Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

FAR CPA > White Book > Flashcards

White Book Flashcards

1
Q

What is PP&E?

A

Long- lived tangible assets used to create and distribute an entity’s goods and services. Also known as fixed assets. Used in operations- not held for sale.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

At what cost is PP&E capitalized?

A

Capitalize PP&E at historical cost (what we paid for PP&E)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What else is included in the PP&E cost?

A

all costs associated with activities necessary to bring the asset to the condition and location necessary for its intended use. Examples include:

  • Freight, insurance
  • Tax
  • Closing Costs
  • Attorney’s, architect’s and other professional fees
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

How is PP&E allocated when multiple fixed assets are purchased for a lump some?

A

The purchase price should be allocated based on current relative fair values.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

When fixed assets are acquired in exchange for something other than cash, how is the transaction recorded?

A

Record the transaction at the FV of what is given or received, whichever is more evident (has more evidence)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

In a self- constructed assets, when can a company capitalize (can put some interest cost on the BS as part of the cost of the asset) interest costs?

A
  • Capitalization starts when construction costs are being incurred
  • Activities to ready the asset for use are being conducted
  • Interest costs are being incurred

All 3 must be met.

Capitalization ends when the asset is ready for use.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

How much interest can be capitalized?

A

The LOWER of actual interest OR avoidable interest

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

when will costs incurred after the initial acquisition be capitalized?

A
  • Costs that improve efficiency or extend useful life
  • Additions, engargements, extensions,
  • Costs that increase the quality or quantity of goods and services prodoced.

*Do the costs benefit the operations of more than one period? *

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

when will costs incurred after the initial acquisition be expensed?

A
  • costs that maintain the asset in its normal operating condition without extending useful life or increasing the quantity or quality of goods and services produced.

*Are the costs normal recurring expenditures? *

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What are nonmonetary transactions? What can complicate the matter of the transaction?

A
  • When one fixed asset is exchagned for antoher.

What complicates matters is that GAAP required different accounting, depending on whether the exchange has commercial substance, whether the transaction results in gain or loss, and whether cash is received.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What are the steps in Nonmonetary transactions?

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

How to determine if there is a loss or gain in a nonmonetary transaction?

A

Fair value of the transaction< Net book value given up = Loss

Fair value of the transaction> Net book value given up = Gain

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

How is a loss in a nonmonetary transaction recorded?

A

DR: Asset Received

DR: Accumulated Depreciation

DR: Loss

CR: Asset Given up

CR: Cash

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

How is a nonmonetary transaction recorded if the transaction has commercial substance?

A

DR: Asset received

DR: Accumulated depreciation

CR: Asset given up

CR: Cash

CR: Gain

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

How is a nonmonetary transaction recorded when there is no commercial substance and no cash was received?

A

The gain will be deferred (no gain is recorded)

DR: Asset received

DR: Accumulated Depreciation

CR: Asset given up

CR: Cash given

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

How is a nonmonetary transaction recorded is it has no commercial substnace and cash was received?

A

*Determine whether it was >=25% of the FV of the transaction* If so then record the full gain and if under 25% calculate the gain to be recognized as: (Cash received/FV of the transaction)x gain on the treansaction=gain to be recognized

If >=25%

DR: Asset received

DR: Accumulated depreciation

DR: Cash

CR: Asset given up

CR: Gain

If <25%

DR: Asset received (Plug)

DR: Accumulated Depreciation

DR: Cash

CR: Gain (according to calculation above)

CR: asset given up

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What are the 4 main depreciaton methods?

A
  • Straight line
  • Units of Production
  • Declining balance
  • Sum of the years’ digits
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Which depreciation method does not deduct salvage value?

A

Declining balance method

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

How is Sum of years’ digits calculated? let’s say 15 year useful life asset with salvage value.

