FAR 1

Question 1

What are enhancers for SFAC#8 qualitative characteristics of relevant and faithful representations?

Answer 1

-comparability
-verifiability
-timeliness
-understandability
-Cost constraint
(“Compare and verify in time to understand”)

Question 2

What is the main purpose of SFAC No. 5

Answer 2

Recognition and Measurement in the Financial Statements:

• Recognition criteria and guidance on what and when information should be incorporated in the financial statements

Question 3

What are the different ways to measure asset and liability attributes?

Answer 3

• Historical Cost (PP&E)
  
  • Current Cost (Inventory)
  • Net realizable value (A/R)
  • Current Market Value (marketable securities)
  • Present value of future cash flows (LT debt “bonds”)

Question 4

What are the fundamental assumptions of GAAP

Answer 4

• Entity Assumption
  
  • Going Concern
  • Monetary Unit
  • Periodicity assumption
  • Historical Cost principle
  • Revenue recognition principle
  • Matching Principle
  • Accrual Accounting
  • Full Disclosure
  • Conservatism

Question 5

When is the revenue recognition principle?

Answer 5

○ When earned AND

○ Realized (paid) or realizable (accrue for revenue)

Question 6

What is the conservatism principle?

Answer 6

• Use method least likely to overstate assets, revenues/gains or that understates liabilities, expenses/losses in the current period
• Recognize revenues/gains when earning process is complete
• Recognize expenses/losses immediately

Question 7

What is the matching principle?

Answer 7

expenses follow revenue they are related to - doesn’t govern losses since they are from unusual events

Question 8

What is the full disclosure principle?

Answer 8

given useful information that influences decision process, but not too much

Question 9

What is the accrual accounting principle?

Answer 9

Revenue recognized when earned and expenses are recognized in same period as related revenue

Question 10

What is the only fundemental assumption for the IFRS (IASB) framework for the preparation and presentation of financial statements (SFAC No 5 in GAAP)?

Answer 10

Going concern

Question 11

What is SFAC No. 6

Answer 11

Elements of financial statements

Question 12

What are the elements of the financial statements under SFAC No. 6

Answer 12

• Comprehensive Income
	• Revenues
	• Expenses
	• Gains
	• Losses
	• Assets
	• Liabilities
	• Equity (of net assets)
	• Investments by owners
	• Distributions to owners
("REGL ALE needs ID")

Question 13

What is the general definition of revenues?

Answer 13

inflows, enhancements of assets, or reductions of liabilities from delivering goods or services as part of normal operations recognized as gross amount less any allowances for returns and discounts given

Question 14

What is the general definition of expenses?

Answer 14

Outflows, uses of assets, or incurrence of liabilities from delivering goods or services as part of normal operations

Question 15

What is the general definition of gains?

Answer 15

Increases in equity from peripheral transactions and other events except revenue and investments from owners

Question 16

What is the general definition of losses?

Answer 16

Decreases in equity from peripheral transactions and other events except expenses and distributions to owners

Question 17

What is the general definition of assets?

Answer 17

Probable future economic benefits to be received by the company as a result of past transactions or events. Valuation accounts may be used to show reductions to or increases in an asset that reflect adjustments beyond the historical cost or carrying amount of the asset

Question 18

What is the general definition of liabilities?

Answer 18

Liabilities are probable future sacrifices of economic benefits arising from a present obligation of the company to transfer assets or provide services to other entities in the future as a result of past transactions or events.

Question 19

What is the general definition of equity?

Answer 19

Residual interest in the assets of the company that remains after deducting its liabilities

Question 20

What is the general definition of Investments by owners?

Answer 20

increases in assets from transfers of cash, property, or services from owners.

Question 21

What is the general definition of distributions to owners?

Answer 21

decreases in assets from transfers of cash, property, or services, or the incurrence of a liability to owners

Question 22

What is SFAC No.7

Answer 22

Using Cash Flow Information and Present Value in Accounting Measurements
• Framework for accountants to employ when using future cash flows as a measurement basis for assets and liabilities, especially when the factors to consider in the measurement are complex. It also provides a set of principles that govern the use of present value, especially when the timing and/or amount of future cash flows are uncertain.

Question 23

What are the five elements of present value measurement?

Answer 23

• Estimate of future cash flow
• Expectations about timing variations of future cash flows
• Time value of money (risk-free rate of interest)
• Price for bearing uncertainty
- Other factors (liquidity issues and market imperfections)

Question 24

What are the two methods of computation that can be used when determining present value

Answer 24

• Traditional (bonds - scheduled known amounts)

- expected cash flow (warranties - uncertain future payments)

Question 25

When measuring present value of liabilities, what are the two extra factors that must be considered?

Answer 25

• costs to settle

- credit standing of the company

Question 26

Can a change in estimate be used to catch up the assets/liabilities present value?

Answer 26

Yes, its called the catch up approach (pg 16)

Question 27

What two major categories are reported on the income statement

Answer 27

Continuing Operations

Discontinued Operations

Question 28

What major component is reported on the statement of retained earnings

Answer 28

cumulative effect of change in accounting principle

Question 29

How is the cumulative effect of change in accounting principle presented?

Answer 29

Cumulative effect of a change in accounting principle is presented net of tax. It is the cumulative effect (calculated as of the beginning of the earliest period presented in the period of implementation of the new method) of a change from one acceptable method of accounting to another (“GAAP to GAAP”) because the new method presents the financial information more fairly than the old method.

Question 30

In relation to tax (net or gross) how are continuing, discontinued, and cumulative effects of change in accounting principles presented?

Answer 30

• Continuing = gross of tax (total is net of tax)
• Discontinued = net of tax
• Cumulative effect of change in accounting principle = net of tax

Question 31

What can be included in discontinued operations on the income statement? (3)

Answer 31

Impairment loss, gain/(loss) from actual operations, and gain/(loss) on disposal

Question 32

When are discontinued operations transactions included on the I/S?

Answer 32

the period that they occur.

Question 33

What types of entities should be considered as discontinued operations

Answer 33

If it

• has been disposed of OR
• is classified as held for sale

Question 34

What conditions must be present for something to be discontinued operations (Accoutning Rules)

Answer 34

• Strategic shift OR

- Major effect on an entity’s operations and financial results

Question 35

How is tax reported for OCI?

Answer 35

OCI can be reported net of tax or gross. It can also be disclosed on the face of the statements or in the notes.. Each component must show the tax effect some how.