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FAR Notes

The document provides accounting guidance on several topics: 1) It explains the differences between cash basis and accrual basis accounting and provides examples of adjusting journal entries. 2) It summarizes the accounting for construction contracts under the percentage of completion and completed contract methods. 3) It provides guidance on topics like non-current assets held for sale, receivables, inventory valuation, intangible assets, investments, biological assets, wasting assets, and more.

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75 views4 pages

FAR Notes

The document provides accounting guidance on several topics: 1) It explains the differences between cash basis and accrual basis accounting and provides examples of adjusting journal entries. 2) It summarizes the accounting for construction contracts under the percentage of completion and completed contract methods. 3) It provides guidance on topics like non-current assets held for sale, receivables, inventory valuation, intangible assets, investments, biological assets, wasting assets, and more.

Uploaded by

OwlHead
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Cash to Accrual:

Increase in asset = increase in income

Decrease in liability = increase in income

Cash basis

OPEX paid

+ P B
+ A E
- P E
- A B
OPEX accrued

Construction Accounting (Percentage of completion)

Profit to date - Income recognized prior = income for the year

Profit to date = (Percentage of completion x Contract price) - Cost incurred to date

Construction Accounting (Completed contract method)

Contract price - actual costs incurred= gross profit recognized

NCAHS

When reverting back an NCAHS to normal asset, the value to be used is the LOWER of HTBNT and
Recoverable amount.

Receivables

When a written off account is collected, you first restore back the account [Dr. AR; Cr. ADA]

Use effective rate after direct origination cost and origination fee.

Short term receivables are recorded at face-amount.

The direct origination cost is a deferred charge (added to face amount to get the initial carrying cost)
and the origination fee received from the borrower (deducted from face amount to get the initial
carrying cost) is unearned income and the two should be included in the measurement of loan
receivable.

The indirect origination cost is an outright expense.

Inventory

Shipping to consignee is part of COGS

Normal profit margin is deducted from Net SP to arrive at the NRV. Net SP is equal to Est. SP less Cost of
disposal.
Retail inventory method:

Conservative cost ratio: Goods available for sale (@cost)/ Goods available for sale (@retail)

Ending inventory (@cost) = Cost ratio x Ending inventory (@retail)

Intangible Assets

No intangible asset arising from research or research phase of an internal project shall be recognized in
all cases.

Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance
shall not be recognized as intangible assets.

Assets

Investment in Associate and FVOCI are part of noncurrent assets.

DTA or DTL are classified as non-current.

Security deposit is noncurrent.

Net revaluation surplus = Revaluation surplus – DTL (Rev. Surplus x 30%)

Investments

For acquisition of subsidiary:

Net assets per book plus/minus FV adjustments = Net assets at FV; Acquisition cost – Net assets at FV =
Goodwill

For sale of FVOCI

Cash
Unrealized gain – OCI
Financial asset – FVOCI
Retained earnings*
*FV @ disposal less Initial recognition

Biological Assets

Freestanding trees are biological assets. Land under the trees are part of PPE.

Wasting Assets

Restoration cost is added to the cost of the mine.

Residual value is deducted to arrive at the depletable amount of the mine.

Intangible Assets

For computer software:

Capitalizable costs: costs that are incurred after establishing the technological feasibility
Expensed costs: costs before technological feasibility (research phase)

Inventoriable costs: packaging costs and duplication costs

Liabilities

Contingent liability is only disclosed and not part of balance sheet.

Borrowing cost:

Total Capitalized interest = Interest on Specific borrowings + Capitalized interest from gen.
borrowings – Interest Income on temporary investment

Weighted Average Expenditures – Proceeds from Specific Borrowing = To Gen. Borrowing

Income taxes

Net income under tax x 30% = Current income tax expense (CITE)

Current tax liability= CITE – Tax paid

Employee benefits

Current service cost +


Interest on projected benefit obligation +
Interest income on plan assets -
Loss on plan settlement +/ Gain on plan settlement -
Past service cost during the year -
Total employee benefit expense

Under IFRS, the additional amount paid to employees who render service until closure is no
longer a termination benefit but short-term benefit.

Share options

The share options are measured at fair value on the date of grant and allocated over the vesting
period. (For verification)

Lease

Finance Lease:

 Lease liability = IR LL – (periodic payments less interest)


 Sale and lease back
o If the leaseback is an operating lease and the sale price is below fair value of the asset
(SP<FV) compensated by below market rent: The difference between the sale price
and the fair value (SP-FV) is a deferred loss to be amortized over the lease term.
o If the fair value is below the carrying amount (FV<CA), the carrying amount is written
down to fair value and the write-down is (FV-CA) recognized immediately as an
impairment loss.
 Sales type lease: Profit = Cash Price less Carrying amount of equipment
o Income recognized in the year = Gross Profit plus Interest income

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