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FAR > F2-Time Issue > Flashcards

F2-Time Issue Flashcards

1
Q

Research and Development Under GAAP and IFRS

A

Under GAAP-expensed

Under IFRS- research expensed but development may be capitalized if met criteria

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2
Q

Research and Development

A

Program design, planning, coding, testing
Before Technological Feasibility

Prototype testing, design modification

Improvement of techniques and processes

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3
Q

Amortization of capitalized software costs

A

Equals the greater of straight-line amortization or sales revenue from the software for the period ÷ total projected sale.

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4
Q

Successful legal defense costs related to patent

A

Should be capitalized and amortized over the lesser of the patent’s useful economic life or its legal life.

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5
Q

Patent will be capitalized and amortized over

A

The lesser of legal life or economic life

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6
Q

Internal development of goodwill

A

Cannot be capitalized, expensed

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7
Q

Goodwill-Amortized?

A

Not amortized, but it is subject to an impairment test.

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8
Q

R&D contracted out to a third party

A

Under U.S. GAAP reported as R&D expense.

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9
Q

Goodwill-Capitalized

A

Only when incurred in the purchase of another entity.

Costs incurred for maintaining or developing goodwill are expensed.

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10
Q

Trademark Amortization

A

Using buyer’s basis( usually the selling price), not seller’s carrying unamortized amount.

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11
Q

Software is for internal use

A

Not considered research and development

Under U.S. GAAP, Research and development includes costs incurred prior to technological feasibility for developed software that is to be sold, leased, or marketed.

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12
Q

Items that not qualified for research and development

A

Items not considered research and development include: Routine periodic design changes to old products or troubleshooting in production stage, marketing research, quality control testing and reformulation of a chemical compound.

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13
Q

Patent- Legal fee

A

Legal fees and other costs associated with registering a patent are capitalized.

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14
Q

Unsuccessful defense patent

A

Should be expensed

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15
Q

Successful defense paten

A

Should be capitalized and amortized, including purchase price, acquisition cost, legal fees.

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16
Q

Research and Development- materials, equipment,or facilities have alternate future usage

A

Are capitalized and depreciated over their useful lives.

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17
Q

Franchise-initial franchise fee

A

The franchisor should report revenue from initial franchise fees when all material conditions of the sale have been “substantially performed.”

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18
Q

Sale under an arrangement

A

When there is an unlimited right of return, nothing should be recorded as sales revenue unless four conditions are satisfied.

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19
Q

Unlimited right of return sell must meet these four conditions to recognized revenue:

A

The sales price is substantially fixed
The buyer assumes all risk of loss
The buyer has paid some form of consideration
The amount of returns can be reasonably estimated

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20
Q

Software developed internally, costs incurred IN the preliminary project stage

A

Expensed under U.S. GAAP

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21
Q

Software developed internally, costs incurred AFTER the preliminary project stage

A

capitalized and depreciated over the economic life

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22
Q

Revenues should be recognized

A

in the period in which they were earned and realized or realizable

23
Q

Expenses are recognized

A

when an entity’s economic benefits are used up in delivering or producing goods, rendering services, or other activities that constitute its ongoing major or central operations.

24
Q

Start-up costs

A

GAAP requires that start-up costs, including organizational costs, be expensed

25
Q

Goodwill should be tested for value impairment at which of the following levels under U.S. GAAP?

A

Each reporting unit.

26
Q

If this sum of undiscounted expected (future) cash flows is less than the carrying amount,

A

Impairment loss or expense needs to be recognized

27
Q

Subsequent reversal of intangible asset impairment losses

A

Under U.S. GAAP, is prohibited unless the intangible asset is held for sale.

28
Q

Unearned franchise fees formula

A

cash payment
+ PV of future payments
=Franchise revenue/ unearned franchise fee

29
Q

The matching principle:

A

Matches expenses against revenues in the same accounting period.

