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1
Q

Asset criteria

ASPE 1000.25

A

Definition of Asset:

  • Future benefit
  • Entity can control the benefit
  • Event that caused benefit already occurred
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2
Q

Accounting for subsidiaries

ASPE 1591, ASPE 3051

A

An enterprise can MAKE AN ACCOUNTING POLICY CHOICE to account for its subsidiaries using one of the following methods:

  • > cost method
  • > equity method
  • > consolidation method

Once the method is selected, it must be applied consistently (I.e all subs must be accounted for using the same method)

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3
Q

Financial instruments

ASPE 3856.16-19

A
  • financial instruments tested for impairment at the end of each reporting period
    • > where impairment exists, reduce CV to highest of :
      - > PV of C/F expected from holding the asset
      - > NRV (if asset is sold)
      - > amt entity expects to realize from exercising its right to collateral
  • impairment can be reversed IF asset subsequently recovers in value
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4
Q

Accounts Receivable

ASPE 3856.05(h),16, 17

A
  • a financial instrument -> a CONTRACTUAL right to receive cash or financial asset from another party
  • therefore, IMPAIRMENT testing is needed at the end of reporting period IF there are significant adverse changes during the period that cast DOUBT on collectibility
    - if impaired - written down to the amount EXPECTED to be collected through use of an ALLOWANCE account
    - same amount recorded in BD expense
    DR bad debt expense
    CR allowance for doubtful accounts
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5
Q

Inventory costs

ASPE 3031.11, 12, 17

A
  • the cost of inventories shall be comprised of purchase,conversion costs,costs to bring to present location and condition
  • trade discounts, rebates, and other similar items are deducted in determining the cost of purchase (netted against total cost)

EXCLUSION:

  • storage, admin OH, selling costs(commissions)
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6
Q

Inventory Valuation

ASPE 3031.07, 10-12,29

A
  • inventories shall be measured at LOWER of NRV and cost
  • Cost = purchase, cost of conversion and costs incurred to bring to present location and condition
  • NRV = estimate selling price in ordinary course of business less estimated selling costs
  • estimates of NRV are based on the most reliable evidence available, at the time the estimates are made, of the amount the inventories are expected to realize upon sale
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7
Q

Internally Generated Intangible Assets- R&D

ASPE 3064.37,40,41

A

-research costs = expensed when incurred
Development costs:
- accounting policy CHOICE to either capitalize or expense
- capitalize when ALL 6 criteria are met:
A) technically feasible
B) intention to complete it
C) ability to use or sell it
D) availability of adequate technical, financial and other resources to complete the development
E) ability to reliably measure the expenditures attributed
F) probable future economic benefits will be generated

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7
Q

Investments

ASPE 3051 and ASPE 3856.11-15

A
  • investments subject to significant influence can be accounted for using EQUITY or COST method
  • investment WITHOUT significant influence:
    • not quoted on an active mkt- COST mthd
    • quoted on active mkt - Accounted @FV
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9
Q

Revenue Recognition criteria (ASPE

A

Revenue from sales and service transactions shall be recognized when:

  • Performance is complete (risk and rewards transferred, significant acts performed, no continuing managerial involvement)
  • Consideration is measurable
  • Collection reasonably assured
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10
Q

Goodwill and intangible assets -Amortization

ASPE 3064.56,57,61

A

-intangible assets are amortized over the estimated useful life UNLESS they are considered to have an indefinite life
- assets with indefinite life are not to be amortized until the life is no longer considered indefinite ( however it must still be tested for impairment)
- amortization method and useful life should be reviewed annually
- the expected useful life must consider:
A) expected use of the asset
B) expected useful life of related asset
C) contractual, legal and regulatory provisions and other economic factors

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11
Q

Revenue recognition criteria

ASPE 3400.17

A

% method of completion

  • performance consists of the execution of more than one act, and
  • revenue would be recognized proportionately by reference to the performance of each act

For practical purposes, when services are provided by an indeterminate number of acts over a specific period of time, revenue would be recognized on a STRAIGHT LINE BASIS over the period unless there is evidence that some other method better reflects the pattern of performance

The amt of work accomplished would be assessed by reference to measures of performance that are reasonably determinable and relate as directly as possible to the activities critical to the completion of the contract.

