Set 1 Flashcards
1
Q
What pieces of authoritative literature are included in the codification?
A
(FEDPRIA) FASB, Emerging Issues Task Force, Derivative Implementation Group Issues, APB Opinions, Accounting Research Bulletins, Accounting Interpretations, AICPA
2
Q
What are the fundamental qualitative characteristics of useful financial information?
A
Relevant and Faithful Representation (Reliable)
3
Q
Elements of relevance as it pertains to the qualitative characteristics of useful financial information
A
Predictive Value, Confirming Value, Materiality. (PCM) Passing Confirms Money
4
Q
Elements of faithful representation as it pertains to the qualitative characteristics of useful financial information
A
Completeness, Neutrality, and Freedom from Error
5
Q
Elements that enhance the usefulness of information that is relevant and faithfully presented.
A
Comparability, Verifiability, Timeliness, Understandability. (Compare and verify in time to understand)
6
Q
Elements of Financial Statements
A
REGL ALE needs ID Revenues Expenses Gains Losses Assets Liabilities Equity Investments Distributions
7
Q
Presentation Order of the Major Components of an I/S and R/E Statement
A
IDEA; I/S: Income or Loss from Continuing Ops (Before Tax) / Income or Loss from Disc Ops (net of tax) / Extraordinary Items (net of tax) / Stmt of R/E: Cumulative Effect of Change in Accounting Principle (net of tax)
8
Q
Discontinued Operations
A
Separately reported element shown in the income statement, net of tax, after income from continuing operations
9
Q
Remeasurement of Individual Assets
A
Required under IFRS before a component can be categorized as “Held for sale.”
10
Q
Conditions required to be present in order to report income from discontinued operations
A
BOTH 1-Eliminated from ongoing operations (ops & cash flows) 2-No significant continuing involvement
11
Q
Items reportable within results from discontinued operations
A
1-Operations results within the component 2-gain or loss on disposal of the component 3-impairment loss and subsequent increases in fair value of the component
12
Q
When to report results from discontinued operations
A
Report in the period disposed or the period that the component is held for sale
13
Q
Calculation of Discontinued Operations
A
Results from Oerations (+/-) Gain or Loss on Actual Disposal (+/-) Impairment Loss (and subsequent increases in FV)
14
Q
How to account for exit and disposal activities
A
GAAP now requires recognitions of a liability for costs associated with an exit or disposal activity.
15
Q
Accounting for Extraordinary Items
A
GAAP: must be infrequent and unusual. IFRS: No such thing as an extraordinary event
16
Q
Three types of Accounting Changes for which F/S would change
A
Change in accounting estimate, change in accounting principle, change in accounting entity
17
Q
How to account for a change in accounting estimate
A
Make changes to the F/S prospectively. This is NOT an error, do NOT restate prior periods. Restate only the current period and future periods.
18
Q
How to account for a change in accounting principle
A
Make changes to the F/S retrospectively. This change can be made only If required by GAAP/IFRS or if it more fairly presents the information.
19
Q
Number of B/S required for a change in accounting principle
A
IFRS requires three (1/1/X1, 12/31/X1, 12/31/X2). GAAP does not have a three year requirement, it only requires 2.
20
Q
Exceptions to handling changes in accounting principle retrospectively
A
Handle prospectively and DO NOT restate if the changes are impractable to estimate, inseparable from a change in estimate, a change TO LIFO, or a change in depreciation method
21
Q
How to account for a change in accounting entity
A
Restate F/S retroactively. This is unique to US GAAP and is NOT part of IFRS.
22
Q
How to account for presentation of F/S related to an error correction
A
Restate F/S retroactively. Example: Going from Cash Basis to Accrual Basis (non-GAAP to GAAP). IFRS has a impracticability exemption whereas GAAP does not.
23
Q
What is comprehensive income?
A
Change in equity (net assets) of a business during a period from transactions, and other events and circumstances from non-owner sources. (Not dividends)…
24
Q
What items are considered to be OCI?
A
PUFER - Pension Adjustments / Unrealized Gains & Losses / Foreign Currency Items / Effective Portion of Cash Flow Hedges / Revaluation Surplus (IFRS only)
25
Two approaches for reporting other comprehensive income
Single Statement Approach & Two-Statement Approach. Single - starts w/Revenues and displays OCI items individually & in total. Two - starts w/Net Income and then deducts OCI items.
26
What is segment reporting?
Applies to public companies only, purpose is to enhance biz activities info to help users
27
What is an operating segment?
Has its own revenues & expenses. Discrete financial information is available with a traceable cash flow.
28
What is a reportable segment?
Operating segments that meet criteria for separate reporting.
29
Quantitative tests for reportable segments
10% Size test (must meet only one) Revenue / P&L / Assets - If any of these >=10% then they are a reportable segment.
30
Sufficiency test for reportable segments
If after reporting segments that meet the 10% tests, the aggregate presentation falls short of 75% of external consolidated revenue, additional segments must be added to arrive at 75%
31
How are start-up and organizational costs handled for development stage enterprises?
Expensed immediately, under GAAP.
32
First time adoption of IFRS in general
Company must make an explicit and unreserved statement in compliance w/IFRS
33
First time adoption of IFRS (Balance Sheet)
All assets and liabilities should be classified and recognized under IFRS. They should be restated to conform w/IFRS and adjustments should be made directly to R/E at the date of transition.
34
SEC Form S-1
Registration Statement
35
SEC Form 10-K
Annual Statement that must be filed within 60 days (value >$700m) within 75 days (value >$75m) or within 90 days (value
36
SEC Form 10-W
Quarterly Statement that must be filed within 40 days (value >$700m) $75m) or within 45 days (value
37
SEC Form 11-K
Annual Report of Benefit Plan
38
SEC Forms 20-F and 40-F
Annual Statement for Foreign Private Issuers (40-F is Canada, 20-F is everyone else)
39
SEC Form 6-K
Semi-Annual Statement for Foreign Private Issuers
40
SEC Form 8-K
Major Corporate Events
41
SEC Forms 3, 4, and 5
Directors, officers, or beneficial owners > 10%
42
What does SEC Reg S-X do?
Sets forth the form and content of requirements for interim and annual financial statements
43
What is XBRL?
Extensible Business Reporting Language; data tags that describe financial information for business and financial reporting
44
XBRL Tag
Machine readable code that provides contextual information
45
XBRL Taxonomy
Specific tags used for groups of data
46
Instance Document
XBRL formatted document containing tagged data
47
GAAP Revenue Recognition Requirements
Persuasive evidence of an arrangements exists, delivery has occurred or services have been rendered, price is fixed and determinable, collection is reasonably assured
48
IFRS Revenue Recognition Requirements for Goods
Revenue and costs incurred for the transaction can be measured reliably, probable that economic benefits will flow to the entity, entity has transferred to the buyer significant risk and rewards of ownership, and entity does not retain managerial involvement
49
IFRS Revenue Recognition Requirements for Services
Revenue and costs incurred for the transaction can be measured reliably, probable that economic benefits will flow to the entity, stage of completion can be measured reliably
50
IFRS Revenue Recognition Requirements for Construction Contracts
Revenue and costs incurred for the transaction can be measured reliably, probable that economic benefits will flow to the entity, stage of contract completion can be measured reliably
51
What is deferred revenue or deferred credits?
Cash received before it is earned. Revenue is recognized when it is earned.
52
Accrual Accounting
Required by GAAP. Involves the process of employing the revenue recognition rule and the matching principle to the recognition of revenues and expenses. (NO current cash impact, I/S impact only)
53
Deferral
Cash is received or expended but is not recognizable for financial statements purposes. Ex: Prepaid Expense or Liability (NO Current I/S impact, B/S impact only)
54
Accrued Assets
Revenue recognized or earned through the passage of time, but not yet paid to the entity. (DR A/R, CR Accrued Revenue)
55
Accrued Liabilities
Expenses recognized or incurred through the passage of time, but not yet paid by the entity. (ex: accrued interest payable, accrued wages, etc.) (DR Accrued Exp, CR Accrued Liab or A/P)
56
Estimated Liabilities
Recognition of probable future charges that result from a prior act. (Ex: Warranties, trading stamps, coupons, etc.) (DR Accrued Exp, CR Accrued Liab)
57
Expired Costs
Income Statement Expensed Costs that expire during the period and have no future benefit (ex insurance expense, COGS, period costs, etc.)
58
Unexpired Costs
Balance Sheet carried costs that are capitalized and matched against future revenues. (Ex: prepaid expense, deferred charges, etc.)
59
Prepaid Expenses
Expenditures with a residual value. Also may occur where there exists a right to future services. (DR Prepaid Expense, CR Cash)
60
Deferred Charges
Pertain to future operations but are not charged to a tangible asset. (DR Deferred Charge, CR Cash/Asset)
61
Deferred Credits
Unearned revenue or deferred revenue. Future income contracted for and/or collected in advance; not yet earned. Liability on the B/S. (DR Cash, CR Unearned/Deferred Revenue)
62
Unearned Revenue
Revenue received in advance is a liability (EX: rent received in advance) Earn it or return it
63
Revenue recognition when the right to return exists
Not a contingent sale. 1-sales price substantially fixed at date of sale,2-buyer assumes all risks of loss,3-buyer has paid some form of consideration,4-product sold is substantially complete,5-amount of future returns can be reasonably estimated
64
Franchise fee revenue - initial franchise fees
Revenue when "substantially performed." Initial services from the franchisor (site selection, construction supervision, bookkeeping, QC, etc.)
65
Franchise fee revenue - continuing franchise fees
Revenue when earned. Ongoing services such as percentage of revenue, management training, promotion, legal assistance, etc.)
66
Substantial performance (franchise fee revenue)
franchisor has no obligation to refund any payment received, initial services required of the franchisor have been performed, and all other conditions of the sale have been met.
67
Intangible assets
Specifically identifyable: patents, copyrights, franchises, trademarks. Not speficically identifiable: goodwill.
68
Recording purchased intangible assets
Capitalize the asset at cost; can also capitalize legal and registration fees incurred to obtain an intangible asset.
69
Recording internally developed intangible assets
GAAP: Expense against income when incurred, as GAAP prohibits capitalization of R&D. Ex: Cost to develop, maintain, or restore goodwill, goodwill from advertising, trademarks, etc. should be expensed.
70
Exception to rule requiring to expense costs associated with intangibles
Certain expenses associated with specifically identifiable intangibles can be capitalized. Ex: Legal fees related to a successful defense of the asset, registration or consulting fees, design costs (of a trademark), other direct costs to secure the asset.
71
IFRS rule related to expensing vs. capitalizing R&D costs
IFRS says that research costs must be expensed, but development costs can be capitalized if technological feasibility has been established, the entity intends to complete the intangible asset, entity has the ability to use or sell the intangible asset, it will generate future economic benefits, and adequate resources are available to complete the development and sell or use the asset.
72
How to measure cost for recording intangible assets acquired from "arm's length" transactions
Cost is the amount of cash disbursed or the fair value of other assets distributed; the PV of amounts to be paid for liabilities incurred, and the fair value of consideration received for stock issued.
73
Cost of unidentifiable intangible assets
Difference between the cost of the group of assets or enterprise acquired and the sum of the costs assigned to identifiable assets acquired, less liabilities assumed.
74
Amortization of intangibles
Straight-line, systematic charges to income over the period estimated to be benefited by the intangible asset. Must have a finite life.
75
Patent amortization rules
Amortize over the shorter of its estimated life or remaining legal life
76
Amortization of purchased goodwill
Not permitted. Goodwill has an indefinite life; the required approach is to test goodwill for impairment at least annually.
77
Rule for a worthless intangible
During the year that the asset becomes worthless, the entire remaining cost should be written off to expense. (Ex: technological obsolescence or an unsuccessful patent defense lawsuit)
78
Rule for an impaired intangible
During the year that the asset becomes impaired, an impairment loss should be recognized to the extent that the full carrying amount becomes unrecoverable
79
Rule for a change in the useful life of an intangible
During the year that the asset experiences a change in useful life, the remaining book value is amortized over the new remaining life
80
Rule for the sale of an intangible
During the year that the asset is sold, compare the carrying value at the date of the sale with the selling price to determine the gain or loss.
81
IFRS Cost Model of Intangible Valuation
Intangibles are reported at cost adjusted for amortization and impairment.
82
IFRS Revaluation Model for Intangible Valuation
Intangibles are initially recognized at cost and then revalued to fair value at a subsequent valuation date, adjusted for subsequent amortization and subsequent impairment.
83
IFRS Intangible Revaluation Losses
Reported on the I/S, unless the loss is reversing a previously recognized revaluation gain. A reval loss that reverses a reval gain from a prior period is recognized as a reduction to reval fain in OCI. This ultimately reduces the reval surplus in AOCI.
84
IFRS Intangible Revaluation Gains
Reported in OCI & accumulated in equity as a reval surplus in AOCI, unless the reval gain reverses a previously recognized reval loss. A reval gain is reported in the I/S to the extent that it reverses a previously recognized reval loss.
85
IFRS Impairment of Revalued Intangible Assets
Impairment is recorded first by reducing any reval surplus in equity to 0, with further impairment losses reported on the I/S.
86
Start-Up Costs
Expenses incurred in the formation of a corporation (Ex: legal fees) are considered organizational costs. These should be expensed when incurred. (Remember income tax treatment is different - 5000 start up and 5000 organizational costs can be expensed, then amort over 180 months)
87
What is goodwill?
