Understanding Income Statements II by Edu Pristine

Author of lecture Understanding Income Statements II

Edu Pristine

Customer reviews

Excerpts from the accompanying material

... Ltd has a contract spanning over the next 3 years. The total revenue earned by the contract is $20 Million. The total estimated costs are $10 Million. What is the revenue to be recognized in ...

... completed in year 3, no revenue is recognized in year 2. Project Costs: Percent of total project revenue earned in year 1 $6 ...

... Year 3200: Installment Sales Cost Recovery: A6666 B066 C660 ABC Inc. purchases land at $400 million. It sells it to company XYZ for $600. The payment is to be collected over a period of three years. Below is the payment schedule ...

... By Cost Recovery Method, profit is recognized when cash collected exceeds costs incurred. In this case, a profit is not observed till year 3, since all costs are recovered ...

... AAA has a contract to build a building for $100,000 with an estimated time to completion of 3 years. A reliable cost estimate for the project is $60,000. In the first year of the project, AAA incurred costs totaling $24,000. How much profit should AAA report at the end of first year ...

... $40,000 revenue - $24,000 cost = $16,000 profit for the period. No profit would be reported in the first year using the completed contract ...

... Calculate revenue to be recognized under percentage of completion method in 2008 & 2009 for following contract awarded in 2008 beginning. Total Contract Size = $120,000; Total Estimated Costs = $100,000; Costs incurred in 2008 ...

... Describe the general principles of expense recognition, specific expense recognition applications, and ...

... in the form of outflows or depletions of assets or incurrence of liabilities that result in decreases in equity other than those relating to distributions to equity participants ...

... Q1 2009 Both revenue and associated expenses are matched and recognized in same period. Matching concept requires expenses to be recognized in the same period when revenues are recognized for which expenses were incurred. E.g. inventory is ...

... Depreciation: Period Costs: expenses are recognized in the period ...

... Depreciation: Long-lived assets provide economic benefits beyond one accounting period hence their cost must be matched with revenues of more than one accounting period. Depreciation is a charge for allocation of cost of long lived assets over their economic lives. Depreciation is ...

... Requires the firm to estimate warranty expense. Recognize these expenses in the period of sale to match these expenses with revenues rather than a later period when these are actually incurred Method used for Depreciation Tangible Fixed ...

... these are actually incurred provision for bad debt: If firm is selling goods or services on credit, they may not be able to collect the whole money as some of the customers default. Hence the matching principle requires: ...

... Depreciation (estimate of rate and period); Bad debts& warranty (rate) judgment comes for estimation giving management a tool to delay or accelerate the recognition of expenses and fluctuate ...

... any other agressive policy delaying the expenses there by increasing net income. Conservative accounts expenses early. Analysts role probe management estimates must understand the reasons for a change ...

... result of better collection practices/ experience. Is the expense decreased to manipulate net income? Compare a firm's estimates with those of other firms within the firm's industry to understand the trends for ...

... Units of production method (Assets value X units produced in a particular period ...

... Works on the principal that the maintenance expense in lower inbeginning year compared to later years. Thus, by having more depreciation in beginning year it tries to maintain the overall expense constant over ...

... Declining balance method is one of these methods: applies a constant rate of depreciation to a declining book value. Double-declining balance method: "DDB depreciation = ( 2/ useful life) * (cost accumulated ...

... Depreciation expense for: Year 1 = (2/5) * 10000 = $4000; Year 2 = (2/5) * (10000-4000) = $2400; Year 3 = (2/5) * (10000 - 6400) = $1440 ...

... Comparison/ Analysis: In early periods: Higher profits using straight-line method compared to an accelerated method (because of low depreciation); In later periods: Opposite ...

... which items were sold and which items remain in inventory. For example: an auto dealer records each vehicle sold or in inventory by ...

... First-In, First-Out (FIFO) method: The first item purchased is assumed to be the first item sold; Cost of goods sold (COGS): consists of costs of early purchases including beginning inventory. Inventory consists goods which are purchased more recently. FIFO is appropriate for inventory ...

... which were purchased more recently. Inventory consists goods which were purchased early including beginning inventory. LIFO is appropriate when goods does not deteriorate with age, for example, a mining company will sell goods off the top of thepile. Last-in, ...

... Not affected by the physical flow of the inventory. Calculate weighted average cost of purchases to value both: cost of goods sold, closing inventory. Cost per unit is calculated by dividing cost of ...

... LIFO: weighted-average; COGS: lowest value, highest value lower then LIFO but higher then FIFO closing ...

...Amortization expense is a depreciation charge for intangible assets with limited lives. Goodwill and other intangible assets within definite lives are not amortized. The expense should match ...

... such test, the cost of Goodwill (as appearing in BS) is compared with the estimated value of Goodwill. If the estimated value is less than the value appearing in BS, the asset value is said to be impaired. An expense equal to suchdifference is recognized on the income ...

... A firm is purchased for more than the fair market value of its assets. The excess is: A. Written off against the retained earnings on the balance ...

... the assets of the target firm. Under US GAAP, only Goodwill generated during acquisitions is capitalized; it does not allow capitalization of internally generated Goodwill. ...

... The following asset is subject to the least amount of depreciation or amortization ...

... life of land does not diminish over time as its economic value does not diminish based on ...

... Under US GAAP, how will purchased Goodwill related to an acquisition be measured and affect the acquirers balance sheet following the acquisition? A. Measured at excess of purchase cost over the fair value of the asset at acquisition date and recorded as an intangible ...

... than when they are actually incurred B. Recognize bad debts expenses in the period of sale than when they are actually incurred C. Depreciation expenses for intangible assets like copyright/patents is matched with the revenue of one accounting period. ...

... Warranty and bad debts are recognized in the period of sale. In case ...