FSA 1

deepakkrkanodia
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FSA 1

Postby deepakkrkanodia » Mon Jan 21, 2013 3:31 pm

Q1. An item should be recognized in its financial element if future economic benefit from item is probable.

Query: what is meant by probable and what is the difference between probable economic benefit and possible economic benefit?


Q2. It is written in schweser that " accounting estimate changes (result of changes on management judgement due to new information) does not affect cash flow".

Query: so i want to know how will management judgement will not affect cash flow as it will impact the earnings, which will affect the cash flow ultimately.


Q3. How should the proceeds received from the advance sale of tickets to a sporting event be treated by the seller, assuming that the tickets are non-refundable?
A. Unearned revenue is recognized to the extent that costs have been incurred
B. Revenue is recognized to the extent that costs have been incurred
C. Revenue is deferred until the sporting event is held

Query: why the answer is C and not A, as the seller is receiving the payments of tickets in advance and it is his current liability, which will reduce when he will render the service. why answer is that revenue will be deferred, what i meant by deferred revenue if answer is C.

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shreyas
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FSA 1

Postby shreyas » Fri Feb 01, 2013 11:26 am

To answer your 1st question:
Probable refers to what is likely to be done, to occur, or to be true.
Possible refers to what can be done, to occur, or to be true.
So the economic benefit can be differentiated based on these words

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shreyas
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Postby shreyas » Fri Feb 01, 2013 11:45 am

Question 2:

Judgments made my management are for non-cash expenses, suppose change in depreciation method due to changes in accounting standards. The cash flow activities like operating, financing and investing may get affected, but overall the cash will remain the same

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shreyas
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Postby shreyas » Fri Feb 01, 2013 11:58 am

Question 3

Revenue recognition methods are generally used for contracts having a life of more than a year.
In this question it is more of a one time activity. So C is a more logical answer to this rather as revenue will not be recognized unless the sporting event actually happens, which means the revenue is deferred and is treated as a liability.

Hope this information helps!!!


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