Far3 Flashcards
Under the fair value option, what is recognized as income from the investment company?
Cash dividends and the increase in fair value of the investment are both recognized in net income of the investor.
How does the installment sale method work?
Each payment consists of return of cost and gross profit. You calculate the gross profit percentage by taking the sales price and subtracting the carrying value, and then dividing that number by the sales price. Then you multiply the principal portion of the payment by the gross profit percentage, and then add in the interest payment amount, and that is the amount of revenue to recognize. The return of cost portion of the payment is NOT recognized as revenue.
Gains or losses on retirement of debt used to automatically be classified as extraordinary gains or losses, but now they are:
immediately recognized in full in income from continuing operations.
What rate is used to calculate the amount of dividends from a foreign currency?
The spot rate on the date of declaration is used regardless of translation or remeasurement.
How is the refinancing of a liability due within a year treated under GAAP and IFRS?
Under GAAP, if the refinancing happens before the ISSUANCE date of the financial statements, then it can be considered long term again. Under IFRS, the refinancing has to happen before the BALANCE SHEET DATE for it to be considered a long term liability again.
How is interest expense and dividends paid classified as far as cash flow under IFRS?
Interest expense and dividends paid can be classified as EITHER operating or financing activities.
How is interest revenue and dividend revenue classified under IFRS for cash flows?
They can both be either cash flows from operating OR investing activities.
If the percentage of completion method cannot be applied, how are profits recognized on long-term contracts under GAAP and IFRS?
Under GAAP the profits will be recognized once the job is completed- which is the completed contract method. Under IFRS, all profits will be recognized when all the costs have been recovered- the cost recovery method.
If an IFRS company decides to revalue its equipment each year, what effect would a drop of $2000 in value above regular depreciation be?
It would be a 2000 expense for that year, recognized in income. BUT…. an increase in the value would go under other comprehensive income.
What is the main capital lease criteria under IFRS?
That the lease life is a “major portion” of the equipment life. Thus, a lease of 60% of the equipment’s life would qualify as a capital lease.
If both parties consider a lease to be a capital lease, what interest rate do they both use under IFRS?
They both use the implicit rate built into the contract.
Under IFRS, a contingent loss must be recognized if it is…
More likely than not. Even just 51% vs 49% meets this criteria.
How is a prior service cost due to a change in the projected benefit obligation due to a contractual adjustment treated under IFRS and GAAP?
Under IFRS it is expensed immediately to the extent that benefits have vested. Under GAAP it is recorded to accumulated other comprehensive income and then amortized to expense over the years the employees are expected to work.
A bond with face value of 100k is sold at 110k due to a convert option into common stock. How is this recorded under GAAP and IFRS?
Under IFRS 100k would be the liability and the 10k is recorded as equity. Under GAAP the full 110k is debt until it is actually converted.
How is an impairment loss on equipment determined under IFRS?
A loss must be recognized if the book value exceeds the higher of the PRESENT VALUE of the future cash flows and the fair value less necessary costs to sell the equipment.
GAAP vs IFRS research and development costs?
Under GAAP all research and development costs are expensed as incurred. Under IFRS, research costs are expensed, but development costs are capitalized if the company believes that future economic benefits are probable and that the product being developed is commercially and technically feasible.
How are legal costs to successfully defend a patent treated under GAAP and IFRS?
Under GAAP the costs are added to the cost of the patent. Under IFRS the costs are expensed UNLESS the cost increase the future benefits to be derived from the asset.
How are biological assets valued under IFRS?
At fair value less costs to sell.
How is the reversal of an impairment loss recorded under IFRS?
The recovery of an impairment in value must be recognized if the circumstances that caused the impairment are reversed.
A company has two checking accounts: one with 100k and one with negative 10k. How are they reported under GAAP and IFRS?
Under GAAP the negative is reported as a liability, so the cash line will show 100k. Under IFRS they are netted so the cash line would show 90k.
In a period of rising prices, a company that wants to maximize profits will use what inventory method?
FIFO. In rising prices using FIFO, the earliest goods will be sold first which makes COGS lower and NI higher.
Formula for ending DV LIFO balance:
Beginning DV LIFO + (increase at base-year dollars)(price index)300,000 + (400,000 - 300,000)(1.1) = 410,000
What is the ceiling and floor of LCM?
Ceiling is Net Realizable Value and Floor is NRV less a normal profit margin.
Explain LCM
If replacement cost is within the range of the ceiling and floor, then market is replacement cost.If the RC is greater than the ceiling, then market is the ceiling amount.If RC is less than the floor, then market is limited to the floor amount.
How are trademarks classified, capitalized, amortized, and impaired?
They can be either definite or indefinite life, only expenditures made to external parties are capitalized, amortization depends on whether they are definite or indefinite life, as does impairment.
How are customer lists classified, capitalized, amortized, and impaired?
They can be either definite or indefinite life, only expenditures made to external parties are capitalized, they are amortized, impairment is decided by the recoverable cost test.
How is an initial franchise fee classified, capitalized, amortized, and impaired?
Can be definite or indefinite life, only capitalize expenses to external parties, amortization depends on definite or indefinite, as does impairment.
When a liability has a carrying value less than fair value, does an unrealized gain or loss exist?
An unrealized loss exists. It would be a debit to Impairment loss, and a credit to the liability to increase it to its fair value.
In financial statements prepared on the income-tax basis, how should nondeductible expenses such as meals be reported?
Included in the expense category in determination of income. These are still business expenses and need to be included to calculate income on the financial statements.
For grants, what is a prime factor in determining eligibility for accrual?
The expenditure of resources (spending the money)
