Deck 1

Question 1

Under IFRS, how is Goodwill Impairment calculated:

Answer 1

Under IFRS, Goodwill Impairment is calculated by a one-step test at the cash generating unit (CGU) level in which the carrying value of the CGU is compared to the cash generating unit’s recoverable amount. An Impairment loss is recognized to the extent that the carrying value of the CGU (including Goodwill) exceeds the recoverable amount of the CGU impairment loss.

Question 2

Goodwill is only capitalized when:

Answer 2

Incurred in the purchase of another entity. Cost incurred for maintaining or developing goodwill is expensed.

Question 3

Market Research Activities:

Answer 3

Is not R&D because it is not aimed at discovery of new knowledge to develop a new product or service.

Question 4

Research and Development Costs:

Answer 4

Are expensed under GAAP.

Question 5

Patent Costs:

Answer 5

Legal fees and other costs associated with registering a patent are capitalized. And are amortized over the lesser of the economic life or its legal life.

Question 6

Goodwill:

Answer 6

Goodwill acquired in an arm’s-length transaction is capitalized, but internally created goodwill is expensed because an objective measure of its value is difficult to obtain.

Examples of internally created goodwill are training of acquired employees and hiring of additional acquired employees, and they are not capitalized.

Question 7

Retained Earnings

Answer 7

Unrecorded liabilities that affect WIP does not affect Retained Earnings because it didn’t affect cost of sales.

Question 8

When there is an unlimited right to return:

Answer 8

Revenue is recorded when four conditions are satisfied:

1. The sales price is substantial fixed
2. The buyer assumes all risk of loss
3. The buyer has paid some form of consideration
4. The amount of returns can be reasonably estimated

Revenue is not recognized until all four conditions have been satisfied or something is actual sold.

Question 9

Research & Development costs are:

Answer 9

Development or improvement of techniques and processes.

Question 10

Subsequent reversal of recognized impairment loss for a intangible asset is:

Answer 10

Prohibited unless it is held for sale.

Question 11

Under IFRS, an impairment loss is:

Answer 11

Recorded for the excess of the carrying value of an intangible asset over its recoverable amount.
The recoverable amount is the greater of the asset’s fair value less costs to sell or the assets value in use.

Question 12

Trademark with an indefinite life:

Answer 12

Does not have amortization expense. Amortization is only for intangible assets with definite life.

Question 13

Converting from Cash basis to Accrual Basis:

Answer 13

1. Add increases in Current Assets
2. Subtract decreases in Current Assets
3. Add decreases in Current Liabilities
4. Subtract increases in Current Liabilities

Question 14

Under IFRS, internally generated goodwill:

Answer 14

Cannot be capitalized and is not recognized as an asset, it will be treated as an expense in the period incurred.

Question 15

When a company uses “percentage-to-complete” method for a 5-year construction contract:

Answer 15

Income previously recognized would be used to calculate the income recognized in the second year (not progress billings to date).

Question 16

When an overall loss at contract completion will:

Answer 16

Decrease year 1 operating income under both percentage to complete and completed contracted methods. The entire loss is recorded for a loss contract in progress (not only the loss incurred to date).

Question 17

Under the percentage of completion method, a current liability is calculated as:

Answer 17

Cost incurred to date plus estimated earning (per percentage) subtract progress billings. If process billings are more than costs and estimated earning then it is a liability. If costs and estimated earnings are more than progress billings then that is a current asset.

Question 18

Under the cost recovery method:

Answer 18

revenue is recognized after cash equaling the cost of the item collected.

Question 19

Under the installment method:

Answer 19

Gross profit is recognized as a gross profit percentage times the cash collected from the sale.

Question 20

The installment sales method is permitted to be used:

Answer 20

Only when installment sales are material and there is no reasonable basis for estimating collectibility.

Question 21

A nonmonetary exchange that lacks commercial substance un GAAP:

Answer 21

Is an exception to the general rule of basing the value of the exchange at fair value. Therefore, if the cash is less than 10% of the total consideration, a proportional gain is recognized.
The reported amount of the nonmonetary asset surrendered is used to record the newly acquired asset.

Question 22

Losses are recognized in all nonmonetary transactions when:

Answer 22

the book value exceeds the fair value of the asset given up. And is recognized immediately. The loss is recorded at book value plus any cash paid less any cash received less the loss recognized.

Question 23

A nonmonetary exchange that lacks commercial substance records a gain:

Answer 23

Only when boot is received. If no boot is received then no gain is recorded. Also, the basis of the asset acquired is equal to the basis of the old asset.

Question 24

Financial Statements that are prepared under current cost/constant dollar:

Answer 24

Include adjustments for both specific price changes and general price level changes.

Question 25

When the translation method is used:

Answer 25

All assets and liabilities are translated to the reporting currency using the current exchange rate. Common stock and additional paid in capital and other capital accounts are translated using historical exchange rates.

Question 26

Functional currency is the:

Answer 26

Currency of the primary economic environment in which the entity operates, usually the local currency or the reporting currency.

Question 27

When the translation method is used:

Answer 27

All income statement items are translated using the average exchange rate.

Question 28

Personal financial statements:

Answer 28

All items are reported at fair value (estimated current values). Also, they include a statement of financial condition (similar to a balance sheet) and a statement of changes in net worth ( similar to an income statement).

Question 29

Common modifications used to prepare modified cash basis financial statements are:

Answer 29

Recording long term liabilities, accrual of income taxes, and capitalized inventory are all common modifications made to cash basis financial statements.

One modification that is not made to modify cash basis financial statement is recognizing revenue when earned, which is used for accrual basis financials.

Question 30

On a personal statement of financial position, estimated income taxes:

Answer 30

Equals the difference between fair values and tax basis of assets and liabilities.