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CPA > FAR2 > Flashcards

FAR2 Flashcards

1
Q

Cash Basis F.S.

A

Pure cash basis f.s., cash is only asset, not liabilities, and equity is equal to cash

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2
Q

Direct method exchange rate

A

US$/FC

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3
Q

Indirect method exchange rate

A

FC/US$

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4
Q

Current Exchange Rate

A

Year-end/Spot Rate at B.S. accounts

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5
Q

Forward Exchange Rate

A

bet in future rate, for specific future date

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6
Q

Historical Exchange Rate

A

Used for equity, at date of issuance of stock and acquisition of assets (ex/ PP+E)

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7
Q

Weighted Avg Rate

A

Used for I.S. items (translation)

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8
Q

Functional Currency

A

Is the currency of the primary economic environment in which the entity operates, usually the local currency or the reporting currency

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9
Q

Foreign Currency Translation

A

Functional (start with I.S. move to B.S.) goes to OCI

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10
Q

Foreign Currency Remeasurement

A

Dysfunctional (start with B.S. move to I.S.) goes to I/S

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11
Q

Remeasurement Method (temporal method)

A 
In order from B.S. to I.S.
Balance Sheet
- Monetary items = spot rate (fixed)
- Non-monetary items = historical rate (fluctuate)
*get RE from B.S.
Income Statement - Gain or loss in I/S
- Non-balance sheet items = weighted avg
- Balance sheet items = historical rate (PP+E including A/D,COGS/INV,Amortization/bonds and intangibles)
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12
Q

Translation Method (current rate method)

A 
Income Statement first
- all I.S. items = weighted avg rate
Transfer NI to RE then ending RE to B.S.
Balance Sheet last
- Assets = spot rate
- Liabilities = sport rate
- Equity = historical rate
Gain or loss in OCI - foreign translation adj.
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13
Q

Historic Cost/Nominal Dollars

A

Based on historic prices without restatement for changes in the purchasing power of the dollar. (Method of basis for GAAP)

nominal = today

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14
Q

Historic Cost/Constant Dollars

A

Based on historic prices adjusted for changes in the general purchasing power of the dollar. (adjust inflation)

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15
Q

Current Cost/Nominal Dollars

A

Based on current cost without restatement for changes in the general purchasing power of the dollar (adjust appreciation)

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16
Q

Current Cost/Constant Dollars

A

Based on current cost adjusted for changes in the general purchasing power of the dollar. (adjust appreciation and inflation)

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17
Q

Monetary Assets/Liabilities

A

Fixed

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18
Q

Non-monetary Assets/Liabilities

A

Fluctuate in value

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19
Q

Purchasing Power Gains

A

Assets in deflation and Liabilities in Inflation (only monetary)

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20
Q

Purchasing Power Losses

A

Assets in inflation and Liabilities in deflation (only monetary)

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21
Q

Commercial Substance

A

Gain/Losses recognized, future cash flows will significantly change

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22
Q

Lacks commercial substance

A

No change in cash flows OR fair value cannot be determined

  • Loss recognized immediately
  • Gains (needs boot)
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23
Q

Lacks commercial substance - GAINS

A

No boot received = no gain

Boot is paid = no gain (loss = cash given)

24
Q

Involuntary Conversions

A

Gains and losses recognized

25
Q

Installment Sales

A

No reasonable basis for estimating the degree of collectibility

26
Q

Gross Profit

A

Sale - Cost of goods sold

27
Q

Gross Profit %

A

Gross Profit/Sales Price

28
Q

Earned Gross Profit

A

Cash collections x Gross profit %

29
Q

Deferred Gross Profit

A

Installment receivables(A/R) x Gross profit %

30
Q

Completed Contract method (only GAAP)

A

Recognizes income on completion of contract

  • Requirements:
    1. Difficult to estimate the costs
    2. There are many contracts in progress
    3. The projects are short duration (collections are not assured)
  • Losses recognized in full when discovered
31
Q

Percentage of Completion Method

A

Reasonably estimate profitability and provide reliable measure of progress toward completion

