FAR F2

5 steps for rev rec

• ID contract

• separate perf. obs

• transaction price

• allocate price to perf obs

• rec rev

contracts can be: (3 things)

written, verbal, implied

construction rev rec’d over time (4 steps)

• compute gross profit of completed contract (contract price - estimated total cost)

• compute % complete (total cost to date / total estimated cost)

• compute GP earned (step 1 * step 2)

• compute GP earned for CY (total profit - beg profit = CY profit)

repurchase agreements? (buys back asset for EQUAL/MORE or LESS than original sale price)

EQUAL/MORE

• functionally a financing arrangement

• rec the asset and the difference = interest expense

• liab for any consideration received from the customer

LESS

• functionally a lease

repurchasing an asset: put option

AKA only repurch if the customer wants you to

only record rev for a bill & hold when delivered UNLESS: (4 things)

• substantive reason for B&H (i.e. customer req’d)

• product separated for customer

• ready to go immediately

• cant sell to another customer

warranty (built in or optional)

separate:

• considered a separate & distinct promise

not separate:

• NOT a separate perf ob

changes in accounting principals that is INSEPARABLE from a change in estimate:

• fifo TO lifo = prospective

• change in depr method = prospective

when to disclose accounting changes?

DISCLOSE:

• changes affecting FUTURE estimates = in notes

dont discl if IM and ordinary

change in accounting principal or accounting entity:

retrospective; adj. RE NET OF TAX

change in entity (restate??)

restate all FS presented comparatively, fully discl everything

correcting an error

Adj as far back as either the earliest year presented or the first year the error appears, whichever is most recent

summary of sig. accounting policies

incl.

• depr methods

• amtzn of intangibles

• inventory pricing method

• use of estimates

• fiscal year definition

• etc

risk & uncertainties disclosures

• DTAs and DTLs

• when its possible an estimate will change in the near term; discl the estimate and the effect of the change

type 1 subsequent event

recorded!

condition existed @ BS

type 2 subsequent event

not rec’d, only disclosed probably

condition didn’t exist at BS date

subsq. events for private vs public companies

public

• thru date FS are issued

priv

• thru date FS are avail to be issued

subsq events for revised / reissued FS

generally don’t consider subsq events after the OG issue date

FV measurement

• measured in the principal mkt (if no principal mkt, then use the most advantageous mkt)

• orderly transaction, NOT something like a bankruptcy

• does NOT incl transaction costs

• DOES incl transportation costs

FV of nonfinancial asset

determined by HIGHEST and BEST USE of the asset

principal market

market with greatest volume

when to use transaction costs?

use them for determining the best market, but NOT for the actual fair value

valuation techniques for FV measurements (MIC)

• Mkt approach (use mkt transactions w/ similarities)

• Inc. approach (basically a DCF)

• Cost approach (replacement cost)

Heirarchy of inputs (level 1-3 markets)

Level 1: active mkt (NYSE)

Level 2: similar but not identical mkt OR slightly inactive mkt

Level 3: Unobservable, based on the entity’s assumptions (biased & least reliable)

exceptions to FV measurements

• if it isn’t practical

• if it can’t be reasonably determined

• can’t be measured w/ sufficient reliability

rules for special purpose frameworks

• FS titles should differ

• incl accrual basis BS & IS

• SCF not req’d

• discl = GAAP

cash vs modded cash basis

cash

• statement of cash & equity

• statement of receipts & disbursements

modded cash

• incl some accrual elements alongside mainly cash stuff

• stuff like fixed assets, investments, UR G/L, capitalized inventory, etc

tax basis

well suited for complex ops

nontaxable items: separate line item OR note discl OR +- to NI

return on sales

EBIT / sales

ROA

NI / avg total assets

DuPont ROA

profit mgn * asset turnover:

(NI / sales) * (sales / avg total assets)

ROE

NI / avg total equity

operating CF ratio

CF from ops / current liabs

current ratio

CA / CL

quick ratio

(C&CE + ST marketable secs + net receivables) / CL

AR TO

sales / avg AR

days in AR

Ending AR / (sales/365)

inventory TO

COGS / avg inventory

days in inv

ending inv / (cogs/365)

AP TO

cogs / avg AP

days of payables outstanding

ending AP / (COGS/365)

cash conversion cycle

days sales in AR + days in inv - days of AP outstanting

debt to equity

total liabs / total equity

total debt ratio

total liabs / total assets

equity multiplier

total assets / total equity

times interest earned

EBIT / int exp

div payout

cash divs / NI

asset ATO

sales / avg total assets

FC transaction vs translation

transaction:

• ICO

• transacting in other currencies

translation:

• OCI

• converting financials from one subsidiary into that of the parent company (generally)