FAR 19

Question 1

What are examples of R&D Expenses

Answer 1

• research salaries

- prototype costs

Question 2

What are example of R&D costs that can be capitalized because related to commercial production

Answer 2

• legal fees for patent
• followup during early phases of commercial production
• marketing research to promote new car

Question 3

What do you do with the expenses associated with forming an organization

Answer 3

they should all be expenses as incurred including those associated with forming an organization and legal costs of incorporation

Question 4

How do you treat outsourced R&D services performed BY another Co

Answer 4

• Expense it to R&D immediately

Question 5

How do you treat quality control costs during commercial production

Answer 5

This is NOT a R&D expense

Question 6

How do you treat R&D services performed FOR another Co?

Answer 6

These generate revenues - therefore Not a R&D expense

Question 7

What costs incurred in obtaining or developing internal-use software may be capitalized

Answer 7

• external direct costs to third parties for software development, costs of obtaining the software from a vendor, and travel expenses by employees as part of the development
• payroll for time spend directly developing the internal-use project
• interest costs while developing internal use software

Question 8

Under IFRS - what must you do in order to capitalize costs to internally develop an identifiable intangible (copyright, customer lists, patents)

Answer 8

• Must demonstrate that completion is technologically feasible
• They have the intent and resources available to complete it
• They have the ability to use or sell it
• It will generate probably future economic benefits
• All costs can be reliably be measured

Question 9

What are the capitalizing costs related to the issuance of a patent

Answer 9

A patent is a discreet intangible resulting from R&D and its direct costs can be capitalized

• you can capitalize the of applying for and successfully defending the patent
• Costs incurred for unsuccessfully defending a patent cannot be capitalized - and must be expensed

Question 10

How do you recognize revenue a franchise agreement

Answer 10

Revenue is only recognized once the franchisor has performed substantially all material contractual services and collectibility is reasonable assured.

• you can recognize all in the first year if you have performed all series and and feel comfortable the revenue will be collected

Question 11

When goodwill is recognized in a business combination when and how is goodwill impairment tested

Answer 11

• goodwill is allocated among all of the reporting units included in the acquisition
• a reporting unit can be an operating segment or may be lower - meaning that an operating segment can contain more than one reporting unit.
• subsequent impairment testing can be done at the operating segment level or a a lower level (one below)

Question 12

What do you do with software asset modifications and annual software maintenance agreements

Answer 12

You capitalize the software asset modifications and you expense the maintenance agreement for the portion of the year that is was in effect

Question 13

Does it matter if R&D is likely or not to result in future benefit?

Answer 13

No - all R&D is expensed regardless of future benefit or not

Question 14

How is an intangible defined under IFRS

Answer 14

It is an identifiable non monetary asset without physical substance

Question 15

What are the two models that IFRS will allow for the accounting of intangibles

Answer 15

cost and revaluation

Question 16

How do you recognize revenue for royalties -

Answer 16

If you received cash for “future royalties this year”

You will only recognize the revenue for the amount earned this year - the rest will be considered unearned revenue (current liability) on the B/S

Question 17

when you have a business combination - how are R&D assets measured and recognized on the date of the acquisition

Answer 17

They are recognized at their fair value on the date of the acquisitions ($400,000)

Question 18

When software is developed for internal use only which costs are considered R&D and therefore expensed?

Answer 18

Costs incurred in the preliminary project stage

costs on training

data conversion

maintenance

(Costs incurred after this stage and for upgrades and enhancements should be capitalized and amortized on a straight-line basis)

Question 19

What is the JE to correct this situation:

On October 31, year 1, a company with a calendar year end paid $90,000 for services that will be performed evenly over a six-month period from November 1, year 1, through April 30, year 2. The company expensed the $90,000 cash payment in October, year 1, to its services expense general ledger account. The company did not record any additional journal entries in year 1 that were related to the payment

Answer 19

proper:

dr. prepaid services 90,000
cr. cash 90,000

Each month:

dr. service expense 15,000
cr. prepaid expenses 15,000

the correction would be

dr. prepared 60,000
cr. service expense 60,000

then in January

dr. service expense 15,000
cr. prepaid 15,000

Question 20

Under IFRS in order for something to be considered an intangible what must it be:

Answer 20

EITHER be separable or must arise form a contractual or legal right