CPA Advanced Financial Accounting flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Adjusting event after reporting period

An event after the reporting period that provides evidence of conditions existing at period end, requiring adjustment to the amounts recognised in the financial statements.

Revaluation surplus treatment

Under IAS 16, increases in carrying amount are recognised in OCI and accumulated in equity as revaluation surplus; decreases first offset against existing surplus for the same asset.

Impairment recoverable amount

The higher of an asset's fair value less costs of disposal and its value in use; an asset is impaired when its carrying amount exceeds this amount.

Retrospective policy change

A change in accounting policy applied retrospectively by adjusting opening retained earnings and comparatives as if the new policy had always applied, unless impracticable.

Lower of cost and NRV

IAS 2 measurement rule for inventory: inventory is measured at the lower of cost (FIFO or weighted average) and net realisable value, with write-downs expensed.

Functional currency

The currency of the primary economic environment in which an entity operates; it determines how foreign currency transactions are initially measured and retranslated under IAS 21.

Goodwill at acquisition

Consideration transferred plus non-controlling interest plus fair value of previously held interests, less the fair value of identifiable net assets acquired.

Control under IFRS 10

An investor controls an investee when it has power over relevant activities, exposure to variable returns, and the ability to use its power to affect those returns.

Full goodwill method

Non-controlling interest is measured at fair value at acquisition, so goodwill includes the NCI share; this increases goodwill and NCI compared with the proportionate method.

Step acquisition remeasurement

When control is obtained, any previously held equity interest is remeasured to fair value at the acquisition date, with the resulting gain or loss recognised in profit or loss.

Intra-group profit elimination

Unrealised profits on intra-group sales of inventory or assets are eliminated in full against group profit; the tax effect is recognised as a deferred tax adjustment.

Equity method

IAS 28 method where an investment in an associate or joint venture is initially recognised at cost and adjusted for the investor's share of post-acquisition profit and OCI.

SPPI criterion

Solely payments of principal and interest: contractual cash flows consistent with a basic lending arrangement, excluding returns linked to equity prices or commodity prices.

Expected credit loss model

IFRS 9 requires loss allowances equal to 12-month expected credit losses unless credit risk has increased significantly, when lifetime expected credit losses apply.

10 per cent derecognition test

A financial liability is extinguished when the present value of cash flows under modified terms, including fees, differs by at least 10 per cent from the original.

Equity-settled share-based payment

Measured at grant-date fair value of the equity instruments granted and recognised over the vesting period with a corresponding increase in equity; not subsequently remeasured.

Cash-settled share-based payment

A liability measured initially and at each reporting date at fair value, with changes recognised in profit or loss until the liability is settled.

Market vesting condition

A condition such as a target share price or total shareholder return that is incorporated into grant-date fair value and is not adjusted for subsequent failure to vest.

Five-step revenue model

IFRS 15: identify the contract, identify performance obligations, determine the transaction price, allocate it to obligations, and recognise revenue when each obligation is satisfied.

Variable consideration constraint

Variable consideration is included in the transaction price only to the extent that it is highly probable that a significant reversal will not occur when uncertainty resolves.

Lease liability initial measurement

Present value of lease payments not paid at commencement, discounted using the interest rate implicit in the lease or, if not readily determinable, the lessee's incremental borrowing rate.

Short-term lease exemption

A lessee may expense lease payments for leases with a term of 12 months or less that contain no purchase option, on a straight-line or other systematic basis.

Deferred tax on revaluation

A revaluation of property, plant and equipment creates a temporary difference; the related deferred tax is recognised in OCI, matching the revaluation gain.

Provision recognition criteria

A provision is recognised when a present obligation exists from a past event, an outflow of resources is probable, and the amount can be reliably estimated.

Fundamental qualitative characteristics

Relevance and faithful representation: information must be capable of making a difference to decisions and must depict economic phenomena completely, neutrally and without material error.

Asset definition (2018)

A present economic resource controlled by the entity as a result of past events; an economic resource is a right that has the potential to produce economic benefits.

Prudence in framework

The exercise of caution when making judgements under uncertainty, so that assets and income are not overstated and liabilities and expenses are not understated.

Measurement uncertainty

The uncertainty that arises when monetary amounts in financial reports cannot be observed directly and must instead be estimated, affecting the faithful representation of an item.

Basic earnings per share

Profit or loss attributable to ordinary shareholders of the parent divided by the weighted average number of ordinary shares outstanding during the period, as required by IAS 33.

Diluted earnings per share

Calculated by adjusting profit and the weighted average share count for the effects of all dilutive potential ordinary shares, such as options, convertibles and contingently issuable shares.

DuPont analysis

Return on equity decomposed into net profit margin, total asset turnover and the equity multiplier, showing how profitability, efficiency and leverage combine to generate returns.

Fair value hierarchy

IFRS 13 three-level ranking of inputs: Level 1 quoted prices in active markets; Level 2 observable inputs; Level 3 unobservable inputs, with additional disclosures for Level 3.