30
Q

Goodwill should be tested for impairment at which of the following levels under IFRS?

A

Each cash-generating unit.

31
Q

Deferred revenue related to gift certificate

A

When the gift certificates are sold, deferred revenue is increased.
When the certificates are redeemed, the revenue is earned and shown in the income statement. Deferred revenue is decreased.
When the certificates lapse, the company has no further liability and revenue is earned. Deferred revenue is decreased.

32
Q

Under IFRS the development costs may be capitalized if all of the following criteria are met:

A

1) Technical feasibility has been established.
2) The company intends to complete the asset.
3) The company has the ability to sell or use the asset.
4) Sufficient resources are available to complete the development and sell / use the asset.
5) The asset will generate future economic benefits.

33
Q

Finite intangible asset reported under US GAAP

A

Reported at cost - amortization -impairment

34
Q

Infinite intangible asset reported under US GAAP

A

Reported at cost-impairment

35
Q

Intangible asset reported under IFRS

A

Either the cost model or the revaluation model

36
Q

Cost Model

A 
Just like U.S. GAAP model
Cost
-amortization
-impairment 
=carrying value (Finite life only)
37
Q

Revaluation Model

A

Fair Value on revaluation date
-subsequent amortization
-subsequent impairment
=carrying value ( finite life only)

38
Q

Where to report loss and gain under Revaluation Model?

A

Loss-I/S
Gain-OCI

To reverse loss from previous year, recognized revaluation gain on the I/S, then rest reported on OCI

Revaluation loss this year, prior year had gain, report loss to OCI first to offset gain, then rest I/S

39
Q

Research and Development undertaken on behalf of other under a contractual arragement

A

Do Not Expensed

40
Q

US GAAP- intangible asset (Infinite Life)

A

Life extend beyond the foreseeable future
No amortization
One step impairment test:
2. Fair value

41
Q

Reporting of Impairment loss of intangible asset other than goodwill

A

Income from continuing operation unless is discounted operation

42
Q

IFRS- Impairment loss of intangible asset

A

Step 2 model:
Recoverable amount
- Carrying value
=Impairment loss

Recoverable amount: GREATER OF:
Fair Value - cost to sell
Asset value in use ( PV of future cash flow)

43
Q

Recoverable amount

A

GREATER OF:

  • Fair Value less cost to sell
  • Asset value in use
44
Q

Asset value in use

A

Present value of future cash flow expected.

45
Q

Impairment Intangible Asset other than Goodwill Loss: step one

A

Undiscounnted future net cash flow
- Net carrying value
=Positive (no impairment loss)
=Negative (impairment loss), go to step two

46
Q

Impairment Intangible Asset other than Goodwill Loss: step two

A

Asset held for use:
Fair value
- Net carrying value
=impairment loss

Asset held for disposal:
  Fair value
- Net carrying value
\+Cost of dispodal
=Total impairment loss
47
Q

Goodwill impairment loss under US GAAP

A

Fair market of reporting unit less then carrying value of reporting unit

48
Q

Goodwill impairment loss under US GAAP formula:

A

Impairment loss = Goodwill implied fair value - Goodwill book value

FV of reporting unit
- FV of reporting unit’ asset and liability
=Goodwill implied fair value

49
Q

Goodwill implied fair value

A

FV of reporting unit
- FV of reporting unit’ asset and liability
=Goodwill implied fair value

50
Q

Goodwill impairment loss under IFRS formula:

A

Impairment loss = Recoverable amount - Carrying value

*same as the impairment for “Intangible Asset other than goodwill”

51
Q

US GAAP- intangible asset (Finite Life)

A 
Useful life is limited
Amortized over useful economic life
Two step impairment test:
1. Undiscounted net cash flow
2. Fair value
52
Q

Conversion: Cash –> Accrual

A

+ -
A + -
L - +

53
Q

Conversion: Accrual–>Cash

A

+ -
A - +
L + -

FAR (24 decks)

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