Flashcards in Financial Statement Accounts Deck (47):
Describe a transaction without recourse
Transferor is not responsible for nonpayment in the part of the maker of the receivable.
A debtor who has borrow funds or purchases an asset and provided a note to the original creditor.
What is the IFRS focus regarding sales or secure borrowing?
Whether the transferor has transferred the rights to receive the cash flows from the receivable and whether substantially all the risk and rewards of ownership were transferred.
Describe a transaction with recourse.
The transferor is responsible for nonpayment in the part of the original maker of the receivable.
In the transfer of receivables, if the 3 conditions for a sale are not met, what happens?
The receivable remains in the books of the transferor, and the transferor records a Kia unity related to the borrowing transaction
With respect to the transfer of receivable, what are the 3 conditions of a sale?
1) the transferred assets have been isolated from the transferor, even in bankruptcy
2) the transferee is free to pledge or exchange the assets
3) the transferor does not maintain effective control over the transferred assets through either an agreement that allows and requires the transferor to repurchase the assets or one which requires the transferor to return specific assets
Who bears the cost of bad debts when factoring without recourse?
The factor (transferee) bears the cost of uncollectible accounts, but the seller (transferor) bears the cost of sales adjustments
Who bears the costs of bad debts when factoring with recourse?
The seller (transferor) bears the cost of bad debts as well as the cost of sales adjustments
The transferor (original creditor) transfers the receivables to a factor (transferee, financial institution) immediately as a normal part of business.
List the methods through which interest revenue is recognized after a write-down has occurred.
Interest and cost recovery methods
When does loan impairment occur?
When the creditor believes the loan payments actually to be received have a lower fair value than under the original agreement.
When a receivable is impaired, what should it be written down to?
The PV of the future cash flows expected to be collected using original effective interest rate for the loan or market value if more determinable.
What is the accounting treatment for loan impairments?
Receivable should be written down to:
1) PV of future cash flows using original effective interest rate, or
2) mkt value, if it can be determined.
How is the loss on an impairment accomplished?
DR: bad debt expense
CR: a contra receivable account
What is the calculation for determining COGS?
+net purchases (gross+trans in-returns-discounts)
- ending inventory
List the differences between moving & weighted average cost flow assumptions.
-- moving average computes a new weighted average cost per unit after each purchase of inventory
-- moving average results in lower COGS during period of rising prices
Weighted average cost per unit formula
COGS / # of units available for sale
LIFO in periods of rising prices
-- lower NI
-- lower ending inventory
-- highest COGS
FIFO in periods of rising prices
-- lowest COGS
-- highest NI
-- highest ending inventory
Differences between periodic & perpetual applications of LIFO
-- in perpetual, each sale is costed with most recent purchase
-- perpetual results In a lower COGS in a period of rising prices
List the cost flow assumptions of a perpetual inventory system
-- specific identification
-- moving average
Define "base-year dollars"
Price level for the pool at the beginning of the year Dollar Valued (DV) LIFO adopted.
Formula to get to ending dollar value LIFO
Ending DV LIFO = beginning DV LIFO + (increase @ base year dollars)(conversion index)
List the methods of recording Lower of Cost or Market
How is holding cost reported under the direct method?
Any holding loss related to inventory is simply included in COGS
How does the retail inventory method establish the LCM valuation for ending inventory?
By excluding net markdowns from the cost-to-retail ratio
In year one of an inventory error, if purchases are understated, what is the impact on retained earnings?
RE is overstated
If an inventory error is discovered in year two, where is the difference recorded?
Beginning retained earnings
List the basic inventory equation.
+ net purchases
= ending inventory
List the components s of capitalize costs to self constructed assets.
What is the general rule for capitalizing expenditures?
Capitalize all expenditures necessary to bring the plant asset to its intended condition and location
List the limitation of recorded value of self-constructed assets.
Market value at completion.
List the considerations that must be given when electing to expense or capitalize an item.
Estimated time benefit
How is the cash equivalent price in the issuance of securities determined?
In FV of asset required or of securities issued, whichever can be most clearly determined.
How are donated items recorded?
List the interest capitalization formula
Interest rate x average accumulated expenditures
What conditions must exist to capitalize interest?
1) qualifying expenditures have been made
2) construction it proceeding
3) interest cost is being incurred
What interest rates should be used to determine capitalized interest?
Average interest rate during period
Specific interest rate applicable to construction debt
List the 2 step process involved in computing capitalized interest
1) compute average accumulated expenditures
2) apply the appropriate interest rate(s)
If the proceeds from a specific construction loan are not fully used for financing construction until well into the construction phase, how is the interest handled?
The interest revenue is reported separately with no effect on interest capitalized
If Avg Accumulated Expenditures > total interest-bearing debt, why is there no interest expense?
All debt could have been avoided if construction had not take place.
All interest is capitalized.
If Avg Accumulated Expenditures < total interest-bearing debt, what is interest expense for the period?
The difference between total interest cost and the amount of interest capitalize
Where should the amount of interest paid be disclosed?
In the statement of cash flows, as either part of the statement, as a supplemental schedule or in a footnote.
What is the formula for the service hours method of depreciation?
(Cost - salvage/total service hours) x hours used
What's the formula for the units of output method of depreciation?
(Cost - salvage/total units) x units produced
Under IFRS what 2 methods can be used to adjust accum depr?
The proportional and reset methods