AFM291 Study Guide - Final Guide: Effective Interest Rate, Book Value, Mining Engineering
26 Jun 2018
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FM 291 Final Exam Review:
Chapter 2 – Conceptual Framework:
-Adverse Selection (hidden information)
-Moral Hazard (hidden actions)
-Fundamental Qualitative Characteristics
oRelevance and Representational Faithfulness
-Enhancing Qualitative Characteristics
oUnderstandability, Comparability, Verifiability, Timeliness
-Assumptions
oGoing Concern
oFinancial Capital Maintenance (amount earned beyond what is
necessary for entity to maintain it’s capital are profits)
-Measurement (quantification: historical cost vs NRV)
-Recognition (presenting in financial statements vs notes)
Chapter 3 – Accrual Accounting:
-Accrual Accounting (vs cash accounting, smoothing effect, etc)
-Quality of Earnings (free of managerial bias = >quality)
-Subsequent Events
oSituations existing before balance sheet (cut-off) date should be
recognized in previous period
-Correction of an error
oRetrospective
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oAn error involves information that was known but incorrectly
applied (contrast with estimate)
-Change in policy
oRetrospective
oCan only change if required by standard or if the change provides
more relevant and reliable information
-Change in estimate
oProspective
oInvolves new info (contrast with error)
-Statement of Changes in Equity
o
Chapter 4 – Revenue Recognition:
-Variable Consideration (coupons, volume discounts, etc)
oRecognize using either:
Expected value
Most likely amount (appropriate for binary situations)
-Stand-Alone Pricing
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find more resources at oneclass.com
oDetermine if there are separate performance obligations (can
customer benefit from one without the other?)
oFind and sum all stand alone prices
oFind % of sum total of stand alone for each item
oApply % for each item to transaction price to determine revenue
recognition for performance obligation
-Warranties
oAssurance Warranty
not a distinct performance obligation
Debit Cash, Credit Revenue and
Debit Warranty Expense, Credit Warranty Provision
oService Warranty
Is a distinct performance obligation
Use stand alone pricing and recognize separately as deferred
revenue
-Installment Sales
oDebit A/R, Credit Inventory and Deferred GP
oUpon receipt of cash: Debit Cash, Credit A/R. Then Debit Deferred
GP, Debit COGS, Credit Sales Revenue in proportion to amount
received.
-Long-Term Contracts
oCIP includes all costs and gross profits (losses)
o%complete * expected gp – previous gp = gp for yr
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find more resources at oneclass.com
Document Summary
Fundamental qualitative characteristics: relevance and representational faithfulness. Enhancing qualitative characteristics: understandability, comparability, verifiability, timeliness. Assumptions: going concern, financial capital maintenance (amount earned beyond what is necessary for entity to maintain it"s capital are profits) Recognition (presenting in financial statements vs notes) Accrual accounting (vs cash accounting, smoothing effect, etc) Quality of earnings (free of managerial bias = >quality) Subsequent events: situations existing before balance sheet (cut-off) date should be recognized in previous period. Correction of an error: retrospective, an error involves information that was known but incorrectly applied (contrast with estimate) Change in policy: retrospective, can only change if required by standard or if the change provides more relevant and reliable information. Change in estimate: prospective, involves new info (contrast with error) Variable consideration (coupons, volume discounts, etc: recognize using either: Most likely amount (appropriate for binary situations) Warranties: assurance warranty not a distinct performance obligation. Debit warranty expense, credit warranty provision: service warranty.