A

(n(n+1))/2=the denominator to be used.

if 15 years useful life=(15(15+1))/2=120

Year 1: (Cost - Salvage value)*15/120

Year 2: (Cost - Salvage value)*14/120…..

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What kind of change is a change in depreciation method? and how will this change be accounted?

A

Change in depreciation method is a change in estimate affected by a change in accounting principle. Estimate changes are accounted for prospectively in the current and future periods affected.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

When does depreciation stop?

A

When an asset is classified as held for sale.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What is depletion?

A

Systematic and rational allocation of the cost of a natural resource, less residual value (if any) over the total expected recoverable units.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What is the JE when the asset is sold?

A

DR: Consideraton received

DR: Accumulated depreciation

DR: Loss (if consideration received is less than the carrying value)

CR: Asset (carrying value, take it off your books)

CR: Gain (if consideration received is more than the carrying value)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

On a nonreciprocal transfer, the gain or loss should be recognized regardless of:

A

Whether the transfer is to another entity or a stockholder of the entity.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Why do we test for asset impairment?

A

We don’t want an overvalued asset on our books.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

How is testing for asset impairment done?

A

Step1: Recoverability test:

carrying amount> future cash flows, recoverability test fails-proceed to step 2

carrying amount< future cash flows, recoverability test passes-stop

Step 2: Calculation of impairment loss:

Record a loss equal to the amount by which the Carrying amount EXCEEDS the assets’ FV.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What is the JE to record asset impairment losses?

A

We are writing the asset down to its FV, so this requires a reduction in carrying value. This should be accomplished by increasing AD (rather than writing the historical cost down)

DR: Loss on Impairment

CR: Accumulated depreciation (we write the asset down, by reducing NBV)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Is restoration of a previously recognized asset impairment loss allowed?

A

No, that is prohibited.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

How is asset impairment loss calculated when assets are classfied as Held For Sale?

A

Record a loss equal to the amount by which the carrying amount exceeds the assets’ fair value less the costs to sell.

30
Q

In assets classified as held for sale, if increases in FV occur in the future, the carrying value of the asset should be?

A

Should be adjusted, and gains may be recognized, but not in excess of the cumulative loss previously recognized (for a write-down to fair value less cost to sell)

31
Q

what is some required PP&E disclosure?

A
  • Depreciation expense for the period
  • Accumulated depreciation, either by major classes of depreciable assets or in total, at the BS date
  • When impairment loss is recognized:
    • Description of the impaired long lived asset
    • the amount of the impairment loss and the caption in the IS or the statemetn of activities that includes that loss.
    • The method for determining FV
    • the segment in which the impaired long lived asset is reported.
32
Q

If funds borrowed to finance construction are temporarily invested, should the interest revenue be offset against the interest expense when determining the amount of interest to capitalize? For GAAP and or IFRS?

A

US GAAP- No

IFRS- yes

33
Q

For IFRS, how is asset impairment testing done?

A

Record an impairment loss if carrying amount is greater than recoverable amount.

Recoverable amount is:

  • Fair value less cost to sell
  • Value in use (the PV of the future cash flows expected to be derived from an asset or cash generating unit)
34
Q

For IFRS, are reversals of asset impairment losses allowed?

A

Yes, up to the newly estimated recoverable amount, not to exceed the initial carrying amount adjusted for depreciation.

35
Q

What is an intangible asset?

A

Assets (not including financial assets) that lack physical substance. While goodwill is an intangible asset, the term intangible asset is generally used in the codification to refer to an intangible asset other than goodwill.

36
Q

when does goodwill happen?

A

Only results when you acquire another business.

37
Q

How is goodwill measured?

A

Goodwill is measured as the excess of the consideration transferred in an acquisition over the identifiable assets received less the liabilities assumed.

38
Q

What happends if consideration transferred is less than the FV of the assets and liabilities?

A

A bargain purchase has occurred, and a gain is recognized.

39
Q

Is goodwill amortized?

A

No, goodwill shall not be amortized.

