F2[1].txt

When it is realized or (realizable) and when it is earned

• Persuasive evidence(Signed contract)
• Delivery has occurred or services have been rendered (risk and rewards)
• Price is fixed
• Collection is reasonable assured

• Measured reliable
• Economic Benefit
• Entity has transferred to the buyer the risk and reward of ownership
• Entity does not retain managerial involvement

% of Completion method

Liability until earned

• DR: Cash
• CR: Unearned Revenue

• DR: Unearned Revenue
• CR: Earned Revenue

• It should be recognized at the time of sale unless the following conditions are NOT met then it is deferred:
• Price is substantially fixed
• Buyer assumes all risks
• Buyer has paid some form of consideration
• Product is substantially complete
• Amount of returns can be reasonable estimated

• Patent, copyrights, franchises, trademarks, goodwill
• Purchased Intangible Assets = Record at Cost
• Internally developed Intangible assets = Expense

• Legal Fees
• Registration or Consulting Fees
• Design Costs
• Other direct costs secured to the asset

Research Costs

• Yes if the following are met:
• Technological Feasible has been established
• Entity intends to complete Intangible asset
• Entity has ability to use or sell Intangible asset
• Intangible will generate future economic benefits
• Adequate resources are available to complete the development and sell or use the asset

• NEEDS TO BE ARMS LENGTH TRANSACTION
• Amount of Cash disbursed or FV of other assets distributed(whichever is more clearly evident)
• PV of amounts to be paid for liabilities incurred
• FV of consideration for stock issued

Shorter of estimated or remaining legal life

NO Goodwill is checked for Impairment

• Cost less Amortization and Impairment
• Indefinite life intangible assets are reported at cost less impairment

Cost model like GAAP

Revaluation Model = FV on Revaluation date – Subsequent amortization – Subsequent Impairment

• Revaluation Losses – Income Statement
• Revaluation Gains – OCI
• If revalued intangible assets subsequently become impaired the impairment is recorded by first reducing and revaluation surplus to 0 and further losses are reported on the IS

Expense

Capitalized excess earnings power

Expense them

• Expense them
• Unless:
• Materials, equipment or facilities that have alternate future uses – Capitalize
• R&D costs undertaken on behalf of others under contractual agreement should be expensed as cost of sales and Disclose

• Routine periodic design changes to old products
• Marketing research
• QC testing
• Reformulation of Chemical Compound

Research costs must be expensed but development costs may be capitalized if certain criteria are met

Expense costs incurred until technological feasibility has been established then Capitalize up to the point of the product released for sale

• GREATER OF:
• % of Revenue = Total Capitalized amount * current gross revenue for period/total projected gross revenue
• Straight Line = Total Capitalized amount * 1/Estimated economic life

Capitalized software costs are reported at lower of cost or market where market is equal to the NRV

You don’t

• 2 Step Impairment test
• Use undiscounted future net cash flows
• Step 1 – carrying amount of the asset is compared to the sum of the undiscounted cash flows expected
• Step 2 – if the carrying amount exceeds the total undiscounted future cash flow then the asset is impaired and an impairment loss equal to the difference between carrying amount of the asset and FV is recorded

Use FV -if the carrying amount exceeds the total undiscounted future cash flow then the asset is impaired and an impairment loss equal to the difference between carrying amount of the asset and FV is recorded

• Component of Income from continuing operations before Income taxes
• Carrying amount of asset is reduced by amount of Impairment Loss
• Restoration of previously recognized Impairment losses is prohibited unless the asset is held for disposal

• Use FV -if the carrying amount exceeds the total undiscounted future cash flow then the asset is impaired and an impairment loss equal to the difference between carrying amount of the asset and FV is recorded
• IFRS allows the reversal of Impairment losses

• Calculated at the reporting unit level. Impairment exists when the carrying amount of the reporting unit exceeds it FV
• Step 1 – identify potential impairment by comparing FV of each reporting unit with its carrying amount, including goodwill
• Step 2 –Measure the amount of goodwill impairment loss by comparing the implied FV of the reporting units goodwill with the carrying amount of that goodwill

Goodwill impairment testing is done at the cash generating unit level. Use one step test

• GAAP Only
• Recognizes income only on completion of contract
• Used for short duration projects

• Excess of accumulated costs over related billings should be reflected as current asset and excess of accumulated billings should be current liabiltilty
• Current Asset – Due on Accounts, Construction in Progress
• Current Liability – Progress billings on uncompleted contracts in excess of cost
• Losses should be recognized in the year they are discovered(Rule of conservatism)

Cost incurred/total expected cost=work done/total expected work=% of job earned

Loss provision for entire contract should be made when current estimates indicate a loss. However previous gross profit or loss reported in prior years my be adjusted when calcing the total estimated loss

• Advantage: Accurate reporting of status of the uncompleted contracts
• Accrual method
• Disadvantage: Relies on estimates

• When cash is actually collected
• Cash method

• Accounts Receivable
• Less: Deferred Gross Profit(Contra Asset)
• Balance

• No profit is recognized on a sale until all costs have been recovered. At the time of sale the expected profit on the sale is recorded as deferred gross profit. Cash collection are first applied to the recovery of product costs. Collections after all costs have been recovered are recognized as profit.
• Use only where there is no reasonable basis for estimating their collectivity

• An exchange has commercial substance if the future cash flows change as a result of the transaction
• Cash given up is used to calculate the buildings basis
• Have commercial substance – Gain/Loss Recognized
• Lack commercial substance – Always recognize losses
• If Gain lacking commercial substance
• No Boot Received = No Gain
• Boot Paid = No Gain
• Boot Received greater than 25% of all consideration – All gain recognized
• Boot Received less than 25% of all consideration - % of gain recognized

• Exchanges of Dissimilar like having commercial substance under GAAP
• Dissimilar assets are not regarded as exchanges that generate revenue no gains are recognized

Entire Gain/Loss is recognized

• Assets at FV
• Liabilities at PV

• Exact Method (equal to book value) –No goodwill or bonus-Old Partners capital account stay the same
• Bonus Method – when purchase price is more or less than the book value of the capital account purchased
• Goodwill Method – recognized based upon the total value of the partner implied by the new partnerships contribution

• Nominal – unadjusted for changes in purchasing power
• Constant – restated based on calc of CPI ratios

Historical Cost/Nominal dollars

• Monetary assets and liabilities are fixed or denominated regardless or changes in specific prices or the general price level (Cash, bonds, long term receievables)
• Non-Monetary assets and liabilities fluctuate in value with inflation and deflation (Marketable common stock, PP&E, Inventory)

• Direct – Ours to theirs
• Indirect – Theirs to ours
• Spot – Year end rate or current date rate

• Weighted average – Income statement
• Historical Exchange rate is for equity

• The FS of the foreign subsid are not in the subsids functional currency, the fs are remeasured to the functional currency starting with BS
• FS are remeasured starting with BS
• Monetary items = Spot Rate
• Non-monetary items = historical rate
• Income statement
• Non-BS items –weighted average reate
• BS Items = historical rate
• Translation gain/loss = IS

• the foreign subsids are in the subs functional currency, the fs are translated to to the reporting currency starting with IS
• IS= Weighted average rate
• BS=
• Assets=Current/YE rate
• Liabilties = Current/YE rate
• Common stock- Historical rate
• RE = rollforward
• Translation gain/loss = OCI

Fair Value

Record the asset on the BS at FV

Record the asset received on the BS at the NBV of the asset surrended,minus any boot received(or plus any boot paid) plus any gain recognized(minus loss recognized) on the transaction