FAR Ch 2 - FAR Notes Chapter 2 http/cpacfa.blogspot.com...

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FAR - Notes Chapter 2 http://cpacfa.blogspot.com Timing Issues Revenue from the sales of products or the disposal of assets is recognized on the date of sale Generally for a sale to take place: delivery of goods and or transfer of title must occur Revenue that stems from allowing others the use of the entity’s assets (interest rev, royalty rev, rental rev) is recognized with the assets are used Cash xx Unearned royalty xx Unearned royalty xx Earned royalty xx Revenue from services is recognized in the period the services have been performs and are able to be billed Expenses should be recognized according to the matching principles Matching principle – expenses must be recognized in the same period as revenue Expired costs (expenses) – costs that expire during the period and have no future benefit Unexpired costs (expenses) – should be capitalized and matched against revenue (PPE, depreciation) Franchisor Accounting (Mcdonalds HQ) The PV of future services (to be performed by the franchisor) should be recorded as unearned revenue. The unearned revenue is recognized once substantial performance has occurred. Substantial performance means that all of the following have been met 1. Franchisor has no obligation to refund any payment received from franchisee 2. Initial services required of the franchisor have been performed 3. All other conditions of the sale have been met Franchisee accounting The PV of the amount paid (or to be paid) by a franchisee is recorded as an intangible asset on the B/S and amortized over the expected period of benefit for the franchise Fees should be reported by the franchisee as an expense and as revenue by the franchisor in the period incurred Expense recognition The cost of intangible assets not required from others should be expenses against income incurred, examples: - Trademarks; goodwill from advertising; the cost of developing, maintaining and restoring goodwill Exception, certain costs associated with intangibles that can be capitalized, examples: - Legal fees in successful defense of the asset (litigation for patents and trademarks); registration or consulting fees; design costs (of a trademark); other direct costs to secure the asset A patent is amortized over the shorter of its estimated life (useful life) or remaining legal life. FASB 142, Test goodwill and adjust for impairments Startup costs – expenses incurred in the formation of a corporation (legal fees) and are considered organizational costs Organizational costs are not capitalized but expensed immediately Capitalize legal and registration fees incurred to obtain an intangible asset Capitalize legal fees incurred in successfully defending intangible assets as future benefit will be derived 1
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FAR - Notes Chapter 2 http://cpacfa.blogspot.com When purchasing goodwill, the excess cost over the FMV is goodwill
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This note was uploaded on 05/11/2010 for the course CPA 2010 taught by Professor ?? during the Spring '10 term at Becker College.

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FAR Ch 2 - FAR Notes Chapter 2 http/cpacfa.blogspot.com...

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