FAR continued

Question 1

if a firm performs R&D services for another firm, how is it treated?

Answer 1

if a firm performs R&D services for another firm, the costs are accumulated in an inventory account and expensed as cost of goods sold or cost of services provided at the conclusion of the contract.

Question 2

IFRS on R&D vs GAAP

Answer 2

IFRS distinguishes between research and development, like U.S. GAAP. However, IFRS allows companies to capitalize development cost

Question 3

ASC 985 guidance on R&D and Software

Answer 3

As per ASC 985, research and development activities continue until the technological feasibility of the software has been established. The difference between R&D and Software is the latter establishes a point after which development costs are capitalized to an intangible asset and subsequently amortized. In contrast, all R&D is expensed as incurred.

Question 4

Technological feasibility for software cost accounting

Answer 4

The critical point for software cost accounting is technological feasibility.The establishment of the technological feasibility of the software typically occurs when the program model or working model of the software is complete. The product is not yet ready to market, but the commitment is made at this point to continue with the product.The costs incurred subsequent to the establishment of the technological feasibility will be capitalized and amortized over the estimated economic life of the software.

Question 5

what is Costs Subsequent to Establishing Technological Feasibility

Answer 5

This category of costs includes additional costs of coding, testing, debugging, and preparation of final product master and final documentation manual. It does not include duplication of product masters and manuals. This category ends when a product master is ready for duplication.

Question 6

Treatment of Costs Subsequent to Establishing Technological Feasibility

Answer 6

This is the only category of software costs that is capitalized as an intangible asset and subsequently amortized

Question 7

Software Production Costs treatment

Answer 7

(Duplication of software and manuals). Capitalize in inventory and expense through cost of goods sold as sales take place.

Question 8

Summary of Accounting Treatment of Software Costs

Answer 8

1. Software development (coding and testing) before technological feasibility: DR. R&D expense
2. Software development (coding and testing) after technological feasibility to production of product masters: DR. Capitalized Software Development Costs
3. Duplication of product, packaging, etc.: DR. Inventory of product
4. Sell product: DR. Cost of Goods Sold
5. Customer service: DR. Expense

Question 9

Amortization of Capitalized Computer Software Costs

Answer 9

These are amortized using one of the two following methods, Revenue Method /St Line Method.Whichever results in a larger amortization amount. Each year the computation for both methods must be made to ensure the larger amount is recognized. The same method need not produce the larger amount each year. The amortization is an operating expense.

Question 10

Cloud Computing—ASU 2015-05

Answer 10

First the company must determine if the cloud computing arrangement includes a software license. The arrangement contains a software license if BOTH one and two are true:
The customer has the contractual right to take possession of the software at any time during the hosting period without significant penalty.
Significant penalty means that the customer can take delivery without incurring significant costs and can use the software separately without a significant reduction in utility or value.
It is feasible for the customer to either run the software on its own hardware or contract with another party unrelated to the vendor to host the software.

Question 11

If the cloud computing arrangement contains a software license then what is accounting treatment?

Answer 11

If the cloud computing arrangement contains a software license then the license is accounted for like other acquired intangible license agreements. Generally this means that the license is capitalized as an intangible asset and amortized over the life of the license (if definite lived) or tested annually for impairment (if indefinite life).

Question 12

How is the cost of developing software for internal purposes treated?

Answer 12

The cost of developing software for internal purposes is expensed up to the “application development stage” at which point the effort appears to be leading to a useable application. After that point, costs are capitalized.

Question 13

Goodwill impairment testing under IFRS and GAAP

Answer 13

US GAAP Goodwill is tested at the reporting unit level.
IFRS Goodwill is tested at the cash generating unit level
GAAP A qualitative prestep and quantitative two-step test and IFRS is a single step.

Question 14

an AFS Debt is impaired what is the accounting treatment if it does not opt for FV

Answer 14

In the case of impairment, the security is written down to fair value and the amount of the write-down is reported in earnings as a realized loss.

Question 15

sales of accounts receivable to a factor in a transaction considered a borrowing-what is the treatment

Answer 15

It is considered a factoring with recourse

Question 16

How is AR that is pledged reported ?

Answer 16

When AR are pledged, the receivables serve as collateral for a loan but the proceeds are not remitted to the lender. In this case, the amount of AR pledged is reported at the balance sheet date either parenthetically or in the notes.