IFA

Question 1

What are Provisions?

Answer 1

Liability that is expected to arise in the future as a result of past events

Question 2

Where are Provisions recognized?

Answer 2

Balance Sheet

Question 3

What are Contingent liabilities?

Answer 3

Potential liabilities that may or may not arise in the future

Question 4

Where are Contingent Liabilities recognized?

Answer 4

Notes to the Financial Statements
- Only if considered probable, or reasonably probable

Question 5

What is included in the Financial Statements?

Answer 5

Balance sheet
Income Statement
Statement of Cash flows
Statement of changes in Equity

Question 6

How to test Provision recognition

Answer 6

Identify the existence of a present obligation
Determine the likelihood of the obligation being settled
Determine the settlement amount
Record the provision in the financial statements

Question 7

How are operating leases accounted for?

Answer 7

Expensed

Question 8

How are finance leases accounted for?
-Lessee

Answer 8

PV of Lease liability = Right of Use Asset
- Deprecaited
Interest Expense
- Liability left* interest rate, rest amortization

Question 9

What are onerous Contracts?

Answer 9

Contracts where the company loses money on

Question 10

How are Environmental Provisions accounted for?

Answer 10

PV of liability
Depreciation Expense
Interest Expense on PV

Question 11

What are issues with Restructuring Provisions?

Answer 11

Companies want to include a lot of stuff to make Balance Sheet look better
- one time cost

Question 12

Recognition Contingent Assets/Liabilities

Answer 12

Virtually Certain 90%+ Report/Report
Probable 51%+ Disclose/Report
Possible 5%+ No Disclose/Disclose
Remote 0%+ No Disclose/ No Disclose

Question 13

How to account for notes Payable

Answer 13

Interest and FV as given

Question 14

How to calculate the price of a bond

Answer 14

PV of Face Value
+ PV of the Coupon

Question 15

How to Account for a discount bond
Its Interest

Answer 15

Dr. Cash Cr. Bonds payable, with PV
Dr. Interest Expense
Cr. Interest Payable/Cash if paid
Cr. Bonds Payable for amortization

Question 16

How to Account for a premium bond
Its interest

Answer 16

Dr. Cash Cr. Bonds payable, with PV
Dr. Interest Expense
Dr. Bonds Payable for amortization
Cr. Interest Payable/Cash if paid

Question 17

Summarize Gerakos, Lang and Maffet - AIM

Answer 17

Pro: Reduced Capital gains Tax
Con: AIM Firms underperform,
Higher Failure Rates,
Firms in the AIM manage earnings more often

Question 18

Summarize Jones - Intangible Assets

Answer 18

Firms that voluntarily capitalize assets do so to manage earnings,
especially prior to failure.
Sample of Australian Firms

Question 19

Summarize Gordon, Hsu - Impairment

Answer 19

IFRS Impairments decrease cash flows
GAAP ones do not - Because of delay
Value in use in IFRS des not trigger under impairment
Both differ in time of recognition and how impairment is measured

Question 20

Summarize Bharath, Sunder, Sunder - Accounting Quality

Answer 20

Lower Quality - Lend from Banks
Banks possess superior information - less adverse selection costs

Question 21

Summarize Chyz and Gaertner

Answer 21

Under US Gaap
Paying too much Taxes forces turnover anytime,
Paying too little only after Sarabanes-Oxely
They test a lot of alternative explanations

Question 22

Summarize Beatty, Liao & Weber

Answer 22

Firms with poor accounting rather lease than buy
Poor accounting itself already incentivises leasing
Bank monitoring can substitute for accounting
In times of liquidity constraints poor accounting firms lease more

Question 23

Summarize Israeli - IAS 40

Answer 23

Firms can recognize or disclose the fair values of their assets
They do so in what way fits them better
Disclosed values are seen as less important, even though equally as influential

Question 24

When are debt investments measured at amortized cost?

Answer 24

Company plans to hold them and to collect contractual cash flows.
Otherwise fair value

Question 25

How are Equity Investments measured?

Answer 25

Always Fair Value

Question 26

Accounting treatment for debt investments Held-for collection

Answer 26

Amortized cost,
No unrealized adjustments,
Interest when earned; gains and losses from sale.

Question 27

Accounting treatment for debt investments Held-for collection and selling

Answer 27

Fair value
Unrealized changes as OCI
Interest when earned; gains and losses from sale.

Question 28

Accounting treatment for debt investments Trading securitites

Answer 28

Fair value
Recognized in net income
Interest when earned; gains and losses from sale.