FAR 2 - Timing Issues: Matching of Revenue and Expenses, Correcting and Adjusting Accounts Flashcards
How are Research and Development costs accounted for? What are exceptions? (U.S. GAAP)
Research and Development costs are expensed except for:
1) Materials, equipment, or facilities that have ALTERNATE FUTURE USES - capitalize and depreciate the assets over useful life
2) Research and development costs undertaken on behalf of others - goes in cost of sales
What items are not considered research and development?
1) Routine periodic design changes changes to products
2) Marketing research
3) Quality control testing
4) Reformulation of a chemical compound
Difference between U.S. GAAP and IFRS for research and development costs?
Under U.S. GAAP research and development is expensed.
Under IFRS research is expensed but development costs may be capitalized if certain criteria is met
How to do accounting for computer software developed to be sold?
1) expense costs (planning, design, coding, and testing) incurred until technological feasibility has been established for the product
2) capitalize costs after technological feasibility has been established
3) charge costs to inventory when costs incurred to actually produce for sale (ready for sale)
Technological feasibility is:
1) A detailed program or design
2) Completion of a working model
How do you amortize the capital costs in account for computer software to be sold (after technological feasibility)
GREATER OF:
Percentage of revenue = Total capitalized amount x current gross revenue for period/total projected gross revenue for product
Straight line = total capitalized amount x 1/estimate of economic life
PAGE 20
How to do accounting for computer software developed for internal use?
1) Expense costs incurred for the preliminary project state and costs incurred for training and maintenance
2) Capitalize costs incurred after the premlimnary project state (TECHNOLOGICAL FEASIBILITY)
How do you amortize the capital costs in account for computer software for internal use (preliminary project state- after technological feasibility)
Amortize capitalized costs on a STRAIGHT LINE BASIS
How do you do accounting for computer software that was internally developed and now being sold?
Proceeds received first should be applied to the carrying amount of software, and anything after is recognized as revenue
RECOVER COSTS FIRST
How to record impairment of intangible assets with finite lives? U.S. GAAP
1) Compare carrying value to undiscounted future cash flows expected to result from the use of the asset
2) If carrying amount is higher than undiscounted future cash flows, then asset is impaired. Then subtract CV - FV (or discounted cash flows) to get impairment.
How to record impairment of intangible assets with infinite lives? U.S. GAAP
1) Subtract CV - FV (or discounted cash flows) to get impairment.
How do you record impairment loss in U.S. GAAP
Impairment loss goes in Income from continuing operations
How do you calculate impairment in IFRS?
1) Subtract CV - Recoverable amount
Recoverable amount = GREATER OF asset’s FV less costs to sell and asset’s value in use (present value of future cash flows)
Difference between Private Companies and Public Companies recording impairment of goodwill?
Public companies test for goodwill impairment annually.
Under, U.S. GAAP a private company can amortize goodwill on a straight-line basis over 10 years
How is goodwill tested for U.S. GAAP vs IFRS?
U.S. GAAP it is recorded at reporting unit level
IFRS it is cash-generating unit level
