June 2006 - Posts
They're popping out everywhere I go these days. This no doubt has something to do with the fact that the instructors at the
SOA told us to make sure we know
EIC-141, which would've been good to know for last week's practice exam.
Of course, just because revenue recognition affects all companies that aren't, you know, dead.
So it doesn't hurt my study plans to note that Google just announced that they're
diversifying their revenue streams by introducing
yet another service: Google Checkout.
Coming hot on the heels of another superfluous announcement,
new features on Google Video - superfluous since I spotted the features a few days before the announcement came out - it's been accompanied by predictable criticisms, and interesting points, such as the
argument that the government may need to introduce its own version of electronic currency - so organizations like Google can't censor who is able to do online commerce.
Another interesting thing is that Citibank credit card holders can get a
free $5 by registering on the site. Unfortunatley the
TOS indicates this offer is only valid for Americans. The free money page alludes to this by leaving the "Country" address field fixed at "United States."
Nuts.
As interesting as that all is, though, I don't really care about it.
In my mind, I'm just thinking - "if some question writer turned this into a case, what kind of issue would they likely turn this into, and what would the correct accounting treatment be?"
The most likely scenario is that you're presented with the case of a fictional company called "Doodle Inc" which brokers sales online, and books 100% of the sales price in their revenue, instead of the hypothetical 2% commission they're charging.
That's the easiest concept to tackle, of course - it gets more complicated if you add in the concept of returns.
If a customer returns the product, does Doodle have to refund its commission? That'll, of course, depend on their contract. If they agreed to do so in their contract, then they can't recognize revenue from brokering the sale until the return period is over.
On the other hand, if their contract clear states that they have no obligation to handle the cash from transfers, this wouldn't be an issue. But that wouldn't be a smart assumption to make, since it's logical to assume they need to be able to let money flow "both ways".
In fact, would they perhaps earn an extra windfall by charging an additional commission on refunds? Now that's
really unlikely since their business partners would no doubt be pretty upset by such a policy. But in the unlikely event that this was disclosed as an actual contract term, that'd be another interesting item to record revenue on. Interesting, since it's money made from a nuisance transaction, but not terribly interesting as the accounting treatment would be pretty mind-numbingly straightforward.
The case of Doodle's revenues, is of course, just one possible scenario. though.
We've been amply warned to expect something we've never seen before. So it's time to focus on reviewing whatever hard topics still feel like mysteries, and keep going at a reasonable pace until the big day - E-Day is Tuesday the 4th of July, 2006.
Aim high,
fall short,
pass anyway.
... what a hospital would look like if it was run by "Evil Accountants".
Souped up Subarus. One is called the Godzilla.
For some reason this makes me think "funniest police chase ever." I'm not sure why.
It's true.
The rat said so.
Not everyone appreciates
advice on how to economize.This post will be removed after July 16, since free access to that comic will then disappear.
On the cases and practice questions the problem writers always use cute little names based on pop culture. For example, “Jim Bond” is married to “Halle”.
James Bond and Halle Berry?
Cute.
Wait - it gets worse. His family owns a “historic Aston Martin car” which “is not street legal”. Probably because of the rocket launchers, I’m guessing. Or maybe it’s just the
tinted windows.
The annoying thing isn’t that they do this - it’s almost amusing.
The annoying thing is that identifying these pop culture references isn’t worth anything.
Coming from a proud tradition of destroying others at trivia games, the inability to be externally rewarded (i.e.
by scoring points) for identifying the source of these names and the associated lame jokes is wearying.
It just may be the toughest part of writing cases all summer and I’ll be glad when it’s over for this reason alone.
Of course having to sit around and study while the weather outside is glorious is another reason to be glad when it’s over, but I could’ve just as easily have wasted the beautiful weather we’re having by sitting around at work so I won’t dwell on that too much.
The Onion A/V club has a
great article about classic Simpsons quotes.
The scary thing is probably the number of quotes on their list which I've already been using for years. Whoa.
That conludes our interruption. Now it's time to go back to studying.
Zach kindly provided me with a link to the a how-to site, which I remember visiting a while back. Step in with a little glance at how to
become an American accountant from scratch, and see how far it takes you.
As usual, the USA-centric focus of a site like that is a bit grating, but then, sometimes it's nice to be ignored. I mean, did we really need Toronto front and centre during the grand finale of
The Sentinel?
I'll have to admit, though, that it made for some of the best inadvertent comedy EVER. Early in the film note that they're already in Toronto despite pretending to be in the US. For example, while visiting a supposedly American school, they're actually on Sutton Ave, which is
here.
And "Camp David" is actually located at the McMichael Art Gallery in Kleinburg.
And then there was the shoot-out in the food court of
Sherway Gardens. I couldn't stop laughing. It's funny to see American paranoia set in the most peaceful setting imaginable. You could see the courtyard where they set up "Santa's Village" in December in those shots. Of course Santa's Village wasn't there, but the juxtaposition was killer.
You may be wondering why I saw that movie so long since it actually came out - well the Revue is closing, and I want to see movies there before it's too late.
Save the Revue!It'd be nice if we didn't destroy the last vestige of our historical cinema culture through a short-sighted commercial decision, it really would be.
Even fancy steak dinners with clients aren't all smiles and sunshine
for a big company's finance department - for tax purposes, half of meal
expenses are not deductible.
Before moving on with musings on tax, remember the
ACS disclaimer.
