Yeager Far 2011 Home Study Module 9 A (Becker Chapter 1 /2)

Front 1

Who is supposed to write GAAP by law ?

Back 1

It is the SEC, but traditionally the SEC has always allowed FASB to write GAAP

Front 2

FIrst the SEC gave AICPA the authority promulgate GAAP, and then later on to the APB (Accounting principles boards) What was the name of the committee, which they came up with ?

Back 2

First they give this authority to the AICPA, then the AICPA came up with the CAP. The committee on accounting procedure writes the accounting research bulletins.
Then APB which is the accounting principles board came with their opinions and their interpretations.

Front 3

Who wrote GAAP after the AICPA and APB ?

Back 3

It is FASB. And FASB had SFAS and (FIN) financial interpretations. But now in 2011 FASB came along with accounting standards and codifications.

Front 4

What does the new 2011 ASC (accounting standard codification include and what does it exclude)

Back 4

ARB, APB opinions, SFAS, technical bulliteints are all included. (Everything in category A to D)

SFAC are excluded.

Front 5

What is the SFAC ?

Back 5

They are the rules for writing rules. They are not GAAP but they give guidance for writing GAAP. Not part of accounting standard codification which is GAAP

Front 6

What are the pervasive constraints ?

Back 6

Benefits have to outweigh cost. Then financial statements need to have understandability and decision usefulness.

Front 7

US GAAP Relevance :

Back 7

Predictive value
Feedback value
Timeliness

Front 8

Verifiability and representational faithfulness.

Back 8

Verifiability means supported by evidence. That is why you use historical cost. Representational faithfulness emphasizes substance over form. (Capital lease)

Front 9

Comparability and consistency are related to what ?

Back 9

relevance and reliability.

Front 10

Materiality:

Back 10

error or omission would affect the judgment of a reasonable person.

Front 11

What affects shareholders Equity ?

Back 11

Both revenues and expenses and gains and loses affect shareholder equity. Revenues and expenses affect both ongoing major and central operations. But gains and losses affect peripheral and incidental transactions. When you recognize something it means that it ends up on the financial statement.

Front 12

SFAC 7: USING CASH FLOW INFORMATION AND PV IN ACCOUNTING MEASUREMENTS.

Back 12

A framework using future cash flows as the basis for accounting measurements at initial recognition, in a fresh start measurement, interest method allocation. Guidance on measurement issues only, recognition issues are not addressed by SFAC 7.

Front 13

The interest method allocation:

Back 13

this is reporting conventions that use present value techniques in the absence of a fresh start measurement to compute changes in the carrying amount of an asset or the liability from one period to the next.

Front 14

Multiple deliverable revenue arrangements

Back 14

1)The delivered item has value on a standalone basis.
2)If the arrangement includes a right of return for the delivered item, the undelivered item must be substantially in control of the vendor. If it meets both requirements the revenue arrangement is divided into separate units based on the relative selling prices.

Front 15

Research and development accounted for on the milestone basis : note the milestone method can only be used in R and D.

Back 15

The milestone method of accounting may be used in accounting for r and d in which revenue (payments) to the vendor is contingent on achieving one or more substantive milestones related to deliverables or units of accounting. (look at page 55 of textbook for more details). Under the milestone method when substantive milestone is achieve you then get to recognize all of the revenue.

Front 16

Who is the IASC

Back 16

The international accounting standards committee, they wrote international accounting standards. (IASC --> IAS, from 1973 to 2001.

Front 17

In addition the IASC also created the SIC, what is this ?

Back 17

In addition the IASC also created the SIC, (standard interpretations committee, that provided further interpretive guidance on accounting issues not addressed in the standards.

Front 18

In 2001 who replaced the IASC ? What is IFRIC

Back 18

In 2001 the IASB replaced the ISAC. The IASB adopted the IAS and interpretations issued by the SIC.
The IASB is responsible for IFRS (international accounting reporting standards) and the IFRIC (international financial reporting interpretations committee) is responsible for issuing interpretations of the standards.

Front 19

Who is rules based, who is principle based?

Back 19

US GAAP is more rules based approach ( example would be capital lease vs operating lease, follow the OWNS rules based approach). IFRS this is principle based.

Front 20

What is IASB framework ?

