F2 Flashcards by Anna Latrobe

What is an asset?

A probable future economic benefit as a result of an event or transaction

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What is an event?

Something that happens, internal or external

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What is a transaction?

An external event

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What is a liability?

A probable future sacrifice of economic benefit as a result of an event or transaction

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What are revenues?

Increase an A or Decrease an L

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What are the criteria for revenue recognition under US GAAP?

earned, and realized/realizable

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What are the 4 criteria for GAAP revenue recognition?

Persuasive evidence of an arrangement exists (signed contract). Delivery occurred/services rendered (risk & reward transfer). Price is fixed and determinable (no price contingencies). Collection is reasonably assured (standard collection terms)

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Under GAAP, when do you recognize revenue from sale of products?

on date of sale

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Under GAAP, when do you recognize revenue from use of assets?

as time passes

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Under GAAP, when do you recognize revenue from performance of services?

when rendered

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What are the categories of revenue recognition under IFRS?

sale of goods. Rendering of services. Revenue from interest, royalties & dividends. Construction contracts.

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What are the main concepts of IFRS revenue recognition under each category?

measured reliably. And economic benefits

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How do you record revenues for multiple element arrangements under GAAP?

allocate FV & record rev separately

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What are the exceptions/special treatments of revenue recognition?

Deferred credits/liability (earn it or return it). Installment sales. Cost recovery method. Non-monetary exchanges. Involuntary conversions. Net method of trade discounts. Percentage of completion

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What are expenses?

Decrease an A or Increase an L

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What is realization?

real world. Obtains cash or non cash. Or turns non cash into cash

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What is recognition?

record

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What is the matching principle?

matching revenues and relates expenses (costs)

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What is Accrual Accounting?

IS impact, no current cash impact

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What is a deferral?

no current IS impact or BS impact (cash)

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Compare expired costs vs. unexpired costs/

expired (expense on IS): insurance, COGS, period costs. Unexpired costs (stay on BS for now): Asset or deferred/prepaid charge

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When do you recognize royalty revenue?

when earned

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How do you recognize revenue if a right of return exists?

Record @ time of sale if not contingency: sales price is substantially fied at date of sale. Buyer assumes risk of loss b/c has possession of goods. Buyer paid consideration. Product sold is substantially complete. Can reasonably estimate amt of future returns

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Under franchisor accounting, what is unearned revenue and when does it become earned?

initial franchise fee, or prepaid continuing franchise fee. Revenue when substantial performance.

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What constitutes substantial performance?

GR= 1st day of operations. Franchisor has no obligation to refund any payment received. Franchisor performed initial services required. All other conditions of the sale have been met

How are intangible assets classified?

Specifically Identifiable (patents, copyrights) or Not Specifically Identifiable (Goodwill)

If intangible assets are purchased, how do you recognize the expense?

Record @ cost

If intangible assets are internally developed, how do you recognize the expense?

Expensed normally. Exceptions (capitalized): legal fees related to successful defense, registration/consulting fees, design costs, other direct costs to secure the asset

How do you record research & development under GAAP?

R&D is expensed

How do you record research & development under IFRS?

research is expensed, and development is capitalized.

How do you measure capitalization of cost?

amt of cash disbursed or FV of asset distributed. PV of amts to be paid for L. FV of consideration received for stock issued.

How are costs assigned to unidentifiable intangibles?

cost of all A – costs assigned to identifiable intangibles – L assumed

How do you amortize intangibles?

use SL. For finite life intangibles only

If an intangible becomes worthless what do you do?

expense it

If an intangible becomes impaired what do you do?

expense it

If an intangible's useful life changes, what do you do?

recalculate amortization

If an intangible is sold what do you do?

calculate G/L

What are the 2 methods to valuate intangibles under IFRS?

cost model or recalculation model

What is the cost model for intangible valuation under IFRS?

Value = cost – amortization (finite life only) – impairment

What is the revaluation model for intangible valuation under IFRS?

Value = FV @ revaluation date – subsequent amort – subsequent impairment

Under the IFRS revaluation model for intangibles, how do you record G/L?

Increases in value (OCI) and decreases in value (IS). Impairment (first reduce OCI, then IS)

Under Franchisee accounting, how do you record initial franchise fee?

intangible asset, amortized

Under Franchisee accounting, how do you record continuing franchise fee?

expensed as incurred

How are start-up costs recorded?

expensed as incurred

How do you calculate goodwill under the acquisition method?

FV - net a (including identifiable intangibles)

How do you record goodwill maintenance costs?

expense

How do you record R&D costs under GAAP?

Expense. Exception: capitalize tangible assets w/ alternate future use, or if R&D on behalf of others

How do you account for costs of computer software developed for external use?

