FAR 14 Flashcards
How does IFRS allowance for Inventory recovery work?
IFRS allows for recoveries of perviously written down inventory limited by the lower of:
- The amount required to restore the inventory to its current value
- The extent of the previously recorded loss
So original cost was $80
Last year written down to NRV - $60
This year NRV is $75
You are allowed to write it up and recover only up to $80
so carrying amount of inventory this year is $75
under periods of rising prices which of the following will resulting in the highest value of inventory - LIFO, FIFO, Weighted avg.
FIFO - highest value of inventory
LIFO - lowest value of inventory
Weighted avg - in the middle
Under IFRS - can’t use FIFO so weighted avg would result in the lowest inventory value
Which of the inventory costing methods will produce a higher inventory turning ratio in an inflationary economy
LIFO
Inventory turnover = COGS/ Avg Inventory
Under LIFO - the more expensive last good end are sold first.
This increases cost of goods sold which results in a lower net income
In an inflationary economy the remaining inventory will be lower than FIFO
so COGS will be higher and avg inventory - lower resulting in a higher inventory turnover ratio
The retail inventory method
- it is a means of estimating inventory amounts by estimating the relationship between cost of inventory and sales price
- the amount used to calculate the ratios will depend on the cost flow assumptions being applied (LIFO vs FIFO)
- You can use this at interim financial reporting to avoid expense of taking frequent physical count
- Does NOT replace the need for a physical count - which must be done each year
- can’t use it at year end
In January, Stitch, Inc. adopted the dollar-value LIFO method of inventory valuation. At adoption, inventory was valued at $50,000. During the year, inventory increased $30,000 using base-year prices, and prices increased 10%. The designated market value of Stitch’s inventory exceeded its cost at year end. What amount of inventory should Stitch report in its year-end balance sheet?
Adding the current year’s $30,000 layer, multiplied by the inflation factor of 1.10, to the prior year’s inventory results in the dollar value LIFO total ending inventory of $83,000 ((30,000 X 1.10) + 50,000) = 83,000).
When you recoding an investment under the equity method - how do you report income on the B/S and income statement
Acquisition:
dr. Investment 600
cr. cash 600
Investor records % of earning:
dr. Investment 80
cr. Equity in earning 80
% of cash dividends:
dr. cash 20
cr. Investment 20
Investment T - Account 600 \+80 -20 =660 this is amount on B/S
Amount on I/S
80 (the total net income hits here -but NOT dividend income
When you record an investment at fair value - how do you report it on the B/S and Income statement
When you buy investment
dr. investment 300
cr. cash 300
at 12/31 investment is now $400
dr. Market adjustment equity security (B/S) 100
cr. unrealized gain I/S 100
dividends received: 12
dr. cash (B/S) 12
cr. dividend income(I/S) 12
Amount on B/S: $400
Amount on I/S: 100 + 12 = $112
How do you calculate a realized loss on AFS
Realized loss = the difference between the sales price and the original cost - regardless of if you have amounts in OCI
dr. cash 175,000
dr. realize loss 15,000
cr. AFS 190,000
SIM - deposits in transit for August
To determine deposits in transit for August - you must first consider deposits in transit from July
August deposits per bank (bank statement) $148,900
Less: July deposits in transit (July bank rec) (- 16,890)
+/- bank error of deposit (review of Aug bank statement ($8,100)
$148,900
-$16,890
-8,100
=123,910 = adjusted deposits per BANK
Now that you have eliminated July deposits in transit and errors you now compare the adjusted amount to August deposits be BOOK
Deposits per book (acc. records) $141,200
Less: adjusted deposits: ($123,910)
=deposits in transit :$17,290
SIMS: August Outstanding Checks
To determine outstanding check in August you must first consider the outstanding checks from July:
August checks cleared per bank: (Aug. Bank Statement) $138,300
less: July’s outstanding checks (July bank reconciliation) (-23,416)
= Adjusted checks
$138,300
-23,416
=$114,884 - adjusted checks
Now compare adjusted august cleared checks to august checks per book:
Checks per book (acc records) $176,125
-Adjusted checks ($114,884)
=Outstanding checks $61,241
SIM - cash balance per general ledger
Aug 31 balance per bank statement (aug bank statement) $104,605
Add: deposits in transit: $17,290
Less: outstanding checks ($61,241)
+/- bank error (review bank statement) (-8,100)
= August 31 adjusted cash balance per general ledger; $52,554
104,605 \+17,290 -61,241 -8,100 = 52,554
How do you classify investments that are convertible debentures that you believe will increase in value, but do not intend to sell in the near future
AFS
How do you classify $3M debt security bought and held for the purpose of selling in three years to finance payment of a company’s $2M long-term note payable when it matures
AFS
What is included in PP&E
Buildings
Machinery and Equipment
Land (no depreciation
Land Improvements - these have a finite life so they are depreciable
Natural resources (oil well,coal mine (depleted not depreciated
How do you calculated the carrying amount of PP&E
Historical Cost (which includes capitalized costs)
Less: accumulated depreciation
Less: Any Impairment losses
= carrying amount
