F2 Flashcards
On personal financial statements, how are all items are reported?
At their fair market value
Personal financial statements usually include which statements?
Statement of Financial Condition (B/S) and Statement of Changes in Net Worth (I/S)
When does the completed contract method recognize revenue and expense?
recognized when contract is complete, recognized immediately in their entirety
How is total gross profit/loss recognized?
(contract price - total costs to complete project) * % complete
Under the percentage of completion method, how is annual gross profit calculated?
(total costs incurred to date/total expected costs * total expected gross profit) _ total gross profit previously recognized
What happens to monetary assets during periods of inflation where the amount in the asset account remains constant?
we lose purchasing power loss
Purchasing power gains and losses are associated with what type of assets and liabilities?
Monetary
Where are translation adjustments and foreign currency remeasurement gains/losses included?
Foreign Currency Translation Adjustments (PUFER) included in OCI, gains/losses from remeasuring the foreign subsidiary_s financial statements from local currency to functional currency included in income from continuing operations
What is a foreign subsidiary_s functional currency?
the currency of the environment in which the subsidiary primarily generates and expends cash
When the re-measurement method is used, we take historical rates only for what accounts?
balance sheet accounts carried at cost
What is the current rate?
rate used to translate all assets and liabilities from the functional to reporting currency
If a non-monetary exchange has commercial substance, how is the transaction accounted for?
the transaction is accounted for using the fair value of the asset surrendered or received, which ever is more evident
When cash is received in a nonmonetary transaction < 10% of the total consideration, how do we treat this transaction?
a proportional amount of the gain is recognized
When a non-monetary transaction has commercial substance, how are gains and losses recognized?
fair value - book value (of the asset given up)
What is a restriction of asset value?
Assets should not be valued at more than fair value, so if BV>FV, the asset should be recorded at the lower FV
Under IFRS, how are changes of dissimilar assets treated?
regarded as exchanges that generate revenue, all gains and losses are recognized
When are gains and losses recognized in exchanges containing commercial substance?
gains and losses recognized immediately
When a transaction involving non-monetary exchange lacks commercial substance, what amount is used to record the newly acquired assets?
the reported amount of the non-monetary assets surrendered
Exceptions to valuing the transaction at fair value include:
if the exchange was made solely to facilitate the sale to a third-party that is not a party to the exchange lack of commercial substance
What 2 requirements are there in order to have commercial substance?
Risk, timing, and amount of the expected future cash flows from the asset transfer different significantly from the risk, timing, and amount of the expected future cash flow_s from the asset received OR the entity specific value of the asset differs significantly from the asset transferred
If a nonmonetary exchange lacks commercial substance and a boot is paid, how is this accounted for?
no gain is recognized
When can revenue be recognized under the installment method?
Revenue cannot be recognized prior to the completion of the long-term project
Under the installment method, what do we do with total gross profit and how is realized gross profit calculated?
total gross profit is deferred until cash payments are received realized gross profit = gross profit % on the sale * (cash collected + installment amount)
Under the cost recovery method, when is revenue recognized?
revenue is recognized after cash equaling the cost of the item has been collected
Under the installment method, how is deferred gross profit calculated?
installment receivable * gross profit %
When do we use installment sales?
When impossible to establish a reasonable bad debt percentage and probable some amount will be collected, but this amount cannot be projected
What is required for revenue recognition under GAAP?
a signed contract, transfer of risks and rewards, price is fixed and determinable, and collection is reasonably assured
How is amortization of capitalized software costs calculated?
GREATER of: straight-line amortization OR (sales revenue from software / total projected sale)
Before technological feasibility is established, how are computer software development costs treated?
Expensed as R&D
How should royalties paid be accounted for?
expense in period incurred
When does an impairment loss exist?
When carrying value > recoverable amount
When is goodwill capitalized?
only when incurred in the purchase of another entity
How do we treat costs incurred for maintaining or developing goodwill?
Expense
__________ all costs first successfully defended patents, _____________ all costs for unsuccessfully defended patents
Capitalize, Expense
When there is unlimited right of return, nothing should be recorded as revenue unless all of the following are met:
the sales price is fixed the buyer assumes all risk of loss the buyer has paid some form of consideration the amount of returns can be reasonably estimated
When are revenues recognized?
