Section 3 Flashcards
(12 cards)
Which circumstances does the guidance for determining fair value as provided in the fair value framework presented in ASC 820, “Fair Value Measurement,” apply?
Determination of the fair value to be assigned to land acquired in a business combination
Determination of the fair value of a bond liability for applying the fair value option
Determination of the fair value of a production facility when assessing whether or not an impairment loss has occurred
NOTE: The guidance for determining fair value provided in the fair value framework is not appropriate for determining the fair value of legal services received in exchange for an entity’s common stock. ASC 820 specifically exempts share-based payment transactions (and inventory valuing and other minor items) from the purview of the fair value framework.
In determining the fair value of an asset in the most advantageous market, the market-based exit price would be adjusted for what?
In determining the fair value of an asset in the most advantageous market, the market-based exit price would be adjusted for transportation cost (to get the asset to the principal or most advantageous market), but would not be adjusted for transaction cost associated with executing the (hypothetical) transaction.
In determining the fair value of a nonfinancial asset, assessing the highest and best use of the asset must take into account what?
What is physically possible
What is financially feasible
What is legally permissible
NOTE: In determining the fair value of a nonfinancial asset, how the reporting entity would use the asset would not be taken into account in assessing the highest and best use of the asset. The highest and best use is based on use of the asset by market participants, not by the reporting entity.
T or F: The fair value of a liability is based on the amount that would be paid to transfer the liability.
True
T or F: The fair value of a liability is based on the amount that would be paid to settle the liability.
False
When valuing certain financial instruments, a company that has elected the fair value measurement option must apply the accounting measurement based on which of the following criteria?
When an entity elects to apply the fair value option to a financial instrument, the application can be on an instrument-by-instrument basis.
According to the IASB Framework, the financial statement element that is defined as increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants, is
Income. Income includes revenues and gains.
Which one of the following is not an other comprehensive basis of accounting (OCBOA)?
- Cash basis.
- Modified cash basis.
- Income tax basis.
- IFRS for SMEs.
IFRS for SMEs is not an other comprehensive basis of accounting, but rather is one form of generally accepted accounting principles (GAAP). The cash basis of accounting, the modified cash basis, and the income tax basis are all regarded as an other comprehensive basis of accounting (OCBOA) systems.
Under IFRS for SMEs, which of the following, if any, must be disclosed in financial statements?
- Earnings per Share (EPS)
- Information by Segment
Under IFRS for SMEs, neither earnings per share (EPS), nor information by segment is required in financial statements. Since financial statements prepared under IFRS for SMEs are those of entities not traded on exchanges or otherwise required to file with regulatory agencies, earnings per share and segment reporting are not considered important information for users. These are two of the simplifications in IFRS for SMEs that make the standards less burdensome than either U.S. GAAP or full IFRS.
List some characteristics of accounting under IFRS for SMEs?
- Interest incurred during construction can be expensed.
- Earnings per share does not need to be provided in the financial statements.
- Goodwill must be amortized.
- The LIFO cost flow assumption cannot be used in valuing inventories, but FIFO and Weighted Avg can be used.
List some characteristics of accounting under IFRS for SMEs?
Interest incurred during construction can be expensed.
Earnings per share does not need to be provided in the financial statements.
Goodwill must be amortized.
The LIFO cost flow assumption cannot be used in valuing inventories, but FIFO and Weighted Avg can be used.
Under IFRS for SMEs, which of the following methods, if any, can be used by an investor to account for an investment in another entity (an associate) over which the investor has significant influence?
- Cost Method
- Equity Method
Under IFRS for SMEs, either the cost method or equity method may be used by an investor to account for an investment in another entity (called an “associate” in IFRS for SMEs) over which the investor has significant influence. Under U.S. GAAP, only the equity method may be used.