32
Q

% of completion Revenue Recognized

A

Total costs to date/Total expected costs
= Work done/Total expected work
= % of job earned
Losses = rule of conservatism

33
Q

Contracts: Revenue Recognition Requirements

A

Signed contract, risk and rewards transfer, no price contingencies, standard collection terms

34
Q

Multiple Elements Arrangement (GAAP)

A

Recognize a portion of revenue as completed

35
Q

Matching Principle

A

Expenses = related revenue recognized

36
Q

Accrued Assets (accrued revenues)

A

DR: A/R
CR: Accrued Revenue

37
Q

Accrued Liabilities (accrued expenses)

A

Dr: Accrued Expense
CR: A/P

38
Q

Estimated Liabilities

A

DR: Accrued Expense
CR: Accrued Liabilties

39
Q

Prepaid Expenses (current assets)

A

DR: Prepaid Expenses
CR: Cash
Balance sheet only (starts with prepaid then expires to income statement)

40
Q

Deferred Credits (unearned revenue or deferred revenue)

A

DR: Cash
CR: Unearned/Deferred Revenue
Balance sheet only in liability section

41
Q

Royalty Revenue

A

Recognized when earned

42
Q

Unearned Revenue

A

Revenue received in advance is recorded as a liability

43
Q

Rights to return exist

A

If conditions aren’t met, revenue = deferred

  1. Sale price is substantially fixed at date of sale
  2. Buyer assumes all risks of loss
  3. Buyer has paid some form of consideration
  4. Product sold is substantially complete
  5. Amount of future returns can be reasonably estimated (not a contingent sale)
44
Q

Initial Franchise Fees

A

Revenue when “substantially performed”

Intangible asset and amortize over the expected life of the franchise

45
Q

Continuing Franchise Fees

A

Revenue when earned, expense as incurred

46
Q

Internally developed intangible assets

A

Expense when incurred
Exception: legal fees for a successful defense, registration/consulting fees, design costs, other direct costs to secure the asset - CAPITALIZE

47
Q

Amortization

A

Must have a finite life

48
Q

Goodwill

A

No amortization, must test for impairment

Acquisition method = goodwill is the excess of an acquired entity’s FV > FV of the entity’s net assets (including identifiable intangibles assets)
Maintaining goodwill = expense

49
Q

IFRS Revaulation Model

A

Fair Value = Market-to-market
Original Cost:
- Above = OCI
- Below = I.S.

50
Q

IFRS Revaluation Losses

A

Income Statement

Exception: a revaluation loss that reverses a previously recognized revaluation gain is recognized in OCI and reduces the revaluation surplus in Acc. OCI

51
Q

IFRS Revaluation Gains

A

OCI

Exception: gains are reported on the income statement to the extent that they reverse a previously recognized revaluation loss

52
Q

Research and Development Costs

A

Expense!

Exception: material (tangible assets) with alternative future uses and R+D costs of any nature undertaken on behalf of others under contract - CAPITALIZE AND DEPRECIATE

53
Q

Computer Software Development Costs

A

Expense costs incurred until technological feasibility and

THEN capitalize costs incurred after technological feasibility up to the point that the product is released for sale

54
Q

Reporting an Impairment Loss

A

Component of Income from continuing operations (I/S)

55
Q

Impairment - Finite LIfe

A

Useful life is limited, amortize over useful economic life, two-step impairment test (undiscounted net cash flows and FV)
FV - net CV = impairment loss OR
FV - net CV = loss + cost of disposal = total impairment loss

56
Q

Impairment - Indefinite Life

A

Life extends beyond the foreseeable future or cannot be determined, no amortization, one-step impairment test (FV)
FV - net CV = impairment loss OR
FV - net CV = loss + cost of disposal = total impairment loss

57
Q

Personal Financial Statements

A

Statement of Financial Condition (B.S.)
Assets reported at Est. Current FV
Liabilities reported at Est. Current amount
Statement of Changes in Net Worth (I.S.)

CPA (11 decks)

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