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International Accounting CH 4 & 5
Terms in this set (129)
Definition, recognition, measurement, alternatives, lack or requirements or guidance, presentation, disclosure
what are the different types of differences that exist between IFRS and US GAAP?
IFRS; US GAAP
Is IFRS or US GAAP more principal based? Which is rules based?
IAS 2 _____ is an example of an IAS that provides more extensive guidance than US GAAP
costs of purchase, costs of conversion, other
Under IAS 2 what makes up the cost of inventories?
True or False: IAS 2 requires inventory to be reported on the balance sheet at the lower of cost or net realizable value
net realizable value
what is defined as the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale
What subject is covered by IAS 16
when it is probable that future economic benefits will flow to the enterprise and the cost can be measured reliably
Relying on the definition of an asset provided by IASB, when should both initial and subsequent costs related to PP&E be recognized as assets?
fair value; commercial substance
An item of PP&E acquired in exchange for a non-monetary asset or combo of monetary and non monetary assets should be initially measured at ___ unless the exchange transaction lacks ___
what is defined as the amount for which an asset could be exchanged between knowledgable, willing parties in an arm's length transaction
cost and revaluation models
what two treatments for reporting fixed assets on balance sheets subsequent to their acquisition are permitted by IAS 16?
under what treatment of fixed assets under IAS 16 is an item of PP&E carried on the balance sheet at cost less accumulated depreciation and any accumulated impairment losses?
under what treatment of fixed assets under IAS 16 is an item of PP&E carried at a revalued amount, measured as fair value at the date of revaluation, less any subsequent accumulated depreciation and any accumulated impairment losses?
where are revaluation increases credited?
either through the use of the asset or upon its sale or disposal
when may a revaluation surplus be considered to be realized?
prospectively as changes in estimates
how are changes in depreciation method, residual value and useful life treated?
what refers to the removal of an asset or liability from the balance sheet and the accounts
what is defined as land and/or buildings held to earn rentals, capital appreciation, or both
cost or fair value
what two models are available to measure investment property subsequent to acquisition?
Is inventory, construction in progress, deferred tax assets, employee benefit assets, or financial assets such as accounts and notes receivable tested for impairment?
recoverable amount and carrying amount
If indicators of impairment are present, which two values are compared?
carrying amount > recoverable amount; the difference between the two
under IAS 36, when is an asset considered impaired and how is the loss measured?
the greater of net selling price and value in use
what is the recoverable amount?
PV of future net CF
what is the value in use amount?
carrying amount > future CF (undiscounted); difference between CV and FV
Under US GAAP when is an asset considered impaired and how is the loss measured?
under IAS 36, where are impairment losses recognized?
Yes, if there are changes in the estimates used to determine the original impairment loss or there is a change in the basis for determining the recoverable amount
Under IAS 36 can an impairment loss be reversed?
the CV it would have been had no impairment loss been recognized
when reversing an impairment loss, up to what amount can the carrying value increase to?
what is an identifiable, non monetary asset without physical substance held for use in the production of goods or services, for rental to other, or for administrative purposes
an intangible asset is deemed to have a ____ life when there is no foreseeable limit to the period over which it is expected to generate cash flows for the entity
at what amount are intangibles recognized in a business combination?
expensed as incurred
under IFRS how are research expenditures treated?
as an intangible asset
under IFRS how are development expenditures treated?
True or False: borrowing costs should be included as part of the cost of development activities to the extent that the costs of those activities constitute a qualifying asset
what type of life are capitalized development costs considered to have?
price is available on an active market
Under what circumstance can the revaluation model be used for intangible assets with finite lives?
taxi licenses, fishing licenses, production quotas
what are some examples of finite lived intangible assets that have a price available on an open market, allowing for the use of the revaluation model?
when events or circumstances indicate carrying amount may not be recoverable
When must finite lived intangible assets be tested for impairment?
when must indefinite lived assets be tested for impairment?
what is measured as the difference between the consideration transferred plus any amount recognized as non controlling interest and the fair value of net assets acquired
proportionate share of FV of acquired firm's net assets excluding GW or fair value including NCI's share of goodwill
what are the two ways of measuring NCI?
at what level is goodwill test for impairment?
cash generating unit
what is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets to groups of assets
increased by the amount of goodwill attributable to the NCI
what adjustment must be made to the carrying value of the CGU when testing for impairment, if NCI was originally measured at the proportionate share of net assets?
which test for testing goodwill for impairment is goodwill allocated to the individual CGU ender review, if possible, and impairment of the CGU is then determined by comparing the carrying amount plus allocated goodwill and the recoverable amount
bottom-up and top-down
what tests should be performed if goodwill cannot be allocated on a reasonable and consistent basis to the CGU under review?
