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FAR > FAR 3 > Flashcards

FAR 3 Flashcards

1
Q

Don’t include in cash and cash equivalents

A

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

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2
Q

Incline back to cash

A

Check to vendors not mailed until next year

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3
Q

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

A

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

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4
Q

Bank Rec

Pay attention what balance provided. If:

A

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)

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5
Q

If there is a negative balance on one of bank accounts dont sum up with positive balance on other bank account

A

Negative balance, overdraft is not reported as cash, it’s CURRENT LIABILITY

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6
Q

How to calculate the amount of cash disbursement per books:

A

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.

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7
Q

Partnership. Admission of a new partner

A
  1. Exact. Finger math
  2. Bonus. Total NEW Balance control it, compare what new partner paid vs total balance after his payment *his %
  3. 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

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8
Q

Uncollectible accounts expense:

A

Ending balance allowance for uncollectible accounts (AR gross minus - AR Net) - minus beginning balance plus - minus recovered AR + write offs

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9
Q

Uncollectible accounts expense:

A

Allowance for uncollectible accounts ending balance (AR gross minus AR Net) - minus AR beginning balance + plus AR written off -minus recovered AR

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10
Q

How much was written off

A

Ending balance - minus beginning balance - minus bad debt expense

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11
Q

JE to restore written off AR if it was all if the sudden paid:

AR - no effect
Allowance - increased

A
  1. Restore AR:
    DR AR XX
    CR Allowance
  2. Record Cash
    DR Cash
    CR AR XX
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12
Q

N very reduce AR or Sakes amount for JEc

A

Use allowance and bad debt expense

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13
Q

To calculate bad debt expense for a year:

A

Beg Bal +BDE- write offs + recovery= End Allowance

Bad debt expense=difference ending balance minus - beginning balance.

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14
Q

To write off uncollectible AR:

A

DR Allowance

CR AR

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15
Q

Lower of cost and net reliazable value (market ceiling):

IFRS - All
US GAAP- FIFO/WA 2

A

Lower of cost or Market (US GAAP only)
LIFO/retail 4

  1. 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

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16
Q

Market value is middle value of:

A

Replacement cost -to purchase item at valuation date

Market Ceiling=NRV (Net selling price minus cost to complete)

Market floor=NRV - Profit

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17
Q

FIFO

A

COGS & ENDING INVENTORY ARE THE SAME UNDER PERPETUAL AND PERIODIOC!

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18
Q

FIFO RISING PRICES

A

High value of assets (expensive unsold new inventory), lowest COGS, HIGHEST NET INCOME

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19
Q

PERIODIC INVENTORY SYSTEM FORMULA

A 
Beginning inventory
\+Purchases
--------------------------------
COG AFS
-Ending inventory
--------------------------------
COGS
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20
Q

LIFO we sell our NEW inventory 1st, our ending inventory is our OLD inventory

A

FIFO we sell our OLD first, ending inventory is our new inventory

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21
Q

COGS and ENDING INVENTORY ARE THE SANE for FIFO

A

For both PERPETUAL and PERIODIOC systems

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22
Q

How to calculate Fifo and Lifo inventory

A

Perioduc and perpetual FIFO COGS and EI are the same

  1. Calculate COGAFS
  2. CALCULATE ending inventory
  3. Perpetual - Lifo sell by batches starting from newest
  4. Periodic - Lifo набирай cogs, все подряд, не зависимо от даты закупки, под количество, вычитай из COGSAFS
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23
Q

False statements regarding dollar value LIFO

A

$ 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

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24
Q

$ value LIFO

A

Base Year Cost * Price Index = $ Value LIFO current year

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25
Q

$ value LIFO

A

Layer of Base year * ( End Cost Current Year/Base Year Cost )

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26
Q

Inventory cost

A

Above all Plus :insurance of manufacturing equipment, freight in, Normal spoilage

27
Q

Change from LIFO to FIFO in comparative FS for 3 years

A

Adj to beginning inventory balance year with offsetting adj to beginning retained earnings

28
Q

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

A

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

29
Q

How to calculate average expenditures for calculation of interest expense which should be capitalized:

A

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.

30
Q

Impairment loss of the building:

A

Recoverable amount - carting value.

