FAR MCQ Notes Flashcards
What is a transition obligation?
A transition obligation is measured as the difference between the accumulated postretirement benefit obligation and the fair value of plan assets at the beginning of the fiscal year for which ASC Topic 715 is adopted. A transition obligation may be recognized immediately in net income of the period of the change, or recognized on a delayed basis as a component of net periodic postretirement benefit cost. If delayed recognition is elected, the transition obligation should be amortized on a straight-line basis over the average remaining service period of plan participants. If the average remaining service period is less than twenty years, the employer may elect to use a twenty-year amortization period.
Per IFRS, what is required to calculate the PV of DBO (PV-DBO)
Projected-unit-credit method
When a company elects not to bifurcate a hybrid instrument and accounts for the hybrid instrument at fair value, which method(s) of disclosure are permissIble?
If a company elects to use fair value measurement on selected hybrid instruments, the balance sheet disclosure may be presented in one of two ways: as either a separate line item for the fair value and non–fair value instruments on the balance sheet, or as an aggregate amount of all hybrid instruments with the amount of hybrid instruments at fair value shown in parentheses.
Under IFRS reporting, how is presentation currency defined?
The currency in which financial statements are presented
Which of the following rates may be used to translate the cash flow statement?
a. Historical exchange Rates
b. Current exchange Rates
c. Weighted-average rates.
Cash flow statement may be translated at the rates in effect at the time the transaction occurred (historical exchange rates) or at weighted-average exchange rates if not substantially different.
When a firm elects not to bifurcate a hybrid financial instrument, how should changes in fair value be recognized?
On a prospective basis in the current year earnings and future year’s earnings. The difference between the total carrying amount of the components of the bifurcated hybrid financial instruments and the fair value of the combined hybrid instruments should be recognized in earnings for the period.
Will sale of treasury stock at less than cost decrease shareholder’s equity ?
NO, journal entry is Debit to cash and Credit to Treasury stock which increases shareholder’s equity. Selling at more or less than cost does not matter.
Which of the following is not a IFRS requirement regarding foreign currency translation?
Nonmonetary items measured at historical cost are translated at the historical exchange rate.
Monetary items are translated at the year-end spot rate.
If the functional currency is the same as the presentation currency gains or losses are reported in profit and loss for the period.
If the functional currency is not the same as the presentation currency gains or losses are deferred to future periods.
Option 4 :
Under IFRS, if the functional currency is not the same as the presentation currency, gains or losses are charged to other comprehensive income.
What is a notional amount w.r.t. Derivatives ?
Notional amounts are the referenced associated asset or liability that is commonly a number of units such as barrels of oil.
For IFRS reporting purposes, currencies are defined as
Foreign, functional, and presentation.
Callahan Auto Parts leases a piece of machinery for its new brake pad division in Sandusky, Ohio. Callahan appropriately accounts for the lease as a finance lease. What information must Callahan disclose about the lease?
A general description of the lease, including the residual value of the machinery and the interest rate associated with the lease
Miriam Corporation commonly enters into leases as the lessee of equipment. In Miriam’s disclosures, it must report
The aggregate amount of future minimum lease payments and the amount for each of the succeeding five years for finance and operating leases.
Wilburn Corp. signs an agreement to lease land and a building for 20 years. At the end of the lease, the property will not transfer to Wilburn. The life of the building is estimated to be 20 years. Wilburn prepares its financial statements in accordance with IFRS. How should Wilburn account for the lease?
FRS provides that because land has an indefinite life, if title is not expected to pass by the end of the lease term, then the substantial risks and rewards of ownership do not transfer. Thus, the lease should be separated into two components. The land should be recorded as an operating lease and the building should be recorded as a finance lease.
On the statement of operations for a nonprofit, nongovernmental hospital, which of the items below is included in the amount reported for “revenue and gains over expenses and losses” (the performance indicator)?
I. Unrealized loss on other than trading securities. The securities are included in unrestricted net assets.
II. Contribution received from a donor which cannot be used until next year.
Neither I or II
A not-for-profit voluntary health and welfare organization should report a contribution for the construction of a new building as cash flows from which of the following in the statement of cash flows?
Financing Activities
Unrealized gains on investments that are permanently restricted as to use by donors are reported by a private, nonprofit hospital on the
Statement of operations.
Statement of cash flows.
Statement of changes in net assets.
Statement of operations and statement of cash flows.
Statement of changes in net assets.
How does GAP define non - exchange transaction per GASB 33 Accounting and Financial Reporting for Nonexchange Transactions ?
GASB 33 defines nonexchange transactions as transactions “in which a government gives (or receives) value without directly receiving (or giving) equal value in exchange.” Exchange transactions are transactions “in which each party receives and gives up essentially equal values.” In the case of a property tax levy, the government is receiving value, the right to receive payments from property owners, without directly giving equal value in return.
In accordance with GASB 33, Accounting and Financial Reporting for Nonexchange Transactions, how is each of the following items classified?
Fines
Corporate income taxes
Fines Corporate income taxes
Imposed revenue Derived revenue
Revenues of a municipality should be recognized in the accounting period in which they become available and measurable for a
Governmental Fund
Which of the following transactions is an expenditure of a governmental unit’s general fund?
Contribution of enterprise fund capital by the general fund.
Transfer from the general fund to a capital projects fund.
Operating subsidy transfer from the general fund to an enterprise fund
Routine employer contributions from the general fund to a pension trust fund.
Interfund services provided and used are transactions that would be treated as revenues or expenditures/expenses if they involved organizations external to the government (i.e., routine employer contributions from a general fund to a pension trust fund, internal service fund billings to departments, enterprise funds billing for services provided to the general fund).
