Fasb Asc Project

FASB ASC Project 1. The inventory at your attach to consists of computer softwargon that the company has developed and is selling. You capitalized (rather than spendingd) the cost of duplicating the softw be, the instruction manuals, and fosterage material that be sold with the softw be. FASB ASC CITATION Product Masters 985-330-25-1 The be incurred for duplicating the computer software, documentation, and training materials from the proceeds mastersand for physic wholey packaging the point of intersection for distri andion shall be capitalized as inventory on a unit-specific basis. dish out 1According to the FASB computer code, a comp allowed 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 be incurred for copying the software should be capitalized rather than expensed. 2. Your company paid $2,000,000 for a 30-second c ommercial 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 masking the ad on television rather than expensing it.FASB ASC CITATION Communicating Advertising 720-35-25-5 Costs of communicating advertising are non incurred until the item or serving has been accepted and shall non be reported as expenses before 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 used. Once it is used, the costs shall be expensed, unless the airtime was used for direct-response advertising activities that ensure the criteria for capitalization under paragraph340-20-25-4.Answer 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 th e FASB Interpretation 340-20-25-6, Criteria to take advantage 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 picture the customer names and the related direct-response advertisement.Therefore, we mucklenot 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, recording the expenses five months in advance we are pause matching principle of method of accounting. 3. Your company sells a product in which the business of return exists. The sum total of future(a) returns cannot be passably estimated, therefore, you do not record the barter or cost of goods sold until the return prefer has discontinue.FASB ASC CITATION Sales of Product when Right of Return Exists 605 -15-25-1 If an entity sells its product but gives the emptor the right to return the product, revenue from the gross sales transaction shall be know at time of sale only if all of the pastime corresponds are met * a. The sellers price to the buyer is substantially unflinching or judicable at the see of sale. * b. The buyer has paid the seller, or the buyer is get to collapse the seller and the bargain is not contingent on resale of the product.If the buyer does not pay at time of sale and the buyers obligation to pay is contractually or implicitly excused until the buyer resells the product, then this ascertain is not met. * c. The buyers obligation to the seller would not be changed in the sheath of theft or physical destruction or handicap of the product. * d. The buyer acquiring the product for resale has economic substance apart from that tenderd by the seller. This ensure relates primarily to buyers that exist on paper, that is, buyers that obligate little or n o physical facilities or employees.It prevents entities from recognizing sales revenue on transactions with parties that the sellers have established primarily for the purpose of recognizing such sales revenue. * e. The seller does not have significant obligations for future performance to now bring active resale of the product by the buyer. f. The amount of future returns can be fair estimated (see paragraphs605-15-25-3 through 25-4). Because detailed record keeping for returns for each product grapevine might be costly in some cases, this Subtopic permits well-founded aggregations and approximations of product returns.As explained in paragraph605-15-15-2, exchanges by ultimate customers of one item for some other of the same 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 hobby conditions are met (1) The sellers price to the buyer is substantially fixed or determinable at the run across 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 fork overd 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 somewhat 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 subsequently are met, whichever o ccurs first. 4. Your company has goods primarily held for resale. You have been asked whether or not they are considered nonmonetary summations. FASB ASC CITATION Monetary and NonmonetaryItems 255-10-55-1 Paragraphs 255-10-55-1 through 55-13 of this Section provide guidance on the interpretation of paragraphs255-10-50-50 through 50-55for the compartmentalisation of certain plus and obligation items as monetary or nonmonetary.The following table illustrates the get through of the definitions to common cases under typical circumstances. In other circumstances the classification should be resolved by reference to the definitions. Answer 4 The FASB Codification provides guidance on how to classify monetary and nonmonetary assets and liabilities. For typical circumstances it suggests exploitation 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 merchandise of a trading concern and the finished goods of a manufacturer), goods in the course of production (work in process), and goods to be consumed directly or indirectly in production (raw materials and supplies). Thus, we run into that goods held primarily for resale can be toughened 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 activity (asset seclusion obligation) in the future.The only uncertainty is whether the obligation leave be enforced. Should you record the asset retirement obligation? FASB ASC CITATION plus Retirement Obligation 410-20-25-4 An entity shall recognize the fair value of a indebtedness for an asset retirement obligationin the period in which it is incurred if a reasonable estimate of fair value can be made. If a reasonable estimate of fair value cannot be made in the period 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 activity in which the timing 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 when incurred if the liabilitys fair value ca n be moderately estimated. 6. You use accounting accruals to record presumable going contingencies. Does the recording of the accruals provide pecuniary bulwark, for example, is it the same as linguistic context aside specific assets to cover the probable claims?FASB ASC CITATION Loss Contingencies Recognition 450-20-25-2 An estimated loss from a loss contingency shall be accrued by a charge to income if twain of the following conditions are met * a. Information available before the financial 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 impaired 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 must 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 estimable and relate to the latest or a prior(prenominal) 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 period 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 required if dickens conditions ar e 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 restrict an asset we assume that it exists physically whereas accruing a liability does not reassure the company will be able to pay.