Loss -IS, Gain OCH, in subsequent years, loss/gain balance each other

31
Q

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?

A

Present value of note payable = $6,000*2.58= $15,480

32
Q

Depreciation formulas:

A

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

33
Q

Depletion

A
  1. Depletion base: Cost of land+ Development cost + Restoration- Residual value
  2. Unit depletion= Depletion base/Estimated Units recoverable total
  3. Unit depletion* Units extracted
  4. Cogs Unit Depletion*Units sold, the rest is included in inventory
34
Q

Double declining depreciation method:

A

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
35
Q

Equipment sold for NON interest bearing note 10 annual payments. Determine gain or loss.

A

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

36
Q

Sum of years digits vs Double declining method

A

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

37
Q

If insolence equipment happened, (permanent impairment), loss needs to be recorded in Accumulated depreciation:

A

Calculate accumulated depreciation:

AD+ loss from IMPAREMENT + current depreciation. NBV refused. Loss recorded

38
Q

PAY ATTENTION IN BEGINNING DATES OF DEPRECIATION!

A

When asset was bought

39
Q

If boot is less than 25% don’t recognize the gain

A

Cash paid to filler in exchange of truck/fair value of new truck

40
Q

Disposal of asset

A

Dr current year expense
Dr Accumulated depreciation to write it off
Dr Loss
CR PPE

41
Q

Recognize Gain and Losses if Exchange having commercial substance:

A

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

42
Q

Under IFRS, nonmonetary exchange, Gain/ Loss recognized only

A

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.

43
Q

Basis of property acquired in commercial exchange

A

FV of new property (BV minus loss/+ gain) plus or minus cash received

44
Q

Gain under US Gaap recorded if:

A

Boot received (cash/FV on new asset. cash paid+gain >25%)

45
Q

Rules for recognizing Gain if lacking Commertial substance

A
  • 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
46
Q

In exchange that lacks commercial substance, record the asset received on the balance sheet

A

(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

47
Q 
Intangible assets. 
Finite life (Patent, Copyright, Franchise) 
Indefinite life (Goodwill, Trademark)
A 
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.

48
Q

Intangible assets. Cost to expense:

A

Continuing franchise fees

49
Q

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

A

Cost or revaluation value (FV on revaluation date) - Subsequent amortization minus Subsequent impairment

50
Q

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)

A

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

51
Q

R and D under IFRS:

A

Development cost can be capitalized, e.g.

Development cost incurred in designing a product that has just been granted a patent

52
Q

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

A

Cost of patent: to capitalize:

Purchase price+ VAT tax+ legal cost to register the patent

53
Q

Capitalized cost related to software projects are amortized. Annual amortization s/b greater % of Revenue or strait line

A

Greater amount of two use to record expense

54
Q

Impairment of intangible asset in the middle of asset life= change in FV of asset

A
  1. Adj BV (BV-impairment)
  2. Recalculate BV and years and deduct Amortization.
  3. Total expense =new amortization + impairment
    Pay attention on dates. Recalculate amortization after impairment.
55
Q

Under US GAAP no revaluation gain is recorded for goodwill

A

Under GAAP record only losses!

56
Q

R&D under GAAP and IFRS

A

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

57
Q

Impairment loss reported

A

As a component of income from continuing operations before tax. BV is reduced for impairment

58
Q

Impairment of intangible assets

A

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

59
Q

Dollar value LIFO ending inventory:

A

Dollar-value LIFO ending inventory is (Ending balance current year cost/ending balance base year cost)* year 2 layer = ending inventory balance prior year

60
Q

Which component is reportable? 3 columns given: Component/ Net Eliminations/ Consolidated

A

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)

61
Q

An intangible asset with an indefinite life is tested for impairment by comparing the fair value of the intangible asset to its carrying amount.

A

comparing the FV of the intangible asset to its carrying amount.

62
Q

If Capital balance was accounted for goodwill method and each partner has equal capital.

A

Take difference that one partner underpaid, ad it to the total initial capital balance and /2

63
Q

Krey increased estimated quantity of cooper recoverable from the mine. It units units of production method. Which s/b reported in FS?

A

Cumulative effect of change in Accounting -principle- NO

Proforma effect on retroactive application-NO

FAR (12 decks)

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