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Flashcards in 2 Financial Statements Deck (30):

Which Personal Financial Statements are required?

Statement of Financial Condition & Statement of Changes in Net Worth


How are assets and liabilities valued in a Personal Financial Statement?

Estimated current value


How are estimated taxes that would be paid if all assets were converted into cash and all liabilities paid presented on a Personal Financial Statement?

Presented on Statement of Financial Condition between Liabilities and Net Worth


What is the general presentation on a statement of financial condition?

- Liabilities
- Estimated taxes on assets sold
: Net Worth


How is life insurance presented on a Personal Financial Statement?

Only shown if there is cash surrender value

It is shown net of loans against the policy


How are business interests shown on a Personal Financial Statement?

Business Interests that constitute a large percentage of total assets should be separated from other investments


What is the discreet view in an Interim Financial Statement?

Interim period is a separate accounting period - not GAAP

Same accounting principles used for annual reporting should be used.


What is the integral view in an Interim Financial Statement?

Interim period is a part of the annual period - GAAP

Gross profit method may be used to estimate COGS and inventory

Temporary declines in inventory aren't recognized


How are discontinued operations & extraordinary items reported in Interim Financial Statements?

Aren't prorated

Fully recognized in Interim Period as incurred

If it occurs in Q3 - it's recognized in Q3


How are cumulative gains and losses reported in Interim Financials?

Reported as if they occurred in the first quarter


How is inventory valuation handled in Interim Financials?

If inventory experiences a decline in value during an interim period - the loss is recognized in the interim period

If the loss is expected to be only temporary - no loss is recognized


What is one of the primary problems with interim reporting?

The matching principle gets messed up - Expenses incurred in one period may benefit future periods


For whom is Segment Reporting required?

Publicly traded companies


What factors cause a segment to be significant and therefore to be reported separately?

Revenue of segment is 10% or more of total

Profit is 10% or more of total

Segment assets are 10% or more of total

75% Test - All segment revenues must equal 75% of total external revenues


What is the disclosure requirement regarding sales of 10% or more for one customer?

If 10% or more of enterprise revenue comes from one customer - the segment making the sales must be disclosed


Equity includes

Equity consists of (1) capital contributed by owners, (2) retained earnings (income reinvested), (3) accumulated other comprehensive income (all comprehensive income items not included in net income), and (4) the noncontrolling interest in a consolidated entity.


Transactions not included in net income

(1) transactions with owners
(2) prior-period adjustments (error corrections)
(3) items reported initially in other comprehensive income
(4) transfers to and from appropriated retained earnings
(5) adjustments made in a quasi-reorganization
(6) effects on prior periods of accounting changes.


The changes in retained earnings can result from the following adjustments:

(1) net income/loss for the period;
(2) any prior-period adjustments, net of tax;
(3) dividends declared; and
(4) certain other rare items, e.g., a quasi-reorganization.


The two reporting formats for comprehensive income:

(1) one continuous financial statement that reports (a) a total of net income with its components,
(b) a total of other comprehensive income with its components, and
(c) a total of comprehensive income

(2) two separate but consecutive financial statements (statements of net income and other comprehensive income) that present the same elements.


An entity must report in the financial statements comprehensive income attributable to a noncontrolling interest.

True or False


If a noncontrolling interest exists, amounts for net income and comprehensive income attributable to the parent and to the subsidiary must be reported in the appropriate statements.


What are combined financial statements?

Combined financial statements are used to combine the statements of the subsidiaries without consolidating them with those of the parent. They are not an allowable substitute for consolidated statements.


When must a first-time adopter of IFRS prepare and present an opening IFRS statement of financial position as a starting point for accounting under IFRS.

At the date of transition.


Examples of certain accounting policies first-time adopters of IFRS may elect not to apply

Examples of elective exemptions are the accounting policies applying to (1) business combinations, (2) employee benefit plans, (3) cumulative translation differences, (4) revaluation to fair value, (5) compound financial instruments, and (6) share-based payment transactions.


Do first-time adopter of IFRS need to separate convertible debt into separate liability and equity components if the liability component is no longer outstanding at the transition date.

A first-time adopter of IFRS need not separate compound financial instruments (e.g., convertible debt) into separate liability and equity components if the liability component is no longer outstanding at the transition date.


What must first-time adopters of IFRS present in their first IFRS financial statements?

It must present at least (1) three statements of financial position (end of current period, end of previous period, and beginning of first comparative period), (2) two statements of comprehensive income, (3) two separate income statements (if presented), (4) two statements of cash flows, and (5) two statements of changes in equity and related notes.


The reconciliations that must be presented by first-time adopters of IFRS

1. Equity reported under previous GAAP to equity reported under IFRS at a) The transition date and b)The end of the latest period presented under previous GAAP

2. Total comprehensive income reported under previous GAAP to total comprehensive income reported under IFRS


With certain exceptions, the items for which retrospective application is prohibited for first-time adopters of IFRS are

(1) derecognition of financial assets and financial liabilities, (2) hedges, (3) estimates, (4) noncontrolling interests, (5) classification and measurement of financial assets, and (6) embedded derivatives.


According to IFRS, when a complete set of financial statements is presented, how are other comprehensive income (OCI) and its components reported?

Must be reported in a separate statement or in a single statement of comprehensive income reporting all items of income and expense for the period.


Financial liabilities under IFRS are current if

They are due to be settled within 12 months even if (1) the original term was for more than 12 months and (2) an agreement to refinance on a long-term basis was completed after the balance sheet date and before the issuance of the financial statements. Thus, both notes are current, and the amount excluded from current liabilities is $0.


In analyzing a company’s financial statements, which financial statement will a potential investor primarily use to assess the company’s liquidity and financial flexibility?

Balance sheet.

The balance sheet includes information that is often used in assessing liquidity and financial flexibility but should be used at minimum with a cash flow statement. Liquidity reflects nearness to cash. Financial flexibility is the ability to take action to alter cash flows so that the entity can respond to unexpected events.