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FARE2 > F2-Terminology > Flashcards

F2-Terminology Flashcards

1
Q

What is an Event?

A

Is something that happens to an entity and can it occur either internally or externally.

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2
Q

What is a transaction?

A

is an event that occurs external to the entity and typically involves a transfer of value from one entity to another.

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3
Q

Requirements for the revenue recognition? Under GAAP

A

should be recognize queen it earned, realized or realizable.

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4
Q

Four criteria must be meed for each element of the contract before any revenue recognize?

A
  • Persuasive arrangement with the customer
  • Delivery of product occurred or services have been rendered
  • the price is fixed
  • Collection is reasonably assured
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5
Q

When and What is the criteria about the recognize the revenue from the sales of products or disposal?

A

-Is recognize at the date of sale
Criteria:
-transfer of legal title
-delivery of goods

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6
Q

What are the four categories of revenues under IFRS?

A

-Sales of Goods
-Rendering of Service
-Revenue from Interest, Royalties, Dividends
-Construction Contracts
Each category has its own recognition rule

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7
Q

Revenue recognition rule about Sales of Goods? IFRS

A
  • revenue and cost can be measured reliably
  • Its probable that economic benefits from the transaction will flow to the entity
  • the entity has transfer to the buyer the significant risk and rewards of ownership
  • entity does not retain managerial involvement associated with ownership and control over the goods sold.
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8
Q

Revenue recognition rule about Rendering of service? IFRS

A

-is recognize using the percentage of completion method when the outcome of the transaction can be estimated reliably
When the transaction is reliable?
-revenue and cost can be measured reliably
-Its probable that economic benefits from the transaction will flow to the entity
-the stage of completion can be measure reliably (end of period)

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9
Q

Revenue recognition rule about interest, royalties, dividends? IFRS

A

Are recognize when all of the following conditions have been met:
-revenue and cost can be measured reliably
-Its probable that economic benefits from the transaction will flow to the entity
Method for:
-dividends-recognize when the shareholders’ rights to receive the payment
-interest-use effective interest method
-royalties- are recognize on accrual basis.

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10
Q

Revenue recognition rule about Construction contracts? IFRS

A

-recognize as revenue and expense using percentage of completion method when the outcome of the construction contract can be estimated reliably
When the transaction is reliable?
-revenue and cost can be measured reliably
-Its probable that economic benefits from the transaction will flow to the entity
-Both the contract cost and stage of completion can be measure reliably(end of period)
-Expected loss

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11
Q

How we recognize the revenue of multiple elements or service?

A
  • the fair value of the contract must be recognized separately.
  • Then the revenue is recognize separately for each element on the revenue recognition criteria.
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12
Q

What is a deferred credits?and what is the special account ?

A

-When the cash is receive before it is earned, but is not recognizable.
Special account:
-Unearned Revenue or Deferred Revenue

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13
Q

What are the installments sales?

A

-revenue is recognize as collections are made.

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14
Q

what is the Cost Recovery method?

A

-not profit is recognized on a sale until all costs have been recovered.

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15
Q

What is the non-monetary Exchanges?

A

-deliver goods and receive others goods.

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16
Q

when occurs the realization?

A

-Occurs when the entity obtain cash or the right to receive cash or has converted a non cash resource into cash.

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17
Q

What are those expenses hat do not have cause-effect relationship with revenue?(Expire Cost)

A
  • Amortization
  • Depreciation of Long Lived Assets
  • certain administrative costs (Period Costs)
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18
Q

What is a Deferral Transaction?

A

-We have an impact in the cash account but not in the net income.
Ejemplo:
Deferral Asset= Unearned Revenue
Deferral Expense= Prepaid (asset)

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19
Q

What is an accrual transaction?

A

-today not have impact in cash account but Net Income

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20
Q

What is an accrued asset or revenue?

A

-Recognition of an accrued asset represent revenue recognize or earned through the passage of time.

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21
Q

What is an accrued liability or expense?

A

-represent expenses recognized or incurred through the passage of time but no yet paid.

