FASB 8 Flashcards
How do we account for the recovery of a Purchase Commitment loss?
A gain to the extent of the previously recognized loss.
What is the required accounting for a potential loss on a Purchase Commitment when the commitment cannot be modified?
- The loss must be accrued because the loss is probable and estimable;
- Inventory is recorded at market, and a loss is recorded for the difference between contract and market;
- If contract is not executed as of the balance sheet date, loss is recognized and liability established.
What is the required accounting for a potential loss on a Purchase Commitment when the commitment can be modified?
The loss is required to be footnoted as a contingent liability, but is not accrued in the accounts because the loss is not probable given that the contract can be revised.
If a firm has a Purchase Commitment that cannot be modified and the price declines, what journal entry should be booked?
DR: Loss on Purchase Commitment.
CR: Liability on Purchase Commitment.
Define “Purchase Commitment”.
Type of commitment made when a firm commits to the purchase of materials at a set unit price.
How are adjustments for net realizable value applied?
Item-by-item basis.
Under International Financial Reporting Standards , is reversal of a write down of inventory permitted?
Yes, it is permitted.
When is inventory reassessed under International Financial Reporting Standards?
At the end of each financial reporting period.
List the three methods of assigning value to inventory under International Financial Reporting Standards.
First In First Out (FIFO), specific identification, and weighted average.
What is the net realizable value as defined by International Financial Reporting Standards?
The estimated selling price in the ordinary course of business less the estimated costs of completion and the estimate costs necessary to make the sale.
Under International Financial Reporting Standards, is inventory reported at lower of cost or market OR at lower of cost or net realizable value?
Lower of cost or net realizable value.
Can a company following International Financial Reporting Standards standards use Last In First Out (LIFO) cash flow assumptions?
No, the company cannot use Last In First Out (LIFO) cash flow assumptions.
How do land improvements differ from land?
This asset differs from land in that it has a finite useful life and is depreciated.
List the requirements for inclusion in plant assets.
Currently used in operations;
Have a useful life extending beyond one year;
Have physical substance.
List some examples of natural resources.
Items such as gravel pits, coal mines, tracts of timber land, and oil wells.
