FAR Flashcards
(72 cards)
1
Q
INVENTORY INCLUDES
A
PURCHASE PRICE, FREIGHT IN
2
Q
SELLING EXPENSES INCLUDES
A
FREIGHT OUT, SALARIES AND COMMISSIONS, ADVERTISING
3
Q
GENERAL AND ADMINISTRATIVE EXPENSES INCLUDE
A
INSURANCE, OFFICE SALARIES, ACCOUNTING AND LEGAL FEES, PROPERTY TAXES
4
Q
NON OPERATING EXPENSES INCLUDE
A
AUXILIARY ACTIVITIES, INTEREST INCOME, GAIN/LOSS ON SALE OF FIXED ASSETS
5
Q
GAINS ARE REPORTED
A
AT THEIR NET AMOUNTS
SELLING PRICE > BOOK VALUE
6
Q
LOSSES ARE REPORTED
A
AT THEIR NET AMOUNTS
SELLING PRICE < BOOK VALUE
7
Q
REVENUES ARE REPORTED
A
AT THEIR GROSS AMOUNTS (LESS RETURNS AND DISCOUNTS GIVEN)
8
Q
EXPENSES ARE REPORTED
A
AT THEIR GROSS AMOUNTS
9
Q
UNEXPIRED COSTS
A
COSTS THAT WILL EXPIRE IN FUTURE PERIODS AND BE CHARGED AGAINST REVENUES FROM FUTURE PERIODS
-stay on BS until expired then goes to IS
10
Q
COST
A
IS AN AMOUNT (MEASURED IN MONEY) EXPENDED FOR ITEMS SUCH AS CAPITAL ASSETS, SERVICES AND MERCHANDISE RECEIVED. COST IS THE AMOUNT ACTUALLY PAID FOR SOMETHING
11
Q
UNEXPIRED COST (ASSET) –> COST (EXPENSE)
A
INVENTORY –> COGS
PREPAID INSURANCE–> INSURANCE EXP
NET BV OF FIXED ASSET–>DEPRECIATION EXPENSE
UNEXPIRED COST OF ASSET–>PATENT EXPENSE (AMORTIZATION)
12
Q
INITIAL FRANCHISE FEE
A
Initial franchise fee is recorded as an intangible asset on the balance sheet and amortized over the useful life.
Amortization will be the PV of the amount paid divided by useful life ((down payment plus PV of remaining payments)/useful life)
-initially the fee is capitalized and a deferral of revenue by crediting unearned franchise fee revenue
-recognize revenue when SUBSTANTIALLY PERFORMED- generally first day of operations
13
Q
CONTINUING FRANCHISE FEE
A
recorded as an expense as incurred
14
Q
START UP COSTS
A
Expenses incurred in the formation of a corporation. Includes:
-legal fees for charter, partnership agreements, bylaws, original stock certificates, bylaws
-organizational costs
-one time activities
-opening new facility
conducting business in new territory
do not include:
-ROUTINE ongoing efforts to refine, enrich, improve, existing products, services, processes
-business mergers or acquisitions
-ongoing customer acquisition
-for income tax purposes may deduct 50,000 org expenditures over 180 months. first 5000 immediately
15
Q
RESEARCH AND DEVELOPMENT COSTS
A
- genereally expenses
- under IFRS development may be capitalized if certain criteria are met
- exceptions that require capitalization
- material, equip, facilities, PPE with ALTERNATIVE FUTURE USE capitalize and depreciate over future use
- R&D on BEHALF OF OTHERS as a contractual agreement
16
Q
COMPUTER SOFTWARE DEVELOPMENT COSTS
A
- CSDC to be SOLD, LEASED, OR LICENSED should be expensed until TECHNOLOGICAL FEASIBILITY IS MET. Then capitalize after technological feasibility is met. When finally ready for sale, amortize over greater of two amortization methods (see pg F2-20)
- CSDC for INTERNAL USE ONLY- expense costs b4 PRELIMINARY PROJECT state and then capitalize after preliminary project state. Amortize over straight line when basically ready for use
- costs incurred for training and maintenance should also b expensed
- planning, coding, designing, and testing incurred be4 technological feasibility should be expensed and after should capitalized
17
Q
IMPAIRMENT FOR INTANGIBLES (NOT GOODWILL)
A
- check at least annually
- FINITE LIFE: use 2 step approach
- CV>undiscounted cash flows
- CV>FV(or discounted cash flows) - INDEFINITE LIFE: use 1 step approach
- use step 2: CV> FV(or discounted cash flows) - For IFRS only use step 2: CV>FV(or discounted cash flows)
- If asset HELD FOR USE, use steps above. If HELD FOR DISPOSAL only difference is: your total impairment loss is FV - CV + cost of disposal.