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22
Q

What is an estimated liabilities?

A

-represent recognition of probable future charged that result from a prior act.
Example - Contingencies

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23
Q

What are the cost that may be applicable to past, present or future periods?

A
  • Expired Cost

- Unexpired Cost

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24
Q

What is an Expired Cost?

A 
-expire during the period and have no future benefit
Examples
-Insurance Expense
-Cost of Good Sol
-Period Costs
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25
Q

Unexpired Costs?

A

should be capitalize and matched against future revenues.

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26
Q

Characteristics of deferred credits? (3)

A
  • Deferred credits have not yet been earned by the passage of time
  • deferred credits are located in the liability section of the balance sheet.
  • represent future income contracted for and/or collected in advance
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27
Q

What is the revenue recognition rule when the customer has the right of return?

A

at the time of the sale if ALL require conditions are met:

  • The sale price is fixed
  • The buyer assumes all risk of loss
  • The buyer has paid
  • Product sold is substantially complete
  • The amount of future returns(devoluciones) can be reasonably

If this conditions are not met, the shall be deferred.

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28
Q

What is a franchise?

A

Operations include a franchisee that receives the right to operate one or more units of a franchisor’s business.

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29
Q

Types of feed that involve a Franchise? Explain

A
  • Initial Franchise Fees-Paid by the franchisee for initial services from the franchisor. (Site selection, supervision of construction, bookkeeping, services, quality control)
  • Continuing Franchise Fees- Paid by the franchisee for the ongoing services provided by the franchisor.
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30
Q

How it recognize initial and continuing fees?

A

Initial- as unearned revenue (franchisor)

Continuing Fee-as revenue when the are earned by the franchisor

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31
Q

how the Franchisor Accounting Unearned Revenue?

A

-Is accounted as present value, is recorded as unearned revenue and is recognize as revenue when all material conditions of the sale have been substantially performed.

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32
Q

under Franchisor Accounting, it can be used earlier recognition methods?

A

Yes, such as installment or cost recovery method.Only when:

  • revenue is collectible over an extended period of time
  • there is nor reasonable basis for estimating collectibility.
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33
Q

What is an Intangible Asset?

A

Long lived legal rights and competitive advantages developed or acquired by a business enterprise.

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34
Q

Types of intangible assets?

A 
Identifiable Intangibles:
-patents
-copyrights
-franchises
-trademarks
Non-Identifiable
-goodwill
35
Q

How is the manner of acquisition of purchases intangible asset?

A
  • is acquired from other enterprise or individuals and should be recorded as an asset cost including legal and registration fees to obtain the asset
  • Must be Capitalized
36
Q

How is the manner of acquisition of internally developed intangible?

A

-internally developed intangible not acquired for others should be expensed, because R&D capitalization is prohibit.
The only exception of capitalized cost for intangibles are:
-legal fees
-defense of the asset fees
-registration, consulting fees
-design costs
-other direct cost to secure the asset

37
Q

Under IFRS, how it treat Development?

A

-research is expense bu development
is recognize if the entity demonstrate:
-technological feasibility has been established
-the entity intends to complete the intangible asset
-the entity has the ability to use or sell the intangible asset
-the intangible asset will generate future economic benefits
-adequate resources are available to complete the development and sell or use the asset.- o sea si hiciste un intangible y no puedes operarlo, o venderlo por falta de dinero, entonces se lleva a gasto.

38
Q

the classification of an intangible depends on?

A
  • If the economic life can be determinable or indeterminable

- if the intangible cab be separate from the entity or inseparable (patent and goodwill,trade name respectively)

39
Q

Cost of intangible is measure by?

A
  • amount cash disburse or assets distributed
  • present value of amounts to be paid for liabilities incurred
  • fair value of consideration receive
40
Q

Formula to determine indeterminable intangible?

A

Cost of the group of assets(Purchase Price) - ( Fair Value of identifiable assets(not include goodwill) less liabilities assumed)

41
Q

Goodwill can be amortized?