It should be tested for impairment.

40
Q

When do we test for goodwill impairment?

A

Goodwill shall be tested for impairment at the reporting unit level on an annual basis

  • May be performed at any time during the fiscal year if performed at the same time every year.
  • Different reporting units may be tested for impairment at different times.
  • If events or circumstances suggest it is more likely than not that FV has been reduced below carrying value, the test should be performed.
41
Q

How do we know if goodwill is impaired?

A

Impairment exists when the carrying amount of goodwill exceeds its implied FV.

42
Q

Before performing goodwill impairment test, what should be done?

A

Determine whether it is more likely than not that the FV of a reporting unit is less than its carrying amount, including goodwill, by assessing relevant events and circumstances.

43
Q

What are the steps on testing for goodwill impairment?

A

Step 1: Compare the FV of a reporting unit with its carrying amount, including goodwill.

If FV > carrying amount, and carrying amount is greater than zero, there is no impairment, and Step 2 is unnecessary.

If FV < carrying amount, or carrying amount is zero or negative, perform Step 2.

Step 2: Compare the implied FV of reporting unit goodwill with the Carrying amount of that goodwill.

If implied FV of goodwill < carrying amount of goodwill, record an impairment loss equal to the difference and adjust the carrying amount of the goodwill.

If implied FV of goodwill > carrying value of goodwill, there is no impairment loss, and no JE to record.

44
Q

How is goodwill disclosed?

A

Goodwill shall be presented as a separate line item in the statement of financial position. (BS)

45
Q

How are goodwill impairment losses presented?

A

Goodwill impairment losses shall be presented as a separate line items in the IS before the subtotal income from continuing operations, unless the goodwill impairment loss is associated with a discontinued operation, in which case, it shall be included within the results of discontinued operations.

46
Q

Is reversal of a previously recognized goodwill impairment loss allowed?

A

No, reversal of a previosly recognized impairment loss is prohibited.

47
Q

What is the difference between GAAP and IFRS for goodwill?

A

GAAP- goodwill is allocated to reporting units

IFRS-Goodwill is allocated to cash generating units (smallest groups of assets that generate independent cash flows)

48
Q

How is goodwill impairment testing done under IFRS?

A

Record an impairment loss if carrying amount of cash generating unit is greater than recoverable amount.

  • Recoverable amount is higher of
    • Fair value - cost to sell
    • Value in use
  • Impairment loss is allocated first to goodwill, until goodwill is zero, then it is allocated to other assets in the cash generating unit on a pro rata basis.
49
Q

How are costs of maintaining intangible assets, including goodwill, treated?

A

Costs of maintaining intangible assets, including goodwill, are expensed as incurred.

50
Q

Do you capitalize or expense an intangible acquired in a business combination?

A

The acquirer shall capitalize identifiable intangible assets acquired.

51
Q

Intangibles that are acquired through purchase should be capitalized or expensed?

A

Costs are capitalized as intangible assets. When a group of assets are acquired in a transaction, the cost is allocated to individual assets based on their relative FV.

52
Q

GR if an intagible asset is aquired through purchase the costs are?

GR if an intagible asset is developed internally the costs are?

A

Capitalized and record as intagible asset on the BS

Expensed on the IS

53
Q

What are the rules for amortizing (like depreciation) capitalized intangible assets? Finite useful life/Indefinite useful life

A

Finite useful life- yes.

  • Using SL method, or one that reflects the pattern of economic benefits.
  • Amortize cost less residual value over useful life.
  • Periodically re-evaluate remaining useful life, and adjust prospectively if changed.

Indefinite useful life-not amortized

54
Q

What is meant by useful life?

A

Period over which the asset is expected to contribute directly or indirectly to the future cash flows of the entity.

55
Q

What is meant by indefinite useful life?

A

There is no foreseeable limit on the time period over which the asset is expected to contribute to the cash flows of the entity.

