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FAR: Financial > FAR: F1 & F2 > Flashcards

FAR: F1 & F2 Flashcards

1
Q

According to FASB and IASB conceptual framework, useful information must have the fundamental qualitative characteristics of

A

Faithful representation and Relevance

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2
Q

Define Faithful representation (or reliability) and Relevance

A

Faithful representation are financial statements that are faithfully represented to be useful to primary users

Relevance - important if it can change the decision of the user

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3
Q

According to FASB and IASB conceptual framework, what is the objective of general purpose reporting? And what should it include?

A

To provide information that is useful to primary users and information about the companies economic resources and claims against those resources. Including changes not resulting from financial performance.

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4
Q

According to FASB and IASB conceptual framework, what are the components of Relevance? And what do they mean?

A

Predictive Value - information can be used to predict the future

Conforming Value - feedback about evaluations previously made

Materiality - if taken out this can change the decision of the users

Nemonic: Passing Conforms Money

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5
Q

According to FASB and IASB conceptual framework, the primary users of financial reports include

A

Investors, Creditors and Lenders

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6
Q

According to FASB and IASB conceptual framework, what are the components of faithful representation and define them

A

Completeness - includes all necessary information

Neutrality - free from bias

Free from Error - not perfect but close to being perfect

Nemonic: completely neutral is free of error

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7
Q

According to FASB and IASB conceptual framework, what are the components of Enhancing Qualitative Characteristic and define them

A

Comparability - information is consistent and can be compared (PY and CY)

Verifiability - information can be verified

Timeliness - information is available on time

Understandability - information is presented clearly and concisely

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8
Q

Conservatism Principle

A

Revenues and gains are not recognized until they occur and expenses and probable losses are expensed in full immediately

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9
Q

What 5 Attributes can be used to measure assets and liabilities

A
  1. Historical cost - amount paid by a company to acquire an asset
  2. Current Cost
  3. Net Realizable Value - SP less any disposal costs
  4. Replacement Value - amount to be paid to replace or reacquire an asset currently
  5. Present Value of Future Cash Flows
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10
Q

T/F current market value is the same with replacement cost? If False why?

A

False! Current market value is the price to sell and asset and replacement cost is the cost to acquire an asset

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11
Q

What are the five elements of PV Measurement for Assets and Liabilities (UVOTE)

A
  1. Price for bearing Uncertainty
  2. Expected timing Variations of FCFs
  3. Other Factors
  4. Time Value of Money (Risk free rate of interest)
  5. Estimate FCF
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12
Q

According to FASB conceptual framework, define Recognition, realization, allocation and matching

A

Recognition - is actually recording in the F/S

Realization - Having the right to receive revenues and gains from the exchange of assets for cash or claims to cash in the future (A/R)

Allocation - assigning and distributing an amount

Matching - matching costs with related revenues

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13
Q

The FASB accounting standards codification is the single authoritative source of US GAAP for which type of companies

A

Public companies

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14
Q

What are the four US GAAP Fundamental Assumptions. In addition what are the fundamental assumptions under IFRS

A
  1. Entity Assumption - The entity is separate from the owner
  2. On-Going Assumption - The company would continue to operate even if the owner dies in the foreseeable future
  3. Periodicity Assumption - can be divided into meaningful time like quarterly and semiannually
  4. Monetary Unit - money is the common denominator

Under IASB only the ongoing exemption exist

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15
Q

What is the difference between FASB and IASB when issuing accounting standards updates? Is the accounting standards update authoritative literature?

A

Under FASB, accounting standards updates are issued after the majority vote. In contrast under IASB accounting standards updates are issued at least 9 out of 15 members approve. Accounting standards updates are not authoritative literature they only explain the reasoning behind a conclusion

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16
Q

A proposed of accounting research bulletin is issued by

A

US SEC

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17
Q

What is the responsibility of the financial accounting foundation

A

The FAF has the responsibility to look over FASBs management, administration and finances

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18
Q

What is the responsibility of the emerging issues task force

A

The EITF assist the FASB with identifying and resolving financial accounting issues

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19
Q

What is the purpose of the statement of financial accounting concepts (SFAC)? Is it GAAP?

