- Accrue prior to receipt of tax invoice and matched in year for which invoice pertains
- Recorded as payable upon receipt of tax invoice and expensed in year of receipt (which often differs from year invoice pertains)
Unemployment taxes & employer’s share of payroll taxes
- Accrue as expense
unemployment tax expense
payroll tax expense
Notes Payable & Receivable - Recorded value
- PV at date of issuance
- use imputed market rate and by using effective interest method
- Ordinary course of business (less than one year) use FV
Amortization of Discount or Premium - Notes payable & receivables
- amortization reported as interest
- premium or discount inseparable from related asset or liability
- must not be classified as deferred charges or credits resulting from imputed interest
Premiums and estimated liability
Cost of premium charged to sales in period that benefit from the premium offer.
of coupons issued x est. redemption rate = est coupon redemptions
Warranties - Accruing liability
Entire liability for the warranty should be accrued in the year of the sale to “match” cost with corresponding revenue.
Service Contracts
- cash received prior to period expense occurs
- unearned revenue and estimated and accrued in F/S
- when service performed:
Dr. unearned revenue
Cr. revenue
Accrued liability/expense
Represents expense recognized or incurred (through passage of time or other criteria) but not yet paid
Ex: accrued interest, accrued wages, accrued unemployment taxes, accrued employer’s portion of FICA taxes
Classification of contingencies
Probable - likely to occur
Reasonably possible - more than remote, but less than likely
Remote - Slight chance of occurring
Provision for loss contingency - loss probable and reasonably estimated
- Accrued by a charge to income as long as:
1. Probable that as of date of F/S an asset has been impaired or liability incurred, based on info available prior to issuance of F/S.
- Amount of loss can be reasonably estimated.
- if range - best estimate
- no best estimate- minimum amount
- disclose possibility of rest
Contingency - loss is reasonably possible
Disclosure made of nature of contingency and possible loss or range of loss or that estimate cannot be made
Financial instruments not eligible for FV option
- Investments in subsidiaries or VIEs an entity is required to consolidated.
- Pension benefit assets or liabilities
- Financial assets or liabilities recognized under leases
- Deposit liabilities of financial institutions
- Financial instruments classified as equity
Derivatives- Notional Amount & Underlying
A notional amount is a specified unit of measure (e.g. currency units, shares, bushels, pounds)
Underlying - specific price, rate, other other variable (interest rate, security, commodity price, foreign exchange rate)
Cash flow hedge- recognizing gains/losses
Ineffective portion - I/S
Effective portion - deferred, OCI until hedged transaction impacts earnings, then reclassify from AOCI to earnings
Risk that requires disclosure
Concentration of credit risk
Liquidation basis of accounting
- applied prospectively at time liquidation is deemed imminent
- likelihood of entity returning from liquidation remote
- liquidation plan approved or imposed
- assets- measured/presented at amount of cash proceeds expected from liquidation
- liabilities- GAAP
- accruals - expected to be incurred
- Stmt of net assets in liquidation
- Stmt of changes in net assets in liquidation
Disclosure:
- stmt of liquidation
- plan for liquidation
- assumptions to measure assets/liabilities
- expected time frame for completing liquidation process