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12
Q

Revenue recognition criteriaASPE 3490.18

A

Completed contract method would be appropriate when performance consists of the execution of A SINGLE ACT or when the enterprise cannot REASONABLY EST the extent of PROGRESS toward completion

Not the same rev Rec criteria under IFRS

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13
Q

Revenue Recognition - Consignment Sales

ASPE 3400.13-15

A
  • Consignment sales include goods shipped but not yet billed
  • They could be returned if not sold or only billed for to the extent sold
  • Performance is not considered complete upon delivery for goods, as the RISKS AND REWARDS are deemed not to have been transferred from the seller to the buyer because the seller’s continuing involvement

THEREFORE,
Revenue CANNOT be recognized up until either the goods can no longer be RETURNED or a PAYMENT is made in regards to them

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14
Q

Revenue Recognition - Effects of UNCERTAINTIES

ASPE 3400.19-21

A

Recognition of revenue requires that the revenue is MEASURABLE and that ULTIMATE COLLECTION is reasonably assured.

  • > if significant and unpredictable amounts of goods being returned = >DO NOT recognize revenue
  • > if the amt of returns CAN BE REASONABLY ESTIMATED based upon experience, it may be possible to provide for an ALLOWANCE FOR A RETURNS expense.
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15
Q

PPE - Betterment

ASPE 3061.14

A
  • a “betterment” enhances service potential (increase in physical output or service capacity, associated, operating costs are lowered, useful life is extended, or quality of output improved)

CLASSIFICATION:

CAPITALIZE = betterment
Expense to R&M = not betterment

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16
Q

Non-Monetary Transactions

ASPE 3931.06,07.11

A

Measurement:
- measured at the more RELIABLY of FV of asset GIVEN UP and FV of assets RECEIVED, unless the transactions lacks COMMERCIAL SUBSTANCE or neither the FV of the asset received nor the FV of the asset given up is reliably measurable, in which case, it should be measured at the CV of the asset given up

COMMERCIAL SUBSTANCE:

  • when the entity’s future C/F are expected to change significantly as a result of the transaction
    • > the risk, timing and amt of the future C/F of the asset received differ significantly from the risk, timing and amt of the C/F of the asset given up; OR
    • > the entity-specific value of the asset received differs from the entity-specific value of the asset given up, and the difference is significant relative to the FV of the assets exchanged
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17
Q

PPE - Costs

ASPE 3061.03.06.08

A

COSTS:

  • amount of consideration given up to acquire, construct, develop or better a PPE
  • DIRECT Costs attributable include:
  • > acquisition
  • > construction, development or betterment (DM, DL, OH or carrying costs)
  • > installing @ location
  • > in the condition necessary for intended use

BASKET PURCHASE:
- cost of each item of PPE acquired in a group of assets for a single amount is determined by ALLOCATING the price paid to each items in the basket based on FV @ time of acquisition

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18
Q

Non-Monetary transactions

IAS 16.24-26

A

SAME AS ASPE

MEASUREMENT:
- measured @ the more reliably measurable of the FV of the asset given up and the FV of the asset received, UNLESS the transaction lacks COMMERCIAL SUBSTANCE or neither the FV of the asset received or FV of asset given up is RELIABLY measurable, in which, it should be measured at the CV of the asset GIVEN UP

COMMERCIAL SUBSTANCE

  • when the entity’s C/F are expected to change significantly as a result of the transaction
    • > the risk, timing and amt of the future C/F of the asset received differ significantly from the risk, timing and amt of the C/F of the asset given up OR
    • > the entity-specific value of the asset received differs from the entity-specific value of the asset given up, and the difference is significant relative to the FV of the assets exchanged
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19
Q

Impairment of Long-Lived Assets

ASPE 3063.04-09, 12, 18

A

STEPS:

  1. Determine if FACTORS indicate impairment exists - internal and external indicators
  2. Group asset with other assets/liabilities to form group at the lowest level that generates G/S (CGUs)
  3. Determine if there is impairment by comparing NBV to Recoverable amt (undiscounted C/F)
  4. Calculate impairment by comparing carrying amount to FV

CANNOT reverse write-downs

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20
Q

Impairment of Assets

IAS 36

A
  • Required to assess whether there are any indicators of impairment @ the end of each reporting period; test when indicators of impairment exists

TEST impairment:
- compare the asset’s recoverable amt to the CV; CV > Recoverable amt = impairment loss

