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FAR > 14. Foreign Currency Denominated Transactions, Leases, NFPO, > Flashcards

14. Foreign Currency Denominated Transactions, Leases, NFPO, Flashcards

1
Q

Hedge of a net investment in foreign operations: accounting treatment?

A

Like CF, but this is FV hedge

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2
Q

What is forecasted transaction?

A

Planned, budgeted or expected to occur

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3
Q

What is a firm commitment?

A

A contract for future purpose/sale not yet recorded

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4
Q

How to determine hyper inflationary country? How is this fact impact in determining FC?

A

Cumulative inflation rate is 100% or more over 3 yrs.

Local currency can’t be FC and reporting currency=FC.

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5
Q

When recording currency that is foreign and its FC is other FC besides that, how should it be treated?

A

Remeasurement to recording currency and then translation to reporting currency

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6
Q

How to account for lease (rent) rev and exp for operating lease?

A

Total rents (includes bonus pmt. Exclude damage deposit or pmt for other services) / Lease term (free rent period). Recognized on a SL basis even if the actual pmts are not evenly paid

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7
Q

How should leasehold improvement be treated?

A

Capitalize and depreciate shorter of the remaining useful life (economic life) or lease term

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8
Q

Should improvement made in place of rent depreciated?

A

No. Expensed

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9
Q

What are the four criteria of capital lease?

A

The transfer of title.
BPO (bargain purchase option).
Life of lease is 75% or more of useful life of the asset.
PV of minimum lease pmt is 90% or more of the FV of the leased asset.

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10
Q

What are additional two criteria for capital lease?

A

Uncertainty regarding collectibility and ability to pay

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11
Q

What are two types of capital lease for lessor and criteria?

A

Direct financing lease: Lessor’s BV (pv) = FV

Sale type lease: BV not equal FV

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12
Q

Initial JE for DFL? Difference between gross method and net method? JE after the first pmt?

For STL?

A

DFL: Lessor: Dr: lease receivable (Total payments). Cr: unearned interest (difference between lease receivable and asset removed). Cr: asset (@ PV).
Lessee: Dr: leased asset (@PV). Cr: lease liability (@PV).

G: Above. N: Cr: unearned interest will be netted into Dr: lease receivable.

DFL: Lessor: Dr: Cash. Cr: Lease receivable. Dr: Unearned interest. Cr: Interest revenue.
Lessee: Dr: Interest expense. Dr: Lease liability (difference between interest paid and interest exp). Cr: Cash. Dr: Depr. Exp (use PV of asset). Cr: Accum. Depr.

STL: lessor: Dr: lease receivable. Dr: COGS. Cr: unearned interest. Cr: Asset (@cost). Cr: Sale (pv of minimum lp)

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13
Q

What are two types of lease under IFRS? What is the classification based on?

A

Operating and financing.
Transfer of risks and rewards.
(1)-(3) same with GAAP. PV of minimum pmt substantially same with FV of the asset. Lease so specific that only the lessee can utilize without major modifications.

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14
Q

How to treat unguaranteed residual value for DFL? For STL?

Lessee guarantee residual value?

A

DFL: Included in lease receivable (Total LP + Residual dollar amount) and in asset (Pv of LP and PV of Residual amount) for lessor. Excluded from lease minimum pmt.
STL: Subtracted from COGS and Sale.

LG: Included in minimum LP and lease receivable @ PV.

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15
Q

Does executory cost get included in PV of minimum LP?

A

No, expense.

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16
Q

BPO DFL: JE

A

Lessor: Dr: lease receivable (LP x terms + BP price). Cr: Unearned interest (Asset - lease receivable). Cr: Asset (PV of LP + PV of BPO).
Lessee: Cr: Leased asset. Dr: Lease liability (PV of LP + PV of BPO).

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17
Q

Unguaranteed residual DFL: JE?

A

Lessor: Dr: Lease receivable (LP x term plus residual). Cr: unearned interest. Asset (PV minimum LP + residual)
Lessee: Dr: Leased asset. Cr: Lease liability (PV of minimum LP).

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18
Q

Unguaranteed residual STL: JE?

If guaranteed?

A

Lessor: Dr: Lease receivable (LP x term + residual). COGS (cost - PV residual). Cr: Unearned interest. Asset (cost). Sale (PV of minimum LP)
Lessee: Dr: Leased asset. Cr: Lease liability (PV of minimum LP)

If guaranteed, do not subtract PV residual from COGS and add PV of residual to Sale

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19
Q

Lessee guaranteed DFL: JE?

Depreciation?

A

Lessor: Dr: Lease receivable (LP x term + PV residual). Cr: Unearned interest. Asset (PV of minimum LP + PV of residual)
Lessee: Dr: Leased asset. Cr: Lease liab (PV of minimum LP + PV residual)

Depr: use asset (lessor) - residual amount

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20
Q

Sale leaseback: treatment of G/L?

A

In earnings unless it’s a major leaseback. Then deferred and amortized.

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21
Q

How to determine major lease back?

A

PV of minimum LP > 90% of FV of the asset

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22
Q

G/L in the case of capital lease and operating lease?