Back 20

The IASB Framework is very similar to FASB SFAC. The IASB framework are the rules to make rules.
The IASB framework is not considered an accounting standard, and therefore does not override any accounting treatment required by the international accounting standards or the IFRS.

Front 21

Qualitative characteristics under IASB

Back 21

1) Understandability
2) Relevance
3) Reliability
4) Comparability

Front 22

Relevance under IASB?

Back 22

1) Predictive Value
2) Confirmatory Value
3) Materiality

Front 23

Reliability under IASB?

Back 23

1) Faithful representation
2) Substance over form
3) Neutrality
4) Prudence
5) Completeness

Front 24

Constraints under IASB?

Back 24

1) Timeliness
2) Benefits > Cost
3) Balance between qualitative characteristics.

Front 25

FASB SFAC # 6, this contains ten elements of financial statements, what are they ?

Back 25

Assests, liabilities, equity, investments by owners, distribution by owners, comprehensive income, revenues, expenses, gains and losses.

Front 26

The ISAB frame work contains only five elements, what are they ?

Back 26

Asset, liability, Equity, Income and Expenses.

Front 27

Income under IASB framework ?

Back 27

An important point to understand is that the definition of income includes both revenues and gains. Revenues arise in the normal course of business and are often referred to as sales, fees, interest, dividends royalties and rent.
The IASB framework indicates that gains are increases in economic benefits and are no different in nature from revenues. Hence they are not regarded as separate elements in the framework. The frame work treats losses in the same way, as no different in nature from other expenses. However, the framework also indicates that when gains or losses are reported on the income statement, they are usually displayed separately because this knowledge may be useful to the decision maker. Gains may be reported net of related expenses and losses may be reported net of their related income.

Front 28

IFRS Revenue recognitions from the sale of goods ?

Back 28

1) Significant risks and rewards of ownership of the goods are transferred to the buyer.
2) The entity does not retain either a continuing managerial involvement or control over the goods.
3) The amount of revenue can be measured reliably.
4) It is probable that economic benefits will flow to the entity from the transaction.
5) The cost incurred can be measured reliably.

Front 29

IFRS Revenue recognitions from the sale of services ?

Back 29

1) The amount of revenue can be measured reliably.
2) It is probable that economic benefits will flow to the entity
3) The stage of completion at the end of the reporting period can be measured reliably
4) The cost incurred and the costs to complete the transactions can be measured reliably.

Front 30

Cost recovery method and installment sales methods regarding IFRS?

Back 30

If the outcomes cannot be measured reliably then revenue should be recognized using the cost recovery method. Please note that IFRS does not allow the use of completed contract method.

Front 31

Unearned Revenue:

Back 31

Dr cash
Cr unearned revenue
When revenue is then earned you then:
Dr unearned revenue and then
Cr Earned revenue.

Front 32

Prepaid Expense:

Back 32

Dr Prepaid expense
Cr cash
As prepaid expense expires:
Dr Expense
Cr Prepaid Expense

Front 33

Installment Sales method:

Back 33

Step 1 ) Sales – COGS = Gross profit.
Step 2) And gross profit / net sale = gross profit %.
Step 3) cash collection X gross profit % = Realized G.P
Step 4) Accounts receivable x gross profit % = Deferred gross profit.

Front 34

Cost recovery method

Back 34

Do not recognize any profit till you recover your cost. Also the interest in the cost recover method is added to the initial down payment and the annual installment payments, it’s not treated separately, like in the installment sales method.

Front 35

Gain or loss contingencies

Back 35

the GAAP rule for both items is conservatism

Front 36

Royalties rec and unearned royalties, 2 year statements. Tips:

Back 36

Royalties’ receivable and unearned royalties problems, if 2 year statements are given, compare statements and make a journal entry of the debit or credit.

Front 37

AP and purchases Tips:

Back 37

Accounts payable and purchases are on the same side of the credit column. Payments are on the debit side. Beginning and ending AP and purchases are on the credit side.

Front 38

Installment Sales tips

Back 38

For the installment sales method to figure out sales for the year, take the deferred gross profit and divide it by the gross profit percentage.
For installment sales method to figure out cash collection . Take the GP realized / GP % = cash collection. Remember this is merely the formula for cash collection X GP % = GP realized and worded around.