Fasb Asc Project

FASB ASC Project 1. The inventory at your fraternity consists of reckoner softw ar that the high society has developed and is selling. You capitalized (rather than expensed) the cost of duplicating the softw ar, the instruction manuals, and formulation secular that atomic number 18 sold with the software. FASB ASC consultation Product Masters 985-330-25-1 The cost incurred for duplicating the calculating machine software, documentation, and training materials from the mathematical product mastersand for animal(prenominal)ly packaging the product for dissemination shall be capitalized as inventory on a unit-specific basis. result 1According to the FASB code, a completed version, ready for copying, of the computer software product, the documentation, and the training materials that are to be sold, are the property of the company. Also, the Codification states that all the costs incurred for copying the software should be capitalized rather than expensed. 2. Your company paid $2,000,000 for a 30-second commercial to be aired during the SuperBowl 5 months from today. The ad has already been produced at a cost of $1,000,000. You capitalized the $2,000,000 cost of showing the ad on boob tube rather than expensing it.FASB ASC CITATION Communicating de none 720-35-25-5 Costs of communicating announce are not incurred until the item or serve up has been reliable and shall not be reported as expenses onward the item or service has been received, except as discussed in paragraph340-20-25-2. For example * a. The costs of television airtime shall not be reported as advertising expense before the airtime is drilld. Once it is used, the costs shall be expensed, unless the airtime was used for direct-response advertising activities that meet the criteria for capitalization under paragraph340-20-25-4. swear out 2 The FASB Interpretation states that the costs of showing the ad on television should expensed, rather than capitalized unless it is direct-response advertizing. According to the FASB Interpretation 340-20-25-6, Criteria to Capitalize Direct-Response Advertising Costs, our example does not meet the criteria of direct-response advertising activities. For example, there are no means of getting files, coupons, response cards, or coded order forms, which would indicate the customer names and the related direct-response advertisement.Therefore, we cannisternot capitalize any costs relating to the communicating advertising. Furthermore, Codification guides that the advertising cost should not be reported until the service is received and used. Thus, showing the expenses five months in advance we are breaking twinned principle of accounting. 3. Your company sells a product in which the right of surpass exists. The amount of future returns cannot be somewhat thinkd, therefore, you do not record the sale or cost of goods sold until the return privilege has expired.FASB ASC CITATION Sales of Product when Right of Return Exists 605 -15-25-1 If an entity sells its product but gives the vendee the right to return the product, revenue from the sales transaction shall be acknowledge at time of sale only if all of the interest qualifys are met * a. The sellers price to the emptor is substantially fixed or determinable at the date of sale. * b. The purchaser has paid the seller, or the buyer is obligated to return the seller and the indebtedness is not contingent on resale of the product.If the buyer does not pay at time of sale and the buyers certificate of indebtedness to pay is contractually or implicitly excused until the buyer resells the product, then this condition is not met. * c. The buyers obligation to the seller would not be changed in the force of larceny or physical destruction or damage of the product. * d. The buyer acquiring the product for resale has economic substance apart from that provided by the seller. This condition relates earlier to buyers that exist on paper, that is, buyers t hat eat up little or no physical facilities or employees.It prevents entities from recognizing sales revenue on transactions with parties that the sellers have realised primarily for the purpose of recognizing such sales revenue. * e. The seller does not have significant obligations for future performance to directly let about resale of the product by the buyer. f. The amount of future returns can be reasonably considerd (see paragraphs605-15-25-3 with 25-4). Because detailed record keeping for returns for each product line capability be costly in some cases, this Subtopic permits levelheaded aggregations and approximations of product returns.As explained in paragraph605-15-15-2, exchanges by ultimate customers of one item for another of the corresponding kind, quality, and price (for example, one color or size for another) are not considered returns for purposes of this Subtopic. Answer 3 According to the FASB Codification, revenue from the sale should not be recognized at the time of sale, unless all of the six following conditions are met (1) The sellers price to the buyer is substantially fixed or determinable at the date of sale. (2)The buyer has paid the seller, or the buyer is obligated to pay the seller, and the obligation is not contingent on resale of the product. 3)The buyers obligation to the seller would not be changed in the event of theft or physical destruction or damage of the product. (4)The buyer acquiring the product for resale has economic substance apart from that provided by the seller. (5)The seller does not have significant obligations for future performance to directly bring about resale of the product by the buyer. (6)The seller can reasonably estimate the amount of future returns. Since we cannot estimate the amount of future returns in our example, condition 6 is not met.Therefore, sales revenue and cost of sales should be recognized either when the return privilege has substantially expired or if those conditions subsequen tly are met, whichever occurs first. 