Far6 Flashcards
Under IFRS, are gains and losses on the changes in fair value of equity investments reported in the income statement or in other comprehensive income?
It can be either. If the investment is held for trading purposes, then the changes in fair value are reported in profit/loss.If it’s NOT held for trading, the investor may elect to report changes in fair value through other comp. income.
What type of investments can be transferred between categories under IFRS?
Only debt. Equity securities are not allowed to be transferred between categories under IFRS. When investments are transferred, prior period statements must be restated for comparative purposes.
Under IFRS, if debt securities are held NOT as part of the business plan, what are they measured at?
Fair value.
Under IFRS, if debt securities are held as part of the business plan, what are they measured at?
Amortized cost.
Under the equity method for GAAP, what effect does the sub’s income and dividends have on the investor’s investment account?
The investor’s share of income increases the investment account, and dividends decrease the investment account. The investor’s share of income from the investee is also recognized as income for the investor.
Which form of business combination results in a NEW legal entity?
Consolidation. In consolidation, 2 or more existing entities are combined into one new legal entity.In a merger, one pre-existing entity is combined into another pre-existing entity. In an acquisition, one entity acquires a controlling interest and both continue to exist as separate legal entities.
Accretion expense is essentially growth in the:
Asset retirement obligation.
Purchases of treasury stock do not affect retained earnings under the:
Cost method.
Return on equity is considered what kind of ratio?
A profitability ratio
What is the defensive-interval ratio and what type of ratio is it?
It is the ratio of quick assets to daily operating expenditures. It is a liquidity ratio.
Does the cost method or the fair value method require a reconciliation of the changes in carrying amounts between the beginning and end of a period?
They both require said reconciliation.
If a decline in inventory value is not considered temporary, the decline is recognized in the quarter in which the decline occurs. Later recoveries are:
Recognized as gains to the extent of the previous losses only.
A discount on a bond is essentially:
Extra interest expense.
Which regulation governs the form and content of financial statement disclosures?
Regulation S-X.
The notional amount in a derivative refers to:
The specified unit of measure. If you have an option to buy 100 shares, the notional amount is the 100 shares.
Where does a first time adopter of IFRS recognize the adjustments required to present its opening IFRS statement of financial position?
In retained earnings.
What are the 4 components of the IASB monitoring board? (1 on top, 3 on bottom)
The IFRS foundation is on top, and below it is the IFRS advisory council, the IASB, and the IFRS interpretation committee.
What does the IFRS foundation do and how long is their term?
They appoint members of the IASB, the IFRS Advisory Council, and the IFRS interpretations committee. The trustees serve 3 year terms
What are the objectives of the IFRS foundation? (4)
To develop a single set of high quality, understandable, enforceable and globally accepted financial reporting standards. To promote us and rigorous application of IFRS. To consider the needs of a range of size and type of entities. To promote and facilitate adoption of IFRS through convergence.
What does the IASB do?
They establish IFRS reporting standards, but they do NOT have enforcement power. Enforcement is the responsibility of the securities regulators in the national jurisdictions.
What is the IFRS advisory council and who appoints them?
They advise the IASB on priorities and the views of interested organizations. Members are appointed by the IFRS foundation
What does the IFRS interpretations committee do and who appoints the members?
They are similar to the FASB’s emerging issues task force: they identify issues in the context of IFRS, their interpretations are reviewed by the IASB. The members are appointed by the IFRS foundation.
What is an SME?
Small and medium-sized entities. IFRS has one single standard for companies that are not publicly traded. Revisions to SME standards only happen once every 3 years.
What are the 2 assumptions in the IASB framework?
That the accrual method is used, and that the entity is a going concern
What statements are required for a first-time adopter of IFRS?
Upon adoption, the first set of statements must have 3 statements of financial position, 2 statements of comprehensive income, two separate income statements, two statements of cash flows, and two statements of changes in equity. Basically they need 3 balance sheets and 2 of everything else.
What is the TRANSITION date of a company to IFRS?
