F2-Time Issue Flashcards
Research and Development Under GAAP and IFRS
Under GAAP-expensed
Under IFRS- research expensed but development may be capitalized if met criteria
Research and Development
Program design, planning, coding, testing
Before Technological Feasibility
Prototype testing, design modification
Improvement of techniques and processes
Amortization of capitalized software costs
Equals the greater of straight-line amortization or sales revenue from the software for the period ÷ total projected sale.
Successful legal defense costs related to patent
Should be capitalized and amortized over the lesser of the patent’s useful economic life or its legal life.
Patent will be capitalized and amortized over
The lesser of legal life or economic life
Internal development of goodwill
Cannot be capitalized, expensed
Goodwill-Amortized?
Not amortized, but it is subject to an impairment test.
R&D contracted out to a third party
Under U.S. GAAP reported as R&D expense.
Goodwill-Capitalized
Only when incurred in the purchase of another entity.
Costs incurred for maintaining or developing goodwill are expensed.
Trademark Amortization
Using buyer’s basis( usually the selling price), not seller’s carrying unamortized amount.
Software is for internal use
Not considered research and development
Under U.S. GAAP, Research and development includes costs incurred prior to technological feasibility for developed software that is to be sold, leased, or marketed.
Items that not qualified for research and development
Items not considered research and development include: Routine periodic design changes to old products or troubleshooting in production stage, marketing research, quality control testing and reformulation of a chemical compound.
Patent- Legal fee
Legal fees and other costs associated with registering a patent are capitalized.
Unsuccessful defense patent
Should be expensed
Successful defense paten
Should be capitalized and amortized, including purchase price, acquisition cost, legal fees.
Research and Development- materials, equipment,or facilities have alternate future usage
Are capitalized and depreciated over their useful lives.
Franchise-initial franchise fee
The franchisor should report revenue from initial franchise fees when all material conditions of the sale have been “substantially performed.”
Sale under an arrangement
When there is an unlimited right of return, nothing should be recorded as sales revenue unless four conditions are satisfied.
Unlimited right of return sell must meet these four conditions to recognized revenue:
The sales price is substantially fixed
The buyer assumes all risk of loss
The buyer has paid some form of consideration
The amount of returns can be reasonably estimated
Software developed internally, costs incurred IN the preliminary project stage
Expensed under U.S. GAAP
Software developed internally, costs incurred AFTER the preliminary project stage
capitalized and depreciated over the economic life
Revenues should be recognized
in the period in which they were earned and realized or realizable
Expenses are recognized
when an entity’s economic benefits are used up in delivering or producing goods, rendering services, or other activities that constitute its ongoing major or central operations.
Start-up costs
GAAP requires that start-up costs, including organizational costs, be expensed