The representation of intangible resources and elements connected with an entity
88
Calculation of Goodwill - Acquisition Method
Under the acquisition method, goodwill is the excess of an acquired entity's fair value over the fair value of the entity's net assets, including identifiable intangible assets.
89
Calculation of Goodwill - Equity Method
This involves the purchase of a company's capital stock. Goodwill is the excess of the stock purchase price over the fair value of the net assets acquired.
90
Handling costs associated with maintaining, developing, or restoring goodwill
These costs are expensed and not capitalized.
91
US GAAP treatment of R&D costs
Expense unless: (1) the materials, equipment, or facilities (tangible assets) have alternate future uses -or- (2) the R&D costs are undertaken on behalf of others under a contractual agreement.
92
IFRS treatment of computer software development costs
No separate guidance provided by IFRS regarding this, but they are considered internally generated intangibles, which means that research costs must be expensed, but development costs may be capitalized if certain criteria are met
93
Computer software development to be sold, leased, or licensed
Expense costs incurred until technological feasibility has been established for the product; capitalize costs after this point until the product is released for sale.
94
Establishment of technological feasibility
completion of a detailed program design or the completion of a working model
95
Amortization of capitalized software costs (software for sale, lease, or license)
Annual amortization is the GREATER of (1) % of revenue (total capitalized amt X [current gross revenue for period/total projected gross revenue]) or (2) straight line (total capitalized amount X [1/estimate of economic life])
96
Computer software developed internally or obtained for internal use only
Expense costs incurred in the preliminary project state; capitalize costs (S/L) incurred after technological feasibility and for upgrades and enhancements.
97
Impairment
Analysis and reduction in carrying value of intangibles and fixed assets held for use and/or to be disposed of. Should be reviewed at least annually and/or anytime events occur that could prompt changes in the amount of carrying value that is recoverable.
98
Impairment of Intangible assets other than goodwill - US GAAP
Intangibles with a determinable useful life are amortized over that finite life. If no useful life can be determined, the intangible has an indefinite life and is not amortized.
99
Impairment of Intangible assets with indefinite lives - US GAAP
Use a one-step impairment test. This includes Goodwill. Compare the FV of the intangible to its carrying amount. If FV
100
Impairment of Intangible assets with finite lives - US GAAP
Use a two-step impairment test. Step 1-Carrying amount is compared to the sum of the undiscounted C/F expected to result from the use of the asset and its eventual disposition. Step 2-If the carrying amount exceeds the undiscounted C/F, the asset is impaired and the imp loss is recorded for the diff between the carrying amount of the asset and its FV.
101
Reporting an impairment loss
Component of income from continuing operations, before income taxes (unless the impairment loss is related to discontinued ops)
102
Restoration of previously recognized impairment loss
This is prohibited under US GAAP unless the asset is held for disposal.
103
Impairment of Intangible assets other than goodwill - IFRS
Carrying value is compared with the asset's recoverable amount. The recoverable amount is the greater of the asset's FV less costs to sell and the asset's value in use. Value in use is the PVFCF expected from the intangible asset. IFRS does allow the reversal of impairment losses.
104
Goodwill impairment - US GAAP
Calculated at reporting unit level; impairment exists when the carrying amount of the reporting unit goodwill exceeds its fair value.
105
Evaluation of goodwill impairment - US GAAP
Step 1-identify potential impairment by comparing the FV of each reporting unit with its carrying amount, including GW. Step 2-measure amount of GW impairment loss by comparing the implied FV of the reporting unit's GW with the carrying amount of that GW.
106
Evaluation of goodwill impairment - IFRS
GW impairment testing is done at the CGU level. Carrying value is compared to CGU recoverable amount, which is the greater of the CGU's FV less costs to sell and the value in use. (Value in use is the PVFCF expected from the CGU).
107
Completed contract method
US GAAP only; recognizes income only on completion (or substantial completion) of a long-term construction contract.
108
When can the completed contract method be used?
US GAAP only; 1-it is difficult to estimate the costs of a contract in progress, 2-many contracts are in progress so that about an = # are completed in a year anyway, 3-projects are of short duration and collections are not assured.
109
Completed contract B/S presentation
Excess of accumulated costs over related billings should be reflected in the B/S as a current asset (due on accounts [receivable] or cost of uncompleted contracts in excess of progress billings [sometimes called CIP], and the excess of accumulated billings over related costs should be reflected as a current liability (progress billings on uncompleted contracts in excess of cost)
110
Accounting for the Completed Contract Method
Applicable overhead and direct costs should be charged to advances on the CIP account (asset), billings and/or cash received should be credited to advances on CIP account (liability), the excess (either direction) is classified as current because of the current operating cycle concept, and losses should be recognized in full the year they are discovered.
111
Percentage of Completion method
Appropriate to use this method when collection is assured and the entity's accounting system can reasonably estimate profitability and provide a reliable measure of progress towards completion
112
Determination of revenues recognized under the % of Completion Method
income recognized is the % of estimated total income either that incurred costs to date bear to total estimated costs based on the most recent cost information, or that may be indicated by such other measure of progress toward completion appropriate to the work performed.
113
Loss provision rules under % of Completion Method
A provision for the loss on the entire contract should be made when current estimates of the total contract costs indicate a loss. Previous gross profit of loss reported in prior years must be adjusted for when calculating the total estimated loss.
114
Percentage of Completion B/S presentation
Show due on accounts (receivable) and costs and estimated earnings of uncompleted contracts in excess of progress billings as current asset accounts. Show progress billings in excess of cost and estimated earnings on uncompleted contracts as a current liability.
115
Accounting for the Percentage Completion Method
Journal entries are the same as the completed contract method except that the amount of estimated gross profit earned in each period is recorded by charging the CIP account and crediting realized gross profit
116
Calculation of gross profit under the percentage of completion method
1) contract price less estimated total cost = gross profit 2) total cost to date / total estimated cost of contract 3) gross profit X % of completion from step 2. 4) profit to date from step 3 at end of period minus PTD at beginning of period = current YTD gross profit.
117
Formula for gross profit calculated for installment sales
Sale-COGS
118
Formula for gross profit percentage for installment sales
Gross Profit/Sales Price
119
Formula for earned gross profit for installment sales
Cash Collections X Gross Profit Percentage
120
Formula for deferred gross profit for installment sales
Installment Receivable X Gross Profit Percentage
121
Journal entry to record an installment sale
Dr Installment Sale Accounts Receivable, Cr Inventory and Cr deferred gross profit (Contra-receivable)
122
Journal entry to record cash collection on an installment sale
Dr Cash, Cr Installment Sale Accounts Receivable
123
Journal entry to record profit on collection for an installment sale
Dr Deferred Gross Profit, Cr Realized gross profit on installment sales
124
Cost recovery Method
No profit is recognized on a sale until all costs have been recovered. At the time of the sale, expected profit is recorded as deferred gross profit; cash collections are first applied to recovery of product costs, then collections afterwards are recognized as profit.
125
Journal entry to record sale under the cost recovery method
Dr Cost recovery receivable, Cr inventory & Cr deferred gross profit
126
Journal entry to record the year 1 collection under the cost recovery method
Dr cash, Cr cost recovery receivable
127
Journal entry to record the final year collection under the cost recovery method
Dr cash, Cr cost recovery receivable AND Dr Deferred gross profit and Cr realized gross profit on cost recovery sales
128
What is commercial substance?
an exchange has commercial substance if the FCF change because of the exchange (risk, timing, or amount of CF)
129
Journal entry for exchanges that have commercial substance
Dr new asset (FV of consideration given), Dr accum depr of asset being given up, Dr Cash Received, Dr Loss if Any, Cr old asset at historical cost, Cr cash paid, Cr gain if any
130
IFRS: Nonmonetary exchanges
Either characterized as exch of similar assets or exch of dissimilar assets. Dissimilar: "exchanges that generate revenue" and are treated the same as exchanges having commercial substance under GAAP. Similar: "exchanges that do not generate revenue" and no gains are recognized.
131
Exchanges lacking commercial substance
Losses: always recognize. Gains: 1-No boot received, no gain. 2-Boot paid-no gain. 3-Boot received-recognize proportional gain (= 25% of total consideration.
132
Involuntary conversions of a nonmonetary asset
The entire gain or loss is recognized. Tax rules are different. If gain timing differs, a temporary difference will result and interperiod allocation will be necessary.
133
Historic Cost/Nominal Dollars
Basis for GAAP used in the primary financial statements. Based on historic prices w/o restatement for changes in the purchasing power of the dollar.
134
Monetary Assets/Liabilities
Fixed or denominated in dollars regardless of changes in specific prices or the general price level (ex cash, notes, bonds)
135
Non-Monetary Assets/Liabilities
Fluctuate in value with inflation and deflation (ex inventory, stock, PP&E, etc.)
136
Foreign Currency Transactions
Transactions with a foreign entity denominated in a foreign currency
137
Foreign Currency Translation
Conversion of financial statements of a foreign entity into F/S expressed in the domestic currency (the $)
138
Direct Method Exchange Rate
The domestic price of one unit of another currency (ex: 1 euro costs $1.47)
139
Indirect Method Exchange Rate
The foreign price of one unit of domestic currency (ex: 0.68 euros buys $1)
140
Current exchange rate
"Spot rate" - typically used for all B/S accounts, exch rate at the current date, or for immediate delivery
141
Forward exchange rate
exchange rate existing now for exchanging two currencies at a specific future date (Bet)
142
Historical Exchange rate
rate in effect at the date of issuance of stock or acquisition of assets (Used for equity)
143
Weighted average rate
calculated to take into account the fluctuations for the period. (Used for I/S)
144
reporting currency
currency of the entity ultimately reporting financial results of the foreign entity
145
functional currency
currency of the primary economic environment in which the entity operates, usually the local currency or the reporting currency
146
Foreign Currency Translation
restatement of F/S denominated in the functional currency to the reporting currency using appropriate rates of exchange
147
Foreign Currency Remeasurement
restatement of foreign F/S from the foreign currency to the entity's functional currency (ex: reporting currency is the functional currency or F/S must be restated in the entity's functional currency prior to translating the F/S from the functional to the reporting currency
148
Foreign F/S Translation - Translation Method
Functional. Start with I/S @ weighted average, proceed to B/S at year end rate, C/S & APIC @ historical, roll forward R/E, plug equity B/S (CTA) to AOCI. Reported: puFer
149
Foreign F/S Translation - Remeasurement Method
"Dysfunctional" Start with B/S & break out monetary at year-end rate vs. nonmonetary at historical rate, proceed to I/S @ weighted avg for income, historical for B/S related accounts, I/S plug is gain/loss (R/E). Reported: Idea.
150
General OCBOA presentation guidelines
Differentiate the titles from accrual basis F/S, explain changes in equity amounts, and a statement of C/F is not required.
151
Trading securities
Both debt and equity that are bought and held principally for the purpose of selling them in the near term
152
Available-for-sale securities
Both debt and equity not meeting the classifications of either trading or held-to-maturity.
153
Held-to-maturity securities
Debt securities only that the entity has the positive intent and ability to hold to maturity.
154
IFRS vs GAAP differences: Marketable Securities
AFS, HTM same. Similar to "trading" under GAAP - IFRS refers to "financial assets at FV through profit or loss."
155
Valuation of AFS securities
Must be reported at Fair value. Changes in FV result in unrealized holding gains or losses
156
Valuation of Trading securities
Must be reported at Fair value. Changes in FV result in unrealized holding gains or losses
157
Reporting of unrealized gains/losses on Trading Securities
Included in earnings; shown on the I/S hitting the Valuation Account and unrealized loss/gain accounts.
158
GAAP Reporting of unrealized gains/losses on AFS Securities
Included in OCI (pUfer); shown in OCI hitting the Valuation Account and unrealized loss/gain accounts.
159
IFRS Reporting of gains/losses on AFS Securities
Included in OCI (pUfer), except for foreign exchange gains and losses on AFS debt securities, which are reported directly to the I/S.
160
GAAP Reporting of realized gains/losses
Sale of security or impairment of an AFS security. All are recognized on the I/S.
161
Valuation of HTM Securities
Valued at amortized cost.
162
Reclassification from trading securities to any other
Unrealized holding gain or loss at the date of transfer is already recognized in earnings and shall not be reversed. (No adjustment is necessary)
163
Reclassification from any other to trading securities
Unrealized holding gain or loss at the date of transfer shall be recognized in current earnings immediately.
164
Reclassification from HTM Debt to AFS
Unrealized holding gain or loss at the date of transfer shall be reported in OCI.
165
Reclassification from AFS Debt to HTM Debt
Amortize gain or loss from OCI with any bond premium/discount amortization
166
GAAP Impairment of HTM Security
Determine if temporary. If decline in value is other than temporary, write down to fair value as the new cost basis. This is a realized loss and included in earnings (I/S). Subsequent changes in FV are not recognized.
167
GAAP Impairment of AFS Security
Determine if temporary. If decline in value is other than temporary, write down to fair value as the new cost basis. This is a realized loss and included in earnings (I/S) Subsequent increases to FV are reported in OCI. Subsequent decreases, if temporary, are included as an unrealized loss in OCI.
168
IFRS Impairment of HTM/AFS Securities
Impairment losses recognized in earnings and the individual security is written down by directly reducing the cost basis or by using a valuation allowance. Previously recognized impairment losses may be reversed, with the amount of the reversal shown in the I/S.