The opening date of the balance sheet for the earliest comparative financial statements. If the first IFRS reporting date is as of Dec 31 Year 2, then the transition date will be Jan 1 year 1.
Upon first time adoption of IFRS, an entity can elect to use fair value as deemed cost for:
Any individual item of property, plant, and equipment.
What is the first reporting date when switching to IFRS?
The year end date for the period which IFRS is first applied.
What are the major characteristics of IFRS for SMEs?
Disclosures are simplified. LIFO is prohibited. Goodwill and indefinite life intangible assets are amortized over a period NOT exceeding 10 years. Depreciation is based on a component approach. Simplified temporary difference approach to income tax accounting. Reversal of impairment charges is allowed in some circumstances. No disclosures for earnings per share and segment disclosures.
Can revenue and AR from a sales commitment be recognized?
Yes. IFRS defines revenue from a balance sheet point of view and is based on the inflow of economic resources.
What is the difference in transfer of receivables under GAAP and IFRS?
GAAP focuses on whether control has shifted from the transferor to the transferee. IFRS focuses on whether the transferor has transferred the rights to receive cash flows from the receivable and whether or not substantially all the risk and rewards of ownership were transferred.
What is the general rule of IFRS when it comes to the value of assets?
That assets aren’t carried at more than their recoverable amount. If the asset’s carrying value is greater than the amount that could have been recovered through the asset’s use or by selling the asset, then it is impaired.
What is the definition of RECOVERABLE AMOUNT under IFRS?
The higher of the fair value less cost to sell or the value in use. Fair value less cost to sell is the amount obtainable from the sale in an arms-length transaction. The value in use is the discounted present value of the future cash flows expected from the asset.
What is a CGU under IFRS?
A cash generating unit is the smallest group of assets that can be identified that generates cash flows independently of the cash flows from other assets.
Does IFRS permit recovery of an impairment loss?
Yes.
Whats the difference in GAAP and IFRS of the reversal of an inventory write-down?
Under IFRS a reversal is allowed. Under GAAP it is NOT allowed.
How often is useful life and depreciation method reviewed under IFRS?
Annually. Under GAAP it’s only when events or circumstances change.
Component depreciation GAAP vs. IFRS
Under IFRS, when an item of PPE comprises of individual components for which different depreciation methods or rates are appropriate, each component is depreciated separately.
PPE revaluation GAAP vs IFRS
PPE can be remeasured to fair value if fair value can be reliably measured.
Where does an increase in PPE’s fair value ABOVE its original cost go under IFRS?
It goes into a revaluation surplus account which is in OCI. If a truck had gone down in value 10k then back up 15k in the next year, the first 10k would be in the profit and loss statements. The extra 5k would go into the revaluation surplus account in OCI.
What investment classifications exist under IFRS?
Held to maturity which is debt measured at amortized cost, and Fair value, all equity is at fair value.
Difference of HTM classification in GAAP vs IFRS:
Under GAAP the test is whether the firm has the positive ability and intent to hold to maturity. Under IFRS it’s the business model test, which evaluates if holding the debt for the cash flow is part of the business model.
Transfer from HTM differences GAAP vs IFRS
In GAAP you transfer from HTM when you no longer have the positive ability and intent to hold to maturity. Under IFRS you transfer from HTM only when the business model objective changes
OCI for investments differences in GAAP vs IFRS:
In GAAP gains/losses are recorded in OCI ONLY for AFS securities. In IFRS the entity may ELECT to records gains/losses to OCI at the initial measurement, but the election cannot be undone.
IFRS investment property
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What is a small stock dividend?
Below 20 to 25 % of the previously outstanding shares.
What effect do stock dividends have on retained earnings?
If it is a SMALL dividend they reduce RE by the amount of shares issued X current stock price.If they are a LARGE dividend (bigger than 25%), they are recorded at par value.
JE for treasury stock purchase under cost method?
DR: Treasury stockCR: CashContributed capital is NOT affected. If treasury shares are resold at less than cost, then retained earnings is reduced by the difference in cost and reissue price.
