Category: U.S. GAAP by Topic

1. At the end of each period, inventory is measured at the lower of cost or market.

2. Market = Current replacement cost

3. If current replacement cost > Net realizable value (NRV) of inventory, then

Market = Net realizable value (NRV) of inventory

4. If current replacement cost < (NRV - Normal profit margin), then

Market = NRV – Normal profit margin

5. Net realizable value (NRV) = Selling price – Costs to complete and sell

 

 

1. Measured at cost
2. Cost includes (A)
(A) all costs necessary to make the asset ready for intended use
3. During the construction period
–> certain interest costs are also capitalized

1. Depreciation
2. Impairment of long-lived assets
3. Disposal of long-lived assets

SFAS 144, August 2001
“Accounting for the Impairment or Disposal of Long-Lived Assets”

1. Long-lived assets held for sale
2. Long-lived assets to be held and used

1. Presented separately in the statement of financial position
2. An asset is not depreciated while classified as “held for sale”
3. Measured at the lower of (B) and (C)
(B) carrying amount
(C) fair value less cost to sell
4. Newly acquired long-lived assets held for sale
–> measured at fair value less cost to sell, at the acquisition date
5. If (C) < (B)
–> a loss is recognized
6. If (B) > (C)
–> a gain is recognized up to “the cumulative loss” previously recognized
7. A gain or loss
–> adjusts the carrying amount of the asset

The results of operations of (1) and (2) are
–> reported separately as discontinued operations
(1) component that has been disposed of
(2) component that is classified as “held for sale”

–> tested for impairment

1. Step 1: Test for recoverability
–> when there is an indication that carrying amount may not be recoverable
2. Step 2: Measurement of impairment loss
–> if Step 1 shows that carrying amount is not recoverable

Carrying amount is not recoverable
–> if (D) < (B)
(B) carrying amount
(D) sum of “undiscounted” cash flows from the asset

1. An asset is impaired when (E) < (B)
2. Impairment loss = (B) – (E)
(B) carrying amount
(E) fair value

1. If an impairment loss is recognized
–> adjusted carrying amount becomes “new cost basis”
2. Impairment loss is “not” reversed
–> when there is a subsequent increase in fair value

 

 

SFAS 66, October 1982
“Accounting for Sales of Real Estates”

FASB Interpretation (FIN) 43, June 1999
“Real Estate Sales
an interpretation of FASB Statement No. 66”

–> profit is recognized in full
–> when real estate is sold

–> allocates each cash receipt
–> between “cost recovered” and “profit”

–> profit is not recognized
–> until cash payments exceed the seller’s cost of property

–> cash receipts are recorded as a “deposit”
–> until the sale is consummated

–> receivable from buyer is discounted to present value
–> profit is recognized from level payment on the buyer’s debt
–> over the maximum term

1. Retail land sales
2. Real estate sales “other than retail land sales”

1. Full accrual method is used
–> if all of the conditions (A) are satisfied

2. Percentage-of-completion method is used
–> if all of the conditions (B) are satisfied

3. Installment method is used
–> if all of the conditions (C) are satisfied

a1. Refund period has expired
a2. Cumulative payments are sufficient
a3. Receivable are collectible
a4. Receivables are not subject to subordination
a5. Seller is not obligated to complete improvements

b1. Refund period has expired
b2. Cumulative payments ≥ 10%
b3. Receivables are collectible
b4. Receivables are not subject to subordination
b5. Progress on improvements
b6. Development is practical

c1. Refund period has expired
c2. Cumulative payments ≥ 10%
c3. Seller is financially capable

1. Full accrual method is used
–> if all of the conditions (D) are satisfied

2. Deposit method is used
–> if the sale is not consummated
–> sale is consummated when the conditions (E) are satisfied

3. When the buyer’s initial investment
–> does not meet the conditions (F)

3a. if the recovery of the property cost is reasonably assured
–> use installment method

3b. if the recovery of the property cost is not reasonably assured
–> use cost recovery method or deposit method

