FAR 18 Flashcards
When is a depreciable asset impaired and how - GAAP
When CV will NOT be recovered by undercounted future cashflows over its remaining useful life
The impairment loss is measured as CV - FV
How do you adjust ARO balance at year end
Beginning balance (257,000) Increased by accretion expense (26,000) Increased by new ARO ( PV of discounted cashflows) (68,000) reduced by payments of 87,000 = ending balance of $264,000
IFRS - accounted fro similar to GAAP
How do you record a donated asset (nonreciprocal transfer)
When no equity or other assets are exchanged the entity will recognize the assets at their fair value of assets received as a form of non-operating income
It will result in a credit to either revenue or gain
How are intangibles created
They are either made or acquired
They do not have a physical form
They are useful for a business for longer than a year
What kind of lives do intangibles have
- they can have either a finite life or indefinite life, but ALL must be evaluated for impairment
What are examples of Identifiable and unidentifiable intangibles
Identifiable - these are legally identifiable such as copyrights, customer lists, an patents
Unidentifiable - good will
What is an intangible with definite life
- This is an intangible that legally or otherwise has factors that limit is life
- patents, copyrights
- Useful life - refers to how long the asset will provide a benefit
- this may not be the same as its legal life on paper
Example: a patent may have a legal life of 20 years, but management projects it will only generate cash flow for 10 more years - its useful life is really 10 years
What is an intangible with indefinite life
- Trademarks
- there is no foreseeable limit on the life of the asset
How do you account for definite life intangibles
- You capitalize external costs (legal fees)
- They are amortized over their useful life on the straight-line method
- There is impairment if the book value is greater than the recoverable cost (BV > recoverable cost)
The amount of the impairment = BV - FV
How do you account for indefinite life intangibles
- you capitalize external costs
- they are NOT amortized
- Exception - Goodwill CAN be amortized for non-public co. straight-line over a 10-year period
Impairment = BV - FV
What is goodwill
- This is the excess over the fair market value of the acquired company’s assets.
- It represents brand vale, customer loyalty, etc.
Goodwill is NOT amortized ( except for private co.) but is can be impaired
-Impairment loss on goodwill: CV of Goodwill > FV = impairment loss
Where does impairment loss go?
part of continuing operations
What is the difference between GAAP and IFRS for intangibles
GAAP - re-evaluation of goodwill is NOT allowed
IFRS - re-evalaution is YES allowed IF in an active market
GAAP - reversal of goodwill is NOT allowed
IFRS - a reversal of an impairment is YES permitted
GAAP - Goodwill is recognized at the “reporting unit” level
Under IFRS - It is recognized at the cash generating unit
How are R&D costs treated
- R&D costs are expensed immediately
- The one exception is equipment purchased for the production of future projects (current and future)
- these can be capitalized and depreciated
What costs can be considered R&D
- research aimed at new discovery
- searching for way to apply new research findings
- formulation and design of possible products or process alternative
- product testing or testing of process alternatives
- modification of the design of a product or process
- preproduction prototypes: design,construction, and testing
- design of tool and molds - NEW tech
- design of a pilot plant ( not used in commercial production
- engineering - take a design to the manufacturing phase
