F2 Flashcards
What are the four categories of revenue transactions under IFRS and what are the common revenue recognition criteria for these categories?
- Sale of goods 2. Rendering of services 3. Revenue from royalties and dividends. 4. Construction contracts Common revenue recognition criteria includes: revenue and costs can be reliably measured. It is probable that economic benefit will flow to the entity. Each category has additional criteria.
In general, what are the criteria for revenue recognition under US GAAP?
Earned and realized or realizable. The following four criteria must be met before revenue can be recognized. Persuasive evidence of an arrangement exists (contract) Delivery has occurred or services have been rendered. The price is fixed and determinable. Collection is reasonably assured.
When should revenue from the performance of services be recognized under US GAAP and IFRS?
US GAAP - In the period in which the services have been rendered and are able to be billed.
IFRS - Using the percentage of completion method when the outcome of the transactions can be estimated reliably.
What are the conditions for revenue recognition when the right to return exists?
The sales price is substantially fixed at the time of sale. The buyer assumes all risks of loss because the goods are considered in the buyers possession. The buyer has paid some form of consideration. The product sold is substantially complete. The amount of future returns can be reasonably estimated.
Name an example of both 1) accelerated and 2) deferred revenue recognition relative to normal recognition when revenue is recognized at the time goods are transferred.
The percentage of completion method of long term construction accounting is an example of accelerated revenue recognition. The installment method (or cost recovery method) is an example of deferred revenue recognition.
How are purchased intangible assets and internally developed intangible assets recorded under US GAAP and IFRS?
Purchased intangible assets : Recorded at cost including legal and registration fees under US GAAP and IFRS. Internally developed intangible assets: Legal fees, cost of successful defense, registration fees, consulting and design fees can be capitalized under US GAAP and IFRS. Under US GAAP R&D must be expensed. IFRS - research expensed, but development may be capitalized.
How are intangible assets reported under US GAAP and IFRS?
US GAAP - Reported at cost less accumulated depreciation (finite life intangibles only) and impairment. IFRS - Reported using the cost model (same as US GAAP) or the revaluation model, reported at fair value on revaluation date less subsequent amortization and impairment.
How should the contractual amounts of future services to be performed under a franchise agreement be accounted for 1) the franchisor and 2) the franchisee.
They should be recorded at their present value as unearned revenue by the franchisor until earned and as an intangible asset by the franchisee.
Define start up costs. What is the accounting treatment of start up costs?
Costs incurred for one time activities to start a new operation. Start-up costs include costs incurred in the formation of a corporation. Start-up costs are expensed in the period incurred.
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 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.
What is the proper treatment of research and development costs under US GAAP and IFRS?
US GAAP - R & D costs should be expensed as incurred unless an expenditure is for capital assets that have alternative future uses, or for R&D undertakaen on behalf of others under a contractual agreement. IFRS - Research cost must be expensed, but development costs may be capitalized if certain criteria is met.
List some items not considered research and development costs?
Routine periodic design changes, Marketing research, Quality control testing, and Reformulation of a chemical compound.
When should the costs of developing computer software for resale, lease, or licensing be capitalized under US GAAP?
After technological feasibility has been established and before the product is released for sale.
How should the costs of capitalized computer software developed for resale be amortized under US GAAP?
Annual amortization is greater of the percent of revenue method : Total capitalized amount x Current gross revenue for period / Total projected gross revenue for product OR the Straight Line method Total Capitalized amount x 1/Estimate of economic Life.
Outline the treatment of computer software developed internally or obtained for internal use only under US GAAP
Expense costs incurred in the preliminary project state and costs incurred in training and maintenance. Capitalize costs incurred after preliminary project state and for upgrades and enhancements. Capitalized costs should be amortized on a straight line basis.
What is the test of recoverability for the impairment of long-lived assets other than goodwill under US GAAP?
Finite Life - If undiscounted future cash flows expected from the use of assets and eventual disposal is less than the carrying value, recognize loss on impairment.
Indefinite life - If fair value is less than carrying value, recognize loss on impairment.
