CPA Financial Accounting and Reporting (FAR) › Non-Monetary Exchanges
On January 2, Year 1, a company buys a piece of equipment for $50,000 with a 10 year life and a residual value of $8,000. It is depreciated using the straight line method. On July 1, Year 4, the equipment is worth $44,000 and is traded for a van worth $46,000. What amount of gain is recognized on this exchange?
$8,700
$2,000
$0
$10,700
Depreciation is recorded at $4,200 per year ($50K purchase price - $8K residual value over 10 years) for 3.5 years. The total book value at the time of the exchange is $35,300 ($50K purchase price - $14,700 depreciation). This book value is compared to the old asset's fair value to determine how much gain is realized ($44K FV - $35,300 BV). Because this transaction has commercial substance the gain is recognized.
Under IFRS rules, the ___________ is required for recognizing revenue from construction contracts.
Both
Percentage of completion method
Completed contract method
Neither
The percentage of completion method for revenue recognition is required under IFRS unless the final outcome of the construction project cannot be reasonably estimated.
One method of estimating uncollectible accounts emphasizes the asset valuation over income measurement. This is the allowance method based on:
Aging receivables
Direct write off
Credit sales less returns and allowances
Gross sales
Estimating bad debt on aging of receivables is a good matching of revenue and expense. It focuses on the balance sheet and emphasizes the valuation of assets.
The Scott Company owns an asset with a cost of $320,000, a book value of $305,000, and a fair value of $345,000. The asset is traded for another asset and the exchange is viewed as having no commercial substance. Which of the following is true regarding the exchange?
The new asset will be recorded at $320,000
The new asset will be recorded at $305,000
The new asset will be recorded at $345,000
The new asset will be recorded at its fair value
When an exchange has no commercial substance, and no cash changes hands, the new asset is booked at the book value of the old asset.
ABC factored receivables without recourse with DEF bank. ABC received cash as a result of the transaction , which is best described as a:
Loan from DEF collateralized by ABC's A/R
Sale of ABC's A/R to DEF, with the risk of uncollectible accounts held by ABC
Loan from DEF to be repaid by the proceeds from ABC's A/R
Sale of ABC's A/R to DEF, with the risk of uncollectible accounts transferred to DEF
Factoring A/R without recourse is a sales transaction. Factoring without recourse transfers risk of collectability to the buyer.