FAR 1 Flashcards
Can the internal development of goodwill be capitalized?
No.
How do you report contest prize expense?
First payment plus present value of total subsequent payments.
How are R&D contracted out to a third party, pre-production prototypes and costs for searching for new products reported?
As expenses.
Under IFRS, how is goodwill impairment calculated?
One step test at the cash generating unit level.
The carrying value of the cash generating unit is compared to the cash generating unit recoverable amount. The impairment loss is first allocated to goodwill and any remaining is allocated pro rata to the other assets.
Compared to the accrual basis of accounting, the cash basis of accounting understates income by the net decrease during the accounting period of?
Accrued expenses.
The cost of a trademark is amortized over?
Its economic life.
Is market research considered research and development?
No.
If software is for internal use, is it considered r and d?
No.
Once a patent is established, should legal costs to successfully defend the patent be capitalized?
Yes, and amortized over the lesser of the patent’s useful economic life or its legal life.
Going from cash basis to accrual basis, how is an increase in A/R treated?
Added back because the cash is used to pay down prior payables.
Going from cash basis to accrual basis, how is a reduction in A/P treated?
It is added back because a reduction in A/P means cash is used to pay down prior payables.
How do you compute sales revenue and sales taxes payable?
Credits to sales revenue / sales tax rate plus one = sales revenue
When there is an unlimited right of return, when do you record sales revenue?
Four conditions must be satisfied:
1) The sales price is substantially fixed
2) The buyer assumes all risk of loss
3) The buyer has paid some form of consideration
4) The amount of returns can be reasonably estimated.
What kind of cost is development or improvement of techniques and processes?
A research and development cost.
What type of expense is research and development performed under contract for others?
Do not expense.
Market research is
not an R AND D COST.
How do you record maintenance of goodwill?
Expense.
When computing net sales
Subtract allowance for sales return.
How does a decrease in accounts receivable affect income going from cash basis to accrual basis?
Decrease in A/R represents cash paid in the current period on A/R from prior periods.
How does a decrease in accounts payable affect income going from cash basis to accrual basis?
A/P means there is an expense that has not yet been paid. Dr. Office Supplies Cr. A/P…..No cash has been paid so cash basis would be higher net income than accrual. Therefore, decrease the accrual basis income.
How do you calculate unearned franchise fees?
Unearned franchise fees: Cash payment + PV of future payments.
How are amounts for current and future projects accounted for?
Not expensed becasue projects have alternate future uses. However, the equipment will be capitalized and the related depreciation expense with be allocated to R&D.
How are legal fees to obtain a patent accounted for?
Capitalized as an intangible asset.
The matching principle:
Matches expenses again revenues in the same accounting period.