In the period they are realized or realizable
Is goodwill amortized?
No, Goodwill is not amortized, but periodically monitored for impairment
When are start-up costs required to be expensed?
when incurred
US GAAP requires goodwill to be tested for impairment at what level?
reporting unit level
How does US GAAP handle subsequent reversal of intangible asset impairment losses unless the intangible asset is held for sale
US GAAP prohibits
Decrease in A/R will be larger under which basis of accounting?
Cash (cash is being paid to us)
Increase in A/P represents expenses incurred but not yet paid, resulting in a higher income for which basis of accounting?
Cash (we have not yet paid, so we have more cash)
Test for recoverability
if undiscounted cash flow_s > carrying amount, no impairment if undiscounted cash flows < carrying amount, impairment = the carrying amount - fair value
Under IFRS, how is goodwill impairment is analyzed?
at the cash generating level
IFRS goodwill impairment process (one-step process)
Carrying value of the cash generating unit - the GREATER of (cash generating unit’s FV - cost to sell) or value in use (present value of future cash flows)
How is GAAP impairment loss calculated?
goodwill implied fair value - goodwill book value
When converting from cash basis to accrual basis, what are the primary rules to consider?
add increase in current assets subtract decreases in current assets add decreases in current liabilities subtract increases in current liabilities
Initial payment that can be applied against future payments should be recognized as a _____________ (as a liability)
deferred revenue
Research costs associated with on internally developed asset are always _________
Expensed
IFRS development costs may be capitalized if the following criteria are met:
Technical feasibility established, Company intends to complete the asset, company has ability to sell or use asset, sufficient resources available to complete, and asset will generate future economic benefits
When is goodwill recognized in the balance sheet?
recognized in the balance sheet when created from a business acquisition
When does the franchisor report revenue from initial franchise fees?
When all material conditions of the sale have been substantially performed
How to we treat finite life intangibles?
Amortize over the period benefited
What is the time period over which Intangibles are amortized?
the lesser of their legal or economic life
What is the IFRS recoverable amount equal to?
the GREATER of (fair value - costs to sell) or value in use (present value of future cash flows)
What is true about all non-monetary transactions?
Fair value given equals the fair value received and we recognize losses in full
What a fixed asset is sold, gain or loss is recognized as ______________________ and the amount of the gain or loss equals ___________________.
Income from continuing operations, the proceeds from the sale minus the caring amount of the fixed asset
When is gain on non-monetary transactions recorded?
if we receive cash or boot
When do transactions lack commercial substance?
if the assets exchanged have a similar productive use and the amount of cash exchanged is insignificant
How are direct costs of doing contracted R&D work treated?
Capitalized
How is R&D equipment treated based on whether is has alternative future use or can only be used on the current project?
Capitalize with alternative future use and expense immediately if the equipment can only be used on the current project
How are patent costs treated?
Always capitalized
R&D costs are expensed as incurred under US GAAP except for:
cost to be reimbursed by another company costs for a long lived tangible asset with alternative future use
A cash deposit received from a customer for future services is a _______ until the sale takes place
Liability
Where should the amount of deferred gross profit relating to installment A/R collections 12 months beyond the balance sheet date be reported?
Current assets as a contra account
How is installment sales gross profit calculated?
Total installment sales * (proportion of collections on installment sales / cost of installment sales)
We __________ costs between the idea phase and technological feasibility phase, __________ costs between the technological feasibility and release for sale phases, and once the product is released for sale, we _________ costs
Expense, Capitalize, Amortize
If the entity_s books are not maintained in it_s functional currency, what is required and where do gains or losses go?
Re-measurement into functional currency is required and any gain or loss is part of continuing operations
Where are translation gains/losses recorded?
OCI under Shareholder’s Equity
Where should a company that wishes to disclose information about the effect of changing prices should report this information?
Supplementary information to the financial statements
Holding net monetary assets during inflation will result in a ______ of purchasing power while holding net monetary liabilities will result in a ______.
Loss, Gain
R&D work a company does for a client is an __________ but R&D done work for the company by another company is an ___________.
Operating Expense, R&D Expense
If computer software is to be used internally, how do we treat development costs?
Amortized on straight-line basis using GAAP
