FAR 3 Flashcards
Don’t include in cash and cash equivalents
Cash in bond sinking funds (restricted cash)
Post dated check from customer dated one month from B’s date (dated after BS date)
Certificate of deposit with 6 month of maturity s/b 3 months within purchase date
Marketable equity security
Marketable debt security
NSF checks
Incline back to cash
Check to vendors not mailed until next year
Simple bank reconciliation:
Both Book balance (-NSF,+ banks collections, service charges) and Bank balance (+Dep in transit, - Outstanding checks) reconciled to True balance
If only Bank statement balance given, reconcile on Bank side + deposits in transit, minus outstanding checks
Reconciliation on BANK side:
+ Deposits in Transit ( send but not recorded by the bank, add to bank)
- Minus Outstanding checks
Reconciliation per BOOKS:
- Minus from books Service charge, NSF
+Bank Collections (notes collected by bank)
+ Plus interest income
+Plus mistake made by company if check for vendor was (actually was paid less) booked in QB in greater amount than it has cleared the bank
-Minus mistake if check amount booked in QB in amount less than it has actually cleared the bank
Bank Rec
Pay attention what balance provided. If:
Only BANK statement balance provided: Only ADD DEPOSIT IN TRANSIT MINUS OUTSTANDING CHECKS
Only balance PER BOOKS OR GL: minus bank charges, NSF checks, customer collection, interest income)
If there is a negative balance on one of bank accounts dont sum up with positive balance on other bank account
Negative balance, overdraft is not reported as cash, it’s CURRENT LIABILITY
How to calculate the amount of cash disbursement per books:
Total cash disbursement ber bank rec MINUS outstanding checks from prior bank rec ( were included in disbursement next month), PLUS outstanding checks at the end of the current month.
Partnership. Admission of a new partner
- Exact. Finger math
- Bonus. Total NEW Balance control it, compare what new partner paid vs total balance after his payment *his %
- Good will. Money in control it. Make proportion. Goodwill/Bonus to partners’s stake. Goodwill added to end balance
Ending balance after partner withdrawal GOODWILL
initial balance+asset revaluation+goodwill portion
Ending balance after partner withdrawal BONUS:
Initial balance- bonus to other partner+revaluation of assets
Uncollectible accounts expense:
Ending balance allowance for uncollectible accounts (AR gross minus - AR Net) - minus beginning balance plus - minus recovered AR + write offs
Uncollectible accounts expense:
Allowance for uncollectible accounts ending balance (AR gross minus AR Net) - minus AR beginning balance + plus AR written off -minus recovered AR
How much was written off
Ending balance - minus beginning balance - minus bad debt expense
JE to restore written off AR if it was all if the sudden paid:
AR - no effect
Allowance - increased
- Restore AR:
DR AR XX
CR Allowance - Record Cash
DR Cash
CR AR XX
N very reduce AR or Sakes amount for JEc
Use allowance and bad debt expense
To calculate bad debt expense for a year:
Beg Bal +BDE- write offs + recovery= End Allowance
Bad debt expense=difference ending balance minus - beginning balance.
To write off uncollectible AR:
DR Allowance
CR AR
Lower of cost and net reliazable value (market ceiling):
IFRS - All
US GAAP- FIFO/WA 2
Lower of cost or Market (US GAAP only)
LIFO/retail 4
- Cost
TAKE MIDDLE OF 3 (среднее) и сравни с COST
2. Replacement cost 3. Ceiling=NRV Selling Price- cost of completion 4. Floor Ceiling minus profit
Market value is middle value of:
Replacement cost -to purchase item at valuation date
Market Ceiling=NRV (Net selling price minus cost to complete)
Market floor=NRV - Profit
FIFO
COGS & ENDING INVENTORY ARE THE SAME UNDER PERPETUAL AND PERIODIOC!
FIFO RISING PRICES
High value of assets (expensive unsold new inventory), lowest COGS, HIGHEST NET INCOME
PERIODIC INVENTORY SYSTEM FORMULA
Beginning inventory \+Purchases -------------------------------- COG AFS -Ending inventory -------------------------------- COGS
LIFO we sell our NEW inventory 1st, our ending inventory is our OLD inventory
FIFO we sell our OLD first, ending inventory is our new inventory
COGS and ENDING INVENTORY ARE THE SANE for FIFO
For both PERPETUAL and PERIODIOC systems
How to calculate Fifo and Lifo inventory
Perioduc and perpetual FIFO COGS and EI are the same
- Calculate COGAFS
- CALCULATE ending inventory
- Perpetual - Lifo sell by batches starting from newest
- Periodic - Lifo набирай cogs, все подряд, не зависимо от даты закупки, под количество, вычитай из COGSAFS
False statements regarding dollar value LIFO
$ value LIFO ending inventory amount must be greater than the ending inventory amount at base year cost
Reported inventory amounts will be higher than regular LIFO method in falling price environment
$ value LIFO
Base Year Cost * Price Index = $ Value LIFO current year
$ value LIFO
Layer of Base year * ( End Cost Current Year/Base Year Cost )
Inventory cost
Above all Plus :insurance of manufacturing equipment, freight in, Normal spoilage
Change from LIFO to FIFO in comparative FS for 3 years
Adj to beginning inventory balance year with offsetting adj to beginning retained earnings
Capitalize interest expense on construction only and only if fixed asset is for own use, not for resale: 1. Money borrowed and expensed. 2. During activities in progress or unintentional stop 3. Not before or after
Asset loan % plus weighted average % of existing loan, don’t capitalize during intentional expense. Expense interest expense. Capitalize during unintentional expense.
