Intermediate accounting 1 Flashcards
A fundamental principle of internal control is division of duties. The person who handles cash must not also be responsible for the books.
Segregation of duties
The accounts receivables are subsequently measured at amortized cost less any impairment losses.
Amortized cost approach
A method of estimating credit losses based on changes in credit risk rather than a trigerring event.
Expected credit loss approach
Accounting recognition criteria that require companies to anticipate write-down before actually giving up on a particular account; the write-down is made to an allowance account.
Allowance for doubtful accounts
A method often used to provide a basis for the expected loss allowance on a collective basis.
Aging method
It affects neither earnings nor the net amount of accounts receivable outstanding. It changes only the components of net accounts receivable and the net balance remains unchanged.
Write off entry
A complex transfer in which accounts receivables are bundled and sold as a portfolio to a financial institution, subject to certain guarantees and administrative functions.
Securitization
A basis for agreement to transfer receivables by which customers are directed to remit to the new party holding the receivables, the finance company.
Notification basis
A basis for agreement to transfer receivables by which then in turn remits to the finance company
Non-notification basis
In the context of transfer of receivables, the ability of the finance company to come back to the company thats sold the accounts receivables for payment if it turns out to be uncollectible.
Recourse
A company or vendor who retains the contractual rights to the cash flows but assumes a contractual obligation to pay the cash flows to the transferee(the finance company)
Transferor
A company or vendor who assumes a contractual rights to receive the cash flows from the transferor
Transferee
The accounts receivable come off the books of the selling company and a financing fee is recognized
Sale/Derecognition
The accounts receivables are left on the books of the selling company and the amount received from the finance company is recorded as a loan until the customer actually pays. Payment by the customer triggers derecognition of the account receivable and repayment of the loan.
Borrowing
A separate entity that carries out a specific part of a company’s business but is not legally controlled by the company and has a separate shareholder group
Special purpose entity
Combination of the financial statements of 2 companies, after elimination of intercompany transactions and balances
Consolidation
Assets of borrower that the secured lender can seize if the note goes into default
Collateral security
Fair values is established using the effective interest method. If the note carries a stated interest rate equal to market interest rates, or has a very short term, then valuation issues are immaterial and stated values are used.
Valuation
Is the maker(issuer) of the note and the lender is the payee
Borrower
Maturity value is the dollar amount stated in the note.
Face value
A note that specifies the interest rate to be applied to the face amount in computing interest payments.
Interest bearing notes
A note that does not state an interest rate, but specifies interest through the difference between cash lent and cash repaid
Non interest bearing note
The rate specified on the face of the loan
Stated interest rate
The rate accepted by two parties for loans of equal profile.
Market interest rate
Requires that the market rate is used to value the note and the transaction. The market rate is also used to measure interest revenue or expense. The stated rate is used to determine the cash interest payments.
Effective interest method
An alternative method of measuring interest, amortizes an equal amount of discount each period
Straight-line measurement of interest expense/revenue
Financial assets held to collect cash flows that are solely principal and interest
Amortized cost - IFRS
Describes the status of goods that are owned by a company but held by agents for resale
Consignment
An agreement to sell and buy back inventory items a prearranged prices if they are not resold by a certain date.
Repurchase agreement
An element of inventory cost equal to the total of materials purchase cost, incidental costs incurred until goods are ready for sale to the customer, freight in and other shipping costs incurred by the buyer and customs charges and excise duties.
Laid down cost
They’re never included as an element of inventory cost. They are not directly related to the acquisition of inventory
General, selling and administrative
Accumulated cost of contract work performed but not yet completed
Work in progress
The operating level at which the factory is expected to operate most of the time, not full capacity or maximum capacity.
Normal capacity
Costs that are recognized when there is a legal or contractual commitment or a constructive obligation
Decommissioning obligation
A form of cost assignment in which the items sold are specifically identified and their specific cost used as cost of goods sold.
Specific identification
A form of cost assignment in which the cost of goods sold is determined by the cost of the first(oldest) units purchased
FIFO
An inventory cost flow approach in which units are assigned an average cost based on units and price paid
Weighted average
The estimated selling price in the normal course of business minus estimated costs of completion(if any) and the estimated selling costs.
