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Business Environment and Concepts > Miscellaneous > Flashcards

Miscellaneous Flashcards

1
Q

Miscellaneous

Define the hurdle rate of return

A

The hurdle rate of return (or discount rate) is the desired (or “internal”) rate of return; that rate which the investment must return for the investor to “break even.” This rate must reward the investor for the risk that is being assumed in the investment—the higher the risk the higher the required rate of return.

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2
Q

Miscellaneous

Define Margin of Safety

A

Margin of safety is the excess of actual or budgeted sales over breakeven point sales. It is the amount by which sales could decrease before losses occur.

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3
Q

Miscellaneous

Define a derivative

A

A derivative receives value from the performance of an underlying asset

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4
Q

Miscellaneous

Define imputed costs

A

Imputed costs are implied costs; they are not known with certainty and must be estimated.

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5
Q

Miscellaneous

Define underapplied overhead

A

Underapplied overhead means the actual overhead cost was more than the overhead applied to work-in-process.

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6
Q

Miscellaneous

Define Risk Margin

A

Risk margin is generally defined as the level of reserves established in addition to the best estimate level of reserves. These additional reserves tend to create a cushion to cover unexpected fluctuations and/or errors in estimations.

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7
Q

Miscellaneous

Define Residual Risk

A

Residual risk is the risk that remains after management reacts to the risk, such as by instituting appropriate internal controls.

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8
Q

Miscellaneous

What are the three levels of interdependence are included in integrated planning?

A

There are three levels of interdependence in integrated planning:

  1. Pooled
  2. Sequential
  3. Reciprocal
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9
Q

Miscellaneous

Define weighted average within cost accounting (work in process)

A

Weighted average means beginning work-in-process inventory is included with the current period production. Therefore, costs from the previous period are added to those incurred this period and the total is divided by equivalent completed units.

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10
Q

Miscellaneous

Describe the formula to calculate present value for any single future payment.

A

The formula to calculate present value for any single future payment is PV = Payment ÷ (1 + r)n, where r is the interest rate and n is the number of periods.
•The present value of the payment in the first year is $3,000 ÷ 1.1, or $2,727.
•The present value of the payment in the second year is $3,000 ÷ (1.1 × 1.1), or $2,479.
•The present value of the payment in the third year is $3,000 ÷ (1.1 × 1.1 × 1.1), or $2,254.
•The present value of the payment in the fourth year is $3,000 ÷ (1.1 × 1.1 × 1.1 × 1.1), or $2,049.
•The present value of the payment in the fifth year is $3,000 ÷ (1.1 × 1.1 × 1.1 × 1.1 × 1.1), or $1,863.

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11
Q

Miscellaneous

Define Net Working Capital

A

Net working capital is current assets minus current liabilities.

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12
Q

Miscellaneous

Define National Income

A

National income (NI) is defined as net domestic product (NDP), plus net income earned abroad, minus indirect business taxes (e.g., sales taxes).

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13
Q

Miscellaneous

Define Net Domestic Product

A

Net Domestic Product is Gross Domestic Product minus depreciation.

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14
Q

Miscellaneous

Define Real GDP

A

Real GDP = Nominal GDP/ GDP deflator

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15
Q

Miscellaneous

Describe the general inventory reconciliation formula

A

Beginning inventory + Purchases - Uses = Ending inventory

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16
Q

Miscellaneous

Define Treynor Index

A

The Treynor index is based on the premise that there are two components of risk:
1.Risk produced by fluctuations in the market
2.Risk produced by fluctuations of the individual stock
The index measures the portfolio return per unit of risk using the following equation:
•(Portfolio return - Risk-free rate) ÷ Beta

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17
Q

Miscellaneous

What are the inherent simplifying assumptions used in CVP analysis?

