FAR -Random Flashcards
Software Costs
It is between production and technological feasibility. Cost includes coding and testing after TF and product master.
It is amortized at larger of SL or revenue calculation
Technological Feasibility
Includes program, design, coding and testing
Equip for R and D = expense
Equip for current & future = Amortize and depreciate
Material and labor= R and D
Cash Flow Hedge
Against forecasted transactions that are expected to take place in the future
Changes are reported in OCI in DENT until transactions occur.
Fair Value Hedge
Against a recognized asset and liability on the BS
Changes are reported in income from continuing
Reporting Unit
Group of assets, liabilities, and activities for separate book and records are maintained to facilitate internal decision making and reporting
Franchise Revenue
Revenue is recognized when franchiser performed all material service and conditions
Trading securities
Not held at cost, but at FV
Realized gains = price - FV
Reported on the income statement
Available for sale securities
Does not have FV election:
Held at cost, marked at OCI
Realized gain/loss = Price - cost
Excluded from Cash
Compensating balance Postdated checks or NSF Overdraft protection Restricted cash Postage stamps
These items should be disclosed
Amortized cost under IFRS
Business model is to hold the asset to collect future CF
CF are payments of principal and interest
All other should be measured at FV
Serial bonds
Bonds in which the principal upon maturity in installment
Term Bonds
Pay entire principal upon maturity at the end of the term
Bond Issue Costs
Amortize along with discount and premium
Includes - printing and engraving, legal and acct fees, underwriter commission, and promotion costs
Cost approach
Used to measure Fair Value
Cost incurred to replace the benefits derived from the assets
10 key elements under GAAP
Assets, liabilities, equity, investment by owner, distribution to owner, comprehensive income, revenue, expense, gain, loss
Significant influence under IFRS Equity investment
Having power to participate in the decision of the investees
Appropriate valuation technique (FV measurement)
MIC
Market approach, income approach, cost approach
Market approach
Used to measure FV
Involve identical or comparable asset/liability
Input for valuation
Level 1: used of observable data
Level 2: directly/indirectly input of observable data
Level 3: unobservable data and largely based on management’s judgment
Where will non-controlling interest appears on BS
Non-controlling interest in a subsidiary is considered as SE
Reported in SE Section
Goodwill transaction
Only recognized on the BS through the purchase
Maintained at purchase value unless it is impaired
Costs to maintain/develop GW are an expense - not capitalized
Reporting unit can be operating segment or 1 level below
Recognition
Process of reporting an item on the financial statement
Meet the definition of an element of financial statement
Realization
The conversion of an item or service into cash or a claim to cash
Order of authority
- FASB Statement of Fin Acct Std
- FASB Interpretation
- AICPA Acct Principles Board Opinion
- AICPA Acct Resarch Bulletins
Methods to recognize expense
- Causes and Effect
- Systematic and rational allocation
- immediate recognition
Monetary Unit Assumption
Events and transactions are quantitatively measured in terms of the equivalent amount of money
Common denominator of economic activity and provides acct measurement and analysis
Matching
Process of recognizing an expense in the same period in which a related benefit is recognized
5 key elements under IFRS
Asset, liability, equity, income, expense
IFRS recognition & measurement
Probability of occurrence
reliable measurement
Income Approach
Used to measure FV and it involves future amount in the forms of revenues, cost savings, and earnings
Net realized value
Amount expected to be collected
Pledging
Pledge receivables as collateral for a loan
Must be disclosed in footnote
Inventory turnover ratio
= COGS/Inventory
FIFO produce lower inv ratio as it has higher ending inv at rising prices (inflationary economy)
Indefinite Life Intangibles
Not amortized, must be tested for impairment each year
2 step process - 1. FV< CV 2. FV net asset vs FV of reporting
Exchange assets w/commercial substance (assume all)
Either 1, 2, or 3 - Amt use to record new asset
- FMV given up + cash paid (-received)
- FMV of asset received
- BV given up + cash paid (-received)
Exchange asset lack commercial substance
Lower of 3 - amt use to record new asset
- FMV given up + cash paid (-received)
- FMV of asset received
- BV given up + cash paid (-received)
Intangible Impairment
- CV > FV
2. FV is determined based on market price, income - expected amount, and costs -replacement value
Copyrights
Protection of artistic work
Period of creators’ life + 70 years
Amortize over useful life
Patent
Capitalize cost of obtaining legal
Do not include R and D
Max 20 years or shorter of useful life
Factor’s hold back
Amount which provides a margin of protection against sales discount, returns, allowance and disputed accounts
Factoring receivables
Convert AR into cash by assigning it with or without recourse
W/o Recourse = buyer assume risk
w/ recourse - buyer retains collecting rights
Assigning AR
Client borrows cash and agree to use receivables to pay
Intangible assets are amortized
Over the shorter of legal life or useful life
Statement of financial accounting concepts
Intended to create a conceptual framework for accounting
It establishes objective and concepts on accounting and reporting are base on .