NRV
The carrying value of individual inventory items is adjusted in the inventory accounts by the amount of any write down after adjustment, inventory carrying values will show the NRV as the new carrying value. This method is only possible when NRV is applied to individual items
Direct inventory reduction method
Writedown is not entered into the inventory accounts but is recorded separately in a contra inventory account, allowance to reduce inventory to NRV
Inventory allowance method
A reliably estimable liability for a probable cost that will arise due to a past action
Provision
Is the method of inventory estimation that uses a constant gross margin to arrive at inventory values based on current sales levels
Gross margin method(gross profit method)
An inventory estimation method that uses a computed cost ratio based on the actual relationship between cost and retail for the current period rather than on historical ratio
Retail inventory method
For use in inventory estimation methods, the result of dividing the total goods available for sale at cost by the same items at retail
Cost ratio
Measures the agricultural inventories at the lower of cost and NRV similarly to other inventories
Cost model
Initially recognizes the agricultural inventories at their NRV
Net realizable value model
A model of valuing that records long lived assets at original cost less accumulated depreciation and accumulated impairment losses since acquisition
Cost model
For a fixed asset, capitalized cost less accumulated depreciation
Net book value
Revalues the assets with enough frequency to assess the current fair value with gains in excess of original cost reported in income. Assets are depreciated and tested for impairment between revaluations. It uses fair value as its measurement base.
Revaluation method
Recognition/revaluation of investment property at fair value every reporting date. Any changes in fair value are recognized in earnings, the asset is not depreciated
Fair value model
It means that expenditure is debited to an asset account the alternative is to expense the amount.
Capitalization
Expenditures related to the acquisition of PP&E are capitalized if there is a probable future economic benefit that will flow to the company and the cost of the asset can be measured realiably. True or false
True
The separation of an asset into significant components for accounting purposes
Component accounting
Several assets acquired for a single lump sum price that may be lower than the sum of the individual asset prices, to encourage the sale
Basket purchase
It is based on relative fair values of the several assets involved
Allocation
Are not held for resale, so they are not inventory. However, if minor and immaterial, they will be included in inventory.
Spare parts
Are extensions, enlargements or expansions of an existing asset
Additions
The replacing of a major component of an item of PP&E so that the asset is better in some ways, because of extended life, reduced operating costs or higher service potential
Betterment
Adjustment of the balance of an asset or liability to zero and removal from the records and the statement of financial position.
Derecognition
Importance of capital expenditures in the sense of making a difference to the decisions of financial statement users either because of size or sensitivity
Materiality
A liability created through management action rather than a legal obligation
Constructive obligation
Costs that result from activities to clean up or restore an asset after use
Site restoration costs
Costs that are recognized when there is a legal or contractual commitment or a constructive obligation
Decommissioning obligations
For a future payment, the amount that relates to principal, not interest
Present value
Site restoration costs or decommissioning obligations are not expensed at the end of the assets life when the work is done. Instead, they are recognized upfront as a (depreciable) asset and a liability. True or false
True
A common intangible asset recognize on the purchase of another business unit measured as the excess of acquisition cost over the fair value of the identifiable net assets acquired.
Goodwill
The cost of the asset is restated to the fair value and the accumulated depreciation is eliminated.
Elimination method
The original cost of the asset and the accumulated depreciation are restated proportionately(both grossed up or down) so the net carrying amount after revaluation equals fair value.
Proportionate method
Assets that provide benefits within the business model for multiple period. Assets may have finite or infinite life span
Long-lived assets
The periodic allocation of the cost of a tangible asset over its useful life
Depreciation
The periodic allocation of the cost of an intangible asset over its useful life.
Amortization
Depreciation of the costs of acquiring and developing natural resources
Depletion
The estimated net recoverable amount from disposals or trade in of the asset at the end of its estimated useful life.
Residual value
Total capitalized asset cost minus estimated residual value. The total amount of depreciation or amortization to be recognized over the useful life of the asset
Depreciable amount
The original cost of an asset plus any capitalized post acquisition costs minus accumulated depreciation or amortization to date and net any accumulated impairment losses or reversals
Net book value(carrying value)
A write down of long-lived assets to its recoverable amount. Arises when the fair value of an asset is less than its carrying value, and reflects a decline in fair value that must be recorded in the year
Impairment
A depreciation method whereby cost less salvage value is spread over useful life. Used for simplicity and when the asset provides equivalent service or value in use each year of its life.
