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FAR > FAR 10 > Flashcards

FAR 10 Flashcards

1
Q

Fair value is…

A

Exit price

Price that is received for sell of asset

Price paid to transfer liability

Market based

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2
Q

Fair value DOES NOT include

A

Transaction costs

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3
Q

What determine the most advantageous market?

A

Transaction cost

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4
Q

Most advantageous market is…

A

The best price of asset/liability, after considering transaction costs

Quoted stock price - transactions costs

(2nd option)

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5
Q

Principal market

A

Market with greatest volume or level of activity

1st option

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6
Q

Valuation Techniques of Fair value measurement

A
  1. Market approach
  2. Income approach - PV or discounted CF
  3. cost approach - replacement cost
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7
Q

Level 1 Input

A

Use identical prices/value

Market approach is best
‘Most reliable’

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8
Q

Level 2 input

A

Inputs other than quoted market prices

Quote prices for similar assets/liabilities in an active market

Quote prices for identical assets/liabilities in a not active market

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9
Q

Level 3 Input

A

Unobservable Input
Discounted Cash flow

‘Management assumption’ - internally generated CF

Lease reliable

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10
Q

If multiple levels are used, the level of hierarchy is based on..

A

The lowest level significant input

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11
Q

Change in valuation technique is considered to be what type of accounting change?

A

Change in estimate

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12
Q

Purchase/sale of exisitng partnership interest is

A

Merely a swap of the partners

NO JOURNAL ENTRY

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13
Q

Treatment of Assets/ Liabilities of Formation of partnership

A

Assets - at fair value
Liabilities - record at PV

Tax rule is NBV assets contributed

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14
Q

3 ways for Creation of new partnership interest

A
  1. Exact
  2. Bonus
  3. Goodwill
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15
Q

Exact

‘Creation of new partnership interest’

A
  1. When purchase price = B/V of capital account purchased

Old partners’ capital account ‘dollars’ stay the same

NO BONUS/GOODWILL

Fraction of the required interest % (e.g. if it asks for 25% interest in the partnership, then it is 1/4)
1/4, 4-1 = 3, total $ in partnership/3

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16
Q

Bonus

‘Creation of new partnership interest’

A

Bonuses are adjusted between old and new partners’ capital accounts and do not affect partnership assets.

Calculation
Step 1: Calculate the total capital account, including new capital account
Step 2: total capital account x new partner’s interest= how much new partner gets

If new partner pays > gets, bonus is for existing partner

Increase existing partners’ capital accounts

DR Cash
CR Capital A
CR Capital B
CR capital C

If new partner pays

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17
Q

Goodwill

‘Creation of new partnership interest’

A

GOODWILL GO TO OLD PARTNERS
Same capital amount as investment for new partner

Calculation
Step 1: compute implied value = investment amount of new partner/new partnership interesr
Step 2: Total partner’s capital accounts = sum up all the partner’s capital amount
Step 3: Goodwill = implied value - partners’ capital account

DR Cash
DR Goodwill
CR Old partner
CR old Parter
CR Capital (amount contributed)
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18
Q

Profit & Loss Allocation

A 
Total profit and loss
SUBTRACT: Interest
SUBTRACT: salaries
SUBTRACT: bonus
Equal : Total profit & loss to allocate per profit and loss ratio
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19
Q

Withdraw of partner

‘Bonus Method’

A

Implied goodwill is allocated to existing partner

Step 1: Revalue Asset

DR Asset Adjustment
CR: Capital A
CR: Capital B

STep 2: Payoff withdraw partner

DR Capital A
DR Capital B
CR Cash

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20
Q

Withdraw of partner

‘Goodwill Method’

A

Implied goodwill is allocated to ALL partner

Step 1: revalue assets to reflect FV
DR asset adjustment
CR Capital A
CR Capital B

Record goodwill
DR Goodwill
CR Capital A
CR capital B (equal to the exact buyout amount)

Payoff withdraw partner
DR capital B
CR Cash

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21
Q

Liquidation of partnership

A
  1. Creditors, including partner who are creditors, MUST BE PAID FIRST
  2. All partners’ capital account
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22
Q

Loss on liquidation of partnership

A

Must be SUBTRACTED from total partnership account before any distribution is made to partners

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23
Q

Assets contributed by the partner are valued at…

A

FV - any related liabilities

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24
Q

Variable interest entities

‘Consolidation required even if company owns no stock if 3 conditions met’