169
Sale of trading security
Dr Cash, Cr Trading security. Dr/Cr realized loss/gain
170
Sale of AFS Security
Dr Cash, Cr AFS Security. If gain, Dr unrealized gain on AFS sec (PUFE) Cr Realized Gain on AFS sec (IDEA).
171
Income Tax Effects of Marketable Securities
tax effects must be reflected into the computation of deferred income taxes, because unrealized gains and losses are not deductible for tax purposes.
172
Three methods of reporting business combinations/consolidations
Cost Method, Equity Method, Acquisition Method
173
Cost Method
Do not consolidate / No significant influence (typically
174
Equity method
Do not consolidate / Significant influence but
175
Acquisition Method
Investor has >50% ownership (control) of the subsidiary
176
Cost Method Balance Sheet Presentation
Record costs at accquisition (FV+legal fees) Dr Investment in Investee & Cr Cash. Record unrealized loss and adjust to FV at year-end Dr Unrealized holding losses (OCI) & Cr Investment in Investee (or valuation account). If gain, reverse the entry but Cr is unrealized holding gains, not OCI. Return of Capital or Liquidating Dividend Dr Cash, Cr Investment in Investee
177
Cost Method Income Statement Presentation
Record cash dividends from investee's R/E, do not recognize stock dividends (memo entry only) Dr Cash & Cr dividend income if dividends are income to the investor/parent. If dividends exceed investor's share of the R/E, reduce basis, return of capital by Dr Cash and Cr Investment in Investee.
178
Equity Method
Used when the company owns 20-50% of voting stock of an "investee" and/or exercises significant influence over the operating and financial policies of the investee.
179
Equity method income statement presentation
record the investor's/parent's ownership % of earnings as income (Dividends are not income, treat as "bank withdrawals" Dr. Investment in Investee and Credit Equity in earnings/investee income
180
Equity method balance sheet presentation
record initial investment at cost by Dr Investment in Investee, Cr Cash. Increase ownership % of earnings of investee by Dr Investment in Investee and Cr equity in earnings/investee income. Decrease investor/parent's ownership percentage of cash dividends by investee by Dr. Cash Cr. Investment in Investee.
181
Accounting for differences between the purchase price and book value (NBV) of the investee's net assets under the equity method
Multiply % of company obtained by the NBV. This is the NBV of equity acquired. Multiply the % of company obtained by FV. This is the FV of equity acquired. Find difference between FV of assets and price paid. This is GW.
182
Amortization of Premium or FV difference in Asset over related asset life
Do not amortize GW and do not amortize land. Dr equity in investee income and Cr investment in investee. This is like a bank service charge and lowers income from the investee.
183
Joint venture accounting
Under both GAAP and IFRS, investors generally account for joint venture investments using the equity method
184
Acquisition Method recording initial investment
Valued at consideration given or the consideration received, whichever is more evident. Entry is date of acquisition: Dr Investment in Sub, Cr Cash or C/S and APIC
185
Treatment of subsidiary's equity under the acquisition method
Entire equity (including C/S, APIC, and R/E) is eliminated/not reported.
186
Treatment of subsidiary's net assets acquired under the acquisition method
100% of the net assets acquired (regardless of the % acquired) are recorded at FV with any unallocated balance remaining creating goodwill.
187
Mnemonic for adjustments needed during a consolidation
CAR IN BIG - [C/S, APIC, R/E (CAR) is the old owner's equity or NBV] [Investment in Sub, Noncontrolling Interest (IN) - Paid FV by parent, total FV of sub] [B/S FV adj, Identifiable Intangible Assets, Goodwill (Dr) or Gain (Cr) (BIG) plug GW] -- CAR & BIG normally Dr, IN normally Cr
188
CAR formula for acquisition method
A-L=Equity, A-L=NBV, A-L=CAR.
189
Acquisition method - journal entry to adjust C/S, APIC, and R/E
Debit each of these in the sub's equity accounts in the EJE
190
Acquisition method - journal entry to adjust investment in sub account
EJE Crediting Investment in Sub from Parent's books. Nothing is capitalized to Investment in sub. Direct out of pocket costs are expensed, indirect costs are expensed, bond issue costs are capitalized and amortized, and stock registration and issuance costs are deducted from APIC (Dr APIC of parent)
191
Acquisition method - journal entry to adjust for noncontrolling interest
if
192
Acquisition method - journal entry to adjust for B/S
EJE to Debit 100% of the Fair Value of the sub's assets and liabilities, even if parent acquires
193
Acquisition method - journal entry to adjust for intangible assets of the sub
EJE to Debit FV of intangible assets of sub acquired
194
Acquisition method - journal entry to adjust for Goodwill or Gain
If there is an excess of the FV of the sub over the FV of the sub's net assets, the remaining is Debited to GW. If there is a deficiency in the acquisition cost compared to the sub's FV, then the shortage/negative amount is recorded as a gain.
195
IFRS - NCI "partial" goodwill method
NCI=FV of Sub's net identifiable assets X NCI%
196
IFRS - NCI "full" goodwill method
NCI=FV of Subsidiary X NCI%
197
Acquisition Method In Process R&D
Carry as an intangible asset (meets definition if it has a probably future economic benefit) separately from GW at the acquisition date, do not immediately write off, later: success-amortize/failure-impair & write off
198
Acquisition Method for transactions with GW
When a premium is paid for a sub, parent paid more than the NBV+FV of assets. First, adjust B/S to FV & Recalc depreciation. Then, separate intangibles into finite/infinite lives & allocate. Last, any remaining acquisition cost is allocated to GW. This GW is not amortized, but it subject to impairment testing.
199
IFRS Full GW Method (GAAP or IFRS)
GW=FV of Sub - FV of Sub's Net Assets
200
IFRS Partial GW Method (IFRS only)
GW=Acquisition cost - FV of Sub's Net Assets Acquired
201
Where to report cash spent or received in the acquisitions in the statement of C/F?
Investing section
202
Step acquisition - consolidation and deconsolidation
gaining or losing control is a remeasurement event because the parent exchanges a noncontrolling investment asset for a controlling financial interest in all of the underlying assets and liabilities of the target.
203
Intercompany transactions for external reporting
Eliminate 100%, even when a noncontrolling interest exists. Only eliminate if consolidating.
204
Intercompany merchandise transactions
Reverse the original intercompany transaction and if the inventory was sold to outsiders, correct COGS/if it is still on hand, correct ending inventory
205
Intercompany bond transactions
If one member of the consolidated group acquires an affiliate's debt from an outsider, the debt is considered to be retired and a gain or loss is recognized on the consolidated I/S.
206
Intercompany sale of fixed assets
Eliminate the gain or loss on the sale and correct the accumulated depreciation, unless the asset is land.
207
Combined F/S
Group of related companies, no parent company, companies under common control, common management, or unconsolidated subsidiaries
208
WC
CA-CL, often a measure of solvency of a company
209
Current Ratio
CA/CL
210
Quick Ratio
(Cash + net receivables + marketable securities)/CL - OR - (CA-Inv)/CL
211
Cash & Cash Equivalents
S/T, highly liquid investments that are both readily convertible to cash and (90 days or less from date of purchase)
212
NRV of A/R
balance of A/R adjusted for allowances for uncollectibles, sales discounts, and sales returns and allowances.
213
A/R Sales or Cash Discounts - Gross Method
Records the sale without regard to the available discount. Dr A/R & Cr Sales for the gross. If discount is taken, debit sales discounts taken (contra revenue) and cr AR for the full sale.
214
A/R Sales or Cash Discounts - Net Method
Records the sale as if the discount will be taken each time. Dr A/R & Cr Sales for the net. If the period lapses and the full cash payment comes in, Cr Sales Discounts Not Taken (Revenue)
215
Trade Discounts
These are typically quantity discounts that are quoted in percentages. (ex: 40% and 10%) Apply these sequentially
216
Sales Returns and Allowances
Dr Sales Returns & Allow (contra sales) and Credit A/R for the actual return of a sale. To estimate and accrue, if history shows that a material percentage of sales are returned.
217
Direct Write Off Method
used for income tax, (NOT GAAP), writes off the debt when it becomes uncollectible.
218
Allowance Method
(GAAP) This estimate is made based on past experience, booking an expected amount currently and adjusting depending on results.
219
Percentage of Sales Method
(I/S Approach) a % of each sale is debited to Bad Debt Expense and credited to Allowance for Doubtful Accounts, based on historical data.
220
Percentage of A/R at Year End
(B/S Approach) a % of ending A/R is calculated based on historical data. This ending balance is achieved by making an adjustment to bad debt expense and allowance up or down, as needed.
221
Aging of Receivables Method
(B/S Approach) a % of estimated uncollectible accounts based on historical data is multiplied by balances in A/R based on age. The estimated uncollectible amount sum is the balance that should be in the allowance account after adjustment.
222
Subsequent Collection of A/R Written Off-Allowance Method
1-Restore account written off Dr A/R, Cr Allow, then 2-record cash collection Dr Cash,Cr A/R
223
Pledging of A/R
Company uses existing A/R as collateral for a loan. Dr Cash, Cr Note Payable. Only requires note disclosure.
224
Factoring of A/R
Company can convert receivables into cash by assigning them to a factor with or without recourse.
225
Factoring of A/R Without Recourse
True Sale. Sale is final and the assignee assumes the risk of any losses on collections.
226
Factoring of A/R With Recourse
Sale or a loan. A/R collateral. The factor has an option to re-sell any uncollectible receivables back to the seller.
227
Notes Receivable F/S Presentation
Unearned interest and finance charges are deducted from the face amount of the related promissory note (this states the receivable at present value)
228
Discounting Notes Rec
Holder endorses back of the note to a 3rd party and receives a sum of cash. (Dr. Cash, Cr. Note Rec Discounted {contra asset})
229
Discounting Notes Rec w/Recourse
Holder remains contingently liable for payment. Reported on B/S with a corresponding contra account
230
Discounting Notes Rec w/o Recourse
True Sale. Holder assumes no further liability. Should be removed from B/S. No contingent liability.
231
FOB Shipping Point
Buyer Pays. Title passes to the buyer when the seller delivers the goods to a common carrier. Included in buyer's inventory upon shipping. "Freight In" added to cost of inventory
232
FOB Destination
Seller Pays. Title passes to the buyer when the buyer receives the goods from the common carrier. Included in seller's inventory thought not in warehouse. "Freight Out" is a selling expense.
233
Shipment of Non-Conforming Goods
If wrong goods are sent, title reverts to seller upon rejection by the buyer. Goods should not be included in buyer's inventory if rejected.
234
Sale with a Right of Return
If amount of goods likely to be returned can be estimated, the transaction should be recorded as a sale with an allowance for estimated returns recorded.
235
Consigned Goods
Remain in the inventory of the consignor (true owner). Agent (consignee) holds and sells on the owner's behalf. Inventory cost includes cost to ship goods to consignee.
236
Inventory Valuation GAAP
General rule is that inventory is stated at cost as long as it is to be sold at a profit.
237
Departure from Cost Basis (GAAP)
1-LCM: ordinary course of business, utility of goods is no longer as great as their cost, a departure from measuring at cost is required. 2-Precious Metals or Farm Products:valued at NRV, which is the selling price less costs of disposal.
238
Purpose of using LCM
Conservatism. May be applied to a single item, a category, or total inventory.
239
Determining Market under GAAP
Middle value of ceiling, floor, and replacement cost.
240
LCM Replacement Cost
Cost to purchase the item of inventory as of the valuation date
241
LCM Market Floor
NRV-Profit Margin. This is the market ceiling (SP-costs to complete and dispose) - a normal profit margin.
242
LCM Market Ceiling
NRV. This is an item's selling price less costs to complete & dispose.
243
LCM under IFRS
IFRS simply says lower of Cost or NRV (SP-costs to complete and dispose) … same as Market Ceiling under GAAP.
244
Reversal of Inventory Write-Downs
GAAP prohibits this; IFRS allows it for subsequent recoveries of inventory value, limited to the original write-down, reduces inventory costs to I/S (COGS)
245
LCM Disclosure
Separate identification on the I/S when the losses from write-downs are both substantial and unusual. Otherwise, if small, include in COGS
246
Periodic Inventory System
Uses account "purchases." Physical count at the end of the period and aggregate all purchases before applying inventory method, thus plugging COGS. (BI+Purchases=COGAFS-EI=COGS [plug])
247
Perpetual Inventory System
Inventory records updated each time a sale is made, COGS tabulated with each sale, running total kept of inventory balances. (Dr. COGS and Cr. Inventory) + (Dr Cash, Cr. Sales)
248
Specific Identification Method
For large, high value, and heterogeneous goods. Cost of each item is uniquely identified to that item.
249
FIFO
First costs inventoried are the first costs transferred to COGS. Result of periodic and perpetual methods are the same.
250
Weighted Average Method
End of period - average cost of each item in inventory is the weighted average of all items in inventory. Suitable for a homogeneous product line & a periodic inventory system.
251
Moving Average Method
Computes the weighted average cost after each purchase by dividing the total cost of inventory available after each purchase, by the total units available after each purchase. Must use perpetual with this method; more current than weighted average.
252
LIFO
NOT permitted under IFRS. GAAP only - last costs inventoried are the first costs transferred to COGS. EI includes the oldest costs.
253
LIFO Conformity Rule
US: If LIFO is used for income tax purposes, it also must be used for F/S.
