CFA 2020 - Level 1 SchweserNotes Book 3(1).pdf

无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限magazine subscription;when the subscription is purchased,an unearned revenue liability iscreated,and as magazine issues are delivered,revenue is recorded and the liability isdecreased.In May 2014,IASB and FASB issued converged standards for revenue recognition that tookeffect at the beginning of 2018.The new standards take a principles-based approach torevenue recognition issues.The central principle is that a firm should recognize revenuewhen it has transferred a good or service to a customer.This is consistent with the familiaraccrual accounting principle that revenue should be recognized when earned.The converged standards identify a five-step process1 for recognizing revenue:1.Identify the contract(s)with a customer.2.Identify the separate or distinct performance obligations in the contract.3.Determine the transaction price.4.Allocate the transaction price to the performance obligations in the contract.5.Recognize revenue when(or as)the entity satisfies a performance obligation.The standard defines a contract as an agreement between two or more parties that specifiestheir obligations and rights.Collectability must be probable for a contract to exist,but“probable”is defined differently under IFRS and U.S.GAAP so an identical activity couldstill be accounted for differently by IFRS and U.S.GAAP reporting firms.A performance obligation is a promise to deliver a distinct good or service.A“distinct”good or service is one that meets the following criteria:The customer can benefit from the good or service on its own or combined with otherresources that are readily available.The promise to transfer the good or service can be identified separately from any otherpromises.A transaction price is the amount a firm expects to receive from a customer in exchange fortransferring a good or service to the customer.A transaction price is usually a fixed amountbut can also be variable,for example,if it includes a bonus for early delivery.A firm should recognize revenue only when it is highly probable they will not have to reverseit.For example,a firm may need to recognize a liability for a refund obligation(and anoffsetting asset for the right to returned goods)if revenue from a sale cannot be estimatedreliably.For long-term contracts,revenue is recognized based on a firms progress toward completinga performance obligation.Progress toward completion can be measured from the input side(e.g.,using the percentage of completion costs incurred as of the statement date).Progresscan also be measured from the output side,using engineering milestones or percentage of thetotal output delivered to date.The new converged accounting standards provide some examples of appropriate revenuerecognition under various scenarios.The following summaries draw on these examples.EXAMPLE:Revenue recognition1.Performance obligation and progress towards completion无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限A contractor agrees to build a warehouse for a price of$10 million and estimates the total costs ofconstruction at$8 million.Although there are several identifiable components of the building(sitepreparation,foundation,electrical components,roof,etc.),these components are not separatedeliverables,and the performance obligation is the completed building.During the first year of construction,the builder incurs$4 million of costs,50%of the estimated totalcosts of completion.Based on this expenditure and a belief that the percentage of costs incurredrepresents an appropriate measure of progress towards completing the performance obligation,thebuilder recognizes$5 million(50%of the transaction price of$10 million)as revenue for the year.This treatment is consistent with the percentage-of-completion method previously in use,althoughthe new standards do not call it that.2.Variable considerationperformance bonusConsider this construction contract with the addition of a promised bonus payment of$1 million ifthe building is completed in three years.At the end of the first year,the contractor has someuncertainty about whether he can complete building by the end of the third year because ofenvironmental concerns.Because revenue should be recognized only when it is highly probable thatit will not be reversed,the builder does not consider the possible bonus as part of the transactionprice.In this case,Year 1 revenue is still$5 million,calculated just as we did previously.During the second year of construction,the contractor incurred an additional$2 million in costs andthe environmental concerns have been resolved.The contractor has no doubt that the building will befinished in time to receive the bonus payment.The percentage of total costs incurred over the first two years is now($4 million+$2 million)/$8million=75%.The total revenue to be recognized to date,with the bonus payment included intransaction value,is 0.75$11 million=$8.25 million.Because$5 million of revenue had beenrecognized in Year 1,$3.25 million(=$8.25 million$5 million)of revenue will be recognized inYear 2.3.Contract revisionsContracts are often changed over the construction period.The issue for revenue recognition iswhether to treat a contract modification as an extension of the existing contract or as a new contract.Returning to our example,a contract revision requires installation of refrigeration to provide coldstorage in part of the warehouse.In this case,the contract revision should be considered an extensionof the existing contract because the goods and services to be provided are not distinct from thosealready transferred.The contractor agrees to the revisions during the second year of construction and believes they willincrease his costs by$2 million,to$10 million.The transaction value is increased by$3 million,to$14 million,including the bonus,which he believes is still the appropriate treatment.As before,the contractor has incurred$6 million in costs through the end of the second year.Now hecalculates the percentage of the contract obligations completed to be$6 million/$10 million=60%.The total revenue to be recognized to date is 60%$14 million=$8.4 million.He will report$3.4million(=$8.4 million$5 million)of revenue for the second year.4.Acting as an agentConsider a travel agent who arranges a first-class ticket for a customer flying to Singapore.The ticketprice is$10,000,made by nonrefundable payment at purchase,and the travel agent receives a$1,000commission on the sale.Because the travel agent is not responsible for providing the flight and bearsno inventory or credit risk,she is acting as an agent.Because she is an agent,rather than a principal,she should report revenue equal to her commission of$1,000,the net amount of the sale.If she werea principal in the transaction,she would report revenue of$10,000,the gross amount of the sale,andan expense of$9,000 for the ticket.A final notable change to the standards for accounting for a long-term contract is that thecosts to secure the contract and certain other costs must be capitalized;that is,they are put onthe balance sheet as an asset.The effect of capitalizing these expenses is to decrease reportedexpenses on the income statement,increasing reported profitability during the contractperiod.