FAR - Financial Statements Flashcards
What are required disclosures?
Nature of operations, use of estimates in prep of FS, and current vulnerability due to concentrations are required disclosures
During inflation, when is a purchasing power gain reported on which type of account non/monetary asset/liability?
Monetary liability has purchasing power gain as money is worth less than what was borrowed.
Nonmonetary does not have a fixed dollar value.
When is gain and loss reported?
A material event/transaction that is unusual in nature OR infrequent in occurrence (BUT not both) that has a gain or loss is presented in a separate component of income from continuing operations.
What are the SEC forms - 10-Q, 8-K, 10-K, S-1
10-Q - quarterly report not required to be audited
8-K info report filed any time during year, includes disclosure of material events
10-K annual report with SEC audited
S-1 initial registration form for securities
What does not need to be disclosed as a related party transaction?
Compensation agreements, expense allowances, and similar items in the ordinary course of business
Transactions which are eliminated in the prep of consolidated or combined FS
These do not need to be disclosed.
What does ASC Topic 825 for fair value option election apply to
Applies to firm commitments that involve financial instruments, warranties that can be settles by paying a third party, held to maturity investments.
It does not apply to leases.
Where is accumulated OCI reported?
Reported in SE section of BS, NOT as contra asset account
Howdo IFRS and US GAAP allow reporting comprehensive income?
IFRS allows one comprehensive income statement or an IS and a comp IS.
US GAAP allows the two above and also in the statement of owners equity
What are different methods under approaches for determining fair value measurements?
Use relevant info from recent transactions - market approach
Using PV techniques to discount cash flows - income approach
Use current replacement cost adjusted for obsolescence - cost approach
Note cannot use undiscounted cash flows as it ignores time value of money
How do errors, accounting changes in estimates affect the opening balance of RE?
An error such as (oversights, misuse of facts, failure to provide for uncollectible accounts in the previous period) of a prior period discovered after issuance should be reported as a prior period adjustment to the opening balance of RE.
A change in accounting estimate (useful life or accounting depreciation method) would be included in net income for the period of change and future periods.
Results of disposal of a discontinued segment is presented in current year after income from continuing ops.
What has to be included in a company’s summary of significant accounting policies in the notes to the FS?
Revenue rec policy, depreciation method/methods of amortizing intangibles, basis of consolidation, basis of profit recognition on long term construction contracts, inventory pricing (NOT inv composition or plant assets composition, NOT deprec exp)
ASC235 - this disclosure should not duplicate details elsewhere in the FS
Requires description of all SIGNIFICANT (not every) accounting policies to be included as part of FS and the standard does not list which types of policies need to be disclosed.
What is classified as non/monetary?
Nonmonetary includes assets and liabilities whose amounts may change over time in terms of money.
Ex: inventory, PPE, obligations under warranty incl accumulated deprec
Monetary includes advances (claim to receive a fixed money amount), allowance for doubtful accounts (AR is money), and unamortized premium on bonds payable (AP is money)
What is included in Total Revenue of the following - sales, purchase discounts, recovery of accounts written off
Total revenue = sales less sales returns and allowances, sales discounts, and estimated allowance for returns.
Purchase discounts is a contra purchases account and not used to calculate NI.
ASC 250 - which periods would the cumulative effect of changing to a new accounting principle be included in NI?
Accounted retrospectively to all prior period, unless impracticable to do so
If a segment is discontinued, how are income shown on current and prior year statements for income from continuing operations?
The income/loss for that segment would be added back to operating income and then take after tax amount.
ASC220 - Comprehensive income applies to which type of entities?
Only enterprises that develop a full set of FS which report cash flows, results of operations, and financial position.
Does not apply to entities that do not have items classified as OCI and not for profit orgs.
What is required disclosure of Related party transactions
ASC850 - must disclose nature of relationship involved, a description of transactions, the dollar amounts of the transactions for each of the periods, amounts due from or to related parties as of each BS date, and the terms and manner of settlement.
What are the ways that comprehensive income can be disclosed?
Can be on a combined IS or two IS.
Cannot be on statement of financial position after RE or in statement of stockholders equity.
What does the principal market and the most advantageous market mean?
Principal market - market with greatest volume and level of activity
Most advantageous - maximizes price received for the asset
What is considered General and Admin expenses?
Accounting and legal fees, interest, loss on sale of office equipment, rent for office space (split between sales dept and other)
Accounting and legal fees and the portion of office rent that is not allocable to sales are considered G&A.
Interest is included with financial/other expense.
Loss on sale of office equipment is included in other expenses and losses.
The office rent allocable to sales dept is an operating expense and included in selling expense.