A
  • Costs and revenues are predictable and are linear over the relevant range.
  • Total variable costs change proportionally with the activity level. Variable costs per unit are constant.
  • Changes in inventory are insignificant.
  • Total fixed costs are constant over the relevant range of volume.
  • Production equals sales or units produced equals units sold.
  • The product mix is constant, or the firm has only one product.
  • A relevant range exists in which the various relationships are true.
  • All costs are either fixed or variable; i.e., costs can be separated into fixed and variable elements.
  • Productivity and efficiency are constant.
  • The sales mix remains constant.
  • Selling prices and unit variable costs are constant. Selling price does not change with the activity level.
  • The breakeven point is directly related to costs and indirectly related to the budgeted margin of safety and the contribution margin.
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18
Q

Miscellaneous

Define number of days Sales in Inventory

A

Number of Days Sales in Inventory = 360 / Inventory Turnover

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19
Q

Miscellaneous

Define Economic Value Added

A

Economic value added (EVA) is after-tax operating income less the weighted average cost of capital.

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20
Q

Miscellaneous

Define Free Cash Flow

A

Free cash flow is a measure of financial performance calculated as operating cash flow minus capital expenditures, not a measure of income.

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21
Q

Miscellaneous

Define Market Value Added

A

Market value added is the difference between the current market value of a firm measured by the price of stock on the stock exchange and the capital contributed by investors, not the income remaining after cost of capital is deducted.

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22
Q

Miscellaneous

Define Net Operating Capital

A

Net operating capital is a term used to describe working capital (current assets less current liabilities), not the cost of capital.

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23
Q

Miscellaneous

Define the Sharpe measure for portfolio performance.

A

The formula for the Sharpe measure for portfolio performance is (Portfolio return - Risk-free rate) ÷ Standard deviation.

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24
Q

Miscellaneous

Define the Jensen measure for portfolio performance.

A

The formula for the Jensen measure of portfolio performance measure of return on portfolio is Risk-free rate + ((Return on market index - Risk-free rate) × Beta).

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25
Q

Miscellaneous

Define Sovereign Wealth Funds (SWFs)

A

Sovereign wealth funds (SWFs) are entities established by governments to make investments with foreign exchange reserves that are managed separately for official foreign exchange reserves managed by the country’s central bank within monetary policy goals. The underlying investments are made by SWFs with the goal of making a profit.

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26
Q

Miscellaneous

Define Risk Margin

A

Risk margin is generally defined as the level of reserves established in addition to the best estimate level of reserves.

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27
Q

Miscellaneous

Define Job order costing

A

Job order costing assigns costs to specific production batches or jobs and is used when a product or service consists of discreetly identifiable items. Job costing, not process costing, would be concerned with determining the cost for a partial shipment (before the job is complete) and charging material and labor costs to each job.

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28
Q

Miscellaneous

Define Process costing

A

Process costing assigns costs to processes and calculates the average cost for all units produced. This calculation of equivalent units of production is a unique disadvantage to the process costing system. Process costing is used when similar goods or services are produced in mass quantities and discrete units are not readily identified.

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29
Q

Miscellaneous

Define Expected Value

A

Expected value (EV) applies estimated percentages of occurrence to estimated values such as sales or costs.

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30
Q

Miscellaneous

List the steps in order to prepare a master budget

A

The steps to prepare a master budget are:
•develop a sales forecast,
•determine the desired level of finished goods inventory,
•prepare a purchases or production budget,
•estimate selling, administrative, and other general expenses,
•organize the preceding information into an income statement, and
•prepare a cash forecast.

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31
Q

Miscellaneous

Define economic profit

A

Economic profit equals revenue minus both explicit and implicit costs

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32
Q

Miscellaneous

Define Gross Domestic Product (GDP)

A

GDP = Personal consumption expenditure + Gross private domestic investment + Government purchases + (Exports − Imports).

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33
Q

Miscellaneous

Define number of days sales in inventory

A

Number of Days Sales in Inventory = 360 / Inventory Turnover

Number of Days Sales in Inventory = 360 x (Average Inv/ COGS)

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34
Q

Miscellaneous

Define aggregate demand

A

Aggregate demand is the amount of goods and services—the amount of real national income—that will be purchased at each possible price level.

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35
Q

Miscellaneous

Describe the weighted- average method

A 
Weighted-Average Method
-------------------------------
Units in the beginning are
treated as if they were started
and completed in the current
period.
Costs related to the beginning
inventory are added to the costs
added during the current period
when determining the costs per
equivalent unit for the period.
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36
Q

Miscellaneous

Describe the FIFO Method

A 
FIFO Method
Only the work needed to complete the
units in the beginning inventory is
included in the calculation of 
equivalent units for the period.

