Research and development costs: SFAS No. 2 requires that all research and development costs (some of which will have future cash flow benefits and others of which will not) be written off to expense as incurred. Are there any other accounting principles that are present here? Discuss. Unusual right of return by customers: SFAS No. 48 covers those industries (of which there are not many) in which buyers have an unusual right of return due to industry practices that cannot be avoided by the individual firm. The “unusual right of return” arises where buyers have an unusually long time period during which purchase returns can be made. From the seller ' s standpoint, revenue is recognized at time of sale, provided that the future returns can be reasonably estimated (there are five other conditions that must also be met, but they are of no concern here). If sales returns cannot be reasonably estimated, then sales revenues are not recognized until returns can be reasonably estimated or (more likely) the return privilege has substantially expired. Hence, it is not cash flow differences that are at issue but rather the ability to estimate the expected returns that is the key point. Investment tax credit (assume no investment tax credit carry forward problem): All of the cash benefits in the form of lower taxes are received in the SAGE SAGE Books Contact SAGE Publications at . SAGE Books - Uniformity and Disclosure Page 24 of 25
d. a. b. c. d. 6. 1. 2. 3. year of asset acquisition. The enterprise can recognize benefit (in the form of lower tax expense) in the year of acquisition, or the benefits can be spread over the life of the asset in the form of lower annual depreciation. Oil and gas accounting: SFAS No. 19 tried to allow only “successful efforts.” In successful efforts, the costs of dry holes must be written off once it is known that the holes are dry. If (and only if) a well is successful, drilling costs are capitalized and amortized over future years. Colleges and universities frequently get graduating seniors to donate money to them. A very common practice is to divide this money up over a number of years. Thus a $30 donation might be divided up over a five-year period (based on a 2007 Wall Street Journal article by Daniel Golden actually citing the $30 contribution and the $6 division over five years). Required: Is this an allocation? Discuss. Why do you think that colleges and universities follow this practice? What entry did the college make for the five-year division? Do you have any other comments you would like to make about this practice? Critical Thinking and Analysis What is the relationship between uniformity (both finite and rigid) and disclosure? Assume two countries adopt International Financial Reporting Standards (IFRSs) for their financial accounting and reporting. One has a highly developed economic history; one has a language that has changed little over several hundred years and lacks today ' s economic terms. How might comparability be affected if English IFRSs are translated to the native languages of both countries?
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