A
  • No for public entities- test for impairment

- Yes for private entities(10 years)

42
Q

Rules for intangibles?-explain

A
  • Worthless- write off entire cost to expense if intangible become worthless
  • Impairment- write down the intangible and recognize an impairment loss.
  • Change in useful life- if the life is reduce or extended
  • Sale- compare the selling price with the carrying amount and determine a gain or loss.
43
Q

What is the valuation of intangible under US GAAP?

A
  • Finite Life- Cost - (amortization + impaiment)

- Indefinite Life- Cost - Impairment

44
Q

What is the valuation of intangible under IFRS?

A
  • Cost Model

- Revaluation Model

45
Q

How it work cost model of IFRS?

A
  • Under this cost the valuation for finite life is Cost - (amortization + impairment)
  • Indefinite Life- Cost - Impairment
46
Q

How it work revaluation model of IFRS?

A

-intangible are initially recognize at cost and the evaluated to fair value.
Formula:
FV on revaluation date - subsequent amortization - subsequent impairment

47
Q

If the revaluation model is used I could not revaluate the intangible?Under IFRS

A

-NO, if the intangible is active on market, the intangible should revaluate each reporting period.

48
Q

If a revaluation of the intangible is a Loss? What we do? Under IFRS

A

-Contabilizamos la perdida en el income statement, pero si el año anterior había una ganancia, la cantidad del loss que contra-reste la ganancia va a OCI y la cantidad que sobre va al I/S.

49
Q

If a revaluation of the intangible is a Gain? What we do? Under IFRS

A

-Se contabiliza en OCI. Si el gain contra resta un Loss, el gain tiene q llevarse al income statement hasta el monto del loss y lo que sobra se lleva a OCI.

50
Q

If is an impairment? What we do? Under IFRS

A

-se reporta en OCI a contrarrestar algún gain y el restante se va para I/S

51
Q

How the franchisee accounting the Initial Franchise Fee?

A

The present value of the amount paid by franchisee is recorded as an intangible asset and amortized over the expected period of benefit

52
Q

How the franchisee accounting the Continuing Franchise Fee?

A

Include:
-management training, promotion, legal assistance.
Should reported as an expense.

53
Q

How the franchisee accounting the Start-Up Costs?

A
  • Expense incurred in the formation of a corporation are considered organizational costs.
  • Should be expensed
54
Q

What include start-up cost?

A
  • Organizing a new entity- legal fees, agreements, bylaws, original stock certifications, filing fees
  • opening new facility
  • introducing new product or service
  • conducting business in a new territory
  • initiating new process in an existing facility
55
Q

What not include start-up cost?

A
  • business merger or acquisition
  • ongoing customer acquisition
  • any cost to improve, enrich, routine of existing product, service,process or facilities
56
Q

What mean Goodwill?

A

-Representation of intangible resource and elements connected with the entity. Example:
=management or marketing expertise, knowledge, skills that cannot be valued separately

57
Q

Two methods for calculation of goodwill?

A
  • Acquisition Method= Excess of an acquired entity’s fair value of the net identifiable assets
  • Equity Method= Excess of purchase stocks over the fair value of net identifiable assets
58
Q

Other cost for maintaining goodwill should be capitalize?

A

NO, they are expensed.

59
Q

What mean research in accounting?

A

-is the planned efforts to discover new information that helps either create a product, process, service, technique, or improve the current use.

60
Q

What mean development?

A

takes the finding of research and formulates a plan to create the desire item or improve significantly the existing one.

61
Q

What is the treatment of R&D? Exceptions?

A

-All cost are expensed.
Except:
-Materials, equipment or facilities that have alternate future uses (Capitalized & Depreciated over their useful life)

62
Q

What are the items not considered R&D?

A
  • Routing periodic changes to old products or troubleshooting (are manufacture cost)
  • Marketing Research
  • Quality Control Testing
  • Reformulation of a chemical compound
63
Q

How I classify the cost of computer software developed for sold, leased, licensed?