If interest incurred for machinery held for sale, EXPENSE
How to calculate average expenditures for calculation of interest expense which should be capitalized:
Construction loan $500K @ 12%, other 10%. Borrowed $200k in January 2, $600k in May 1, $300K Dec 1:
$200K 4/12 (Jan-Apr) $66,667
$800K 7/12 (May-Nov) $466,667
1,100K 1/12 Dec. $91,666
------------------------
12/12 $625,000
Construction loan 500,00012%=$60K, Excess 125,00010%= $12,5K. Total $72,500.
Impairment loss of the building:
Recoverable amount - carting value.
Loss -IS, Gain OCH, in subsequent years, loss/gain balance each other
Company purchased equipment by issuing note payable for $18k, 8% interest. 3 payments of 6000 made each year. Present value for ordinary annuity factor for 3 years at 8% is 2.58. What is capitalized cost of the equipment?
Present value of note payable = $6,000*2.58= $15,480
Depreciation formulas:
Double decline method = 2/N years % * NBV, last year depreciation expense plug b/w salvage value and NBV
Sun of digits=N years(N+1)/2 *NBV
Depletion
- Depletion base: Cost of land+ Development cost + Restoration- Residual value
- Unit depletion= Depletion base/Estimated Units recoverable total
- Unit depletion* Units extracted
- Cogs Unit Depletion*Units sold, the rest is included in inventory
Double declining depreciation method:
5 years service life
200% double declining method: 2* 1/5 !CONSTANT RATE!(cost- prior year depreciation) No salvage value!
Asset with useful life 4 years= 2*(1/4)=50%
SUM OF THE YEARS DIGITS METHOD:
E. g. 5 years of useful life:
1+2+3+4+5=15
5/15 * (Cost -Salvage value) 4/15 3/15 2/15 1/15
Equipment sold for NON interest bearing note 10 annual payments. Determine gain or loss.
Present value of payments $10k* Present value of ordinary annuity of 1$ at 8% minus carting value
Use cash equivalent price, fair market value price instead of monthly payments
Sum of years digits vs Double declining method
Under double declining method accumulated depreciation is higher, nbv is lower therefore if asset sold under, gain increased, loss decreased
If under Sum of digit years, nbv higher because depreciation is lower, because of it loss increses, gain decreased
If insolence equipment happened, (permanent impairment), loss needs to be recorded in Accumulated depreciation:
Calculate accumulated depreciation:
AD+ loss from IMPAREMENT + current depreciation. NBV refused. Loss recorded
PAY ATTENTION IN BEGINNING DATES OF DEPRECIATION!
When asset was bought
If boot is less than 25% don’t recognize the gain
Cash paid to filler in exchange of truck/fair value of new truck
Disposal of asset
Dr current year expense
Dr Accumulated depreciation to write it off
Dr Loss
CR PPE
Recognize Gain and Losses if Exchange having commercial substance:
Monetary exchange
Future cash flow will change
Commercial substance
Change of economic position
Fair Value old asset - minus Book Value old asset = G/L . Cash paid in addition DON’T INCLUDE in gain or loss.
Cash paid included into the basis cost of new asset, received in exchange
Under IFRS, nonmonetary exchange, Gain/ Loss recognized only
Gain/ Loss recognized only if dissimilar exchange (car to building). Car to car- don’t recognize, as under IFRS. Loss/Gain always recognized in full for dissimilar assets.
Basis of property acquired in commercial exchange
FV of new property (BV minus loss/+ gain) plus or minus cash received
Gain under US Gaap recorded if:
Boot received (cash/FV on new asset. cash paid+gain >25%)
Rules for recognizing Gain if lacking Commertial substance
- No boots=No gain
- Boot was paid =no gain!
