CPA Exam - Financial Accounting and Reporting (FAR)

1. Identify the contract with a customer.
2. Identify performance obligations in the contract.
3. Determine the transaction price.
4. Allocate the transaction price to performance obligations.
5. Recognize revenue when (or as) performance obligations are satisfied.

A promise in a contract is a distinct performance obligation if:
1. The customer can benefit from the good/service on its own or with available resources.
2. The promise is separately identifiable from other promises in the contract (not highly interrelated or custom-integrated).

Transaction price is allocated based on the relative Standalone Selling Price (SSP) of each distinct good or service at contract inception:
$$\text{Allocation}=\text{Transaction Price}\times \left(\frac{\text{SSP of Specific Obligation}}{\text{Total SSP of All Obligations}}\right)$$

A lease is classified as a Finance Lease by a lessee if it meets ANY of the 5 OWNES criteria:

1. Amortization Expense on the ROU Asset (typically straight-line).
2. Interest Expense on the Lease Liability (effective interest method).

Used under US GAAP for FIFO and Weighted Average methods (and all IFRS inventory):

Used under US GAAP only for LIFO and Retail Inventory methods:

1. Replacement Cost
2. Ceiling: $\text{NRV}=\text{Selling Price}-\text{Completion/Selling Costs}$
3. Floor: $\text{NRV}-\text{Normal Profit Margin}$