Acct 551 Homework Week 1

US GAAP Similar to IFRS, but individually significant items are presented on the face of the income statement and disclosed in the notes.

| The flexibility in U.S. GAAP gives management discretion to use its professional opinion to choose from a range of guidelines and standards in selecting those that suit the needs of a company (e.g., FIFO or LIFO inventory methods).

ii. Cisco’s purchased intangibles fall into one of two categories – those with finite lives and those with indefinite lives. Describe in your own works what these categories mean. How does the accounting for intangibles differ across these two types of intangible asset categories.

Refer to AASB138 (54), (2015, p. 13) research expense should be expensed when it occurred. Whereas development expense could be capitalised as an intangible asset when the entity demonstrates the ability to use or sell (AASB 138 57 c 2015, p. 13). As a technology-driven business, R&D is the core competence for MYX to differentiate its products and gain sustainable profits. Hence, adjustments should be made to transfer R&D expenses to an intangible asset.

Answer: The revenue coming from the promise to integrate internet technologies on Windows 95 and office would be recognized in the future by the revenue recognition policy. However, the development costs to provide these enhancements are already incurred in the and expensed in the company’s treatment for the software development costs. The combined effect of these two policies is the mismatch of expense with revenue.

10-2 On the premise that the historical cost of acquiring an asset should include all costs necessarily incurred to bring it to the condition and location necessary for its intended use, in principle, the cost incurred in financing expenditures for an asset during a required construction or development period is itself a part of the asset 's historical acquisition cost. The cause-and-effect relationship between acquiring an asset and the incurrence of interest cost makes interest cost analogous to a direct cost that is readily and objectively assignable to the acquired asset. Failure to capitalize the interest cost associated with the acquisition of qualifying assets improperly reduces reported earnings during the period of acquisition and increases reported earnings in later periods.

In the course of normal business operations certain transactions require specific treatment in accordance with generally accepted accounting procedures (GAAP). To properly prepare financial statements, the analysis of working papers is imperative to insuring compliance. Clarification of why information is needed about adjusting lower cost of market inventory on valuation, capitalizing interest on building construction, recording gain or loss on asset disposal, and adjusting goodwill for impairment is presented here.

“Internal and external costs incurred during the development stage shall be capitalized.” (FASB ASC 350-40-25-2)

GAAP is implemented through measurement principles and disclosure principles. Measurement principles recognize and determine the timing and basis of items that enter the accounting cycle and impact the financial statements, such as the period in which transactions will be recorded. Disclosure principles determine what specific numbers and other information are essential to be presented in financial statements. Basically, GAAP is concerned with:

A company’s resources include two types: tangible and intangible. The former is asset that can be observed and counted, such as, office furniture, production equipment, computer, and warehouse, etc. Unlikely, the intangible resources are assets that are rooted deeply in the company’s history, accumulate over time, and are relatively difficult for competitors to learn and copy, such as brand, intellectual property and reputation, etc.

If an intangible asset is not able to meet either of these criteria, it should be recognized as an expense rather than being capitalized to the statement of profit or loss when it incurs. IAS 38 therefore specifically prohibits recognizing internally generated goodwill, customer lists, publishing titles, brands, start-up costs, mastheads and training costs etc.

AASB 138 defines intangible assets as “identifiable non-monetary assets without physical substance”. Such assets include but are not limited to goodwill, trademarks, patents and research and development. AASB 138 Intangible Assets has been implemented to prescribe the accounting treatment for intangible assets that have not been specifically dealt with in any other standard. Therefore, this standard only applies to intangible assets that have not been previously dealt with. Furthermore, it can be established that this standard is an example of normative accounting theories because the standard prescribes what should be done, rather than predicts what people may do. According to AASB 138 Intangible Assets, in order for an asset to be recognised in the financial statements it must meet specific criteria. The required criterion states that the asset must be identifiable, the entity has control of the asset, future economic benefits are probable and the cost of the asset can be measured reliably.

18. Companies that expense R&D costs to the income statement rather than capitalize them on the balance sheet would have:

For purposes of the asset provider financial discussion relative to investment, there is a cost and benefit analysis that always takes place. These elements are generally described as, for cost elements, facility capital costs (dictated by site location and design, as well as the partners involved in the planning process), facility maintenance costs (ongoing costs of maintaining a facility to ensure safe operations and upkeep), and operating costs (such as labor costs, fuel costs, equipment costs, and the time lost to congestion or to the breakdown of efficient supply chains).

It’s important to call that under US GAAP, estimates of useful and residual value, and the method of depreciation, are reviewed only when events or changes in circumstances indicate that the current estimates or depreciation method are no longer appropriate. Unlike IFRS, the revaluation of property, plant and equipment is not permitted.