FAR2 Flashcards
Define fair value measurement
Its an orderly transaction between market participants Not forced transaction Not between related parties Its an exit Price Highest and Best use for PPE Ignore transaction cost
Not to be implemented or used with LEASES and SHARE-Based Payment
Highest and best use doesn’t apply on financial assets or liabilities
Define Principal Market
Its the Market with highest volume or level of activity
Define Most advantageous market
Its the market with the highest price for the asset after considering transaction cost ( use transaction cost only to determine the most advantageous market but exclude from the fair value price )
TO BE USED IF THERE IS NO PRINCIPAL MARKET FOR THE ASSET
What are valuation techniques for fair value
MIC
Market approach = Quoted Market price= Most reliable
Income approach = PVFCF
Cost approach = Replacement Cost
Hierarchy Of inputs used to calculate fair value
Level 1 = Quoted market price for same or identical asset
Level2= Quoted market price for similar asset in an active market or identical asset in an inactive market
Level3 = Future cash flow
What items to be reported in segment reporting in both US GAAP and IFRS
US GAAP = Profit or loss + Segment asset
IFRS = Profit or loss + Segment asset + Liabilities
What is 10% test for reportable segments ?
if one segment is more than 90% no segment reporting is required
10% of the following and the segment is a reportable segment
Revenues = Both internal and external from both internal and external
Assets = of all combined assets
Profit or Loss
What is 75% rule for reporting sufficiency rule ofr segment reporting
REVENUES REVENUES REVENUES
At least an entity should report 75% segment
What are deadline to file with SEC ?
Filing deadlines
Large Accelerated 60Days
Accelerated 75 Days
The rest 90 Days
Large accelerated = 700M or more
Accelerated = 75 M or more but less than 700M
Form 10 K
Filled annually with SEC it includes Financial statements and audited prepared under US GAAP it also includes management discussion and analysis
Form 10 Q
is filled quarterly deadlines are
Large Accelerated 40 Days
Accelerated 40 Days
The rest 45 Days
Unaudited financial statements
For 11K
Annual report for employees benefits plan
Form 20F and 40F 6K
20F non US SEC registrants
40F Canadian specific companies
6K Semiannual ( similar to 10Q ) unaudited financials
Forms 3 , 4 , 5
To be filled by owners over 10 of equity of a registered company
What is regulation S-X
in this regulation SEC identify required financial data for filling for both interim and annual reports for its registrants
What does form 8-K includes ?
it include major events like corporate assets acquisition or disposal , changes to accountants or financial statements , or management change.
can an SEC filler file a condensed balance sheet
in quarterly and interim forms
what is SEC required financial statements number for a registrant for annual reporting
2 years of Balance sheets
3 years Income statement
3 Years cash flow statement
IFRS 2 of Each
What is XBRL
Royalty free language used to file with SEC its an advanced language more than HTML it tells the computer how to interpret the information
What are OCBOA ?
Other comprehensive Basis of accounting : Cash Basis Income tax basis CPI price changes Other regulatory basis
TITLES MUST BE DIFFERENT DONT USE GAAP TERMS SO PEOPLE NOT FOOLED
CASHFLOW STATEMENT IS NOT REQUIRED .. ITS ALREADY CASH
DISCLOSURES SHOULD BE SIMILAR TO GAAP DISCLOSURES
WHAT IS MODIFIED CASH BASIS OF ACCOUNTING ?
ITS AN HYBRID VERSION BETWEEN CASH AND ACCRUAL BASIS OF ACCOUNTING AND IT REPORT FOLLOWING ITEMS IN THE FINANCIAL STATEMENTS
1-INVENTORY' 2-CAPITALIZE FIXED ASSETS AND DEPRECIATE IT 3-RECOGNIZE PREPAID EXPENSES 4-ACCRUAL FOR TAXES 5-RECOGNIZING LIABILITIES 6-REPORTING INVESTMENTS AT FAIR VALUE
REVENUE AND EXPENSES WILL STILL BE RECOGNIZED UNDER CASH BASIS
STILL NO ACCOUNTS PAYABLE OR ACCOUNTS RECEOIVABLES !
