F2

Question 1

When does a non-monetary exchange lack commercial substance?

Answer 1

No significant change in economic position after transaction. (No difference in timing, risk, or amount of expected future cash flows from the asset given and from the asset received)

• Similar items used for the same purpose
• Inventory exchanged to facilitate sale
• Neither FMV is known

Question 2

How to treat non-monetary exchanges that lack commercial substance?

Answer 2

Non-recognition of some of the gain required

If this resulted in a loss (FV asset given up BV of asset given up)…

1) Did you PAY cash?
- If so, do NOT recognize the gain, BV new = BV old + cash paid

2) Did you RECEIVE cash that was

Question 3

If there is an unlimited right of return…

Answer 3

Don’t recognize any revenue UNLESS:

1) Sales price is reasonably fixed
2) Buyer has paid some form of consideration
3) The owner transfers ALL risks and rewards of ownership to buyer AND
4) The amount of returns can be reasonably estimated by past experience, etc.

If all of these are not met, don’t recognize any revenue yet

Question 4

During a period of inflation in which a liability account remains constant, what occurs in terms of purchasing power G’s/L’s?

Answer 4

Purchasing power gains and losses are associated with MONETARY assets and liabilities… If the liability was a monetary liab., then inflation would cause future dollars to have less purchasing power. This would result in a purchasing power GAIN on a monetary liability, since it would be settled with dollars that have lower purchasing power

Question 5

How do you amortize capitalized software costs internally developed for sale?

Answer 5

Amortize over the greater of 1) Straight-Line Depreciation OR 2) Sales revenue for software during period / total expected sales revenue for software

Amortize by decreasing the software asset and increasing inventory

Question 6

% Completion method… What is the net current asset or net liability shown on the B/S in relation to the construction contract?

Answer 6

(Cumulative Costs Incurred + GP Recognized To Date) - Cumulative Billings = Net CA (if +) or (Net CL) (if -)

If the two amounts are equal, no asset or liability is recognized

Question 7

How are current cost amounts of inventory and PPE measured?

Answer 7

At the lower of current cost and recoverable amount