Only costs related to the current
period are included in the computations
of the costs per equivalent unit for
the period.

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37
Q

Miscellaneous

Define Reorder Point

A

The reorder point is that quantity of materials on hand that equals the lead time quantity plus safety stock (i.e., the total needed to continue production until the next delivery is received):

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38
Q

Miscellaneous

Define Safety Stock

A

Safety Maximum Average Daily

stock = (lead time - lead time) x usage

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39
Q

Miscellaneous

Three of the basic measurements used by the theory of constraints (TOC) are:

A

The theory of constraints uses three measurements: throughput contribution, investments, and operating costs.

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40
Q

Miscellaneous

Define margin of safety

A

Margin of safety = Budgeted sales - Breakeven sales

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41
Q

Miscellaneous

Define the wholesale price index

A

The wholesale price index (WPI) reflects the change in prices of goods at the wholesale level. Since price increases are generally passed on to consumers, the WPI serves as an early predictor for changes in consumer price levels.

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42
Q

Miscellaneous

What are the four basic categories of normalization adjustments?

A
  1. Nonoperating adjustments: the removal of nonoperating items included in the historical financial statements that are not part of normal operations. The performance of “odd jobs” around a business facility would be normal operating items.
  2. Nonrecurring adjustments: the removal of unusual, unexpected, or items not likely to occur again from the financial statements. Although the son is not likely to perform these duties in the future, someone would need to do general maintenance on an ongoing basis.
  3. Comparability adjustments: adjustments of the historical financial statements to match GAAP choices of potential guideline companies. The payment of wages is not a “GAAP” question, even though they may be excessive.
  4. Discretionary adjustments: adjustments to the historical financial statement to include or to remove items not considered part of normal operations. Excessive wages paid to family members are considered to be discretionary items. The normalization adjustment would need to be made to bring the amount paid within going market rates.
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43
Q

Miscellaneous

In a current-year cost of sales for a main product and the byproduct, there is no cost of sales for byproduct because the excess of sales over additional cost related to byproduct is treated as a reduction in cost of the main product.

A

True

In a current-year cost of sales for a main product and the byproduct, there is no cost of sales for byproduct because the excess of sales over additional cost related to byproduct is treated as a reduction in cost of the main product.

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44
Q

Miscellaneous

Per FASB ASC 820, what are the three groups of inputs used when developing fair value?

A

Per FASB ASC 820, there are three groups of inputs used when developing fair value:

  1. Level 1: directly observable inputs of identical items, such as quoted active market prices
  2. Level 2: directly or indirectly observable inputs of similar items
  3. Level 3: unobservable inputs
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45
Q

Miscellaneous

Define the Project Profitability Index

A

Project Profitability Index = NPV of Project ÷ Investment Required.

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46
Q

Miscellaneous

What is the formula for the degree of financial leverage?

A

Degree of financial leverage

% change in net income/ % change in operating income

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47
Q

Miscellaneous

Describe the formula for manufacturing cycle efficiency.

A

Manufacturing Cycle = Manufacturing or Process Time / Efficiency Time from Start of Manufacturing to Delivery

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48
Q

Miscellaneous

Define reward/ risk ration

A

The reward/risk ratio is the rate of return divided by a measure of risk (the standard deviation in this question).

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49
Q

Miscellaneous

State the relationship between GDP, NNP, NI, PI, and DI

A

GDP
- Capital consumption allowance
——————————-
NDP
- Net foreign factor income
- Indirect business taxes
——————————-
NI
- Social Security contribution
- corporate income taxes
- undistributed corporate profits
+ transfer payments
——————————-
PI
- personal taxes
——————————-
DI

50
Q

Miscellaneous

Define Net Domestic Product (NDP)

A

Net Domestic Product = GDP - Depreciation

51
Q

Miscellaneous
True or False
The net present value method calculates the true rate of return of the investment

A

False
The net present value method DOES NOT calculate the true rate of return of the investment, only whether or not it meets, exceeds or falls short of the desired rate of return. This may be considered a disadvantage of the net present value method of capital expenditure evaluation.

