1
Q
Under IFRS, when is advertising service revenue recognized in a barter transaction? (Non monetary exchange)
A
When there is a non barter transaction for similar advertising services that can be reliably measured with a different counterparty
2
Q
How is a loan to customer impaired?
A
Reducing the net book value of receivable to PV of future cash inflows, discounted at the *original* rate in the receivable
DR: Bad Debt Expense
CR: Allowance on N/R
3
Q
What is the difference between the interest method and cost recovery method for impaired Notes Receivables?
A
- Interest method - recognizes interest income due to passage of time
- Cost-recovery method - only recognizes interest income if future payments are received
4
Q
How are brokerage fees recorded under Fair Value investments?
A
Added to initial investment
EX Bought 100 shares of XYZ $40 + $280 Brokerage fee
DR: Investment in XYZ $4,280
CR: Cash $4,280
5
Q
What is included in R&D costs?
A
- R&D - new research, new technology, conceptual, prototypes, not useful for commercial production, purchased services of R&D
- Not R&D - start up of commercial production (quality control, engineering & troubleshooting) , routine refinement of existing products, legal work on patent applications
6
Q
What type of overhead costs can be included in R&D?
A
Facility costs, personnel costs, indirect costs (not administrative)
7
Q
What are the rules on inventory losses?
A
If decline is expected to recover, do not record.
If decline is expected NOT to recover, record a loss. Recoveries can be recognized as gains, but only up to the previous loss, do not mark up above original cost.
8
Q
What are the quantitative tests for segment reporting?
A
- Revenue test - 10% of total revenues (including interco)
- Asset test - 10% of total assets
- Profit or loss test (absolute value) - combine all profitable segments, combine all loss segments. Whichever number is bigger - 10% of larger amount minimum reportable segments
- keep adding until at least 75% of consolidated revenue is captured. -
- operating profit - follow how it is reported to C.Suite when determining if to add overhead allocation.
- This is called the “Management Approach”
9
Q
What financial instruments are not eligible for FV measurement?
A
- investment in a subsidiary or VIE
- obligation for pension or post retirement -leases
- Financial instruments classified by issuor as shareholder equity
10
Q
Under ASC820 what types of transactions are subject to fair value measurement?
A
- Asset impairments
- Business combinations
- goodwill
11
Q
What is the definition of fair value?
A
The price that that would be received to sell an asset or transfer a liability (exit price) in an orderly transaction between market participants at a measurement date
12
Q
What are the adjustments to compensation expense for employee stock options?
A
- unexercised nonvested: estimate of compensation expense previously reported should be adjusted by decreasing comp expense in year of forfeiture
- expired options for vested employee: not reversed if vested employees option expires unexercised
- adjustment to comp expense: may be necessary in current period as new estimates determined
13
Q
What is the order of proceeds from bankruptcy?
A
- Secured creditors are paid first - based on specific assets which they have liens.
- Then proceeds go against the liabilities with priority, then to unsecured creditors.
- If the claims of partially secured creditors exceed the proceeds from the sales of pledged assets, excess constitutes unsecured claim.
14
Q
What are indicator’s that an entity is an agent?
A
a. Another party is primarily responsible for fulfilling the contract
b. The entity does not have inventory at risk
c. The entity does not have discretion in establishing prices for the other party’s good or services
d. The entity’s consideration is in form of commission
e. The entity does not have credit risk for receivables
15
Q
What is Revaluation under IFRS
A
Revaluing PPE to fair value if it can be reliably measured. Adjustment is held in OCI (R in PUFIER) If applied, must revalue the entire class of assets, not just individual asset. If you revalue down, you can later reverse to the extent of loss sitting in OCI, cannot go above that
16
Q
How should revenue be recognized when there is right of return which cannot be estimated?
A
Don’t recognize revenue until return window has expired
17
Q
How do you calculate proceeds on a discounted note sold?
A
Maturity value - discount
MV = Face value + interest at maturity
Discount = MV x discount rate x period outstanding
18
Q
How is a notes payable presented on the Financial Statements when there is no stated interest rate?
A
If a note payable has no stated rate, and was issued for services at less than fair value, then there is implied interest. The value of the note is determined using the Effective Interest Method.
DR: Expenses for Services
DR: Discount on N/P
CR: Notes Payable
19
Q
What liability is recorded when dividends are declared?
A
When declared, dividends are reported as current liabilities. Cumulative preferred stock dividends in arrears must be disclosed, but not reported as liability.
20
Q
What discount rate is used to calculate the projected benefit obligation?
A
Settlement rate
21
Q
What is the FASB standard setting process?
