[jeff]

Free Study Planner, Notes, Audio, Flashcards: https://www.another71.com/cpa-exam-study-plan/

Free CPA Exam Survival Guide: https://www.another71.com/cpa-exam-survival-guide/

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[Lidis]

IFRS

Revaluation of Fixed Assets

Revaluation of fixed assets is the process of increasing or decreasing their carrying value in case of major changes in fair market value of the fixed asset. IFRS require fixed assets to be initially recorded at cost

Cost Model

In cost model the fixed assets are carried at their historical cost less accumulated depreciation and accumulated impairment losses. There is no upward adjustment to value due to changing circumstances.

Revaluation Model

In revaluation model an asset is initially recorded at cost but subsequently its carrying amount is increased to account for any appreciation in value. The difference between cost model and revaluation model is that revaluation model allows both downward and upward adjustment in value of an asset while cost model allows only downward adjustment due to impairment loss.

[Anonymous]

I'll try

D Legal 160000

C Legal payable 160000

D Legal payable 140000

C CS 5000

C APIC 135000

?

[Anonymous]

question from ninja mcq

Verona Co. had $500,000 in short-term liabilities at the end of the current year. Verona issued $400,000 of common stock subsequent to the end of the year, but before the financial statements were issued. The proceeds from the stock issue were intended to be used to pay the short-term debt. What amount should Verona report as a short-term liability on its balance sheet at the end of the current year?

A.

$0

Correct B.

$100,000

C.

$400,000

D.

$500,000

I understand the answer but don't understand the explanation:

FASB ASC 470-10-45-14 requires that short-term obligations be reported as long-term liabilities if a company (1) intends to refinance the short-term obligation on a long-term basis and (2) demonstrates the ability to refinance it a long-term basis. The intent is stated in the problem. Verona's issuance of common stock for $400,000 before the statements were issued demonstrates the ability to refinance $400,000 of the short-term obligations on a long-term basis. The balance of the obligation ($100,000) must be reported as a current liability.

Since when is CS considered a long term obligation?

[Anonymous]

Correct, the answer for the APIC increase was $135,000. There was no JE in the explanation, but I wanted to see it.

So, when does the remaining 20000 in legal payable is released?

[Anonymous]

So, when does the remaining 20000 in legal payable is released? – I don't know, why do you care? 🙂 they will pay it sometime later

[Lidis]

Please let me know if the following example is correct

Cost Model example

Ninja Corp purchased a building worth $200,000 on January 1, X1. It records the building using the following journal entry.

Equipment 200,000

Cash 200,000

The building has a useful life of 20 years and the company uses straight line depreciation. yearly depreciation is

$200,000/20 or $10,000. Accumulated depreciation as at December 31, X3 is $10,000*3 or $30,000 and the carrying amount is $200,000 minus $30,000 which equals $170,000.

The building remains at its historical cost and is periodically depreciated with no other upward adjustment to value.

Revaluation Model

In revaluation model an asset is initially recorded at cost but subsequently its carrying amount is increased to account for any appreciation in value. The difference between cost model and revaluation model is that revaluation model allows both downward and upward adjustment in value of an asset while cost model allows only downward adjustment due to impairment loss.

Revaluation Model Example:

Ninja Corp. on December 31, X3, the company intends to switch to revaluation model and carries out a revaluation exercise which estimates the fair value of the building to be $190,000 as at December 31, X3. The carrying amount at the date is $170,000 and revalued amount is $190,000 so an upward adjustment of $20,000 is required to building account. It is recorded through the following journal entry:

Building 20,000

Revaluation Surplus 20,000

Depreciation After Revaluation

The depreciation in periods after revaluation is based on the revalued amount. In case of Ninja Corp depreciation for X3 shall be the new carrying amount divided by the remaining useful life or $190,000/17 which equals $11,176.

Revaluation Surplus

Upward revaluation is not considered a normal gain and is not recorded in income statement rather it is directly credited to an equity account called revaluation surplus. Revaluation surplus holds all the upward revaluations of a company's assets until those assets are disposed of.

Reversal of Revaluation

If a revalued asset is subsequently valued down due to impairment, the loss is first written off against any balance available in the revaluation surplus and if the loss exceeds the revaluation surplus balance of the same asset the difference is charged to income statement as impairment loss.

Example:

Suppose on December 31, X5 Ninja Corp revalues the building again to find out that the fair value should be $160,000. Carrying amount as at December 31, X5 is $190,000 minus 2 years depreciation of $22,352 which amounts to $167,648.

The carrying amount exceeds the fair value by $7,648 so the account balance should be reduced by that amount. We already have a balance of $20,000 in the revaluation surplus account related to the same building, so no impairment loss shall go to income statement. The journal entry would be:

Revaluation Surplus 7,648

Building Account 7,648

If the fair value would has been $140,000 the excess of carrying amount over fair value would have been $27,648. In that situation the following journal entry would have been required.

167,648-140,000 = 27,648

Revaluation Surplus 20,000

Impairment Losses 7,648

Building 20,000

Accumulated Impairment Losses 7,648

Biological Assets

Examples: fruit trees, grapevines, livestock

Special measurement under IFRS

Measure at fair value less costs to sell, with changes in values going through income statement

[MC Guesser]

@Jspann

The way that I understand Gain/Loss for IFRS revaluation is that revaluation gains (Recoverable Amt> Cost) are recognized in OCI as a revaluation surplus, to the extent that it is not reversing a previously recorded impairment (in which case it would be recorded in income statement- I.E if an asset with a carrying value of 8K with previous write down of 2K and Recoverable Amount of 14K would recognize 2K in I/S and 4K as OCI-Revaluation Surplus).

