FAR 2 Flashcards
In general, what are the criteria for revenue recognition under US GAAP?
Earned and realized or realizable. The following four criteria must be met before revenue can be recognized:
- Persuasive evidence of an agreement exists.
- Delivery has occurred or services have been rendered.
- The price is fixed and determinable.
- Collection is reasonably assured.
What are the four categories of revenue transactions under IFRS and what are the common revenue recognition criteria for those categories?
- Sales of goods.
- Rendering of Services.
- Revenue for interest, royalties, and dividends.
- Construction contracts.
Common revenue recognition criteria include:
Revenues and costs can be reliably measured.
It is probable that economic benefits will flow to the entity.
Each category has additional criteria.
When should revenue from the performance of servies be recognized under US GAAP and IFRS?
US GAAP- In the period which the services are rendered and are able to be billed.
IFRS- Using the percentage of completion method when the outcome of the transaction can be estimated reliably.
What are the conditions for revenue recognition when the right to return exists?
The sales price is substantially fixed at the time of sale.
The buyer assumes all of the risks of loss because the goods are considered in the buyer’s possession.
The buyer has paid some form of consideration.
The product sold is substantially complete.
The amount of future returns can be reasonably estimated.
Name an example of both 1) accelerated and 2) deferred revenue recognition relative to normal recognition when revenue is recognized at the time of goods are transferred.
The percentage-of-completion method of long term construction accounting is an example of accelerated revenue recognition.
The installment method (or cost recovery method) is an example of deferred revenue recognition.
How are purchased intangible assets and internally developed intangible assets recorded under US GAAP and IFRS?
Purchased intangible assets- Recorder at cost, including legal and registration fees, under US GAAP and IFRS.
Internally developed intangible assets- Legal fees, cost of successful defense, registration fees, consulting fees, and design fees can be capitalized under US GAAP and IFRS.
Under US GAAP, research and development costs must be expensed. Under US GAAP, research costs must be expensed and development costs may be capitalized if they meet certain criteria.
How are intangible assets reported under US GAAP and IFRS?
US GAAP- reported at cost less amortization (finite life intangibles only) and impairment.
IFRS- reported using the cost model (same as US GAAP or the revaluation model. Under the revaluation model, reported at fair value on the revaluation date less subsequent amortization and impairment.
How should the contractul amounts of future services to be performed under a franchise agreement be accounted for by 1) the franchisor and 2) the franchisee?
They should be reported at their present value as unearned revenue by the franchisor until earned and as an intangible asset by the franchisee.
Define start up costs. What is the accounting treatment of start up costs?
Costs incurred for one time activities to start a new operation. Start-up costs include costs incurred in the formation of a corporation.
Start- up costs are epensed in the period incurred.
Define goodwill.
Excess of the fair value of a subsidiary over the fair value of the subsidiary’s net assets.
Costs of maintaining and/or developing goodwill CANNOT be capitalized.
What is the maximum period over which an identifiable intangiable asset (not goodwill) should be amortized?
The shorter of its estimated useful economic life and its remaining legal life (as in a copyright, franchise, or patent)
Goodwill is not amortized, but must be tested at least annually for impairment.
What is the proper treatment of research and development costs under US GAAP and IFRS?
US GAAP- Research and development costs should be expensed as incurred unless an expenditure is for capital assets that have alternative future uses, or for research and development undertaken on behalf of others under a contractual agreement.
IFRS- Research costs must be expensed. Development costs may be capitalized if they meet certain criteria.
List some items not considered research and development costs.
Routine periodic design changes
marketing research
quality control testing
reformation of a chemical compound
When should the cost of developing computer software for resale, lease or licensing be capitalized under US GAAP?
After technological feasibility has been established and beore the product is released for sale.
How should the costs of capitalized computer software develpoed for resale be amortized under US GAAP?
annual amortization is the greater of:
percent of revenue method
total capitalized amount times (current gross revenue for the period/total projected gross revenue for product)
straight line
total capitalized amount times (1/ estimate of economic life)
Outline the treatment of computer software developed interally or obtained for internal use only under US GAAP.
Expense costs incurred in the preliminary project state and costs incurred in training and maintenance
Capitalize costs incurred after preliminary project state and for upgrades and enhancements.
Capitalized costs should be amortized on a straight line basis
What is the test of recoverability for the impairment of ling-lived assets other than goodwill under US GAAP?
finite life
If undiscounted future cash flows expected from use of asset and eventual disposal is less than the carrying value, recognize loss on impairment
indefinite life
If fair value is less than carrying value, recognize loss on impairment