A
1) project added to agenda
2) conduct research, issue discussion memorandum
3) public hearings
4) evaluate research and comments issue Exposure draft
5) additional comments, edit exposure draft
6) finalize guidance by majority vote (4 out of 7) issue new standard as Accounting Standard Update
22
Q
What is the formula for COGS?
A
Beginning Inventory
+purchases
-ending inventory
=COGS
If ending inventory is over, COGS is under, and retained earnings is over too
23
Q
What is the IFRS difference for interest and dividends for statement of cash flows?
A
Interest & dividends paid classified as operating or financing
Interest & dividends received classified as operating or investing
(Gaap interest = operating, dividends received = operating, dividends paid = financing)
24
Q
What determines if a company is a primary beneficiary of a VIE?
A
1) ability of make decisions about the entity’s activities
2) obligation to absorb losses of the entity
3) the right to receive returns from the entity (which is compensation for taking the risk to absorb losses)
25
How are legal fees and issuance costs treated in a consolidation?
Costs to register and issue stock are netted against paid in capital Legal / consulting fees are expensed as incurred
26
What are the disclosure requirements for Going Concern?
If there is substantial doubt about entity's ability to continue within one year of the issue date of financial statements.
- principal conditions that raised substantial doubt
- management evaluation of significance of those conditions in relation to the entity's ability to meet its obligations If doubts are not alleviated, then there is a going concern issue
27
What major categories are presented on the Statement of Activities for a NFP?
1)Changes in net assets w/o donor restriction
* Revenues and gains
* Net assets released from restriction
* Expenses and losses
2) changes in net assets w/ donor restriction
3) changes in permanently restricted net assess
28
How is Statement if Cash Flows different for NFP?
Changes in net assets reported in operating.
Unrestricted cash transactions in operating Long term restricted cash is in financing
29
What are the required financial statements for a defined benefit pension plan?
1) statements of net assets available for benefits
2) statement of changes in net assets
3) info about actuarial present value of accumulated present value
4) information about the effects of certain factors affecting year to year change in accumulated plan benefits
30
What are the criteria to determine if transfer of receivables is a sale? If all 3 are met, sale. If not, loan.
1) transferred receivables are not accessible to company or creditors (control is given up)
2) transferee has right to sell or pledge receivables
3) no agreement to let company keep control of receivables
31
What are IFRS differences for intangible assets?
- IFRS allows revaluation of goodwill if an active market. No revaluation for GAAP.
- IFRS allows reversal of impairment loss
- IFRS recognizes goodwill at Cash generating unit level. GAAP recognizes goodwill at reporting unit level.
32
What qualifies for an extinguishment of debt?
- 10% or greater difference in PV of new loans cash flows vs. PV of old loan's cash flow. If any embedded conversion options were changed, would be considered substantially different
- extinguishment If neither apply, it is considered a modification
33
How are stock dividends recorded?
It increases the number of shares outstanding, but doesn't change ownership %, or change firms owners equity.
If dividend is less than 25% of O/S shares, then dividend is capitalized at market value.
If dividend is more than 25% of O/S shares, the stock is capitalized at par value
34
What are the three different accounting activities within Govt Funds?
1) Budgetary Accounting - ensure compliance w/budget
2) Activity Accounting - account for transactions (what actually happened)
3) Encumbrance Accounting - Account for issuance of Purchase Orders - control reckless expenditures
35
What distinguishes the use of a special revenue fund compared to private purpose trust fund?
Intended beneficiary Special revenue fund benefits general public Private Purpose Trust Fund benefits specific third party beneficiaries
36
What costs are capitalized for an internally developed intangible asset?
Development costs are expensed immediately. Only registration fees and legal costs are capitalized.
37
What is the impairment test for Intangibles?
Definite life: Impair if BV\>FV. Loss = BV - FV. Reversal of impairment loss is prohibited.
38
When can an entity revalue an intangible asset under IFRS?
If an active market exists for intangible. (because it would provide relevant and reliable measure of fair value)
39
When and how often is Goodwill tested?
Tested at least annually, or whenever factors indicate carrying value may be greater than fair value. Testing is done at reporting unit, or one level below reporting unit.
40
What are the qualitative "pre-step" test to determine if Goodwill is impaired?
This pre-step provides considerable savings so a firm does not have to go through the quantitative testing.
41
What is the qualitative assessment for Goodwill testing?
This pre-step provides considerable savings so a firm does not have to go through the quantitative testing unless necessary. Trying to determine if is more likely than not that fair value is less than carrying value. Firm considers economic conditions, industry and market conditions, cost factors, overall financial performance, entity specific events and market performance.
42
What indicates a cloud computing agreement includes a software license?
Customer has contractual right to software, and could take software on it's own or with another provider. If software license is included, amortize like an intangible. Implementation costs can be capitalized once it achieves technological feasibility. If not, cloud computing is a service contract (expense monthly). Implementation costs are treated like prepaid.