4. Your company has goods primarily held for resale. You have been asked whether or not they are considered nonmonetary additions. FASB ASC CITATION Monetary and NonmonetaryItems 255-10-55-1 Paragraphs 255-10-55-1 through 55-13 of this Section provide focusing on the interpretation of paragraphs255-10-50-50 through 50-55for the classification of certain summation and pecuniary obligation items as monetary or nonmonetary.The following table illustrates the application of the definitions to super acid cases under typical circumstances. In other circumstances the classification should be resolved by reference to the definitions. Answer 4 The FASB Codification provides counseling on how to classify monetary and nonmonetary pluss and liabilities. For typical circumstances it suggests using a classification table, and for non-typical circumstances Codification guides to refer to the definitions. To begin with, let us appeal to the definition of inventory.The term inventory embraces goods awaiting sale (the switch of a trading concern and the finished goods of a manufacturer), goods in the melodic line of production (work in process), and goods to be consumed directly or indirectly in production (raw materials and supplies). Thus, we assume that goods held primarily for resale can be treated as inventory. According to the classification table, inventories and commodity inventories should be treated as nonmonetary assets. 5. Your company has an unconditional legal obligation to perform an asset solitude body process (asset retirement obligation) in the future.The only uncertainty is whether the obligation provide be enforced. Should you record the asset retirement obligation? FASB ASC CITATION Asset retirement Obligation 410-20-25-4 An entity shall recognize the amusement park value of a liability for an asset retirement obligationin the head in which it is incurred if a well-founded estimate of fair value can be made. If a commonsensible estimate of fair value cannot be made in the peak the asset retirement obligation is incurred, the liability shall be recognized when a reasonable estimate of fair value can be made.If a tangible long-livedasset with an existingasset retirement obligation is acquired, a liability for that obligationshall be recognized at the assets acquisition date as if that obligationwere incurred on that date. Answer 5 This Interpretation clarifies that the term conditional asset retirement obligation refers to a legal obligation to perform the asset retirement use in which the measure and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity.The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and (or) method of settlement. Thus, an we are required to recognize a liability for the fair value of a conditional asset retirement obligation wh en incurred if the liabilitys fair value can be reasonably estimated. 6. You use accounting accruals to record likely dismission contingencies. Does the recording of the accruals provide pecuniary protection, for example, is it the same as setting forth specific assets to cover the probable claims?FASB ASC CITATION Loss Contingencies Recognition 450-20-25-2 An estimated loss from a loss eventuality shall be accrued by a charge to income if two of the following conditions are met * a. Information available before the pecuniary statements are issued or are available to be issued (as discussed in Section855-10-25) indicates that it is probable that an asset had been afflicted or a liability had been incurred at the date of the financial statements.Date of the financial statements means the end of the most recent accounting period for which financial statements are being presented. It is implicit in this condition that it essential be probable that one or more future events will occur confirming the fact of the loss. * b. The amount of loss can be reasonably estimated. The purpose of those conditions is to require accrual of losses when they are reasonably respectable and relate to the current or a prior period.Paragraphs450-20-55-1 through 55-17and Examples 12 (see paragraphs450-20-55-18 through 55-35) illustrate the application of the conditions. As discussed in paragraph450-20-50-5, disclosure is preferable to accrual when a reasonable estimate of loss cannot be made. Further, even losses that are reasonably estimable shall not be accrued if it is not probable that an asset has been impaired or a liability has been incurred at the date of an entitys financial statements because those losses relate to a future period rather than the current or a prior period.Attribution of a loss to events or activities of the current or prior periods is an element of asset impairment or liability incurrence. Answer 6 According to GAAP, using accounting accruals is requ ired if two conditions are met If the asset has been impaired or liability has been incurred prior to the date of financial statement, and, thus, relate to the current or prior period If the amount of loss can be reasonably estimated Let us assume that both of the conditions are met in our example, and using of accounting accruals is justified.Thinking of financial protection we can say that accruals certainly help companies to avoid unexpected losses on financial statements. Since it is necessary to be able to make a reasonable estimate of loss in the right period, accruing a liability technically looks like setting aside money to cover those needs. However, setting aside specific assets to satisfy future needs seems to be safer since restricting an asset we assume that it exists physically whereas accruing a liability does not guarantee the company will be able to pay.