F2

Question 1

When should revenue be recognized under US GAAP?

Answer 1

Realized (realizable) AND earned: evidence of arrangement; goods delivered or service rendered; fixed price (contingencies not allowed to be recognized); collection is reasonably assured (don’t have to recieve cash).

Question 2

What are expired costs? unexpired costs?

Answer 2

Expired costs have no future benefit anymore (expenses on income statement).
Unexpired are like assets or inventory (stay on balance sheet for now, capitalized and matched against future revenues)

Question 3

What are deferred credits?

Answer 3

Unearned (deferred) revenue–liability on B/S. When earned, move to income statement.

Question 4

What’s the contra acount for notes receivable?

Answer 4

Discount on notes receivable, contra asset acount ( credit +)

Question 5

Debit accounts and credit accounts?

Answer 5

Debit– DEAL (dividend, expense, asset, loss)

Credit– GIRLS (gain, income, revenue, liability, stockholder’s equity). “Good things on I/S are credits.”

Question 6

Can Internally Developed Intangible Assets be capitalized? GAAP vs IFRS.

Answer 6

GAAP:
If it’s through R&D, advertising, maintaining or restoring (goodwill), must be expensed (GR: most costs are expensed).
Other cost incurred to design (trademark), secure, defend(successful) or register may be capitalized.
IFRS: Research is expensed, but development( after Technological feasibility) may be capitalized when conditions are met.

Question 7

How is a patent amortized?

Answer 7

straight line over the shorter of its estimated life or remaining legal life.

Question 8

What intangible assets can be amortized?

Answer 8

With finite life (not goodwill).

Question 9

Valuation method of intangibles?

Answer 9

GAAP: Cost model (cost- amortization or impairment).
IFRS: Cost model or Revaluation model( revalue and then take amortization or impairment). Revaluation loss or gain in the surplus range (above original carrying value) are recognized in OCI not income statement.

Question 10

How are Initial Franchise Fees accounted by franchisees?

Answer 10

As intangible asset and amortized over the expected period of benefit of the franchise.

Question 11

How are computer software development costs accounted?Expense or capitalize?

Answer 11

Expense costs (period R&D) in the preliminary state (or before techonlogical feasibility); After that, costs should be capitalized as inventory (for sale) or intangible asset (internal use).

Question 12

Valuation and amortization of capitalized computer software costs?

Answer 12

For sale: valued at lower of cost (amortized) or market (NRV). Amortized over the GREATER of estimated life or current sales(revenue) percentage
Internal use: Valued at cost and amortized over useful life (straight line)

Question 13

How are Intangible Assets with Finite Lives tested for impairment under US GAAP? Indefinite lives?

Answer 13

Finite life–2 steps–1.compare carrying value with undiscounted future net cash flows, if impaired, then step 2. impairment loss equal to the difference between the carrying amount of the asset and its fair value (discounted cash flow).
Indefinite lives– step 2 only.

Question 14

How is impirement loss treated differently under GAAP and IFRS?

Answer 14

IFRS allows reversal, GAAP doesn’t unless it’s held for disposal. GAAP is 2 steps method for finite, 1 step for infinite, IFRS is 1 step only.

Question 15

How is goodwill impairment determined under US GAAP?

Answer 15

If quantitative impairment tests necessary–first test:comepare the fair value of the each reporting unit with its carrying value, including goodwill, if lower, goodwill impairment is then measured by looking at the fair value allocated (implied residual) to goodwill and goodwill’s book value .

Question 16

Private company goodwill accounting?

Answer 16

amortize over 10 years or less.

Question 17

How is IFRS goodwill impairement done?

Answer 17

At the cash generating unit level. Carrying value of the CGU is compared with it’s recoverable amount, which is the greater of NRV (sell) and it’s value in use (keep) (present value of future cash flow). If impaired, impairment is first allocated to goodwill then other assets.

Question 18

How are uncompleted contracts presented on B/S using completed contract method?

Answer 18

Accumulated costs Dr “construction in progress” (inventory account), Progress billings Cr “Progress billings” (contra construction in progress). At year end, net of the two is presented on B/S as Current asset or liability.

Question 19

What methods does IFRS allow for long-term contracts?

Answer 19

Percentage of completion or Cost recovery.

Question 20

How is unrecognized installment sales profit recorded?

Answer 20

On balance sheet on a contra-receivable(liability) account.
Dr A/R, Cr inventory and Deferred gross profit (contra-receivable account). When cash is received, record profit by Dr deferred gross profit, Cr realized profit (revenue)

Question 21

Nonmonetary exchange, new asset basis?

Answer 21

With comercial substance–fair value of asset given up. Then calculate gain/loss (all rec’d)
Without comercial sub–Gain/loss is calculated first (gain may not all be rec’d), a plug based on book value of asset given up and the gain/loss is the new asset basis.

Question 22

For exchanges lacking comercial substance, how are gains or losses recognized?

Answer 22

Loss always recognized. Gains depend on boot received. No boot received, no gain; boot received less than 25% of total received, propotional amount of gain is rec’d; Boot received more than 25% total consideration received, all gain is rec’d(FV given-BV given, considered monetary exchange by both parties, gain by boot paying party reco’d as well).

Question 23

Is marketable common stock monetary or non-monetary asset when remeasuring F/S?

Answer 23

Non-monetary. Because it’s price fluctuates with inflation, etc.

Question 24

Direct vs indirect exchange rate?

Answer 24

Direct method is the (domestic) price of the foreign currency. Indirect method is the foreign price of one unit of the domestic price.

Question 25

When is local currency considered functional?

Answer 25

When the subsidiary is self-contained, integrated within the country; day to day operation does not depend on the oversea parent; and local economy is not highly inflationary.

Question 26

Exchange rates used when re-measuring financial statements?

Answer 26

B/S: monetary- spot rate; nonmonetary- historical rate.

I/S: non-balance sheet related- weighted average; balance sheet related- historical.

Question 27

Exchange rates used when translating financial statements?

Answer 27

I/S: weighted average.

B/S: asset and liability- spot rate; Common stock (self)-historical; retained earnings- roll forward.

Question 28

For pending transactions, does the unrealized foreign exchange gain/loss hit the I/S at year end?

Answer 28

Yes. Record Foreign exchange transaction gain or loss in “income from continueing operations”

Question 29

When converting foreign F/S, when to use remeasurement method? Translation method? How is the gain/loss reco’d due to exchange rate differences?

Answer 29

Remeasure when original currency used is not functional currency. Plug “currency gain/loss” in I/S so the B/S balances.
Translate when original currency is functional. Plug “translation adjustment” in AOCI in B/S so the B/S balances.

Question 30

When to record interest expense?

Answer 30

Accrue throughout the course of the loan. Dr expense, Cr liability.

Question 31

When to record royalty income?

Answer 31

When earned (not received)

Question 32

What’s an nonmonetary exchange with comercial substance?

Answer 32

Future cash flow changes (risk, time or amount). Fair value approach is used.