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CPA FAR > Timing Issues: Matching, Correcting, Adjusting > Flashcards

Timing Issues: Matching, Correcting, Adjusting Flashcards

0
Q

date revenue is recognized

A

date of sale
when assets are used
when services are rendered

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1
Q

revenue recognition

GAAP

A

ALL must be met:

  • signed contract/confirmation in writing
  • delivery occurred, services rendered
  • no price contingencies
  • collection is reasonable assured
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2
Q

revenue recognition for goods

IFRS

A

ALL must be met:

  • revenue/costs measured reliably
  • economic benefit will flow to entity
  • transferred title
  • no retained managerial involvement
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3
Q

revenue recognition for services

IFRS

A

ALL must be met:

  • revenue/costs measured reliably
  • economic benefit will flow to entity
  • stage of completion can be measured reliably
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4
Q

revenue recognition for interest/royalties/dividends

IFRS

A

ALL must be met:

  • revenue measured reliably
  • probably economic benefit will flow to entity
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5
Q

revenue recognition for construction contracts

IFRS

A

ALL must be met:

  • revenue/costs measured reliably
  • economic benefit will flow to entity
  • contract costs AND stage of completion can be measured reliably
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6
Q

revenue recognition for multiple element arrangements

GAAP

A
  • FV of contract must be allocated to separate contract elements
  • revenue recognized separately based on criteria for each element
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7
Q

deferred credits

A

reported when cash received but not yet earned
recognized as liability then as revenue when earned

i.e. “unearned” or deferred revenue (interest, rental, royalty)

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8
Q

installment sales

A

recognized as collections are made

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9
Q

cost recovery method

A

no profit recognized on sale until all costs have been recovered

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10
Q

non monetary exchanges

A

recognized when revenue depends on type of exchange

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11
Q

involuntary conversions

A

conversions due to fire, theft, etc. of non-monetary asset to cash
resulting in gain/loss

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12
Q

percentage of completion contract accounting

A

revenue recognized as production takes place for LT construction contracts having costs reasonably estimated

use completed contract method otherwise

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13
Q

realization

A

occurs when cash or right to receive cash is obtained

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14
Q

percentage of completion contract accounting

A

revenue recognized as completed for LT construction contracts, provided costs are reasonably estimated

use completed contract method otherwise

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15
Q

recognition

A

actual recording of transaction/event in the F/S

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16
Q

matching principle

A

expenses recognized in same period related revenue is recognized

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17
Q

accrual accounting

A

process of employing revenue recognition rule AND matching principle to recognition of revenues/expenses

required by GAAP, no I/S or current cash impact

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18
Q

deferral

A

occurs when cash is received/used but is not recognized for F/S purposes

typically results in recognition of liability/prepaid expense
no I/S or B/S (cash) impact

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20
Q

accrued assets/revenues

A

recognition of accrued asset represents revenue recognized

earned but not yet paid

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20
Q

estimated liabilities

A

recognition of probable future charge that result from a prior act

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21
Q

accrued liabilities/expenses

A

represent expenses recognized

incurred but not yet paid

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22
Q

expired costs

A

expensed on I/S

i.e. insurance, COGS, SG&A

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23
Q

unexpired costs

A

stays on B/S (for now) as asset or deferred charge
capitalized and matched against future revenues

i.e. fixed assets, inventory

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24
Q

prepaid expenses

A

unexpired cost that becomes expired cost

  • relate expenses with residual value
  • future right to services
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25
Q

deferred charges

A

unexpired cost that becomes expired cost

  • expenses or accruals that cannot be charged to tangible asset (bond issue costs)
  • intangible assets/non-current prepaid items
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26
Q

royalty revenue

A

recognized when earned

based on stated percentage of sales

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27
Q

unearned revenue

A

revenue received in advance

recorded as a liability

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28
Q

revenue recognition when right of return exists

A

time of sale if ALL conditions are met:

  • sales price substantially fixed
  • buyer assumes all risks
  • paid some form of consideration
  • product sold is substantially complete
  • amount of future returns can be reasonably estimated
  • NOT a contingent sale
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29
Q

franchises

A

involves 2 types of fees: initial and continuing

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30
Q

initial franchise fees

franchisor

A

revenue when “substantially performed”