43
How are software costs treated?
Costs before technological feasibility are expensed as R&D. Product training and G&A for development are expensed. Costs of duplication & packaging are product costs - treated as inventory. Capitalized - costs after technological feasibility but before software is put to use, producing product masters Capitalized costs are amortized over useful life or based on revenue %, whichever is greater.
44
What are key differences with IFRS treatment of intangibles?
Intangibles can be revalued if there is an active market. Goodwill is impaired at cash generating unit. Reversal of impairment loss is allowed. Impairment is tested based on recoverable value (not fair value) Estimated useful life and amort. method are reviewed annually. IFRS allows capitalization of Development costs.
45
In IFRS testing for impairment, what is considered recoverable amount?
Greater of fair value less costs to sell or value in use (cash flows discounted to PV)
46
What is the entry for the acquisition of Treasury Stock at Par Value?
DR: Treasury Stock (par value)
DR: APIC Common stock (original issuance - par, back out original APIC)
DR/CR: Contributed capital from TS\*(difference of TS purchase and original price)
CR: Cash (cost)
If the purchase price of TS is more than the original price of stock and there is no balance in the Contrributed Capital TS account, balance is debited to Retained Earnings (decrease)
47
Which type of business combination would need to prepare consolidated financial statements? Merger, acquistion, or consolidation?
Only acquisiton.
The other two business combinations result in only one firm after combination.
48
What is the purpose of retained earnings appropriation?
Restrict earnings available for dividends?
49
What is a defined benefit pension plan?
# DEFINE what the company is required to contribute. Can be fully funded, under funded, overfunded.
DR Pension Expense $850K
CR Cash $200K
CR Underfunded Pension Liability $650
50
What two amounts are the basis for financial reporting for Defined Benefit Plans?
* I/S - Annual pension expense -PV cost of benefits earned during the year +/- adjustments
* B/S - Pension related asset or liability. Fair value of pension fund - PBO. Negative = underfunded. Positive = overfunded.
51
What is accumulated benefit obligation?
Accumulated benefit obligation is the present value of all unpaid future retirement benefits as of the balance sheet date based on (1) service rendered to that date, and (2) **current salary levels**.
Even if the pension benefit formula incorporates future salaries, accumulated benefit obligation uses current salary levels only to provide a more current measure of the pension liability.
52
What are IFRS differences for Pensions ?
Terminology :
* PBO = Defined Benefit Obliation (DBO)
* Pension liability = defined benefit liability
* Prior Service Costs = Past Service Costs
Reporting:
* Reported in separate components- 1) service costs and 2) net interest costs (interest costs netted with expected return)
* Funded Status
* +/- unrecognized net pension gain/loss
* - Unrecognized PSC
* = Defined Benefit Liability
53
What are available funds in Government's general fund?
Appropriation
- expenditures
- encumbrances
= Available funds
54
What is composite depreciation?
Averaging servicec lives of a number of assts and taking depreciation on the entire group as if it were an operating unit. Will not all be all homogeneous assets. Does not recognize gain or loss on the retirement of a single asset, but records it in accumulated depreciation.
55
What is a dilutive security?
Calculated EPS is LESS than basic EPS if converted
56
What are the benefits of the fair value framework with respect to fair value measurement and fair value reporting?
* Increased consistency (between years)
* Increased comparability (between companies)
57
What is reported in Other Comprehensive Income?
* P - Pensions Adjustment
* U - Unrealized Gains and Losses (AFS debt securities)
* F - Foreign Currency Translation Adjustments
* I - Instrument Specific Credit Risk
* E - Effective Portion of CF Hedges
* R- Revaluation Surplus (IFRS)
58
What are indicators that the buyer has obtained control of an asset?
* Customer has legal title
* Customer has physical possession
* Customer has the significant risks and rewards of ownership
* Customer has accepted the asset
* Seller has a present right to payment.
NOTE: Does not mention about purchasing at fair value
59
How is a retrospective change of accounting principle applied?
1) cumulative effect of change before presented periods adjusts carrying amount of assets and liabilities, and adjusts opening retained earnings
2) presented financial periods are restated
3) beginning retained earnings of year of change is reflected Change is limited to direct effect & tax effect
60
What are the disclosures for accounting principle change?
1. Nature and reason for change, why it is preferrable
2. Method for applying change
3. For current period and restated periods, effect of change on income from continuing, net income and affect line items
4. Cumulative effect on retained earnings
5. if it was not practical to apply retrospectively, why
6. Summaries of financial results
61
How are changes due to accounting error reported?
As a prior period adjustment (net of tax) by adjusting beginning balance of retained earnings
62
What are some terms related to VIE?
