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FAR 6 Flashcards

(101 cards)

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1
Q

Combinations referees to Merger and acquisitions of business where merger ? And acquisition ?

A

Merger - only one legal entity survives
Acquisition - acquirer or acquiree survives as separate entity

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2
Q

Consolidation refers to

A

F/s if acquirer and acquiree under the economic entity concepts per SFAS 141R (asc 805/810)

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3
Q

Acquisition method ha is know as

A

Purchase method

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4
Q

Acquisition method ha is know as

A

Purchase method

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5
Q

Acquisition date

A

Date in which the parent obtain control over the subsidiary

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6
Q

Invest in subsidiary j/e by cash and parent company

A

Cash :
Invest in sub
To cash

Parent company ;
Investment in sub
To common stock (parent @ par)
To apic ( excess of par over fv)

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7
Q

Investment in subsidiary may be accounted using

A

Cost method and equity method

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8
Q

Cost method

A

Investment does not change with the income of subsidiary or dividend paid by sub

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9
Q

Equity method

A

Value if investment would increase with the prop tip ate if earnings and reduce with the dividend paid

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10
Q

Investment in subsidiary j/e

A

Cash :
Investment in sub
To cash
Stock:
Investment in sub
To common stock @par
To apic (excess of par value over fv)

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11
Q

The investment in subsidiary may be accounted in

A

Cost method and equity method

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12
Q

Cost method

A

Value if investment does not change with income of subsidiary or dividend paid by sub

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13
Q

Equity method

A

Value of investment increase with the proportionate earnings of sub and reduce with the dividend paid by sub

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14
Q

Consolidating entries or eliminating entries (mnemonic)

A

CAREING
CAR - common stock, apic, retained earnings
E - excess if fv over bv of the subsidiary identified assets and liabilities
I- investment in sub
N - non controlling interest
G - goodwill

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15
Q

Eliminating j/e

A

Common stock
Apic
Retained earnings
Excess if fv over bv of subsidiary
To investment in sub
To non controlling interest
Goodwill

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16
Q

NCI OR NON CONTROLLING INTEREST APPEARS WHEN

A

The take us less than 100% say 90%

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17
Q

Computation of nci at the acquisition date

A

Nci = active market price if sub shares on acquisition date x no. Of nci shares

If active market price is not know use the purchase price

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18
Q

After acquisition date

A

Beginning nci
+ net income of sub
- dividend paid by sub
= ending nci

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19
Q

Inter company transactions types

A
  • sale of inventory
  • sales and pp&e
  • bond transactions
  • dividends
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20
Q

Inter company transaction may be upstream

A

Subsidiary to parent

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21
Q

Inter company may be down stream

A

Parent to sub

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22
Q

Don not eliminate inter company if not

A

Consolidated

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23
Q

Partners capital is a Account

A

Credit account

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24
Q

Partnership formation

A

Assets contributed by the partner at the time of formation are value at FV AND liability transferred to partnership are recorded at PV

