Other Assets, Liabilities, & Disclosures

Question 1

ASC 730 Definition of Development Costs

Answer 1

The translation of research findings or other knowledge into a plan or design for a new product or process for a significant improvement to an existing product or process whether intended for sale or use.

Question 2

Under ASC 730, how should outside funding of research and development be treated?

Answer 2

When a research and development arrangement is funded by others and the enterprise is obligated to repay any of the funds provided by the other parties regardless of the outcome of the research and development, the enterprise shall estimate and recognize that liability.

Question 3

General Rule of ASC 360, exchange of nonmonetary assets

Answer 3

Its general rule states that fair value is the proper measure of exchanges of nonmonetary assets.

Question 4

A nonmonetary transaction that has commercial substance & fair values are determinable is accounted for how?

Answer 4

Record new assets at fair value given up or fair value received, whichever is more evident and a record gain or loss immediately.

Question 5

A nonmonetary transaction that has commercial substance & fair values are not determinable is accounted for how?

Answer 5

Record new asset at book value of asset(s) given up. No gain or loss is recorded.

Question 6

Two major changes in ASC 350 regarding Goodwill.

Answer 6

The first major change is that goodwill will no longer be amortized systematically over time. In the second major change, goodwill will be subject to an annual test for impairment.

Question 7

How does ASC 350 amortize Intangible Assets?

Answer 7

ASC 350 recommends that all identified intangible assets should be amortized over their economic useful life, unless such life is considered indefinite.

Question 8

Related Party Transaction (ASC 405) Definition

Answer 8

Related party transactions include those between the company and its parent, subsidiary, (also between subsidiaries of a common parent), principal owners or management (including their families), affiliates, or a pension trust managed by the company.

Question 9

Under IFRS the non-current assets are usually broken down into what four categories?

Answer 9

1) Property, Plant and Equipment2) Investment Property3) Intangible Assets4) Biological Assets

Question 10

Under IFRS, what does the “revaluation model” require?

Answer 10

The revaluation model requires that long-lived assets must be divided into asset classes.

Question 11

Biological Assets Definitions Under IFRS

Answer 11

Biological assets (agricultural assets) are living animals or plants. Biological assets may be reported at cost or fair value can be measured reliably in an active market.

Question 12

Under IFRS, when are internally generated intangible assets capitalized?

Answer 12

Unlike the US, internally generated intangible assets (except goodwill) may be capitalized if they have future economic benefits and can be measure reliably.

Question 13

What is the main difference between IFRS and US Standards regarding research and development costs?

Answer 13

If during the R&D, a project becomes economic viable as an internally generated intangible asset, the development cost from that point on may be capitalized.

Question 14

How should accounts receivable be disclosed on the statement of financial position?

Answer 14

Accounts receivable should be disclosed on the statement of financial position at net realizable value.

Question 15

What are the two approaches to accounting for uncollectible accounts?

Answer 15

Allowance method and Direct write-off method

Question 16

Why is the allowance method for accounting for uncollectible accounts preferred by GAAP?

Answer 16

The allowance method is preferred by GAAP because it matches uncollectible accounts expense with credit sales in the same accounting period and establishes a valuation account to report the accounts receivable at net realizable value.

Question 17

What are the two methods of estimating uncollectible accounts?

Answer 17

Balance sheet approach and the Income statement approach

Question 18

Describe the balance sheet approach to estimate uncollectible accounts?

Answer 18

The balance sheet approach analyzes accounts receivables and uses either a percentage of accounts receivable or an aging of accounts receivables to determine the required balance in the allowance for uncollectible accounts.

Question 19

Describe the income statement approach to estimate uncollectible accounts?

Answer 19

The income statement approach analyzes credit sales and uses a percentage of credit sales to determine the required balance in the bad debt expense account.

Question 20

Describe a situation where the direct write-off method for bad debts may be used?

Answer 20

The direct write-off method may be used if bad debts are immaterial.

Question 21

Pledging

Answer 21

Pledging is an agreement in which receivables are used as collateral for loans.

Question 22

The main (or only) accounting issue for pledging is?

Answer 22

The only accounting issue associated with pledging is proper disclosure.

Question 23

Assignment of Receivables definition

Answer 23

The assignment of receivables is more formalized type of collateral for a loan. The lender will identify specific receivables that will be used for the loan and approve the receivables to be used for collateral.

