FAR - Specific Transactions, Events, & Disclosures - Nonmonetary exchanges Flashcards Preview

CPA > FAR - Specific Transactions, Events, & Disclosures - Nonmonetary exchanges > Flashcards

Flashcards in FAR - Specific Transactions, Events, & Disclosures - Nonmonetary exchanges Deck (44):
1

Related Parties

a partner in transaction can significantly influence the transaction/event/policy

EX: investees, affiliates, pension trusts, owners, family members

2

Related Party Transactions & Disclosures

- Not arms length because 1 can significantly influence other party or both parties subject to influence of 3rd party

EX: affiliated companies, family

- DISCLOSURES = MANDATORY in footnotes of financials

3

Research & Development

- R/D costs expensed for OWN company

- intangibles purchased & tangibles with alternative future uses are capitalized & depreciated/amortized over estimated useful life as R/D expense

- amount of R/D exp must be disclosed on face of I/S or footnotes

4

R/D Activities

1) lab research - new knowledge
2) new research findings
3) conceptual formulation
4) evaluate process alternatives
5) modify designs
6) preproduction
7) design new tech
8) construct pilot not useful
9) advance design to MFG stage

5

NON - R/D Activities

1) Commercial production/Engineering
2) Quality control
3) troubleshoot during MFG
4) improve existing production
5) adapt existing capability
6) periodic changes to existing product
7) routine design of tools
8) start facility
9) legal work (patent app)
10) acquire, develop, improve product/process

6

Elements of R/D

1) materials, equip, facilities:
- acquired for R/D, no alternative use, charge to R/D
- alternative uses exist, costs are capitalized
- salaries, wages, related costs

2) intangibles purchased treated as materials
- if capitalized, amortize over U/L

3) R/D services performed by others
- reasonable allocation of indirect costs
(exclude general/admin costs not related to R/D)

7

Gaap vs IFRS - R/D costs

GAAP:

Research/Develop costs are expensed

IFRS:

- Research costs are expensed
- Developmental costs are capitalized

8

Research

attempt to discover new knowledge aimed at the development of new products, services, processes, or techniques, or the significant improvement in an existing product

9

fixed assets used in a single research and development (R&D) project with no alternative use accounted for?

Entire cost expensed as R&D immediately

10

assets used in several research and development (R&D) projects accounted for?

Capitalized and depreciated to R&D expense

11

Areas of concern

Required disclosure of vulnerability to conditions/events capable of materially affecting financials in near yr

- FASB now requires disclosures if conditions give rise to substantial doubt about entities ability to continue as going concern

12

Sources of risk/uncertainty

- nature of entity's operations
- use of estimates in financials
- certain significant estimates
- vulnerability to significant concentrations
- Going concern assessment

13

Nature of operations

info about firm's products/services, location, markets

- relative importance of each business type
- not required to be quantitative

14

Use of estimates

Disclose that estimates:

1) required for many financial statement items
2) are approximations
3) require assumptions about future events

15

Certain significant estimates

estimates - reasonable chance of change such that its effect could be material OR estimate will change within 1 yr of when financials were isued

disclosures:
- nature of uncertainty
- estimated effect of change in estimate
- effect of change in est. on financials

Standard provides examples of areas susceptible to est. changes including:

- Fair Valuation
- Inventory
- Equip Obsolescence
- Valuation allowances for DTAs
- Impairment testing
- Contingencies

16

Vulnerability due to significant concentrations

concentrations = aspects with insufficient diversification

EX: 1 firm with 60% revenues from 1 client

severe impact = significant financial disruption due to vulnerability to significant concentration

17

Vulnerability due to significant concentrations

Disclosures

1) volume of business with customer, supplier, lendor, grantor, contributor

2) revenue from specific products, services, fund-raising sources

3) specific sources of services, materials, labor, licenses

4) market/geo area of operations

18

Vulnerability due to significant concentrations

Disclosure - meeting 3 criteria

1) concentration exists @ b/s date

2) entity = vulnerable b/c of concentration to risk of "severe impact" could cause significant financial disruption to firm in near term

3) reasonably possible (less than probable) that events causing severe impact will occur in near term

* required disclosures that meet above conditions, enable users to assess risk/possible outcomes

19

Segment Reporting

corps operate diverse set of businesses

GAAP requires disclosures by major segments to allow assessment of those segments

3 focuses:
1) what is a segment?

2) which segments must report this info?

3) what info is reported?

