Timing Issues Flashcards
Revenue Recognition Under GAAP
evidence of existence
delivery occurred or services rendered
price is fixed
collection reasonably assured
Revenue Recognition Under IFRS
measured reliably
economic benefits
When cash is received before it is earned
Unearned Revenue is reported
Realization is
when the entity obtains cash
Recognition is
recording of transactions
Deferred Credits reported on
Liability section of balance sheet
Royalty Revenue is
recognized when earned
Franshisor Accounting
Initial Fee not earned
prepaid cont. fee
Under IFRS , intangible assets are recorded
under cost model or revaluation model
cost model - reported at cost adj for amortization and impairment
revaluation model - revalued to fair value
Revaluation Losses are reported on
Income Statement
Revaluation gains are reported on
OCI
R and D costs expensed except for
materials that have future uses
behalf of others
Computer software developed to be sold
expense costs incurred until feasibility has been established
capitalize costs after product released for sale
Computer software developed to be used internally
expense costs for preliminary project state and for training and maintenance
capitalize costs after the technical feasibility state
amortized on SL basis
if sold to outsiders, proceeds received should be applied 1st to carrying amount then recognized as revenue
Royalties paid should be reported as
expense in the period incurred.
the cash basis of accounting understates income by the net decrease during the accounting period of
A net decrease in A/R means cash collected exceeds revenue recognized on the accrual basis. This would mean higher cash basis income than accrual basis income. This yields a “no” for Accounts Receivable.
A net decrease in Accrued Expenses means cash paid to reduce Accrued Expenses was more than the accrual basis expense recorded. This would mean a higher expense under the cash basis than under the accrual basis
Goodwill is capitalized
only when incurred in the purchase of another entity
Costs incurred for maintaining or developing goodwill are
expensed
Once the patent is established, legal costs to successfully defend the patent should be
capitalized and amortized over the lesser of the patent’s useful economic life or its legal life.
unrecorded liability affects work-in-process inventory (rather than cost of sales/retained earnings), there is
no effect on R/E but accrued liabilities are understated
Research is the planned efforts of a company to discover new information that will help either create or improve a new product, service, process, or technique or one in current use. Items not considered research and development include
Routine periodic design changes to old products or troubleshooting in production stage, marketing research, quality control testing and reformulation of a chemical compound
Collections received for service contracts should be recorded as an increase in a
deferred revenue account
intangible asset is a finite life intangible asset. Finite life intangibles are
amortized over period benefited
goodwill is
tested for impairment
Under U.S. GAAP, subsequent reversal of intangible asset impairment losses is
prohibited unless the intangible asset is held for sale.
Legal costs associated with obtaining a patent on a new product are
Capitalized
Research and development costs related to developing a new product, including prototype testing, design modification and engineering salaries are
expensed
the matching principle
Matches expenses against revenues in the same accounting period.
Expenses are necessarily incurred to generate revenues. All expenses incurred to generate a particular revenue should be recorded in the same period in which the revenue is recorded.
All relevant costs incurred before technological feasibility is established for develop computer software for ultimate sale should be
expensed as research and development expenditures. After technological feasibility is established, all relevant costs are capitalized until the product is released for sale.
Under IFRS, development costs may be
capitalized
Under IFRS, goodwill impairment is analyzed at
CGU
Cash generating unit
At a reporting unit level, when the fair value is less than the carrying amount,
loss on impairment is booked on the income statement (a debit) and a reduction in goodwill (credit) is booked to the balance sheet.
Litigation costs can only be
capitalized as a part of the patent asset account if they result in a successful patent defense so that the patent can be retained and continue to provide benefit
Gross Profit
Net Sales`
- Cost of Sales
___________
Gross Profit
Deferred revenue represents future income collected in advance. When the gift certificates are sold, deferred revenue
is increased
When the certificates are redeemed, the revenue is earned and shown
On the Income Statement and deferred revenue is decreased
When the certificates lapse, the company has no further liability and
revenue is earned and deferred revenue decreases.
Under U.S. GAAP, the only acceptable method of accounting for research and development costs is
direct charge to expense, except for materials, equipment, or facilities that have alternate future uses that are capitalized and depreciated over their useful lives.
Goodwill is recognized in the balance sheet
when it has been created from a business acquisition
Equipment used in research and development activities that has alternative future uses is
capitalized and depreciated over its useful life.
The minimum operating cycle for purposes of reporting a “prepaid” current asset is
12 months
Deferred revenue is a liability until
the service has been performed
Testing in search of a product or process alternatives would be classified as
research and development cost
Under IFRS goodwill generated internally
cannot be capitalized
It will be treated as an expense in the period incurred