52
Q

Miscellaneous

Define SWOT analysis

A

SWOT analysis looks at a business and attempts to identify its strengths, weaknesses, opportunities, and threats. Strengths and weaknesses make up the organization’s internal environment, while its external environment includes opportunities and threats.

53
Q

Miscellaneous

Define principal market

A

The principal market is considered to be one where the holder of the asset or liability being valued could find the greatest volume of similar transfers.

54
Q

Miscellaneous

Define advantageous market

A

The most advantageous market is one where the holder of an asset could maximize the price received in an asset sale or minimize the transfer costs in the conveyance of a liability.

55
Q

Miscellaneous
True or False
Extrapolating the CPI is often used as an estimate of future prices since it is more stable than the PPI (producer price index).

A

True
Extrapolating the CPI is often used as an estimate of future prices since it is more stable than the PPI (producer price index).

56
Q

Miscellaneous

Which index is a reliable early predictor of future inflation?

A

The wholesale price index (WPI) reflects the change in prices of goods at the wholesale level. Since price increases are generally passed on to consumers, the WPI serves as an early predictor for changes in consumer price levels.

57
Q

Miscellaneous

Define average-marginal rule

A

The average-marginal rule states that when the marginal magnitude is above the average magnitude, the average magnitude rises; therefore, since average variable cost is rising, marginal cost must be higher than average variable cost.

58
Q

Miscellaneous

Define Weighted average

A

Weighted average means beginning work-in-process inventory is included with the current period production. Therefore, costs from the previous period are added to those incurred this period and the total is divided by equivalent completed units.

59
Q

Miscellaneous

True or False
Since material is added at the beginning of the process, all units finished, as well as all those in ending work-in-process inventory, are 100% complete as to material.

A

True

Since material is added at the beginning of the process, all units finished, as well as all those in ending work-in-process inventory, are 100% complete as to material. Equivalent completed units for the weighted-average method include equivalent units completed (100%) as well as equivalent units in ending inventory (100%) for total of (100%) equivalent completed units.

60
Q

Miscellaneous

Define external and internal environment

A

Opportunities and threats make up the external environment. The internal environment consists of strengths, weaknesses, and competitive advantages.

61
Q

Miscellaneous

Define Period Costs

A

Period costs are costs charged to the income statement of a particular period. Under direct costing, all fixed costs are treated as period costs, so the fixed manufacturing overhead is a period cost.

Selling costs (fixed or variable) are expensed in the period incurred, so the variable selling costs are treated as a period cost of $80,000 like any other selling cost.

62
Q

Miscellaneous

What are one of the measures economists and economic policy makers use to gauge a nation’s economic growth ?

A

A nation’s economic growth is measured by gauging changes in the production of physical output per capita.

63
Q

Miscellaneous

Define personal income

A

Personal income is all income received by individuals whether earned or unearned and is computed before any deductions for personal income taxes.

64
Q

Miscellaneous

Define national income

A

National income (NI) is defined as net domestic product (NDP), plus net income earned abroad, minus indirect business taxes (e.g., sales taxes). NDP is gross domestic product minus depreciation.

65
Q

Miscellaneous

Define accelerator principal

A

The accelerator principle says that small changes in consumer spending can cause big percentage changes in investment. It plays a role in many business-cycle theories and is still used today to explain some of the fluctuation in investment.

66
Q

Miscellaneous

Define applied overhead

A

Applied overhead is the amount of overhead cost that has been assigned, using estimates of overhead costs and production levels, to finished goods and included in inventory (which will be expensed as part of cost of goods sold). Overhead applied at the standard or estimated rate does not necessarily equal the actual overhead incurred:

67
Q

Miscellaneous

Define over-applied overhead

A

•Over-applied overhead = the excess of applied overhead over actual overhead incurred

68
Q

Miscellaneous

Define under-applied overhead

A

•Under-applied overhead = the deficiency of applied overhead; the excess of overhead actually incurred over the amount applied

69
Q

Miscellaneous

Describe the actual overhead application rate

A

Actual overhead application rate: This rate is calculated by dividing the overhead costs by the actual volume of the allocation base. An actual rate is useful when the goal is to measure actual costs; however, actual data may not be available on a timely basis.

