Expense Recognition & Impairment Flashcards
What are examples of identifiable Intangible Assets?
Patents
Copyrights
Franchises
Goodwill
How are purchased Intangible Assets Recorded?
At Cost
How are internally Developed Intangible Assets Recorded?
Expended against income when incurred
Can you capitalized R&D costs under U.S. GAAP?
NO, it is prohibited
What are the only exceptions when capitalization of intangibles under U.S. GAAP is permitted?
1) Legal fees and other costs related to successful defense of the assset
2) Registration and Consulting Fees
3) Design Costs
4) Other Direct Costs To Secure the Asset
What Does the classification of Expected period of benefit in intangible assets depends on?
Whether the economic Life can be determined or is indeterminable
What Does the classification of separability in intangible assets depends on?
Whether the assets can be separated from the entity
How are Research costs of internally developed Intangible Assets treated under IFRS?
They are Expensed
What conditions should be met to capitalize internally developed Intangible Assets under IFRS?
1) Technological Feasibility has been established
2) The entity intends to complete the asset
3) The entity has the ability to sell or use the intangible asset
4) The intangible asset will generate future economic benefits
5) Adequate resources are available to complete the development and sell or use the asset
How are Development costs of internally developed Intangible Assets treated under IFRS?
They are capitalized
Is Goodwill Amortization permitted? If No, Why?
No
To me amortized the assets should have finite life
What method is used to amortize assets with finite life?
Straight-Line Method
How do you treat intangible asset that have become worthless during the year?
Write off the entire Remaining cost to Expense
How do you treat intangible asset that have become impaired during the year?
Write down the intangible asset and recognize and impairment loss
How do you treat intangible asset that have experienced change in its useful life?
The remaining book value is amortized over the new remaining value
How do you treat intangible asset that have been sold?
Compare Carrying value at the date of sale with the selling price and determine Gain or Loss
Is amortization of intangible assets that are not specifically identifiable deductible when computing income tax payable? If yes, Over what period?
Yes
Over 15 Years
How are Finite Life Intangible Assets reported under U.S. GAAP?
Cost less amortization and Impairment
How are indefinite life Intangible Assets reported under U.S. GAAP?
Cost less Impairment
How are intangible assets reported under IFRS cost model?
Cost Adjusted for amortization less impairment
How are intangible assets reported under IFRS Revaluation Model?
Initially recognized at cost and then reevaluated to FV on revaluation date adjusted for subsequent amortization and subsequent impairment
Where are Revaluation Losses Reported Under the Revaluation Model?
On the Income Statement
Where are Revaluation Losses Reported Under the Revaluation Model? (Exception)
On the Comprehensive income. When the revaluation loss is a reversal of a previously recognized gain.
Where are Revaluation Gains Reported Under the Revaluation Model?
Other Comprehensive Income
Where are Revaluation Gains Reported Under the Revaluation Model? (Exception)
On the Income Statement. When the revaluation gain is a reversal of a previously recognized loss
How is impairment recorded under the Revaluation Model?
First by reducing any revaluation surplus in equity to zero with further impairment losses reported on the Income Statement
Where is initial Franchise Fee recorder for Franchisee Accounting? And what is the proper treatment in subsequent periods?
it is recorded on the Balance sheet as an Intangible asset and it is amortized over the expected period of benefit
What is the appropriate treatment of Continuing Franchise fees under Franchisee Accounting?
They are expensed as incurred
What is the appropriate treatment of Start-Up Costs?
They should be expensed as incurred
Examples of Start-Up Costs?
1- Organizing a new entity
2-Opening a new Facility
3-Introducing a new product/ service
4-Conducting business in a new territory or with a new class of customers
5-Initiating a new process in an existing facility
Examples of Costs not considered Start-Up Costs?
1- Routine, ongoing efforts to enrich or improve the quality of an existing product
2- Business mergers
3- Customer Acquisitions
For tax purposes, up to what amount can a business elect to deduct for organizational expenditures? Can that amount be amortized? If yes, over what period?
Up to 5,000
Yes
Amortized over 180 months
What is Goodwill under the acquisition method?
The excess of an acquired entity’s fair value over the fair value of the entity’s net assets
What is Goodwill under the equity method?
The excess of stock purchase price over the fair value of the net assets acquired
What is the appropriate treatment of costs associated with maintaining Goodwill?
They are expensed
What is the appropriate treatment of R&D costs under U.S. GAAP?
They are expensed
What is the appropriate treatment of R&D costs that have alternate future uses?
Capitalize and depreciate the assets over their useful lives
What is the appropriate treatment of R&D costs undertaken on behalf of others under a contractual arrangement?
The purchaser will expense as R&D costs and the provider will expense as Cost of Sales
What are examples of items not considered R&D?
1- Routine periodic changes to old products or troubleshooting in the production stage
2- Marketing Research
3- Quality Control Testing
4- Reformulation of a chemical Compound
What is technological feasibility?
A completion of a detailed program design or a completion of a working model
What is the appropriate accounting for costs incurred until technological feasibility has been established?
Expense
What is the appropriate accounting for costs incurred after technological feasibility has been established?
Capitalize to the point the product is released for sale
What is the appropriate treatment of computer software developed internally or obtained for internal use only?
Expense until technological feasibility and then capitalize and amortize on Straight-Line Basis
What is the appropriate treatment of software previously acquired/developed for internal use only is subsequently sold to outsiders?
Proceeds should be applied to first the carrying amount of the software and then recognized as revenue (similar to cost recovery system)
What is the impairment test of intangible assets with finite life?
1- Compare un-discounted future net cash flows to the carrying amount of the assets (Determine if there is an impairment)
2- If Carrying value is > total undiscounted future net cash flows, the impairment loss equals the difference between the carrying amount and the fair value of the asset.
What is the impairment test of intangible assets with indefinite life?
Compare carrying amount to fair value of the asset. If CV > FV, impairment loss= CV-FV
How do you report an impairment loss?
As a component of income from continuing operations before income taxes
What is the definition of a reporting unit?
An operating segment or one level below an operating segment
How do you evaluate Goodwill Impairment?
1- Identify potential impairment by comparing the fair value of each reporting unit with its carrying value
2- Measure the amount of goodwill impairment loss by comparing the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill
