Fasb Asc Project

Topics: Balance sheet, Inventory, Revenue Pages: 7 (1925 words) Published: November 26, 2012
FASB ASC Project

1. The inventory at your company consists of computer software that the company has developed and is selling. You capitalized (rather than expensed) the cost of duplicating the software, the instruction manuals, and training material that are sold with the software.

Product Masters
The costs incurred for duplicating the computer software, documentation, and training materials from the product masters and for physically packaging the product for distribution shall be capitalized as inventory on a unit-specific basis.

Answer 1:
According to the FASB Codification, 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 television rather than expensing it.

Communicating Advertising
Costs of communicating advertising are not incurred until the item or service has been received and shall not be reported as expenses before the item or service has been received, except as discussed in paragraph 340-20-25-2. 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 meet the criteria for capitalization under paragraph 340-20-25-4.

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 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 cannot 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 breaking matching principle of accounting.

3. Your company sells a product in which the “right of return” exists. The amount of future returns cannot be reasonably estimated, therefore, you do not record the sale or cost of goods sold until the return privilege has expired.

Sales of Product when Right of Return Exists
If an entity sells its product but gives the buyer the right to return the product, revenue from the sales transaction shall be recognized at time of sale only if all of the following conditions are met: * a.  The seller's price to the buyer is substantially fixed or determinable at the date of sale.  * b.  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. If the buyer does not pay at time of sale and the buyer's obligation to pay is contractually or implicitly excused until the buyer resells the product, then this condition is not met.  * c.  The buyer's obligation to the seller would not be changed in the event of theft 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 primarily to buyers that exist on paper, that...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Fasb Essay
  • FASB Codification Project Essay
  • Convergence Projects Fasb and Iasb Research Paper
  • Fasb Asc Essay
  • Essay about Fasb
  • Iasb & Fasb Joint Project on Revenue Recognition Essay
  • Fv Project Summary of Fasb and Iasb Essay
  • project Essay

Become a StudyMode Member

Sign Up - It's Free