Question 24

Factoring or sale of receivables is used why?

Answer 24

In order to accelerate the receipt of cash.

Question 25

Factoring without recourse description

Answer 25

If receivables are factored without recourse, the buyer of the receivables assume the risk of collection and absorbs the loss for any uncollectible accounts. The receivables are removed from the books of the seller and the title and control of the receivables are transferred to the buyer.

Question 26

Factoring with recourse description

Answer 26

If accounts receivables are sold with recourse, the seller guarantees payment to the buyer if any of the accounts receivable become uncollectible.

Question 27

ASC 310 basic accounting issue

Answer 27

The basic accounting issue is whether the transferred assets result in a sale or secured borrowing.

Question 28

According to ASC 310, transfer of assets is considered a sale if 3 conditions are met? What is it considered if the three conditions are not met?

Answer 28

Transfer is considered secure borrowing is transfer does not meet the three conditions.

Question 29

Securitization (ASC 310)

Answer 29

Securitization is the transfer of a portfolio of financial to a special-purpose entity, often a trust, and the sale of benficial interests in the special-purpose entity to investors. The proceeds of the sale of these interests are paid to the transferor.

Question 30

Servicing Assets (ASC 310)

Answer 30

A servicing asset is a contract under which future revenues from servicing fees, late charges, etc., are expected to more than adequately compensate the servicer. A servicing liability arises when such compensation is inadequate.

Question 31

Undivided Interest (ASC 310)

Answer 31

An undivided interest is partial ownership as a tenant in common, for example, the right to the interest but not the principal of a security. This interest also may be pro rata, for example, a right to a proportion of the interest payments on a security.

Question 32

In general, how should fixed assets be “carried”.

Answer 32

Fixed assets should be carried at cost of acquisition or construction in the historical accounts, unless such cost is no longer meaningful.

Question 33

Fixed assets should have at least how long of an expected useful life?

Answer 33

Items treated as fixed assets should have at least 1 year of expected useful life to the enterprise, and normally the life is considerably longer.

Question 34

Additions as related Cost Expenditures

Answer 34

Additions represent entirely new units of extensions and enlargements of old units. Expenditures for additions are capitalized by charging either old or new asset accounts depending on the nature of the addition.

Question 35

What do expenditures for betterments represent?

Answer 35

Expenditures for betterments represent increases in the quality of existing plant by rearrangements in play layout or the substitution of improved components for old components so that the facilities are better in some way than they were when acquired.

Question 36

Straight Line Depreciation Method

Answer 36

Asset cost is allocated based on time.

Question 37

Units of Production Depreciation Method

Answer 37

Cost less salvage value is spread over the service life of the asset such as production hours, miles, etc.

Question 38

The Decreasing Charge method of depreciation is also called what term?

Answer 38

Accelerated Depreciation

Question 39

What is the definition of Group or Composite Depreciation?

Answer 39

Depreciation on homogenous (group) assets or on heterogeneous (composite) assets with similar characteristics may be computed by compiling the assets into a single asset account for depreciation purposes.

Question 40

According to ASC 360, when is impairment recognized?

Answer 40

Impairment is recognized when the carrying amount of the long-lived asset or group of assets exceeds its fair market value and is not recoverable.

Question 41

According to ASC 360, what does it mean when an asset is “not recoverable”?

Answer 41

Not recoverable means that the carrying amount is greater than the sun of the future undiscounted cash flows from the asset’s or group of assets’ use and eventual disposal.

Question 42

According to ASC 360, what are the four indicators of impairment?

Answer 42

1) A series of operating or cash flow losses and an indication that future losses will continue.2) A significant decrease in the market price of the asset(s)3) A significant change in the asset(s) physical condition4) A significant change in the legal or business climate. Example: an unfavorable ruling by the EPA.

Question 43

Under ASC 730 when are research costs expensed?

Answer 43

Under this statement all items defined as research and development (R&D) costs are to be expensed when incurred.

Question 44

ASC 730 Definition of Research Costs

Answer 44

Planned search or critical investigation aimed at discovery of new knowledge with the hope that such knowledge will be useful in developing a new product or service (hereinafter “product”) or a new process or technique (hereinafter “process”) or in bringing about a significant improvement to an existing product or process.