FAR 8 Flashcards
When an investor does not exert influence over the investee and accounts for an equity investment at fair value, cash dividends received by the investor from the investee should normally be recorded as:
Dividend income.
Where are impairment losses on equity investments carried at cost recognized?
Current earnings.
What are the five steps of revenue recognition?
- Identify the contract with a customer, 2. Identify the performance obligation(s) in the contract, 3.Determine the transaction price, 4. Allocate the transaction price to the performance obligation(s) in the contract, 5. Recognize revenue when the entity satisfies the performance obligations.
When should a company use the expected value method?
When there are more than two possible outcomes and the company has experience with contracts with similar characteristics. If only two possible outcomes, then the most likely method is used.
When there is commercial substance to an exchange, acquired assets are measured at:
Fair value (except for inventory exchanged to facilitate sales or delivery to customers, which is measured at book value).
In an exchange with no commercial substance, who recognizes the gain, if any, on the exchange?
Only the party RECEIVING cash.
In an exchange with no commercial substance, what is the amount of loss?
The amount of cash paid for the asset.
In an exchange with no commercial substance, how much gain is recognized?
If he amount determined by the ratio of cash received to total consideration.
How is interest from debt of assets being constructed treated?
It is capitalized and considered part of the acquisition cost of the asset because the debt could have been avoided if the construction did not take place.
Process of determining impairment of an asset:
- Carrying value (CV) is compared to the recoverable cost (undiscounted cash flows). If CV is more than the recoverable cost, then 2. Measure impairment loss by comparing CV to fair value (FV). Impairment is the amount of FV that is less than CV.
Can multiple pension plans be merged together for reporting purposes?
No. Funds cannot be transferred between pension plans.
Which pension cost is recognized immediately?
Changes to Projected benefit obligation (PBO).
Under IFRS, how are pension gains and losses treated?
They are recognized immediately in full in accumulated other comprehensive income, but are not subsequently amortized to earnings.
How are stock options computed?
Multiply the number of stock options by the fair value of each option at the grant date. To get the yearly compensation expense, divide the total fair value by the number of years until vesting date (first exercisable date).
Can compensation expense for stock options be reversed when stock options expire?
No, because the firm provided value to the employee, given the stock option had a fair value at the grant date.
