FAR Concepts F1,F2,F3,F10

Question 1

Gross Profit Percentage

Answer 1

GP = Sale - Cost
GPP = GP% / Sale
Earned GP = GP% x Cash Collected
Def GP = Installment to come x GP%

Question 2

Costs:

1. Inventory
2. Selling
3. General / Administrative
4. Non Operating

Answer 2

1. -Purchase Price, Freight In
2. -Freight Out, Salary, Commission, Advertising
3. -Officer Salary, Accounting, Legal, Insurance
4. -Auxiliary Activities, Interest Expense

Question 3

Purchase of a Parent Company Bond by Subsidiary

Answer 3

100,000 increase consolidated earnings. $0 effect on noncontrolling interest.

Purchase of the parent company bond by the subsidiary treated as bond were retired when the financial statements are consolidated.

B/c bond had a book value of $1,075,000, but was “retired” for $975,000, a gain is recorded upon consolidation.

JE
Bond premium
Dr Bond premium (Palmer’s books) $ $75,000
Dr Bond payable (Palmer’s books) 1,000,000
Cr Bond investment (Seal’s books) $ 975,000
Cr Retained earnings - consolidated 100,000
Noncontrolling interest 0

Noncontrolling interest only adj if the bonds were originally issued by the subsidiary

If this case then a portion of the gain must be allocated to the noncontrolling interest.

Question 4

Financial vs Physical Capital

Answer 4

Major Diff = Price changes, assets held, liab owed

Financial: holding gains and losses included return of capital. Traditional view, COMP INCOME return Financial Capital

Physical: capital maintenance adjustments included in equity. Sep element

Question 5

Debt Restructuring Journal Entry

Answer 5

Dr Note Payable XXX
Dr Interest Payable XXX

Cr Gain on Asset XXX
Cr Gain on Restructuring XXX

Question 6

New Asset Exchanges

Answer 6

Commercial Substance
FV Given - Cash Received
FV Given + Cash Paid

Non Commercial Substance
CV Given - Cash Recieved
CV Given + Cash Paid

If total consideration received (Cash Rec to FV Asset Rec) GREATER THAN 25% of Gain (FV - CV Given) Recognize entire gain, otherwise use percentage

IFRS
Similar Assets - No G , L rec in full
Dissimilar Assets - All G and L recognized

Question 7

Inventory LIFO (end) FIFO (end)

Answer 7

End LIFO: Inventory (understated), COGS (overstated), Net Income (understated)

End FIFO: Inventory (overstated), COGS (understated), Net Income(overstated)

If Inventory Beg than Inventory and COGS together, Net Income Opposite

Question 8

SIMULATIONS: Cash Flow, Determine:

1. Cash paid to employees
2. Cash paid to suppliers
3. Cash received from Customers

Answer 8

1. Beg (Salary / wage expense)
     Sub Increase Wages Payable
2. Beg (COGS)
     Add Increase inventory
     Sub Increase AP
3. Beg (Sales) 
     Sub Increase in AR
     Sub Deacrese in Def Rev

Question 9

IFRS Revaluation FV 150, surplus 30, FV revalued at 130, Describe where this hits

Answer 9

Revaluation loss 20 in OCI offset 30 gain in AOCI for net surplus of 10 in AOCI

Question 10

Functional Currency GAAP and IFRS

Answer 10

GAAP

1. A foreign entity’s local currency, which is typically the one in which the entity keeps its books
2. The currency in which the financial statements will be presented, which is the currency of the parent company or
3. A foreign currency other than the one in which the foreign entity maintains its books.

IFRS

1. Currency which influences sales prices and goods
2. Competitive forces and regulations determine sales price of goods and services
3. Currency mainly influences labor, material, and other costs of providing goods services

Question 11

Costs Associated w/ Exit and Disposal Activities

Answer 11

1. Involuntary employee termination benefits
2. Cost to terminate a contract that is not a capital lease
3. Costs to consolidate facilities or relocate employees

• Costs associate with the retirement of a fixed asset is not an exit and disposal activity

Question 12

Not Research and Development

Answer 12

1. Routine periodic design changes
2. Marketing research
3. Quality control testing
4. Reformulation of a chemical compound

Question 13

Goodwill GAAP vs IFRS

Answer 13

GAAP

1. Compare Undiscounted future cash flow to CV
2. FV less than CV impairment

IFRS
1. CV compared to Recoverable Amount
Recoverable Amount: GREATER assets FV less cost to sell (NRV) VS Assets value in use (PV future cash flow)

Question 14

Alternative Method of Goodwill

Answer 14

1. Amortize GW on St line basis for 10 yrs or less if another useful life app
2. Accounting policy election test at entity level or reporting level when trigger event occurs
3. Alt method applied to all existing goodwill and future goodwill

Question 15

Monetary vs Nonmonetary

Answer 15

Monetary: Fixed, Constant $
-Cash, AR Notes Rec, AP notes Pay

Nonmonetary: Flux, need restated to constant $
-Inventories, pp&e, capital stock

Question 16

Currency

Answer 16

Remeasurment: FS foreign currency ——> functional currency (recognized on IS)

THEN

Translation: FS functional ——> reporting currency (recognized in OCI)

Question 17

Foreign Currency Accounting

Answer 17

A / L - current
CS / APIC - Historical
Rev / Exp - Weighted Avg

Balance Sheet

• Monetary - Current
• Nonmonetary- Historical

Income Statement

• BS related - Historical
• Non BS - Weighted Avg

Question 18

Option Contracts

Answer 18

FV Option Contract = Time Value Option +/- Difference b/w (market - exercise price of stock options)

Question 19

Percentage of Completion

Answer 19

GPP = Contract Price - Estimated Cost

% of Completion = Total Cost to Date / Total Est Cost of Contract

Gross Profit earned for yr = Profit total - profit at beg of period