Cpa Far 2 Financial Statements

Front 1

Income statement

Back 1

Performance for a period of time; useful in determining profitability, value of investment purposes and credit worthiness.

Front 2

Presentation order of major components of the income and retained earnings statement (IDEA)

Back 2

IDEA

I - Income (or Loss) from Continuing Operations - before tax (include operating. non operating activities and income taxes)

D - Discontinued Operations - net of tax

E - Extraordinary Items - unusual in nature and infrequent in occurrence.

A - Accounting Principle-Cumulative effect of change..reported net of tax on Retained Earnings

Front 3

I- Income from continuing operations - multiple step income statement

Back 3

I - Income from continuing operations (gross & net of tax) the multiple step income statement reports operating (core business) revenues and expenses separately from non operating (not core) revenues and expenses and other gains and losses.

Ex. Net sales>cost of goods sold>gross margin>selling expenses>general & admin expenses>depreciation expense>income (loss) from operations then...
Other revenues and gains> interest income>gain on sale of fixed asset>other income>Other expenses & losses>interest expense>loss on sale of fixed asset>income before unusual items and income tax>unusual or infrequent items>loss on sale of available for sale securities>Income before income tax>provision for income taxes>current tax>deferred> Net Income (after tax)

Front 4

D - Discontinued Operations - exit of disposal activities (net of tax)
assets are no longer depreciated or amortized

Back 4

D - Discontinued Operations -normal (loss) loss from discontinued operations can consist of an impairment loss, a gain/loss from actual operations, and gain/loss on disposal included in the period in which they occurred.

displayed in the income statement after income from Continuing operation.

Front 5

Held for sale (4 criteria)

Back 5

A componet of a business or diposal group is classified as Held for Sale in the period in which the 4 the critera:

1. Plan
2. Available
3. Advertised
4. Unlike to Review

Front 6

Discontinued Operation calculation

Facts:
Losing $200k per month
4/30 Yr1 decision to dispose
4/30 Yr1 carrying value $4 mil
4/30 Yr1 fair value $2.2 mil
6/30 Yr2 sold for 2 mil
Yr2 continued losing $200k per month
Tax rate 40%

What year would held for sale and impairment loss be recognized?

What is the impairment loss?

Loss from continuing operations Yr1 and Yr2?

Total loss from discontinued operations (after tax) for Yr 1 and Yr 2?

Back 6

Held for Sale Yr1 and Impairment Yr1.

Impairment loss: $1,800,000

Loss from continuing operation: Yr1 $2,400,000 = 200,000 x 12 and Yr2 $1,200,000 = $200,000 x 6

Loss from discontinued operations : Yr 1 $2,520,000 = (1,800,000 +2,400,000) x (1-40%) and Yr 2 $840,000 = (1,200,000 + $200,000) x (1-40%)

Front 7

Extraordinary Items - net of tax

(IFRS - prohibits)

Back 7

Extraordinary items are transactions that are material in nature, significantly differerent from the typical business activities, not expected to recur in the forseeable future. (usual and infrequent)

disclosed in the income statement after discontinued operations.

Front 8

Nonextraordinary items - gross, before tax

Back 8

Separate componet of continuing operations (5)

1. gain/loss from sale or abandonment of property used in the business
2. Large writedowns or writeoffs
3. Gain/Loss from foreign currency transaction or translation
4. Losses from major strike by employees
5. Long term debt extinquishments (mgmt strategy)
4.

Front 9

Accounting Changes and Error Corrections (3) - Retained Earnings Statement (cumulative effect of change in accounting)

Back 9

Accounting changes and error corrections. Changes in accounting:

1. Estimate - (prosective) effects current and future, not acct principle such as LIFO to FIFO depreciation.

2. Principle - (retro) - must be a justified change from one accounting principle to another acceptable principles.such as completed contract method vs. percentage of completion

3. Change in Accounting Entity - restate - when entity being reported on has changed composition. such as consolidated statement to single statement.

