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CMA Unit 1 New 2020
CMA Unit 1 New 2020
C Performance 20 11, 12
Management
D Cost 15 5,6,7,8
Management
1. To provide Financial information that is useful to the users in making financial decisions
2. Information about financial performance is useful for
a) Understanding the return on economic resources, its variability, and its
components
b) Evaluating management and
c) Predicting future returns
3. General purpose financial statements must be prepared in accordance with GAAP.
1.1 Concepts of Financial Accounting
Equity
The following are the major items of
equity:
1. Capital contributions by owners .
2. Retained earnings. (Retained earnings can be restricted or unrestricted
depending on the board of directors’ intent.)
3. Treasury stock is the firm’s own stock that has been repurchased.
4. Accumulated other comprehensive income items not included in net income.
1.2 Statement of Financial Positionc
1. Certain income items are excluded from the calculation of net income and
instead are included in comprehensive income.
2. The following are the major items included in other comprehensive income:
i. The effective portion of a gain or loss on a hedging instrument in a cash flow hedge
ii. Unrealized gains and losses due to changes in the fair value of available-for-sale securities
iii. Translation gains and losses for financial statements of foreign operations
iv. Certain amounts associated with accounting for defined benefit postretirement plans
1.3 Income Statement and Statement of Comprehensive Income
All items of comprehensive income are recognized for the period in
either
1. One continuous financial statement that has two sections, net
income and OCI, or
2) Two separate but consecutive statements.
a. The first statement (the income statement) presents the components of net income and total net
income.
b. The second statement (the statement of OCI) is presented immediately after the first. It presents a total
of OCI with its components and a total of comprehensive income.
c. The following is an example of a separate statement of comprehensive income:
1.3 Income Statement and Statement of Comprehensive Income
1.4 Statement of Changes in Equity and Equity Transactions
1.4 Statement of Changes in Equity and Equity Transactions
The Core Principle is that should be recognized for the promised goods or services to the
customers.
Five Step Model
Probable
1.6 Revenue from Contracts with Customers
No Revenue is recognized
Unless non refundable Consideration
1.6 Revenue from Contracts with Customers
1. A contract modification exists when the parties approve a change in the scope or
price of a contract.
1.6 Revenue from Contracts with Customers
Variable Consideration
1. Refunds due to a right of return provided to customers
2. Sales incentives
3. Prompt payment discounts
4. Volume discounts
5. Other uncertainties in contract price based on the occurrence or
nonoccurrence of some future event
❑ Variable consideration is estimated using one of the following methods:
1. The expected value
2. The most likely amount
1.6 Revenue from Contracts with Customers
A volume discount
1. prospectively on additional goods purchased in the future or
2. retrospectively on all goods purchased to date.
1.6 Revenue from Contracts with Customers
1. A standalone selling price is the price at which an entity would sell a promised good
or service separately to a customer.
2. If the standalone price is not directly observable, it must be estimated. The following
are suitable approaches:
3. Adjusted market assessment.
4. Expected cost plus an appropriate margin.
5. Residual.
1.6 Revenue from Contracts with Customers
• Allocate the transaction price to the performance
Step 4 obligation in the contract
1.6 Revenue from Contracts with Customers
For each performance obligation satisfied over time, an entity must recognize
revenue overtime using either the
1. the output method or
2. the input method.
1.7 Recognition of Revenue Over Time
Input method
1. Revenue is recognized based on Work Performed vs Total Expected Cost
2. Suitable for construction contracts
3. Only specific cost to be considered
4. Extent of performance is measured with reference to cost – to – cost
1. That is cost incurred relative to total estimated cost
1.7 Recognition of Revenue Over Time
1.7 Recognition of Revenue Over Time
1.7 Recognition of Revenue Over Time
1.7 Recognition of Revenue Over Time
performance obligation, or
performance obligation.
1.7 Recognition of Revenue Over Time
1.7 Recognition of Revenue Over Time