Recoverable amount: Higher of: (FV - costs to sell) and (value in use)
FV - cost to sell -> price that WOULD HAVE RECEIVED TO SELL an asset or paid to transfer a liability between mkt participants LESS INCREMENTAL COSTS directly attributable to the disposal of the asset (excluding fiancé cost and income tax expense)
Value in Use -> PV of future C/F from the continuing use of the asset and its ultimate disposal

  • Impairment CAN BE REVERSED if the asset subsequently recovers in value, but not more than the value of impairment recognized
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21
Q

Investments - Equity Method

IAS 28

A
  • An entity with SIGNIFICANT INFLUENCE over an invested shall treat the invested as an ASSOCIATE and account for its investment in the associate using the equity method
  • SIGNIFICANT INFLUENCE can be demonstrated by owning (directly or indirectly) 20% or more of the voting power of the invested
  • The entity may be able to demo influence, even with < 20% ownership. Evidence of influence can include:
    • > representation on the BOD
    • > Participation in policy-making processes
    • > material transactions between the entity and its invested
    • > provision of essential technical info

Under the equity method, the investment is initially recognized @ cost, and is adjusted for the post-acquisition change in the investor’s share of the investee’s net assets

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22
Q

Capital lease criteria - Lessee

ASPE 3065.06

A

Capital Lease

Must meet ONE of the criteria:

  • > transfer of ownership or BPO @ end of the lease term
  • > Lease term > 75% of ECONOMIC LIFE of asset
  • > PV of min lease pmts > 90% of FV lease asset
    - > Discount rate = lower of lessee’s incremental borrowing rate and implicit rate
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23
Q

Lease inducement

ASPE 3065.27

A
  • lease inducements are an inseparable part of the agreement and, accordingly, are accounted for as reductions of the lease expense over the term of the lease.
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24
Q

Capital Lease Criteria - LESSOR

ASPE 3065.07

A

Capital lease for LESSOR if ALL of the following exist:

  • credit risk is normal
  • unreimbursable costs are estimable
  • any one of the following criteria are met:
    • > transfer of ownership or BPO @ end of lease term
    • > lease term > 75% of economic life
    • > PV of min lease pmts > 90% of FV of leased asset
      - Discount rate - Implicit rate
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25
Q

Types of Capital Lease - LESSOR

ASPE 3065.29, 30, 27

A

Sales-type lease

  • > arise when a dealer uses leasing as a way to sell their products
  • > record as sale

Direct financing lease

  • > @ inception, FV of the leased property = to its CV
  • > Usually arises when a lessor acts as intermediary b/w manufacturer and lessee
  • > record as lease receivables (punt to be received and guaranteed residual value, if any)
  • > diff b/w lease receivable and CV should be recorded as unearned finance income
  • > finance income will be recognized each year
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26
Q

Lease Accounting - Land & Building (ASPE)

A

When a lease contains both land and building, it must first be determined whether the terms allow ownership to pass or provide for a BPO

If YES - the lessee will capitalize the land separately from building, based upon FV

If NO - is the FV of the land at the inception of the lease SIGNIFICANT in relation to the total FV of the leased property?
If YES - the land and building(S) are considered separately for purposes of classification. The lessee and lessor allocate the min lease payments between the land and building(S) in proportion to their FV. Both parties classify the portion of the lease applicable to land as an OPERATING LEASE

If NO - the land and building are considered a single unit, and the economic life of the building is considered the economic life of the unit.
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27
Q

Compound financial instruments

ASPE 3856.20-22

A
  • financial instruments S/b classified as liability or equity in accordance with the substance of the contractual arrangement in initial recognition and the definitions of a liability and an equity instrument
  • FI contain both a liability and an equity element ( including warrants or options issued) with and detachable financial liability should be separated into component parts as follows:
  • > the equity component = 0 ( entire proceeds of the issue are allocated to the liability component); OR
  • > the less easily measurable component is allocated the residual amount after deducting from the entire proceeds of the issue the amount determined for the component that is more easily measurable
  • the sum of carrying ant assigned to the liability and equity components on initial recognition is always equal to the carrying amount that would be ascribed to the instrument as a whole (i.e no gain or loss can arise from recognizing and presenting the components of the instrument separately)
28
Q

Inventory measurement - Cost formulas (specific identification)
ASPE 3031.22

A

The cost of inventories of items that are NOT ORDINARILY INTERCHANGEABLE and goods or services produced and segregated for specific projects shall be assigned by using specific identification of their individual costs