Fair Value (for asset/liability)
FV is the exit price of an asset/liability
Amount received when disposing of an asset and the amount required to be paid to transfer liability.
Allocation
Process if spreading a cost over more than one period
Asset Valuation accounts
Separate item that reduces or increases the carrying amount of an asset
Accounting Standard updates
Due-process activities of FASB
to amend the FASB Accounting standard of codification
What is the core principle of revenue recognition?
(1) revenue is to be recognized upon the transfer of promised goods and service
(2) the amount of revenue recognized represents the consideration the entity expects to receive in exchange for those goods and services
Patent
Capitalize cost of obtaining legal protection
Max 20 years life - use shorter of useful life or legal life
Copyright
Protection of artistic work
Period is for the life of the creator +70 years
Amortize over useful life
Trademark
Exclusive use of an identifying name for a product or process
Renewal is 10 years
Franchise
Operation of a business unit under a contractual arrangement with another party
5 steps process in revenue recognition
- identify contracts with customers
- identify all separate performance obligation within each contract
- Determine the total consideration for the contract
- Allocate total consideration amount obligation
- Recognize revenue either delivered/performed
Market risk in investment
risk of interest rate will change
Performance risk
Debtor not perform - payments are missed/late
Nonrefundable lease bonus paid by leasee
Recognize over the life of the lease - treated as part of lease payments.
Valuation Account
Contra-account to reduce the value of the paired account indirectly.
Must be paired with another account
How does IFRS report inventory ending balance
Lower cost or NRV
Impairment for Goodwill and PPE
Assets should be tested for impairment loss before goodwill
Measuring monetary unit
Historical cost Replacement cost Fair market value Net realized value Present value
FASB amends the accounting standard codification through…
The Issuance of Accounting Standard Updates
Statement of Financial Acct Concepts intended to establish…
The Objective and concept for use in developing standards of financial acct and reporting
Monetary Unit
Measure in terms on the equivalent amount of money they represent
Comprehensive Income
Measure performance by calculating on entity’s changes in equity from non-owner transactions and events
Stock Dividend
Stock dividend increases the number of share outstanding. It has no monetary effect on SE
Treasury stock methods under IFRS
Cost method
par value method
Constructive retirement method
Constructive method in treasury stock
Similar to par value method.
This method is used when the company does not intend to reissue the shares
Accumulated benefit obligation
The present value of all future retirement payments that the employees already entitled to based on services rendered
Projected benefit obligation
Amount that will owed to the employee assuming the employee will continue to work until retire age
Disclosures for defined benefits pension plan
Description of the plan
Amount of pension expense by components
The weighted average discount rate
The estimated future contribution for the next fiscal year
Actuarial technique used in IFRS to account for defined benefit pension plan
Projected unit credit method
The if-converted method of computing eps in convertible securities as of the….
As of the beginning of the earliest period reported (or at time of issuance, if later)
Permanent difference in income taxes
Municipal bonds Dividend received deduction Life insurance Fines/penalties 50% meals and entertainment Federal income tax payment
Reporting a change from cash to accrual
Considered as correction of an error.
Similar to change in accounting principle, it needs to go back and change prior year adjustment (net of tax)
Prospective financial statement should include….
Summary of significant accounting policies
Summary of significant assumptions