As a reminder, if it's not obvious, note that I don't know everything. Having said that, it's
probably safest for me to share a list of things that are "not allowed"
rather than what's allowed. Consult with updated Income Tax Acts if
you're not sure about the following, because it's
the authority, since it is, after all, the law of the land.
Here's two more points about non-deductible things:
- Excess salaries - paying yourself or your nephew $300,000 to show up one day a week to answer a phone? Yes, you're in trouble if you try and deduct all that.
- Bonuses you're giving an employee 180 days after the year-end. If you want to deduct the expense but you're tight on cash, see if you can get your employee to lend the money back to you after paying them. Otherwise, the expense will instead be deductible in the following year.
And so what do you say if someone goes up to you and asks, "should I incorporate?" When you're done shrugging your shoulders, you can mention the good and bad things about setting up your own corporation.
Some of the bad things are:
- there are additional costs associated with taking care of the legal and accounting issues
- the income from your new corporation can't be used to offset your other income
- you have to deal with capital and payroll taxes
- there are no immediate tax benefits
Naturally, there are good things too, such as:
- your liability is limited to the amount you invested if you have a $100 thousand bucks and only invest $20 thousand in the corporation, your remaning $80 thousand is safe in the event of bankruptcy and related disasters
- income splitting through dividends to other members of your family who own shares in the firm may be possible
- you get small business deductions and related credits where applicable, including credits related to Research & Development and Manufacturing & Processing.
- you get to keep your personal and business income seperate (the inability to offset the two, of course, is the corollary downside)
- you get to choose between receiving a salary or a dividend, which get subject to different tax treatments
- you can time the receipt of income, and choose to reinvest it in the business or give it to yourself, depending on your needs
- the deferral of capital gains from your firm's assets is possible if you sell shares instead of the underlying assets
- you can deduct intereston the company's borrowings to make investments
- the business, like a financial zombie, survives even if you die
- it can be easier to get financing - you get loans on the firm's assets instead of your house - this, again, relates back to the 'limited liability' point, but stands on its own too.
Okay, that's a sufficiently long list. Just remember not to "dump" this on unsuspecting advice-seekers the way I just did. Listen to or read what the precise scenario is, and cite what is relevant. Then everyone's happy.
That's enough tax stuff for the moment; next thing that needs some
ASX treatment is regular accounting stuff.
Thanks to the smart idea of whipping out my notebook computer in class, I can actually share more substantial updates, written while learning various new fun facts about tax.
Sitting in tax review class, questions came to mind, like what is “boot”? It sounds familiar, and at the end of class it all comes back to me: it’s the debt you take when transferring your assets into your new corporation, using section 85 of the Canadian Income Tax Act.
But you still wonder, where did the term come from?
After grilling the intructor, you learn that it’s not an official term in the ITA.
And, sadly, that’s all that the instructor has to offer in terms of the term's roots.
So, I offer this challenge to fans of linguistics, try and figure out where the term came from.
At least one of you is returning from Korean exile, so you have this little question as a nice little ‘welcome back’ present.
*Read the comments for a quick note with regards to linguistics and etymology
I called in to check my voicemail at work - perhaps there's something important going on I should be aware of? - and found that I had three hang-ups voicemail calls.
Caller ID reported "514 288-0420" was the number.
Intrigued, I google'd the number, and, interestingly, I got an answer: it's an
annoying phone number.
Click on that link to see what I mean - turns out I'm not the first person to be bothered by "Opinion Search".
Kudos to Telfer
Maynard for putting that list together.
If I ever start getting bothered by such people on my cell, I'll be sure to program the #'s into my phone book so I'll know not to answer!
If the asset you're dealing with doesn’t have a limited life, your options are: consolidation, equity, or treating it as an asset held for sale
Consider the case of ownership of shares in a private company which you’re not planning on selling. The default treatment for an asset gaining value is to leave the asset on the books at historical cost, since you can’t reliably measure the fair market value.
Makes sense? Good. There are much more complicated things waiting to be discussed.
I recently wrote about the
power outage suffered at York last Friday. To be more precise, it wasn't so much a power outage, as "Destruction of the Power Grid by Accounting Students" and their tools of mass destruction.
The tools, of course, were laptop computers.
With hundreds of laptops plugged into the power outlets of a single gym, the lights went out. And with no portable generator truck available, drastic measures had to be taken.
In a lecture/meeting held on Monday afternoon, the Director explained that laptops typically pull
1.1A. But if the battery needs to charge, they can draw 3 to 5A.
Aha.
He didn't go out and say it explicitly, but I'm guessing it's reasonable to assume that their electrical math was more optimistic about how many people would have fully charged laptops.
So what happened to the huddled masses in the gym? I thought they were going to be sent to designated locations. I was just guessing, since I was one of the lucky ones stationed in a smaller room with less people (and less computers to blow out fuses).
It's turns out the solution was much less elegant: people were told to wander the York University campus and squat wherever they could find a quiet spot with a power outlet. Afterwards they were to return to a central office to hand in their exam.
This being a practice exam, it was an option - security's not important because this truly is a case where the only person you could cheat is yourself. The mark you get is only meant to help you identify how well (or poorly) you're doing.
Hopefully everything will be fixed up in time for practice exam ("PE") 2, or if there's yet another disaster, for the final.
They certainly mean business, though: the SOA organizers say they will send us to a site outside of York - and arrange for transport for it - if this can't be fixed in time.
Should be a fun week.
Oh, and our results from PE1 came out today. So far, so good.
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