which test for testing goodwill impairment when no reasonable allocation to a CGU can be made is goodwill allocated to the smallest group of CGUs possible on a reasonable and consistent basis, and impairment of the group is then determined by comparing the carrying amount plus allocated goodwill and the recoverable amount
what treatment of borrowing costs capitalizes borrowing costs to the extent they are attributable to the acquisition, construction, or production of a qualifying asset
Is IFRS's definition of borrowing costs or GAAP's definition of interest costs more broad
Does IFRS or GAAP exclude inventories that a routinely manufactured or produced in large quantities on a repetitive basis over a short period from being eligible for capitalization of borrowing costs?
multiply the weighted average accumulated expenditures by an appropriate interest rate
how is the amount of interest to be capitalized measured?
financing and operating
what are the two types of leases?
what type of lease exists when it transfer substantially all the risks and rewards incidental to ownership to the lessee?
transfers ownership, bargain purchase option, lease term if for major part of economic life, PV of minimum lease payments is equal to substantially all the FV of the asset, asset is of a specialized nature such that only the lessee can use it without major modifications
what are the five situations that would normally lead to a lease being classified as a financing lease
periodic lease payments, amounts guaranteed by lessee (residual value), exercise price in bargain renewal option
what is included in the minimum lease payment
the implicit rate
which rate is used to calculate the present value of the minimum lease payments: implicit or incremental?
what involves the sale of an asset by the initial owner of the asset and the leasing of the same asset back to the initial owner?
defer any gain and amortize it to income over the lease term
if the lease in a sale-leaseback transaction is a financing lease how are gains treated?
difference between FV and CV recognized immediate in income and any difference between the FV and selling price is amortized
if the lease in a sale-leaseback transaction is an operating lease, how are any gains or losses treated?
the amount of future minimum lease payments for both operating and financing leases as well as the PV of future minimum lease payments under finance leases
what amounts must be disclosed for operating and financing leases
Under IFRS, when using the indirect method for the statement of cash flows, is the entity required to begin the conciliation with net income?
operating or financing
on the statement of cash flows how may interest and dividends paid be classified?
operating or investing
on the statement of cash flows how may interest and dividends received be classified?
between the balance sheet date and the date that the financial statements are authorized for issuance
under IFRS what is considered to be the subsequent period?
required by IFRS or results in the F/S providing more relevant and reliable info
when is a change in accounting policy allowed?
how are changes in accounting policy applied?
separately and not depreciated
how are assets held for sale treated on the balance sheet?
what are defined as components of a business that generate revenues and expenses, whose operating results are regularly reviewed by the chief operating officer, and for which separate financial information is available
what type of assets does a company expect to settle in its normal operating cycle, hold primarily for the purpose of trading, expect to settle within 12 months of the balance sheet date, and does not have the right to defer until 12 months after the balance sheet date
refinanced short-term debt, amounts payable on demand due to violation of debt covenants, and bank overdrafts
what are the areas relating to current assets in which IFRS differs from GAAP?
refinancing must be complete in order to be reclassified (GAAP does not require it to be complete)
describe the difference between IFRS and GAAP in refinancing short term debt
can be netted against cash if its an integral part of cash management
describe the difference between IFRS and US GAAP in bank overdrafts
is a provision or a contingent liability recognized on the balance sheet?
what is defined as a liability of uncertain timing or amount and should be recognized when the entity has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic events will be required to settle the obligation, and a reliable estimate of the obligation can be made
what exists when a company through past action or current statements indicates that it will accept certain responsibilities and, as a result, has created a valid expectation on the part of other parties that it will discharge those responsibilities
what is defined as one of the following: 1. possible obligations that arise from past events and whose existence will be confirmed by the occurrence or non-occurrence of a future event, 2. a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation or the amount of the obligation cannot be measured with sufficient reliability
more likely than not
how does IAS 37 define "probable" as it related to provisions
what is a contract in which the unavoidable costs of meeting the obligation of the contract exceed the economic benefits expected to be received from it
unavoidable; cost of fulfillment and the penalty that would result from non-fulfillment under contract
when an onerous contract exists, a provision should be recognized for the ___ costs of the contract which is the lower of _______
what is a program that is planned and controlled by management and that materially changes either the scope of a business undertaken by an entity or the manner in which that business is conducted
has a formal plan and has raised valid expectation that it will be carried out (either by announcement or beginning implementation)
under IFRS when should a restructuring provision be recognized?
when a liability is incurred
under us GAAP when is a restructuring provision recognized?
what is an asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of a future event
short-term (compensated absences and bonuses), post-employment benefits (pensions, medical), other long-term (deferred compensation and disability), and termination (severance pay and early retirement)
what are the four types of employee benefits covered in IFRS guidance?
when employee provides services; no
for short-term employee benefits when does an employer recognize an expense and liability? Is the amount discounted?