70
Q

Miscellaneous

Describe the budgeted (or predetermined) overhead application rate

A

Budgeted (or predetermined) overhead application rate: This rate is calculated by dividing estimated (or budgeted) overhead cost by the estimated (or budgeted) volume of the allocation base. A standard overhead application rate is an example of a predetermined rate.

71
Q

Miscellaneous

Describe the collection ratio for A/R

A

Collection Ratio = Accounts receivable / Average daily sales

72
Q

Miscellaneous

True or False
Once a batch has been started and partially completed, conversion costs would be included in the computation of equivalent units.

A

True

Once a batch has been started and partially completed, conversion costs would be included in the computation of equivalent units.

73
Q

Miscellaneous

Describe the formula to calculate present value for any single future payment

A

The formula to calculate present value for any single future payment is PV = Payment ÷ (1 + r)n, where r is the interest rate and n is the number of periods.

74
Q

Miscellaneous

Define equivalent units using the FIFO method

A

Equivalent units is the number of units that would have been completed had the same production effort been devoted to starting and finishing a smaller number of units (the number of complete units).

On a FIFO (first-in, first-out) method, the equivalent units are calculated as follows:

Units completed during the period XX
Plus equivalent units in-process at end of period XX
Less equivalent units in-process at beginning of period XX
—
Total equivalent units for FIFO method XXX

75
Q

Miscellaneous

What is the formula for cost per check cleared?

A

•Cost per check cleared = (D)(S)(i) ◦D = days saved in the collection process
◦S = average check size
◦i = daily interest rate or opportunity cost (5% ÷ 360 = .0139%)

76
Q

Miscellaneous

Define Nominal GDP

A

Real GDP is calculated by dividing the nominal GDP by the price index for the year and multiplying the result by 100 (the price index in the base year).

77
Q

Miscellaneous

What does testing for basis risk involve?

A

Testing for basis risk would involve testing for the impact of the changes in relationships between key market interest rates.

78
Q

Miscellaneous

Define Aggregate Demand

A

Aggregate demand is the amount of goods and services—the amount of real national income—that will be purchased at each possible price level.

79
Q

Miscellaneous

Per FASB ASC 820, what are three groups of inputs used when developing fair value?

A

Per FASB ASC 820, there are three groups of inputs used when developing fair value:
1.Level 1: directly observable inputs of identical items, such as quoted active market prices

  1. Level 2: directly or indirectly observable inputs of similar items
  2. Level 3: unobservable inputs
80
Q

Miscellaneous

How is Real GDP calculated?

A

Real GDP is calculated by dividing the nominal GDP by the price index for the year and multiplying the result by 100

81
Q

Miscellaneous

What is the approach that is based upon utility theory and compels the decision maker to choose at what point he or she is indifferent to the choice between a certain amount of money and the expected value of a risky amount?

A

Certainty equivalent adjustments is a risk analysis technique that is based upon utility theory. The “utility” is how much a certain sum of money is worth to the investor. It makes the decision maker stipulate at what point he or she is indifferent to the choice between a certain amount of money and the expected value of a risky amount.

82
Q

Miscellaneous

How is the reward/ risk ratio calculated?

A

The reward/risk ratio is the rate of return divided by a measure of risk (the standard deviation

83
Q

Miscellaneous

What is the formula for times-interest-earned ratio?

A

Times interest earned = (Net income before tax + Interest expense)

84
Q

Miscellaneous

What does Beta measure in the CAPM Model?

A

Beta measures the relationship between the price volatility of the market as a whole and the price volatility of the individual stock.

85
Q

Miscellaneous

What dies the CAPM compute?

A

The CAPM model computes the expected return on a security by adding the risk-free rate of return to the incremental yield of the expected market return that is adjusted by the company’s beta.

86
Q

Miscellaneous

Calculate Times Interest Earned

A

Times interest earned = (Net income before tax + Interest expense) / Interest expense

87
Q

Miscellaneous

Calculate cost per check cleared.