Straight line method
A depreciation method in which the cost less residual value of an asset is spread over the estimated total service hours and assigned to a given year based on actual service hours for the year.
Service hours method
A depreciation method in which the cost less residual value of an asset is spread over the estimated total productive output and assigned to a given year based on actual output for the year
Productive output method
A method of depreciation that recognizes greater amounts of depreciation early in the useful life of tangible assets and lesser amounts later
Declining balance (diminishing balance)
Said of assets not being used in the business and intended to be sold within the next year. The assets are not depreciated but are written down to the lower of carrying amount and fair value less cost to sell
Held for sale
Is depreciated when ready for use and depreciation continues even if the equipment is not used
Standby equipment
Based on the assumption that an asset provides equivalent service or value in use, each year of its life. It relates depreciation or amortization directly to the passage of time rather than the assets use, resulting in a constant amount of depreciation or amortization recognized per time period.
Straight-line method
Based on the assumption that the appropriate depreciation is directly related to the amount of time the asset is in use.
Service hours method
The number of units of output is used to measure asset value
Productive output
The amount by which the carrying amount of an asset or cash generating unit exceeds its recoverable amount.
Impairment loss
It is the higher of fair value less cost of disposal and value in use
Recoverable amount
Reversal of impairment losses is not permitted in ASPE. True or false
True
Under IFRS, Reversal impairment (except goodwill) impairment reversed up to maximum of the carrying amount, assuming no impairment recorded. True or false
True
In ASPE, cost to be depreciated is the higher of cost less scrap value and cost less residual value. True or false
True
In IFRS, cost to be depreciated is cost less residual value. True or false
True
Investments that typically have low risk and are easily converted to cash with a short maturity date of less than three months
Cash equivalent investments
Investments must be held and managed within a business model whose objective is to hold the assets solely to collect contractual cash flows.
Amortized cost
Investments are managed within a business model whose objective is to both collect contractual cash flows of principal and interest and sell the financial asset
FVOCI - Bonds
Investments are bond investments that are not held solely for payments of principal and interest
FVTPL
A type of strategic equity investments where in economic activity is undertaken by 2 or more investors and control is shared.
Joint arrangement
A type of strategic equity investment, a joint arrangement in which the investors have rights to net assets of the operation that is a residual equity(net assets) interest
Joint venture
A type of strategic equity investment, a joint arrangement in which the investors have direct rights to the assets and obligations for the liabilities of the arrangement.
Joint operation
An accounting method used for investments in associate companies and for joint ventures on the SFP, the investment is reported at cost plus the investors share of a investees earnings less the investors share of dividends received, on the income statement, the investors share of investees earning is reported.
Equity method
An accounting method used for investments in shared in which the investment is reported at historical cost at the time of purchase.
Cost method
An approach to impairment testing and recognition that recognizes losses on investments only once an actual event has occured to indicate a loss.
Loss event approach
In IFRS, unrealized gains/losses are recognized in either P&L or OCI based on classification. True or false
True
In ASPE, unrealized gains/losses are recognized in P&L if instrument is classified as fair value. True or false
True
In IFRS, FVTOCI investments- gains/losses are never recycled to P&L. When sold, cumulative gains and losses in AOCI can be transferred to another class of equity (e.g retained earnings ) or left in AOCI. True or false
True
In ASPE, realized gains and losses are recognized in P&L on disposition. True or false
True
In ASPE, AC interest income uses effective interest method or straight line method(policy choice). True or false
True
Foreign exchange gains and losses are recognized in P&L under ASPE. True or false
True
Foreign exchange gains and losses are recognized in P&L except:FVTOCI- bonds - differences on AC value are recognized in P&L, FVTOCI equity - FX differences are recognized in OCI. True or false
True
Sale price first marked on the merchandise
Original sales price
The original or initial amount that the merchandise is marked up above cost
Markup
Any increase in the sales price above the original sales price
Additional markup
Cancellation of all or some of an additional markup
Additional markup cancellation
A reduction in the original sales price
Markdown
An increase in the sales price(does not exceed the original sales price) after a reduction in the original sales price markdown
Markdown cancellation
