FAR 6

Question 1

What is the difference between current and non current restricted cash and how is it classified?

Answer 1

• Current restricted cash - this is money restricted for a current asset or liability. It has been segregated from cash - NOT CASH - (segregated from cash)
• Non-current- this is money that is restricted for a non-current asset or liability. It is considered Other Assets or Investments

Question 2

How are postage Stamps classified

Answer 2

• They are considered supplies - or prepaid expenses

Question 3

Do capital investment or a capital drawing affect net income under cash or accrual basis?

Answer 3

No -

Net Income = Revenue - expenses.

On cash basis - revenue and expenses are not matched by month

On accrual basis revenue and expenses are matched- revenue recognition

Question 4

What are the 2 core revenue recognition components:

Answer 4

1 - revenue will be recognized upon the transfer of promised goods and services

2 - The amount of revenue recognized represents the consideration the entity expects to receive in exchange of those goods and services

Question 5

What do you do if you have an account that is overdrawn?

Answer 5

It is NOT offset against bank accounts with positive income. Instead you classify it as a liability.

You would net them if both accounts are at the same bank

Question 6

Under IFRS how are financial liabilities measured

Answer 6

Under IFRS - they are generally measured at amortized cost

• IFRS does not provide for the election of fair value option
• You can measure them at fir value IF it will result in more relevant information

Question 7

When do you record deferred revenue as part of revenue recognition when you have two distinct performance obligations

Answer 7

No deferred revenue is recorded if customers are not obligated to renew a service that comes free when you purchase something

The revenue is divided between the two items and recognized immediately - it there was a period of time in which the service was delivered it would be spread across that time

Question 8

In terms of cash what needs to be disclosed in footnotes

Answer 8

Cash and cash items which are restricted and compensating balances that are restricted deposits

Question 9

what do you include in current assets if you have an AR in which is included money for next year and the year after

Answer 9

You Include the A/R that is expected to be collected in the next year and the rest is included in Other Assets -

Question 10

How do you account for bonds under IFRS

Answer 10

If Bonds are held for its scheduled cashflow exclusively then it is accounted for at amortized cost

Question 11

Which accounting pronouncement is the most authoritative

Answer 11

FASB statements of Financial Accounting Standards

Question 12

What does the Balance sheet report

Answer 12

The B/S reports the economic resources and obligations as of a specific date

Asserts = liabilities + Shareholder’s Equity

Question 13

What is the order of items on the B/S

Answer 13

• Current Assets
• Long Term Assets
• Short Term Liabilities
• Long Term Liabilities
• Shareholder’s Equity

Question 14

What are examples of current assets and what is their order

Answer 14

They are presented in order of liquidity

Cash
Inventory
prepaid expenses
A/R - net
Short Term Investments

Question 15

What are example of Long Term assets

Answer 15

PP&E
Investments
Goodwill
Patents

Question 16

What are example of current Liabilities and how are they presented

Answer 16

They are presented in order of maturity. they are expected to be resolved in 1 year

A/P
Short term debt
Bonds or dividends payable within the next year
Income tax payable
Accrued expenses
Deferred Revenue

Question 17

What are examples of Long term liabilities

Answer 17

Notes payable
capital lease obligations
Bonds payable (noncurrent)

Question 18

Current Ratio

Answer 18

Thi sis used to evaluate current assets compared to current liabilities

• Does the company have enough short-term resources to cover their short term liabilities?
• You want to see a ratio of at least 1 to see if the company has more current assets than current liabilities

CA / CL

Current assets = cash and equiv, inventory, prepaid, A/R, short term Investments

Current Liabilities = A/P, Short term debt, Bonds and dividends payable in 1 year, Income tax payable, accrued expenses, deferred revenue

Question 19

Quick Ratio

Answer 19

This is a more telling ratio - it removes inventory from the equation

(CA - Inventory) / Current Liabilties

Question 20

Debt to Equity Ratio

Answer 20

This is the ratio of what is owed to what is owned

Total Liabilities / Sharholder’s Equity