A

Capital: gain as contra lease account. Amortize to reduce depr. exp.
Operating: gain as a liab account. Amortize to reduce rent exp.

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23
Q

Lease disclosure: how many yrs of future minimum LP?

Amount aggregated?

A

Next 5 yrs. yes

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24
Q

What are four types of NFP?

A

Hospitals and other healthcare entities
Colleges, universities, and other educational organizations
Voluntary health and welfare organizations
Other NPOs

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25
Stmt of functional expenses required for VHWO? ONPOs?
V: yes O: no
26
Stmt of activities: Revenues reported under which categories? Expense reported under which categories? What does it report in place of NI?
Unrestricted, temporary restricted, permanently restricted. These restriction is external based. Unrestricted net assets. Change in net asset.
27
Stmt of activities: Reported by function. What's the measurement of functional classification?
Full cost allocation
28
What are two types of expense categories under stmt of activities?
``` Program services (directly related to the core mission) Support services (ex: fundraising, management,) ```
29
Healthcare organizations: what are four types of revenues?
Patient service rev Premium fees (based on agreement to provide services for specific fees) Resident service fees Other revenue
30
How to compute net patient revenue?
Gross patient revenue - charity services, contractual adjustments, uncollectible accts (only for public HCO). Show only net on financial stmt
31
Charity care: recognized as revenue, receivable, or bad debt?
No
32
HCO: Bad debts. How to treat for NFP? Public?
N: Bad debt expense except patients accounts related (then deduct from revenue). Don't impact revenue. P: incorporate in revenue as net. No bad debt expense.
33
Is natural expense such as depr exp allowed?
Yes to all
34
HCO and C/U: Financial stmt for NFP? | For Public?
Stmt of financial position Stmt of operations Stmt of change in net assets Stmt of CF BS Stmt of rev, exp, and changes in net position Stmt of CF (direct method required)
35
HCO and C/U: Equity categories for NFP? | For public?
Net assets: Unrestricted, temp. restricted, perm. restricted Net position: Net investment in capital asset Restricted net position Unrestricted net position
36
HCO: stmt of CF categories for NFP? | For public? What method used?
Indirect: Operating, investing, financing Direct: Operating, non capital financing, capital financing, investing
37
When meeting temp. restriction, does net asset in temp. restricted have to be reclassified out to unrestricted net assets?
Yes
38
What is variance power? How does it impact revenue recognition?
When NFP has the power to decide how and where to allocate the donation (unilateral right)f. If no variance power, no revenue, but liability.
39
What are three criteria that must be met in order not to capitalize collections?
Held for public exhibition etc Are protected and preserved Subject to a policy that requires proceeds of item sold to be used to purchase other items for the collection
40
JE when there is uncollectible?
Dr: pledge receivable Cr: allowance for uncollectible pledge Cr: unrestricted support - contribution (net of uncollectible) Cr: temp. restricted support - contribution (net of uncollectible) at PV Cr: Discount on pledge receivable (difference with pv of tem. rest)
41
Split interest agreement JE when irrevocable and revocable.
I: Dr: Contribution at FV. Cr: Liability (to other party). Cr: Revenue. R: Dr: Asset at FV. Cr: Refundable advance. (similar to pledge). Recognize revenue when it becomes irrevocable or fund distributed to NPO at the end of term.
42
Colleges and universities: Tuition computation?
Gross - refunds, uncollectible accts, scholarship, financial aid allowances
43
How to treat scholarship expenses and Tuition waivers (given in exchange)?
Expensed
44
What is direct exchange rate? Indirect exchange rate?
The domestic price of one unit of foreign currency: $1.24=1 euro. Vice versa. $1=0.89 euro.
45
What is forward rate?
Exchange rate today for the delivery at the future date.
46
JE to settle foreign currency denominated import.
Dr: Investment in FC. Cr: Cash. Dr: AP. Cr: Investment in FC.
47
Forward contract: How should G/L be recorded?
At PV. Make sure to divide interest rate in month.
48
What are two types of forward contract?
Foreign currency forward exchange contract. Foreign currency option contracts.
49
Foreign currency denominated transaction: Which type of hedge can be used for firm commitment, forecasted transaction and treatment of G/L for both hedged item and hedged instrument?
F: Both FV (G/L in earnings) and CF hedge (ineffective portion in earnings. Effective portion in OCI). Fore: CF hedge.
50
When will the G/L recognized in OCI be transferred into earnings?
When the item impact the Income stmt.
51
Which type of hedging for foreign currency denominated asset/liability, AFS, investment in foreign subsidiary?
A/L: FV or CF hedge. AFS: FV hedge. Net investment: FV hedge, but effective portion to OCI.
52
Speculative contract: Treatment? Which rate do you use?
Mark to mark FV using forward rate. G/L to income. | At the contract date, use spot rate.
53
What is local currency?
Currency in which the foreign books and initial financial stmts are prepared.
54
What is reporting currency?
The currency in which the final, often consolidated, statements are prepared.
55
What is functional currency?
The currency of the primary economic environment in which an entity operates and generates net cash flows.
