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FAR2ReviewNotes1.RevenuerecognitionrequirementsUSGAAP(samecriteria,nomatterwhatcategoryitbelongsto,all4mustbemet)Realized/realizableandearned!

Persuasiveevidenceofanarrangementexists(signedcontract) Deliveryhasoccurredorserviceshavebeenrendered(risk&rewardstransfer) Thepriceisfixedanddeterminable(nopricecontingencies) Collectionisreasonablyassured(standardcollectionterms)

2.RevenuerecognitionIFRS(dividedinto4categories)measuredreliablyandeconomicbenefitsflowa)SaleofgoodsprettymuchthesameasGAAPb)ServicepercentageofcompletionmethodcriteriaisthesameasGAAPc)Interest,royaltyanddividendrevenueeffectiveinterestmethod,accrualbasisforroyalty

d)Constructioncontractspercentageofcompletion(expectedlossrecognizedimmediately)3.Specialaccountingtreatment

Installmentsalesrevenueisrecognizedascollectionsaremade Costrecoverymethodnoprofitisrecognizedonsaleuntilallcostshave

beenrecovered Nonmonetarymethoddepends! InvoluntaryconversionPage41forexample

4.Classicexampleforroyaltiesreceivedinadvance

Thecompanyreceivesroyaltiesonitspatentsintwoways.Insomecases,advanceroyaltiesarecollected,andinothercases,royaltiesareremittedwithin60daysafteryear-end.

Year1 Year2 DifferenceRoyaltiesreceivable $100,000 $95,000 ($5,000)

Unearnedroyalties 70,000 45,000 25,000

DuringYear2,thecompanycollectedroyaltyremittancesof$180,000.InitsincomestatementfortheyearendedDecember31,Year2,whatshouldthecompanyroyaltyincomebe?Solution:netmethod:Royaltycollections$180,000Plus:Reductioninunearnedroyalties25,000Less:Reductioninroyaltiesreceivable(5,000)Year2royaltyincome$200,0005.RevenuerecognitionwhentherightofreturnexistsTherevenuerecognizedatthetimeofsaleonlywhenallthefollowingconditionsaremet:

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Thesalepriceisfixed Buyerassumesallrisksofloss Buyerpaidconsideration Productsoldiscomplete Futurereturncanbereasonablyestimated

6.FranchisorAccounting

InitialFranchiseFeerevenuewhensubstantiallyperformed ContinuingFranchiseFeerevenuewhenearned

Example:Initialfranchisefee$75,000with$25,000downpaymentandbalancedueof5equalannualpaymentof$10,000.Thepresentvalueofthe5paymentsis$37,908.Thejournalentrywouldbe:Dr.Cash$25,000Dr.Notesreceivable50,000Cr.Discountonnotesreceivable($50,000-37,908)$12,092Cr.Unearnedfranchisefeerevenue62,908

7.FranchiseeAccounting

InitialFranchiseFeeIntangiblecapitalizedassetandamortizeoverthebenefitperiod

ContinuingFranchiseFeeExpenseasincurredNote:examtrickhighlypossibletheagreementbetweenfranchisorandfranchiseewassignedinthemiddleoftheyear,thustheamortizationwasnotafullyearinYear1!8.IntangibleAssets

CommonintangibleassetstestedinCPAexam:patent,copyrights,franchises,trademarks,andgoodwill.

Purchasedintangibleassetsrecordatcost(i.e.legalandregistrationfeesincurredtoobtaintheassetshouldalsobecapitalized)

Internallydevelopedintangibleassetsexpensewhenincurred(i.e.trademarks,goodwill,costofdeveloping,maintainingorrestoringgoodwill)Exception:Capitalizedfollowing:1)Legalfeesandothercostsrelatedtoasuccessfuldefenseoftheassets2)Registrationorconsultingfees3)Designcostsoftrademark4)Otherdirectcoststosecuretheasset

9.Goodwillisnotamortizedbecauseithasinfinitelife.Goodwillissubjecttoimpairmenttestonatleastannualbasis.Note:ontaxpurposesonly,goodwillisamortizedover15yearsoflife.10.Patentisamortizedovertheshorterofitsestimatedlife(usefullife)orremaininglegallife.11.IFRSrevaluationmodel:

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a)Revaluationlossesarereportedonincomestatement,however,revaluationlossesthatarereversingpreviouslyrecognizedrevaluationgainisrecognizedinOCIandreducestherevaluationsurplusinAOCI.b)RevaluationgainsarereportedinOCIandAOCIinequityasrevaluationsurplus,unlesstherevaluationgainreversesapreviouslyrecognizedrevaluationloss.

e.g.Year1,revaluationlossof$500,000recordedinincomestatement,Year2,revaluationgainof$900,000.$500,000willbereportedinincomestatementasareversalofthe$500,000lossrecordedinYear1,theremaining$400,000willbereportedinOCIasrevaluationsurplus.12.Start-upcosts,includingorganizationalcosts,shouldbeexpensedwhenincurred.13.R&DGeneralrule:expenseimmediately,except:a)Materials,PPE,facilitiesthathavealternativefutureusescapitalizeanddepreciateoverusefullife,nottheR&Dprojectlife.

b)R&Dundertakenonbehalfofothersunderacontract14.ItemsthatarenotconsideredR&Dcosts

Routineperiodicdesignchanges Marketingresearch Qualitycontroltesting Reformulationofachemicalcompound

15.IFRSruleaboutR&D:ResearchexpenseimmediatelyDevelopmentmaycapitalizeifcriteriamet

16.Computersoftwaredevelopmentcosts

Definition:TechnologicalFeasibilityTechnologicalfeasibilityisestablisheduponthecompletionof(1)Adetailedprogram,or(2)CompletionofaworkingmodelIDEA-------------->TechnologicalFeasibilityEstablished-------------->Productforsale||programdesign,purchasingproductmasters,planning,coding,additionalcoding,testing

testing(expense!)(capitalize!!)

