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Flashcards in F1 TBS Deck (27):

How do you calculate Income (Loss) from Discontinued Operations?

Impairment Loss of Component's Assets

+ component's current year net losses

= Total Loss on discontinued component

— Tax savings (total loss x tax %)

Loss from Discontinued Operations


Make sure to consider the tax savings on the loss.


If there is a Change in Estimate during the year, how do you handle/configure the new depreciation?

  1. Determine new book value
  2. Consider the years passed
  3. Add new current year's depreciation expense to G&A

Remember, Change in Estimate is PROspective and will be handled going forward, and will not affect prior period.


How do you calculate Impairment Gain (Loss)

In the appropriate year, before the segment is sold, determine the difference between

(FV — BV)

There is no impairment recognize in the year a segment is sold.


How do you determine Operating Gain (Loss)?

Operating Losses are recognized in full in the period incurred.



A statement of financial position for a nongovernmental not-for-profit organization reports amounts for which of the following classes of net assets?


  1. Permanently Restricted
  2. Unrestricted
  3. Temporarily Restricted


Sample City has identified the non-major funds within its fund types. In its financial report, Sample City should...

Include combining financial statements for non-major funds for each type in the required supplementary information.


When do you recognize Operating Loss?

  • Operating Losses are recognized in full in the period incurred.
  • Operating losses are also recognized in the year of sale.


How do you recognize Gain (Loss) from disposal?

Gain (Loss) from disposal is recognized in the year the segment is sold.

Ex: If discontinued segment is sold in Year 2, recognize 0 on Gain(Loss) on disposal for Year 1, but recognize it in Year 2.


How do you calculate Gain (Loss) from disposal?

Sales Price

— Brokerage Fee (or any transaction fees)

— Book value of segment

Gain (Loss) from Disposal


How do you calculate

Income Tax Benefit (Expense) on discontinued operations?

Impairment Gain (Loss)

+ Operating Gain (Loss)

+ Gain (Loss) on disposal

x Tax %

= Income Tax Benefit (Expense)


How do you calculate the Dollar Impact in a change in Accounting Estimte?


New Depreciation per year

— Old Depreciation per year

Dollar Impact 

Make sure to consider the following:

  • # of years passed
  • New Salvage Value


A change from Completed Contract method

to % of Completion is what type of

Accounting Change?

Change in Accounting Principle

  • Retrospective
  • Affects Beginning RE


How do you calculate the dollar impact of a change in Accounting Principle?

(New - Old) x (1 - tax rate %)

Dollar Impact 

Affects Beginning RE


How do you calculate Accelarated or DDB depreciation?

With DDB no SLG (Pam's song)

(Asset Amount - previous yr's Depr.) 

x (2/Useful Life)

= DDB depreciation amount for year

Note that the first year will not have a previous year's depreciation amount. It will simply be (Asset amount — 0 x 2/useful life).


How do you calculate Dollar Value impact of a change from DDB to Straight Line?

(Old Depreciation - New Depreciation amount)

Dollar Impact on Current Earnings

For the change in the current year, make sure to determine the new depreciable basis amount by considering the past years of A/D using DDB.

The new depreciable basis will then be used to subtract the salvage value and then the corresponding annual depreciation amount (using only the remaining years left).


Dawg Corp changed it's inventory valuation from FIFO to LIFO to more fairly reflect the cost flow of goods.

What type of Accounting Change is this and how should it be handled?

Change in Acounting Estimate



How do you calculate the dollar impact on

Changes in Accounting Estimate?

New Depreciation — Old Depreciation


How do you calculate the dollar impact on 

Changes in Accounting Principle?

Changes in accounting principle are reflected as adjustments to Beginning RE, net of tax.

(New - Old) x (1-tax rate %) = Dollar Impact



What is considered an "Impractical" Change in Accounting Principle and how is it treated?

A change to LIFO is a change in accounting principle where it is considered "impractical" to accurately calculate the cumulative effect adjustment as of the beginning of the ifrst period presented.

There is no Year 2 impact.


What is the main criteria in

Changes in Accounting Principle?

An accounting principle may only be changed if:

  1. Required by GAAP
  2. Change  is preferrable and more fairly presents the information.

A change in accounting principle is not acceptable if it is done in order to increase earnings and stock price of the company.



What are examples of changes in Accounting Estimate?

  1. Changes in the lives of fixed assets
  2. Adjustments of year-end accrual of officers' salaries and/or bonuses
  3. Write-downs of obsolete inventory
  4. Material nonrecurring IRS adjustments
  5. Settlement of litigation
  6. Impractical changes in accounting principle
    • Changes to LIFO
    • Changes from Installment to immediate recognition method


What is the 10%  Profit or Loss Test?

Choose the GREATER of:

  1. Total profit of segments that did not report a loss
  2. Total loss of segments that did report a loss

[Greater of 1 or 2] x 10%

= the threshold for the 10% P/L test

  • If a segment's Profit or Loss is > = to the 10% P/L test, then the segment is reportable.


What is the quantitative thresholds for

Reportable Segments?

Must only meet one:

  1. 10% Size Test
    • Revenue
    • Reported Profit or Loss
    • Assets
  2. 75% Reporting Sufficiency Test
    • Considers External Revenue sales only
    • Segments to add up are those that have already met the size test + ones that did not in order to meet the 75% sufficiency test
    • Chosen segment external sales / Total external sales must be > or = 75%. 



What does the 75% Reporting Sufficiency Test focus on?

External Sales Only


How should you treat Effective and Ineffective 

Cash Flow Hedges?

OCI = Effective Cash Flow hedges 

Income Statement = Ineffective Cash Flow hedges 


How do you close Other Comprehensive Income at the end of reporting period?

Close OCI to AOCI

AOCI is a component of stockholder's equity.