29
Q

Inventory measurement - Allocation of overhead

ASPE 3031.14

A
  • the ALLOCATION of fixed prod OH to the costs of conversion is based on NORMAL CAPACITY of the production facilities
  • the actual level of production may be used if it approximates normal capacity
  • unallocated overheads are recognized as an EXPENSE in the period in which they are INCURRED.
30
Q

Intangible assets

ASPE 3064

A
  • To meet the definition of an intangible asset, assets must meet the IDENTIFIABILITY, CONTROL and FUTURE ECONOMIC BENEFITS tests.
  • an asset meets the IDENTIFIABILITY criterion in the definition of an intangible asset when it:
    - > Is separable, or
    - > arises from contractual or other legal rights
  • an entity CONTROLS an asset if the entity has POWER to obtain the FUTURE ECONOMIC BENEFITS FLOWING from the underlying resource and to restrict the access of others to those benefits.

RECOGNITION:

  • an intangible asset shall be recognized IFF:
    • > it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; and
    • > the cost of the asset can be measured reliably.
31
Q

Internally generated intangible assets
IAS 38.4, .8, .54, .57

Define Research
Define Development
How should research costs be treated?
How to treat development costs?

A

Research = original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding

Development = the application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems o services before the start of commercial production or use

Research costs are always EXPENSED

Development costs MUST be CAPITALIZED if ALL of the following exists:

  • > technical feasible
  • > Intention to complete
  • > Ability to use or sell it
  • > Probable future economic benefits will be generated
  • > Availability of adequate technical, financial and other resources
  • > ability to reliably measure the expenditures attributed

Costs relating to tangible assets SHOULD NOT BE CAPITALIZED as intangible

32
Q

Intangible assets - Definition and recognition
IAS 38.12, .13, .17, .21

How to meet the definition of intangible asset?
When is an asset identifiable?
When does the asset have control?
What is the recognition criteria?

A

To meet the definition of an intangible asset, the item MUST BE:

  • IDENTIFIABLE
  • entity MUST HAVE CONTROL over the future benefit
  • the item MUST MEET the RECOGNITION CRITERIA

Asset IDENTIFIABLE if it either:

- > it can be separated from the entity
- > Arises from contractual, legal right that allow it to be transferable or separable

CONTROL
-> entity must have power over the future economic benefits of the asset

RECOGNITION CRITERIA

- > probable that the EXPECTED FUTURE ECONOMIC BENEFITS will flow to the entity
- > cost of the asset can be MEASURED RELIABLY
33
Q

Intangible assets - Amortization
IAS 38.72, .88, .97, .104, .107, .109

How are intangibles amortized?
How to amortize with intangibles not able to have definite lives?
what methods sare assets with definite lives be reported?
How often should the amortization methods and useful life be reviewed?
What should be considered in determining the useful life of an asset?

A

Intangibles are to be amortized over their ESTIMATED USEFUL LIVES unless they are considered to be an indefinite asset

Assets with INDEFINITE lives are NOT to be amortized until the life is NO LONGER considered indefinite, but they must be tested for IMPAIRMENT ANNUALLY

Assets with definite lives can be reported following either COST model or REVALUATION model

Amortization method and useful life should be reviewed ANNUALLY

Consider EXPECTED USE, LIFE OF RELATED ASSETS, CONTRACTUAL PROVISIONS, PRODUCT LIFE CYCLE and OTHER ECONOMIC FACTORS

34
Q

Discontinued operations
IFRS 5.03, .31-.33

What is a component?
How is the discontinued operations be reported?

A

A component of an entity where its operations and CF can be CLEARLY DISTINGUISHED operationally and for reporting purposes, from the rest of the entity and it has been disposed of or classified as HELD FOR SALE

Report results of discontinued operation on the STATEMENT OF COMPREHENSIVE INCOME for current and prior periods, net of tax, segregated as follows:

  • > the post-tax profit or loss of discontinued operations
  • > the post-tax gain or loss recognized on the MEASUREMENT to FV - costs to sell or on the disposal of the assets or disposal group(s) constituting the discontinued operations
35
Q

Borrow costs
IAS 23.05, .07, .08

What are borrowing costs?
When do we capitalize borrowing costs?
What are possible qualifying assets?

