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Category: Level II Financial Reporting and Analysis
Pension Cost and Pension Expense
Defined benefit pension cost and pension expense – not the same as each other, by the way – are two topics that traditionally vex Level II candidates, and with good reason: They’re fairly complicated They’re usually explained poorly I cannot make them less complicated than they are, but I can do two things: I can make sure not…
Conservative Accounting Methods vs. Aggressive Accounting Methods
No discussion of conservative methods vs. aggressive methods would be complete without a clear definition of what we mean by these two categories of methods. Therefore, let’s start there: Conservative accounting methods are those that report lower net income in the current period, and (potentially) higher net income in future periods. Aggressive accounting methods are…
Inventory Methods: FIFO vs. LIFO vs. Average Cost vs. Specific Identification and Periodic vs. Perpetual
I apologize in advance: this article’s long. Every inventory method has two important characteristics: How will costs be assigned to cost of goods sold (COGS) and ending inventory (EI)? When will those costs be assigned to COGS and EI? There are four possible answers to the first question: First-in, first-out (FIFO) Last-in, first-out (LIFO) Average…
Current Rate vs. Temporal: Why Two Methods?
Truth be told, I have no idea what the exact reasons are that we use two strikingly different methods – the current rate method and the temporal method – for changing the values from those in one currency (the local currency) to those in another currency (the presentation currency). However, I have developed (i.e., stumbled…
Leases: General
A lease is a contract that lets one party use an asset owned by another party, in exchange for periodic payments. The owner of the asset is the lessor; the user of the asset is the lessee. For the purposes of financial reporting, leases are divided into two categories, based on the economic substance of…
Investments in Financial Assets
When one company buys securities (stock or bonds) issued by another company, the accounting treatment for those investments depends on the amount of influence/control that the investing company has over the issuing company. When the investor has no influence (generally assumed when the investment represents less than 20% ownership), then the investment is treated as…
Leases III: Effect on Financial Statements and Ratios
A lease is a contract that lets one party use an asset owned by another party, in exchange for periodic payments. The owner of the asset is the lessor; the user of the asset is the lessee. For the purposes of financial reporting, leases are divided into two categories, based on the economic substance of…
Leases II: Calculations
A lease is a contract that lets one party use an asset owned by another party, in exchange for periodic payments. The owner of the asset is the lessor; the user of the asset is the lessee. For the purposes of financial reporting, leases are divided into two categories, based on the economic substance of…
Leases I: Criteria for Classification
A lease is a contract that lets one party use an asset owned by another party, in exchange for periodic payments. The owner of the asset is the lessor; the user of the asset is the lessee. For the purposes of financial reporting, leases are divided into two categories, based on the economic substance of…