Cpa Review- Far 2-5 (Financial Reporting And Changing Prices)

Front 1

Historic Cost

Back 1

-The actual exchange value in the dollars at that time an asset was acquired or a liability was assumed.

Front 2

Current Cost

Back 2

-The cost that would be incurred at the present time, the replacement cost. Use the recoverable amount if lower.

Hint 2

*Compared to historic cost, takes appreciation into account.

Front 3

Nominal Dollars

Back 3

-Unadjusted for changes in purchasing power.

Front 4

Constant Dollars

Back 4

-Dollars restated based on calculations of CPI ratios.*

Hint 4

*Compared to Nominal Dollars, it take inflation into account.

Front 5

Measurement Method and Current Cost Determination

Back 5

1. Historic Cost/Nominal Dollars (HCND): based on historic prices w/out restatement for changes in the purchasing power of the dollar. Method is the basis for GAAP used in the primary F/S's.*
2. Historic Cost/Constant Dollars (HCCD): based on historic prices adjusted for changes in the general purchasing power of the dollar. Uses a general price index to adjust cost; retains the historic cost basis.*

Hint 5

3. Current Cost/Nominal Dollars (CCND): based on current cost w/out restatement for changes in the general purchasing power of the dollar.*
4. Current Cost/Constant Dollar (CCCD): based on the current cost adjusted for changes in the general purchasing power of the dollar. Uses a general price index to measure general purchasing power effects.*
*Adjustments- (1) Neither, (2) Inflation, (3) Appreciation, (4) Both

Front 6

Monetary and Non-Monetary Items

Back 6

1. Monetary: assets and liabilities are fixed or denominated in dollars regardless of changes in specific prices or the general price level (ex: A/R). Holding monetary assets during periods of inflation will result in a gain of purchasing power.

Hint 6

2. Non-Monetary: assets and liabilities fluctuate in value with inflation and deflation. Holders of items may lose or gain with the rise or fall of the CPI if the nonmonetary item does not rise or fall in proportion to the changes in CPI. In other words, a nonmonetary asset or liability is affected by (1) the rise or fall of the CPI and (2) the increase or decrease in the FV of the nonmonetary item.

Front 7

Classification: Monetary & Non-Monetary

Back 7

-A "contra-account" (allowance for doubtful accounts & accumulated depreciation) is classified as monetary or nonmonetary based upon the classification of the related account.

Hint 7

*See picture for classification of specific items.

Front 8

Purchasing Power Gains & Losses

Back 8

1. Holding Monetary Assets: results in purchasing power gains during a period of deflation and purchasing power losses during periods of inflation.

Hint 8

2. Holding Monetary Liabilities: results in purchasing power gains during a period of inflation and purchasing power losses in periods of deflation.