How are available for sale securities shown on NI when value increases and are sold (if FV option is not elected)?
Amount of gain would be recognized full on year of sale.
The unrealized gain for the previous year, market value then less cost is reported as component of OCI in 2010.
Since they are AFS, unrealized G/L prior to sale are not reported in NI, so therefore 0 for gain in prior year.
How are income from operations before income tax, loss from discontinued operation and extraordinary gain shown on the IS?
The loss from discontinued operations and extrordinary gain are shown NET OF TAX as a separate component of income after income from operations.
What is eligible for the FV election (ASC825) and can it be revoked
The FV option may be elected on an instrument by instrument basis for Available for sale securities
FV option can be applied to insurance contracts that can be settled be a third party
FV option must be applied to all interests in the same entity.
Once elected, it cannot be revoked.
Excludes pension liabilities, leases, and share based payments
Where are unrealized gains and losses reported
Reported in earning for the period, not OCI
What is considered unrealized holding gains/losses and where is it reported
Current costs of equipment or land is greater than historical cost.
Reported after income from continuing operations on the current cost IS.
What is considered extraordinary?
- gain on disposal of business segment
- FX translation gain
Extraordinary included in IS if it is infrequent in occurrence AND unusual in nature.
Gain on disposal goes to G/L from discontinued operations. FX gain is in OCI for the period.
Neither is extraordinary.
If it is unusual in nature OR infrequent in occurrence (NOT extraordinary), it should be disclosed separately in the operating section of the IS and may be supplemented by a footnote. It should not be shown net of income taxes.
How do you calculate COGS using average current cost?
ASC255 - units sold X average current cost during the year (average of current cost per unit at beginning and end of year)
Current cost for inventories is measured as lower of current cost OR recoverable amount at measurement date.
What are OCI categories?
Separate classifications for Foreign currency items, pension liability adjustments, unrealized gains and losses on certain investments in debt and equity securities.
Does not include gain/losses on the sale of treasury stock as that results from transactions with owners in their capacity as owners. - is not included in comprehensive income.
Under IFRS, how can a current note payable be classified as noncurrent and when?
If company executes agreement to refinance note as long term BEFORE the statement of financial position date.
NOT issuance date of FS and intent and ability is not sufficient, must have agreement.
Under IFRS, how is loss due to infrequent and unusual cause (rare hurricane) classified?
As expense or loss from hurricane
IFRS does not distinguish between losses and expenses. Loss would be in expense section of IS.
IFRS does not permit extraordinary gains or losses on IS.
How is a change in accounting principle AND a change in accounting entity have the cumulative effect applied?
Both are accounted by retrospective application.
Which are considered assets
treasury stock of company
idle machinery
cash surrender value of life insurance on corp execs
Treasury stock is a contra equity account
The last two are assets
What is a reclasification adjustment for?
Made to avoid double counting in CI items that as displayed as part of NI for a period that also had been displayed as part of OCI in that period or earlier
Under IFRS, how are interest and dividends received reported in the statement of cash flow
Can be either operating or investing. Has to be reported consistently.
How is depreciation expense recorded in constant dollar statements given that CPI has increased from 180 to 200 and deprec expense is 200/year
Deprec is a nonmonetary item and has to be adjusted to current year dollars. 200 X 200/180 = 222 would be the latest depreciation expense in constant dollars
ASC820 - what are the different levels of valuation input for determining FV measurement and what is the assumption used in FV measurement of nonfinancial assets
Level 1 - quoted prices from active markets for identical A/L
2 - directly or indirectly observable inputs other than level 1
3 - unobservable inputs
4 - Does not exist
Assume asset is in its highest and best use (in use or in exchange). Does not have to be held for sale, conservatively valued, or currently in use.
How are available for sale securities recognized in the IS in NI and OCI for 2010 and 2011? If FV value is not elected, acquired in 2010 for 62, dropped to 55 at end of year and sold in 2011 for 50.
2010 -7k
2011 7k
Unrealized gains and losses are reported in OCI for AFS. The decline of -7k shows in 2010 OCI. In 2011, -5k for 2011 OCI. Since they were sold in 2011, a realized loss of 12k is shown in NI for 2011. To avoid double counting the loss in CI, 12k should be reported as a reclassification adj in OCI in 2011. The 12k reclass nets with the -5k for 7k in OCI.
What on the BS must be reported in FV (ASC820)?
Asset impairments, business combinations, and goodwill
ASC820 - what are the accepted valuation approaches?
Cost, market and income approach
IAS1 - IFRS what makes up a complete set of FS?
Statement on financial position, statement of CI, statement of changes in equity, statement of cash flows, and notes