- Impairment reported in I of IDEA. Income from continuing operations
- undiscounted cash flows = net future cash flows
- discounted cash flows = PV of net cash flows
18
Q
IMPAIRMENT FOR GOODWILL
A
Goodwill impairment calculated at a reporting level unit
- To determine if there is a goodwill impairment (step 1) determine if the BV of the reporting unit (including goodwill) is greater than the FV of the reporting unit (including goodwill)
- Next determine the “Goodwill Implied FV” which is the difference between the FV of the reporting asset from step 1 (including goodwill) with the identifiable FV of all assets and liabilities (this is essentially the FV of all identifiable net assets not including GW)
- Lastly the difference between the “goodwill implied value” minus the goodwill BV is the impairment loss on goodwill.
d. loss due to impairment
c. Goodwill
19
Q
REPORTING UNIT
A
- Calculating goodwill for GAAP
- separate cash flows
- Management regularly reviews it
20
Q
IMPAIRMENT FOR INTANGIBLES UNDER IFRS
A
- difference between CV and greater of
- sale price - cost to sell
- value in use
21
Q
NONMONETARY EXCHANGE
A
- Either has commercial substance or not
- has no commercial substance if future cash flows do not change as a result of the transaction or FV cannot be determined
- Gains and losses are incurred if exchange has commercial substance
- Gain/loss = FV of asset given - BV of asset given
- d. New asset FV(FV old + cash given)
d. cash
d. accumulated sep of asset given
d. loss
c. historical cost of asset given
c. cash
c. gain
22
Q
NONMONETARY EXCHANGE LACKS COMMERCIAL SUBSTANCE
A
- Alwayse recognize loss
- only recognize gain is boot received
- recognize total gain if boot recieve>25% of total consideration received
- recognize portion of boot received over total consideration if less than 25%
- alwayse recognize gain and loss on involuntary monetary conversions
23
Q
HISTORICAL COST/NOMINAL DOLLARS- HCND
A
is based on historic prices without restatement for changes in the purchasing power of the dollar. This method is the basis for GAAP used in the primary finical statements
24
Q
HISTORICAL COST/CONSTANT DOLLARS- HCCD
A
is based on the historic prices adjusted for changes in the general purchasing power of the dollar. This method uses a general price index to adjust historic cost
25
CURRENT COST/NOMINAL DOLLARS- CCND
is based on current cost without restatement for changes in the general purchasing power of the dollar
26
CURRENT COST/CONSTANT DOLLARS-CCCD
is based on current cost adjust for changes in the general purchasing power of the dollar. This method may use specific price indexes or direct pricing to determine current cost and will use general price index to measure general purchasing power effects.
27
HISTORICAL COST
The actual exchange value in the dollars at the time an asset was acquired or a liability was a assumed. ignores appreciation
28
CURRENT COST
the cost that would be incurred at the present time, the replacement cost. Use of recoverable amount if lower. reflects appreciation
-under current cost accounting, holding gain on inventory is the excess of the replacement cost at the balance sheet date over the original cost
29
NOMINAL DOLLAR
unadjusted for changes in purchasing power. ignores inflation
30
CONSTANT DOLLAR
dollars restated based on the calculations of CPI ratios. reflects inflation
31
MONETARY
```
monetary assets and liabilities are fixed or denominated in dollars regardless of changes in specific prices or the general price level.