254
LIFO Layers
Each purchase is thought to have been put into a bucket. When sales occur, the inventory is removed from the "top" of the bucket. Layers are top to bottom, depending on which was laid down last.
255
Dollar Value LIFO
Inventory is measured in dollars and is adjusted for changing price levels.
256
Dollar Value LIFO Calculation
Three columns; Base Year Cost, Current Year Cost, $ Value LIFO. 1/1/Y1 all 3 are the same. At 12/31/Y1, CY cost/BY cost = price index. Squeeze to find change for year, which is Base year 1 layer. Multiply this by price index to get Y1 $ value LIFO layer. Add to beginning to get 12/31/Y1 $ value LIFO EI.
257
Firm Purchase Commitments
legally enforceable agreement to purchase a specified amount of goods in the future. Must be disclosed in the F/S or notes. If an expected loss results, rule of conservatism says that an estimated loss should be booked.
258
GAAP Valuation of Fixed Assets
Historical Cost; cash or cash equivalent price of obtaining the asset and bringing it to location and condition necessary for its intended use.
259
IFRS Valuation of Fixed Assets - Cost Model
Reported at historical cost adjusted for Accum Depr & Impairment
260
IFRS Valuation of Fixed Assets - Reval Model
A CLASS of FA is revalued to FV and then reported less subsequent Accum Depr and Impairment.
261
IFRS FA Reval Losses
When FV
262
IFRS FA Reval Gains
When FV > Carrying value, revals are reported to OCI and accumulated in equity as revaluation surplus, unless the reval gain reverses a previously recognized loss. Report on I/S to the extent that they reverse a previously reported I/S loss.
263
IFRS FA Impairment
If revalued FA subsequently become impaired, impairment is recorded first by reducing any OCI reval surplus to zero, then reporting further impairment losses on the I/S.
264
Cost of Equipment: Capitalize or Expense
Expense ordinary repairs, capitalize most improvements and replacements. If carrying value of old asset is unknown and asset's life is extended, Dr Accum Dept for the cost of the improvement/replacement.
265
Cost of Land
All costs UP TO excavation are considered land costs. (Purchase price, title and legal fees, clearing of brush, site development, less proceeds from sale of existing buildings, etc.)
266
Cost of Buildings
All costs beginning with excavation forward (Purchase price, alterations, improvements, architect fees, etc.)
267
Investment Property (IFRS)
Land or buildings held to earn rentals or for capital appreciation are classified and reported this way. GAAP does not specify this classification.
268
Investment Property Measurement Models (IFRS)
Cost Model: Historical cost less Accum Depr. FV Model: investment property is reported on the B/S at FV & NOT depreciated.
269
Capitalization of Interest Costs
Exception to the Rule as interest is normally expensed. It SHOULD be capitalized as part of producing FA held during construction. Calculate using accumulated expenditures, do not exceed actual interest costs.
270
Composite vs. Component Depreciation
Composite averages the economic lives of a number of property units and depreciates the entire class over a single life. Component considers each asset individually.
271
Straight Line
Cost-Salvage Value/Estimated Useful Life
272
SYD
SYD is denominator, numerator is # of time periods, declining by 1 each period. Multiply factor by depreciable base (cost of asset - salvage value)
273
Declining Balance
IGNORE Salvage Value. 2 or 1.5 X (1/N) X (Cost-Accum Depr) Plug final period depreciation expense
274
Units of Production
Relates depreciation to estimated production capability of the asset and is expressed in a rate per unit or hour. (Cost-SV)/Est units or hours to = a depr rate per unit. Turns depr into a variable cost rather than fixed.
275
Depletion
allocation of cost for wasting natural resources such as oil, gas, and minerals to the production process.
276
Cost Depletion
GAAP. Base/Recoverable Units = Rate per unit. Rate per unit X units extracted = depletion. If not all units extracted are sold, must allocate depletion between COGS and Inventory.
277
FA Impairment-test for recoverability (US GAAP)
Estimate FCF expected to result from the use of the asset & eventual disposition. If sum of undiscounted expceted FCF
278
FA Impairment-calc of impairment loss (US GAAP) Held for use
Take FV or PV of future net CF, subtract net carrying value to get impairment loss. Write asset down, depreciate the new cost, and do not restore
279
FA Impairment-calc of impairment loss (US GAAP) Held for disposal
Take FV or PV of future net CF, subtract net carrying value, and add cost of disposal to get total impairment loss. Write asset down, do not take any depreciation, and restoration is permitted.
280
FA Impairment-calc of impairment loss (IFRS)
One step model; Take FA "recoverable amount" (greater or value in use {PCVFCF} or NRV = FV - Cost to Sell) and subtract carrying value. If negative, impairment loss. Can reverse if subsequently changes based on calculation.
281
Capital Lease
Sale in substance; called a finance lease (IFRS) or (GAAP) a Capital lease or Sales-Type or Direct Financing Type Lease
282
Lease Bonus
Ex Commission paid to a real estate agent. Classified as an asset (deferred charge) and amortized using the S/L method over the life of the lease.
283
Leasehold Improvements
Permanently affixed to the property and reverts back to the lessor at the termination of the lease. Should be capitalized and depreciated over the lesser of lease life or asset life.
284
Security Deposits
Nonrefundable should be deferred by the lessor (unearned revenue) and capitalized by the lessee (prepaid rent exp) until the lessor considers the deposit earned. Refundable should be treated as a receivable by the lessee and a liability by the lessor until the deposit is refunded.
285
Lessee Capital Lease Criteria (US GAAP)
Must meet one condition to capitalize "OWNS" Ownership transfer at end of lease, written option for bargain purchase, Ninety% of leased property fair value is
286
Lessee/Lessor Finance Lease Criteria (IFRS)
depends on the substance of the transaction rather than on the form of the contract. Substantially all of the risks and rewards inherent in ownership are transferred to the lessee. Same criteria for lease classification for both lessee and lessor.
287
Lessor Sales-Type/Direct Financing Type Criteria (GAAP)
All three must be met (LUC) Lessee "owns" the leased property, Uncertainties do not exist regarding any unreimbursable costs to be incurred by the lessor, and Collectibility of the lease payments is reasonably predictable.
288
Sales-Type Lease
FV of leased property at the inception of the lease differs from the cost or carrying amount to the lessor -> Manufacturer's or Dealer's Profit or Loss. (2 profits - gain on sale & interest income)
289
Direct Financing Lease
FV of leased property at the inception of the lease is the same as the cost or carrying amount to the lessor -> No Manufacturer's or Dealer's Profit or Loss. (1 profit - interest income)
290
Lessee Accounting for Capital Lease
Dr FA-leased property, Cr Liability-obligation under capital lease for lower (lesser) of the FV at the inception of the lease or cost = PV of minimum lease payments (required payments, bargain purchase option, guaranteed residual value)
291
Interest Rate used to Calc PV of Minimum Lease Payments
Use the lower (lesser) of the rate implicit in the lease (if known) or the lessee's incremental borrowing rate (rate available in the market to the lessee)
292
Depreciation of FA - Capital Lease
Capitalized lease assets - Salvage Value = Depreciable Basis / Periods of Benefit = Depreciation Expense (per period)
293
Period of Benefit (Depreciable Life) US GAAP
Use estimated economic life of asset (OW) Use lease term (NS)
294
Period of Benefit (Depreciable Life) IFRS
Shorter (lesser) of the lease term and the useful life of the asset.
295
Lease Liability and Asset Amortization (Lessee)
Create schedule with lease payments, interest on unpaid obligation, reduction of lease liability, and carrying amount of lease obligation. Start with PV of minimum lease payments in column 4, calculate 2 as rate X balance in column 4, subtract from lease payment and calculate down.
296
Sales-Type (Finance) Lease - Gross Investment
Minimum lease payments + any unguaranteed residual value accruing to the benefit of the lessor
297
Sales-Type (Finance) Lease - Net Investment
Gross Investment X PV
298
Sales-Type (Finance) Lease - Unearned Interest Revenue
Gross Investment - Net Investment
299
Sales-Type (Finance) Lease - COGS
Cost of Asset - PV of unguaranteed residual value = COGS (Dr COGS, Cr Inventory)
300
Sales-Type (Finance) Lease - Sales Revenue
PV of minimum lease payments (Dr Lease Payments Rec, Cr Sales Revenue and Cr unearned interest income)
301
Direct Financing (Finance) Lease - Gross Investment
Minimum lease payments + any unguaranteed residual value
302
Direct Financing (Finance) Lease - Net Investment
Gross Investment X PV
303
Direct Financing (Finance) Lease - Unearned Interest Revenue
Gross Investment - Net Investment
304
Recording a Direct Financing Lease
Dr Lease Payments Receivable and Cr Asset & Cr Unearned Interest Rec (No Dr to COGS, Cr Revenue)
305
Sale-Leaseback
Owner (seller-lessee) sells the property and simultaneously leases it back from the purchaser-lessor.
306
Excess Profit of Sale-Leaseback (Operating)
Amount of profit on the sale that exceeds the PV of the minimum lease payments (Sale price-asset NBV-PV min. lease payment = Excess Gain)
307
Excess Profit of Sale-Leaseback (Capital)
Amount of profit on the sale that exceeds the recorded amount (lesser of FV of leased prop or PV of minimum pymts) of the asset (Sale price-asset NBV-Leaseback asset = Excess Gain)
308
Amount of Deferred Gain in Sale-Leaseback (GAAP)
Determined by the retained rights to remaining use of the "leaseback" property. Major (>90%) / Less than Substantially All but Greater than Minor (10%-90%) / Minor (
309
Sale-Leaseback "Substantially All" Rights Retained >90%
Usually capital leases; defer all gain and amortize over the leased asset
310
Sale-Leaseback Rights Retained 10%-90%
Defer gain up to the PV of the Minimum Leaseback Payments (Operating Lease) or Capitalized Asset (Capital Lease). Gain in excess of this amount is recognized immediately.
311
Sale-Leaseback Minor Portion of Rights Retained
Recognize gain or loss at the time of sale-leaseback transaction. Gains are not deferred.
312
Sale-Leaseback Losses
Recognize Immediately unless artificial loss. When Sale price
313
Amortization of Deferred Gain - Capital Leaseback
Any deferred gain or loss is amortized in proportion to the amortization of the leased asset
314
Amortization of Deferred Gain - Operating Leaseback
Any deferred gain or loss is amortized in proportion to the gross rental expense over the life of the lease
315
Sale-Leaseback Finance Lease Profit - IFRS
Deferred and amortized over the lease term
316
Sale-Leaseback Operating Lease Profit - IFRS
When SP>FV,profit S/B deferred & amortized over period asset is to be used. SP
317
Subleases
Will be Capital if the original lease meets either O or W of OWNS. Otherwise, it is operating. If original is operating, sublease is also operating.
318
Bonds Issued at Discount
Market Rate > Face Rate. Ex: Issue 600 $1000 10% bonds at 99. Bond issue proceeds = $594,000.
319
Bonds Issued at Premium
Market Rate
320
Convertible Bonds Nondetachable Warrants
Convertible bond itself must be converted into capital stock.
321
Convertible Bonds Detachable Warrants
Bond NOT surrendered upon conversion, only the warrants + cash representing the exercise price of the warrants. Warrants can be bought and sold separately from the bonds.
322
J/E Bonds Issued at Discount
To Borrower: Dr Cash, Dr Discount on Bond Payable, Credit Bond Pay. To Investor: Dr Investment in Bonds and Cr Cash
323
J/E Bonds Issued at Premium
To Borrower: Dr Cash, Cr Premium on Bond Payable, Credit Bond Pay. To Investor: Dr Investment in Bonds and Cr Cash
324
Unamortized Discount on Bond Payable
Contra account to Bonds Pay; Presented on B/S as direct reduction from the face (par) value of the bonds to arrive at the carrying value of the bonds at any given time.
325
Unamortized Premium on Bond Payable
Presented on B/S as direct addition to the face (par) value of the bonds to arrive at the carrying value of the bonds at any given time.
326
Bond Issue Costs (GAAP)
Transactions costs of the bond issue. Ex: legal fees, accounting fees, etc. These are deferred charges (asset) and amortized into expense using S/L method.
327
Bond Issue Costs (IFRS)
Bond issue costs are NOT recorded as a separate asset; they are deducted from the carrying value of the liability and amortized using the effective interest method.
328
S/L Method of Discount/Premium Bond Amort
NOT GAAP and prohibited under IFRS - but GAAP allows if not materially different from the effective interest method. Premium or Discount / # of periods the bond is outstanding = Periodic Amortization. Interest Expense = Payment amount (+/-) Amort
329
Effective Interest Method (AKA Constant Yield Method)
Required by IFRS/GAAP. Interest Expense = Effective Interest Rate X Carrying Value at the BEGINNING of the period. Amort = diff between interest exp & cash interest paid at stated rate.
330
Effective Interest Method Balance Sheet Effect
Bond Face X Coupon Rate = Interest Paid. Interest Expense (from I/S) - Interest Paid = Amortization
331
Effective Interest Method Income Statement Effect
Net Carrying Value X Effective Interest Rate = Interest Expense. Interest Expense - Interest Paid (from B/S) = Amortization
332
Accrued Interest for Bond Issues
Amount of Interest accrued since last interest payment is added to the price of the bond. J/E Dr Cash, Dr Discount on Bonds Pay, Cr Bonds Pay, Cr Bond interest expense. When first interest payment is due, reverse the int exp. Dr Bond Interest Exp, Cr Cash.
