FAR 2 - Timing Issues: Matching of Revenue and Expenses, Correcting and Adjusting Accounts Flashcards
When is sale completed, and revenue recognized? Revenue from right to return?
All must be met:
1) The sales price is substantially fixed at date of sale
2) The buyer assumes all risks of loss (fire, theft) because the goods are considered in buyer’s possession
3) The buyer has paid some form of consideration
4) The product sold is substantially complete
5) The amount of future returns can be reasonably estimaed
When does Franchisor recognize revenue from intial franchise fees and continuing franchise fees?
Initial franchise fees - Revenue when “substantially performed”
Continuing franchise fee - Revenue when earned
Define unearned revenue for Franchisor?
1) Initial franchise fee (not yet earned)
2) Prepaid continuing franchise fee
Unearned revenue is recognized as revenue once substantial performance on such future services has occured
What three conditions need to be met for “substantial performance”
When franchisor has met all following conditions
1) Franchisor has no obligation to refund any payment
2) Initial services required of the franchisor have been performed
3) All other conditions of the sale have been met
How are intangible assets recorded?
Intangible assets (goodwill, patents, copyrights) recorded at cost
Legal fees and registration fees are capitalized
Are internally developed intangible assets capitalized or expensed, what are exceptions?
Internally developed intangible assets are expensed
However, legal fees for successful defense, registration fees, design costs for trademark are capitalized.
Unsuccessful defense is expensed and test asset for impariment
What is the difference between IFRS and U.S. GAAP for research and development costs?
U.S. GAAP research and development costs are expensed
IFRS - research costs are expensed but development is CAPITALIZED if all is met:
1) Technological feasibility has been established
2) The entity intends to complete the intangible asset
3) The entity has the ability to use or sell the intangible asset
4) The intangible asset will generate future economic benefits
5) Adequate resources are available to complete the development and sell or use the asset
How do finite life intangible assets get amortized (goodwill is not finite)?
Amortized over the shorter of its estimated life or remaining legal life
Use straight-line method of amortization
How does goodwill get amortized?
Goodwill does NOT get amortized. It is tested for impairment annually.
What methods can IFRS report intangible assets (patents, copyright)
Cost Model or Revaluation Model
Define cost model under IFRS?
Like U.S. GAAP mdel, intangible assets are reported at cost and adjusted for amortization - GOODWILL IS NOT AMORTIZED
Define revaluation model and how to calculate?
Intangible assets are recognized at cost and then adjusted to FV at revaluation date.
Revaluation model CV = FV on revaluation date - subsequent amortization - subsequent impairment
Define revaluation losses and where to put in financials?
Generally goes in income statement but EXCEPTION:
A revaluation loss that reverses a previously recognized revaluation surplus is recognized in OCI
Define revaluation gains and where to put in financials?
Generally goes in OCI but EXCEPTION
A revaluation gain is recognized income statement to the extent that they reverse a previously recognized revaluation loss.
If loss in income statement then gain can offset to the extent of loss. If amount is greater than loss it goes to OCI.
How to do you account for initial franchise fees for franchisee accounting?
Initial franchise fees are recorded as an intangible asset on the balance sheet and amortized over the expected period of benefit of the franchise (expected life of the franchise)