ex:
cash
non covertablebonds
accounts and notes receivable
account and notes payable
accrued expenses
```
purchasing power gains when deflation and holding monetary assets
purchasing power gains when inflation and holding monetary liabilities
32
NON MONETARY
```
non monetary assets and liabilities fluctuate in value with inflation
marketable common stock
inventory
investment in sub
PPE
intangible assets
stock
```
33
FOREIGN CURRENT TRANSACTIONS
transactions with a foreign entity denominated in a foreign currency
34
FOREIGN CURRENCY TRANSLATIONS
The conversion of finical statements of a foreign entity into financial statements expressed in the domestic currency
35
DIRECT METHOD
ours compared to theirs
| $1.47 = 1 euro
36
INDIRECT METHOD
theirs compared to hours
| 1$ = .68 euro
37
CURRENCY EXCHANGE RATE
the exchange rate at the current date, or immediate delivery of currency, often referred to as the SPOT RATE. Typically this is used for all BS accounts
38
FORWARD EXCHANGE RATE
is the exchange rate existing now for exchanging two currencies at a specific future date. BET
-a gain or loss from a forward exchange contract for speculation (does not relate to a specific transaction) is equal to the difference in the forward rate at the date the contract is purchased and the BS date
39
HISTORICAL EXCHANGE RATE
the rate in effect at the date of issuance of stock or acquisition of assets. USED FOR EQUITY
40
WIGHTED AVERAGE RATE
is calculated to take into account the exchange rate fluctuations for the period. USED FOR IS
41
REPORTING CURRENCY
the currency of the entity ultimately reporting finical results of the foreign entity. US DOLLAR FOR CPA
42
FUNCTIONAL CURRENCY
the currency of the primary economic environment in which the entity operates, usually the local currency or reporting currency
43
FOREIGN CURRENCY REMEASUREMENT
DEFINITION: is the restatement of foreign financial statements from the foreign currency to the entities functional currency
REMEASUREMENT GAIN OR LOSS
1. DYSFUNCTIONAL (reporting currency is functional currency)
2.TEMPORAL method
3. foreign sub is highly integrate with parent. Day to day operations depend on the reporting currency
4. the foreign sub operates in a HIGH INFLATIONARY ECONOMY
5. Remeasurement G/L in IS
6. BS accounts- monetary using year end/spot rate. Non monetary using historical rate
7. IS accounts- BS related using historical. Not BS related using weighted average
8. CS/APIC- historical rate
BS-->IS--> Remeasurment G/L (income statement) PLUG #1 in RE, PLUG #2 in I of IDEA (IS)
44
FOREIGN CURRENCY TRANSLATIONS
DEFINITION: the restatement of finical statements denominated in the functional currency to the reporting currency using appropriate rates of exchange
TRANSLATION GAIN OR LOSS
1. FUNCTIONAL (foreign currency is functional currency)
2. CURRENT RATE method
3. The foreign sub is self contained and independent and operates primarily in local markets. Day to day operations do not depend on the reporting currency
4. the foreign sub operates in a LOW INFLATIONARY ECONOMY
5. Translation G/L in OCI
6. All IS accounts- weighted average
7. All Assets and Liabilities accounts- Year end/spot rate
8.CS/APIC- historical rate
IS-->BS-->translation G/L (OCI) PLUG
45
ASSETS
probable future economic benefits that r obtained or controlled by a particular entity as a result of past events or transactions
46
LIABILITIES
are probable future sacrifices of economic benefits that an entity faces for obligations to provide services or transfer assets due to past events or transactions
47
REVENUE RECOGNITION GAAP (4 CRITERIA)
1. persuasive evidence of a contract exists
2. delivery has occurred and services have been rendered
3. the price is fixed and determinable
4. collection is reasonably assured
48
REVENUE RECOGNITION IFRS (SALE OF GOODS)
1. revenues and costs are MEASURED RELIABLY
2. it is probable the ECONOMIC BENFEFITS from the transaction will flow to the entity
3. RISK AND REWARDS r transfered to buyer
4. entity does not retain MANAGERIAL INVOLVMENT
49
REVENUE RECOGNITION IFRS - SERVICES
1. revenues n costs can b MEASURED RELIABLY
2. probable ECONOMIC BENEFITS will flow through to entity
3. the STAGE OF COMPLETION of the transaction at the end of the reporting period can b measured reliably
50
DEFERRED CREDITS
liability
| -unearned revenue or deferred revenue
51
EXPENSES
reductions of assets or increase in liabilities
| should b recognized according to matching principle
52
REALIZATION
occurs when an entity obtains cash or the right to receive cash
53
ACCRUAL ACCOUNTING
- income statement impact/no cash impact
- accrued assets (accrued revenues)
- accrued liabilities (accrued expenses)
54
DEFERRAL
- no income statement impact/cash or BS impact only
| - typically recognize liability, prepaid expense or unearned revenue
55
EXPIRED COST
recognize on Income statement
56
