FAR (My Own) Flashcards
The single statemement apporach & two statement apporach
Single statement apporach displays other comprehensive income item indiviudall and in total.
The Two-statement apporach displays comprehensive income as a separate statement and that immediatley follows the I/S
Extraordinary Iteam
Foreign currency devaluation & losses discountinued operation are not extraordinary items.
IFRS segment discloure
Under IFRS, Segment disclosure include liabilities only if a segment liability mesure is regularly provided to the cheif operating decision maker
Equity security do not inlcude
Treasury stock, convertiable bonds, preferred stock redeemable at the option of the investor , or stock must be redeemed by the issuer
Equity Method
The equity method is used to account for investments if significant influence can be exercised by investor over the investee. Ownership of 20% to 50% of the investee’s voting stock is deemed to represent signigcant influence.
IFRS intangible assets
Under IFRS, research cost related to an internally developed intangible asset must be expensed but an intangible asset arising from development is recognized if the entity can demonstrate
- Technological feasibility has been established
- The entity intends to complete the intangible assets
- Entity has the ability to use or sell the intangible asset and will generate future economic benefits
Patent
A Patent is amortized over the shorter of it’s estimated life or remaining legal life
Organizational Expenses
Organizational expenses are not capitalized as an intangible asset rather they are expensed immediatley
Goodwill
Costs associated with maintaining, developing, or restoring goodwill are not capitalized as goodwill ( they are expensed )
Computer Software development
Under IFRS, Computer software development costs are internally generated intangibles. Research costs must be expensed and development costs may be capitalized if certain criteria are met.
Formula for amortization of capitalized software costs
Greater of
Percentage of revenue = Total capitalized amount X current gross revenue for period/ total projected gross revenue for product
Straight line = Total capitalized amount X 1/ Estimate of economic life
Computer software developed internally
Expenses costs incurred after the preliminary project state costs incurred for training and maintenance. Capitalize costs incurred after the preliminary project state and for upgrading and enhancement
Capitalized costs should be amortized on a straight line basis.
Intangible assets with finite lives (Two step impairment test)
Step 1 - The carrying amount of the asset is compared with sum of the undiscounted cash flows
Step 2- If the carrying amount exceeds the total un-discounted future cash flows, then asset is impaired and an impairment loss equal to the difference between the carrying amount of the asset and its fair value is recorded.
Intangible assets with indefinite lives ( One step impairment test)
An intangible asset with an indefinite life is tested for impairment by comparing the fair value of the intangible asset to its carrying amount.
Note : FV is not given , discounted cash flows must be used.
Goodwill impairment -US GAAP
Goodwill impairment is calculated at a reporting unit level. FV- Carrying amount = impairment
Definition of reporting unit
A reporting unit is an operating segment or one level below an operating segment. usually it has separate cash flows and management regularly review it
IFRS goodwill impairment
under IFRS, goodwill impairment testing is done at the cash-generating unit (CGU) level. one step process carrying value compare with CGU’s recoverable amount. Recoverable amount greater of the CGU’s fair value less costs to sell and it’s value in use
Completed contract method
Under IFRS, the completed contract method is not permitted. The percentage of completion method must be used unless the final outcome of the project cannot be reliable estimated, in which case the cost recovery method is required. Under the cost recovery method, revenue can only be recognized to the extent that cash collected excess the costs incurred
Completed contract B/S Presentation
The excess of accumulated costs over related billings should be reflected in the B/S as a current asset and the excess of accumulated billing over related cost should be reflected as a current liability.
J/E to record the installment sale
Installment sale accounts receivable -DR
Inventory - CR
Deferred gross profit - CR
J/E to recognize Cash Collection on installment sale
Cash - DR
Installment sale accounts receivable - CR
J/E to record profit on collection
Deferred gross profit -DR
Realized gross profit on installments sales -CR
Recognizing gains and losses
Gains and losses are always recognized in exchagne having commercial substance and are computed as the difference between fair value and book value of the asset given up
Note: The cash given up does not enter into the calualation of gain on exchange
J/E to record the exchange and gain on the exchange
Dr Building Dr Accumulated Depreciation Cr Cars Cr Gains on disposal cars Cr Cash
Lacking Commercial Substance
Recognize all gain if boot received exceeds more than 25% and it boot received is less than 25% of the total consideration , a proportional amount of the gain is recognized.
If the transactions lacks commercial substance and a loss is indicated, the loss should be recognized.
Note: No boot received = No Gain
Boot is Paid = No Gain
lacking commercial substance - boot received less than 25%
Recognized gain = Realized gain X (Boot Received/ FV received)
Definition to know
Historic cost - the actual exchange value in the dollars at that time as asset was acquired or a liability was assumed
Current cost - The cost that would be incurred a the present time , the replacement cost. use the recoverable amount if lower
Nominal dollars - Unadjusted for changes in purchasing power
Constant dollars - Dollars restated based on calculation of CPI ratios
Measurement method and current cost determination
Historic cost/Nominal Dollars is based on price without restatement for changes in the purchasing power of the dollar. It is basis for GAAP used in the primary F/S -
Currency re-measurement GAAP vs IFRS
GAAP require of the re-measurement method when a foreign subsidiary operations in a highly inflationary economy. Under IFRS, the F/S of a foreign subsidiary operating in a highly inflationary economy myst first be restated for the effects of inflation and then must be converted from the foreign currency to the reporting currency using current/year all elements of both b/s and I/S
Personal Financial Statements
Statement of financial condition = b/s
Current assets and liabilities at estimated current value rather than at historical cost.
Vested pension plan benefits are reported at fair value
Life insurance loans payable are netted against the cash surrender value of life insurance
Income Tax basis F/S
Tax basis F/S are well-suited for entities that have complex operations
On tax basis F/S, Nontaxable revenues and expenses must be recognized and may be reported as
Separate line item in the revenue and expense sections , addition and deduction to N/I , A disclosure in a note
Modified cash basis F/S
Common modification include;
Capitalization and depreciation fixed assets
Accural of income taxes
Recording liabilities for long-term and short-term borrowing and the related interest expenses
Capitalizing inventory
Reporting investment at FV and recognizing unrealized gains and losses
