Company does not enter into derivative contracts for speculative or trading purposes. Additional information on the Company's derivative financial instruments is included in Notes 14 and 15 of these consolidated financial statements.
Foreign Currency Transactions
Example 7.23: Foreign Currency Transactions and Comprehensive Income GAAP generally requires recognized revenue, expenses, gains and losses be included in net income. Certain statements, however, require entities to report specific changes in assets and liabilities, such as gain or loss on foreign currency translation, as a separate component of the equity section of the balance sheet. Such items, along with net income, are components of comprehensive income. The functional currency of the Company's Australian subsidiaries is the Australian dollar. Translation gains of $605,430 and $616,738 for the years ended August 31, 20X2 and 20X1, respectively, are classified as an item of other comprehensive income in the stockholders' equity section of the balance sheet.
Income Taxes
Example 7.24: Taxation, Including Tax Cuts and Jobs Act Disclosure The Company uses the liability method of accounting for income taxes in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”). Deferred taxes, if any, are recognized for the future tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements. A valuation allowance is provided against deferred tax assets if it is more likely than not that the asset will not be utilized in the future.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense. The Company had no uncertain tax positions as of June 30, 20X8 and 20X7, respectively.
Income tax returns for the years prior to 20X4 are no longer subject to examination by U.S. tax authorities.
On December 22, 2017, the “Tax Cuts and Jobs Act” (the “Act”) was enacted. Under the provisions of the Act, the U.S. corporate tax rate decreased rom 35% to 21%. As the Company has a June 30 fiscal year‐end, the lower corporate income tax rate will be phased in, resulting in a U.S. statutory federal rate of approximately 28% for our fiscal year ending June 30, 2018, and 21% for subsequent fiscal years. Additionally, the Tax Act imposes a one‐time transition tax on deemed repatriation of historical earnings of foreign subsidiaries, and future foreign earnings are subject to U.S. taxation. The change in rate has caused the Company to remeasure all U.S. deferred income tax assets and liabilities for temporary differences and net operating loss (“NOL”) carryforwards and recorded a one‐time transition tax expense.
Example 7.25: Taxation The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes. ASC 740 requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company has no material uncertain tax positions for any of the reporting periods presented.
Intangible Assets
Example 7.26: Intangible Assets, Net Intangible assets are recorded at cost less accumulated amortization. Amortization is calculated on a straight‐line basis over the following estimated useful lives:
Logistics platform—three years
The Company evaluates intangible assets for impairment whenever events or changes in circumstances indicate that the assets might be impaired. There was no such impairment as of June 30, 20X8.
Example 7.27: Goodwill Goodwill represents the excess of purchase price over the underlying net assets of businesses acquired. Under accounting requirements, goodwill is not amortized but is subject to annual impairment tests. At August 31, 20X8, the Company recorded goodwill of $150,618 and $92,989, respectively, related to its acquisition of Blake Health, Inc. during the fiscal year ended August 31, 20X7 and Global Fitness Leaders during the fiscal year ended August 31, 20X8. As of August 31, 20X8 and 20X7, the Company performed the required impairment reviews. Based on its reviews at August 31, 20X8 and 20X7, the Company believes there was no impairment of its goodwill.
Example 7.28: Goodwill and Intangible Assets Goodwill and other identifiable intangible assets with indefinite lives that are not being amortized, such as trade names, are tested at least annually for impairment and are written down if impaired. Identifiable intangible assets with finite lives are amortized over their estimated useful lives and are reviewed for impairment whenever facts and circumstances indicate that their carrying values may not be fully recoverable. The intangible assets with definite lives are being amortized over its estimated useful lives of 5 years using the straight‐line method.
The Company operated an online gaming site featuring sophisticated playing zones, game broadcasts with software analyses and top analysts' commentaries, education and other chess oriented resources. Intangible assets represented the amount incurred by the Company related to the development of the online chess gaming website.
Under ASC 985‐20, there are two main stages of software development. These stages are defined as:
1 (A) When the technological feasibility is established, and
2 (B) When the product is available for general release to customers.
Costs incurred by the Company up to stage A have been expensed while costs incurred to move from stage A to stage B have been capitalized.
The Company evaluates the recoverability of the infinite‐lived intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If such review indicates that the carrying amount of intangible assets is not recoverable, the carrying amount of such assets is reduced to fair value.
During the year ended December 31, 20X7, the intangible asset was written off based on management's review and evaluation of its recoverability. With respect to goodwill, during the year ended December 31, 20X8, the Company has identified no circumstances which would call for further evaluation of goodwill impairment.
Example 7.29: Software Development Costs The costs incurred in the preliminary stages of development are expensed as incurred. Once an application has reached the development stage, internal and external costs, if direct and incremental, are capitalized until the application is substantially complete and ready for its intended use. These costs are amortized using the straight‐line method over the estimated economic useful life of 5 years starting from when the application
