Valuation Flashcards
how is an inventory loss from a market decline accounted in an interim reporting
a decline in inventory market price that is expected to be other than temporary should be recognized in the period of decline. A subsequent recovery of market value should be recognized as a cost recovery in the period of increase, but never above original cost.
what is equity method of accounting
The equity method of accounting is used to account for an organization’s investment in another entity (the investee). It is only used when the investor has significant influence over the investee. The investor recognizes its share of the profits and losses of the investee in the periods when these profits and losses are also reflected in the accounts of the investee and is recognized by the investing entity appears in its income statement. Also, any recognized profit increases the investment recorded by the investing entity, while a recognized loss decreases the investment.
If there is no significant influence over the investee, the investor instead uses the cost method to account for its investment.
what are the disclosure requirement for reportable operating segments.
information about reported segment profit or loss, segment assets, and the basis of measurement should be disclosed. Segment reporting is required of publicly traded enterprises.
what are inventoriable costs
All costs incurred to acquire goods or to prepare them for sale are inventoriable. Freight-in is a cost incurred to acquire goods, and warehousing is a cost incurred to store goods awaiting sale.
under IFRS development cost may be capitalized based on what criteria
if the following criteria are met: (1) technological feasibility of completing the asset for use or sale has been achieved; (2) the entity intends to complete and use or sell the asset; (3) the entity has the ability to use or sell the asset; (4) the entity understands how the asset will generate probable future economic benefits; (5) technical, financial, and other resources are available to complete development of the asset; (6) the entity has the ability to reliably measure the expenditures.
how is lower of cost or market determined
- If cost market or NRV, a loss is recognized and the inventory is written down.
Market is the middle amount (in dollar) of the three amounts: replacement cost, NRV or ceiling; NRV less normal profit margin or floor.
what is commercial substance
Commercial substance means
- the cash flows from the new asset will be significantly diff from those of the old asset in terms of amount, timing or
- the use of the new asset to the firm is significantly diff from that of the old asset.
how are exchanges recorded that lacks commercial substance
exchanges that lack commercial substance are recorded at book value. Therefore, gains on these exchanges are recognized only to the extent that boot is received.
what are the components of an option and how are they valued
The two components of an option premium are the intrinsic value and time value of the option. The intrinsic value is the difference between the underlying’s price and the strike price - or the in-the-money portion of the option’s premium. Specifically, the intrinsic value for a call option is equal to the underlying price minus the strike price. For a put option, the intrinsic value is the strike price minus the underlying price.
How does the lessee records a capital lease
the lessee shall record a capital lease as a debit to an asset account and a credit to a liability account for an amount equal to the present value of the total of the minimum lease payments as of the beginning of the lease term. However, if the amount so determined exceeds the fair value of the leased property at the inception of the lease, the amount recorded as the asset and obligation shall be the fair value of the leased property.
How are exchanges of non-monetary assets that have commercial substance recorded
they are recorded at the fair value of the asset surrendered
How is dividend reported under the equity method
Dividend is reported as are fiction of the equity investment.
What is a firm commitment hedge.
A firm commitment is a lending institution’s promise to enter into a loan agreement with a specific entity within a certain period of time.
In a firm commitment hedges using a forward contract will require the recognition of a new asset or liability if a gain or loss occurs on the hedging instrument?
What is fair value
It is the price that would be received to sell an asset or paid to transfer a liability
