Deck 4 Flashcards
Impairment loss (IFRS vs. GAAP)
GAAP: carrying value > undercounted cash flows; IFRS: carrying value > recoverable amount
Impairment loss under GAAP =
goodwill implied FV - goodwill book value
Recoverable amount under IFRS is the greater of:
1) FV less costs to sell and 2) asset’s value in use
What happens when an intangible asset has an indefinite life?
No amortization expense
Approach to convert from cash-basis to accrual-basis:
- Add increases in current assets; 2) Subtract decreases in current assets; 3) Add decreases in current liabilities; 4) Subtract increases in current liabilities
Deferred revenue
Revenue that has been received in cash but not yet earned; ex: unearned interest income, unearned rental income, and unearned royalty income
4 criteria that must be met before revenue can be recognized (GAAP)
1) signed contract; 2) delivery has occurred or services have been rendered; 3) fixed and determinable price; 4) collection is reasonably assured
Realization
Occurs when the entity obtains cash or the right to receive cash
Selling expenses include:
Advertising, freight out, rent for office space, sales salaries and commissions
Journal entry for accrued asset/revenue
Dr. A/R; credit accrued revenue
Journal entry for accrued liability/expense
Dr. Accrued expense; Cr: Accrued liability
Journal entry for deferred revenue/unearned revenue
Dr. Cash; Cr. deferred/unearned revenue
When is royalty revenue recognized?
Recognized when earned
Journal entry for collection of earned royalties:
Dr. Cash; Cr. unearned royalty
Journal entry for recognizing an earned royalty:
Dr. Unearned royalty; Cr. Earned royalty
For a franchise, when is unearned revenue recognized as revenue?
Once substantial performance has occurred
Revaluation model under IFRS:
intangible assets initially recognized at cost and then revaluated to FV at a subsequent revaluation date
Revaluation model carrying value =
FV - subsequent amortization - subsequent impairment