A

The statement of financial accounting concepts are not GAAP they just provide a basis of financial accounting concepts for business and non-business enterprises

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20
Q

What statements are included to meet the objectives of financial reporting

A

The Balance Sheet (showing financial position), Statement of Earnings and Comprehensive Income (Entity’s Performance), Statement of Cash Flows (Entity’s Cash Flows) and Financial Statements Taken as a Whole (Management and Performance)

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21
Q

Equity =

A

Contributions by owners - Distributions to owners = Comprehensive Income

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22
Q

Comprehensive Income =

A

NI (Rev. - Exp. + G - L) +/- Ajustements to stockholder’s equity

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23
Q

Under Revenue Recognition, when collection is reasonably assured and the degree of un-collectibility is estimable what method is this?

A

Accrual Method

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24
Q

Under Revenue Recognition, when collection is not reasonably assured what method do you use

A

Installment Method

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25
Q

Under Under Revenue Recognition, when collection is not reasonably assured and no basis for determining whether or not collectible what method do you use.

A

Cost Recovery - all collections applied to cost before any profit or interest income is recognized

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26
Q

Under the Installment Sales Method:
What is the formula for Deferred Gross Profit and where is it reported?

What is the formula for Realized Gross Profit and where is it reported?

A

Deferred Gross Profit - Profit to receive later = Ending Installment Receivable balance x Gross Profit %

Realized Gross Profit (money collected) = Cash Collections x Gross Profit %

*Gross Profit % = Gross Profit/Sales

27
Q

Probable means

A

> 50%

28
Q

What are 4 Significant Accounting Policy Disclosures

A

Accounting Principles and Methods (LIFO & Depreciation), Criteria (classifying investments), Policies and Pricing

29
Q

What are 4 Risks and Uncertainties Disclosures

A

Nature of operations, Use of estimates in the preparation of F/S, certain significant estimates, current vulnerably due to concentrations

30
Q

What are Subsequent Events. And how is it measured?

A

Events occurring after the B/S date but before the F/S are issued or available. Measured through the issuance date.

31
Q

What are 3 related party exceptions

A

Salary, Expense reimbursements and ordinary transactions

32
Q

What Does Fair Value mean

A

The price that would be received to sell an asset or paid to transfer a liability in a transaction at the measurement date

33
Q

What are the three valuation techniques and define them

A

Market Approach - uses market prices and information

Income approach - converts future amounts to a single current (discounted) amount

Cost approach - current replacement cost

34
Q

When should you use percentage of completion method?

Is this method acceptable by IFRS?

A

When costs’ can be estimated and progress towards completion

Yes

35
Q

When should you use the completed contract method?

Is this method acceptable by IFRS?

A

Income statement amount profit recognized in period of completion and loss is recognized when it happens.

No

36
Q

What is the conservatism Principle?

T/F: Under this principle the accrual of any contingent gain is permitted

T/F: Can only accrual probable losses

A

recognize expenses and losses now and revenues and gains until it happens

False

True

37
Q

In converting from cash basis to accrual, for revenue, what is the journey entry formula?

*Related accounts are Cash, A/R and Revenues

A

DR: Cash (Amount received)
DR: Inc. In A/R (given)

CR: Dec. in A/R (given)
CR: Revenues (Plug)

*Inc. in assets you DR and Dec. you CR

38
Q

In converting from cash basis to accrual, for Cost of Sales, what is the journey entry formula

*Related accounts are Cost of Sales, Inventory, Cash and A/P

A

DR: Cost of Sales (plug)
DR: Inc. in Inventory (given)
DR: Dec. in A/P (given)

CR: Decrease in inventory (given)
CR: Increase in A/P (given)
Cash (payments for merchandise)

39
Q

In converting from cash basis to accrual, for Expenses, what is the journey entry formula

*Related accounts are Expense, Prepaid expenses, cash and accrued expenses)

A

DR: Expense (Plug)
DR: Inc. in P/E (Given)
DR: Dec. in A/E (given)

CR: Dec. in P/E (Given)
CR: Inc. in A/E (given)
CR: Cash (amount paid for expenses)

