Flashcards - F1 - F3
FASB
Single authoritative body establishing GAAP in 2009
IASB
International accounting standards established in 2001
1 Diff between IFRS & GAAP
IFRS: Apply principals (conceptual framework) GAAP: do not apply conceptual framework
Fundamental Qualitative Characteristics
Relevance, Faithful Representation
Relevance
Capable of making a difference in decisions by users
Faithful Representation
Completely neutral is free from error (Reliable)
Enhancing Qualitative Characteristics
Comparable, Verifiable, Timeliness, Understandable
When to report discontinued operations
1) Has been disposed 2) Held for sale Strategic shift or major effect on operations
Exit or Disposal Activity (not discontinued operations)
Must have obligating event 1) Calculate PV of costs to close, book now 2) Book operating loss when occurred
Book Change Prospectively
Changes in estimate
Book Change Retrospectively
Change in Principles, Entity and Error correction
IDEA
1) Income Statement 2) Discontinued Operations 3) Extraordinary items 4) Accounting Principles
Change in LIFO or Depreciation
Treated as change in estimate and accounted for prospectively
Other Comprehensive Income
Direct to equity - accumulated OCI shown on BS in equity
PUFER
P) Pension Adjustments U) Unrealized Gains/Losses F) Foreign Currency E) Effective Cash Flow Hedges R) Revaluation Surplus
Going Concern Basis of Accounting
Accounting as if expected to continue operations
Liquidation Basis of Accounting
Imminent (no question) of closing
Compensation Arrangements included in Related Party Disclosure??
GAAP - exclude compensation arrangements IFRS - include compensation arrangement
Requirements for Segment Reporting
Revenues/Assets greater than 10% - Report, External Revenue - identify until 75% and disclose
Form 10-Q and 10-K Filing Timeline
10-Q: Large = 40days, Accelerated= 45days 10-K: Large = 60days, Accelerated = 75days
Form 11-K, 8K
- employee benefit plans - any major corporate event
Form 20F, 40F, 6K
- 20F &40F: annual foreign private issuers - 6K: semi-annual foreign private issuers
Revenue Recognition (4 Items)
1) Contract 2) Transfer Risk 3) No Contingencies 4) Standard Collection Terms
Expired vs Unexpired
Expired: Book expense Unexpired: Stay on BS until “used”
Franchisor Initial Fees/Continuing Fees
Initial Fees: Recognize revenue when “substantially performed” Continuing: when earned
Intangible Assets Capitalized?
If purchased book at cost; Internally developed expense
Valuation of Intangible Assets; GAAP vs IFRS
GAAP: valued at cost IFRS: valued at cost or revaluation to FV
Where are gains/losses booked for Intangible Assets?
Losses to Income Statement - Gains to OCI
Franchisee Initial Fees/Continuing Fees
Initial Fees: Book as Int. Asset @ PV and amortize Continuing Fees: expense as incurred
Capitalize start-up costs?
No, expense as incurred
When can R&D costs be capitalized?
If there is an alternate use or on behalf of others
Technological Feasibility
Expense R&D prior to Technological Feasibility for software to be sold and used internally
How to amortize Computer Software
When Sold: Greater of % of Revenue or Straight-line Used Internally: Straight-line
Completed Contract Revenue Recognition
Recognize only upon completion (not permitted under IFRS)
Percentage of Completion Revenue Recognition
(GAAP & IFRS) Work Complete/Total Work Expected x Profit
Rule of Conservatism
Always recognize loss when probable; No gains until realized
Installment Sales Revenue Recognition
Calculate GP%, apply to cash receipts and book as “realized profit,” remaining profit is deferred
Cost Recovery Method
Calculate GP% and only recognize profit when cash collections exceed COGS
Commercial Substance
Future cash flow impact
Nonmonetary Exchange with Commercial Substance
Add gain/loss on old asset plus cash exchange = New Asset Value
Nonmonetary Exchange lacking Commercial Substance (NO BOOT or PAY BOOT)
Record no gain
Nonmonetary Exchange lacking Commercial Substance (BOOT RECEIVED
Recognize proportional gain
Nonmonetary Exchange lacking Commercial Substance (BOOT RECEIVED >25% of FV)
Recognize Full Gain
Recognize Gain/Loss on Involuntary exchanges
Yes/Now
Historical Cost
Cost at acquisition - no effect on prices
Current Cost
Cost that would have incurred at present time - appreciation effects prices
Nominal Dollars
Unadjusted for changes in purchase power - no effect on prices
Constant Dollars
Restated based on Price Index - Inflation effects prices
Foreign Currency Adjustment
Restate to “reporting currency”
Reporting Currency
Currency of entity reporting financial results
Functional Currency
Currency of Primary economic environment in which entity operates
Foreign Remeasurement
(Dysfunctional) 1st translate from foreign currency to functional currency (BS 1st -> IS 2nd as plug adjustment)
Foreign Translation
(Functional) 2nd translate from functional currency to reporting currency (IS 1st -> BS 2nd as plug to OCI)
Report @ Historical Rate
Equity and dysfunctional non-monetary assets
Report @ Weighted Average Rate
Income Statement
Report @ Current/Spot Rate
Dysfunctional monetary assets/liabilities, all functional assets/liabilities
Personal Financial Statements Include
Statement Financial Condition; Statement Changes in Net Worth
Statement of Financial Condition
Personal statement; Book at FV; Tax liability is on diff assets - liabilities
Trading Securities
(Current Asset) Purpose is to sell; Book gain/loss to IS
Available for Sale Securities
(GR=Non-current Asset) @FV; Book gain/loss to OCI
Held-to-Maturity Securities
(GR=Non-current Asset) @historical/amortized cost; Amortize to IS
Change TO Trading Security
Recognize gain/loss immediately to IS
Change FROM Trading Security
No Adjustment
Change FROM Held to Available
Recognize adjustment in OCI
Change FROM Available to Held
Amortize to IS
How to report @ Cost Method
(0 - 20%) Book @ FV; Dividends/Earnings to IS; Return capital reduces investment
How to report @ Equity Method
(20-50%) Book @ FV; Earnings increase investment/Dividends decrease investment; Book asset/goodwill increase and amortize asset
Ability to exercise significant influence
Use Equity Method
How to report @ Acquisition Method
(>50%) Book @ FV on closing date; Book 100% net assets; remove subs entire equity
CAR - IN - BIG
Remove Subs CAR (Common, APIC, RE), Remove parents I (investment), Book NCI, Add BS adj. to FV, Add Intang. Assets, Add Goodwill
Business Combination Costs
Direct/Indirect= Expense Stock Registration= Reduce APIC Bond Issue= Cap. & Amortize
Non-controlling Interest
Book to equity, Book % RE not owned to NCI
Consolidated Retained Earnings
Equals Parent’s RE’s due to eliminate Sub’s RE’s
Consolidated Stockholder’s Equity
Parent + NCI + % Income - % Dividends
Intercompany Transactions
Eliminated 100% of BS and IS Transactions
Inventory Transfers
Eliminate profits from Inv & COGS
Bond Transfers
If extinguished, eliminate from both and book gain/loss
Land Transfers
Book on both sides, eliminate gain and record back @ carrying value on sub
Depreciable Asset Transfers
Book on both sides, eliminate gain and record back @ carrying value on sub; record depreciation @ new purchase but then adjust back @ year end
Combined Financials
Common owner; eliminate intercompany, include all equity
