24 terms

F2-1.Timing Issues: Matching of Rev and Exp, correcting and adjusting accounts

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*Greater of SLM or sales revenue from the software for the period / total projected sales
-Ex) the sales were 10% of what was expected = 10% amortization
Amortization of capitalized software costs
*Royalty expense will be expensed when incurred.
Royalty expense
*Maintenance and R&D expense will be expensed
*Should be tested for value impairment at each reporting unit (US GAAP)
*Should be tested for value impairment at each cash-generating unit (IFRS)
Goodwill
*Will be amortized over the economic life, not by the accounting records
Trademark
*Includes
-Material
-Salary
-Depreciation
-Indirect costs appropriately allocated
-R&D performed by another company

*Does NOT include
-Internal use after preliminary project stage
-Exploration costs
-Market research
-R&D performed under contract for others
-Routine periodic design changes or troubleshooting
-Quality control
R&D expense
*Dec 31, special insurance costs that are related to WIP were unpaid and unrecorded.
-Accrued liabilities: understated
-R/E: no effect, since it only affects WIP, not the CGS
Ex) Recording of omitted info
*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
Conditions to be revenue
*Even though it says the product is depreciated over 5 years, you should have depreciation expense for the economic life of 3 years.
Expected economic life vs. depreciated life
*When calculating the royalty income, if 10% of sales is royalty income, the sales should be deducted by sales return allowance
Royalty income
*Is prohibited under US GAAP, unless the intangible asset is held for sale
Subsequent reversal of a previously recognized impairment loss
*Matches expenses against revenues in the same accounting period
Matching principle
*Patent asset includes purchase price, legal costs to register the patent, and nonrefundable VAT taxes
Patent (IFRS)
*Dec 31, Y1, $85,000 -> FV $75,000
Dec 31, Y2, $FV 90,000
-$10,000 on the I/S, $5,000 in OCI
Ex) Revaluation gain (IFRS)
*Fair value less costs to sell - Carrying value
Goodwill impairment (IFRS)
*Recoverable amount - carrying value
*Recoverable amount = greater of the asset's fair value less costs to sell AND the asset's value in use

*Determining the impairment - use undiscounted future net CF
*Amount of impairment - use fair value
Impairment loss (IFRS)
*Franchise agreement on July,1 Y1, initial franchise $75,000 with $25,000 down payment, five equal $10,000 payment. PV of the annual payments is $37,908.
*Entry
-Cash 25,000 / Discount on N/R 12,092
-N/R 50,000 / Unearned rev $62,908
Ex) Entry to record franchise
*Amortized over the shorter of its estimated life or remaining legal life
Patent
*Initial franchise fees will be amortized over the expected period of benefit of the franchise
Initial franchise fees
*Net carrying value $1,200
Net future cash flows $1,000
FV/PV net cash flows $700
1,000-1,200 = Impairment
-Held for use: $700-$1,200 = ($500)
-Held for disposal: $700-$1,200-$100(disposal) = ($600)
Ex) Impairment loss
*Capitalized
R&D for government that is to be reimbursed
*Proceeds received from the advance sale of nonrefundable tickets for a theatrical performance be reported in the seller's F/S before the performance as unearned revenue for the entire proceeds
Unearned revenue
*Usually revenue will be recognized from sales shipped dates. However, if the product was custom produced for a specific customer, sales would be based on production, even if not shipped but merely "set aside" for future shipment.
Revenue recognition
*Ex) A receives deposits from its customers to protect itself against nonpayments for future services. It will be classified as a liability.
Liability
*Under a royalty agreement with another enterprise, a company will receive royalties from the assignment of a patent for three years. The royalties received should be reported as revenue in the period earned
Ex)