Notes to Financial Statements Flashcards
What does the first note typically cover?
Summary of significant accounting policies.
Define “purchasing power loss.”
Losses that result from holding monetary assets during inflationary times or having monetary liabilities during deflationary times.
What disclosure is required by firms in hyperinflationary economies under IFRS?
Disclosure of the impact of inflation on the financial statements is required.
What is the difference between errors and irregularities?
Errors are unintentional, irregularities are intentional.
Define “constant dollars.”
Measurements in the general price level as of a specific date.
What is presented in the related party transaction disclosures?
Nature of relationship, description of all transactions for years presented, dollar amounts of transactions, and receivables to or from parties.
Define “non-monetary items.”
The specific price of non-monetary items can change.
What are the disclosure requirements for non-current liabilities?
Combined aggregate amount of maturities on borrowings 5+ years after balance sheet, sinking fund requirements; the aggregate amount of payments for unconditional obligations to purchase fixed or minimum amounts of goods or services; the fair value of each financial debt instrument in the financial statements or in the notes; the nature of the firm’s liabilities, interest rates and maturity dates, conversion options, assets pledged as collateral and restrictions.
What is included in illegal acts for companies?
Illegal contributions and bribes.
Define “general prices.”
The term general prices refers to a market basket of items that the typical consumer purchases.
Define “inflation.”
It is the increase in general prices for a period of time; deflation is the decrease in general prices.
Define “purchasing power.”
The purchasing power of an asset is the amount of goods and services that can be obtained by transferring the asset to another party.
What is the MD&A section?
Management Discussion & Analysis: a narrative written by management that is an integral part of the disclosure of the financial statements.
Define “monetary items.”
The specific price of monetary items cannot change.
Define “nominal dollars.”
Measurements in the price level in effect at a transaction date. These measurements are not adjusted for inflation.
Define “specific price change.”
The change in the price of a specific good or service over a period of time.
What is a development stage enterprise?
An enterprise placing substantially all its efforts into the establishment of a new business.
Define “purchasing power gain.”
Gains that result from holding monetary assets during deflationary times or having monetary liabilities during inflationary times.
Under IFRS, what should the Summary of Significant Accounting Policies include?
- Judgments and key assumptions made in applying those policies.
- Measurement bases used for recognition (e.g., historical cost, fair value)
- Information enabling an assessment of the estimation uncertainty that could result in a material adjustment to the balances of assets and liabilities, which are point estimates in many cases.
What are the general types of ratios?
- Liquidity/Solvency
- Operational Activity
- Profitability
- Equity/Investment Leverage
List the formula for number of days’ supply in inventory.
365/ Inventory Turnover
List the cash availability or interval ratio formula.
(Cash + Net Receivables + Marketable Securities) / Average Daily Cash Expenditures
List the formula for times preferred dividend.
Net Income / Annual Preferred Dividend Obligation
What do liquidity (or solvency) ratios measure?
Measure the ability of the firm to pay its debts as they come due.
List the formula for inventory turnover.
Cost of Goods Sold (COGS) / Average Inventory
List the formula for the Acid Test or Quick Ratio.
(Cash + Net Receivables + Marketable Securities) / Current Liabilities
List the formula for determining Operating Cycle Length.
Days’ Sales in Accounts Receivables + Days’ Supply in Inventory
What is financial statement ratio analysis?
The development of quantitative relationships between various elements of a firm’s financial statements.
List the formula for working capital.
Current Assets - Current Liabilities
List the working capital ratio formula.
Current Assets / Current Liabilities
What do operational activity ratios measure?
They measure the efficiency with which a firm carries out its operating activities.
List the formula for times interest earned.
(Net Income + Interest Expense + Income Tax Expense) / Interest Expense
List the Accounts Receivable Turnover ratio formula.
Net Credit Sales / Average Net Accounts Receivable
List the formula for Number of Days’ Sales in Accounts Receivable (AR).
365 / AR Turnover
List the book value per preferred share ratio formula.
Preferred Shareholders’ Equity (including dividends in arrears) / Number of Outstanding Preferred Stocks
What do profitability ratios measure?
Aspects of a firm’s operating (income/loss) results on a relative basis.
List the owner’s equity ratio formula.
Shareholders’ Equity / Total Assets
List the debt to equity ratio formula.
Total Liabilities / Total Shareholders’ Equity
List the return on owner’s equity formula.
Net Income / Average Stockholders’ Equity
List the common stock yield formula.
Dividend per Common Share / Market Price per Common Share
List the per share common stock dividend pay out rate formula.
Cash Dividends per Common Share / Earnings Per Share (EPS)
List the price to earnings ratio formula.
Market Price for a Common Share / Earnings Per Share (EPS)
List the return on common stockholders’ equity formula.
(Net Income - Current Period Preferred Dividend Obligation) / Average Common Stockholders’ Equity
List the book value per common stock ratio formula.
Common Shareholders’ Equity / Number of Outstanding Common Shares
List the debt ratio formula.
Total Liabilities / Total Assets
List the total common stock dividend payout rate formula.
Cash Dividends to Common Shareholders / Net Income to Common Shareholders
List the profit margin formula.
Net Income / Net Sales
List the return on total assets formula.
(Net Income + Interest Expense (net of tax)) / Average Total Assets
What do equity/investment leverage ratios measure?
Measure relative sources of equity and equity value.
When do IFRS 1 apply?
When the most recent financial statement were prepared:
- In compliance with US GAAP;
- In conformity with IFRS in all respects, except that an explicit and unreserved statement of compliance was not presented;
- In compliance with US GAAP with reconciliation to IFRS;
- In conformity with IFRS but for internal use only;
- In conformity with IFRS for consolidation purposes, but without a complete set of financials or without presenting financials of previous periods.
When is the “transition date?”
The opening date of the earliest period for which full comparative financial statements under IFRS are presented.
What are the mandatory exceptions for retrospective application of IFRS?
Derecognition of financial assets and liabilities; hedge accounting; assets held for sale and discontinued operations; certain aspects of accounting for non-controlling interest, and use of certain estimates.
What standards govern the first-time adoption of IFRS?
IFRS 1.
When does the “first reporting date” happen?
The year-end date for the period which IFRS is first applied.
What statements are required upon first-time adoptions of IFRS?
Three statements of financial position, two statements of comprehensive income, toe separate income statements, two statements of cash flow, and two statements of changes in equity.