333
Year End Bond Interest Accrual
Credit a payable if the date of a scheduled payment and the issuer's year-end do not agree.
334
Bond Sinking Funds
Non-current, restricted asset; Trustee fund (restricted cash) pursuant to the indenture wherein the company contributes money each year so that at maturity, there is a sum available to repay the entire liability.
335
Bond Sinking Fund Reserve
Appropriation of R/E to indicate to the shareholders that certain R/E are being accumulated for bond sinking fund purposes
336
Calculation of Periodic Sinking Fund Payments
Use future value of annuity; Dr. Bond Sinking Fund and Cr Cash. For fund earnings, Dr. Bond Sinking Fund, and Cr Interest Revenue
337
Serial Bonds
Alternative to Sinking Funds, Mature in Installments. Allow issuer to match maturity dates with org's cash flow requirements.
338
Serial Bonds Amortization
Either effective interest method (just the same as for term bonds) or Bonds Outstanding Method (not GAAP) which is like SYD. Fraction of Bonds outstanding (declining percentage) X Premium
339
Convertible Bonds
Nondetachable warrants, often issued for more than face value because of the value of the conversion feature. Issuance price is allocated to the bonds because difficult to assign a specific value to the conversion feature. (GAAP)
340
Book Value Method for Convertible Bonds
No Gain or Loss is recognized. At conversion, the bond payable and related premium or discount are written off and C/S is credited (at par). APIC is credited for the excess of the bond's carrying value over the stock's par value less any conversion costs (plug). NO I/S impact, C/S and APIC ONLY.
341
Market Value Method for Convertible Bonds
NOT GAAP. I/S impacted because a gain or loss is recognized. At conversion, the bonds payable and related premium are written off, and C/S is credited at par. The credit to APIC is the excess of market price of the stock over par value. Diff between market value of the stock and the book value of the bonds is a recognized gain or loss.
342
Bonds Sold with Detachable Warrants
Warrants are traded separately and are considered to be a separate financial instrument. A value should be assigned to the conversion feature at the time of issue (Cr to APIC - warrants) Dr. Cash, Cr Bonds Pay, Cr APIC - Warrants.
343
Warrants only Method for Detachable
used only if the FV of the warrants is known. Upon issue, Dr Cash, Dr Bonds Pay, Cr APIC - Warrants, and plug a premium or discount on bonds pay. At exercise, reverse the credit to APIC-warrants, Cr Common Stock, and Plug a credit to APIC based on the cash paid and the balance of the entry.
344
Market Value Method for Detachable
used if both the FV of the warrants and bonds are known. Sales price is allocated to the bonds and warrants based on relative market value (like a weighted average)
345
Extinguishment of Debt
Call or retirement of bonds before maturity. Usually generates a gain or loss depending on if issued at a premium or discount along with current market prices. Adjust for bond issue costs reported as an asset, related unamortized discount or premium, and the difference between the face value and the reacquisition proceeds.
346
Gain or Loss on Extinguishment of Debt
reacquisition price - net carrying amount; only extraordinary if unusual and infrequent
347
Defined Benefit Plan
Benefits received at retirement determined by a formula.
348
Defined Contribution Plan
Contributions made to the plan are determined by a formula. Ex: 401K
349
Funded status of Defined benefit plans
Overfunded has assets > liabilities. Underfunded has assets
350
Accumulated Benefit Obligation
actuarial PV of benefits attributed by a formula based on current and past compensation levels (uses current salary)
351
Projected Benefit Obligation
actuarial PV of all benefits attributed by the plan's benefit formula to employee service rendered prior to that date. It only uses an assumption as to future compensation levels. This is used because it is the most conservative value (highest liability)
352
Prior Service Cost
Cost of Benefits based on service granted for subsequent plan amendments or retroactive credit given. Increases the PBO in the period of the amendment or initiation and should be amortized to pension expense over the future service periods of the affected employees
353
Income Statement Presentation of Pension Expense
Net Periodic Pension Cost - SIR AGE / Service Cost (Current), Interest Cost, Return on Plan Assets, Amort of Prior Service Cost, Gains and Losses, Amort of existing net obligation or net asset. Gains and returns are subtractions. Dr Net periodic pension cost, Cr Pension Benefit Liability & Cr. OCI
354
Current Service Cost-Pension Expense
PV of all benefits earned in the period, or the increase in the PBO during the current period. This is calculated by an actuary and is normally given on the exam.
355
Interest Cost for Pension Expense
Increase in the PBO due to the passage of time. Discount rate normally given.
356
Return on Plan Assets-Pension Expense
GAAP allows the use of either the actual return on assets or the expected return on assets. If expected is used, the difference between that and the actual must be recognized in OCI each period and amortized to pension expense over time with any actuarial gains and losses.
357
Amortization of unrecognized prior service cost
PSC increases the PBO and is recorded as unrecognized PSC in OCI. It is amortized to pension expense over the plan participant's remaining years of service. Calculated using the unrecognized prior service cost balance at the beginning of the period.
358
Gains and Losses for Pension Expense
Two sources; actuarial change in assumption (actuarial gains and losses) or difference between expected and actual return on plan assets when expected is used to calculate pension expense. GAAP allows the gains and losses to be recognized in the perion incurred or to record them in OCI and amortize them under the corridor approach, for smoothing purposes.
359
Corridor Approach for Pension Expense Gains/Losses
Unrecognized gain or loss is amortized over the employee's average remaining service period, if as of the beginning of the year, this amount >10% of the FV of plan assets (Assets) or PBO (Liabilities). If so, unrecognized gain or loss - 10% of Liab/Assets = Excess. Excess / Avg remaining service life = amort of unrecognized gain or loss
360
Amort of existing net obligation or net asset
PBO - FV Plan Assets = Initial unfunded obligation. Initial unfunded obligation / (greater of 15 years or average employee job life) = minimum amort.
361
B/S treatment of Pension Plan Contributions
Increases plan's asset if overfunded or decreases liability if underfunded. Dr Pension benefit asset/liab & Cr Cash
362
Pension Plan Asset
Overfunded. Noncurrent. FV Plan assets > PBO. For B/S, aggregate & report in total as a noncurrent asset
363
Pension Plan Liability
Underfunded. FV Plan assets
364
Reconciliation of Beginning & Ending Funded Status
Beginning funded status + Contrib (+/-) SIRAGE = Ending Funding Status
365
AOCI for Pension Expense (AGE)
Unless the company chooses to recognize the pension gains and losses immediately, AGE must be reported in AOCI. Tax Effects of these items must also be recognized in AOCI.
366
J/E for Prior Service Cost and Pension Losses
Dr. OCI, Cr. Pension benefit asset/liability. These decrease the funded status of the pension plan and are recorded in the period incurred. A deferred tax asset also may be recognized in OCI as an offset to the unrecognized PSC or pension loss. Dr Deferred Tax Asset, Cr Deferred Tax benefit - OCI
367
J/E for Amort to Pension Expense for Prior Service Cost & Pension Losses
Reclassified out of OCI and recognized as a component of pension expense. Dr. Net periodic pension cost, Cr OCI. Also - related deferred tax benefit should be removed from OCI and recorded on I/S. Dr Deferred Tax Benefit - OCI, Cr Deferred Tax Benefit - Income Statement
368
AOCI Pension Gains
Increase the funded status of the pension plan. Dr Pension benefit asset/liability, Cr OCI. Also, Dr. Deferred tax expense - OCI, Cr. Deferred Tax Liability
369
Amort to Pension Expense of Pension Gains
Reclassification Dr OCI, Cr Net Periodic Pension Cost, & Dr. Deferred Tax Expense - Income Statement, & Cr. Deferred Tax Expense - OCI
370
Pension Settlements
Occur when pension plan assets increase in value to the point that sale of the pension plan assets allows a company to purchase annuity contracts to satisfy pension obligations
371
Pension Curtailments
Events that reduce the expected remaining years of service for present employees or eliminate accrual of defined benefits
372
Termination Benefits
Arise when employees are paid to terminate their rights to future pension payments
373
Postretirement Benefits other than Pensions-Accrual Requirements
Employee service already rendered & employees' rights accumulate or vest (liability) AND payment is probable & amount of benefits can be reasonably estimated (contingency rules)
374
Accumulated Postretirement Benefit Obligation
PV of future benefits that have vested as of the measurement date
375
Expected Postretirement Benefit Obligation
PV of all future benefits expected to be paid as of the measurement date
376
I/S Approach to Postretirement Benefits
Benefit-years-of-service approach is used; PBO is accrued during the period the employee works (the attribution period)… Usually begins at employee's date of hire and ends at vesting date… NOT when retired and NOT when paid
377
Components of "Net Postretirement Benefit Cost"
Same as Pensions (SIRAGE, except that E: Amort or Expense of the Transition Obligation is different.
378
Amort. Expense of the Transition Obligation
One of two ways: immediate expense recognition by recording the entire obligation in one year as the effect of a change in accounting principle; OR delayed recognition by using S/L amort over the remaining service life of plan participants. (use greater of 20 years or avg remaining service period)
379
Funded status of Postretirement Benefit Plans
FV of Plan Assets - APBO = Funded status. Postretirement Benefit Plan Asset if overfunded and Liability if underfunded.
380
AOCI - Postretirement Benefit Plans
Same treatment as pensions (AGE of SIRAGE)
381
Deferred Compensation Liability Recognition
Book at the PV of benefits expected to be provided in exch for the employee's service to date. Benefits should be recognized in a systematic and rational manner over the period of service.
382
Intraperiod Tax Allocation
IDEA PUFER; I shown gross, then net of tax; DEA PUFER shown net of tax
383
Interperiod Tax Allocation
recognize through the matching principle the amount of current and future tax related to events that have been recognized in financial accounting income
384
Permanent Differences
Do not affect the deferred tax computation; they affect current tax only; could be either a nondeductible or a nontaxable item that does not reverse. Ex: tax-exempt interest, Fines, etc.
385
Temporary Differences
These affect both current and deferred tax
386
Accounting for Interperiod Tax Allocation
Total income tax expense for the year = current income tax + deferred income tax. (Current income tax payable + change in the deferred tax asset or liability from the beginning to the end of the period.
387
Deferred Income Tax expense/benefit
Change in the deferred tax liability or asset account on the B/S from the beginning of the year to the end of the year (called the B/S approach)
388
Deferred Tax Liability
For Income, F/S 1st-tax return later. Since taxable later, future tax liability. For expense, tax return expense 1st;F/S expense later. Since tax deductible first, future tax liability. Ex: income: installment sales; expenses: depreciation expense
389
Deferred Tax Asset
For income, tax return income first-F/S income later. Since taxable income first, Prepaid Tax Benefit (asset). For expense, F/S expense 1st-tax deduction later. Since tax deduction later, future tax benefit (asset). Ex: Prepaid rent, bad debt expense.
390
Valuation Allowance
Contra Asset account used to net against deferred tax asset for the portion that is not expected to be realized. These are NOT permitted under IFRS.
391
Uncertain tax positions
some level of uncertainty as to the sustainability of a particular tax position taken by a company. GAAP requires a more likely than not level of confidence before reflecting a tax benefit in the F/S.
392
Two-step approach to analyzing uncertain tax positions
1-test for "more likely than not" if a dispute with the taxing authority were taken to the court of last resort. 2-Measurement - recognize the largest tax benefit that has a >50% likelihood of being realized upon ultimate settlement with the taxing authority
393
Enacted Tax Rate
Used for deferred taxes. When tax rates change and are voted into law and forthcoming (for certain) - the new rates should be applied to taxable items. DO NOT use anticipated, proposed, or unsigned. Prospectively change - do not go backwards. Adjustment for period of change is recognized in income from continuing ops.
394
Net temporary adjustment for deferred tax account
Adjustment is for the change in deferred taxes (asset or liability) due to the current year's events. Income tax expense/benefit is the difference between the beginning balance in the deferred tax account and the properly computed ending balance in the account.
395
Balance Sheet Presentation of Deferred Tax Assets & Liabilities
Classify based on the related asset or liability for financial reporting (current/noncurrent) "Mama." If no related asset or liab. Then classify based on expected reversal date of the temporary difference.
396
Presentation of multiple deferred tax assets and/or liabilities
All deferred tax assets and liabilities classified as current must be netted/offset and presented as one amount (either net current asset or a net current liability). Same rules for noncurrent.
397
Operating Loss Carrybacks
Used to reduce current taxes due or receive a refund for a prior period. They are a tax benefit (asset) and s/b recognized to the extent they can be used in the period they occur. Dr. Tax refund receivable, Cr. Tax Benefit
398
Operating Loss Carryforwards
20 years. Valuation allowance may be necessary. Tax effects are recognized to the extent that they are more likely than not to be realized. Dr. Deferred Tax Asset, Cr. Tax Benefit. (debit reduces taxes payable in the future and credit reduces NOL in the current period)
399
Investee's Undistributed Earnings
DRD. Tax Return: taxable income is the dividend received. The DRD is based on the % ownership. DRD is permanent difference. GAAP F/S - Equity method says to report percentage of investee's income for an investment between 20%-50%. This creates a temp difference. Presumption is that all undistributed earnings will be distributed to the investor/parent at some point and will then reverse.
400
Capital Stock (Legal Capital)
Amount of Capital that must be retained by the corporation for the protection of creditors. Par value of both P/S and C/S is included.
