CPA Chapter 2
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Prepaid one year service contracts
Year 1 and Year 2 contracts were identical, number of contracts outstanding was substantially the same at the end of every year.
However deferred revenue balance of unperformed services was significantly less in Year 2.
What accounts for this reduction in deferred revenue balance?
Most Year 2 contracts were signed earlier in the calendar year than were Yr.1 contracts. So more warranty work would have been performed by year-end, thus reducing reducing deferred revenue balance.
Q31 Royalty Revenue reportable at year end?
Royalty revenue at year end should should not be based on collections, but rather on % of earnings of the company paying out the royalties. That's the only amount that should be included in the answer, DISREGARD the other details.
Q 34 Patent Acquisition costs
Are also capitalized
Q 36 ESCROW ACCOUNT
- TAKE A NOTE OF THE BEGINNING BALANCES FIRST
- ADD DEPOSITS
- DEDUCT QUARTERLY PAYMENTS
THAT WILL GIVE YOUR ENDING BALANCE AT YEAR END
Q INTEREST REVENUE
- ACCRUED AR INTEREST ON JAN 1
- ACCRUED AR INTEREST ON DEC 31
- CASH COLLECTIONS FROM INVESTMENTS DURING THE YEAR
-INTEREST REVENUE REPORTED FROM INVESTMENTS SHOULD BE:
CASH COLLECTIONS FROM INVESTMENTS DURING THE YEAR -ACCRUED INTEREST ON JAN 1+ACCRUED INTEREST ON DEC 31=REVENUE FROM INVESTMENTS
COMPANY PURCHASED GOODWILL WHEN ACQUIRING NET ASSETS OF ANOTHER COMPANY. ADDITIONAL COSTS OF DEVELOPING GOODWILL BY HIRING AND TRAINING EMPLOYEES. WHAT AMOUNT OF GOODWILL SHOULD BE REPORTED?
GOODWILL ACQUIRED IN AN ARMS-LENGTH TRANSACTION IS CAPITALIZED, BUT INTERNALLY CREATED GOODWILL IS EXPENSED BECAUSE AN OBJECTIVE MEASURE OF ITS VALUE IS DIFFICULT TO OBTAIN.
Q 41 Accrued rent
Should consist of cash collections throughout the year+Rent receivable+Uncollectible rents
To figure out rental revenue under accrual basis:
- Rent receivable
- +Accrued Rent Billing
- -Cash Collections
- -Write offs
- =Rent receivable at year end
To calculate cash basis revenue
- Consulting fee revenue-ending consulting fees receivable
- That will give total change throughout the year.
What statement is correct about subsequent reversal of previously recognized impairment loss is correct under U.S. GAAP?
It is prohibited.
R&D expense does not include the amount paid for equipment purchased for current and future projects because the equipment has alternate future uses. This equipment is capitalized, but the related depreciation expense will be allocated to R&D while the equipment is being used for R&D. The legal fees to obtain the patent are capitalized as an intangible asset.
The matching principle
Matches expenses against revenues in the same accounting period.
*Not revenues against expenses!
For accounting (GAAP) purposes, costs to develop computer software for ultimate sale
Should be expensed if they are relevant design costs incurred before technological feasibility is established.
Under IFRS the entity would recognize a patent asset of
Capitalized sum includes: purchase price of the patent; VAT taxes and the legal costs to register the patent.
Which expenditure related to internally generated intangible assets is most likely to be capitalized, rather than expensed as incurred, under IFRS?
Development costs incurred in designing a product that has just been granted a patent.
On December 31 yr 1, entity adopted IFRS revaluation model for reporting its long-term assets and revalued a patent with a carrying value of $85K and 10 yr life to its fair value of 75 k. On December 31, Yr 2 before recording any amortization, entity determined that the patent had a fair value of 90K. In its 12-31-02 financial statements, the entity will report a revaluation gain
of $10K on the income statement and $5K in other comprehensive income.
The total yr2 revaluation gain is $15K (90K-75k). 10k of the revaluation gain will be recognized on the income statement to reverse the revaluation loss of 10K (75kfair value-85kcarrying value) reported on the income statement in yr1. The remaining 5K will be recognized as a revaluation surplus in Yr2 other comprehensive income.
How to calculate an impairment loss on a patent?
Impairment analysis begins with a test of recover ability in which the net carrying value of the asset is compared to the undiscounted cash flows expected from the asset. If the net carrying value exceeds the undiscounted cash flows, then an impairment loss is recorded equal to the difference between the carrying value and fair value of the asset.
Goodwill should be tested for impairment at which of the following levels under IFRS?
Each cash-generating unit-IFRS
*Note it's reporting unit level under GAAP
How to determine Goodwill impairment loss under IFRS?
- Under IFRS, goodwill impairment test is a one step test in which the carrying value of cash-generating unit (CGU) is compared to the CGU's recoverable amount, which is the greater of the CGU's fair value less costs to sell or its value in use (PV of future cash flows expected from the CGU).
- Impairment loss=Recoverable amount-carrying value.
- Under IFRS, CGU impairement loss is applied first to the goodwill of the CGU.
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