Term
| Revenue recognition - US GAAP |
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Definition
Requirements: revenue should be reco when it is realized or realizable and when it is earned.
All 4 criteria must be met for each element of the contract before any rev can be recognized.
A. Persuasive evidence of an arrangement exists signed contract
B. Delivery has occurred and services have been rendered - risk and rewards transfer
c. The price is fixed and determinable - no price contingency
d. collection is reasonably assured - standard collection terms, |
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Term
| Revenue recognition (IFRS) |
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Definition
Under IFRS revenue transactions are divided into following 4 catagory has its own revenue recog.
Sales of goods is recog when all of the following condi have been met.
Revenue and costs incurred for the transaction can be measured reliably.
it is probable that economic benefits from the transaction will flow to the entity
the entity has transferred to the buyer the significant risk and rewards of ownership
the entity does not retain managerial involvement to the degree associated with ownership or control over the goods sold. |
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Term
| REvenue: Construction contracts (ifrs) |
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Definition
contract revenue and contract costs are recognized as rev and expenses using the percentage of completion method when the outcome of the construction contract can be estimated reliably - when:
1. the contract rev and contract costs attributable to the transaction can be measured reliably.
2. it is probable that economic benefits from the transaction will flow to the entity.
3. both the contract costs to complete the contract and the stage of contract completion at the end of the reporting period can be measured reliably. Loss is immediately recognized as an expense. |
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Term
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Definition
When cash is received before it is earned, a deferred credit (unearned revenue or deferred revenue) is reported. A deferred credit is recognized as revenue as it is earned. For example
Unearned interest income
unearned rental income
unearned royalty income. |
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Term
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Definition
| occurs when the entity obtains cash or the right to receive cash (ie from the sale of assets) or has converted a non cash resource into cash |
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Term
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Definition
| recognition is the actual recording of transactions and events in the financial statements. |
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Term
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Definition
| one of the most imp principle in Financial acct is the matching principle, which indicates that expenses must be recognized in the same period in which the related revenue is recognized when it is practicable to do so. Matching of revenues and costs is the simultaneous or combined recognition of the rev and exp that results directly and jointly from the same transactions or events. |
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Term
| Accrual accounting income statement impact/no current cash impact |
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Definition
| accrual acct is required by GAAP and is the process of employing the rev recognition rule and the matching principle to the recognition of rev and expenses. |
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Term
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Definition
| Royalty revenue is recognized when earned. can be earned in a variety of ways e.g royalties received on patents sold or royalties received from publications sold) in the latter case a company usually earns royalties based on a stated % of sales. Reporting royalty revenue requires accrual of the provision for revenues based on estimated sales. |
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Term
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Definition
| revenue received in advance is recorded as a liability because it is an obligation to perform a service in the future and is reported as a revenue in the period in which it is earned that is when no further future service is required. Earn it or return it. |
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Term
| Revenue recognition when the right of return exists |
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Definition
Revenue from a sale transaction where the buyer has the right to return the product shall be recognized at the time of sale only if all the required conditions are met. not a contingent sale.
The sales price is substantially fixed at the date of sale.
The buyer assumes all risks of loss e.g fire or theft because the goods are considered in the buyers possession.
The buyer has paid some form of consideration
the product sold is substantially complete and
the amount of future returns can be reasonably estimated. |
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Term
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Definition
franchise operations include a franchisee that receives the right to operate one or more units of a franchisor's business. Franchise accounting involves two types of fees.
Initial franchise fee: revenue when substantially performed - these fees are paid by the franchisee for receiving initial services from the franchisor, such services might include site selection, supervisor of construction, bookkeeping services and quality control.
continuing franchise fees: revenue when earned: these fees are received for ongoing services provided by the franchisor to the franchisee. usually such fees are calculated based on a percentage of franchise revenues. Such services might include management training, promotion and legal assistance. Fees should be reported by the Franchisor as revenue when they are earned.
Franchisor Accouting:
unearned revenue: initial franchise fee not yet earned & prepaid cont. franchise fee.
Earned revenue
other recognition methods.
installment or cost recovery percentage method. |
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Term
Expense recognition (measurement)
A. Intangible Assets - overview, valuation and characteristics |
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Definition
| are long lived legal rights and competitive advantage developed or acquired by a business enterprise. They are typically acquired by a business and provide benefits over several accounting periods. |
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Term
| classification of intangible assets |
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Definition
identifiability: patents, copyright, franchises, trademarks, and goodwill are the common intangible assets tested on the cpa examinations.
intangible assets may be either specifically identifiable (e.g patent s, copyright, franchise, etc) or not specifically identifiable (e.g good will) |
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Term
| Classification of intangible assets: manner of acquisuistion |
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Definition
purchased intangible assets - record at cost. intangible assets acquired from other enterprises or individuals should be recorded as an asset at cost. Legal and registration fees incurred to obtain an intangible asset should also be capitalized.
internally developed intangible assets - expense
a. under US GAAP the cost of internally intangible assets not acquired from others ( ie developed internally) should be expensed against income when incurred because us gaap prohibits the capitalization of research and development costs.