A

Borrowing costs - Interest and financing costs that an entity incurs in connection with the borrowing of funds

Capitalize borrowing costs that are directly attributable to the acquisition, construction or production of a QUALIFYING ASSET

Possible QUALIFYING ASSET:

  • > inventories
  • > manufacturing plants
  • > intangible assets
  • > investment properties
36
Q

Share-based compensation
IFRS 2.10, .11

How to measure equity-settled share-based payment transactions?

A

For equity-settled share-based payment transactions, the entity shall MEASURE the goods or services received, and the corresponding increase in equity, directly, @ the FV of the goods or services received, unless that FV cannot be estimated reliably, in which case FV of the equity instruments granted is used

Transactions with employees and others providing similar services require use of the FV of the equity instruments granted measured at grant date, because typically it is not possible to estimate reliably the FV of the services received

37
Q

Assertions Financial Statements

Classes of transactions and events for a period under audit:

A

Occurrence - Transactions and events that have been recorded have occurred and pertain to the entity
Completeness - all transactions and events that should have been recorded have been recorded
Accuracy - amounts and other data relating to recorded transactions and events have been recorded appropriately
Cut-off - transactions and events have been recorded in the correct accounting period
Classification - transactions and events have been recorded in the proper accounts

38
Q

Assertions - Account Balances at period end

A

Existence - assets, liabilities and equity interest exists
Rights and obligations - the entity holds or controls the rights to assets, and liabilities are the obligations of the entity
Completeness - all assets, liabilities and equity interests that should have been recorded have been recorded
Valuation and allocation - assets, liabilities and equity interests are included in the financial statements at appropriate amounts and any resulting valuation or allocation adj are appropriately recorded

39
Q

Assertions about presentation and disclosure

A

Occurrence and rights and obligations - disclosed events, transactions and other matters have occurred and pertain to the entity
Completeness - all disclosures that should have been included in the financial statements are in the financial statements
Classification and understandability - financial info is appropriately presented and described and disclosures are clearly expressed
Accuracy and valuation - financial and other info are disclosed fairly and at appropriate amounts

40
Q

Revenue recognition - Performance criteria (ASPE)

A

Performance would be regarded as being achieved when ALL of the following criteria have been met:

  • persuasive evidence of an arrangement exists
  • delivery has occurred or services rendered
  • price to the buyer is fixed or determinable

In determining if the seller’s price to the buyer is fixed or determinable, an entity would consider the impact of the following factors:

  • Cancellable sales arrangements;
  • Rights of return arrangements;
  • Price protections and/or inventory credit arrangements; and
  • Refundable fee for service arrangements
41
Q

Revenue recognition - collectibility criteria (ASPE) 3400.19

A
  • Recognition of revenue requires that the revenue is measurable and that ultimate collection is reasonably assured
  • when there is reasonable assurance of ultimate collection, revenue is recognized even though cash receipts are deferred
  • When there is uncertainty as to ultimate collection, recognize revenue only as cash is received
42
Q

Revenue recognition - multiple deliverables (ASPE) 3400.11

A
  • evaluate all deliverables to determine whether they represent separate deliverables
  • if you can identify separate deliverables, revenue recognition criteria should be assessed for each deliverable separately
  • if two or more transactions are linked together in such a way the commercial effect can’t be understood without reference to the series of transactions as a whole, then the recognition criteria will be applied to the series of transactions as one
43
Q

Government assistance (ASPE) 3800

A

Assistance for non-capital items:

  • include in net income for period when incurred
  • when government assistance relates to expenses of future accounting periods, the appropriate amts shall be deferred and amortized to income as related expenses are incurred.

Assistance for capital items:

  • reduce cost of capital item with any depreciation computed on the net amount; or
  • defer and amortize on the same basis of depreciation

Provided there is reasonable assurance that the enterprise has complied and will continue to comply with the conditions for receipt of the gov’t assistance, the accrual basis of accounting for the assistance is appropriate.

