F2 - Timing Issues Flashcards
How are uses of the entity’s assets by another party recognized?
When the assets are used; as time passes (i.e. royalties, rents, interest)
How are R&D expenses treated under GAAP?
Expensed against income when incurred (exceptions: successful legal defense, registration fees, design costs, other direct costs to secure the asset)
How are excess prepaid assets treated when they expire?
Reduce the account to zero (e.g. remaining balance of prepaid insurance when the policy expires)
T/F: Costs to maintain, develop and restore goodwill are capitalized
False; they are expensed immediately (no internally generated intangible assets are capitalized (with a few exceptions))
What is included in R&D expense?
Most things except:
- PPE that have an alternative future use
- R&D undertaken on behalf of another party (they will expense)
How are Initial Franchise Fees treated in comparison to Continuing Franchise Fees by the franchisee?
Initial are capitalized and amortized over the useful life and Continuing are expensed as incurred
How should “evenly” be interpreted?
Using a July 1 (half-year) date to calculate deferred revenue or expenses
What is not considered R&D expense?
1) routine periodic design changes to existing products
2) marketing research
3) quality control
4) reformulation of a chemical compound
5) any product or software developed for internal use
If a patent is unsuccessfully defended in a legal action, what steps should be taken?
Expense the fees and test the patent for impairment (which it probably is because it doesn’t have value since it was not held up in court)
T/F: Unbilled fees should be accrued in the period in which they occurred
True; no billing document is necessary in order to accrue the expense
How are Initial Franchise Fees treated in comparison to Continuing Franchise Fees by the franchisor?
Initial are all recognized as revenue when the services are “substantially performed” and Continuing are recognized when earned
T/F: Costs incurred after the preliminary project state are expensed
False; costs incurred AFTER the preliminary project state are capitalized and costs incurred BEFORE the preliminary project state are expensed
At what level is impairment required to be tested under GAAP? Under IFRS?
GAAP: each reporting unit
IFRS: each cash-generating unit (CGU)
T/F: Legal and registration fees incurred to obtain an intangible asset should also be capitalized
True; everything else (salaries, research, training) should be expensed
What is the goodwill impairment loss procedure under IFRS?
Carrying value of CGU compared to CGU recoverable amount (greater of FV less costs to sell and value in use (PV of future cash flows))