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31
Q

continuing franchise fees

franchisor

A

revenue when earned

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32
Q

unearned revenue

franchisor accounting

A

initial franchise fees (not yet earned)
prepaid continuing franchise fee

recognized as revenue once substantial performance as occurred

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33
Q

earned revenue

franchisor accounting

A

“substantial performance”

  • franchisor has no obligation to refund any payment
  • initial services required of the franchisor have been performed
  • all other conditions of the sale have been met
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34
Q

purchased intangible asset

A

CAPITALIZE
record as an asset at cost
include legal/registration fees

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35
Q

internally developed intangible asset

A

EXPENSE
i.e. trademarks
goodwill from advertising
cost to develop/maintain/restore goodwill

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36
Q

legal fees for successful defense

internally developed intangible asset

A

capitalize

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37
Q

R&D

internally developed intangible asset

A

expense

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38
Q

registration/consulting fees

internally developed intangible asset

A

capitalize

39
Q 
design costs
(internally developed intangible asset)
A

capitalize

40
Q

direct costs to secure asset

internally developed intangible asset

A

capitalize

41
Q

legal fees for unsuccessful defense

internally developed intangible asset

A

expense

test for impairment

42
Q

R&D for internally developed intangible asset

GAAP vs IFRS

A

GAAP, expensed except for:

  • assets with alternate future use (depreciate over useful life)
  • costs of any nature on behalf of others under contract (expensed as cost of sales)

IFRS, research MUST be expensed; development may be capitalized if ALL are met:

  • technological feasibility established
  • entity intends to complete asset
  • entity has ability to use/sell asset
  • asset will generate future economic benefit
  • enough resources to complete development and sell/use asset
43
Q

capitalization of costs

A

amount of cash disbursed or FV of other assets distributed
PV of amounts to be paid for liabilities
FV of consideration received for issued stock

44
Q

cost of identifiable assets

A

does NOT include goodwill

45
Q

cost of unidentifiable intangible assets

A

cost of assets/enterprise acquired

= sum of costs assigned to identifiable assets - liabilities assumed

46
Q

amortization

A

asset must have FINITE life

47
Q

method of amortization

A

straight-line method

48
Q

goodwill amortization

A 
not amortized (indefinite life)
test for impairment at least annually

(amortize over 15 years for tax purposes ONLY)

49
Q

patent amortization

A

amortized over shorter of:

  • estimated life
  • remaining legal life
50
Q

intangible asset becomes worthless

A

expense, write off entire remaining cost

i.e., obsolescence or unsuccessful legal defense

51
Q

intangible asset becomes impaired

A

expense

write down asset and recognize impairment loss

52
Q

intangible asset has a change in useful life

A

recalculate amortization over new remaining life

53
Q

intangible asset is sold

A

calculate and recognize gain or loss

54
Q

intangible asset valuation

GAAP vs IFRS

A

GAAP, reported at cost (less amortization/impairment)

IFRS, cost model or revaluation model

55
Q 
revaluation model
(IFRS valuation of intangible asset)
A

initially recognized at cost then reevaluated to FV on revaluation date less subsequent amortization/impairment

revaluations must be performed regularly

56
Q

revaluation losses

A

FV on revaluation date < carrying value
reported on I/S

if loss reverses previous gain, report on OCI and reduce revaluation surplus in AOCI

57
Q

revaluation gains

A

FV on revaluation date > carrying value
reported in OCI and accumulated in equity as revaluation surplus

if gain reverses previous loss, report on I/S

58
Q

revaluation and impairment

A

impairment of revalued intangible asset is recorded by:

  • reduce any revaluation surplus in equity to 0
  • further impairment loss reported on I/S
59
Q

initial franchise fee

franchisee

A

recorded as intangible asset on B/S

amortized over expected life of franchise

60
Q

continuing franchise fees

franchisee

A

expense as incurred

61
Q

start up costs

A

expense (including organizational costs)

may elect up to $5,000, reduced by amount exceeds $50,000
any excess amortized over 180 months

62
Q

acquisition method

goodwill

A

excess of acquired entity’s FV over FV of entity’s net assets
(including identifiable intangible assets)