4. When the buyer’s initial investment
–> meets the conditions (F)

4a. if buyer’s continuing investment is qualified
–> but meets the conditions (G)
–> use reduced profit method

4b. if buyer’s continuing investment is not qualified
–> and does not meet the conditions (G)
–> use installment method or cost recovery method

5. If seller’s receivable is subject to future subordination
–> use cost recovery method

6. If seller has continuing involvement with the property
–> use appropriate method
–> to reflect the nature of extent of the seller’s continuing involvement

d1. Sale is consummated
d2. Buyer’s initial and continuing investments are adequate
d3. Receivable is not subject to future subordination
d4. “Risks and rewards” of ownership have been transferred

e1. the contract is binding
e2. considerations have been exchanged
e3. permanent financing has been arranged
e4. closing conditions have been met

f1. buyer’s initial investment is adequate
f2. buyer’s initial investment includes appropriate items only

buyer’s payments cover both g1 and g2
g1. “principal and interest” amortization on the maximum first mortgage loan
g2. “interest” on the debt in excess of first mortgage loan

 

 

–> Type 1: Intangible assets with “finite” useful life
–> Type 2: Intangible assets with “indefinite” useful life

Intangible assets with “finite” useful life
–> amortized over useful life

Intangible assets with “indefinite” useful life
–> not amortized

All intangible assets
–> tested for impairment
–> impaired if (a) < (b)
(a) carrying amount
(b) fair value
–> impairment loss = (b) – (a)

“Reversal” of impairment loss is not allowed.
[asc 350-30-35-14, 350-30-35-20]

 

 

SFAS 133, June 1988
“Accounting for Derivative Instruments and Hedging Activities”

1. Derivative instruments are recognized in financial statements
2. Derivative instruments are measured at fair value

1. Underlying and notional amounts
2. No initial net investment or smaller than usual initial net investment
3. Require or permit net settlement

1. Regular way security trades
2. Normal purchases and normal sales
3. Certain insurance contracts
4. Certain financial guarantee contracts
5. Certain contracts not traded on an exchange
6. Derivatives as impediments to sales accounting
–> e.g., guarantee of residual value to avoid sales-type lease
7. Investments in life insurance
8. Certain investments by defined benefit pension plans
9. Loan commitments
10. Registration payment arrangements, FSP EITF 00-19-2

–> are separated from the host contract
–> and apply SFAS 133 as a derivative instrument

–> derivative instruments are measured at fair value

1. No hedging designation
–> gains and losses are recognized in earnings

2. Fair value hedge
–> gains and losses are recognized in earnings

3. Cash flow hedge
–> effective portion of the gains and losses are recognized in other comprehensive income
–> ineffective portion of the gains and losses are recognized in earnings

(a) hedge of a foreign currency denominated firm commitment
–> gains and losses are recognized in earnings
(b) hedge of an available-for-sale security
–> gains and losses are recognized in earnings
(c) hedge of a forecasted foreign currency denominated transaction
–> gains and losses are recognized in other comprehensive income
(d) hedge of a net investment in a foreign operation
–> gains and losses are recognized in other comprehensive income

–> designate as one of the following:

1. Fair value hedge of
–> an unrecognized firm commitment
–> recognized asset or liability

2. Cash flow hedge of
–> an unrecognized firm commitment
–> a forecasted transaction

3. Hedge of a net investment in a foreign operation

 

 

SFAS 68, October 1982
“Research and Development Arrangements”

Research and development is funded by other parties

1. Liability to repay to other parties
2. Obligation to perform contractual services
3. Loan to other parties
4. Issuance of warrants

1. If repayment is required regardless of the result of R&D activities
–> recognize it as a liability

2. R&D costs are expensed as incurred

1. If repayment of loan depends on the result of R&D activities
–> this obligation is a contract to perform R&D for others

2. Apply accounting for contract revenue and costs

If repayment of loan depends on the result of R&D activities
–> the loan is charged to R&D expenses

If warrants are issued by R&D arrangement
–> the fair value of the instrument is
–> reported as paid-in capital