Amortizationofthecapitalizedsoftwarecostsisthegreaterof:a)%ofrevenue=$TotalcapitalizedX(currentgrossrevenuefortheperiod/totalprojectedgrossrevenuefortheproduct)b)straight-line=$TotalcapitalizedX(1/estimatedeconomiclife)

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CapitalizedsoftwarecostsarereportedattheLCM,wheremarketisequaltoNRV.

Costsincurredforinternallydevelopedprojectareaccountedprettymuch

thesameascostsincurredforprojectsforsale.(expenseforpreliminary

stage,capitalizeafterpreliminarystagefordirectcostsofmaterials,services,employeesandinterestcostsincurredforproject)

Note:capitalizedcostsshouldbeamortizedoverstraight-linemethodbecausethereisnorevenueexpected.

17.IntangibleassetsimpairmenttestStep1:compareundiscountedfuturecashflow(alsocallednetfuturecashflow)withcarryingvalue[NOTE:Onlyintangibleassetswithfinitelifeneedsstep1,ifinfinitelife,gotostep2directly]Ifundiscountedfuturecashflow>carryingvalue,noimpairment

Ifundiscountedfuturecashflow

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Step4:computegrossprofitearnedincurrentyear3)NOTE:Changeinmethodofaccountingforlong-termconstructioncontractsisachangeinaccountingprinciple,reportedretrospectively;doesnotrequiredisclosureunlessextraordinary.

19.InstallmentsalesBasedoncashcollectedbecauselackofreasonablebasisforcollectability1)Installmentmethode.g.$400,000installmentsales,COGS$300,000,onyearendbalancesheet,A/Ris$150,000.Step1:grossprofit%=(400,000300,000)/400,000=25%Step2:grossprofitearned=(400,000150,000)x25%=62,500Step3:deferredgrossprofit=150,000x25%=37,500NOTE:deferredgrossprofitisacontra-receivableaccountonB/S

2)Costrecoverymethodnoprofitisrecognizedonsaleuntilallcostshavebeenrecovered.20.Non-monetaryexchangetwogroups:havecommercialsubstanceandlackcommercialsubstance1)hascommercialsubstancefuturecashflowsoreconomicpositionoftwopartieschangeasaresultofthetransactionPasskey:FVoftheassetsgivenup=FVoftheassetsreceived,includinganycashgivenorreceived.Formula:Recognizedgains/losses=FVNBVNOTE:Cashgivenupinthecommercialsubstanceexchangedoesnotenterintothe

calculationofgainorloss,butwillimpactthebasisofacquiredasset.NOTE2:UnderIFRS,exchangeofsimilarassetshasnogain/lossrecognized;exchangeofdissimilarassetwouldbethesameasGAAP.2)lackcommercialsubstancenochangeincashflowsorFVcantbedetermined

Noboot(cash)isreceived,nogain. Bootispaid=nogain Lossisalwaysrecognized Bootisreceived=recognizegain

- Allgainisrecognizedifbootreceived>25%ofthetotalconsideration- Partialgainrecognizedifbootreceived

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1) HCNDrequiredbyGAAP.Neitheradjustforappreciation,norforinflation.

2) HCCDadjustforinflation3) CCNDadjustforappreciation4) CCCDadjustforbothappreciationandinflation

23.Monetary&Non-monetaryitems:

Holdingmonetaryassetsduringperiodofinflationwillresultinalossofpurchasingpower,andholdingmonetaryassetwillresultinagainofpurchasingpower.

Non-monetaryassetsandliabilitiesfluctuateinvaluewithinflationanddeflation.

Acontra-accountisclassifiedasmonetaryornon-monetarybasedupontheclassificationoftherelatedaccount.

24.Foreigncurrencyaccounting

FCtransactionvsFCtranslation Functionalcurrencycurrencyoftheprimaryeconomicenvironmentin

whichtheentityoperates(usuallythelocalcurrencyorUSdollar) Reportingcurrency=USdollar$$ FCtranslationrestatementofF/Sdenominatedinthefunctionalcurrency

tothereportingcurrencyusingappropriateratesofexchange FCremeasurementrestatementofforeignF/Sfromtheforeigncurrencyto

theentitysfunctionalcurrency StepsinrestatingforeignF/S

- PrepareinaccordancewithGAAP/IFRS- Determinefunctionalcurrency(functionalcurrencycanbethe

entityslocalcurrency,currencyofthereportingentity,orthecurrencyofanothercountry)

Remeasurementmethod(temporalmethod)=dysfunctionalB/Sfirst:monetaryitemcurrentrate;non-monetaryitemhistoricalrateI/Ssecond:non-B/SrelateditemWArate;B/SrelateditemhistoricalrateThird,calculateremeasurementgain/lossintoincomestatement(IDEA).Translationmethod(currentratemethod)=functionalI/Sfirst:allitems=WArate

B/Ssecond:Assets&Liabilities=currentrate

Third,calculatetranslationadjustmenttoOCI(PUFER).