A
  1. Variable interest - have financial stake in another company
  2. variable interest entities
  3. primary beneficiary - power to direct activities of variable interest entity, get P&L
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25
Q

Identifying a variable interest in a business entity

Step 1

A

1 Company and business entity have an arrangement

2. Business entity is a legal entity

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26
Q

Characteristics of variable interest entities

Step 2

A
  1. Insufficient level of equity investment
  2. Inability to make decisions
  3. Cannot absorb loss or obtain gain
  4. Disproportional voting rights
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27
Q

Primary Beneficiary Consolidates

A
  1. Has power to direct activities

2. Get loss/gain

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28
Q

Private company may elect

A

NOT to consolidate

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29
Q

Asset Retirement Cost ‘Journal Entry’

A

DR Asset retirement Cost (asset)
CR Asset retirement obligation (liability)

Asset & Liability at PV

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30
Q

Accretion cost

‘Asset Retirement Obbligation’

A

Interest Expense

DR Accretion Expense
CR Asset Retirement Obligation

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31
Q

Depreciation Expense

‘Asset Retirement Obligation’

A

DR depreciation Expense

CR Accumulated Depreciation (decrease asset retirement cost)

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32
Q

Asset retirement obligation formula

A

accumulative accretive expense + cumulative depreciation expense

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33
Q

Upward revision to undiscounted cash flows

“new” liabilities

A

Increase

Current discount rate

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34
Q

Downward revision to undiscounted cash flows

“old” liabilities

A

Decrease

Use historical (weighted average) discount rate

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35
Q

Accretion Expense is

A

Interest Expense

Increase obligation

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36
Q

Depreciation expense

A

Decrease asset

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37
Q

Accounting & Reporting by Debtor

‘Transfer of Assets - Adjust to FV’

A

Simply a transfer of real estate/ Revaluate asset to fair value

Ordinary Gain/Loss

FV asset transferred

= Ordinary gain/loss

38
Q

Accounting & Reporting by Debtor

‘Transfer of Assets - Recognize possibly extraordinary gain/loss’

A

Restructing of payable

Carrying amount of the payable

=Gain (possibly extraordinary)

39
Q

Accounting of restructing of debt
Reporting by Debtor
‘Transfer of Equity - Recognize possibly extraordinary gain/loss’

A

Restructing of payable

Carrying amount of the payable

=Gain (possibly extraordinary)

40
Q

Modification of Terms is accounted for as

A

Prospectively

41
Q

JEs for restructure of debt

‘Transfer of asset’

A 
DR N/P
DR Interest Payable
CR Land
CR Gain on disposal of land
CR gain on restructing
42
Q

JEs for restructure of debt

‘Transfer of equity’

A 
DR N/P
DR Interest payable
CR C/S
CR APIC
CR Gain on restructing
43
Q

JEs for restructure of debt

‘Modification of term’

A

DR NP
DR Interest payable
CR N/P
CR gain on restructing

44
Q

Accounting of restructing of debt

Reporting by Creditor

A

Receipt of assets & equity - FV recorded

Receipt of Modification Terms - PV

45
Q

Large write-down and write-offs are NOT

A

Extraordinary item

46
Q

Accounting of restructing of debt - Creditor report

Receipt of Modification Terms

A

Record as PV

Carrying amount of debt

= Bad debt

DR Bad Debt expense
CR Allowance for credit losses

47
Q

Accounting of restructing of debt
Reporting by Debtor
‘Modification of terms’

A

Carrying amount of the debt

=Gain

48
Q

Accounts Payable

‘Gross amount’

A

Record without discount

If discount was taken, then DR discount account

49
Q

Accounts Payable

‘Net Method’

A

Recorded at net of discount

If payment made after discount period, discount lost account is DR

50
Q

Interest Revenue Earned Formula

A

Total cash received

Total interest revenue

51
Q

If N/P & A/P does not exceed one year, then it is recorded as

A

Face Amount

52
Q

Contingencies - Probable

U.S GAAP

A

Likely to occur

53
Q

Contingencies - Reasonably possible

U.S GAAP

A

More than remote, but less than likely

54
Q

Contingencies - Remote

U.S GAAP

A

Slight chance of occurring

55
Q

Contigencies - Probable

IFRS

A

More likely than not to occur

> 50%

56
Q

Contigencies - POssible

IFRS

A

May but probably will not occur

57
Q

Provision for loss contingency should accrued, must meet these two conditions

GAAP

A
  1. Loss is probable
  2. Amount of loss can be reasonably estimated

Record JE
DR Expense
CR Liability

If no amount in the range is a better estimate than any other amount within the range, then
MINIMUM = ACCRUED
EXCESS = DISCLOSE NOTE