UNEXPIRED COST
stay on BS- deferred charge and assets
57
INDIVIDUAL FOREIGN TRANSACTIONS
1. The difference between the exchange rate used in recording the transaction in dollars and the exchange rate at the balance sheet date (current exchange/spot rate) is an UNREALIZED FOREIGN EXCHANGE TRANSACTION G/L recognized on the income statement (I in IDEA)
58
OTHER COMPREHENSIVE BASES OF ACCOUNTING-OCBOA
1. Include:
- cash bases, tax bases, regulatory bases
2. fin st titles should differentiate OCBOA
3. fin st should explain changes in equity accounts
4. statement of cash flow is not required
59
PERSONAL FINANCIAL STATEMENTS
1. statement of finical position (BS) is the basic personal finical statement
- assets and liabilities r reported at estimated current value
- net worth = net assets - net liabilities
- the presentation of assets and liabilities are stated in the order of liquidity and there are no short and long term classifications
60
FRANCHISE ACCOUNTING
1. Initial franchise fee
- franchisee records asset (capitalize) and amortizes
- franchisor defers revenue and recognizes it as services are performed once SUBSTANTIAL PERFORMANCE on such future services has occurred
2. Continuing Franchise Fee
- expense as incurred
61
INTANGIBLE ASSETS
1. PURCHASE intangibles
-capitalized at cost
-legal and registration fees are capitalized
2. INTERNALLY DEVELOPED intangibles
are expenses except specifically identifiable:
-legal fees for SUCCESSFUL defense
-registration or consulting fees
-direct costs to secure assets
-design costs (of a trademark)
62
AMORTIZATION OF INTANGIBLE ASSETS
- only intangibles with FINITE lives
* patent is amortized over shorter of estimated life or remaining legal life
- generally use SL
- if asset is worthless write off remaining cost to expense
63
VALUATION OF INTANGIBLES
1. GAAP: use cost method
- finite intangibles: Cost - amortization - impairment
- infinite intangibles: Cost - impairment
2. IFRS: use cost method or Revaluation Method (Fair Value) (R in PUFE R)
- hits income statement if there is a defect and OCI if there is a surplus
64
RESEARCH AND DEVELOPMENT COSTS
DEFINED: the planned efforts of a company to discover new information that will help either create a new product, service, process, or technique or significantly improve the one in the current use
1. expense except:
-material, equipment, facilities, that have ALTERNATIVE FUTURE USE
-research and development costs of any nature undertaken on BEHALF OF OTHERS under a contractual agreement
2. Items not considered R&D include:
-routine periodic design changes to old products or troubleshooting in production phase (these are manufacturing costs)
-marketing research
-quality control testing
-reformation of chemical compound
OTHERS INCLUDE
-material and labor costs incurred in producing a prototype
-cost of testing the prototype
3. Under IFRS development may be capitalized if:
-TECHNOLOGICAL FEASIBILITY
-INTENT TO COMPLETE
-ABILITY TO USE OR SELL
65
THE MATCHING PRINCIPLE
matches expenses against revenues
66
AMORTIZATION FOR INTANGIBLES
-should be amortized of lessor of useful economic life or legal life (the period estimated 2 be benefited)
67
NONMONETARY EXCHANGES (IFRS)
- dissimliar assets are treated in the same manner as GAAP having commercial substance
- similiar assets do not recognize gains only losses
68
FOREIGN TRANSACTION GAIN
a increase in the buying power of a dollar (deflation) will result in a gain for a asset and a loss for a liability
an decrease in the buying power of a dollar (inflation) will result in a gain for a liability and loss for a asset
69
INVOLUNTARY EXCHANGE
recognize the full gain or loss based on carrying amount plus any costs associated with the transaction
70
START UP COSTS = ORGANIZATIONAL EXPENDITURES
1. include costs of one time expenditures and should be expensed including:
- organizing a new entity (legal fees for preparing a charter, partnership agreement, bylaws, original stock certifications, filing fees)
- opening a new facility
- introducing a new product or service
- conducting business in a new territory
- initiating a new process in an existing facility
2. startup costs do not include
- routine, ongoing, efforts to refine, enrich, improve, the quality of existing products or services
- business mergers or acquisitions
- ongoing customer acquisition
71
INFLATION
if it reflects inflation it reflect changes in the general purchase price of a dollar
- price level index is used for the historic/constant dollar method
- holding monetary assets during a period of inflation (period of risking price level) results in holding losses or loss of purchasing power
72
PURCHASING POWER
1. fewer yen = 1$ --> increase purchasing power--> decrease inflation --> gain receivable--> loss payable
2. more yen = $1 -->less purchasing power-->increase inflation--> loss receivable--> gain payable
