F-2 Matching Revs and Expenses

Question 1

What happens when there is a successful patent defense vs unsuccessful?

Answer 1

successful means you capitalize the expense but unsuccessful means you expense the legal fees and the original cost of the patent.

Question 2

Incurred costs not recorded in WIP inventory for example have what affect on accrued liab and RE?

Answer 2

Unrecorded liab affects WIP inventory and accrued liabilities…both understated

Question 3

Define Substantial Performance for franchise fees.

Answer 3

The franchisor (McDonalds) should recognize rev from ENTIRE initial FF when: 
Initial services performed, no obligation to refund payment and the franchisee has started operations.

Question 4

How does GAAP and IFRS account for R&D costs?

Answer 4

GAAP - Expense

IFRS - Research Expenses and Development is capitalized

Question 5

Which R&D costs do you Capitalize or treat as Cost of sales?

Answer 5

tangible assets with alternate future uses..(depreciate over the useful life of asset)
R&D performed for others…cost of sales

Question 6

Which items are not considered R&D?

Answer 6

Routine design changes (manufacturing costs), marketing reserach, quality control testing.

Question 7

When there is an unlimited right of return…what 4 criteria are needed to make something able to be recored as sales revenue?

Answer 7

1. Sales price substantially fixed
2. BUYER assumes all risk
3. BUYER has paid some consideration
4. Amount of returns can be estimated

Question 8

How to account for Internal Software costs?

Answer 8

Key item is Preliminary project state:
Before= expense (Not as R&D)
After= capitalize
Training and Maintenance is expensed also.

Question 9

External Software for sale or lease costs?

Answer 9

key is technological feasibility:
before - expense costs as R&D
After - capitalize and amortize the GREATER of % of revenue= total cap costs X actual Rev/Projected Rev or Straight Line