Income statement, standards, etc. Flashcards
What are the attributes to measure inventory?
- Historical cost
- Replacement cost
- Net realizable value (ceiling)
What is the relazation concept?
Reveunues and gains are realized when assets are exchanged for cash or claims to cash.
Example: Truck sold for cash or receivable.
Fundamental qualitative charactersitics
Relevance
Decisions for users
Qualitative characterstics
- Predictive value
- Conforming Value
- Materiality
Fundamental Qualitative Characterstics
**Faithful representation **
Completley neutral, free from error
_Qualitative characterstics _
- Completeness
- Neautrality
- Freedom from error
Enchancing qualitative characteristics
- Compariability
- Verifiablity
- Timeliness
- Understandbility
Change in accounting principles
A change in an estimate is considered inseperable from a change in an accounting principle, it is handled prospectively, and no adjustment is needed.
- Deprecation.
- Recongition of costs
When making an adjustment for incorrect expenses from a previous year for deprecation, make sure to only use the previous years and not the current years deprecation.
Example
Discovered on Jan 1, Year 5 that machine was not deprectated, but expensed.
Use only 4 years deprecation x .7 (after tax rate)
Comprehensive income =
Net income
+
Other Comprehensive income
Do not let the test takers fool you by having net income + another item that would ALREADY be included in net income in the question.
Example, list of OCI items and net income. Gain from Sale of discontiued operations in list.
DO NOT INCLUDE DISCOTINUED OPERATIONS!!
OCI
Penion gain or loss
Uneralized gain of available for sale
Foreign currency translation gain
Effective hedge of cash flow
Revaultation surplus (IFRS only)
- Deffered gain on an effective cash flow hedge would be included.
- Prior Service Cost would be SUBTRACTED
Income statement
Remember to take Income from contiuning operations x tax rate.
- Disconutined operations x tax rate
- Extraordinary items x tax rate
Gross Sales
(COGS)
Gross margin
(Selling and administrative expenses)
Income (loss) from operations
Other revenues and gains (intrest income, gain on sale)
(other expenses and losses) (interest expense, loss on sale)
Income from contiuning operations
x tax rate
Income from contiuning operations (net of tax)
Discontiuned operations (net of tax)
Extradionary gain or loss (net of tax)
Net income
Change in estimate- Prospective
Change in accounting principal- Retroactive and stated at beginning retained earnings
**Error- **Restatement
Change in estimates can be change in estimate for deprecation, change in receivable recongnition, anything that would be an estimate.
Extraordinary items-foregin company
- Exporation of plant by a foreign government (assets taken by another country
- Illegal product discovered
When a prior period error is discovered for deprecation expense, should deprecation expense be adjusted?
NO
- A prior period adjustment is needed to retained earnings.
When a loss is probable and estimable, the expected loss must be recorded in full.
If for example, a loss is incurred in the first quarter due to a decline in inventory prices, but it is expected to reverse and return to previous prices by the end of the year, then a loss is not booked.
If the previous do not reverse however by the end of the year, the loss would be reported in the fourth quarter.
For interim reporting purposes, costs that benefit multiple period should be allocated equally to those periods.
Make sure you look at the dates.
If it benefits a full calander year, divide by four and alllocate to quarter the question is asking.
If it benefits 6 months, divide by 2 and allocate to the quarter the question is asking.
For segment report, do the 10% test.
- 10% of total assets.
- 10% of toal revenue.
- 10% of profit or loss.
If a loss occurs, add up the companies revenues that were not negative and take 10% of the total revenues for the number to use as a thereshold, then use accordingly.