无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限Video coveringthis content isavailable online.There are a significant number of required disclosures under the converged standards.Theyinclude:Contracts with customers by category.Assets and liabilities related to contracts,including balances and changes.Outstanding performance obligations and the transaction prices allocated to them.Management judgments used to determine the amount and timing of revenuerecognition,including any changes to those judgments.MODULE QUIZ 21.1,21.2To best evaluate your performance,enter your quiz answers online.1.For a nonfinancial firm,are depreciation expense and interest expense included or excludedfrom operating expenses in the income statement?Depreciation expenseInterest expenseA.IncludedIncludedB.IncludedExcludedC.ExcludedIncluded2.Are income taxes and cost of goods sold examples of expenses classified by nature orclassified by function in the income statement?Income taxesCost of goods soldA.NatureFunctionB.FunctionNatureC.FunctionFunction3.Which principle requires that cost of goods sold be recognized in the same period in whichthe sale of the related inventory is recorded?A.Going concern.B.Certainty.C.Matching.4.The first step in the revenue recognition process is to:A.determine the price.B.identify the contract.C.identify the obligations.MODULE 21.3:EXPENSE RECOGNITIONLOS 21.d:Describe general principles of expense recognition,specificexpense recognition applications,and implications of expenserecognition choices for financial analysis.CFA Program Curriculum,Volume 3,page 84Expenses are subtracted from revenue to calculate net income.According to the IASB,expenses are decreases in economic benefits during the accounting period in the form ofoutflows or depletions of assets or incurrence of liabilities that result in decreases in equityother than those relating to distributions to equity participants.2If the financial statements were prepared on a cash basis,neither revenue recognition norexpense recognition would be an issue.The firm would simply recognize cash received asrevenue and cash payments as expense.无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限Under the accrual method of accounting,expense recognition is based on the matchingprinciple whereby expenses to generate revenue are recognized in the same period as therevenue.Inventory provides a good example.Assume inventory is purchased during thefourth quarter of one year and sold during the first quarter of the following year.Using thematching principle,both the revenue and the expense(cost of goods sold)are recognized inthe first quarter,when the inventory is sold,not the period in which the inventory waspurchased.Not all expenses can be directly tied to revenue generation.These costs are known as periodcosts.Period costs,such as administrative costs,are expensed in the period incurred.Inventory Expense RecognitionIf a firm can identify exactly which items were sold and which items remain in inventory,itcan use the specific identification method.For example,an auto dealer records each vehiclesold or in inventory by its identification number.Under the first-in,first-out(FIFO)method,the first item purchased is assumed to be the firstitem sold.The cost of inventory acquired first(beginning inventory and early purchases)isused to calculate the cost of goods sold for the period.The cost of the most recent purchasesis used to calculate ending inventory.FIFO is appropriate for inventory that has a limitedshelf life.For example,a food products company will sell its oldest inventory first to keep theinventory on hand fresh.Under the last-in,first-out(LIFO)method,the last item purchased is assumed to be the firstitem sold.The cost of inventory most recently purchased is assigned to the cost of goods soldfor the period.The costs of beginning inventory and earlier purchases are assigned to endinginventory.LIFO is appropriate for inventory that does not deteriorate with age.For example,a coal distributor will sell coal off the top of the pile.In the United States,LIFO is popular because of its income tax benefits.In an inflationaryenvironment,LIFO results in higher cost of goods sold.Higher cost of goods sold results inlower taxable income and,therefore,lower income taxes.The weighted average cost method makes no assumption about the physical flow of theinventory.It is popular because of its ease of use.The cost per unit is calculated by dividingcost of available goods by total units available,and this average cost is used to determineboth cost of goods sold and ending inventory.Average cost results in cost of goods sold andending inventory values between those of LIFO and FIFO.FIFO and average cost are permitted under both U.S.GAAP and IFRS.LIFO is allowedunder U.S.GAAP but is prohibited under IFRS.Figure 21.2 summarizes the effects of the inventory methods.Figure 21.2:Inventory Method Comparison无论谁给你发的资料，一律加微信：x u e b a j u n 100s/否则后期删除所有资料！取消代理权限PROFESSORS NOTEWe will illustrate how to calculate inventory and cost of goods sold using each of these three costflow assumptions in our topic review of Inventories.Depreciation Expense RecognitionThe cost of long-lived assets must also be matched with revenues.Long-lived assets areexpected to provide economic benefits beyond one accounting period.The allocation of costover an assets life is known as depreciation(tangible assets),depletion(natural resources),oramortization(intangible assets).Most firms use the straight-line depreciation method forfinancial reporting purposes.The straight-line method recognizes an equal amount ofdep