63
Q

equity method

goodwill

A

involves purchase of company’s capital stock

excess of stock purchase price over FV of net assets acquired

64
Q

maintaining goodwill

A

expense

65
Q

routine periodic design changes

A

not R&D

66
Q

marketing research

A

not R&D

67
Q

quality control testing

A

not R&D

68
Q

reformulation of chemical compound

A

not R&D

69
Q

developing goodwill

A

expense

70
Q

restoring goodwill

A

expense

71
Q

technological feasibility

A

established upon completion of:

  • detailed program design
  • completion of a working model
72
Q

computer software development cost

sold/leased/licensed

A

expensed until technological feasibility established, then capitalize

(i.e., coding, testing, producing product masters)

73
Q

percentage of revenue

amortization of capitalized software costs

A

total capitalized amount

x (current period / total projected gross revenue for period)

74
Q

computer software development cost

sold/leased/licensed

A

expensed until technological feasibility established (planning, design, testing)

then capitalize
(i.e., coding, testing, producing product masters)

75
Q

straight-line

amortization of capitalized software costs

A

= total capitalized amount / estimate of economic life

76
Q

computer software development cost

internal use

A

expensed until after preliminary project state, then capitalize

(i. e., training and maintenance - expense)
(i. e., materials/services, employee, interest - capitalized)

77
Q

computer software internally developed then sold

A

proceeds applied to carrying amount of software, then recognized as revenue

78
Q

impairment of finite life intangibles

A

2-step impairment test

1) CV of asset vs sum of undiscounted FCF
2) if CV > total FCF, recognize impairment loss

use FV or discounted FCF to calculate loss

79
Q

impairment of indefinite life intangibles

A

1-step impairment test
if CV > total FCF, recognize impairment loss

use FV or discounted FCF to calculate loss

80
Q

reporting an impairment loss

A

goes on income from continuing operations

restoration of previously recognized impairment loss is PROHIBITED (unless held for disposal)

82
Q

calculating impairment loss

GAAP vs IFRS

A

GAAP, 2-step or 1-step depending on life of asset

IFRS, other than goodwill, asset tested for impairment using 1-step only:
- CV vs recoverable amt

recoverable amount is greater of:

  • FV less cost to sell
  • PV of FCF

allows reversal of impairment loss

83
Q

asset held for disposal

impairment

A

no depreciation taken

restoration permitted

84
Q

asset held for use

impairment

A

depreciate new cost

restoration not permitted

85
Q

goodwill impairment

A

calculated at reporting unit level
exists when CV > FV

2 steps: identifying and measuring impairment

86
Q

reporting unit

A

operating segment with separate cash flows

management regularly reviews it

87
Q

identifying goodwill impairment

A

compare FV and CV of each reporting unit

assign goodwill

88
Q

measuring goodwill impairment loss

A

allocate FV of reporting unit to all A/L
any that can’t be assigned is implied goodwill

=implied goodwill FV - goodwill CV

once loss recognized, cannot be reversed

89
Q

testing qualitative factors for impairment

A

macroeconomic, industry/market conditions
overall financial performance
entity-specific events

US GAAP, no need for quantitative test IF:
- 50% or less chance FV < CV (not more likely than not)

90
Q

goodwill impairment

GAAP vs IFRS

A

GAAP, done at reporting unit level

IFRS, done at cash-generating unit level
CV of CGU vs CGU’s recoverable amount

recoverable amount is greater of:

  • FV less cost to sell
  • PV of FCF expected from CGU

impairment loss first allocated to goodwill then on pro rata basis to other assets of CGU

91
Q

cash-generating unit

A

smallest identifiable group of assets that generates cash inflows independently

92
Q

goodwill accounting

private companies

A

AMORTIZE goodwill on straight-line basis over 10 years (less if more appropriate)

impairment less likely to occur but make policy in SSAP to test for impairment at entity or reporting unit level when appropriate

93
Q

correcting/adjusting accounts

A

match related expenses with their revenues

94
Q

change in current assets

cash to accrual basis

A

add increases

subtract decreases

95
Q

change in current liabilities

cash to accrual basis

A

subtract increases

add decreases

CPA FAR (24 decks)

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