FAR Misc. Flashcards
Cash receipts from grants and subsidies to decrease operating deficits should be classified in which of the following sections of the statement of cash flows for governmental, not-for-profit entities?
Rule: Cash flows from noncapital financing activities include:
Proceeds or payments related to borrowing not attributable to the acquisition, construction or improvement of capital assets.
Cash receipts or payments related to grants or subsidies not attributable to capital purposes.
Property taxes not designated for capital purposes.
Cash paid to other funds (other than for interfund services).
What are the rules for converting from cash-basis to accrual-basis?
-Add increases in current assets. For example, when AR increases, the increase is not considered to be income under the cash basis because the cash has not been collected, but the increase is income under the accrual basis.
-Subtract decreases in current assets. Conversely, when AR decreases, then cash-basis counted it as revenue when the cash was collected, but under the accrual basis, the income was recognized in a prior period and should not be recognized again in the current period.
Add decreases in current liabilities. For example, when AP decreases, this represents a cash outflow that is recorded as an expense under the cash basis. However, under the accrual basis the paid expenses were recorded in a prior period and should not be recorded again in the current period.
-Subtract increases in current liabilities. Conversely, when AP increases, this represents expenses incurred under the accrual basis method that have not been recorded under the cash basis method because they have not been paid.
add decrease in AP, subtract increases in unearned revenue and wages payable, add increase in prepaid rent, subtract decrease in accounts receivable:
How are estimated earnings under the completed contract method are calculated?
Calculate estimate profit = total cost− (costs incurred to date+ est. costs to complete)
Percent complete = costs incurred to date / (costs incurred to date+ est. total costs)
Calculate gross profit earned to date = estimated profit × percent complete (1 x 2)
Under the completed contract method, when should a liability be recorded?
A liability only exists when progress billings exceed costs and estimated earnings.
Under the complete contracted method, when should an asset be recorded?
The excess of accumulated costs plus estimated earnings over related billings will represent a current asset.
When do you recognize a current liability or current asset under the completed contract?
If the sum of cumulative costs incurred plus cumulative gross profit recognized exceeds cumulative billings, the excess is reported as a current asset. If cumulative billings exceeds the sum of cumulative costs incurred plus cumulative gross profit recognized, the difference is reported as a current liability. If the two amounts are equal, no asset or liability is recognized.
How are gains and losses calculated in nomonetary transactions that has commercial substance?
When a nonmonetary transaction has commercial substance, gains and losses are recognized based on the difference between the fair value and the book value of the asset given up
How are gains and losses calculated in nomonetary transactions that doesn’t have commercial substance?
When a nonmonetary exchange lacks commercial substance, the general rule is that no gain or loss is recognized and the book value approach is used. However, when cash/boot is received, a proportional part of the gain is recognized
Under IFRS, when should development costs be capitalized?
under IFRS the development costs may be capitalized if all of the following criteria are met:
Technical feasibility has been established.
The company intends to complete the asset.
The company has the ability to sell or use the asset.
Sufficient resources are available to complete the development and sell / use the asset.
The asset will generate future economic benefits.
How are long-term and short-term that a company has the intent and ability to hols till maturity be reported at the end of the year?
at amortized cost (carrying amount)
How are dividends treated by the investor?
Stock dividends are not recognized by the investor
Cash dividends are treated as dividend income
Under the equity method how does the investor records revenue?
Rule: Investor records as revenue its “share of the investee’s earnings” (not “dividends received”) under the equity method.
How does the change in market value affect the investor?
Dividends from an investee company are recorded by the investor as a reduction in the carrying amount of the investment on the balance sheet of the investor.
Changes in the market value of investee’s common stock are not considered income to the parent under the equity method.
Under the cost method, receipt of a dividend is recorded as income and does not affect the investment account.
How are stock dividends and stock splits treated under the cost and equity method?
Stock dividends and stock splits are not considered income to the recipient.
investors do not record stock dividends at fair value. They simply reallocate the investment account balance (under either method – cost or equity) over more shares so that value per share decreases.
How does undervalued asset amortization and cash dividends affect the investor’s reported investment income account?
under the equity method undervalued asset amortization will decrease the investor’s reported investment income, but cash dividends received will only affect the balance sheet investment account.
Rule: Undervalued asset amortization affects both the investment account (an asset) and the investment income account (a revenue), while cash dividends affect the investment account but not the investment income account.
