FAR 4 Flashcards
Sales Discount
Contra Revenue Account
If gross method for A/R used and discount applicable, then debit discount
Allowance Method & Recording Bad Debts & Write Offs
To record bad debt expense:
Dr. Bad Debt Expense
Cr. Allowance 4 Uncollectible Accounts
To Write off A/R:
Dr. Allowance 4 uncollectible accounts
Cr. A/R
Write off of bad debt has no effect on expenses
Allowance Method: Accts Previously Written Off & Now Collected
Reestablish Account:
Dr. A/R
Cr. Allowance 4 Uncollectible accts
Record Cash Receipt:
Dr. Cash
Cr. A/R
- Bad debt not affected
Lower of cost or market, term market
Generally means current replacement cost (whether by purchase or reproduction) provided the current replacement cost does not exceed net realizable value (market ceiling) or fall below net realizable value reduced by normal profit margin (market floor)
Determining “market” in lower of cost or market
Ceiling = NRV - Selling price - costs to sell
Floor = NRV - normal profit
If “market” falls between this range, compare to cost and determine which is lower to come up with new basis.
Accounts debited for purchases of inventory under both periodic and perpetual method
Periodic Method: Purchases
Perpetual Method: Inventory
FIFO and Periodic/Perpetual Inventory System
Ending inventory and COGS are the same regardless of inventory system used.
Rising Prices and Inventory System
FIFO - highest ending inventory, lowest COGS, highest net income :(
LIFO - lowest ending inventory, highest COGS, lowest net income
LIFO = Lowest
If FIFO for calculation questions
User periodic method to calculate - faster method and same regardless if periodic or perpetual
Various Average Inventory Methods
Weighted average - periodic method used
Moving average - required perpetual method to use
LIFO
Last costs inventoried are the first costs transferred to COGS. Ending inventory includes oldest costs. Ending balance typically not approximate replacement cost.
If used for tax, must be used for GAAP
Dollar Value LIFO - Price Index
End. Inv. at CY cost / Ending Inv. at base year cost
Computing LIFO layer added in CY at dollar-value LIFO
LIFO layer at base year is multiplied by price index
Fixed Assets - Revaluation Model under IFRS
Must be applied to all items in a class of fixed assets, not to individual fixed assets.
Losses- I/S unless reversal of earlier gain, if reversal, recognized in OCI and reduces revaluation surplus in AOCI
Gains- Revaluation surplus - OCI , reported in I/S to extent they reverse a previously recognized revaluation loss.
Impairment - reduce revaluation surplus to 0, further losses on I/S
IFRS - Investment Property Measurement: Fair Value Model
Investment property reported on B/S at FV and is NOT depreciated.
Gains/Losses recognized in earnings
Capitalizable Land Costs
Digging & filling
Razing - destroying, leveling, etc…
Deduct proceeds from sale of buildings, timber, etc…
DOES NOT INCLUDE EXCAVATION - that is building cost
Composite Depreciation: Asset Retired/sold
If avg service life of a group of assets has not been reached when an asset is retired, the gain/loss that results is absorbed in accum. depreciation. Debit/Credit for difference between original cost and cash received.
Dr. Cash
Dr. Accum. Dep (Plug)
Cr. Asset Cost
Determining average composite life for composite depreciation
Depreciable Cost/ Annual Depreciation
Sum of Years Depreciation - Calculating Expense
Depreciable base (Cost-Salvage Value) multiplied by
Remaining life of asset (1st year total life) divided by
Sum of all years ex: 4 yrs = 1 +2+3+4 = 10
Declining Balance Depreciation - Calculating Expense
Carrying Amount x Declining Balance Percentage
DBP = S/L % x declining balance %
- Asset cannot be depreciated below salvage value
- Salvage value not used when calculating dep. base
Depletion Expense
- Calculate Base
a. purchase price
b. prep costs
c. restoration costs
d. (salvage value) - Divide base by estimated recoverable to get RATE
- Rate x Actual resources recovered
PV of an Annuity Due
If ordinary annuity table used:
Factor for 1 less period and add 1.000
PV = Back (Move back in time and add)
Calculating Avoidable Interest
- Interest on construction note + interest on other borrowings for construction
- Other borrowings = WWAE - construction note funds
- Calculate WA interest on other borrowings and multiply by other borrowings used for construction
- Add 1 & 3
Calculating capitalized interest and interest expense with construction costs
Capitalized Interest: cannot exceed actual interest incurred. Capitalize avoidable interest
Interest Expense: difference between total interest and capitalized interest
FV of Annuity Due
If using FV for ordinary annuity:
Add one period and decrease by 1.0 (forward 1 minus 1)
IFRS - lower of cost or market
Simpler
Lower of NRV or cost
NRV = sale price - cost to sell
No ceiling/floor involved
Fixed Assets - Improvements & Replacements
In replacement, carrying value of old asset known, remove it and recognize gain/loss
If unknown and asset life extended, debit accum dep for cost
If unknown and usefulness increased, capitalize cost of improvement/replacement to asset account
Pass Key - interest capitalized when constructing FA
Lessor of:
- actual interest cost incurred
- computed capitalized interest (avoidable interest)
Permanent Impairment on Fixed Asset
Book value reduced and loss is credited to accumulated depreciation.
New book value depreciated over useful life
IFRS - Impairment of Fixed Asset
Carrying value > Recoverable Amount
Recoverable Amt = > of…..
- Asset’s FV (cost to sell) or..
- Assets value in use (PVFCF)
Don’t be fooled by using lesser of…