A

•Cost per check cleared = (D)(S)(i)

◦D = days saved in the collection process
◦S = average check size
◦i = daily interest rate or opportunity cost
88
Q

Miscellaneous

What are three levels of interdependence in integrated planning?

A

There are three levels of interdependence in integrated planning:

  1. Pooled
  2. Sequential
  3. Reciprocal
89
Q

Miscellaneous

What is the formula for the degree of financial leverage?

A

The degree of financial leverage:

% change in net income / % change in operating income

90
Q

Miscellaneous

Define Expected Value

A

Expected value is the mean or average value of a random variable over the possible outcomes. It is calculated by weighting the value of each possible outcome by its probability and summing over all values.

91
Q

Miscellaneous

What is the material usage variance formula?

A

Material usage variance = Standard price × (Standard quantity - Actual quantity)

92
Q

Miscellaneous

Define Aggregate Demand

A

Aggregate demand is the amount of goods and services—the amount of real national income—that will be purchased at each possible price level.

93
Q

Miscellaneous

How is Number of Days Sales in Inventory calculated?

A

Number of Days Sales in Inventory = 360 / Inventory Turnover

94
Q

Miscellaneous

How is the collection ratio calculated?

A

Collection Ratio = Accounts receivable / Average daily sales

95
Q

Miscellaneous

State the relationship between GDP, NNP, NI, PI, and DI .

A

GDP
- Capital consumption allowance
——————————-
NDP
- Net foreign factor income
- Indirect business taxes
——————————-
NI
- Social Security contribution
- corporate income taxes
- undistributed corporate profits
+ transfer payments
——————————-
PI
- personal taxes
——————————-
DI

96
Q

Miscellaneous

Describe the Direct Labor rate variance

A

Direct labor rate variance = Hours worked × (Standard price - Actual price)

97
Q

Miscellaneous

Describe the Direct Labor efficiency variance

A

Direct labor efficiency variance = Standard price × (Standard hours - Actual hours)

98
Q

Miscellaneous

Read

A

A three-way analysis separates over- or underapplied overhead into three variances: (1) spending, (2) efficiency, and (3) volume. The volume variance is the same as computed in the two-way analysis. However, what was a controllable variance in a two-way analysis is split into two parts. The difference between the actual costs and the overhead costs that should have been incurred at the actual volume of production is a spending variance. This results from prices that are different from those expected at the time the flexible budget formula was developed. The difference between the overhead costs that should have been incurred at the actual volume and the costs that should have been incurred at the earned volume is an efficiency variance.

99
Q

Miscellaneous

Define spending variane

A

The difference between the actual costs and the overhead costs that should have been incurred at the actual volume of production is a spending variance. This results from prices that are different from those expected at the time the flexible budget formula was developed.

100
Q

Miscellaneous

Define efficiency variane

A

The difference between the overhead costs that should have been incurred at the actual volume and the costs that should have been incurred at the earned volume is an efficiency variance.

101
Q

Miscellaneous

Calculate the reserve ratio

A

Reserve ratio = Reserves / Total Demand Deposits

102
Q

Miscellaneous
True or False
Factory overhead can be traced to specific jobs

A

False
Factory overhead CANNOT be traced to specific jobs. It is instead allocated based on an estimated overhead application rate

103
Q

Miscellaneous

Define Leverage

A

Leverage refers to the amount of debt in the firm’s capital structure

104
Q

Miscellaneous

What are the eight components of COSO’s ERM framework?

A

The eight components of COSO’s ERM framework are internal environment, objective setting, event identification, risk assessment, risk response, control activities, information and communication, and monitoring.

105
Q

Miscellaneous

True or False
The effect of total variable costs on net income is represented by the positive slope of a P/V line

A

True

The effect of total variable costs on net income is represented by the positive slope of a P/V line

106
Q

Miscellaneous

Define the steps the calculate the Net Investment (NINV) in a project.

A

NINV

  1. The new project cost plus an installation and shipping costs associated with acquiring the asset and putting it into service
    PLUS
  2. Any increases in net working capital initially required as a result of the new investment.
    MINUS
  3. The net proceeds from the sale of existing assets when the investment is a replacement decision.
    PLUS OR MINUS
  4. The taxes associated with the sale of the existing assets and/ or the purchase of the new assets.
    EQUALS
    The net investment (NINV)
107
Q

Miscellaneous
True or False

Increases in cash inflows (decreases in cash outflows) will result in a higher internal rate of return.