- Boot received, but less than 25%, apply ratio to gain (Boot/total consideration)
- Boot paid or received is more than 25%, both parties recognize gain
- Losses are always recognized
In exchange that lacks commercial substance, record the asset received on the balance sheet
(NBV) of the asset surrendered, minus any boot received (or plus any boot paid) in the transaction, plus any gain recognized (or minus any loss recognized) on the transaction
Intangible assets. Finite life (Patent, Copyright, Franchise) Indefinite life (Goodwill, Trademark)
Cost to capitalize: Legal fees in successful defense Registration and consulting fees Design cost (trade mark) Direct cost to secure asset Legal fees to obtain patent
Goodwill acquired - capitalized. Internally created goodwill is expensed.
Intangible assets. Cost to expense:
Continuing franchise fees
Intangible assets:
Report at cost minus amortization and minus impairment. US GAAP
Cost or revaluation value (FV on revaluation date) - Subsequent amortization minus Subsequent impairment
Purchased intangible assets are recognized at cost
If impairment happened , loss equal BV (carring amount) should be recognized
Cost or revaluation value (FV on revaluation date) - Subsequent amortization minus Subsequent impairment
R&D
Expense under US GAAP
R&D- Expenses before feasibility and during preliminary stage
R&D cost:
Testing in search of product or process alternatives
Design, construction and testing, phototypes and models
Regisign of product prerelrase
Advertising and promotion cost expense under IFRS as well
Cost for training
Cost what was spend before the application development stage (during the preliminary project state)
Exception. Capitalize R&D:
PP&E portion for future use
R&D included in inventory for sale
Coding and testing cost established after technological feasibility
Capitalize cost between tech feasibility and untill software realised for sale.
Software modification cost must be capitalized
NOT R&D: Marketing Research Quality control testing Reformation of chemical compound Administrative cost Routine efforts to improve already existed product
Expense as operating expense if R&d cost was done on behalf of somebody because it will be their R&d cost
R and D under IFRS:
Development cost can be capitalized, e.g.
Development cost incurred in designing a product that has just been granted a patent
Copyright should be amortized over Shorter of estimated life (e.g. 5 years, to sell) or legal life.
If trademark will be renewed indefinitely-NO amortization Expense
Cost of patent: to capitalize:
Purchase price+ VAT tax+ legal cost to register the patent
Capitalized cost related to software projects are amortized. Annual amortization s/b greater % of Revenue or strait line
Greater amount of two use to record expense
Impairment of intangible asset in the middle of asset life= change in FV of asset
- Adj BV (BV-impairment)
- Recalculate BV and years and deduct Amortization.
- Total expense =new amortization + impairment
Pay attention on dates. Recalculate amortization after impairment.
Under US GAAP no revaluation gain is recorded for goodwill
Under GAAP record only losses!
R&D under GAAP and IFRS
R- we hope it can be something to sell. US GAAP:
Expense all research
D-before fiasibility-expense. After-capitalize.
IFRS:
R-expense
D- capitalize after fesibility
Impairment loss reported
As a component of income from continuing operations before tax. BV is reduced for impairment
Impairment of intangible assets
Step 0. Infinite life. Qualitative test (goodwill) FV vs BV. Recognize loss if necessary
Finite life: Step 1. Recoverability test. Determine impairment. Compare BV vs Future undiscounted CF. Only if failed Step2. Amount of impairment = FV-BV (or discounted CF because FV = PV of discounted Cash flow)
Under IFRS use only Step 2. Compare BV vs Recoverable amount. Greater of two: FV-cost to sell or PV of FCF (value in use)
Impairment
1. Assets held for use.
FV-BV=Loss. Reduce Asset amount, recalculate depreciation. Recovering back is NOT permitted.
2. Assets help for sale/disposal. Cost of disposal added to impairment loss. No depreciation. CAN be restored if e.g. sold for gain
Dollar value LIFO ending inventory:
Dollar-value LIFO ending inventory is (Ending balance current year cost/ending balance base year cost)* year 2 layer = ending inventory balance prior year
Which component is reportable? 3 columns given: Component/ Net Eliminations/ Consolidated
Separate 2 columns, 1. Profit 2. Loss. and choose the column with bigger amount. Then take 10% from this amount and compare with amount in individual absolute amount (negative/positive numbers-doesn’t matter)
An intangible asset with an indefinite life is tested for impairment by comparing the fair value of the intangible asset to its carrying amount.
comparing the FV of the intangible asset to its carrying amount.
If Capital balance was accounted for goodwill method and each partner has equal capital.
Take difference that one partner underpaid, ad it to the total initial capital balance and /2
Krey increased estimated quantity of cooper recoverable from the mine. It units units of production method. Which s/b reported in FS?
Cumulative effect of change in Accounting -principle- NO
Proforma effect on retroactive application-NO
