Timing Issues Flashcards
In general, what are the criteria for revenue recognition under U.S. GAAP?
Earned and realized or realizable and all of the following: Persuasive evidence of an arrangement exists Delivery has occurred or services have been rendered The price is fixed and determinable Collection is reasonably assured
How are purchased intangible assets recorded under GAAP & IFRS?
Recorded (capitalized) at cost. Legal and registration fees also capitalized
How are intangible assets reported under U.S. GAAP and IFRS?
GAAP: cost - amortization
IFRS: Cost model or revaluation model
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 intangible 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
List some items not considered research and development costs
- Routine periodic design changes - Marketing research - Quality control testing - Reformulation of a chemical compound
State the formula for calculating the gross profit realized on installment sales
Cash received x (total gross profit/sales price)
How are gains/losses on nonmonetary exchanges recognized under U.S. GAAP?
Exchange has commercial substance: recognize gains/loss Exchange lacks commercial substance: no boot received=no gain. Boot received = gain if boot received is less than 25% of the total consideration received Losses always recognized
How are gains/losses on non monetary exchanges recognized under IFRS?
Exhange of similar assets: no gains recognized and losses recognized in full. Exchange of dissimilar assets: all gains losses recognized
What are monetary items
Assets and liabilities that are fixed in amount by contract or in terms of number of dollars Cash, accounts and notes receivable, accounts and notes payable, accrued expenses, bonds These items are already stated in constant dollars
What are constant dollars?
Constant dollars are dollars restated based on calculations of CPI ratios
State the formula for recognizing the gain/loss on long-term construction-type contracts under the percentage-of-completion method
Identify two methods of revenue recognition for long-term construction-type contracts under GAAP and IFRS
GAAP: Percentage of completion, completed contract IFRS: Percentage of completion, cost recovery
How should the contractual 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 recorded at their present value as unearned revenue by the franchisor until substantially performed and as an intangible asset by the franchisee
How do you determine if an exchange has commercial substance?
An exchange has commercial substance if the future cash flows change as a result of the transaction. The change can be either be in the areas of risk, timing, or amount of cash flows. New asset will generate cash flows significantly different from the old asset