401
Book Value per Common Share
Common S/H Equity / Common Shares Outstanding
402
Common S/H Equity Formula
Total S/H Equity - Preferred Stock Outstanding - Cumulative Preferred Dividends in Arrears
403
Preferred Stock
Preference relating to liquidation, preference relating to dividends, which could be participating, non-participating, cumulative, or non-cumulative.
404
Cumulative Preferred Stock
All or part of the preferred dividend not paid in any year accumulates (called dividends in arrears) and must be paid in the future before C/S can be paid.
405
Participating Preferred Stock
Preferred shareholders share (participate) with C/S holders in dividends in excess of a specific amount. Fully participating - participate without limit. Partially participating - preferred S/H participate to a limited extent.
406
Convertible Preferred Stock
May be exchanged for C/S at the option of the stockholder at a specified rate.
407
Mandatorily Redeemable Preferred Stock
Issued with a maturity date, similar to debt; must be bought back by the company on the maturity date.
408
Additional Paid In Capital
Contributed capital in excess of par or stated value. Could arise from a variety of transactions such as bond conversion, sale of T/S at a gain, or the issuance of liquidating dividends
409
Appropriations in R/E
Discloses to shareholders that some of R/E are not available to pay dividends b/c they have been restricted for legal or contractual reasons.
410
Quasi-Reorganization
Accounting adjustment that revises the capital structure as though it had been legally reorganized. When a corp has a significant deficit in R/E, the deficit can be eliminated and allow a "fresh start." Requires S/H formal approval.
411
Procedure for quasi-reorganization
1. Revalue assets to current FV & liab to PV. No net increase in net assets is permitted and the write-down is charged directly to R/E. 2. Bring R/E to 0 against APIC. If APIC is insufficient, par or stated value can be reduced, thus reducing capital stock.
412
Treasury Stock
Corp's own stock that has been issued to S/H and subsequently reacquired.
413
Cost Method of Accounting for T/S
T/S are recorded and carried at their reacquisition cost. Gain or loss determined when T/S is reissued or retired. APIC-T/S is Dr for Loss and Cr for gains. If APIC-T/S is insufficient to cover losses, R/E can be decreased to absorb the loss. R/E can never be increased through T/S transactions.
414
Par Method of Accounting for T/S
T/S are recorded by reducing the amounts of par (or stated) value and APIC received at the time of the original sale. T/S is debited for par, APIC-C/S is Dr (reduced) for the pro rata share of the orig issue price attributable to the reacquired shares. APIC-T/S is credited for gains and debited for losses when T/S is repurchased at prices that differ from the orig selling price. Losses may also decrease R/E if the APIC-T/S cannot absorb them.
415
Date of Dividend Declaration
Date the BOD formally approves a dividend. Dr Exp & Cr Liability
416
Date of Dividend Record
Date the BOD specifies to whom the payments are to be made
417
Property (In-Kind) Dividends
Distribution of non-cash assets to S/H. On declaration date, property to be dist is restated to FV and any gain/loss should be recognized in income.
418
Liquidating Dividends
Reduce total paid in capital. When dividends to S/H exceed R/E. Charged first to APIC then to C/S or P/S as appropriate.
419
Stock Dividends
No dividend income reported by S/H. If small (25%) reduce R/E by par (don't hit APIC). No change to equity, just a change in form.
420
Stock Splits
No J/E; par is reduced per share proportionately. No change in BV.
421
Noncompensatory Stock Options
no J/E until stock is purchased, then regular entry.
422
Compensatory Stock Options
valued at FV of the first options issued. Dr Exp & Cr APIC-options each period. When exercised, Dr Cash, Dr APIC-options to reverse, Cr C/S at par & Cr APIC-C/S as a plug.
423
Option Price/Exercise Price
Option price is the price at which the stock can be purchased pursuant to the option contract.
424
Exercise Date of Option
Date by which the option holder must use the option to purchase the underlying
425
Grant Date of Option
date the option is issued. No J/E
426
Vesting Period
period over which the employee has to perform services in order to earn the right to exercise the options.
427
Simple Capital Structure
Only one type of stock outstanding: C/S - Only must report base EPS for income from continuing ops and for NI on the face of the I/S.
428
Complex Capital Structure
Must report basic and diluted EPS for income from continuing ops and for NI on the face of the I/S. Having at least one of convertible securities, warrants or other options, contingent shares, etc.
429
Basic EPS Formula
(NI-PD)/WACSO or Income available to common S/H / weighted average # of C/S outstanding
430
Stock dividends and stock splits in calculation for EPS
treat as though they occurred at the beginning of the period. Shares outstanding or split must be restated for the portion of the period before the stock dividend/split.
431
Diluted EPS Formula
Basic EPS + Pref Divs + Bond Interest Net of tax / WACSO New. (Income available to C/S S/H + interest on dilutive securities) / WACSO assuming all dilutive shares are converted to C/S.
432
Dilution from Options, Warrants, and their Equivalents
No change to numerator; only increase denominator.
433
T/S Method for dilution
Assumes that proceeds from the exercise of stock options, warrants, and their equivalents will be used to repo T/S at the prevailing market price.
434
Dilutive versus Antidilutive
Conservatism. Assume that if an option is in the money, it will be converted. If not in the money, assume that it will not be exercised.
435
Dilution from Convertible Bonds
Add Interest expense, net of tax, to the numerator, due to the assumed conversion of bonds to C/S. Add to denominator the common shares associated with the assumed conversion.
436
Antidilution from Convertible Bonds
Rule of conservatism. Each issue should be considered separately in sequence from most to least dilutive with options and warrants generally included first. Do not include results if antidilutive.
437
Dilution from Convertible P/S
Adjust the numerator as P/S divs do not affect NI, add to the denominator the # of shares assoc w/assumed conversion @ 100%. Antidilution rules apply.
438
Operating C/F
Transactions reported on the I/S, CA & CL excluding current notes pay and current portion of L/T debt, which are reported in financing CF
439
Investing C/F
Noncurrent assets
440
Financing C/F
Debt (including noncurrent liab), interest bearing, and equity
441
Cash equivalents
S/T liquid investments quickly convertible to cash, so near maturity that orig maturity is
442
Overdrafts
GAAP says they are financing, IFRS says cash
443
Two ways to prepare a statement of C/F
Indirect - is a recon. Starts with NI and adjusts toward C/F. Direct - shows classes of C/F. Operating is the only difference. Investing and financing are the same. GAAP and IFRS encourage use of the direct method.
444
Direct Method of C/F
operating section shows the major classes of operating cash receipts and disbursements. A recon of NI to net C/F is required in a separate schedule under GAAP. IFRS does not require the recon.
445
Indirect Method of C/F
Start with NI per I/S and work toward C/F.
446
Operating Activities (C/F)
change in Operating Assets - all CA except cash & cash equiv. + change in Operating Liab - all non-interest bearing liabilities
447
Gains and Losses (C/F)
Non-operating. Investing.
448
Supplemental Disclosures for Indirect Method
Cash paid for interest + income taxes. Also - for indirect or direct, must disclose schedule of noncash investing and financing activities as well as disclosure of accounting policy.
449
Working Capital
CA-CL, often a measure of solvency of a company
450
Current Ratio
CA/CL
451
Cash ratio
Cash equivalents + Marketable Securities / CL (no receivables)
452
AR Turnover
net credit sales / avg net receivables
453
AR turnover in days
average net receivables / (net credit sales/365)
454
inventory turnover
COGS / average inventory
455
inventory turnover in days
average inventory / (COGS/365)
456
operating cycle
AR turnover in days + inventory turnover in days
457
WC Turnover
sales / average working capital
458
total asset turnover
net sales / average total assets
459
net profit margin
NI / net sales
460
return on total assets
NI / average total assets
461
ROI
NI + IE(1 X tax rate) / Avg (L/T liabilities + equity)
462
ROE
NI-Preferred dividends / average common equity
463
debt / equity
total liabilities / common S/H equity
464
debt ratio
total liab / total assets
465
TIE
recurring income before taxes and interest / interest
466
operating cash flow / total debt
operating cash flow / total debt
467
Fair Value
Exit Price; price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal (or most advantageous) market. This is what the market is willing to pay, not what you want for it. Does not include transaction costs but can be considered in determination of the most advantageous market
468
Ordely Transaction
Cannot be a forced transaction; no liquidation; no bankruptcy
469
Principal Market
Market with the greatest volume or level of activity; used as FV even if a more advantageous price exists in a different market
470
Most Advantageous Market
The market with the best price for the asset or liability, after considering transaction costs. Although transaction costs are used in the determination, they are not part of the FV calculation.
471
FV Measurement Framework - Valuation Techniques
Market approach - uses prices and other relevant information from market transactions involving identical or comparable assets; income approach - PV discounted cash flows; cost - current replacement cost
472
Fair Value Hierarchy of Inputs
Prioritizes the inputs that can be used in valuation techniques. Level 1, 2, 3.
473
Fair Value Hierarchy of Inputs - Level 1
Most reliable and should be used when available; Quoted prices in active markets for identical assets or liabilities that the reporting entity has access to on the measurement date
474
Fair Value Hierarchy of Inputs - Level 2
Inputs other than quoted market prices that are directly or indirectly observable for the asset or liability (similar assets or liab in active markets or identical or similar assets in markets that are not active)
475
Fair Value Hierarchy of Inputs - Level 3
Unobservable. Reflection of entity's assumptions and should be based on best available information. (DCF)
476
Admission of Partner - Purchase or Sale of Existing Partnership Interest
Outside of partnership transaction; consent of all partners, no journal entry, only change name of capital account
477
Admission of Partner - Formation of Partnership
Assets are valued at FV and liabilities assumed are recorded at their present value
478
Admission of Partner - Creation of New Partnership Interest w/Investment of Additional Capital - Exact Method
Equal to book value. No GW, no bonuses. Exact amount new partners will have to pay to have a capital account in exact proportion to everyone existing. Finger math.
479
Admission of Partner - Creation of New Partnership Interest w/Investment of Additional Capital - Bonus Method
Either bonus to new partner where they pay less or bonus to existing partners where the new partner pays more. Add existing capital accounts + new partner's contribution. Divide total by # of partners. Subtract contrib from new partner. If negative-bonus to existing partners based on profit sharing ratio. If positive - charge existing partners capital accounts based on profit sharing ratios
480
Admission of Partner - Creation of New Partnership Interest w/Investment of Additional Capital - GW Method
GW recognized based upon the total value of the partnership interest implied by new partner's contribution. Multiply new partner's contrib X total number of partners = implied value. Subtract out balance of capital accounts; Dr GW and Cr capital accounts according to Profit ratios
481
Partnership Profit and Loss distribution
Distributed equally in the absence of an agreement. INTEREST, SALARIES, and BONUSES are deducted prior to any distribution.
482
Withdrawal of a Partner - Bonus Method
Write assets to FV first, then difference between the balance of the withdrawing partner's capital account and the amount the person paid (bonus) is allocated among remaining partner's capital accounts in accordance with their profit and loss ratios.
483
Withdrawal of a Partner - GW Method
Write assets to FV first, then record the implied GW in the partnership based on the payment to the withdrawing partner. Amount of GW is allocated to ALL of the partners in accordance with their profit and loss accounts.
484
Partnership Liquidation-Asset Distribution
Creditors, including partners who are creditors, all possible losses, convert noncash assets, gain or loss realization, capital deficiency, right of offset, remaining partners charged, distribution
485
VIE
Must consolidate if 3 conditions met: Variable Interest (financial stake in another company), VIE (does not have equity investors with voting rights or lacks sufficient financial resources to support its activities), and Primary Beneficiary - power to direct activities of VIE.
486
SPE - IFRS
Specific type of VIE created by a sponsoring company to hold assets or liabilities, often for structured financing purposes.
487
ARO
legal obligation assoc w/the retirement of tangible long lived asset that results from the acquisition, construction, or development and/or normal operation of a long-lived asset. (Cumulative accretion expense + cumulative depreciation expense)
488
ARO Recognition
duty or responsibility, little or no discretion to avoid, obligating event
489
Initial Measurement of ARO
FV=PV of future obligation. Dr ARC (capital asset) and Cr ARO.
490
Subsequent Measurement of ARO
ARO liability is adjuted for accretion expense due to the passage of time and the ARC asset is depreciated
491
Accretion Expense
"Interest expense" every year on the ARO. Increases the ARO liability due to the passage of time calculated using the appropriate accretion rate. Dr. Accretion Expense, Cr. ARO
492
Depreciation Expense of ARC
Decreases the ARC asset reported on the B/S. Each year, Dr Depr Expense & Cr Accum Depr - ARC
493
Revisions to Cash Flow Estimates (ARO)
Upward revisions to undiscounted cash flows are "new" liabilities - use current discount rate. Downward revisions require removal of old liabilities - use historical or weighted average discount rate
494
Transfer of Assets / Troubled Debt Restructuring
recognize ORDINARY loss or gain on adjusting asset to FV from BV. Recognize possible Extraordinary gain on carrying amount of the payable minus the newly adjusted FV of the asset transferred. (Never a loss)
495
Transfer of Equity Interest / Troubled Debt Restructuring
recognize possible Extraordinary gain on the carrying amount of the payable - the FV of equity transferred (amount of debt discharge)
496
Accounting for modification of terms
Handle prospectively; debtor does not change the carrying amount unless the carrying amount exceeds the total future cash payments specified by the new terms. If so, debtor should reduce the carrying amount and recognize the difference as a gain.