Arkansas has a single-employee defined benefit plan covered by GASB 68. What is the amount of liability that should be presented on the state government’s statement of net position related to the plan?
The portion of the actuarial present value of projected benefit payments attributable to past periods of employee service minus the pension plan’s fiduciary net position.
Harbor City’s appropriations control account at December 31, year 1, had a balance of $7,000,000. When the budgetary accounts were closed at year-end, this $7,000,000 appropriations control balance should have
Been Debited.
Appropriations is a budgetary account which represents the total authorized expenditures for the current period. Appropriations is recorded at the beginning of the period in the budget entry, as a credit, as in the following example:
Estimated Revenues xx
Appropriations xx
Budgetary Fund Balance xx
When the accounts are closed at the end of the period, the budget entry is reversed, and the appropriations account would be debited as follows:
Budgetary Fund Balance xx
Appropriations xx
Estimated Revenues Control xx
What is an imposed revenue ?
Imposed nonexchange revenue is derived from taxes and other assessments by governments that are not derived from underlying transactions. Property taxes are examples of such a revenue source.
The expenditure element "salaries and wages" is an example of which type of classification? Object. Program. Function. Activity.
Expenditure classification by object is based upon the type of items purchased or services obtained. Examples of “Current Operations” object of expenditure classifications are personal services, supplies, and other services and charges. Salaries are an example of classification by object. Function or program classifications provide information regarding the overall purpose or objectives of expenditures (i.e., police protection, sanitation, highways and streets, etc.). Activity classification provides data for calculating expenditures per unit of activity (i.e., street resurfacing).
On the government-wide Statement of Net Position, prepared in accordance with GASB 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, internal service fund activities are normally reported in
Business-type activities.
Governmental activities.
Either business-type or governmental activities.
Neither business-type nor governmental activities.
Governmental activities.
In Leases, remember a fact about Gross Profit
It is not affected by any residual value, whether guaranteed or not
How to know if bonds were issued at premium ?
If coupon rate is more than market rate
Reporting inventory at the lower of cost or market is a departure from the accounting principle of:
Historical cost.
While calculating Book Value, remember to deduct the liquidation value per share for preference share capital
For eg. 300,000 (Eq Cap) + 95000 (Ret Earn) + 100 l (PS) = total owners equity (less ) #1000 PS Multiply by 105 liquidation prefernce / 30000 (# eq shares)
Are temporary declines recognized in the quarter in which they occur ?
No They are not.
They are recognized in the 4th quarter at the end of the year
The Codification requires a reconciliation of the beginning and ending balances of the benefit obligation for both defined benefit pension plans and defined postretirement plans. What items would appear in the schedule related to defined benefit pension plans?
The reconciliation schedule for the benefit obligation related to defined benefit pension plans would disclose both the amounts for service cost and benefits paid. Other items that would be disclosed in this reconciliation schedule include (1) interest cost, (2) contributions by plan participants, (3) actuarial gains and losses, (4) plan amendments, (5) divestitures, curtailments, and settlements, and (6) special termination benefits.
Under IFRS, what valuation methods are used for intangible assets?
The cost model or the Revaluation model
What are the program revenues on a local government’s government-wide statement of activities?
Program revenues include (1) charges for services, (2) operating grants and contributions, and (3) capital grants and contributions.
How is an impairment loss recognized on the financial statements for a cost method equity investment?
In Current Earnings
Under IFRS, if the intangible asset’s carrying value is greater than its recoverable amount it is considered to be impaired. The recoverable amount is
The greater of its net selling price or its value in use.
What is formula for net loss as per the Corridor approach ?
Net recognized loss - 10% (higher of PBO or FV of plan Assets) / Avg remaining service period
A company using the group depreciation method for its delivery trucks retired one of its delivery trucks due to damage before the average service life of the group was reached. An insurance recovery was received. The net book value of these group asset accounts would be decreased by the
Insurance money recovered
as that money would equal the reduction in Net book value (cost - AD)
What are the 5 components that constitute a DBP ?
A defined benefit pension plan can have up to five components that must be used to determine net pension cost each year [service cost for the period, plus interest cost on the projected benefit obligation, minus expected return on plan assets, plus prior service cost amortization, and plus (or minus) amortization of actuarial unrealized losses (or gains)].
The moving average inventory cost flow method is applicable to which of the following inventory systems?
Perpetual
A/R Write Off entry :
Bee Co. uses the direct write-off method to account for uncollectible accounts receivable.
During an accounting period, Bee’s cash collections from customers equal sales adjusted for the addition or deduction of the following amounts:
Accounts w/off
Increase in A/R balance
Under the direct write-off method, write-offs are credited directly to accounts receivable (AR). No allowance account is used. Under the terms of the question, accounts receivable increased during the year.
Increase in AR = sales - cash collections - write-offs
cash collections = sales - increase in AR - write-offs.
Is DTA created by accrued warranty costs ?
YES
Concepts on inventory valuation :
Per ASC 330 Inventory valued using LCM approach
Market value is the replacement cost subject to an upper limit (ceiling) and a lower limit (floor).
The ceiling is the net realizable value, which is the selling price less disposal costs.
The floor is the net realizable value less a normal profit margin.
How are Direct loan origination fees and he loan origination fees charged to the borrower treated in CV of Debt ?
Direct loan origination fees and points are recognized over the loan term and the loan origination fees charged to the borrower are deducted from the principal in calculating the carrying amount
Note: Loan origination fees are frequently assessed in the form of points, where a point is 1% of the face amount of the loan.
Is “Due from factor” or “ Recourse Liab” used to account for probable uncollectible accounts ?
Recourse liability
The seller uses a due from factor (factor’s holdback) account to account for probable sales discounts, sales returns, and sales allowances. The recourse liability account is recorded to indicate probable uncollectible accounts.
