Expense Recognition & Impairment

Question 1

What are examples of identifiable Intangible Assets?

Answer 1

Patents
Copyrights
Franchises
Goodwill

Question 2

How are purchased Intangible Assets Recorded?

Answer 2

At Cost

Question 3

How are internally Developed Intangible Assets Recorded?

Answer 3

Expended against income when incurred

Question 4

Can you capitalized R&D costs under U.S. GAAP?

Answer 4

NO, it is prohibited

Question 5

What are the only exceptions when capitalization of intangibles under U.S. GAAP is permitted?

Answer 5

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

Question 6

What Does the classification of Expected period of benefit in intangible assets depends on?

Answer 6

Whether the economic Life can be determined or is indeterminable

Question 7

What Does the classification of separability in intangible assets depends on?

Answer 7

Whether the assets can be separated from the entity

Question 8

How are Research costs of internally developed Intangible Assets treated under IFRS?

Answer 8

They are Expensed

Question 9

What conditions should be met to capitalize internally developed Intangible Assets under IFRS?

Answer 9

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

Question 10

How are Development costs of internally developed Intangible Assets treated under IFRS?

Answer 10

They are capitalized

Question 11

Is Goodwill Amortization permitted? If No, Why?

Answer 11

No

To me amortized the assets should have finite life

Question 12

What method is used to amortize assets with finite life?

Answer 12

Straight-Line Method

Question 13

How do you treat intangible asset that have become worthless during the year?

Answer 13

Write off the entire Remaining cost to Expense

Question 14

How do you treat intangible asset that have become impaired during the year?

Answer 14

Write down the intangible asset and recognize and impairment loss

Question 15

How do you treat intangible asset that have experienced change in its useful life?

Answer 15

The remaining book value is amortized over the new remaining value

Question 16

How do you treat intangible asset that have been sold?

Answer 16

Compare Carrying value at the date of sale with the selling price and determine Gain or Loss

Question 17

Is amortization of intangible assets that are not specifically identifiable deductible when computing income tax payable? If yes, Over what period?

Answer 17

Yes

Over 15 Years

Question 18

How are Finite Life Intangible Assets reported under U.S. GAAP?

Answer 18

Cost less amortization and Impairment

Question 19

How are indefinite life Intangible Assets reported under U.S. GAAP?

Answer 19

Cost less Impairment

Question 20

How are intangible assets reported under IFRS cost model?

Answer 20

Cost Adjusted for amortization less impairment

Question 21

How are intangible assets reported under IFRS Revaluation Model?

Answer 21

Initially recognized at cost and then reevaluated to FV on revaluation date adjusted for subsequent amortization and subsequent impairment

Question 22

Where are Revaluation Losses Reported Under the Revaluation Model?

Answer 22

On the Income Statement

Question 23

Where are Revaluation Losses Reported Under the Revaluation Model? (Exception)

Answer 23

On the Comprehensive income. When the revaluation loss is a reversal of a previously recognized gain.

Question 24

Where are Revaluation Gains Reported Under the Revaluation Model?

Answer 24

Other Comprehensive Income

Question 25

Where are Revaluation Gains Reported Under the Revaluation Model? (Exception)

Answer 25

On the Income Statement. When the revaluation gain is a reversal of a previously recognized loss

Question 26

How is impairment recorded under the Revaluation Model?

Answer 26

First by reducing any revaluation surplus in equity to zero with further impairment losses reported on the Income Statement

Question 27

Where is initial Franchise Fee recorder for Franchisee Accounting? And what is the proper treatment in subsequent periods?

Answer 27

it is recorded on the Balance sheet as an Intangible asset and it is amortized over the expected period of benefit

Question 28

What is the appropriate treatment of Continuing Franchise fees under Franchisee Accounting?

Answer 28

They are expensed as incurred

Question 29

What is the appropriate treatment of Start-Up Costs?

Answer 29

They should be expensed as incurred

Question 30

Examples of Start-Up Costs?

Answer 30

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

Question 31

Examples of Costs not considered Start-Up Costs?

Answer 31

1- Routine, ongoing efforts to enrich or improve the quality of an existing product
2- Business mergers
3- Customer Acquisitions

Question 32

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?

Answer 32

Up to 5,000
Yes
Amortized over 180 months

Question 33

What is Goodwill under the acquisition method?

Answer 33

The excess of an acquired entity’s fair value over the fair value of the entity’s net assets

Question 34

What is Goodwill under the equity method?

Answer 34

The excess of stock purchase price over the fair value of the net assets acquired

Question 35

What is the appropriate treatment of costs associated with maintaining Goodwill?

Answer 35

They are expensed

Question 36

What is the appropriate treatment of R&D costs under U.S. GAAP?

Answer 36

They are expensed

Question 37

What is the appropriate treatment of R&D costs that have alternate future uses?

Answer 37

Capitalize and depreciate the assets over their useful lives

Question 38

What is the appropriate treatment of R&D costs undertaken on behalf of others under a contractual arrangement?

Answer 38

The purchaser will expense as R&D costs and the provider will expense as Cost of Sales

Question 39

What are examples of items not considered R&D?

Answer 39

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

Question 40

What is technological feasibility?

Answer 40

A completion of a detailed program design or a completion of a working model

Question 41

What is the appropriate accounting for costs incurred until technological feasibility has been established?

Answer 41

Expense

Question 42

What is the appropriate accounting for costs incurred after technological feasibility has been established?

Answer 42

Capitalize to the point the product is released for sale

Question 43

What is the appropriate treatment of computer software developed internally or obtained for internal use only?

Answer 43

Expense until technological feasibility and then capitalize and amortize on Straight-Line Basis

Question 44

What is the appropriate treatment of software previously acquired/developed for internal use only is subsequently sold to outsiders?

Answer 44

Proceeds should be applied to first the carrying amount of the software and then recognized as revenue (similar to cost recovery system)

Question 45

What is the impairment test of intangible assets with finite life?

Answer 45

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.

Question 46

What is the impairment test of intangible assets with indefinite life?

Answer 46

Compare carrying amount to fair value of the asset. If CV > FV, impairment loss= CV-FV

Question 47

How do you report an impairment loss?

Answer 47

As a component of income from continuing operations before income taxes

Question 48

What is the definition of a reporting unit?

Answer 48

An operating segment or one level below an operating segment

Question 49

How do you evaluate Goodwill Impairment?

Answer 49

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