2 - Select Balance Sheet Accounts Flashcards
Initial test for impairment in assets
FASB ASC 360-10-35-17 indicates that an impairment loss exists when the asset’s carrying amount exceeds its undiscounted future cash flows.
Carrying amount exceeding the fair value is used to measure the amount of the impairment loss, not to identify the existence of such a loss.
FASB ASC 718-10-25-2, “Recognition Principle for Share-Based Payment Transactions,” apply to:
All transactions in which an entity grants shares of its common stock, stock options, or other equity instruments to its employees, except for equity instruments held by an employee stock ownership plan (as per FASB ASC 718-10-15-7).
Impairment loss presentation
Impairment loss is presented as part of income from operations, and is not presented as discontinued operations or cumulative effect of a change in accounting principle.
Recoverability value - Intangible assets
Intangible assets with finite life are amortized and are tested for recoverability. In opposite intangible assets with indefinite life are not amortized and therefore are not tested for recoverability. However, they are review for impairtment for at least annually.
So, patents are amortized and tested for recoverability.
Capitalized software amortization
Capitalized software costs are amortized based on their current and future revenue, subject to at least matching straight-line amortization in the earlier years. Meaning if the revenue method of amortization is equal or more than SL amortization, then use Revenue method to recognized the expense.
Software for internal Use
Costs incurred to develop software for internal use are capitalized after the application development stage is reached (in accordance with FASB ASC 350-40-35-4). The costs are amortized over the benefited period
Partnership accounting - Bonus method
Bonus = New ´partner’s contribution - Proportionate Share (% participation x Total capital with the new contribution added)
Partnership accounting - Goodwill method
Goodwill = FV of Partnershp - Total Partnership Capital
FV = New contribution/% participation.
Total Capital= Sum of capitals with the new contribution
ARO and Accretion expense
The gain or loss on the settlement of the ARO liability is the difference between the ARO liability on settlement date and the actual settlement cost.
FASB ASC 410-20-40-2 requires the initial liability to be increased to the expected cash flow adjusted for market risk and inflation,
Amortization is recorded with a debit to accretion expense and a credit to ARO liability.
Topic 275 of the FASB’s Accounting Standards Codification is entitled “Risks and Uncertainties.” In discussing the disclosure required by this section, what element is identified as important in determining the matters that are significant to a specific entity?
An important element of this topic is selectivity. Selectivity involves the specified criteria that serve to screen the risks and uncertainties encountered by every entity. The objective is to restrict required disclosures to matters that are significant to that specific entity.
Troubled debt restructuring
Debtor’s gains are calculated based on undiscounted amounts. The total future cash payments, including interest, are used to compute the gain on troubled debt restructuring.
The effective interest rate for a loan restructured in a troubled debt
Under troubled debt restructuring, the effective interest rate is based on the original contractual rate, rather than on the current interest rate or the rate specified in the restructuring agreement. Note that this is the exception to the rule to effective interest for most loans not related to troubled debt restructuring.