A
  • All cost are expensed until the software will be technological feasible.
  • After the software is technologically feasible then all cost will be capitalized.
64
Q

All cost capitalized regard the software development to be sold, what is the method for amortization to be used?

A

Haremos los dos modelos de amortización y luego se escoge la mayor.

Modelos son:
Percentage revenue y straight line

65
Q

What is the formula of percentage revenue?

A

Total capitalized amount X ( Current gross revenue for period/total projected gross revenue for product)

66
Q

How is reported the software developed for sold on balance sheet?

A

-at the lower of cost or market

Market is net realizable value

67
Q

How I classify the cost of computer software developed internally or obtained for internal use?

A
  • All cost are expensed until the software will be technological feasible.
  • Cost capitalized should be amortized under straight line.
68
Q

How we tested for impairment an intangible asset with finite live?

A

In two steps:
1-The carrying amount of the asset is compare to the sum of undiscounted cash flow expected to result from the use of the asset (si el flujo de efectivo es menos quiere decir que usted no va a poder recuperar el carrying value por lo que perdió valor)- si es así procedemos al segundo paso
2- We compare what is the value of the intangible in the market with the amount in our records. If it so, the asset is impaired and the impairment loss is the difference between the carrying amount and the fair value.

69
Q

how we tested for impairment an intangible with indefinite life?

A

-w just compare the FV and Carrying amount. If the fair value is less than the carrying amount then is recorded an impairment loss.

70
Q

how we report an impairment loss?

A

-is reported as a component of income from continuing operations before income taxes, unless is related to discontinued operations.

71
Q

under IFRS the impairment for intangible is the same? why?

A
  • Is calculated using one-step model.

- CV compared with recoverable amount.

72
Q

What mean recoverable amount under IFRS?

A

The greater of the asset’s FV less cost to sell and the asset’s value in use.

73
Q

What is a reporting units in terms of goodwill?

A

is an operating segment or one level below an operating segment.

74
Q

What is the first step of evaluation of goodwill impairment?

A

1-identify potential impairment by comparing the fair value of the reporting unit with its carrying amount., including goodwill. Points to evaluate

  • Assign assets and liabilities to the various reporting units. Assign goodwill to the reporting units.
  • determine the FV of assets and liabilities of those reporting units
  • if the FV is less than the carrying amount there are a potential impairment loss and pass to the step 2. If not then do not do the step 2
75
Q

What is the second step of evaluation of goodwill impairment?

A

2- Measure the amount of goodwill impairment loss comparing by the carrying amount of goodwill with the actual fair value.

76
Q

How we calculate implied goodwill?

A

-allocate the fair value of the reporting unit to all assets and liabilities of the unit. Any FV that cannot be assigned to specific asset and liabilities is the implied goodwill

then we compare the implied FV of goodwill to the carrying amount of the goodwill.

Implied goodwill

77
Q

What qualitative factor can me evaluate before determine an impairment loss?

A
  • Macroeconomic Conditions
  • Overall Financial Performance
  • Bankruptcy , litigations, changes in management,
  • industry and market conditions
  • decrease in share price
  • negative factor on earnings
78
Q

What is the journal entry of impairment loss in goodwill regard a reporting unit?

A

Loss due to impairment

Goodwill

79
Q

What is the journal entry to record the franchise? Franchisee Accounting

A

Franchise
Discount on notes payable
Notes Payable
Cash

80
Q

What is the journal entry to record the franchise? Franchisor Accounting

A

Cash
Notes Receivable
Discount on Notes Receivable
Unearned Franchise fee revenue

81
Q

Accounting for computer software development in expenses?

A 
Expenses cost:
Planning
Design 
Coding
Testing
82
Q

Accounting for computer software development in capitalizations?

A

Capitalize Cost:
Coding
testing
producing product masters

83
Q

How to convert from cash basis to accrual basis?

A
  • Add increase in current asset
  • subtract decrease in current assets
  • Add decrease in liabilities
  • subtract increase in liabilities

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