On the other hand, revaluation losses are included in OCI ONLY to the extent that a Revaluation surplus exists. If Revaluation surplus account hits 0 and there is still an additional loss, that loss would be reported in I/S. (IE Asset with Revaluation Surplus of 2K, Carrying Amount of 10K and is being Written Down to 4K would have a 2K reduction in OCI (reduction in revaulation suplus) and 4K loss in I/S (remaining loss on write down)

Recording revaluation surplus is a little tedious if there is previously accumulated depreciation. The two methods of going about this would be:

1. Recognize proportion of New Recoverable Amount to Previous Carrying and then increasing the original acquisition cost of the asset and increasing decreasing accumulated depreciation by that proportion. I.E: If an asset with Carrying Value of 100K, Accumulated Depreciation of 50K is being reevaluated to 125K, Increase original asset cost and increase accumulated depreciation by 25% (125K Revaluated Amount/100 Old Carrying Amount)

JE: Db. Asset 37.5K (150K*.25)

Accumulated Deprecation 12.5K (50K*.25)

Revaluation Surplus 25K (125K (New Value)-100K (Carrying Amount)

2. Zero Out Accumulated depreciation and increase asset by revaluation amount

JE: 1. Accumulated Depreciation, Asset 50K

Asset 50K

2. Asset 25K

Revaluation Surplus 25K

Sorry this isn't laid out so well but I believe that would be the way of recording revaluation gain/loss with IFRS. Hope it helps out a little bit.

FAR: 7/1/14 (85)
REG: 7/28/14 (88)
AUD: 8/22/14 (84)
BEC: 8/28/14 (83)

CPAExcel, WileyTB, Ninja Notes and Blitz

[MC Guesser]

@bstewie I think it would just be recorded with

Legal Expense 140000

CS 5,000

APIC 135,000

The market price of the common stock issued would be the compensation expense for the service, as opposed to the normal billable rate

FAR: 7/1/14 (85)
REG: 7/28/14 (88)
AUD: 8/22/14 (84)
BEC: 8/28/14 (83)

CPAExcel, WileyTB, Ninja Notes and Blitz

[riascheme]

Hey guys would appreciate help with the explanation of the answer:

Inc. reported net periodic pension cost of $400,000 in the current year, calculated as follows:

Service cost $ 300,000

Interest cost 175,000

Expected return on plan assets (100,000)

Amortization of prior service cost 40,000

Amortization of net gain (15,000)

Net periodic pension cost $ 400,000

Inc. has an overfunded pension plan. The company's effective tax rate is 30%. How will the service cost component of the current year net periodic pension cost affect the current year balance sheet?

a. $300,000 decrease in RE

b. $90,000 increase in AOCI

c. $300,000 increase in noncurrent pension benefit asset.

d. $90,000 increase in DTA

The answer is D but I don't really get why…even after reading the explanation. :/ I guess I don't really get why it's a DTA if it's overfunded or how exactly being overfunded ties it all in?

[MC Guesser]

@riascheme

Pension distributions are a tax deduction to the employer when distributed (as compensation expense). In this example, Inc's $300,000 service cost is included in pension expense on the Financial Statements but is not taken as a tax deduction because it has not yet been distributed. Since this $300,000 will be deductible at some point in the future, this future deduction is multiplied by the effective tax rate to come up with the deferred tax asset of $90,000.

FAR: 7/1/14 (85)
REG: 7/28/14 (88)
AUD: 8/22/14 (84)
BEC: 8/28/14 (83)

CPAExcel, WileyTB, Ninja Notes and Blitz

[Anonymous]

I hope I don't get this one, but I would narrow my options to (b) and (d) first since (a) and (c) don't make sense at all.

Between b and d i would pick (d) because Service cost has nothing to do with OCI (unlike PSC).

Please post the explanation. Thanks!

[Jspann225]

@riascheme For questions like these I find it easier to actually write down the journal entry. If you do the journal entry correctly the answer will always be right there. This question asks specifically about the service cost component…

Service Cost/Net Periodic Cost 300,000

……Pension Benefit Obligation 300,000

Deferred Tax Asset 90,000 (300,000 * .30)

…..Income Tax Benefit – I/S 90,000

FAR - 93 - 7/1/14
AUD - 94 - 7/25/14
REG - 92 - 8/30/14
BEC - 89 - 10/6/14

[Anonymous]

Another goodie for yall to try….

Munn Corp.'s income statements for the years ended December 31, 20X2 and 20X1, included the following, before adjustments:

20X2 20X1

Operating income $ 800,000 $600,000

Gain on sale of division 450,000 0

Provision for income taxes 375,000 180,000

Net income $ 875,000 $420,000

========== ========

On January 1, 20X2, Munn agreed to sell the assets and product line of one its operating divisions for $1,600,000. The sale was consummated on December 31, 20X2, and resulted in a gain on disposition of $450,000. This division's pretax losses were $320,000 in 20X2 and $250,000 in 20X1. The income tax rate for both years was 30%. In preparing revised comparative income statements, assuming that the division qualified as a component, Munn should report which of the following amounts of gain (loss) from discontinued operations?

A. 20X2: $130,000; 20X1: $0

B. 20X2: $130,000; 20X1: $(250,000)

C. 20X2: $91,000; 20X1: $0

D. 20X2: $91,000; 20X1: $(175,000)

[Anonymous]

D?

[Anonymous]

@anjanja – ding ding ding! 🙂

[Author]

Replies