Accrual Accounting
Income statement impact, no current cash impact
Deferral
No current I/S impact but B/S (cash)
Usually results in recognition of liability or a prepaid expense
Accrued Assets (or accrued revenues)
Represents revenue recognized or earned through passage of time (or other criteria) but not yet paid to the entity.
Dr. A/R
Cr. Accrued Rev
Accrued Liabilities (or accrued expenses)
Represent expenses recognized or incurred through passage of time ( or other criteria) but not yet paid by entity (e.g. accrued interest payable, accrued wages)
Dr. Accrued Exp
Cr. Accrued Liability (A/P)
Prepaid Expenses (Current Assets)
Affects B/S Only
Dr. Prepaid Expense
Cr. Cash
Deferred Credits (unearned revenue or deferred revenue)
Affects B/S Only - Liability Section
Dr. Cash
Cr. Unearned/deferred revenue
Capitalizable Costs Associated with Intangibles
- Legal fees and other costs related to a successful defense of the asset
- Registration or consulting fees
- Design costs (e.g. of trademark)
- Other direct costs to secure the asset
Reporting Impairment loss on Intangible Assets Other than Goodwill
Reported as component of income from continuing operations before income taxes, unless impairment loss is related to discontinued operations.
Amortization Period of Patent
Shorter of:
- Useful Life
- Legal life remaining after acquisition
Determination of Impairment Loss for Intangible Asset
Non-reversible
- Carrying amount > sum of undiscounted cash flows
- Loss = Carrying amount - fair value
* Adjusted carrying amount = new basis
* IFRS —> Reversible
Calculating Goodwill Impairment Loss
- Determine potential impairment (FV < NBV)
- Impairment Loss = Goodwill Implied FV - Goodwill BV
* Goodwill Implied = Difference between FV that can be assigned to assets & liabilities and what is left over.
Current Asset under % of Completion Method
Costs and estimated earnings of uncompleted contracts in excess of progress billings
Current Liability under % of Completion Method
Progress billings in excess of cost and estimated earnings on uncompleted contracts
Installment Sale Formula
- Gross profit
Sale - COGS
- Gross Profit %
Gross Profit/ Sales Price
- Earned Gross Profit
Cash collections x Gross Profit %
- Deferred Gross Profit (contra asset)
Installment Receivable x Gross Profit %
Exchanges Lacking Commercial Substance
No change in cash flows or FV cannot be determined
Exchanges Lacking Commercial Substance: Gains
Measure of exchange CARRYING AMOUNT if FV not known
- No Boot Received = No Gain
- Boot is Paid = No Gain
- Boot is Received= Recognize Proportional Gain (<25%)
Total boot received/total consideration received, that proportion of total gain realized is recognized
- Boot is 25% or more of total consideration = gains/losses recognized in entirety
Calculating Gain in Nonmonetary Transaction with Commercial Substance
Gains/Losses recognized based on difference between FV and the BV of the asset given up.
CASH NOT INCLUDED IN CALCULATION
Nonmonetary Exchange w/ Commercial Substance:
Calc of New Basis
FV of Asset Given Up
+ Cash Paid (if applicable)
= New Basis
What is included as foreign exchange gains in income statement
Remeasurements.
“Translation adjustments” are no included in determining net income for the period but are disclosed and accumulated as a component of OCI in consolidated equity until disposed of.
How to compute deferred gross profit under installment method
Take outstanding A/R x gross profit %
Goodwill Impairment
2 steps:
- FV < carrying amount then proceed to step 2
- compare implied FV with carrying amount
If implied FV < carrying amount = loss
Converting from cash basis to accrual basis
Current Assets - Direct
Current Liabilities - Inverse
+ increase in current assets
(-) decrease in current assets
+ decrease in current liabilities
(-) increase in current liabilities
