random FRA questions - Part II developed, operation, software, reported, balance

stronger

1) Are deferred taxes considered a part of long term debt?

2) Schweser (SS9 - pg 171) mentions that 'not all intangible assets are reported on the balance sheet' - any idea which ones are not reported and why?

3) Why are software development costs capitalized when the software is developed for internal use? I would have thought that the internal use of the software would be part of operation or in the cases where the cost of the software is not significant for the firm.

4) Schweser (SS9 - pg 177) states the following: depreciation expense may be allocated between COGS and S&GA expenses. What does this mean?

5) Schweser (SS9 - pg 184) states: because of its inseparability, goodwill is valued at the reporting unit level. What does this mean?

6) Are there any tax savings as a result of impairing an asset?


Thanks!

johnnyBuz

There is no tax savings but there might be deferred tax. Tax only occurs when cash is involved.

Finalnub

Sujan Wrote:
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> 1) Are deferred taxes considered a part of long
> term debt?
====> some are long term and some under current assets/liabilities. I guess it depends on probable time to realize

> 2) Schweser (SS9 - pg 171) mentions that 'not all
> intangible assets are reported on the balance
> sheet' - any idea which ones are not reported and
> why?
====> Yes, few such as intellectual capital are not shown on the balance sheet

> 3) Why are software development costs capitalized
> when the software is developed for internal use? I
> would have thought that the internal use of the
> software would be part of operation or in the
> cases where the cost of the software is not
> significant for the firm.
===> Software development costs could mean that the company may need fewer workforce, if the product is implemented internally and be a source for revenue if sold. So in general, we can say it is a value add

> 4) Schweser (SS9 - pg 177) states the following:
> depreciation expense may be allocated between COGS
> and S&GA expenses. What does this mean?
=====> Yes, because COGS will reflect direct expenses, depreciation of ppe, building etc. Whereas, the depreciation of indirect property such as tables and chairs will be allocated to S&GA. I guess



> 5) Schweser (SS9 - pg 184) states: because of its
> inseparability, goodwill is valued at the
> reporting unit level. What does this mean?
====> It simply means that G/W cannot be seperated from the company. G/W is the excess price paid over fair value of the acquired company's assets.


> 6) Are there any tax savings as a result of
> impairing an asset?
=====> Yes if the asset is considered Asset in use. I am not so sure if the asset is classified under "asset for sale"
>
> Thanks!


hth.

suyash1989

Thanks guys - much appreciated.

For Q6, Schweser states the following (SS9: page 185):

"...there are no tax savings from an impairment in asset value until the asset is sold or otherwise disposed of"

So, it looks like there is no tax savings from impairing an asset.

rgonzalez

1. possibly, depending on the source, liability would be a better descriptor.
2. impaired assets are charged to the P&L
3. they are capitalized once they establish technological feasibility per SOP 98-1, beginning stages and latter stages are expensed as incurred.
4. dependent on what the source of the depreciation is coming from, generally, it goes to SG&A or is reported as an operating expense though.
5. goodwill is evaluated per each reporting unit, meaning each subsidary that has been consolidated on the books has to be evaluated for impairment annually, not in the aggregate.
6. possibly yes, do you need to know why?



Edited 1 time(s). Last edit at Monday, September 21, 2009 at 11:06AM by I_Passed_Level_1.