FAR - Core Measurement and Recognition Frameworks
Revenue is a five-step model
Identify the contract, identify performance obligations, determine the transaction price (variable consideration measured by expected value or most likely amount, then constrained to amounts not probable of reversal), allocate by relative standalone selling price, and recognize over time or at a point in time when control transfers.
Leases, EPS, and taxes
A lessee records a right-of-use asset and liability for nearly every lease over 12 months. A lease is a finance lease if any one criterion is met: ownership transfers, a purchase option is reasonably certain, the term is a major part of the asset's life, the present value of payments is substantially all of fair value, or the asset is specialized. Otherwise it is operating - a single straight-line expense. Basic EPS = (net income − preferred dividends) ÷ weighted-average common shares; diluted EPS adds potentially dilutive shares using the treasury stock method or if-converted method and is never reported above basic EPS. Deferred tax assets arise from deductible temporary differences and require a valuation allowance when realization is not more likely than not.
Cash flows and governments
Under U.S. GAAP, interest paid and interest received are operating; dividends paid are financing; dividends received are operating. Governmental funds use modified accrual with a current financial resources focus, while government-wide statements use full accrual.
Traps: applying the treasury stock method when the exercise price exceeds the average market price (antidilutive); ignoring the valuation allowance; treating a finance-lease criterion as a majority-of-five vote rather than any-one-test; classifying dividends paid as operating.
Rule of thumb: interest expense under the effective interest method = carrying amount × market rate at issuance, with the difference from the cash coupon amortized to the carrying amount.
Worked example: $1,000,000 face, 5% coupon, issued at 95 to yield 6%. Year 1 expense = $950,000 × 6% = $57,000; cash paid = $50,000; discount amortization = $7,000; ending carrying amount = $957,000.