FAR CPA exam focus: Leases (ASC 842) require lessees to record Right-of-Use (ROU) assets and liabilities for operating/finance leases. Pensions focus on the plan as a separate entity rather than employer expense. Accounting changes focus on retrospective application for principles, prospective for estimates, and restatement for errors. Lease Accounting (ASC 842) Lessee Accounting: Almost all leases (over 12 months) are recognized on the balance sheet as a Right-of-Use (ROU) asset and a lease liability. Finance Lease (Lessee): Similar to a purchase. Interest expense on the liability and... Show more FAR CPA exam focus: Leases (ASC 842) require lessees to record Right-of-Use (ROU) assets and liabilities for operating/finance leases. Pensions focus on the plan as a separate entity rather than employer expense. Accounting changes focus on retrospective application for principles, prospective for estimates, and restatement for errors. Lease Accounting (ASC 842) Lessee Accounting: Almost all leases (over 12 months) are recognized on the balance sheet as a Right-of-Use (ROU) asset and a lease liability. Finance Lease (Lessee): Similar to a purchase. Interest expense on the liability and amortization expense on the ROU asset are recorded separately. Operating Lease (Lessee): ROU asset and liability are recognized, but a single lease cost is recorded over the term. Lease Criteria: A lease is generally a finance lease if it meets one of five criteria, including if the present value of lease payments exceeds 90% of the fair value of the asset. Initial Measurement: Lease liability is the present value of future payments. ROU asset is the liability + prepaid rent + initial direct costs - lease incentives. Pensions Shift in Focus: CPA Exam questions primarily cover the pension plan's financial statements as a separate entity rather than the employer's calculation of pension expense (net periodic pension cost). Accounting Changes and Error Correction Change in Principle: Examples include changing from LIFO to FIFO or a change in depreciation method. Requires retrospective application (restate prior years). Change in Estimate: Examples include changes in useful lives or salvage values. Applied prospectively (current and future periods only). Change in Entity: Requires restatement of all previous financial statements. Correction of Error: Requires restatement of prior period financial statements. Key FAR Focus Areas Lessee vs. Lessor: Know that while lessees have moved to a single model (mostly), lessors still classify leases as operating, direct financing, or sales-type. Cash Flow Impact: Finance lease payments are divided into principal (financing) and interest (operating). Operating lease payments are usually operating cash flows. Subsequent Measurement: ROU assets for operating leases are amortized to make the lease cost straight-line. Show less
FAR CPA exam focus: Leases (ASC 842) require lessees to record Right-of-Use (ROU) assets and liabilities for operating/finance leases. Pensions focus on the plan as a separate entity rather than employer expense. Accounting changes focus on retrospective application for principles, prospective for estimates, and restatement for errors.
Lease Accounting (ASC 842) Lessee Accounting: Almost all leases (over 12 months) are recognized on the balance sheet as a Right-of-Use (ROU) asset and a lease liability. Finance Lease (Lessee): Similar to a purchase. Interest expense on the liability and amortization expense on the ROU asset are recorded separately. Operating Lease (Lessee): ROU asset and liability are recognized, but a single lease cost is recorded over the term. Lease Criteria: A lease is generally a finance lease if it meets one of five criteria, including if the present value of lease payments exceeds 90% of the fair value of the asset. Initial Measurement: Lease liability is the present value of future payments. ROU asset is the liability + prepaid rent + initial direct costs - lease incentives.
Pensions Shift in Focus: CPA Exam questions primarily cover the pension plan's financial statements as a separate entity rather than the employer's calculation of pension expense (net periodic pension cost).
Accounting Changes and Error Correction Change in Principle: Examples include changing from LIFO to FIFO or a change in depreciation method. Requires retrospective application (restate prior years). Change in Estimate: Examples include changes in useful lives or salvage values. Applied prospectively (current and future periods only). Change in Entity: Requires restatement of all previous financial statements. Correction of Error: Requires restatement of prior period financial statements.
Key FAR Focus Areas Lessee vs. Lessor: Know that while lessees have moved to a single model (mostly), lessors still classify leases as operating, direct financing, or sales-type. Cash Flow Impact: Finance lease payments are divided into principal (financing) and interest (operating). Operating lease payments are usually operating cash flows. Subsequent Measurement: ROU assets for operating leases are amortized to make the lease cost straight-line.
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