56
Q

Capitalized intangible assets with finite useful lives that are being amortized are tested for impairment?

A

YES

57
Q

How do we test for impairment for capitalized intangible assets with finite useful lives that are being amortized?

A

Same as PP&E

Step1: Recoverability test:

carrying amount> future cash flows, recoverability test fails-proceed to step 2

carrying amount< future cash flows, recoverability test passes-stop

Step 2: Calculation of impairment loss:

Record a loss equal to the amount by which the Carrying amount EXCEEDS the assets’ FV.

58
Q

What is the JE for impairment losses for capitalized intangible assets with finite useful lives that are being amortized? JE

A

DR: Loss on impairment

CR: Intangible asset

*We are writing the asset down to its FV, so this requires a reduction in carrying value*

Recall in PP&E it’s

DR: Loss on impairment

CR: Accumulated depreciation

59
Q

Restoration of a previously recognized intangible impairment loss is allowed?

A

No, restoration is not allowed.

60
Q

What is the JE for impairment losses for capitalized intangible assets with indefinite useful lives that are not being amortized?

A

DR: Loss on impairment

CR: Intangible asset

Restoration of a previously recognized impairment loss is prohibited.

61
Q

How do we test for impairment for capitalized intangible assets with indefinite useful lives that are not being amortized?

A

Skip the recoverability test

*why? this test compares the undiscounted future cash flows with the carrying value. If the asset has an indefinite life, it is expected to generate cash flows for the foreseeable future, which makes measurement of undiscounted future cash flows impossible*

Quantitative impairment test:

Compare FV with carrying amount.

*Record a loss equal to the amount by which the carrying amount exceeds the assets’ FV. *

62
Q

What amount of legal costs should the company expense?

A

Legal costs associated with successfully defending a patent can be capitalized, but if the outsome is unsuccessful, the costs should be expensed.

63
Q

for IFRS, how is impairment tested for all intangibles other than goodwill- whether finite or indefinite useful life?

A

Record an impairment loss if carrying amount is greater than recoverable amount.

64
Q

for IFRS, reversals of impairment losses for general intangibles are allowed or disallowed?

A

allowed. Up to the newly estimated recoverable amount, not to exceeds the inital carrying amount adjusted for amortization.

65
Q

What are the characteristics of internal use software?

A

Internal-use software has both of the following characteristics:

  • The software is acquired, internally developed, or modified solely to meet the entity’s internal needs.
  • During the software’s development or modification, no substantive plan exists or is being developed to market the software externally.
66
Q

Internal use sofware: what stages do the costs have to be expenses or capitalized?

A

Preliminary project stage- expensed

  • Make strategic decisions
  • Determine performance and systems requirements
  • Invite vendors to perform demonstrations
  • Explore alternatives
  • Determine technology exists
  • Select a vendor
  • Select a consultant to assist in development or installation

Application development stage- capitalized

  • Design, coding, installation, testing

Post implementation-operation stage- expensed.

  • Training, application maintenance
67
Q

Are R&D costs expensed or capitalized?

A

R&D costs are expensed when incurred.

Exception: Acquired tangible or intangible assets that are used in R&D activities, if they have alternative future uses- capitalize as capital assets when acquired or constructed, then recorded as R&D expense as consumed or depreciated.

68
Q

for IFRS, how are R&D costs handled?

A

Research costs are expensed, development costs may be capitalized once technological feasibility is reached.

69
Q

How are costs treated for Development Stage Entities and Start Up Costs?

A

Costs should be treated the same way they would be treated for an established operating entity.

70
Q

What are some examples of start up costs?

A

They include costs assocaited with:

  • Opening a new facility
  • Introducing a new product or service
  • Conducting business with a new class of customers
  • Inititaing a new process
  • Commencing some new operation
71
Q

how are start up costs treated?

A

Expensed as incurred.

FAR CPA (22 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions