Session 7 Flashcards

(85 cards)

1
Q

Multistep I/S

A

Revenue - Cogs = Gross Profit
Gross Profit - SG&A - Depreciation = Operating Profit (EBIT)
Operating Profit - Interest Expense = Income before tax (EBT)
Income before tax - Provision for income tax = Income from continuing business unit
Income from continuing business unit +/- Income (loss) from discontinued business unit (net of tax) = Net Income (NI)
Net income - dividend = Income Available to Common

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Net Revenue

A

Net Revenue = Revenue - Adjustment for Estimated Returns and Allowances

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Expense

A

Cost incurred to generate revenue

  • typically group by expense nature (e.g. Cogs)
  • and by function (e.g. Interest Expense)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Non-controlling Interest

A

“Minority Interest”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Gross Revenue vs Net Revenue Reporting

A

Net Revenue Reporting: reports only the difference in Sales and Cost
Gross Revenue Reporting: Reports sales and cogs in separate line items
-US GAAP: to use gross revenue reporting, a firm must:
1. Be the primary obligator under contract
2. Bear the inventory risk & credit risk
3. Be able to choose its suppliers
4. Have reasonable latitude to establish price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Revenue Recognition

A

IASB - Sales of Goods:

  1. Risk and reward of ownership is transferred
  2. No continuing control / mgmt over goods sold
  3. Revenue must be reliably measure
  4. Cost must be reliably measure
  5. Probable flow of economic benefit

IASB - Sales of Service:

  1. Revenue must be reliably measure
  2. Cost must be reliably measure
  3. Stage of completion can be measured
  4. Probable flow of economic benefit

FASB - Earned or Realized / Realizable

  1. Evidence of arrangement between buyer and seller
  2. Products have been delivered / services have been rendered
  3. Price is determined / determinable
  4. Sellers have a reasonable means of collecting the money
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Revenue Recognition - Long Term Contracts

A

If the outcome can be reliably measured:
IFRS & US GAAP: Percentage of Completion Method
-Revenue and Cost are recognized as work performed based on % completion
% Completion = Total Cost Incurred to Date / Total Expected Cost of Project

If the outcome cannot be reliably measured:
IFRS: Revenue is recognized to the extent of the contract costs, showing profit as be zero. Cost are expensed as incurred. Profit are recognized at completion.
US GAAP: Completed Contract Method: Revenue, Expenses and Profits are recognized after the contract is completed

If a loss is expected:
IFRS & US GAAP: Must be recognized immediately

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Revenue Recognition - Installment Sales

A

If Collectibility is Certain:
US GAAP: regular Revenue Recognition rules apply
IFRS: Discounted PV (installment pmt) are recognized at the time of sales. The difference PV(installment pmt) and actual installment pmt are recognized as interest

If Collectibility cannot be reliably measured:
US GAAP: Installment Method
-Profit is recognized as cash collected
Profit = Cash collected during the period * Total expected profit as % of sales

IFRS: Cost Recovery Method

If Collectibility is HIGHLY uncertain:
US GAAP: Cost Recovery Method
-Profit is recognized only if CASH > COST INCURRED

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Revenue Recognition - Barter Transaction

A

Round Trip Transaction: sales of goods to one party with simultaneous purchase of almost identical goods from the same party

US GAAP:

  1. Fair Value
    - if the firm has historically received cash pmt for such goods / services
  2. Carrying Value
    - otherwise..

IFRS: Fair Value
from similar non-barter transactions with unrelated parties

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Revenue Recognition - Converged Standards (2014)

A

Principles Based Approach: a firm should recognize revenue when it has transferred goods/ rendered services to a customer

5 Steps:

  1. Existing Contract between buyers and sellers
  2. There’re Performance Obligations in the contract
  3. There’s a Transactional Price
  4. Allocate transactional price with performance obligations
  5. Revenue is recognized when / as sellers fulfill their performance obligations

Performance obligations: a promise to deliver a DISTINCT goods/service
-distinct if:
1. the customer can benefit from the goods/services on its own or combined with other resources that are readily available
or
2. The promise to transfer the goods/services can be identified separately from any other promises

Required Disclosures:

  1. Contracts with customers by category
  2. A/L related to contracts
  3. Outstanding performance obligations and transaction prices allocated to them
  4. Mgmt judgements & changes used to determine the amount and timing of revenue recognitions

For LT Contracts, revenue is recognized based on firm’s progress toward completion

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Expense Recognition

A

Matching Principle: generate revenue and expense at the same time period

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Period Cost

A

Any cost that cannot be capitalized into prepaid expenses, inventory, or fixed assets. A period cost is more closely associated with the passage of time than with a transactional event.
Includes:
1. Abnormal waste of labor, material, OH
2. Storage cost (unless its required during production)
3. Administrative OH
4. Selling Cost

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Expense Recognition - Inventory Expense

A
  1. Specific Identification

“Cost Flow Methods”, “Cost Flow Assumption”, “Cost Flow Formula”
2. FIFO (IFRS & US GAAP)
- suitable for limited shelf life inventory
3. LIFO (US GAAP only)
- suitable for unlimited shelf life inventory
- have TAX BENEFIT due to inflationary environment
4. Weighted Average Cost (IFRS & US GAAP)
WA Cost = Total Inventory Cost / # Inventory

LIFO COGS and FIFO Inventory cost are good representation of the economic reality (Replacement Cost)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Expense Recognition - Depreciation Expense

A

Regardless which of the following depreciation method is used, the accumulative depreciation will be the same but the timing would be different
__________
1. Straight-Line (SL) Depreciation
SL Depreciation = (Cost - Residual Value) / # Useful Life

  1. Accelerated Depreciation
    Typically asset generates more revenue in the earlier of their useful life and it would be more appropriate to recognize more depreciation expense in earlier years

Declining Balance (DB) Method
applies a constant rate of depreciation for an asset’s book value each year
-Double Declining Balance (DDB) Method
DDB = (2/N) (Cost - Accumulated Depreciation)
whereas N = # Useful Life
… typically it would switch back to SL depreciation over time

  1. Units of Production Method (Mainly for Natural Resources)
    Units of Production Depreciation = (Original Cost - Salvage Value) / Output over life * Output in Period
    __________

Component Depreciation: useful life for each component is estimated and depreciation expense is computed separately for each component
^Allowed in US GAAP; Required in IFRS

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Depreciation vs. Amortization vs. Depletion

A

Impairment in value for:
Depreciation - tangible asset
Amortization - Intangible asset
Depletion - natural resources

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Expense Recognition - Amortization Expense

A

SL Amortization = SL Depreciation

For indefinite lives intangible assets:
Annual check for impairment.. instead of amortization

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Expense Recognition - Bad Debt Expense & Warranty Expense

A

Matching principle: Recognized at the time of sales by using an estimated amount

  1. Direct Bad Debt Expense - by identifying the customer a/r and write it off
  2. Using anticipated Allowance for Doubtful Account to recognize at the time of sales (preferred method)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Discontinued Operations

A

Operation(s) that the management has decided to dispose of, but either has not yet done so, or has disposed of in the current year after the operation had generated income or losses

Measurement Date: the date when the management decided to dispose the selected operations
-Accrued any estimated loss at this time

Phaseout Period: time between the measurement date and actual disposal date
-Record Gains only after the operation is disposed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Unusual or Infrequent Items

A

Are included in income from continuing operations before tax

Examples:
G/L from sales of asset / business (outside usual operating activities)
Impairment
Write offs
Restructuring Cost
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Extraordinary Items

A

No longer allowed in IFRS or US GAAP

Unusual & Infrequent
Reported separately in I/S, net of tax, after income from continuing operations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Changes in Accounting Priniciples

A

E.g. Changing from IFRS -> GAAP, vice versa

Required Retrospective Application: restating the presented f/s to reflect changes

Exception: if Inventory is changing into LIFO method
No need for retrospective application. The company will use the carrying value of the inventory as the first LIFO layer. Inv Method changes - Must explains why the change is more reliable or preferrable

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Changes in Accounting Estimates

A

Typically due to 1. new information, or 2. changes in management judgment

Apply Prospectively

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Changes in Incorrect Accounting Method

A

Prior Period Adjustment: restating the result for all prior periods presented in current f/s
-Must disclose the nature of the adjustment and its affect on Net Income

An indication of weakness in the firm’s internal control

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

EPS - Earnings Per Share

A

Profitability Ratio
How much of the current earnings available to common shareholders

Basic EPS: (NI - Preferred Div) / WA (# Common Stock)

Diluted EPS =
[(NI-Pref Div) + (Convertible Pref Div) + (Convertible Debt Interest * (1-t))] /
[WA(#common stock) + (# from conversion of conv pref shares) + (# from conversion of conv debt) + (# from stock options)]
–Note: each security needs to be evaluated individually as dilutive before calculating diluted EPS

For # shares from stock options & warrants:
Treasury Stock Method: assumes the firm would hypothetically buy back company’s stock at an average market price using the fund received by exercising options / warrants

Dilutive: if EPS increased after being exercised
Anti-Dilutive: if EPS decreased after being exercised

Shortcuts:
1. Convertible debt securities are dilutive if:
[(convertible debt interest)*(1-t) / # convertible debt)] < EPS
2. Convertible Pref. stocks are dilutive if:
[(preferred dividend) / # convertible pref. stock] < EPS
3. # shares from stock options/warrant =
((AMP-EP)/AMP) (N)
whereas
AMP = Average Market Price
EP = Exercise Price
N = # options/warrants that can be converted into common stocks

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Simple vs Complex Capital Structure
Simple Capital Structure: no potentially dilutive securities Complex Capital Structure: carrying dilutive securities
26
Common Sized Statement
Allows time-series and cross-sectional analysis Horizontal Common Sized Stmt Express I/S and B/S items as % of Year 1 I/S and B/S items accordingly Vertical Common Sized Stmt Express I/S as percentage of Revenue Express B/S as percentage of TA
27
Comprehensive I/S
I/S that includes all changes in Equity except for investors contributions / distributions
28
Other Comprehensive I/S
I/S that includes transactions that are not included in NI 1. FX G/L 2. Adjustment for minimum pension liability 3. Unrealized G/L from Hedging Activities 4. Unrealized G/L from AFS securities ^ In 2018, IFRS will no longer recognize AFS 5. Changes in LT Assets Fair Value (Applies to only IFRS)
29
Conceptual Framework For Financial Reporting (2010)
Asset: resources controlled as a result of past transactions that are expected to provide future economic inflows Liability: obligations as a result of past events that are expected to require an outflow of economic resources Equity: "Net Asset"; Owners' Residual Interest
30
Balance Sheet
Should recognize an item if: 1. There's a probable future economic inflow/outflow 2. The cost / value can be measured reliably
31
Classified Balance Sheet
Required by IFRS and US GAAP | Report items on B/S separately for current asset, current liability, non-current asset, non-current liability
32
Liquidity-Based Format
Recommended by IFRS | Present asset and liability items on b/s in the order of liquidity
33
Operating Cycle
the time it takes to provide / purchase inventory, sell the product and convert into cash
34
Current vs. Non current
Current: conversion of cash or obligation due within one year or one operating cycle (whichever is longer) Non-current: more than one year or one operating cycle
35
Working Capital
WC = CA - CL | -indicates liquidity issue or inefficiency
36
Cash & Cash Equivalent
Asset - CA Cash or securities with insignificant interest rate risk and can be converted into cash quickly E.g. Treasury Bills, Commercial Paper, Money Market Fund (an open-ended mutual fund that invests in short-term debt securities such as US Treasury bills and commercial paper)
37
Marketable Securities
Asset - CA Securities or debts that are to be sold or redeemed within a year. These are financial instruments that can be easily converted to cash such as government bonds, common stock or certificates of deposit
38
Account Receivables
Asset - CA "Trade Receivable" Reported on B/S as Net Realizable Value adjusted for Bad Debt Expense Firms are required to disclosure significant concentration of credit risk
39
NRV Net Realizable Value
NRV: Value of an asset that can be realized upon the sale of the asset, less a reasonable estimate of the costs associated with either the eventual sale or the disposal of the asset in question
40
Inventory
Asset - CA Mfg: Raw Material (RM), Work in Progress (WIP), Finished Goods (FG) Retail: Purchase Inventory Cost See Product cost vs. Period Cost See Cost Flow methods See LIFO Reserve See LIFO Liquidation Required Disclosures (IFRS & US GAAP): 1. Cost Flow Method used 2. Total carrying value of Inventory (and by classification if applicable. e.g. RM, WIP, FG) 3. Carrying value of Inventory reported at Fair Value - Selling Costs 4. COGS that is recognized during the period 5. Amount of Inventory Writedowns 6. Amount of inventory WRiteups (IFRS only) 7. Carrying value of Inventory pledged as collaterial _________________________________ Reports at lower of... IFRS: Cost vs. Net Realizable Value US GAAP: Cost vs. Market (NRV) Net Realizable Value = Expected Sale Prices - (Estimated Selling Cost + Completion Cost) ^if Inv Cost < NRV, write down Inv Cot to NRV and recognize loss. Under IFRS, firm can write up Inv Cost as much as it has written down Market... - If Replacement Cost > NRV, Market = NRV - If Replacement Cost < NRV - Profit Margin, Market = NRV - Profit Margin - Otherwise, Market = Replacement Cost
41
Inventory - Standard Costing
Assign predetermined amount of material, labor, OH to goods typically for mfg firms
42
Inventory - Retail Costing
Inventory Cost = Retail Price - Gross Profit
43
Prepaid Expense
Asset - CA | Operating costs that have been paid in advance
44
Deferred Tax Asset
Asset | Tax Payable > Tax Expense Recognized
45
Account Payable
Liability - CL "Trade Payables" Amount owes on credit
46
Notes Payables & Current Portion of LTD
Liability - CL | Obligations that are due < 1 year or 1 operating cycle
47
Accrued Liability
Liability - CL Expenses that are recognized but not yet contractually due Some recognize tax payable as part of accrued expenses
48
Unearned Revenue
Liability - CL "deferred revenue" Cash Collected in advance of goods transferred or service rendered
49
PP&E Property, Plant, Equipment
Non-Current Asset tangible asset used in production of goods and services Revaluation Method: IFRS only ^report at Fair Value - Accumulated Depreciation Cost Method: IFRS and US GAAP ^report at amortized cost except for land Recognize loss in I/S --Loss recovery is allowed only in IFRS Amortized Cost = Historical Cost - Accumulated Depreciation = Purchase Price + Cost necessary to get asset ready for sales - Accumulated Depreciation
50
Investment Properties
Non-current Asset IFRS: includes assets that generate rental income or capital appreciation ^reports at amortized cost or fair value US GAAP: no definition
51
Held to Maturity Securities (HTM)
Debt securities acquired with the intent to be held to maturity.. typically less than a year ^report at amortized cost & ignore changes in MV Amortized cost = original issued price - principal pmt + amortized discount - amortized premium - impairment losses
52
Trading Securities
"Held for trading" Debt and equity acquired with the intent to profit in near terms ^reported at fair value and recognize unrealized G/L on I/S
53
Derivates
reported at fair value and recognize unrealized G/L on I/S
54
Available for Sales Securities (AFS)
Debt and equity that are not expected to be held to maturity or traded the near terms (not within a year) ^ reported at MV ^Unrealized G/L are reported in Comprehensive Income not in Net Income
55
Financial Assets at Historical Cost
Unlisted Equity Investment | Loans & A/R made to or will receive from another entity
56
Intangible Asset
Non-monetary assets that lack physical substance (excluding securities) Identifiable Intangible Asset: can be acquired separately or are the result of rights privileged conveyed to their owners (e.g. patients, trademarks). Cost must be reliably measurable. Have probable future economic benefits. Is controlled by the firm. Unidentifiable Intangible Asset: cannot be acquired separately and may have an unlimited life -Good will: Excess of purchase price over Fair Value of identifiable net asset (Asset - Liability) acquired in a business acquisition ^Note: Accounting goodwill =/= Economic goodwill (derives from the expected future performance) -Not amortized but annually tested for impairment -Firm can manipulate goodwills to increase NI -If purchase price < MV of identifiable Net Asset, then its a gain in I/S for acquirer ``` IFRS & US GAAP List Expensed as Incurred: 1. Startup and training cost 2. Administrative OH 3. Advertising and Promotion Cost 4. Relocation and Reorganization Cost 5. Termination Cost _______________ ``` Obtained Through: I. CREATED INTERNALLY -IFRS: Expense Research cost & Capitalize Development cost -US GAAP: Expense all cost (including R&D); Expense Software development cost & Capitalize Salable Software development cost II. PURCHASED -US GAAP: Value at Cost Method -IFRS: Value at Revaluation Method or Cost Model -Analyst are more interested in the type rather than the assigned value. III. ACQUISITION - Goodwills -Acquisition Method: a set of formal guideline describing how asset, liability, non-controlling interest and goodwill of a target firm should be reported by a purchasing company on its consolidated stmt f
57
Long Term Financial Liabilities
Non-Current Liability includes bank loans, note payables, bond payables, derivatives ^Reported at 1. Amortized Value, or 2. Fair Value
58
Deferred Tax Liability
Non-Current Liability | Tax Payable < Incurred Tax Liabilities
59
Contributed Capital
Par Value | Authorized vs. Issued vs. Outstanding shares
60
Preferred Stock
-Can be classified as Debt or Equity Classified as Equity ^nonredeemable preferred stock Classified as Debt ^mandatory redemption in fixed amount
61
Retained Earnings
undistributed earnings (NI) of firms since inception
62
Treasury Stock
Stock that has been reacquired by the issued firm but not yet retired
63
Accumulated Other Comprehensive Income
Doesn't include NI but is a component of stockholders' equity at point in time Includes all changes in equity except for 1. Transaction recognized in I/S 2. Transactions with shareholders (e.g. issuing stocks, dividends)
64
Statement of Changes in Stockholders' Equity
f/s that summarizes all the transactions that increase/decrease the equity accounts for the period
65
Current Ratio
Liquidity Ratio CR = CA/CL
66
Quick Ratio
"Acid Test Ratio" Liquidity Ratio QR = (Cash & Cash Equivalent + Marketable securities + A/R) / CL
67
Cash Ratio
Liquidity Ratio ^The most conservative liquidity ratio Cash Ratio = (Cash & Cash Equivalent + Marketable securities) / CL
68
Long Term Debt to Equity
Solvency Ratio LTD/TE
69
Total Debt to Equity
Solvency Ratio TD/TE
70
Debt Ratio
Solvency Ratio TD/TA
71
Financial Leverage Ratio
Solvency Ratio TA/TE
72
Cash Flow Statement
``` CFO Operating Cash Flow - transactions that affect firm's NI; typically related to Current Asset and Liability Includes: 1. Cash collected from customers 2. Cash paid for expenses 3. Interest Received / Paid (US GAAP) 4. Dividend Received (US GAAP) 5. Taxes Paid (US GAAP) 6. Sales Proceeds from Trading Securities 7. Acquisition of Trading Securities ``` CFI Investing Cash Flow - acquisition or disposal of LT asset and investment; typically related to Non-Current Assets Includes: 1. Sales proceeds from fixed asset, debt, equity 2. Acquisition of fixed asset, debt, equity 3. Principal Received from loans made to others 4. Loans made to others ``` CFF Financing Cash Flow - transactions that affect a firm's capital structure; typically related to Non-Current Liability and Equity Includes: 1. Debt & Stock issued 2. Debt Repayment / Treasury Stock 3. Dividend paid to investor (US GAAP) ``` IFRS: Interest/ Dividend Received can be either CFO or CFI; Interest/ Dividend Paid can be either CFO or CFF IFRS: Tax Paid is typically CFO unless its associated with an investing or financing activity Non-cash investing and financing activities are not reported in CFS but must be disclosed in footnotes or a supplemental schedule
73
Direct Method
Permitted and encouraged by US GAAP and IFRS ^US GAAP requires disclosure of the indirect method The only difference between direct vs. indirect is their operating CF ``` Direct Method: Cash Collected from Customers +Cash Used in Production of Goods and Services +Cash Operating Expenses +Cash Paid for Interest +Cash Paid for Taxes =Operating CF ```
74
Indirect Method
Permitted by US GAAP and IFRS Net Income +/- Gains/Losses Investing / Financing Activities +/- Non-cash Charges (e.g. + depreciation) +/- Changes on B/S Operating Asset / Liability Accounts =Operating CF USE OF CASH: Increase in asset accounts/ Decrease in liability accounts SOURCE OF CASH: Decrease in asset accounts / Increase in liability accounts BEG A/R + Sales - Cash Collection = END A/R
75
Product Cost
Costs that can be capitalized in the inventory account ^ delay recognition of expense till sold Includes: 1. Purchase cost - Trade discounts & Rebates 2. Conversion (mfg) costs (e.g. Labor and OH) 3. Other cost necessary to bring the inv to its current location / condition
76
Periodic vs. Perpetual Inventory System
Periodic Inventory System: Inventory Cost & COGS are determined at the end of the period Perpetual Inventory System: Inventory Costs & COGS are updated continuously FIFO & Specific Identification Method would yield the same result; whereas, LIFO & WACost Method would yield different result depending on which system is used
77
LIFO Reserve
Required by IFRS and US GAAP Amount by which LIFO Inventory is less than FIFO Inventory Convert LIFO to FIFO: 1. Inventory: + LIFO Reserve 2. COGS: + Changes of LIFO Reserve 3. CASH: - LIFO Reserve * Tax Rate 4. Retained Earnings: + LIFO Reserve (1-Tax Rate)
78
LIFO Liquidation
When a firm using LIFO sells more Inventory than it products during the periods In an inflationary environment, it... 1. Increase Profit Margin 2. Increase Tax Not sustainable because a firm cannot indefinitely write off inventory without replenish it
79
Capital Expenditure
If the future economic benefit is: 1. Unlikely, Uncertain, 1-off ... Expense It as Incurred 2. Multiple Accounting Period ... Capitalized it Capitalized Expenditure - For subsequent expenditure: 1. If it provides more future economic benefits: Capitalized it 2. If it merely sustains the usefulness of the asset: Expensed It - Typically valued at F.V. - Cost Necessary to prepare the asset for use (including Tax) Capitalized Interested - typically construction interest when the firm constructs an asset for its own use/ resales ^allocated to depreciation expense (if held for use) or COGS (if held for sale)
80
Cost Model
For Long Term Asset ^Required by US GAAP; Widely used by IFRS B.V. = Historical Cost - Accumulative Depreciation - Impairment Adjustment
81
Revaluation Model
For Long Term Asset (Held for Use) ^Allowed by IFRS if there's an active market for it B.V. = Previous Revaluation - Depreciation First Revaluation Date: - If FV < BV, report loss - if FV > BV, record gain in Revaluation Surplus Account, it's reflected in Equity but not in NI Subsequent Revaluation Date: - If Gain <= Previously recorded loss, recover loss (only in IFRS) - If Gain > Previously recorded loss, excess amount recorded in Revaluation Surplus Account - if Loss < Revaluation Surplus Account, deduct loss from the account - if Loss > Revaluation Surplus Account, report loss
82
Fair Value Model
See Revaluation Model for PP&E (Held for Use) PP&E (Held for Sale) - Asset is no longer depreciated or amortized - Similar to Revaluation Model except there's no Revaluation Surplus Account ..directly reporting gain to NI - Loss Recovery is allowed in both IFRS and US GAAP
83
Impairment
For infinite live intangible asset: tested for impairment annually IFRS - Annually tested for impairment - Impaired if: B.V. > Recoverable Amount - If impaired, write down B.V. to recoverable amount and recognize loss - Recoverable Amount is the greater of: 1. FV - Selling Cost 2. Value in Use = PV (Future CF) - Loss Recovery is allowed US GAAP -Tested for impairment only when events & circumstances indicate the firm may not be able to recover B.V. through future use Recoverability Test Step 1: Impaired if B.V. > Asset's UNDISCOUNTED CF Step 2: If impair, B.V. is written down F.V. & Recognize Loss ^ Loss is either, 1. B.V. - F.V. or 2. B.V. - PV (CF)
84
Derecognition of PP&E
1. Sold: asset is removed from B/S. Recognize G/L through Sales Proceeds - B.V. 2. Exchange: comparing old asset's B.V. and F.V. (or New asset's F.v.). Recognize the difference as G/L. record new asset at F.v. 3. Abandoned: asset is removed from B/S and recognize loss
85
Useful Life Esimation
1. Average Age = Accumulated Depreciation / Annual Depreciation Expense 2. Total Useful Life = Historical Cost / Annual Depreciation Expense 3. Remaining Useful Life = Ending PP&E / Annual Depreciation