Variable interest, primary benficiary, subordinated financial support, expected variability
**Variable interests** in a variable interest entity are contractual, ownership, or other pecuniary interests in an entity that change with changes in the entity’s net asset value exclusive of variable interests.
A **primary beneficiary** refers to an enterprise that consolidates a variable interest entity under the provisions of GAAP.
**Subordinated financial suppor**t refers to variable interests that will absorb some or all of an entity’s expected losses if they occur.
**Expected variability** is the sum of the absolute values of the expected residual return and the expected loss.
63
What is a difference in GAAP and IFRS about when changes in accounting policies are allowed?
For both, the most common reason for a change is required by change in accounting standards.
Additionally for IFRS, the only other acceptable reason for a change is that a different policy results in financial statements that provide reliable and more relevant information about the effects of transactions and other events or conditions on the entity’s financial position, financial performance, or cash flows.
64
How do you determine the most advantageous market for fair value ?
Best (price - transaction cost) is the most advantageous
BUT....don't use the transaction cost to determine fair value
65
What are the stages in the due process IASB uses to develop standards?
The due process comprises the following six stages,
performing research;
developing and publishing the **discussion paper**;
presenting a proposal;
developing and publishing the **Exposure Draft**;
developing and publishing the **IFRS**;
and post-implementation review after the standard is issued.
NOTE: Does not inclue a comment letter
66
Which ratio does the DuPont Model help in calculating and analyzing in detail?
Return on equity
DuPont Model = net profit margin x Asset turnover x Financial Leverage
= (Net profit/Sales) x (Sales/Assets) x (Assets/Equity)
= Net profit/Equity
The DuPont Model ultimately gives the return on equity.
67
How is interest paid reported in the statement of cash flows ?
Reported in related disclosures.
The net income amount shown in the operating section is net of interest paid and income taxes paid; so separate disclosure is needed for the statement to reflect this information.
68
What is the view on interim financial statments for GAAP vs. IFRS?
* GAAP - Intergral part of annual statements
* Allows allocation if applies to multiple periods
* Can defer cost variances or inventory decline if expected to recover
* IFRS - Discrete periods
* Must meet definition of asset if it is to be allocated to multiple periods
* Cannot defer cost variances or inventory
69
What is the fair market price when there are mulitple markets?
If there is a principal market, use that quoted price
If there are mulitple markets, use quoted price LESS transaction costs to determine _most advantageous market_
Then, set aside transaction costs and use quoted price from most advantageous
70
What are the different adjustments to financial staments based on cost adjustments?
historic costs, current cost, constant dollar, nominal dollar
* Financial statements prepared under the _current cost/constant dollar method_ of accounting include adjustments for both **specific price changes and general price-level changes.**
* _Historical cost/nominal dollar_ is the generally accepted method of accounting based on measures of **historical prices without restatement**.
* _Current cost/nominal dollar_ is a method of accounting in which adjustments for **specific price changes are made but not for general price-level change**s.
* _Historical cost/constant dollar_ is a method of accounting in which adjustments are not made for **specific price changes, but are made for general price-level changes.**
71
What is the concept of realization?
the process of converting a noncash resource or right into cash.
EX: depreciated equipment sold in exchange for a notes receivable
72
How are purchase of materials to be used on current and future R&D projects treated ?
Expensed immediately as R&D
(Not expensed as consumed)
73
What needs to be disclosed for lease agreements?
In sales-type and direct financing leases, the lessor must disclose the net investment components, including: future MLP; unguaranteed residual value; unearned income; and the future MLP to be received in each of the succeeding 5 years.
For operating leases, the lessor must disclose: the cost and carrying amount, if different, of property leased or held for leasing, by major class and total accumulated depreciation; the minimum future rentals on noncancelable leases, in aggregate, for each of the next 5 years; and a general description of leasing arrangements.
74
Revenue recognition , variable consideration.
When do you use the expected value, when do you use the most likely?
Most likely - only two choices. Use the most likely value
Expected value - more than two choices. Weight them based on probability.
75
How should trademarks be amortized ?
Indefinite life\*, do not amortize.
\*As long as cash flows are expected to be generated indefinitely
FAR - Fact Nuggets
flashcards
Decks in class (17)
# Cards
-
FAR random75
-
NFP Accounting16
-
Financial Reporting35
-
Bonds & Debt Restructuring15
-
Consolidations0
-
Deferred Taxes12
-
Investments & Derivatives41
-
Fixed Assets31
-
Governmental Accounting62
-
Segments & Interim Reporting0
-
Partnership Accounting0
-
Inventory1
-
Leases21
-
Current Assets & Liabilities8
-
Pensions1
-
Statement of Cash Flows2
-
Stockholder's Equity19
