F-2 Matching, FX, And Other FS Presentation Flashcards
What’s our liabilities
Liabilities are probable future sacrifices of economic benefits
Define revenue
Revenues are increases of assets or reductions of liabilities (possibly both) during a period of time
What are the four criteria to recognize when revenue is realized or realizable and when it is earned (for US GAAP)
Persuasive evidence of an arrangement exist
Delivery has occurred or services have been rendered
The price is fixed and determinable
Collection is reasonably assured
What are the revenue recognition rules for the sale of goods under IFR S
Revenue and cost incurred for the transaction can be measured reliably
Probable that economic benefit from the transaction
Entity transferred risk and rewards of ownership
Entity does not retain managerial involvement
What is the revenue recognition rules for rendering of services under IFR S
Recognized under the percentage of completion method when the outcome of the transaction can be reasonably estimated
Estimated lively when all of the following conditions have been met:
Measured reliably
Economic benefit
Determination of completion is reliable
What are the revenue recognition rules under IFR S for interest, royalties, and dividends
Revenue can be measured reliably
Probable economic benefit
Interest revenue is recognized using the effective interest method,
royalties are recognized on the accrual basis,
and dividends are recognize when the shareholders rights to receive payment are established
What are the revenue recognition rules under IFR S for construction contracts
Percentage of completion method only if estimated reliably
Both the contract cost to complete the contract and the stage of contract completion at the end of the reporting. Can be measured reliably
And expected loss on the construction contract is recognized immediately as an expense
What is a multi element arrangement
The fair value of the contract must be allocated to the separate contract element.
Revenue is then recognize separately for each element based on the revenue recognition criteria for each element
What is the definition of expenses
Expenses are reductions of assets or increases of liabilities (or possibly both] during a period of time.
What are expired costs
Expired cost [’s expenses]’s or costs that expire during the period and have no future benefit
Insurance expense
COGS allocated to the period in exhibition the sale takes place
Period costs
What are unexpired costs
Unexpired costs should be capitalized and matched against future revenues
Fixed assets
Inventory
When are royalty revenue is recognized
When earned usually earned realties based on stated percentage of sales. Reporting royalty revenue requires a cruel of the provision for revenues based on estimated sales
When a buyer has the right to return the product rep and you shall be recognized at the time of sale only if all required conditions are met
Sales price is substantially fixed at the date of sale
Buyer assumes all risk of lost
Buyer has paid some form of consideration
Products sold is substantially complete
Amount of future returns can be reasonably estimated
(This is not a contingent sale)
If all conditions are NOT met the. The revenue will need to be recognized as DEFERRED REVENVUE
what are assets
Assets are probable future economic benefits
What does a franchise operations include? (ASC 952)
A franchisee that received the right to operate one or more unit of a franchisor’s business.
Franchise accounting involves 2 types of fees:
Initial franchise fee - fees paid by the franchisee for receiving initial services from the franchisor.
Continuing franchise fee - fees are received for ongoing services provided by the franchisor to the franchisee.
How should the franchise or accounts for the initial franchise fee(This fee includes services provided to the franchisee include site selection, supervision of construction, bookkeeping services, and quality control)
The upfront fee is recognized as unearned revenue.
Dr. Cash
Cr unearned revenue
U earned revenue is recognized as revenue once substantial performance is completed.
Substantial performance means:
1) Franchisor has no obligation to refund any payment
2) Initial services requires of the franchisor have been performed
3) All other conditions of the sale have been met
Generally substantially performed means the first day the franchisee starts to operate
What are other acceptable methods of recognizing revenue on the franchisor’s books?
1) installment or cost recovery percentage methods may be used under certain circumstances.
2) early recognition of initial franchise fee revenue only when:
A) revenue is collectible over an extended period of time
B) these is no reasonable basis for estimating collectibility
House should intangible assets acquired from other companies be recorded
The intangible asset are recorded at cost
How should internally developed intangible assets be accounted for under US GAAP
These expenses should be expensed as incurred US GAAP prohibits the capitalization of research and development costs.
Except certain costs associated with intangibles that are specifically identifiable can be capitalized:
1) legal fees and other costs related to a successful defense of asset (not successful is expenses)
Under IFRS how are research and development costs accounted for
Research cost = expenses
Development costs = capitalize, if:
- technological feasibility
- intends to complete
- ability to use or sell
- future economic benefits
- complete the development
How is the cost of intangible assets acquired from other companies measured?
1) by the cash disbursed or FV of other assets distributed
2) by PV of amounts to be paid for liabilities incurred
3) by FV of consideration received for stock issued
What is the amort life of a patent?
The shorter of its estimated life or remaining legal life.
What is the income tax effect for the amortization of acquired intangible assets that are not identifiable?
Amort over 15-years. This will cause a temp difference and interpretive allocation of income taxes.
Under IFRS, intangible assets can be reported über what 2 methods?
1) cost method - intangibles are reported at cost and impairment
2) revaluation model - revalue intangible asset in each reporting date and adjust for amortization
CV = FV - amort - impairment
Revaluation losses - recorded in income statement , unless the revaluation loss reverses a previously recognized revaluation gain. Then it reported in OCI and reduces the surplus
Revaluation gains - same as losses
How should the franchisee account for the initial franchise fee?
As an intangible asset and amortize cost over the life of the franchise
How should the franchisee account for the continuing franchise fee?
Expense as incurred.
How should the franchisee account for start up costs?
Start up costs, including organizational costs are expenses as incurred.
Expenses such as:
Legal fees or corporation fees
Opening a new facility
Does not include:
Routing, ongoing efforts to refine, enrich, or improve the quality of existing products, services, processes, or facilities
Business merger or acquisition
Ongoing Customer acquisition
For tax purposes how are start up costs and operation expenditures recorded
Business may deduct $5k from $50k or start up cost. Any excess over 50k may be amortized over 180 months – temporary difference
Calculating goodwill under the acquisition method
Goodwill = FV - assets
Calculating goodwill under the equity method
Goodwill = stock purchase price - assets
How should R&d costs be accounted for under US GAAP?
Expenses as incurred
Except for,
- PPE, which are capitalized
- R&D costs are undertaken on behalf of others u see a contractual arrangement
Under IFR us how she computer software development cost be treated
I FRS does not provide separate guidance regarding computer software development costs. It is considered to be internally generated intangible, where research cost or expense and development costs are capitalized
What is technological feasibility
Technological feasibility is established upon completion of:
1) detailed program design or
2) completion of a working model
How to account for costs related to computer software developed for sale, lease or licensed?
Expense costs incurred until technological feasibility has been established
Capitalize costs incurred after technological feasibility has been established.
*** capitalized software cost is amortized on the GREATER of
% of revenue = capitalize amount X (current gross rev/total projected gross rev
Straight line = cap amount / estimated life
How are capitalized cost reported on the balance sheet?
At the lower of cost or market
How should computer software developed to be sold be amortized (there are 2 options):
Annual amortization is the GREATER of:
% of revenue = total capitalized amount X (current gross rev/projected gross rev)
Straight line
How should computer software developed internally or obtained for internal use only be accounted for
Expense cost incurred for the preliminary project state
Capitalize cost after the Preliminary Project State using straight line (cuz no revenue is being generated)
How should the software be treated if it internally develop software is subsequently sold to an outsider
If it ends up being sold you have to deplete the carry amounts of the internally developed software first then you can recognize revenue
Basically what you’re trying to do is recover the cost first
An intangible asset with a finite life is tested for impairment using a two-step impairment test:
Step one –
Carrying asset compared to undiscounted future cash flow
If carrying. Amount is > undiscounted FCF = impaired
Step two -
If impaired then carrying amount is compared to Fair value amount to determine the actual impairment to be recorded.
How shit intangible asset with indefinite life be tested for impairment
Using the one step impairment test which is typically used for meanly Goodwill so only step two of the two-step process is used
How is an impairment loss reported on the financial statements
Impairment loss is reported as a component of income from continuing operations before income taxes unless it relates to disc ops