44
Q

Discontinued operations (ASPE 3475.03,.30

A
  • A discontinued operation is a component of an entity where its operations and cash flows can be clearly distinguished from the rest of the entity and it has been disposed of or classified as held for sale
  • Report results of discontinued operations on I/S for current and prior periods, net of tax
45
Q

Assets held for sale (ASPE) 3475.04,.08,.13

A
  • Long-lived assets to be disposed of other than by sale should continue to be classified as held and used until they are disposed of
  • Long-lived assets to be sold should be classified as held for sale when ALL of the following are met:
    • Mgt commits to a plan to sell
    • It’s available for immediate sale in its present condition
    • Steps to locate a buyer and complete the sale have started
    • The sale is probable and expected to occur within a year
    • It’s being actively marketed at a reasonable price
    • Actions required to complete the sale indicate it’s unlikely significant changes to the plan will be made or that the plan will be withdrawn
  • asset held of sale should be measured at LOWER of carrying amt or (FV less cost to sell), and should not be amortized
46
Q

Accounting changes - change in estimate (ASPE 1506.20 - .23)

A
  • The use of reasonable estimates is an essential part of the preparation of financial statements and does not undermine their reliability
  • An estimate may need revision if changes occur in the circumstances on which the estimate was based or as a result of new information or more experience
  • By its nature, the revision of an estimate does not relate to prior periods and is not the correction of an error.
  • The effect of a change in an accounting estimate is recognized prospectively by including it in net income in:
    • the period of the change, if the change affects that period only; or
    • the period of the change and future periods, if the change affects both.
47
Q

Related Party Transaction (ASPE) 3840.08-.09, .22, .29

A

For transactions carried out in the normal course of operations

  • monetary related party transactions or non- on RPT with commercial substance should be recorded @ their EXCHANGE AMOUNT, unless
    - it is a Non-mon RPT that is an exchange of a product/property to be resold in the same line of business. This type of RPT will be recorded @ carrying amount, adjusted for any additional consideration

For transaction NOT in normal course of operations

- monetary RPT, or non-mon RPT with commercial substance should be recorded @ their exchange amt IF
      - the chg in ownership interest in item transferred/service provided is substantive, and
      - the exchange amt is supported by independent evidence

When the RPT has been measured at carrying amt, any diff between the carrying amt of items exchange together with any related tax amts, shall be booked to equity

48
Q

Financial Ratio Analysis
Financial ratios are categorized according to the financial aspect that the ratio measures:

Ratios generally are not useful unless they are benchmarked against something else such as past performance or another organization. Therefore the ratios of org in different industries, which face different risks, capital requirements and competition are usually hard to compare

A

Liquidity ratios - measure the availability of cash to pay ST debts
Current Ratio, Quick Ratio, Working Capital Ratio

Asset turnover ratios - measure efficiency in utilizing assets
AR turnover, Inventory turnover

Profitability Ratios - measure how well assets are used and expenses are controlled to generate a return
Gross profit margin, net profit

Debt service ratios - measure the ability to repay LT debt
D to E Ratio, Times interest earned

49
Q

Subsequent Events (ASPE) 3820

In general, there are two subsequent events:

A
  1. Those that provide further evidence of conditions that existed at the financial statement date; and
  2. Those that are indicative of conditions that arose subsequent to the financial statement date
  • Financial statements shall be ADJUSTED when events occurring b/w the date of the financial stmts and the date of their completion provide additional evidence relating to conditions that existed at the date of the financial stmts
  • Disclosure shall be made of those events occurring b/w the date of F/S and the date of their completion that do not relate to conditions that existed @ the date of the F/S but:
    - cause significant changes to assets or liabilities in the subsequent period; or
    - will, or may, have a significant effect on the future operations
50
Q

Contingencies (ASPE) 3290

A
  • Existing conditions involving uncertainty as to a possible G or L
  • uncertainty will result in a range of possibilities: Likely, Unlikely, Not Undeterminable
  • Contingent losses
    • MUST be accrued if the future event is LIKELY and a reasonable est of the loss can be made
    • DISCLOSED if the future event is LIKELY but a reasonable est of the loss CANNOT be made
    • DISCLOSED if the future event is NOT DETERMINABLE
  • Contingent gains
    • must NOT be accrued
    • disclosed if future event is likely
51
Q 
Revenue Recognition (IFRS) 15
In a transaction involving the sale of goods or provision of services, the amount of revenue to recognize and how it is measured is determined by applying the five step model:

Ref: Solar Panel

A
  1. Identify the contract with the customer
  2. identify separate P.O in the contract
  3. Determine the overall transaction price
  4. Allocate the overall transaction price to separate P.O in the contract
  5. Determine which P.O(S) is satisfied, as rev is recognized when (or as) the entity satisfies the P.O
    - rev is recognized as control is passed, either over time or at a point in time.
52
Q

PPE (IFRS)

A

Initial recognition if:

  • the future economic benefits associated with the asset will flow to the entity, and
  • the cost of the asset can be reliably measured

Initial measure - recorded at COST
Subsequent measure:
- carried at cost less acc. Depreciation, and impairment losses, OR
- carried at revalued amt, I.e FV, less subsequent depreciation if FV can be reliably measured
- an increase in value is credited to OCI, unless it is a reversal of a revaluation decrease previously recognized as an expense

Significant components are required to be depreciated over their estimated useful life

53
Q

Agriculture (IFRS)
This standard is intended to apply to the following which relates to agricultural activity:
- Biological assets
- Agricultural produce at the point of harvest
- Gov’t grants related to biological assets

A

Initial recognition if:

  • the entity controls the asset as a result of a past event
  • the future economic benefits associated with the asset will flow to the entity, and
  • the cost of the asset can be reliably measured

Initial measurement at

  • FV, less est point of sal costs
  • Cost, if no reliable measurement of FV is available

Subsequent measurement

  • FV, less est point of sale costs
  • Cost, less acc. Depreciation if no reliable measurement of FV is available
54
Q

Rev Rec - Identification of the performance obligations (IFRS) 15.22 - .30

A

Performance obligations are identified as each promise to transfer to the customer either:

  • a good or service (or bundle of goods or services) that is distinct; or
  • a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer

A good or service that is promised to a customer is distinct if:

  • the customer can benefit from the good or service on its own or together with other resources readily available to the customer; and
  • the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract

Two or more promises are not separately identifiable if the nature of the promise, within the context of the contract, is to transfer a combined item in which the promised goods or services are inputs

If a promised good or service is not distinct, it is combined with other promised goods or services until the entity identifies a bundle of goods or services that is distinct

55
Q

Provisions, Contingent Liabilities, Contingent Assets (IFRS) IAS 37

A

Provisions - a liability of uncertain timing or amt. May be recognized when:

  • the entity has a present legal or constructive obligation as a result of a past event
  • it is probable that an outflow of economic benefits will be required to settle the obligation; and
  • a reliable est can be made of the amt of the obligation

Contingent losses -> NOT recognized:

  • A possible obligation that arises from past events, whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly in the control of the entity;
    - A present obligation that arises from past events is not recognized when an outflow of future economic benefits is not probable or the amt of the obligation cannot be measured reliably.

Contingent gains -> NOT recognized:
- possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.

56
Q

Warranties (IFRS) 15.B28 - B31

Two types of warranties:

A
  1. Assurance type - those that provide a customer with assurance that the related product will function as the parties intended because it complies with agreed-upon specifications
  2. Service type - those that provide the customer with the service in addition to the assurance that the product complies with agreed-upon specifications
  • warranty shall be accounted for in accordance with IAS 37 - Provisions, Contingent Liabilities and Contingent Assets, IF:
    = The customer does not have the option to purchase a warranty separately, and
    = The warranty does not provide the customer with a service in addition to the assurance that the product complies with agreed-upon specifications
57
Q

Business Combinations (IFRS) 3

A

For a business combination to occur, there must be:

- an acquirer who has gained control, and
- a business that has been purchased
     - a business is defined as “an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs or other economic benefits directly to investors or other owners, members or participants”
     - “ Determining whether a particular set of assets and activities is a business should be based on whether the integrated set is capable of being conducted and managed as a business by a market participant.”
58
Q

Earnings per share (IFRS) IAS 33

Basic EPS
Diluted EPS

A

Basic EPS - Net earnings available to common shareholders/ wt avg common shares outstanding (WACSO) during the year

Diluted EPS : Hypothetical measure of company earnings attributable to each common shareholder assuming all dilutive securities have been converted to common shares; dilutive elements must be ranked from most to least dilutive in completing the diluted EPS calculation.
- Stock options : the difference b/w the # of ordinary shares issued from exercising the options and the # of ordinary shares that WOULD have been issued @ the avg mkt price during the period - The difference is treated as an issue of ordinary shares for non consideration ( no impact on the earnings in the EPS calculation)

 - Convertible bonds - dilutive impact if the after-tax interest per share that would be issued is less than the basic EPS - the after-tax interest on the bond increase earnings and the # of shares issued on conversion is added to the WACSO
59
Q

Accounting Policies - Changes, Errors (IFRS) IAS 8

A

Accounting policies are the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting F/S. Chas in acct est result from new info or new developments and accordingly are not corrections of errors.