56
When local currency = functional currency, which method do you need to use for conversion of financial stmts and what is the treatment of G/L?
Translation (current rate method). | G/L to OCI = plug.
57
Under translation, which rate must be used for asset/liability, equity, IS items? How is the retained earnings computed?
A/L: spot rate on BS date. E: historical date when item originates. Income stmt: weighted average rate for items occurred evenly throughout the yer. HR for specific items. R: Beg RE (HR) + NI (weighted average) - Dividends (HR)
58
When reporting currency = functional currency, which method do you need to use for conversion of financial stmts and what is the treatment of G/L?
Remeasurement (temporal method). | G/L to income stmt = plug.
59
Under remeasurement, which rate must be used for asset/liability, equity, IS items?
``` Monetary A/L: spot rate on BS date. Non-monetary A/L: historical rate. E: historical rate. IS: weighted average rate or historical rate (if specific price can be identified). COGS: Compute. Re: Compute. ```
60
Should GAAP adjustment made before or after conversion?
Before.
61
Which method should be used when FC is not local currency or reporting currency? G/L treatment?
Remeasure from local currency to functional currency - G/L to income stmt. Translate from FC to reporting currency - G/L to OCI.
62
Treatment when leasehold improvement was made in place of rent?
Expense.
63
When one of the four criteria is met for lease, which kind of lease is it for lessor and lessee?
Lessor: capital lease if two additional criteria met. Lessee: capital lease.
64
Capital lease: which interest should be used for lessor and lessee?
Lessor: Implicit interest rate. Lessee: Lower of implicit rate or incremental borrowing rate on similar debt.
65
Capital lease obligation at inception?
lessor of PV of minimum lease pmt or FV of leased asset.
66
Initial direct cost: Treatment under Operating lease and capital lease (STL and DFL)?
O: Lessor capitalizes it and amortize in proportion to revenue. STL: Expensed immediately (COGS). DFL: Reduce the lease receivable.
67
BPO: Treatment?
Capitalized, included in: Leased asset and liability at PV (Lessee). Net lease receivable at PV (lessor).
68
Non-governmental Not-for-profit entities: What regulations do they follow?
FASB
69
What are three types of net assets?
Unrestricted, temporary restricted, permanently restricted.
70
Is fund accounting required internally and externally for non governmental NPSs?
Only internally.
71
What are the categories of stmt of financial position for non governmental NPOs?
Aggregated total of: Assets, liabilities, Net assets (unrestricted, temporary restricted, permanently restricted).
72
Non governmental NPS: What are three major financial stmts required?
Stmt of activities, stmt of cash flows, stmt of financial position.
73
Non governmental NPS: How are cash inflows classified?
By intent rather than where they came from.
74
Non governmental NPS: can revenue be recognized before conditions are met?
No. Liability (unearned contribution).
75
JE for temporary restricted contribution received $40,000. Spent $20,000 for the purpose.
Dr: Cash 40,000. Cr: Temporary restricted support - contribution 40,000. Dr: Expense - unrestricted net asset 20,000. Cr: Cash 20,000. Dr: Reclassification out - temporary restricted net asset 20,000. Cr: Reclassification in - unrestricted net asset. 20,000.
76
Non cash contribution: How is it recorded?
At FV.
77
JE for implied time restriction for a donated depreciable asset.
Dr: Asset. Cr: Temporary restricted support - donated asset. When dpr. is computed, Dr: Reclassification out - temporary restricted support. Cr: Reclassification in - unrestricted support. Then, Unrestricted support will be reduced by reporting depreciation exp.
78
When can donated service recognized as revenue (ex: unrestricted support) and expense (ex: management expense)?
When the work requires special skills, the person possesses the skills, the value of service can be measured, and the entity controls the employment and duty of the service.
79
Pledges: How is it recorded? When the condition is within one year, how should it be recorded? Longer year?
Dr: Pledges receivable. Cr: Unrestricted support - contribution. Cr: Temporary restricted support - contribution (subtract discount). Cr: Discount on pledge receivable.
80
Fund raising event: Would revenue be recognized if it's incidental? How is the expense reported?
No. it'll be gain. | Can be: expense deduction from revenue or expense separately.
81
How do you determine whether membership is contribution or service revenue?
If no benefit is provided, contribution.
82
What are three type of endowments?
``` Pure endowment (external source. must be intact). Term endowment: external party donation with time restriction - temporary restricted net asset. Quasi: governing body designated - unrestricted. ```
83
HCO: JE for contractual adjustment?
Dr: Contractual adjustment. Cr: Accounts receivable.
84
HCO: How is gain reported? Expense?
G: Not part of ongoing activity. Reported toward the bottom. E: By function.
85
Government C/U: how to report grant revenue - operating grants, state appropriation, non capital gifts? Capital grants and gifts? For NPO?
Non operating revenue. After non operating revenue. Operating revenue.
86
What is auxiliary service for C/U? How is it reported?
Provide goods and services not directly related to the mission. Aggregated and reported in a single line in operating section.

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