58
Q

Provision for loss contingency should accrued,

IFRS

A

Mid point of the loss range

59
Q

Contingency loss is reasonably possible should be

GAAP

A

Disclosed

Do not record JE/accrue

60
Q

Loss is Remote

GAAP

A

Ignore, but disclose if these conditions are met

  1. Debts of others guaranteed (officers/related parties)
  2. OBligation of commercial banks under standby letters of credit
  3. guarantees to repurchase receivables (or related property) that have been sold or assigned
61
Q

Gain contingencies

‘Probable or reasonably possible’

A

Do not record JE

Must disclose

62
Q

Contingent Liability when all range in value are equally likely, should pick

A

The lowest amount

63
Q

Subsequent event is an event

A

that is occured after the B/S date but before theF/S issued or available

64
Q

Subsequent event should be…

A

Disclosed and record JE

65
Q

Recognized subsequent events is

A

Events that existed at balance sheet date

66
Q

Nonrecognized subsequent event is event that

A

Occurred after the B/S date
Did not exist at B/S Date

Disclose

67
Q

Recognized subsequent events are referred to as..

IFRS

A

Adjusting events after the reporting period

68
Q

Non-recognized subsequent events are referred to as..

IFRS

A

Non-adjusting events after reporting period

69
Q

When liquidation is imminent, then it is accout for…

A

Prospectively

70
Q

Criteria to qualify as ‘imminent’

A
  1. Likelihood of the entit return from liquidation is REMOTE

AND

  1. either
    - liquidation plan is approved by the individual who have authority
    - liquidation plan is imposed by other forces,
71
Q

F/S for liquidation basis of accounting

A
  1. Statement of Net Assets in Liquidation

2. Statement of Changes in net assets of liquidation

72
Q

IFRS - Fair value option is only used when

A

it can be elected for financial assets if doing so eliminates or significantly reduces a measurement or recognition inconsistency

73
Q

Fair value must be

A

Disclosed

74
Q

All credit/concentration risk must be

A

Disclosed in the notes to the financial statements

75
Q

Disclosure - IFRS

A

Disclose credit risk, liquidity risk, market risk

76
Q

Market risk is

A

Encourage to disclose, but not require

77
Q

Option Contract types

A

The right to buy/sell something to the other party at a specified price

Call - right to buy
Put - right to sell

78
Q

Future contract types

A

Public agreement

  1. Long - buy and profit when price increases
  2. Short - sell, profit when price decreases
79
Q

Forward contract is

A

Similar future contracts, but they are private agreement

80
Q

Swap contract is

A

Private agreement between 2 parties

Hope what you received > what you pay

81
Q

Treatment of gain/loss of derivation

‘No hedging designation - Speculative’

A

Recognize in I/S

82
Q

Treatment of gain/loss of derivation

‘Fair value hedge’

A

Recognize in I/S

83
Q

Treatment of gain/loss of derivation

‘Cash flow hedge - ineffective’

A

Recognize in I/S

84
Q

Treatment of gain/loss of derivation

‘Cash flow hedge - Effective’

A

Recognize in OCI

85
Q

Foreign currency fair value hedge

A

Recognize in I/S

86
Q

Foreign currency net Investment Hedge

A

Recognize in OCI

87
Q

Criteria for Debt Instrument to measure at cost:

Similar to Held-to-Maturity

A
  1. Hold assets in order to collect contractual cash flows

2. Solely payments of principal and interest

88
Q

Under IFRS, reclassification of equity instrument is

A
  1. Permitted

2. Account for as prospectively

89
Q

Under IFRS, reclassification of debt instrument is

A

Cannot reclassify

90
Q

Fair value of financial instruments may be disclosed in

A
  1. Body of the F/S

2. Footnotes of F/S

91
Q

Perfect hedge results in

A

No possibility of future gain/loss

92
Q

Calculating gain/loss of stock investment when FV is elected, should include

A
  1. Dividend Income

2. The gain/loss from the investment

FAR (12 decks)

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