40
Q

What is the formula of a Multiple Step I/S

A 
Revenues
- COGS
= Gross Profit
- Expenses
= Operating Income
\+ Gain
\+ Other income
- Losses
- Other Expenses
= Income before taxes
- Income tax expense
= Income from continuing Operations
41
Q

What is the formula of a Single Step I/S

A 
Revenues 
\+ Gains 
\+ Other Income
= Total Revnues
- COGS
- Expenses
- Losses 
- Other expenses
- Income tax expense
= Income from continuing operations
42
Q

Net Income =

A

Income from continuing operations +/- Income from Discontinued Operations = NI

43
Q

What does Unusual and Infrequently mean? And where are they reported?

A

Unusual - when a transaction or event has a high degree of not happening and is not related to the business activities.

Infrequently - When a transaction or event is not reasonably expected to happen again in the future.

Items considered unusual, infrequently or both are to be reported as a separate item within income from continuing operations or disclosed in the notes to the F/S

44
Q

Examples of strategic shift for disposal actives are (GEL)

A

Geographical area, Equity Method Investment and Line of Business

45
Q

Purchase Price and Freight-in costs are classified as?

A

Inventory Cost

46
Q

Freight-out, salaries and commissions and advertising expenses are classified as?

A

Selling Expenses

47
Q

Officer’s salaries, accounting and legal and insurance are classified as?

A

General and Administration Expenses

48
Q

Auxiliary activities and interest expense are classified as?

A

Non-Operating Expenses

49
Q

For interim financial reporting a company’s income tax provision for the 2nd quarter should be determined how?

A

By estimating at the end of the 2nd quarter the applicable effective tax rate for the full year

50
Q

What is the formula of an interim period tax expense?

A

YTD Cumulative Income x estimated annual effective tax rate (using best info at that time) - tax expense recognized in previous interim periods.

51
Q

Define Comprehensive Income

A

Comprehensive income is the change in equity (net assets) during a period from non-owner transactions (owner investments and distributions to owners).

52
Q

What is the Insurance Policy formula

A 
Replacement cost
- Deductible
= insurance proceeds
- Cost Incurred
- Current BV
= G/L from insurance settlement
53
Q

T/F: a change to LIFO is considered impracticable so should be treated prospectively

A

True

54
Q

What are Forms 3, 4, and 5 and 11-K

A

Form 3-5: required to be filled by directors, officers and owners owning a registered company > 10%

11-K: annual report of company’s employee benefit plans

*note required to be filled with XBRL

55
Q

What is Form 6-K

A

Filled semi-annually by foreign private issuers and contains unaudited F/S

56
Q

What is Form 8-K

A

major corporate events

57
Q

What are Forms 10-K and 10-Q and what must they contain. Are both audited?

A

Form 10-K - Annually filed by U.S. registered companies and must contain audited financial statements. Includes certain financial disclosures: Summary of financial data, Management discussion and analysis (MD&A) and audited financial statement prepared using GAAP

Form 10-Q - filled quarterly by U.S. registered issuers. Includes certain financial disclosures: interim period Management discussion and analysis (MD&A) and unaudited financial statement prepared using GAAP

58
Q

What are Form 20-F and 40-F

A

Form 20-F is filled annually by non-US registrants reregistered companies with the SEC and must contain audited financial statements

Form 40-F is filed annually by specific Canadian companies registered with the SEC and must contain audited financial statements

59
Q

Filing deadlines for 10-K and 10-Q

A

10-K:
Large accelerated fliers [$700 MM C/S outstanding] (60 days)
Accelerated fliers [$75 MM or more but

60
Q

T/ F: In all non monetary transaction, the FV given = FV received. So BV > FV of the asset surrendered

A

True

*Remember losses on non-monetary transactions must be recored in full

61
Q

T/F: when a fixed asset is sold (voluntarily or involuntarily) G/L is recognized as part of Income from contenting operations and the G/L = Sale - NBV + any costs associated

A

True

62
Q

What do current cost F/S report?

A

report holding Gains for goods sold during the period and on inventory at the end of the period

*they also include holding gains on all other accounts in the F/S

63
Q

Current cost =

A

Replacement cost - purchase price

FAR: Financial (2 decks)

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