20

Operating Segment

Identified by mgmt as significant component meeting these criteria

1) Generates revenues/expenses
2) Chief Operating Decision maker reviews results
3) Provides financial info about operations

21

Reportable segments

Operating segment meeting at least 1 of 3 quantitative tests

- Not all firm components are operating segments; not all operating segments are reportable segments

22

3 quantitative tests for reportable segment

1) revenue
2) operating profit (loss)
3) identifiable assets

- each uses 10% or more

- if a test is met, operating segment = reportable segment

23

Segment Reporting

Test 1 - Operating Revenue

Segment's revenue (internal + external) that is >/= 10% of combined revenues of all operating segments

24

Segment Reporting

Test 2 - Operating Profit

FIRST:
Compute 2 amounts and use larger absolute value

- combined operating profit of all operating segments reporting positive profit
- combined operating loss of all operating segments reporting an operating loss

SECOND:
If absolute value of operating segment's operating profit/loss = >/= 10% of larger amount above, then = reportable segment

25

Segment Reporting

Test 3 - Identifiable Asset

Operating segment's identifiable assets that are >/= 10% of combined assets of all operating segments

26

Segment Reporting

Revenue Rule (added measure to assess significant segment)

( Sales to unaffiliated customers / Consolidated revenues ) >/= 75% of consolidated revenues

*more than 10 reportable segments may exceed cost-benefit constraint

27

Segment Reporting

Reportable Segment Disclosures

- segment description
- factors to identify segments
- types of products/services
- earnings, total assets
- external revenue & internal revenue
- depreciation, amortization, and depletion
- unusual & infrequent expenses
- income tax expense
- interest revenue/expenses

*required for interim reporting
* reconciliation needed between segments = items & consolidated items
*restate previously reporting info for changes in internal organization

28

Segment Reporting

Entity-wide Disclosures

- info about products, services, geo areas

- 1 customer accounts for 10% or more of firm's revenues, that fact must be disclosed

29

true/false

Only one needs to be met for a segment to be reportable

segments cannot be counted twice to be reportable!

true

30

true/false

public business enterprise report financial and descriptive information about its reportable operating segments

true

31

Capitalization of Software costs

1) firm can capitalize costs related to internal development of computer software once software reached TECHNOLOGICAL FEASIBILITY

2) Technological feasibility = point when program/model is complete, but not on market yet

32

Computer Software Costs

Acct @ Each Stage

R/D -> Expensed
Technological Feasibility -> Capitalize
Marketing -> Depreciate

33

Computer Software Costs

Amortization

Annual amortization =

greater of

1) S/L Amortization OR
2) Current Revenue X Cost / Total Expected Revenue

34

Computer Software Costs

GAAP vs IFRS

GAAP

Software costs expensed until technological feasibility

IFRS

Software costs related to research are expensed, costs are capitalized

35

Cloud Computing Software Costs

1) acquisition of software license should be capitalized

2) service contract should be expensed

36

Criteria for Software Liability

1) customer has contractual right to take possession of software at any time during hosting period w/o significant penalty

significant penalty = customer can take delivery w/o incurring costs/can use software separately w/o significant reduction in utility/value

2) It's feasible for customer to either run software on it's own hardware OR contract with another party unrelated to vendor to host software

37

revenue method for computer software.

BV @ BOY X proportion of current yr revenue to toral remaining expected revenues including current yr revenues

38

software production costs accounted for?

Capitalize to inventory and expense as cost of goods sold

39

cost of developing software for internal purposes is true/false

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. capitalized costs are amortized over the useful life of the product.

true

40

Subsequent Event

occur after b/s date, but before financials are issued

EX: uncollectible A/R, lawsuits, debt/securities issuance, major acquisitions

* FULL DISCLOSURE NEEDED

41

Subsequent Events

condition @ b/s date

condition not at b/s date

conditions existed @ b/s date:

RECOGNITION in Financials

conditions did not exist @ b/s date:

DISCLOSURES in footnotes

42

Subsequent Events

GAAP vs IFRS

GAAP

1) cut-off date = when financials issued/available to issuance
2) require adj. for share splits after b/s date and before financials are issued
3) refinancing, amendments/waivers considered in determining debt classification as current/non-current

IFRS

1) cut-off date = financials considered authorized for issuance
2) doesn't require adj. for share splits after b/s date and before financials are issued
3) refinancing, amendments/waivers, NOT considered in determining classification of debt as current/non-current

43

When can refinancing current debt be classified as noncurrent?

1) Issue stock to extinguish debt;
2) Refinance current liab with a noncurrent liab;
3) Enter into an irrevocable agreement to refinance the current liability with a noncurrent liability.

44

true/false

Any difference between the estimated and actual loss is treated as a change in estimate in a future period

true

Decks in CPA Class (50):