4. Error Corrections - restate - prior period adjustment. adjust beginning retained

Front 10

Statement of Retained Earnings -

Back 10

Beginning balance>Prior period adjustment> Add: income tax benefit> cumulative effect of accounting change> Less: income tax effect>Beginning balance> Add net income> Less Dividends>Cash dividend declared on common stock> Ending Balance.

Front 11

Comprehensive Income - non owner transactions

Back 11

Comprehensive Income is the change in equity (net assets) of a business enterprise during a period from nonowner transactions.

Net Income: Per Income Statement (IDE) + Other comprehensive income (PUFER)

Front 12

PUFER- direct to equity

Back 12

PUFER

P- Pension Adjustments
U- Unrealized Gains/Losses
F- Foriegn Currency Items
E- Effective Portion of Cash Flow Hedges

(IFRS only)
R- Revaluation Suplus

Front 13

Reclassification Adjustments -Avoids double counting

Back 13

Move other comprehensive income items from accumulated other comprehensive income to the income statement. They may be displayed on the face of the financials or the notes.

Front 14

Financial Statement Reporting my be presented in 3 approachs

Back 14

1. Single Statement Approach - start with revenue>expenses>income before income taxes>income tax (%)> net income>Other comprehensive income, net of income tax>Pension net loss>Unrealized holding gains> foreign currency items>Comprehensive income.

2. Two statement approach- start with Net Income + PUF

3. Component within statement of Owner's Equity- starts with beginning and ending balances. it also includes retained earnings information.

Front 15

Notes to Financial Stmt

Back 15

Both IFRS and GAAP require a description of all significant policies be included as an intregal part of the financial statements.

Front 16

Summary of Significant Accounting PoliciesIdentify and describe:
measurement bases used in principles/ methods, criteria, policies, pricing.

Back 16

Remaining notes to the Financial Statements

Information relevant to decision makers. Such as pension plan description and Contractual obligations.

Front 17

Interim Financial reporting - Quarterly Financials

- Not required under US GAAP or IFRS.
- Matching of revenue and expenses by quarter and not by year.
-timeliness over reliablitity

Back 17

Segment Reporting -
provide informaton on the business activities and the economic environment of a conunty.

Publically traded - big conglumerate with lots of products sold in differ geo areas.
"better understand the whole in parts.

Front 18

Disclosures of all Public Enterprises (Publically Traded)

Segmented by Operating segments, Products and Service, Geographic areas, Major customers

Back 18

Intercompany Transactions not eliminated for reporting.

transactions between the segments such as consolidations between parent companies and subsidiary

Front 19

Qualitative Threshold for Reportable Segments.

10% test for revenue, profit & loss and assets.

75% reporting sufficiency test for consolidated revenue.

Back 19

Development Stage enterprises (GAAP) - an operation has not yet commenced or principal operation have generated an insignificant amount of revenue (or loss)

Front 20

Fair Value measurement and disclosures

Back 20

Fair value is the price to sell an asset of transfer a liability in a orderly transaction between market participants at the measurement date.

Front 21

Most areas require fair value disclosures, separate rules apply to..

Back 21

Inventory pricing which is lower cost of market,

Present value lease classification and measurement.

Front 22

Orderly fair value transactions can not be a forced transaction such as a liquidation.
-Fair value Market participants are independent buyers and sellers - and not related parties.

Use Most Advantageous Market if no principle market.

Highest and Best Use - Use or Exchange

Back 22

Fair Value Valuation Technigues (3)

1. Market Approach - identical and comparable
2. Income Approach - cash flows or earnings
3. Cost Approach - replacement cost

Front 23

Fair Value Hierachy of Inputs (3)
Level 1 Most Reliable; Identical and Active Markets
Level 2 Similar/Active > Identical/ Not Active Market
Level 3 Not quite as reliable

Back 23

Exceptions to Fair Value measurement (3)

1. It is not practicale to measure
2. Can not be reasonably determined
3. Can not be measured with sufficient reliability.