F1 Flashcards
If time between transfer of goods / services and payment exceeds one year, how measured?
Present value of future cash flows. If less than one year, not necessary
How is variable consideration measured?
Whichever is the best predictor:
Probability weighted (lots of options) or most likely (few options)
Inventory
Operating goods of the business, unexpired costs expensed as sold
Core biz
What is done all day / everyday
Call Option
Optional, option to purchase, “it’s your call”
Distinct good
- Separately identifiable (can be separated
2. Good or service can independently benefit customer (or when combined with customer’s available resources)
Working capital
Current assets less current liab.
Assesses risk
What are some variable consideration examples?
Penalties, bonuses, time val. of money, etc.
When to recognize revenue on bill and hold
Customer obtains control of product
- Customer requested arrangement
- Product is identified as customers
- Product ready to ship
- Entity cannot use customer’s product
Put option
Entity’s obligation to repurchase is at customer’s request,
“Customer can put you up to buying”
Bill and hold arrangement
Entity bills customer for product that hasn’t been delivered
What are the 5 aspects of a contract
- Agreement / Commitment
- Rights identified
- Payment terms identified
- Commercial substance - there will be future cash flows
- Collectibility is assured
Performance obligation is satisfied over time if (not just % of completion or construction)
Pick one
- Asset being created / enhanced already under customer control
- Customer receives and consumes benefits of entity’s performance as entity performances
- Asset has no alternative use AND entity has enforceable right to pmt
Loss
Non-operating,
funds that will never be used to earn income
What are unexpired costs?
Future costs - an asset
Difference between contract completion method and percentage-of-completion method
In contract completion method, gross profit is not recognized until contract is completed
put option for MORE than selling price
Financing arrangement unless below market price, in which case customer has little incentive to exercise right, thus account for as sale with right of return
How are incremental direct costs to obtain contract accounted for
Capitalized and amortized over life of the contract UNLESS contract period is < 1 year
Freight Out
Selling expense
put option for less than selling price
Account as a lease unless customer does NOT have economic incentive to exercise right, then sale with right to return
Right to return- how accounted for?
Only recognize revenue on what you expect to keep (not have to return). If the customer keeps it, we get to keep the revenue.
Repurchase Agreements
Two kinds
a. Sale with right to return and
b. Financing arrangement (I.e. Title of asset given in exchange for a loan)
Losses on contracts are recognized when?
Immediately on discovery, reverse previous profit
How should an overdrawn bank account be account for?
Liability unless there is an account @ the same bank that could offset the balance. Otherwise legal right to offset doesn’t exist