Before technological feasibility (expense). After technological feasibility (capitalize= greater of SL or % of revenue)

How do you account for costs of computer software developed for internal use?

Before preliminary project state/training (expense). After preliminary project state (capitalize= SL amort). If change mind & sell, cost recovery then revenue

How do you calculate impairment of intangible assets (non-goodwill) with finite lives?

The 2 step test. 1) if CV \> Undisc FCF, then impairment. 2) impairment loss = CV-FV (or DFCF)

How do you calculate impairment of intangible assets (non-goodwill) with indefinite lives?

The 1 step test. Step 2 only! Impairment loss = CV-FV (or DFCF)

How do you calculate impairment loss under IFRS?

Step 2 only

What is a reporting unit?

separate CF and regular review by management

How do you calculate goodwill impairment under GAAP?

two steps. 1) FV-BV = potential impairment loss. 2) Goodwill Implied FV – Goodwill BV = impairment loss

What are the different construction contract methods for revenue recognition under GAAP and IFRS?

GAAP = completed contract or percentage of completion. IFRS = percentage of completion ONLY

When is income recognized under completed contract method?

income recognized at completion or substantial completion

What is the CA account under completed contract and percentage of completion?

CIP, = cost – billings

What is the CL account under completed contract and percentage of completion?

Advance on CIP, = Billings – cost

Under completed contract and percentage of completion, when are losses recognized?

in full, in the year of discovery

How do you determine revenue under percentage of completion?

% = costs incurred/total estimated costs

When can you use the installment sale method or the cost recovery method?

only when there is no reasonable basis for estimating collectability

What are the steps for installment sales?

four steps. 1) Sales – COGS = GP. 2) GP/Sales = GP%. 3) (Sales-End A/R) \* GP% = GP earned. 4) End A/R \* GP% = deferred GP (contra asset)

How does the cost recovery method work?

at the time of sale, expected profit is recorded as deferred GP. Collections offset costs, then rest is GP

In GAAP, what is the difference between non monetary exchanges having/lacking commercial substance?

Have = any change in FCF. Lack = no change in FCF, OR FV cannot be determined

In IFRS, what is the difference between similar vs. dissimilar non monetary exchanges?

Dissimilar is same as GAAP Have commercial substance. Similar = no gains recognized

In exchanges having commercial substance, how do you recognizance G/L?

FV – BV = Gain (ignore boot)

In exchanges having commercial substance, what is the basis of the new A?

FV old + Boot paid – Boot received = AB new

Under exchanges lacking commercial substance, when are losses recognized?

ALWAYS

Under exchanges lacking commercial substance, when is no gain recognized?

when no boot is received, or boot is paid

Under exchanges lacking commercial substance, if boot is received, how much gain is recognized?

If Boot received/FV asset received \< 25%, then recognize proportional gain. If boot received / FV asset received \>= 25%, all gains recognized by both parties

With involuntary conversions, when are gains or losses recognized?

ALWAYS

Compare historical cost vs. current cost.

current cost is adjusted for appreciation

Compare nominal vs. constant dollars.

constant dollars are adjusted for inflation

Compare monetary items vs. non-monetary items.

Monetary = fixed. Non-monetary = fluctuate w/ inflation & deflation

What is the current exchange rate?

year end or spot rate

What is the forward exchange rate?

Bet

What is the historical exchange rate?

used for equity

What is the reporting currency?

US $

What is the functional currency?

local foreign currency or reporting currency

Under GAAP, what are the conditions for determining the functional currency?

foreign operations are relatively self-contained & integrated, operations do not depend on parent's or investor's functional currency, and local economy is not highly inflationary

What are the 2 methods to translate foreign financial statements?

Re-measurement Method and Translation Method

What is the Re-measurement method?

Dysfunctional!

What are the steps of the re-measurement method?

BS (monetary = YE rate, Non-monetary = historical), IS (non BS = WA rate, BS items = historical rate), G/L to IS

What is the Translation method?

FUNCTIONAL/NORMAL

What are the steps of the translation method?

IS (all = WA rate, NI to RE), BS (A&L = YE rate, CS/APIC = historical, RE roll forward), G/L to OCI (puFer)

What is OCBOA?

Other Comprehensive Bases of Accounting: Cash, Modified Cash, Tax

What is the BS under the cash basis?

Cash = equity

What are some common modifications under modified cash basis?

Cap & dep fixed assets, accrue income taxes, record L & IE for ST & LT borrowing, Capitalize Inventory, record investments @ FV and record unrealized G/L

Where to you report nontaxable rev & exp under tax basis?

separate line item on Statement of rev & exp, addition/deduction to NI, or disclose in a note