Advanced Financial Accounting and Reporting (AFAR) Flashcards

Vocabulary flashcards covering Advanced Financial Accounting and Reporting concepts including partnerships, corporate liquidation, home office & branch accounting, joint arrangements, revenue recognition, business combinations, foreign exchange, derivatives, NPO accounting, government accounting, and cost accounting.

Net Investment Method

A partnership capital accounting method where the capital accounts of each partner are equivalent to the amount contributed by them ($\text{TCC} = \text{TAC}$ overall and $\text{TCC} = \text{TCC}$ individually).

Bonus Method

An accounting method where partners agree that total contributions equal total partnership capital ($\text{TCC} = \text{TAC}$ overall), but individual partner capital balances differ from their actual contributions ($\text{TCC} \neq \text{TAC}$).

Revaluation Method

An accounting method where partners agree to base the total partnership capital on the capital contributions and capital ratio of one of the partners ($\text{TCC} \neq \text{TAC}$ overall and individually).

Liability Assumed by Partnership Flowchart

Diagram illustrating that liabilities from individuals are generally not assumed (except when specified as partnership liability), whereas liabilities from sole proprietorships are generally assumed as partnership liabilities (except when ignored).

Set-Off of Obligations

A liquidation principle where a partner who has loaned money to the partnership as a creditor may offset that debt against their own share in the partnership's outstanding obligations.

Asset Marshalling

A legal and accounting rule in liquidation providing that partnership assets are reserved first for partnership creditors, while individual partner assets are reserved for personal creditors.

Loss Absorption Potential

In the Cash Priority Program, the maximum loss a partner can absorb before their total interest is exhausted, computed as $\text{Total Partner Interest} / \text{Profit or Loss Ratio}$.

Agencies

Simple extensions of a Home Office's operations that do not maintain separate autonomous accounting systems.

Branches

Operating units that are not separate legal entities but maintain a degree of autonomy to keep their own accounting records and accounts distinct from the Home Office.

Branch Loading

An alternative term for the Allowance for Overvaluation account used in a perpetual inventory system in Home Office and Branch accounting.

Joint Operation

A joint arrangement whereby the parties that have joint control have direct rights to the assets and obligations for the liabilities relating to the arrangement.

Joint Venture

A joint arrangement whereby the parties that have joint control have rights to the net assets (equity) of the arrangement.

Contract Asset

Under PFRS 15, an entity's right to consideration in exchange for goods or services transferred to a customer, presented net of the receivable balance.

Contract Liability

Under PFRS 15, an entity's obligation to transfer goods or services to a customer for which the entity has received consideration; equivalent to unearned revenue.

Right to Access License

A license agreement where the customer cannot direct or control the remaining benefits at a single point in time because the intellectual property changes over the license term through ongoing franchisor activities.

Right to Use License

A license agreement where the customer has full control over substantially all remaining benefits from the license at a single point in time, as the intellectual property does not change.

Substantial Performance

A condition in franchise accounting met when the franchisor has no remaining obligation or intent to refund money/forgive debt, substantially all initial services are performed, and no other material conditions exist.

Fixed Price Contract

A construction contract in which the contractor agrees to a fixed contract price or a fixed rate per unit of output, sometimes subject to cost escalation clauses.

Cost-Plus Contract

A construction contract in which the contractor is reimbursed for allowable or otherwise defined costs, plus a percentage of these costs or a fixed fee.

Control (PFRS 10)

An investor controls an investee when it has power over the investee, exposure or rights to variable returns from its involvement, and the ability to use its power to affect those returns.

Direct Quotation

A foreign exchange rate quotation stated in terms of how many units of domestic currency equal one unit of foreign currency (e.g., $\text{P}50 : \$1$).

Indirect Quotation

A foreign exchange rate quotation stated in terms of converting one unit of domestic currency into units of foreign currency (e.g., $\text{P}1 : \$0.2$).

Derivative

A financial instrument whose value changes in response to an underlying variable, requires little to no initial net investment, and is settled at a future date.

Fair Value Hedge

A hedge of the exposure to changes in fair value of a recognized asset, liability, or unrecognized firm commitment that is attributable to a particular risk and affects profit or loss.

Cash Flow Hedge

A hedge of the exposure to variability in cash flows attributable to a particular risk associated with a recognized asset, liability, or a highly probable forecasted transaction.

In the Money Call Option

A call option condition where the strike price is lower than the market price ($\text{Strike} < \text{Market}$), giving the option intrinsic value and making exercise favorable.

Program Expenses

In Not-For-Profit accounting, expenses directly arising from the conduct of the organization's social activities and primary non-profit mission.

Supporting Expenses

In Not-For-Profit accounting, secondary expenses that enable programs to function, including administrative, management, and fund-raising costs.

Government Budget Cycle Diagram

Diagram outlining the 4-phase public budget process: Budget Preparation, Budget Legislation (Authorization), Budget Execution, and Budget Accountability.

Cedant

The policyholder entity in a reinsurance contract that transfers insurance risk to a reinsurer.

Job Order Costing

A cost accumulation system used when products are manufactured individually or in distinct batches/lots containing heterogeneous or dissimilar products.

Process Costing

A cost accumulation system where manufacturing costs are accumulated by departments or processes for mass quantities of homogeneous or identical goods.

Backflush Costing

A simplified costing system used in Just-In-Time environments that delays recognition of production costs until goods are completed or sold.

Direct Method Diagram (Service Allocation)

Diagram illustrating the service cost allocation technique that assigns service department costs directly to production departments without inter-service department allocations.

Step Method Diagram (Service Allocation)

Diagram illustrating sequential service cost allocation where higher-ranking service departments allocate costs to lower-ranking service departments as well as production departments.

Reciprocal Method Diagram (Service Allocation)

Diagram illustrating full service cost allocation that recognizes all mutual services provided among service departments in addition to production department allocations.