FAR (My Own)

Question 1

The single statemement apporach & two statement apporach

Answer 1

Single statement apporach displays other comprehensive income item indiviudall and in total.

The Two-statement apporach displays comprehensive income as a separate statement and that immediatley follows the I/S

Question 2

Extraordinary Iteam

Answer 2

Foreign currency devaluation & losses discountinued operation are not extraordinary items.

Question 3

IFRS segment discloure

Answer 3

Under IFRS, Segment disclosure include liabilities only if a segment liability mesure is regularly provided to the cheif operating decision maker

Question 4

Equity security do not inlcude

Answer 4

Treasury stock, convertiable bonds, preferred stock redeemable at the option of the investor , or stock must be redeemed by the issuer

Question 5

Equity Method

Answer 5

The equity method is used to account for investments if significant influence can be exercised by investor over the investee. Ownership of 20% to 50% of the investee’s voting stock is deemed to represent signigcant influence.

Question 6

IFRS intangible assets

Answer 6

Under IFRS, research cost related to an internally developed intangible asset must be expensed but an intangible asset arising from development is recognized if the entity can demonstrate

1. Technological feasibility has been established
2. The entity intends to complete the intangible assets
3. Entity has the ability to use or sell the intangible asset and will generate future economic benefits

Question 7

Patent

Answer 7

A Patent is amortized over the shorter of it’s estimated life or remaining legal life

Question 8

Organizational Expenses

Answer 8

Organizational expenses are not capitalized as an intangible asset rather they are expensed immediatley

Question 9

Goodwill

Answer 9

Costs associated with maintaining, developing, or restoring goodwill are not capitalized as goodwill ( they are expensed )

Question 10

Computer Software development

Answer 10

Under IFRS, Computer software development costs are internally generated intangibles. Research costs must be expensed and development costs may be capitalized if certain criteria are met.

Question 11

Formula for amortization of capitalized software costs

Answer 11

Greater of
Percentage of revenue = Total capitalized amount X current gross revenue for period/ total projected gross revenue for product

Straight line = Total capitalized amount X 1/ Estimate of economic life

Question 12

Computer software developed internally

Answer 12

Expenses costs incurred after the preliminary project state costs incurred for training and maintenance. Capitalize costs incurred after the preliminary project state and for upgrading and enhancement

Capitalized costs should be amortized on a straight line basis.

Question 13

Intangible assets with finite lives (Two step impairment test)

Answer 13

Step 1 - The carrying amount of the asset is compared with sum of the undiscounted cash flows
Step 2- If the carrying amount exceeds the total un-discounted future cash flows, then asset is impaired and an impairment loss equal to the difference between the carrying amount of the asset and its fair value is recorded.

Question 14

Intangible assets with indefinite lives ( One step impairment test)

Answer 14

An intangible asset with an indefinite life is tested for impairment by comparing the fair value of the intangible asset to its carrying amount.

Note : FV is not given , discounted cash flows must be used.

Question 15

Goodwill impairment -US GAAP

Answer 15

Goodwill impairment is calculated at a reporting unit level. FV- Carrying amount = impairment

Question 16

Definition of reporting unit

Answer 16

A reporting unit is an operating segment or one level below an operating segment. usually it has separate cash flows and management regularly review it

Question 17

IFRS goodwill impairment

Answer 17

under IFRS, goodwill impairment testing is done at the cash-generating unit (CGU) level. one step process carrying value compare with CGU’s recoverable amount. Recoverable amount greater of the CGU’s fair value less costs to sell and it’s value in use

Question 18

Completed contract method

Answer 18

Under IFRS, the completed contract method is not permitted. The percentage of completion method must be used unless the final outcome of the project cannot be reliable estimated, in which case the cost recovery method is required. Under the cost recovery method, revenue can only be recognized to the extent that cash collected excess the costs incurred

Question 19

Completed contract B/S Presentation

Answer 19

The excess of accumulated costs over related billings should be reflected in the B/S as a current asset and the excess of accumulated billing over related cost should be reflected as a current liability.

Question 20

J/E to record the installment sale

Answer 20

Installment sale accounts receivable -DR
Inventory - CR
Deferred gross profit - CR

Question 21

J/E to recognize Cash Collection on installment sale

Answer 21

Cash - DR

Installment sale accounts receivable - CR

Question 22

J/E to record profit on collection

Answer 22

Deferred gross profit -DR

Realized gross profit on installments sales -CR

Question 23

Recognizing gains and losses

Answer 23

Gains and losses are always recognized in exchagne having commercial substance and are computed as the difference between fair value and book value of the asset given up

Note: The cash given up does not enter into the calualation of gain on exchange

Question 24

J/E to record the exchange and gain on the exchange

Answer 24

Dr Building 
Dr Accumulated Depreciation 
Cr    Cars 
Cr    Gains on disposal cars 
Cr    Cash

Question 25

Lacking Commercial Substance

Answer 25

Recognize all gain if boot received exceeds more than 25% and it boot received is less than 25% of the total consideration , a proportional amount of the gain is recognized.

If the transactions lacks commercial substance and a loss is indicated, the loss should be recognized.

Note: No boot received = No Gain
Boot is Paid = No Gain

Question 26

lacking commercial substance - boot received less than 25%

Answer 26

Recognized gain = Realized gain X (Boot Received/ FV received)

Question 27

Definition to know

Answer 27

Historic cost - the actual exchange value in the dollars at that time as asset was acquired or a liability was assumed

Current cost - The cost that would be incurred a the present time , the replacement cost. use the recoverable amount if lower

Nominal dollars - Unadjusted for changes in purchasing power

Constant dollars - Dollars restated based on calculation of CPI ratios

Question 28

Measurement method and current cost determination

Answer 28

Historic cost/Nominal Dollars is based on price without restatement for changes in the purchasing power of the dollar. It is basis for GAAP used in the primary F/S -

Question 29

Currency re-measurement GAAP vs IFRS

Answer 29

GAAP require of the re-measurement method when a foreign subsidiary operations in a highly inflationary economy. Under IFRS, the F/S of a foreign subsidiary operating in a highly inflationary economy myst first be restated for the effects of inflation and then must be converted from the foreign currency to the reporting currency using current/year all elements of both b/s and I/S

Question 30

Personal Financial Statements

Answer 30

Statement of financial condition = b/s
Current assets and liabilities at estimated current value rather than at historical cost.

Vested pension plan benefits are reported at fair value
Life insurance loans payable are netted against the cash surrender value of life insurance

Question 31

Income Tax basis F/S

Answer 31

Tax basis F/S are well-suited for entities that have complex operations

On tax basis F/S, Nontaxable revenues and expenses must be recognized and may be reported as

Separate line item in the revenue and expense sections , addition and deduction to N/I , A disclosure in a note

Question 32

Modified cash basis F/S

Answer 32

Common modification include;

Capitalization and depreciation fixed assets
Accural of income taxes
Recording liabilities for long-term and short-term borrowing and the related interest expenses
Capitalizing inventory
Reporting investment at FV and recognizing unrealized gains and losses