FAR 20 Flashcards
IFRS and the revaluation model - inventory vs. Assets
Under IFRS - you can revaluate assets after you have written them down by recognizing the gain up to the original amount in Profit and loss
“up to the cumulative decrease”
The remainder is recognized in OCI
In inventory - can revaluate ONLY up to the original amount - not above ??
Is modification often formulation of a process considered R &D
Yes
What would customer support and training be considered?
an operating expense that would be reported against earnings
How do you determine goodwill?
Wall Co. paid $860,000 for all the issued and outstanding common stock of Hart Corp. On that date, the carrying amounts of Hart’s recorded assets and liabilities were $800,000 and $180,000, respectively. Hart’s recorded assets and liabilities had fair values of $840,000 and $140,000, respectively.
Goodwill is determined by calculating the difference between consideration given and the fair value of net assets received. Consideration given was $860,000 and the fair value of the net assets received was $700,000 (840,000 – 140,000). Goodwill is the difference of $160,000.
Do you ever report a gain contingency
No - but you do disclose it in the notes to the financial statements
Does IFRS allow you capitalize internally developed goodwill
No - only in a business combination
Under IFRS - when can you use the revaluation model
Only when there is an active market for an intangible
How d you calculated the amortization os intangible when you have residual value
West Co. paid $50,000 for an intangible asset other than goodwill. Fair value of the asset is $55,000. West signed a contract to sell the asset for $10,000 in 10 years. What amount of amortization expense should West record each year?
It is based on cost - residual value amortized over the 10 year useful life
Example: cost 50,000, residual 10,000 useful life of 10 year - yearly amortization = 4000
How is AR always recorded own the balance sheet
at NRV
-the amount or cash the company expects to actually collect
What are items that reduce AR to NRV
- Sales discounts
- Sales returns
- non-collectable amounts
What is the Net method
The AR is recorded with the discounts already factored in:
If discount is taken - then this is considered interest income
What is the gross amount
The gross amount is initially recorded
The discount is recorded separately as a reduction in sales
Direct Write-off Method
This is rarely used and doesn’t conform to GAAP:
When the account is deemed uncollectible - then you write off the bad debt ( not accrual)
dr. bad debt expense 100
cr A/R 100
Allowance Method
This is a contra account to AR.
It has a credit balance
- You set an allowance for the year (its an estimate) and
- when bad debt is written off, the allowance is debited (lowered):
dr. allowance for doubtful acts 1000
cr A/R 1000
-Then to get the allowance back where mgmt wants it - it is credited
dr. Bad debt expense 100
cr allowance for doubtful acts 100
-This is the bad debt expense
Income sheet approach
- This estimates bad debt as a % of SALES and directly calculates the amount of bad debt expense
- recorded at the point of sale
- emphasis on matching principle
- decreased when accounts are written off and increased when recoveries occur