Examples (must be expensed)
trademarks (except for the capitalized cost identified below
good will from advertising and
the cost of developing maintaining and restoring goodwill. |
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Term
| Exception to the expense rule of intangible assets made with the company can be capitalized |
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Definition
legal fees and other costs related to successful defense of the asset - unsuccessful is expensed and test asset for impairment.
registration or consulting fees
design costs (e.g of a trademark and
other direct costs to secure the asset. |
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Term
| In all nonmonetary transactions |
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Definition
| the fair value given is equal to the fair value received. losses on non monetary transactions must be recognized in full |
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Term
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Definition
| is sold voluntarily or involuntarily, gain or loss is recognized as part of income from cont. operations. The amount of the gain or loss is equal to the diff btw the proceeds from the sale and the carrying amount of the fixed asset sold or converted. |
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Term
| Gains or losses on fixed assets including involuntary conversions are always recongnized |
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Definition
| during the period incurred based on recorded amount (NBV) plus any cost associated with the transaction. |
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Term
| When a fixed asset is sold (voluntarily or involuntarily) |
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Definition
| gain or loss is recognized proceeds vs carrying amount as part of income from cont. operations - the carrying amount of the replacement property is equal to the FV of the consideration paid for it. 1. condemnation and replacement. |
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Term
| On Jan 1 of the current year, jambon purchased equipment for use in developing a new product. Jambon uses the straight line dep method. the equipment could be used over a 10 yr period. however the new product development is expected to take 5 yrs and the equipment can be used only for this project. jambos current year expense equals |
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Definition
| the total cost of the equipment - since the equipment can be used only for this project it should be expensed immediately even though the project is expected to take 5 yrs. it would be capitalized over its useful life, only if the equipment had an alternative use. |
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Term
| generic product revenue recognition vs custom product for a specific customer |
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Definition
| heating oil is a generic product, sales are based on shipment - however if the product was custom produced for specific customer, sales would be based on production, even if not shipped but merely set aside for future shipment. |
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Term
| The amount of deferred gross profit relating to installment AR collection 12 months beyond the balance sheet date should be reported in the |
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Definition
| current asset section as a contra account. |
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Term
| for financial statement purposes, the installment method of accounting may be used if the |
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Definition
| ultimate amount collectible is indeterminate. otherwise the installment method of recognizing revenue is not acceptable for GAAP, and the entire gain is recognized in the year of sale. |
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Term
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Definition
| when a "nondealer" in real estate and a nonmerchant in personal property make an installment sale, they need only report income over the period in which the cash payments are received. they merely compute the gross profit from the original sale and apply the gross profit percentage to cash collected to arrive at realized gross profit. |
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Term
| Royalties received should be reported as revenue in the period |
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Definition
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Term
| Current cost financial statement report holding gains for goods sold |
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Definition
| during the period and holding gains on inventory at the end of the period. They also include holding gains and losses on all other accounts in the financial statements. |
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Term
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Definition
under CC accounting, holding gain on inventory is the excess of replacement cost at the balance sheet date over the original purchase price
Note 1 price level index is used for the historic cost/constant dollar method not the current cost method.
Note 2: Selling prices are not a component of holding gains. |
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Term
| Holding net monetary asset during inflation will |
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Definition
| result in a loss of purchase power, conversely holding net monetary liabilities will result in a gain. exp refundable deposits with suppliers (monetary asset) |
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Term
| increase in current cost of inventory formula |
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Definition
based on todays nominal dollar
less based on lastyears constant dollars
= inflation component of increase in inventory |
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Term
| A company that wishes to disclose information about the effect of changing prices should report this information in |
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Definition
| supplementary information to the financial statement. |
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Term
| rule gains from remeasuring a foreign subsidiary |
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Definition
| if an entity's books are not maintained in its functional currency, remeasurement into the functional currency is required. Any gains or losses are included in determining net income and are classifies as part of continuing operations. |
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Term
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Definition
a company should record the cost of intangible assets acquired from other enterprises or individuals in an arm's length transaction as assets
a. cost is measured by:
1. the amount of cash disbursed or the fair value of other assets distributed
2. the present value of amounts to be paid for liability incurred and
3. the fair value of consideration received for stock issued.
b. cost may be determined either by the fair value of the consideration given or by the fair value of the property acquired, whichever is more clearly evident.
c. The cost of unidentifible intangible assets is measured as the diff btw the cost of the group of assets or enterprise and the sum of the costs assigned to identifiable assets acquired, less liabilities assumed.
d. The cost of identifiable assets should not include goodwill. |
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Term
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Definition
must have a finite life - The value of intangible assets eventually disappears; therefore the cost of each type of intangible asset except for good will and assets with indefinite lives) should be amortized by systematic charges to income over the period estimated to be benefited.