accrue expense and liability when service rendered for the amount the employer is obligated to pay and reduce liability when contributions are made
describe the accounting for a defined contribution plan
present value of the defined benefit obligation - fair value of plan assets
how is the amount recognized on the employer's balance sheet as a defined benefit liability (or asset) calculated?
the surplus or the asset ceiling (PV of any economic benefits available as refunds from plan or reductions in future contributions)
The amount of the net defined benefit asset recognized is limited to the lower of _______
current service cost, past service cost and gains/losses on settlements, and net interest on the net defined benefit liability, remeasurements of the net defined benefit liability (asset)
what are the components of the defined benefit cost?
gains and losses on settlements
what arise when an employer settles a defined benefit plan by making lump-sum cash payments to employees in exchange for their rights to receive defined future benefits
net income; when the settlement or curtailment takes place or when related restructuring costs recognized (if earlier)
where are gains and losses on settlements and curtailments of pension plans recognized? and when?
where are remeasurements of pension plans recognized?
what consists of actuarial gains and losses, the difference between the actual return on plan assets in the current period and the interest income component of NIDBA, and any change in the effect of the asset ceiling during the period
equity-settled, cash-settled, and choice of settlement
what are the three types of share-based payment transactions?
what type of share-based transaction is one in which the entity receives goods or services as consideration for equity instruments of the entity
what type of share-based transaction is one in which the entity acquires goods or services by incurring liabilities to the supplier of those goods or services for amounts that are based on the price of the entity's shares or other equity instruments of the entity
choice of settlement
what type of share-based transaction is one in which the terms of the arrangement provide either the entity or the supplier of goods or services with a choice of whether the entity settles the transaction in cash or by issuing equity instruments
fair value of goods/services
how are share-based payments to non-employees measured?
fair value of equity instruments
how are share-based payments to employees measured?
# of options expected to vest x FV of options
for share-based payments to employees, how is the total compensation cost over the vesting period measured?
straight line over service period
for cliff vesting stock options, how is compensation expense recognized?
for which type of vesting is the compensation expense associated with each installment amortized over that installment's vesting period?
the original amount of compensation cost
if an entity modifies the terms and conditions of a stock option, what is the minimum amount of compensation cost that must be recognized?
stock appreciation rights
what is an example of a cash-settled share-based payment transaction?
how is the liability associated with stock appreciation rights measured?
present obligation to settle in cash
when the terms of a share-based payment transaction allow the entity to choose between equity settlement and cash settlement, when must the entity treat the transaction as cash-settled?
compound financial instrument
When the terms of a share-based payment transaction allow the supplier of goods and services to choose between equity settlement and cash settlement, the entity has issued a ___ the fair value of which must be split into separate debt and equity components
enacted or substantively enacted
Under IFRS, current and deferred taxes are measured on the basis of tax laws and rates that have been ____ by the balance sheet date
tax benefit is probable
Under IFRS when must a deferred tax asset be recognized
how must a deferred tax asset or liability be classified under IFRS?
significant risks and rewards have transferred, there is no continuing involvement or control, amount can be reliably measured, probable that economic benefits will flow to seller, costs incurred can be measured reliably
what are the 5 conditions that must be met in order to recognize revenue from the sale of goods
outcome can be estimated reliably and it is probable that economic benefits will flow to enterprise
when should revenue related to services be recognized in proportion to measure of the extent of services rendered?
on what basis is interest income recognized?
on what basis are royalties recognized?
SH's right to receive is established
when are dividends recognized as income?
fixed price and cost-plus
what are the two types of construction contracts
what is any contract that gives rise to both a financial asset of one entity and a financial liability or equity instrument of another entity?
cash, a contractual right to receive cash or to exchange financial assets/liabilities under favorable conditions, an equity instrument of another entity, or a contract that will/may be settled in the entity's own equity (not classified as an equity instrument)
what is considered to be a financial asset?
contractual obligation to deliver cash or to exchange financial assets/liabilities under unfavorable conditions, a contract that will/may be settled in the entity's own equity instruments
what is considered to be a financial liability?
True or False: derivatives are considered to be either financial assets or liabilities
what is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities
if an equity instrument contains a contractual obligation that meets the definition of a financial liability, how should it be classified?
compound financial instrument
what type of financial instrument contains both a liability element and an equity element?
it eliminates an inconsistency or performance is evaluated on fair value
under what conditions can an entity choose to designate a a financial asset/liability as fair value
trading or elected
what types of financial assets and liabilities are measured at fair value on the balance sheet
fair value; OCI
Financial assets classified as available for sale are measured at ___ on each balance sheet date, with changes recognized as part of ___
change in FV in foreign currency and a foreign exchange G/L
what are the two components of a change in fair value in the entity's reporting currency when an entity holds an available-for-sale financial asset denominated in a foreign currency?
extinguishment of old and issuance of new
how should a substantial modification of the terms of existing debt be treated?
how are derivatives measured?
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