497
Trade Accounts Payable - Gross Method
Records purchases without regard to the discount. If invoices are paid within the discount period, a purchase discount is credited.
498
Trade Accounts Payable - Net Method
Purchases and AP are recorded net of the discount. If payment is made after the discount period, a purchase discount lost account is debited.
499
Notes Payable and Receivable
Must be recorded at PV at the date of issuance so that income or loss for the period is not distorted; if note rate is unreasonable, impute the rate by using the effective interest method.
500
F/S presentation of the discount or premium
From using PV on cash and noncash transactions is inseparable from the related asset or liability. Premium or discount valuation accounts are added to or deducted from their related asset or liability on the B/S
501
Estimated Liabilities - Premiums
offers to stimulate sales; cost is charged to sales in the period that benefit from the offer. # of outstanding offers must be estimated accurately to reflect the current liability at the end of each period.
502
Estimated Liabilities - Warranties
liability account must be established if the cost of the warranty can be reasonably estimated. Entire liability should be accrued in the year of the sale to match the cost with the corresponding revenue.
503
Estimated Liabilities - Service Contracts
Cash received in advance of when the related expense occurs. Unearned revenue and are estimated and accrued in the financial statements.
504
Accrued Liabilities
expense recognized or incurred but not yet paid (Ex: Bonuses)
505
Classification of contingencies (GAAP)
Probable - likely to occur ; reasonably possible - more than remote, but less than likely ; remote - slight chance of occurring
506
Loss Contingencies-Loss Probable & Can Be Reasonably Estimated
Record JE; Dr Exp/Cr Liab for the best estimate of the loss to be recognized. If a range is given, the lower of the range is used for GAAP. Mid range for IFRS.
507
Loss Contingencies-Loss Reasonably Possible
Disclose but do not accrue
508
Loss Contingencies-Loss is Remote
Ignore but disclose if made for "guarantee type" remote loss contingencies such as co-x debts, guarantee to repo receivables, commercial bank obligations under standby letters of credit
509
Gain Contingencies
Do not accrue (conservatism) but disclose, being careful not to mislead as to the likelihood of realization
510
Subsequent Event
event or transaction occurring after B/S date but before the F/S are issued or available to be issued (2 types: recognized and nonrecognized)
511
Recognized Subsequent Event
Existed at B/S date. Must be recognized in the F/S.
512
Nonrecognized Subsequent Event
Did not exist at B/S date. Do not accrue, but disclosures should be made.
513
Subsequent Event Evaluation Period
Public companies - through the date that the F/S are issued. All other entities - date that the F/S are available to be issued.
514
Fair Value Option for Financial Instruments
On specified election dates, entities may choose to measure eligible financial instruments at FV. Unrealized gains and losses are reported in earnings; the option is irrevocable and is applied to individual financial instruments.
515
Derivative Instrument
financial instrument that derives its value from the value of some other instrument and has all 3 of: 1-underlying and one or more notional amounts or payment provisions (or both) 2-requires no initial net investment 3-terms require or permit a net settlement
516
Hedging
use of a derivative to offset anticipated losses or to reduce earnings volatility
517
Option Contract
gives one party the right but not the obligation to buy (call) or sell (put) something to the other party at a specified price. Option buyer must pay a premium to the seller to enter into the contract.
518
Futures Contract
Publicly Traded agreement between two parties to exchange a commodity or currency at a specified price on a specified date. One party takes a long position (buy) and another takes a short position (sell)
519
Forward Contract
Privately Negotiated contract, similar to futures
520
Swap Contract
Private agreement between two parties to exchange cash payments. (interest rate swaps, currency exchange swaps, equity swaps, commodity swaps, etc.); Equivalent to a series of forward contracts
521
B/S treatment of Derivative Instruments
Either assets or liabilities depending on the rights or obligations under the contract (all measured at FV)
522
Gains and Losses for Derivatives that are not designated as hedges
recognized on I/S
523
Gains and Losses for Derivatives designated as Fair Value Hedge
designed to hedge the exposure to changes in fair value of a recognized asset or liability. Included in current earnings as an offset to the gain/loss from the change in FV of the hedged item
524
Gains and Losses for Derivatives designated as Cash Flow Hedge
designed to hedge the exposure to variability in expected FCF attributed to a particular risk. Gains/losses on the ineffective portion are reported in current income. Gains/losses on the effective portion (80%-125%) are deferred and reported as a component of OCI until the hedged transaction impacts earnings
525
Gains and Losses for Derivatives designated as Foreign Currency Fair Value Hedge
designed to hedge the exposure to changes in fair value of foreign currency translation. Included in current earnings as an offset to the gain/loss from the change in FV of the hedged item
526
Gains and Losses for Derivatives designated as Foreign Currency Cash Flow Hedge
designed to hedge the exposure to variability in the FV of foreign currency translation. Gains/losses on the ineffective portion are reported in current income. Gains/losses on the effective portion (80%-125%) are deferred and reported as a component of OCI until the hedged transaction impacts earnings
527
Gains and Losses for Derivatives designated as Foreign Currency Net Investment Hedge
designed to hedge the exposure to a net investment in the FV of foreign currency transaction. Gains/losses on the ineffective portion are reported in current income. Gains/losses on the effective portion (80%-125%) are deferred and reported as a component of OCI as a cumulative translation adjustment
528
Dual Objectives of Governmental and NFP accounting and reporting
Operational accountability (F/S) and Fiscal accountability ($ used for purpose intended)
529
Fund
Sum of $ or other resource segregated for the purpose of carrying on a specific activity or attaining certain objectives in accordance with specific regulations, restrictions, or limitations
530
Fund structure - three types
Governmental, Proprietary, Fiduciary
531
Government-wide presentation of F/S
Full accrual accounting and economic resources measurement focus
532
Dual Perspective Reporting
Governmental Fund Recon - to the governmental activities section; enterprise funds are carried into business-type activities, internal service funds are often merged with governmental activities, fiduciary funds are presented individually as fund F/S, excluded from the govt wide F/S presentation.
533
Governmental Funds
No profit motive. GRSPP (General, Spec Revenue, Debt Service, Cap Projects, Permanent). Source, use, and balance of the gov't current financial resources and the related current liabilities. Current financial resources measurement focus; current assets and liabilities only (no fixed assets and no long term debt) Expenditures NOT expenses
534
Proprietary Funds
Full accrual accounting and economic resources measurement focus; SE (internal service funds, enterprise funds) Carries everything. Statement of Net Position, Stmt of Revenues, Expenses, & Changes in Fund Net Position. Expenses, not expenditures
535
Fiduciary Funds
Full accrual accounting and ecomomic resources measurement focus; PAPI (pension, agency, private purpose, investment trust) Carry everything; Stmt of Fiduciary Net Position; Stmt of Changes in Fiduciary Net Position
536
MAC-GRSPP / SPACE
Modified Accrual Current Fin Resources measurement focus GRSPP / SE PAPI Accrual accounting, Carry FA and LTD, Economic resources measurement focus
537
Governmental B/S Measurement Focus - Current
(GRSPP) Modified Accrual; only CA & CL are included on the B/S. No FA & No non-current liabilities are reported
538
Governmental B/S Measurement Focus - Economic
(SE PAPI) Full Accrual; All assets are included on the B/S, including deferred transactions classified as deferred ouflows/inflows. Net position is reported in 3 components: net investment in capital assets, restricted, and unrestricted.
539
Governmental I/S Basis of Accounting - Modified
(GRSPP) Revenue is recognized when measurable and available (collectible within 60 days of year end). Expenditures are generally recorded when the related fund liability is recorded
540
Governmental I/S Basis of Accounting - Full Accrual
(SE PAPI) Identical to accounting methods used in commercial enterprises. Revenue is recognized when earned and expenses are recognized when incurred.
541
Classification of Governmental Fund Balance Constraints
NU CAR (Nonspendable, Unassigned, Committed, Assigned, Restricted)
542
Non-spendable fund balance
CA that cannot be spent (Ex prepaid expenses, inventories, etc.)
543
Restricted fund balance
Restricted by external authorities (legislation, creditors, grantors, bond covenants, etc.)
544
Committed fund balance
Obligated by formal action of the gov't highest decision making authority (resolutions, encumbered, appropriations, etc.)
545
Assigned fund balance
Funds that the gov't intends to obligate but has not formally committed
546
Unassigned fund balance
spendable assets neither restricted, committed, nor assigned. Residual equity classification for the general fund. Only the general fund should have a positive unassigned fund balance.
547
Differences between Commercial GAAP and Governmental Funds
Comm. I/S->RE->B/S->Next Year // Governmental: Book (Budget/Activity/Encumbrances) then close the same to B/S -> Next year
548
BAE (Governmental Modifed Accrual)
Budgetary - emphasized to control spending, Activity - emphasizes flow of current financial resources, Encumbrance - used to record purchase orders
549
Budgetary Accounts
"estimated accounts" which are opposite from the natural Dr & Cr balances. Only posted twice a year, beginning and end, unless a supplemental appropriation is made.
550
Budgetary Control account
The budgetary "equity" account. Beg of year: difference between estimated revenues and appropriations goes here.
551
Budget Accounting - Beginning of year
Dr. Estimated Revenue Control, Dr Estimated other financing sources, Cr Appropriations Control, Cr Estimated other financing uses, Dr. Budgetary control if negative, Cr if positive
552
Budget Accounting - End of Year
J/E reverses the entry that was made at the beginning of the year line for line, (+/-) any amendments
553
Activity - Revenue
Recorded when measurable and available (w/in 60 days of year end)
554
Activity - Expenditures
both operating and capital transactions are considered expenditures in governmental fund types. Principal payment on debt is considered a debt service expenditure. Capital purchases, debt service payments, and operating expenditures are considered spending of funds and are treated as current year expenditures.
555
Timing of expenditure recognition consistent with accrual accounting
Governed when the voucher payable is recorded; do not delay the expenditure until the cash payment is made.
556
Alternatives for expenditure recognition
For current assets only - 1-Purchase method: expenditure the assets when they are purchased, reverse items not used at year end. 2-Consumption method: set up as current asset when purchased and expenditure as consumed.
557
Transfers between funds
move money. Not an expenditure, not spending. Dr other financing uses, Cr cash
558
Character of Governmental Expenditures
Current - period exp, Capital outlays - FA (present & future), Debt Service - Pay off LTD (prior, current, future), Intergovernmental - transfer from one unit to another.
559
Activity - Assets
Purchased, constructed, leased - expenditured, not capitalized. Expenditure timed when liability in incurred, not when payment in cash is made.
560
Activity - Debts
Other financing sources; do not carry or record LTD. Debt repayment is both interest and principal expenditures
561
Encumbrances
Open POs represent an encumbrance or commitment of the available appropriations of a government. Not typically used for recurring exp such as salaries
562
JE to set up encumbrance
Dr Encumbrance & Cr Budgetary Control (reduces fund balance). Can reverse to adjust estimate
563
JE to record actual expenditure after encumbrance
Dr expenditures, Cr Vouchers Pay or Cash
564
Encumbrances outstanding at year end (open PO)
If appropriations do not lapse, reverse the JE and include outstanding encumbrances in an appropriate fund balance classification. (ex: fund balance - committed)
565
Expenditures from prior year
Dr Expenditures-prior year, Cr Vouchers Pay or cash. Outstanding encumbrance at year end is treated as a component of an appropriate classification of fund balance. Following year - not reported as an expenditure in the budget and actual comparison schedules since it is not a charge against current period appropriations.
566
Deferred Outflows
Consumption of net assets that is applicable to a future reporting period. Have a positive effect on net position
567
Deferred Inflow
Acquisition of net assets that is applicable to a future reporting period. Have a negative effect on net position
568
Govt-wide Stmt of Net Position
Assets and Deferred Outflows - Liabilities and Deferred Inflows = Net Position
569
Govt Fund Balance Sheet
Assets + Deferred Outflows = Liabilities + Deferred Inflows of Resources + Fund Balance
570
Proprietary and Fiduciary Stmt of Net Position
Assets and Deferred Outflows - Liabilities and Deferred Inflows = Net Position
571
Service Concession Arrangements
Payments by an operator to a government for the right to operate and collect user fees from 3rd parties on infrastructure or other assets. (EX: tollway)
572
Derivative Instruments and Hedge Accounting
Derivatives are reported at fair value. Changes in value of derivatives used as investments are displayed in the investment revenue classification (earnings). Changes in value of derivatives used for hedging activities are reported as either deferred outflows or deferred inflows of resources.
573
When to terminate hedge accounting
When hedges are no longer effective, when expected transactions are no longer probable, when hedged transactions are executed, and when hedged assets or liabilities are removed from the B/S.
574
Special Revenue Funds
Revenues and expenditures that are legally restricted or committed for specific purposes other than debt service or capital projects. Life may be limited or unlimited but resources are expendable.