Only change policy IF:

- std/interpretation requires it, or
- chg will provide more relevant and reliable info to users

Apply chg S to policy RETROSPECTIVELY unless it is impractical
Chgs to acct est should be applied PROSPECTIVELY
Corrections to errors should be applied RETROSPECTIVELY unless it is impractical

60
Q

IFRS 28 - Investments in Associates-Impairment
When an associate tests its assets and finds some to be impaired, which of the following describes how the investor recognizes its portion of the impairment loss?
a) Directly through impairment loss on the FS of the investor
b) Through the investor’s recognition of equity income or loss of the associate
c) Impairment loss of an associate is not recognized by an investor in any form
d) Through an increase to the investment in asscoiate

A

b - The impairment would be included in the associate’s profit or loss, of which the investor picks up its proportional share.

61
Q

IFRS 28 - Investments in Associates-Impairment
Fisher Ltd. is testing its investment in an associate, King Corp., for impairment. Which of the following statements correctly describes how Fisher must test its investment in King for impairment and treat any resulting impairment?
a) Goodwill is tested separately for impairment.
b) The investment in King is treated as an investment in a group of assets, so each asset is tested for impairment.
c) Any impairment loss on Fisher’s investment in King is not allocated to any specific assets of King.
d) Any impairment losses from the investment in King cannot be reversed.

A

c - The impairment loss calculated by Fisher, if any, reduces the carrying amount of the investment in King but not allocated to any on individual assets, including goodwill.

62
Q

IFRS 28 - Investments in Associates-Presentation
Jimmy, controller for Klein Industries Co. (KIC), is preparing FS for the company’s October 31 year end. Jimmy knows that KIC has an equity investment in Hatty Ltd. and is considering how the investment must be presented. KIC has no plans to sell its investment in Hatty in the future.

Which of the following statements correctly describes KIC’s presentation of its investment in Hatty? Assume that KIC reports under IFRS.
a) On the SFP, the investment in Hatty should be presented as a current asset.
b) Hatty’s OCI should be presented as equity income within profit or loss of KIC
c) Income arising from the investment in Hatty should be reported before tax.
d) Equity income arising from KIC’s investment in Hatty should be reported on the SCI.

A

d - Income arising from the investment in the associate should be reported on an after-ta basis on the SCI (statement of comprehensive income).

63
Q

IFRS 28 - Investments in Associates - Investee treatment
Which of the following statements correctly describes how an entity accounts for an investment over which it has significant influence under ASPE?
a) If the investee is a private company, the equity method or the FV method may be used under ASPE
b) if the investee is a public company, the equity method or the FV method may be used under ASPE.
c) if the investee is a public company, the equity method or the cost method may be used under ASPE.
d) If the investee is a private company, the equity method must be used used under ASPE.

A

b - For entities that report under IFRS, the equity method must be used when the investor has significant influence over the investee.
Cannot use cost method for public companies.

64
Q

IFRS 28 - Investments in Associates
Alligator Co. has significant influence over Boat Co. Under ASPE, which one of the following factors could cause Alligator’s investment account to decrease?
a) Unrealized profit in inventory
b) Purchase price
c) Goodwill
d) Net income

A

Until the inventory has been sold to a third party, profit in inventory is considered unrealized and needs to be reduced from equity income.

65
Q

IFRS 28 - Investments in Associates
Isabel is the controller of Red Korn Inc. (RKI) and is preparing adjusting entries for the company’s year end. Isabel is analyzing RKI’s investment in an associate, and notes that RKI’s share of the associate’s loss is greater than the balance in the investment account.
Which of the following describes how RKI should account for the loss in excess of the investment balance of the associate? RKI uses IFRS to report its financial statements.
a) A loss on the investment in the associate is recorded in its full amount, brining the investment account to a negative (credit) balance.
b) A loss on the investment in the associate is only recorded up to the balance in the investment account, brining the investment account to zero.
c) A loss on the investment in the associate increases the investment in the associate balance.
d) Losses on investments in associates do not affect the balance in the investment account.

A

b - If the investor’s share of the loss exceeds the balance in its investment in associate account, the investment loss reported by the investor is normally limited to the pre-existing balance in its investment account, which then reduces the balance of the investment in associate account to zero.

66
Q
A

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