FINANCIAL STATEMENTS
1-STATEMENT OF ASSETS AND LIABILITIES
WHAT IS INCOME TAXE FINANCIAL STATEMENTS ?
its financial statements that are prepared following IRS rules for revenues and expenses
NONTAXABLE INCOME AND EXPENSES ARE REPORTED AS ADDITION OR DEDUCTIONS FROM NET INCOME
IT FACILITATE INCOME TAX REPORTING
HOW TO CONVER CASH RECEIVED FROM CUSTOMERS TO SALES (ACCRUAL)
CASH RECIEVED FROM CUSTOMERS \+INCREASE IN A/R -DECREASE IN AR \+DECREASE IN UNEARNED REVENUES -INCREASE IN UNEARNED REVENUE =SALES
CASH RECIEVED FROM CUSTOMERS \+ ENDING AR - BEGINING AR - ENDING UNEARNED REVENUE \+ BEGINING UNEARNED REVENUE =SALES
HOW TO CONVER CASH PAID FOR PURCHASES TO COGS ?
CASH PAID FOR PURCHASES \+INCREASE IN ACCOUNTS PAYABLE -DECREASE IN ACCOUNTS PAYABLES -INCREASE IN INVENTORY \+DECREASE OF INVENTORY =COGS
HOW TO CONVERT CASH OPERATING EXPENSES PAID TO ACCRUAL OPERATIG EXPENSES
CASH PAID FOR OPERATING EXPENSES \+INCREASE IN ACCRUED EXPENSES -DECREASE IN ACCRUED EXPENSES -INCREASE OF PREPAID EXPENSES \+DECREASE IN PREPAID EXPENSES =ACCRUAL OPERATING EXPENSES
WHAT ARE THE MAJOR TYPES OR RATIOS
1-LIQUIDITY RATIOS
2-PROFITABILITY RATIOS
3- ACTIVITY RATIOS
WHAT ARE RATIOS USED FOR ?
TRENDS
IT DISTILL RELEVANT INFORMATION OF THE BUSINESS ENTITY TO INDICATE TRENDS BY COMPARING THE RATIOS OF THE ENTITY FOR THE CURRENT PERIOD FOR PREVIOUS PERIODS OR BY COMPARING TO INDUSTRY RATIOS OR COMPETITORS RATIOS
QUICKLY IDENTIFY RED FLAGS
CURRENT RATIO
=CURRENT ASSETS/CURRENT LIABIITIES
Quick ratio
Cash +A R + marketable securities / current liabilities
Activity ratio
= Turnover ratio
IS
____
BS = Average
Accounts receivables Turnover
Sales(net) / Average AR ( Beg.+End /2)
The higher means the entity is performing well in collecting the money
Days in Accounts receivable ratio
=Ending inventory / (Sales/365)
The lower the better how many days our money stay uncollected
Inventory turnover ratio
COGS / average inventory
The higher means the entity can quickly turn its inventory into revenues
Inventory in days
Ending inventory / ( COGS /365)
IF too high means means slow moving cant sell your inventory
if too high could be a fire sale
Accounts payable Turnover
COGS / Average Accounts payable
Cash conversion cycle
How long it takes to generate cash from your core business
=Days in AR + Days in inventory - Days in accounts payable
Assets Turnover
SALES (NET) / Average total assets
How much your assets be turned over into sales
It indicates if you have adequate amount of assets relative to your sales
it determines management efficiency how, are they using their assets effectively
Profit Margin
Net Income / Sales ( Net )
Return on Assets
Net income / Average total assets
Dupont Return on Assets
Profit Margin X Asset turnover
Return On equity
Net Income / Average total equity
Return on sale
EBIT / Sales(net)
what are the method to admit a new partner to a partnership?
- Exact
- Bonus ( To old or new partners as agreed)
- Goodwill
How to calculate the Bonus in a partnership admission?
Divide the balance after admission by the number of partners then compare it to the amount paid by the new partner
If He paid More the Bonus goes for the existing partners
If he paid less the Bonus goes to him
How to calculate a new partner Bonus ?
Dr.Cash
Dr.Old partner account ( using thier PL distribution ratio)
Cr. New partner
How to recognize Goodwill when admitting a new partner ?
Goodwill = Going In Investment
goes to Old partners
“Implied value of dollars going in” = the paid money is the new fair value of the partnership
How to calculate Bonus to old or new partners when using Bonus Method in partnerships?
BONUS=BALANCE
Compute using the Balance of total capital accounts is what determine the bonus amount
When new partner Pays More The Bonus goes to old partners
When New partner pays less the Bonus goes to the New partner
The extra or less amounts goes to capital accounts of the partners whether old or new
Allocation of Bous is based on how they share profit and loss
Calculate Cash flow ration
Operating cashflow / Current liabilities
Calculate Times interest earned
Income before interest and tax expenses / Interest expense
Total debt ration
Total debs/ Total Assets