A patent is amortized over the shorter of its estimated life or remaining legal life. |
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Term
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Definition
| Under US GAAP - finite life intangible assets are reported at cost less amortization and impairment. Indefinite life intangible assets are reported at cost less impairment. |
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Term
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Definition
under IFRS, intangible assets can be reported under either the cost model or the revaluation model.
1. cost model - intangible assets are reported at cost adjusted for amortization (finite life intangible asset only) and impairment.
Revaluation model= FV
Under the revaluation model intangible assets are initially recognized at cost and then revaluated to FV at a subsequent revaluation date. Revaluated intangible assets are reported at FV on the revaluation date adjusted for subsequent amortization finite life intangible assets only and subsequent impairment.
Revaluation model carrying value=FV on revaluation date - subsequent amortization - subsequent impairment. |
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Term
| Franchisee Accounting : initial franchise Fee |
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Definition
| The present value of the amount paid or to be paid by a franchisee is recorded as an intangible asset on the balance sheet and amortized over the expected period of benefit of the franchise (expected life) its an intangible asset and it is amortized. |
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Term
| Franchise accounting: Continuing Franchise Fees |
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Definition
Expense those as incurred:
These fees are received for ongoing services provided by the franchisor to the franchisee (often refereed to as franchise royalties. Usually such fees are calculated based on a percentage of franchise revenues. Such services might include management training, promotion, and legal assistance. Fees should be reported by the franchisee as an expense and as revenue by the franchisor, in the period incurred. |
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Term
| Franchise: Start up cost: |
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Definition
Expense them: Expenses incurred in the formation of a corp. legal fee etc are considered organizational costs:
1. for book purposes: start up costs include costs for the one time activities associated with
1. organizing a new entity e.g legal fees for preparing a charter partnership agreement, bylaws, original stock certifications, filing fees, etc.)
2. opening a new facility
3. introducing a new product or service.
4. conducting business in a new territory or with a new class of customer.
5. initiating a new process in an existing facility. |
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Term
| Franchise: items not included in start up cost |
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Definition
1. routine, ongoing efforts to refine, enrich or improve the quality of existing products, services, processes or facilities.
2. business mergers or acquisitions.
3. ongoing customer acquisition. |
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Term
| Organizational expenditures are |
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Definition
| not capitalized as an intangible asset. Rather they are expensed immediately. |
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Term
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Definition
| Goodwill is the representation of intangible resources and elements connected with an entity e.g management or marketing expertise or technical skill and knowledge that cannot be identified or values separately. Goodwill means capitalized excess earnings power. |
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Term
| Calculation of goodwill: Acquisition method. |
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Definition
| goodwill is the excess of an acquired entity's fair value over the fair value of the entity's net assets, including identifiable intangible assets. |
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Term
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Definition
| The equity method involves the purchase of a company's capital stock. Goodwill is the excess of the stock purchase price over the fair value of the net assets acquired. |
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Term
| Costs associated with maintaining, developing or restoring good will |
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Definition
| are not capitalized as goodwill (they are expensed). In addition, goodwill generated internally or not purchased in an arm's length transaction is not capitalized as goodwill. basically cost associated with maintaining and developing or restoring goodwill is expensed. |
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Term
| What is research and development cost |
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Definition
| is the planned efforts of a company to discover new information that will help either create a new product, service, process or technique or significantly improve the one in current use. Development tales the findings generated by research and formulates a plan to create the desired item or to improve significantly the existing one. |
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Term
| how to account for Research and development cost under US GAAP |
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Definition
Expense the cost!
the only acceptable method of accounting for R&D is a direct charge to expense |
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Term
| what are some of the exceptions to expensing R&D cost |
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Definition
a. Materials, equipment, or facilities (i.e., tangible assets)that have alternative future uses.
1. capitalize and depreciate the assets over their useful lives (not the life of the R&D and develp project)
2. R&D costs of any nature undertaken on behalf of others under a contractual arrangement.
1. the purchaser (buying the R&D) will expense as R&D will expense as R&D the amount paid; and the provider (performing the R&D for the purchaser) will expense the costs incurred as cost of sales.
2. the conclusion for charging most R&D costs to expense under US GAAP is the high degree of uncertainty of any future benefits.
3. disclosure is required in the FS or notes of the amount of R&D charged to expense for the period. |
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Term
| WHich items are not considered R&D |
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Definition
Routine periodic design changes to old productions or troubleshooting in production stage(these are manu cost not R&D expenses)
b. market research
3. Quality control testing
4. Reformulation of a chemical compound. |
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Term
| R&D: Under IFRS research cost muse be ________________ but _______ cost may be capitalized if certain criteria are met. |
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Definition
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