FAR Own Flashcards 11

Question 1

What does the SEC require public companies to submit in an exhibit using XBRL?

Answer 1

The financial statements, including balance sheet, statement of comprehensive income, all footnotes and any financial statement schedules (NOT MD&A)

Question 2

Calculation the inflation of inventory?

Answer 2

Based on (today’s) Nominal Dollars
- Based on (last year’s) Constant Dollars
= Inflation

Question 3

When permanent impairment occurs on a fixed asset, where does the loss go?

Answer 3

The loss is ADDED to accumulated depreciation

Question 4

How is the fair value of an asset or a liability measured?

Answer 4

The fair value is the price that would be received when selling an asset or paid when transferring a liability in an orderly transaction between market participants (EXIT PRICE)

Question 5

How do you determine the fair value using the most advantageous market? (If no principal market)

Answer 5

Although transaction costs are used to determine the most advantageous market, transaction costs are not included in the final fair value measurement (most advantageous = HIGHEST net cost) but then FV is the quoted gross price

Question 6

What are the three valuation techniques to determine fair value?

Answer 6

Market approach = identical or comparable assets or liabilities to measure
Income Approach = Present Value (discounted cash flows)
Cost approach = current replacement cost to measure FV

Question 7

What value do you use to record an incorporation of a partnership?

Answer 7

When incorporating a partnership, assets and liabilities are recorded at their fair values, NOT the book values used by the partnership?

Question 8

In the bonus method of partnership, when does the the existing partner get the bonus and when does the new partner get the bonus?

Answer 8

• If the new partner pays more - the existing partners get the bonus
• If the new partner pays less - the new partner gets the bonus

Question 9

Management is required to evaluate substantial doubt about an entities ability to continue as a going concern for what period of time?

Answer 9

A reasonable period of time not to exceed one year beyond the date of the financial statements

Question 10

How often should management evaluate an entity’s ability to continue as a going concern?

Answer 10

Annual and at interim reporting periods

Question 11

What items are included in the total Revenues section of a single step income statement?

Answer 11

Sales Revenue
Interest Revenue
Rental Income
Gain on sale of fixed assets 
(NOT gain/loss from discontinued ops)

Question 12

How do you calculate a gain/loss on an insurance settlement of casualty?

Answer 12

Replacement cost
- deductible clause
=insurance proceeds
- damage to property/costs to dismantle
- current carrying amount
= gain/loss on insurance settlement of casualty
report on income from continuing operations

Question 13

When changing inventory methods, when must a cumulative effect adjustment be made and when is it impractical to do so?

Answer 13

When making a change to LIFO, it is generally considered impractical to calculate the cumulative effect of the change because there is not enough information to do so. Therefore if going from another inventory method to LIFO, there is no cumulative effect adjustment is made, the first LIFO layer starts when it is implemented. All other changes in inventory should report the cumulative effect adjustment and should be accounted for retrospectively

Question 14

How is a change from individual item approach to the lower of cost or market approach handled?

Answer 14

Changing from the individual item approach to the aggregate approach when applying the lower of cost or market is considered a change in accounting principle and is accounted for as a retrospective adjustment to retained earnings with separate disclosure

Question 15

When do you recognize temporary market declines or increases to inventory?

Answer 15

Temporary market declines should not be recognized in interim financial statements if it is expected to be temporary (if reasonable turnaround is expected before the end of the year

Question 16

How do we account for subsequent increases in the fair value of a discontinued component?

Answer 16

A gain is recognized for the subsequent increase in fair value minus cost to sell and not exceed any previously recognized cumulative loss. the gain is reported in the period of increase.

Question 17

What is accretion expense and what is the interest rate used to calculate it?

Answer 17

Accretion expense is the increase in the ARO liability due to the passage of time. beginning asset retirement obligations * credit adjusted rate or accretion rate if given

Question 18

Where does a change in the decommissioning liability go under IFRS (Same as ARO)?

Answer 18

After the decommissioning liability is fully depreciated, any review and adjustment goes in profit or loss (any review and adjustment).

Question 19

How does a debtor calculate possible gain or loss on troubled debt restructuring?

1. Ordinary gain or loss
2. Gain on restructuring

Answer 19

When assets are transferred in a troubled debt restructuring, The asset (real estate) is adjusted to fair value and an ordinary gain or loss is recorded. Then the gain or loss on restructuring is recorded as the difference between the debt and fair value of assets transferred.
Step 1: FV of asset - CV (NBV) = Gain (loss)
Step 2: Carrying amount of the debt - FV of asset = gain (Never record loss on this one)

Question 20

Calculate the gain on restructuring when the terms have been modified

Answer 20

Carrying amount of payable - total future cash payments = gain

Question 21

What can be used to measure impairment by a creditor when a loan receivable is impaired by foreclosure is not probable?

Answer 21

If the present value of the expected future cash flows discounted at the loans effective interest rate is not available, they may use:

1. the loans observable market price
2. fair value of the collateral if the collateral is dependent