575
Expendible Trust Activities
Funding whose principal and income may be expended in the course of their designated operations so they are depleted by the end of their designated lives. GASB 34 says they should be accounted for in a Special Revenue Fund. (Ex: scholarship fund)
576
Special Revenue Grant
Monitoring = Special Revenue Fund / Non-Monitoring = Agency
577
Debt Service Fund
Accumulation of resources and the payment of currently due interest and principal on long term GO debt. Pays off debt of GRSPP funds, NOT SE PAPI funds. Encumbrance accounts are NOT USED
578
Capital Projects Fund
(Purchasing) Construction, Purchase, or Leasing of significant FA (GRSPP, not SE PAPI) Life is short (1-3 years)
579
Capital Grants
If received in advance - recorded as liability and displayed as earned as they are expended. If unrestricted, revenue now, if restricted, deferred revenue. When spent, reverse the classification as deferred revenue to just revenue.
580
Special Assessments
If governmental unit is liable, account for through the appropriate govt fund. If not, use agency fund.
581
Bond Issue Proceeds (Capital Projects Fund)
Presented on the Stmt of revenues, expenditures, and changes in fund balance as "other financing sources." NOT LTD
582
Permanent Fund
Used to report resources that are legally restricted to the extent that only earnings and not principal may be used. (for the benefit of the public) Ex: public cemetary perpetual care fund. NO Encumbrances. Public restricted funds: interest only - Permanent fund. Principal and interest - special revenue fund.
583
Internal Service Fund
The other department/fund is the customer, not the citizen. Established to finance and account for services and supplies provided exclusively to other depts within a govt, typically on a cost reimbursement basis
584
SE PAPI BAE BAE
not used. Exam trick; BAE BAE only used for GRSPP funds
585
Net Position - Proprietary Funds
RUN; restricted, unrestricted, net investment in capital assets. NOT Fund Balance like in GRSPP.
586
Internal Service Fund - Reconciling Item
Frequently combined with governmental funds for the govt-wide financials. GRSPP + S. E-separate and PAPI excluded.
587
Enterprise Fund
similar to private business enterprise. Shown separately on Financials. Ex: DIA. Activity is financed with debt secured by a pledge of net revenue from fees and charges.
588
Operating vs. Nonoperating revenues
Operating - charge for services/nonoperating - shared revenues (collected by one govt and shared with another) and interest / investment income.
589
Presentation of line items on a proprietary fund Stmt of Revenues, Expenses, and Changes in Fund Net Position
INCASET - Income (operating), Nonoperating income & expense, Capital Contributions, Additions to endowments, special items (U or I), extraordinary items, transfers
590
Muni Landfills
Cost of equipment expected to be installed, gas monitoring and collection system, final cover (capping). Adjust annually and amortize over years leading up to closure, similary to ARO.
591
Properietary Funds - Stmt of Cash Flows
Order switched. Normally O, I, F. Operating, Noncapital Financing, Capital Financing, investing
592
Fiduciary Funds - Stmt of Cash Flows
NOT required. Trust funds do not use them
593
Agency Fund
Collects cash to be held temporarily for an authorized recipient to whom it will be later disbursed.
594
Clearance Funds - Cash Conduit Arrangements
No monitoring (ex pass through grants, food stamps, traffic citations, alimony, etc.) Fund receives payments and then remits to various operating funds according to a statutory formula or procedure. If government has monitoring and/or determines eligibility - a special revenue fund is used.
595
Agency Trust Fund Statement of Fiduciary Net Position
CA=CL. No year end balance, no "net position", no I/S, no C/F Stmt
596
Private purpose trust
Not general public use. Designated fund for reporting all other trust arrangements under which principal and income are for the benefit of one of the following: specific individuals, private organizations, other governments. Ex: escheat property fund, other trusts.
597
Correct fund use for restricted funds
Public use, interest and principal (expendable) - special revenue / Public use, interest only (non-expendable) - permanent / Private use, interest and/or principal (expendable) - Private purpose fund
598
Investment Trust Funds
Govt entity that sponsors one of more external investment pools should report the external portion of each pool as a separate investment trust fund
599
Operational Accountability
Govt wide F/S - focus is to report the extent to which the govt has met its operating objectives efficiently and effectively.
600
Fiscal Accountability
Fund F/S - focus is to demonstrate that the govt has complied with decisions in the raising and spending of funds
601
GASB 34 Integrated Approach
1 - MD&A, 2-Gov't wide & Fund F/S (Reconciled), then notes, 3-Required supplementary info
602
Primary Government Entity
reports by itSELF: Separately Elected, Legally separate, Fiscally independent
603
Component Unit
Primary govt is financially accountable OR by its nature and significance of its relationship with the primary govt, it cannot be excluded from the primary govt's F/S without making the primary govt F/S misleading or incomplete.
604
Blended Presentation of Component Units
So intertwined that they are, in substance, the same as the primary govt, the CU serves the primary govt exclusively or almost exclusively, the CU is not a separate legal entity
605
Discrete Presentation of Component Units
Used when the criteria for blended presentation are not met (most common or default method)
606
Reporting NFP entities as CU of Govt
NFP providing ongoing support to a primary govt or to a CU of primary govt may also be a CU of primary govt (Ex: private foundations assoc w/state universities or private foundations assoc w/public health care facilities)
607
Criteria for Discrete Presentation
Legally separate, tax exempt organizations should be reported as discrete if they meet all of the following: Benefit standard (resources are for the near-exclusive benefit of the primary govt), Access standard (primary govt has access to a majority of the resources held by the tax exempt org), Significance standard (resources held by the tax exempt org are significant to the primary govt)
608
MD&A
required supplementary info. Easily readable analysis, condensed fin info, analyses, description of significant assumptions, identity of primary govt & discrete CU, economic conditions and outlook, major initiatives. No Variance analysis, no recon of Fund F/S to Govt wide F/S
609
Govt wide F/S - Stmt of Net Position
Economic resources measurement focus & full accrual. Fiduciary funds are excluded and CU are included.
610
Govt wide F/S - Stmt of Net Position - Capital Assets
Capitalization of construction period interest is not required for govt. Infrastructure should be recorded as general capital assets. Only reported here because of the incompatibility with recording these assets at the fund level.
611
Modified approach for infrastructure assets
Not required to be depreciated if the govt AM system meets certain conditions (up to date, summary condition assessment, and estimate to maintain) and that documentation exists on asset preservation (complete assessment every 3 years that support assertions that infrastructure assets are being presented at or above the condition level disclosed.
612
Artwork and historical treasures
Govts should capitalize at historical cost or FV at date of donation. They may elect not to capitalize if held for exhibition, protected, and org policy exists to have proceeds from sales used to acquire other items for collections.
613
Program Revenue Categories
SOC; Service Charge, Operating Grants, Capital Grants
614
Major Fund Reporting Criteria
10% test: GRSPP funds individually compared to total of all govt funds, (enterprise funds individually compared to total of all enterprise funds) 10% or more of corresponding total revenues, expenditures/expenses, assets and deferred outflows of resources, or liabilities and deferred inflows of resources of all governmental funds or all enterprise funds (AND) 5% test: GRSPP funds are individually compared to the total of all govt funds AND enterprise funds and each enterprise fund is individually compared to the total of all enterprise funds and govt funds to meet the 5% test. So - 10% of the separate columns and 5% of the total column.
615
Reconciliation of B/S between Fund & Govt wide
GALS BARE GRSPP fund balance + assets (Non current) - liabilities (non current) + service (internal) fund net position + basis of accounting accrued revenues and expenses
616
Reconciliation of I/S between Fund & Govt wide
GOES BARE GRSPP fund balance + other financing sources - expenditure - capital outlay, net of depreciation + service (internal) fund net income + basis of accounting additional accrued revenues and expenses
617
Differences between Govt C/F and Commercial C/F
Direct method required, recon of operating income to net cash provided by ops required, four categories instead of 3, order of F & I reversed, interest income/cash receipts under govt reported as investing instead of operating, interest exp/cash payments under govt are capital and related financing or noncapital financing (not operating), and capital asset purchases are reported as financing activities (not investing)
618
Fiduciary Funds in Govt Wide F/S
NOT included
619
Notes to Govt wide F/S
description of govt wide activities noting the exclusion of the fiduciary funds, policies relating to elimination of internal activity, description of modified approach to reporting infrastructure, revenue recognition for modified accrual (60 days), etc.
620
Budgetary Information
Required supplementary info - must show original budget, final amended budget, and actual amounts. Computation of variances or differences is optional.
621
Reciprocal Interfund Activity
Interfund loans - temporary extensions of credit to other funds that are expected to be repaid (due to/due from) & Interfund Services Provided and Used - sales and purchases at external pricing - accounted for as revenues and expenses/expenditures
622
Nonreciprocal Interfund Activity
Interfund Transfers - flows of assets without exchange of equivalent value. Ex: PILT. Shown as other financing sources and uses after non-operating revenues & expenses. Interfund Reimbursements - payments of expenses made by one fund on behalf of another; not shown as interfund transactions.
623
F/S Displays and disclosure (Interfund)
Report - transactions between primary govt and its fiduciary funds (as if between external parties) ... Eliminations - within the govt activities column of the govt wide F/S, within the business type activities column of govt wide F/S, between the govt activities and business type activities displayed on the govt wide F/S.
624
Classification of net assets (NFP)
unrestricted, temporarily restricted, permanently restricted
625
NFP Required F/S
Statement of Financial Position (B/S), Statemene of Activities (I/S), Statement of C/F, and Statement of Functional Expenses (required for voluntary health and welfare orgs and encouraged for other orgs)
626
NFP Net Assets - Unrestricted
Financing of general ops and may be expended at the discretion of the governing board. Internal board-designated funds are considered unrestricted
627
NFP Net Assets - Temporarily Restricted
Donor-imposed stipulations either expire with the passage of time or can be fulfilled and removed by actions of the organization
628
NFP Net Assets - Permanently Restricted
Result from contributions and other net inflows whose use is limited by donor-imposed stipulations that neither expire with the passage of time nor can be fulfilled or otherwise removed by actions of the organization
629
NFP Statement of Activities
4 elements: Change in unrestricted net assets, change in temp restricted net assets, change in perm restricted net assets, and change in total net assets
630
Expense classification in the Statement of Activities
Reported as decreases of unrestricted net assets. Categories: program services, support services, combined costs
631
Statement of C/F (NFP)
Either direct or indirect; 3 categories like with commercial accounting
632
NFP Statement of C/F (Financing)
Cash transactions related to borrowing, and also cash transactions related to certain restricted contributions (increases to endowments, purchases of assets, annuity agreements, etc)
633
NFP Statement of C/F (Investing)
Proceeds from sale of works of art, or purchases of works of art, investment in equipment, etc.
634
Functional Classifications of Expenses
Program Support Expense, Fund Raising Expenses, Management and Genral Costs, Multiple Cost Items
635
Unconditional Promises
(Pledge = revenue) recorded at FV when the promise is made (written or verbal)
636
Conditional Promises
depends on an occurrence of a future and uncertain event. Recognition does not occur until the conditions are substantially met
637
Multi Year Pledges
recorded at the NPV at the date the pledge is made. Future revenues are considered as temporarily restricted revenues and net assets (time restricted) and the difference between the previously recorded PV & the current amount collected is considered contribution revenue
638
Split interest Agreements
NFP receiving benefits that are shared with other beneficiaries. Temporarily restricted, should be measured at FV at the date of acquisition.
639
Donated Services
Contrib revenue & expense at FV IF they create or enhance a non-financial asset, or require specialized skills that the provider possesses that would have had to be purchased otherwise. SOME (Specialized skills, otherwise needed by the org, measurable, and easily [at FV])
640
Recording Promises to Contribute - Unrestricted
Dr Pledge Receivable, Cr Allow, Cr Contrib revenue - temp restricted. When collected, Dr Cash, Cr pledge receivable - temp restricted
641
Recording Promises to Contribute - Restricted
Cannot Debit expense until funds are in an unrestricted state
642
Agency transactions
resources received by the NFP over which the NFP has little or no discretion or variance power
643
Exchange Transactions
amount transferred - fair value dues or purchase = contrib revenue
644
Recipient accounting - without variance power
assets at FV are recognized as a liability to the beneficiary
645
Recipient accounting - with variance power
assets at FV are recognized as contrib revenue when received and expensed when distributed to the beneficiary
646
Special funds used in NFP accounting - endowments
permanent - principal cannot be spent, term - held for a specified time, quasi- internal governing board has determined that the funds are to be retained and invested for a specified purpose (not restricted)
647
Fund Accounting for NFP
NOT used for external reporting, for internal use only. Unrestricted current funds, restricted current funds, plant funds, loan funds, endowment funds, annuity and life income funds, agency funds
648
College/University Industry Specific Accounting
Student and Tuition fees should be reported at gross amounts. Scholarships, tuition waivers, etc. should be shown as expenditures
649
3 Categories of Health Care Organization Revenue
Revenue, Other Operating Revenue, Non-operating revenue and support gains and losses
650
Patient Service Revenue
accrual basis at established standard rates, even if full amount is not expected to be collected. Net out charity care and record patient service revenue.
651
Other Operating Revenue - Health Care Orgs
Tuition from medical schools, cafeteria revenue, gift shop revenue, etc.
652
Nonoperating revenue and support gains and losses - Health Care Orgs
unrestricted grants, gifts, etc., & donated services
653
Donated Supplies to NFP Health Care Orgs
Recognized as revenue & assets or reduction of liab depending on how received
654
Voluntary Health and Welfare Orgs
obtain most of their operating funds from donations from the general public (Ex: American Red Cross) Can use Cash basis if not materially different from accrual method
655
Voluntary Health and Welfare Orgs - Statement of Functional Expenses
Mandatory. Detailed schedule of the expenses divided into functional areas, such as program services and support services.