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25
Partners capital account =
Assets at fv - liability at pv
26
Admission of partners method
Bonus Goodwill Exact
27
Bonus method
If a new partners contribution is in excess or less than his or her share if net assets bonus is adjusted to the old and new partners
28
Old partners adjustment
If the excess contribution by new partners the excess is adjusted to old partners in their p&l ratio
29
New partners adjustment
If the amount is lesser to his or her share the shortfall amount ties to new partners
30
Exact method
New partner contribute equal to his ir her of net assets
31
Profitability ratio
Use to evaluate profitability performance - gross profit ratio - return on sale or operating profit margin - net profit ratio - return on assets - return on equity
32
Gross Profit ratio =
Gross profit / sales
33
Operating profit margin =
Operating profit / sales
34
Net profit margin =
Net income / sales
35
Return ok assets =
Net income / average assets
36
Return in equity =
Net income / average shareholder equity
37
Liquidity ratios
Measure the entities ability to cover short term obligations with it’s short ten assets
38
Types if liquidity ratio
- current ratio - quick - a/r turnover - a/p turnover - inventory turnover - current cash debt coverage ratio
39
Current ratio
Current assets / current liabilities
40
Quick ratio
Current assets - inventory - prepaid / current liability
41
A/r turnover ratio
Neg credit sales / average a/r
42
A/p turnover
Cogs / average a/p
43
Inventory turnover
Cogs / average inventory
44
Solvency ratio
Measure the entity’s ability to meet Lomb term obligation
45
Types of solvency
Debt to equity Total debt Time interest earned Cash debt coverage
46
Debt to equity
Total debt / total equity
47
Total debt
Total debt / total assets
48
Times interest earned
Operating income / interest expense
49
Cash dent coverage
Cash from operating activities / average total liability
50
Performance metric
Provides insights into an entity operational efficiency and it’s appeal to investors
51
Types
Price to earnings Dividend payout Asset turnover
52
Price to earrings
Market per share / eps
53
Dividend payout
Dividend per share / eps
54
Variance =
Budget vs actual
55
Variance
Organisation needs ways to check how well their budget working this means looking at what they planned in their budget vs what actually happened
56
Efficiency
Is about how well the company manages and uses it’s resources
57
Effectiveness
Evaluates if the company has used it’s resources in a manner tat allows it to achieve it’s set objectives
58
Static budget
Uses the original output forecasted
59
Interest rate spread =
Return on investment - cost of capital
60
Not for profits organisations
Differs from commercial fir profit entity as their objective is not to earn profits for owners
61
NFPs is categories as
Health care organisation Education institutions Voluntary health and welfare - libraries museums professional organisation etc
62
Financial reporting for NFPS
- statement of financial position - statement of activity - statement of cash flows - note to f/s - statement of functional exoenses
63
Statement of financial position =
Totals assets = total liability + net assets
64
The net asset section presented is classified as
With and without donor restrictions
65
Without donor restrictions
Unrestricted net assets
66
Statement of activity
Report the changes in total net assets
67
Statement of activity includes section
Revenue and gains Net assets from restriction Expenses
68
Revenue and gain reports as
An increase in net assets with and without donor restrictions - include contribution from donors
69
Net assets from restrictions reports
Net assets with donor restrictions is reclassified into without donor restriction - leads to reduction in with donor restrictions and increase to without restrictions
70
Expenses are reported
As a deduction from without donor restrictions with exception of investment expense - in TRNA are spent nee to first release the restriction and then decrease UNA
71
Exoenses are to be disclosed in
- statement of functional expenses - on the face of the statement of activity - as a schedule to notes to f/s
72
Statement of cash flows reports
Operating activity Investing activity Financing activity
73
Cash and cash equivalent fir NFPs exclude donor restricted security which otherwise be treated as
Cash equivalent
74
Operating activity
Reports cash flow fir most of the items reported in statement if activities - inflow include contribution and other revenues collected - outflows include expense paid -may use direct or indirect method
75
If direct method is chosen is it necessary to reconcile the indirect method ?
No it is not necessary to reconcile indirect method
76
Investing activity reports
Cash flow of assets transactions
77
Financing activity reports
Represent cash flow of liability transaction - proceeds from contribution with donor restriction - other financing activity
78
Cash contribution
Recognise when received J/e Cash To contribution revenue
79
Pledges
Unconditional Conditional Multi year pledge
80
Unconditional pledges
Recignizw when pledge is made by donor Generally UNA j/e Pledge receivable To allowance To UNA To TRNA contribution revenue
81
When that TRNA is there they are needed to be reclassified as UNA j/e
Net assets trna To net assets UNA
82
After reclassified they are converted as expense j/e
Expense To cash
83
Conditional pledge
Recognised when earned
84
Multi year pledge current year
Without donor restrictions
85
Multi year pledge future year
With donor restriction trna
86
Records pledge at
Pv
87
Donated service
Record at FMV - it is essentials service - create or enhance a non financial assets - required specialised skills like doctor lawyer etc
88
If it is non essential
do not record them
89
Donated collection item
Don’t recognised until the npa ca sell the item
90
Donated material received j/e
Assets To contribution revenue
91
Donated material is ‘passed through ‘ j/e
Expense To contribution revenue
92
Agency transactions with variance power and beneficiary is related record j/e
Cash To contribution revenue
93
Agency transactions without variance power and beneficiary related record j/w
Cash Liability (refundable advance)
94
Fund accounting - private NFPs
Don bit use fund accounting for external reporting But may use it fir internal purpose and allowed to disclose it in the note to f/ s
95
Governmental NFPs is required to
Fund accounts for external
96
Endowment funds
They are donor restricted funds trna and prna Which principle amount can’t be spent
97
Board designated endowment funds
Quasi endowment- these are net assets without donor restrictions UNA
98
Underwater endowment fund
it with donor restriction recorded at fv is Gena rally less than the gift amount leads to deficiency
99
College and university’s Tution and term fees =
Net cash inflow (adjust fir refunds fir cancelled class) + scholarships + tuition remissions
100
For voluntary health and organisation record at
Statement of functional expenses
101
Inter company sales =
(Acquirer revenue + acquiree revenue) - consolidated revenue

FAR (8 decks)

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