Chapter 2 - Matching, Foreign Currency, Other FS Presentation Flashcards
What is the criteria for revenue recognition of a contract?
Signed contract/written confirmation
Delivery of goods (risks/rewards transferred)
Price is fixed
Collection reasonably assured
When do you recognize royalty revenue? Services? Unearned revenue?
As time passes (when earned)
When services rendered
Recognize as liability on BS
What are start-up costs? How are they treated?
One time organizational costs for new businesses
Expenses when incurred (can write off $5k for taxes)
How do you treat R&D costs (GAAP)? Any exceptions & their treatments?
Expensed when incurred
Exceptions: Tangible assets with alternative future uses (capitalize & depreciated over useful life)
R&D on behalf of others in contract
How do you treat R&D costs (IFRS)?
All research costs expensed
Some development costs can be capitalized
Which items are not considered R&D?
Periodic changes Marketing research QC testing Staff training costs Chemical compound reformation
How do you treat costs related to computer software to be sold/leased?
Expense costs until technological feasibility
Capitalize costs after technological feasibility up until sold over GREATER of % of revenue or straight line
What is the capitalization % of revenue & straight line formula?
% of Rev = Tot Cap. Amt. * (Curr. Gross Rev for period / Tot Proj. Gross Rev. for period)
Straight line: Totl. Cap. Amt * (1 / Est. Economic life)
How do you treat costs related to computer software to be used internally? What if you then decide to sell the software?
Expense costs before prelim.project state (NOT R&D)
Capitalize costs after prelim. project state using straight line
Cost recovery method applied
How are initial franchise fees recorded by the franchisor? Franchisee? When can revenue be earned?
Franchisor: unearned revenue (liability)
Franchisee: intangible asset & amortized over life Recognized fully when substantially complete (1st day of operations) even if not everything received
How are continuing franchise fees recorded by franchisor? Franchisee?
Franchisor: unearned revenue until earned
Franchisee: expense as incurred
How do you record & treat purchased intangible assets? Internally developed intangible asset?
record at cost & capitalize
expense cost when incurred (R&D NOT capitalized)
Give examples of R&D that are expensed. Which ones can be capitalized (GAAP)?
Expensed: trademarks, GW from advertising, cost of developing/maintaining/restoring GW
Capitalized: successful legal fees, registration/consulting fees, design costs, other direct costs to secure asset
How are intangible assets amortized? GW?
Indefinite lives are not amortized
Finite lives shorter of estimated life or remaining legal life (straight-line)
GW not amortized instead tested for impairment annually
How do you value an intangible asset (GAAP)?
GAAP Finite life: Cost - Impairment
GAAP Indefinite life: Cost - Amortization - Impairment
How do you value an intangible asset (IFRS)? How do you treat Gains & Losses?
IFRS Cost Model: Cost - Amortization - Impairment
IFRS Revaluation Model: FV on revaluation date - subsequent Amort. - subsequent impairment
Gains: reverse loss on IS then go to OCI
Loss: reverse gain on OCI then go to IS
Formulas for Impairment (GAAP)?
Finite Life (2 step):
1) Undiscounted CF - CV
2) FV or PV Discounted CF - CV
Indefinite Life (1 step): 1) FV -CV
What level do you report GW on? Formula for GW (GAAP)? How do you treat GW impairment?
Reporting-unit level
1) (For each reporting unit) FV unit - CV unit
2) (For each reporting units GW only) Implied FV GW - CV GW
Loss on IS that cannot write back up
Formulas for Impairment (IFRS)?
One step Method
1) Recoverable Amount - CV
Recov. Amt = GREATER of (FV - Costs to sell OR PVFCF)
What level do you report GW on? Formula for GW (IFRS)? How do you treat GW impairment?
Cash generating level
1) Recoverable Amount - CV
Recov. Amt = GREATER of (FV - Costs to sell OR PVFCF)
Loss allocated to GW first then pro-rata to other assets
Formula to convert from accrual to cash basis? Convert from cash to accrual basis?
1) Cash = Liability - Other Assets
2) Cash = -Liability + Other Assets
When do you use completed contract method? % of completion method?
1) Difficult to estimate costs, collection not assured, many contracts in progress
2) Collection assured, profit can be estimated
Formula/steps for % of completion method?
1) GP = Contract $ - Estimated total cost
2) % of Complete = Total est. costs to date / Total est. cost of contract
3) Profit to Date = Step 1 * Step 2
4) CY GP = PTD CY - PTD PY
When do you use the installment sales method?
no reasonable basis for estimating collect-ability
Installment method formula.
1) GP = Sale - COGS
2) GP% = GP / Sales Price
3) Earned GP = Cash Collect * GP%
4) Deferred GP = Receivable * GP%
What is an exchange with commercial substance? What is an exchange lacking commercial substance?
1) change in future CF’s
2) no change in future CF’s or FV cannot be determined
What approach is used for exchanges with commercial substance? How is G/L recognized?
Fair Value approach
G/L = FV (asset given up) - CV (asset given up)
What approach is used for exchanges lacking commercial substance? How is G/L recognized?
Book value approach
Loss recognized
No boot received = NO gain
Boot is paid = NO gain
Boot received (< 25% of total consideration) = proportional gain
Boot received (>25% of total consideration) = recognize entire gain
What is the carrying amount of replacement property in a involuntary conversion?
The carrying amount of the replacement property is equal to the FV of the consideration paid for it.
Under current cost accounting, what is the amount inventory holding gain?
Holding gain on inventory is the excess of replacement cost at the balance sheet date over the original purchase price.
Where should a company disclose information about the effect of changing prices in FS?
Supplementary information
Which types of price measurements are related to the following adjustments: Inflation only, appreciation only, neither, both.
Inflation only - Historic cost/constant$
appreciation only - current cost/nominal $
neither - historic cost/nominal $
both - current cost/constant $
Define monetary & non-monetary assets?
Monetary: fixed & Non-monetary: fluctuate
When do you use the translation & re-measurement methods?
Translation: going from functional (local) to reporting currency
Re-measurement: the reporting currency is the functional currency.
Steps for Re-measurement method? Where is the G/L reported?
1) B/S: monetary @ spot rate & non-monetary @ historical
2) I/S: @ weighted average & historical rate for b/s items
3) plug G/L so I/S fits into the RE plug
4) Income from Cont. Operations
Steps for translation method? Where is the G/L reported?
1) I/S: @ weighted average
2) B/S: @ spot rate except C/S $ APIC @ historical; roll forward RE
3) Plug AOCI in Equity
4) Foreign translation in OCI
How do you determine the basis of a asset acquired when it: lacks commercial substance? has commercial substance?
1) book value of the asset given up
2) FV of the asset given up (unless FV of asset received is easier to determine)
Name the two statements required in personal FS?
Statement of Financial Condition
Statement of Changes in Net Worth
Combined statements may be used in which circumstances?
1) companies owned by one individual
2) companies under common management
3) unconsolidated subsidiaries
For non-monetary exchanges with commercial substance, when are gains & losses recognized?
Gains and losses are recognized immediately
Where do you report gains/losses under the remeasurement method?
Continuing income on income statement
How do you find the net current asset or a net current liability under the construction activity?
Cumulative cost
+ Cumulative GP recognized
- Cumulative billings
= negative (liability) positive (assets)
How do you calculate the g/l on an involuntary conversion?
= NBV of asset + any cost associated with conversion
G/L resulting from foreign currency transactions are accounted for?
Income from continuing operations
Under the construction % of completion method, how do you recognize a CL/CA?
CL = progress billings > actual costs + est. profit CA = progress billings < actual costs + est. profit
