FAR 3 Flashcards by Samrithi Suresh

Investment in equity securities

Based on ownership percentage

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Investment in debt securities

Based on intent to hold

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Investment in equity securities - no influence (less than 20 %)

Fir value through net income

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Investment in equity securities - significant influence (20%-50%)

Equity method (may elelcf FV option)

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Investment in equity securities - control (more than 50%)

Consolidation

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Investment in debt securities- intent of selling in the near term

Held for trading HFT

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Neither intent for selling in near term or intent /ability of holding till maturity

Available for sale AFS, may elect FV option

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Intent and ability of holding till maturity

Held to maturity HTM, may elect FV option

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Accounting for equity securities no influence and FV is readily determinable

FVTNI

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Dividend income included in

I/S

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Accounting for equity securities =

FVTNI - MV (measure at FV on B/s) = gain or loss

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Accounting for equity securities- exception (no influence and FV is not readily available)

Cost - impairment +/- observable charges if any

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Accounting for equity securities- equity method

Significant influence

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Significant influence - exception 1

Use the equity method when influence exists if ownership is less than 20%

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Significant influence- exception 2

Do not use equity method if influence does not exist but ownership is 20%-50%

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Record investees earnings as

Equity in earnings in I/s

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Equity method - investment =

Purchase price +% of earnings- dividend- write off excess purchase price over BV

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Under the equity method any difference between the purchase price paid for the invested and the book value of investees net assets must be accounted for - the excess of FV of inventory over CV

Amount will decrease equity in earnings

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Under the equity method any difference between the purchase price paid for the invested and the book value of investees net assets must be accounted for - the excess of FV of land will have no impact when

Bcoz there is no depreciation

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Investment in marketable equity securities should be measured through

FVTNI

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Trading HFT definition

Debt securities bought with the intent of selling them in the near term

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Available for sale securities definition

Debt securities not classified as trading or HTM

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Held to maturity definition

Debt securities that the entity has positive intent and ability to hold until maturity

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HFT valuation

Carrying value at FV

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AFS valuation

Carrying value at FV

HTM valuation

Carry value at amortised cost

Unrealised gain or loss of AFS is recorded at

AOCI in b/s

Realised gains and losses of HFT AFS recorded in

I/s

Valuation allowance account is a

Contra asset to record temporary changes in FV for HFT and AFS security

Transfers between AFS and HTM debt securities HTM to AFS

Reclassify at FV and unrealised holding gain or loss at tha date of transfer shall be reported in OCI I.e amortised cost @htm and FV @afs

AFS to HTM

Reclassify at FV and unrealised holding gain and loss at the date of transfer which is already reported in the b/s as AOCI is amortised over the remaining life of the security I.e FV@ AFS to amortised cost @HTM

Exception for AFS and HTM no. 1

Impairment loss

Exception impairment loss for AFS and HTM

B/s valuation is at FV and unrealised loss is at I/s

It would still not be Accounted using equity method because significant influence does not exist if the investment is

Only temporary

Investment in Debt securities

Is based in management intention 1. Held for trading securities 2. Available for sale securities 3. Held to maturity securities

Tangible fixed assets

PP&E along with accumulated depreciation

Accumulated depreciation

Contra asset

Self construct fixed asset will include

Direct material + direct labour + direct overhead + variable overhead

If land and building acquired for lump sum price use

Relative FV method to allocate value between the two assets

Capitalisation of interest

It’s the interest cost incurred during the construction period is capitalised to the assets

Capitalisation of interest is also called

Avoidable interest

Do not capitalised interests incurred for

Before commencement After completion Amt borrowed in excess of amount actually spent

Interest cost to be capitalised is

Lower of weighted average accumulated expenditure or actual incurred cost

Weighted average =

Prior year expenditure + weighted average of current year expenditure * portion of the year deemed as construction period

Actual interest incurred cost =

New borrowings + other borrowings

Accumulated depreciation is

Contra asset

Methods if depreciation

1. Straight line method 2. Accelerated 3. Activity

Accelerated depreciation

DDB - double decline balance SYD - sum of year digit

Sum of year digit calculations

No. Of years left / (n(n+1)/2) Hc- sv * SYD %

Activity depreciation

Units of production

Units of production calculation

Hours this year / total estimated hrs

Component depreciation

Separate components of a fixed asset with different estimated lives should be recorded and depreciated separately

Group depreciation (similar assets)

Collection of assets that have similar with same useful lives

Depletion

Depreciation of natural resources

Depletion base =

Purchase price + development cost + PV of any anticipated restoration- residual value

Unit depletion rate =

Depletion base / total expected recoverable units

Extracted units sold will go to

COGS

Extracted units in stock will go to

Inventory

Composite (dissimilar assets)

Collection of dissimilar assets with different useful lives

Group or composite depreciation calculator

Total yr 1 SLM depreciation of individual assets / total asset cost

Rate of depreciation =

Annual depreciation/depreciation base

Impairment

Decline in demand

Tangible assets impairment testing, measure and. Recognition

Testing - cv> non discounted future cash flow Measure- cv-fv Recognition- income from continuous operations

Intangible- definite impairment testing measure and recognition (held did use assets)

Testing cv> non discontinued cash flow Measure is cv- fv Recognition is in I I/s

Intangible- indefinite impairment testing measure and recognition (held for use assets)

Testing- cv >fv Measure - cv-fv Recognition is in I I/s

Impairment on held for sales assets

Testing - cv>nrv Measure - cv- nrv Recognition- D in I/s

Nrv =

FV- cost to sell

J/e of impairment tangible and intangible definite life

Impairment loss To accumulated dep or amortisation

J/e for indefite life impairment

Impairment loss To intangible assets or goodwill

ARO

Asset retirement obligation

Recognise ARO as

A mobility at FV or PV

Disposal of fixed assets

Recognise depreciation upto the date of disposal Reverse or eliminate original cost and accumulate dep Recognise gain or loss in sale

Write offDisposal j/e

Accumulated dep To pp&e

Intangibles assets forms

Knowledge Legal rights Goodwill

Identifiable intangible assets

Patent , copyright, trademark

Non-identifiable

Goodwill

Definite life intangible

Patent , copyright etc are amortised over shorter legal or useful life

Indefinite tangible assets

Trademarks and goodwill do not amortised but test for every year

Cost of identifiable assets intangible

@ FV

Cost of unidentified intangible assets is

Consideration paid - cost of all identified assets - liability assumed

Amortisation intangibles

Only for identifiable intangibles with definite life by SLM of useful or legal life

Impairment intangible

Recognise impairment loss

Computer software developed to sale, lease or market as a product amortization is greater of

SLM or units of sale

Computer software developed to sale, lease or market as a product impairment report at

Lower of CV OR NRV

R&D cost must be

Expenses when incurred