A

True

Increases in cash inflows (decreases in cash outflows) will result in a higher internal rate of return.

108
Q

Miscellaneous
True or False

The earlier the cash inflows (the later the cash outflows) the higher the internal rate of return, all else being equal.

A

True

The earlier the cash inflows (the later the cash outflows) the higher the internal rate of return, all else being equal.

109
Q

Miscellaneous

List the three fair value inputs

A

Level 1 inputs are observable and considered to be the highest level and most desirable when determining fair value. Level 1 inputs would include unadjusted quoted active market prices of identical assets.

Level 2 inputs are considered to be the middle level when determining fair value, and include such items as prices of assets or liabilities that can be either directly or indirectly observed but do not include the Level 1 quoted market prices. Often market values of similar assets or liabilities (as opposed to identical) are used to determine fair value.

Level 3 inputs are unobservable and considered to be the lowest and least desirable level when determining fair value.

110
Q

Miscellaneous

List the differences between FMV and fair value.

A
  • Fair market value implies a willing buyer and seller, whereas the buyer and seller under fair value are not necessarily willing.
  • Fair market value defines the seller as hypothetical, whereas there is a specific seller when using fair value.
  • Fair market value takes advantage of an unrestricted market, whereas fair value uses the principal or most advantageous market.
111
Q

Miscellaneous

When is the use of a cost (asset-based) approach for valuation appropriate?

A

The use of a cost (asset-based) approach for valuation is appropriate when:
•the company is in liquidation.
•the company is worth more in liquidation than as a going concern.
•the company’s value is basically related to the assets held.
•the company has had no income in recent years.
•future benefit streams cannot be adequately predicted.

112
Q

Miscellaneous

True or False
Budgeted gross profit is the difference between revenue and budgeted cost at various volume levels

A

True

Budgeted gross profit is the difference between revenue and budgeted cost at various volume levels

113
Q

Miscellaneous

True or False

Standard gross profit is the difference between revenue and standard cost at various volume levels.

A

True

Standard gross profit is the difference between revenue and standard cost at various volume levels.

114
Q

Miscellaneous

Where are translation and remeasurement adjustments found on the financial statements?

A

Translation adjustments- accumulated in comprehensive income.

Remeasurement- income statement

115
Q

Miscellaneous

Describe the Fair Value Hierarchy

A

Fair Value Hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as follows:

a. Level 1 inputs. These are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
b. Level 2 inputs. These are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
c. Level 3 inputs. These are unobservable inputs for the asset or liability.

116
Q

Miscellaneous

Describe a cash flow hedge

A

A cash flow hedge is a hedge of the exposure to variability of cash flows of a recognized asset or liability, or of forecasted transactions, that is attributable to a particular risk.

117
Q

Miscellaneous

Describe a fair value hedge

A

A fair value hedge is a hedge of changes in the fair value of recognized assets, liabilities, or unrecognized firm commitments that are attributable to a particular risk.

118
Q

Miscellaneous

True or False

The financial reporting framework for small- and medium-sized entities has been developed by the FASB

A

False

The financial reporting framework for small- and medium-sized entities has been developed by the AICPA

119
Q

Miscellaneous

True or False

The Private Company Decision-Making Framework has been developed by the AICPA

A

False

The Private Company Decision-Making Framework has been developed by the FASB

120
Q

MIscellaneous

What is the purpose of a quasi reorganization?

A

Eliminate a deficit in RE

121
Q

Miscellaneous

Under IFRS Rules, when may a parent exclude a subsidiary from consolidation?

A

IFRS states that a parent may exclude a subsidiary only if three conditions are met.

  1. It is wholly or partially owned and its other owners do not object to nonconsolidation
  2. It does not have any debt or equity instruments publicly traded.
  3. Its parent prepares consolidated financial statements that comply with IFRS.
122
Q

Miscellaneous

True or False

IFRS Reporting is required in interim statements

A

False

IFRS Reporting is not required in interim statements

Business Environment and Concepts (10 decks)

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