Unit 1 Flashcards

Question

Performance is achieved - What impacts persuasive evidence of an arrangement?

Answer 1

* Customary business practices * Side arrangement * Consignment arrangements * Customer's right of return * Repurchase requirements

Answer 2

Timing can affect: * Bill n Hold arrangements * Customer acceptance of goods * Lay over arrangements * No refundable fees * Licensing arrangements The legal terms may be FOB shipping or FOB destination

Answer 3

Cancellable sales arrangement Customer's right of return Price protection Refundable fees

Answer 4

- Performance on remaining deliverables is probable - Deliverables have value on a stand-alone basis | Example: sale of an appliance and servicing component

Answer 5

Seller uses relative stand-alone prices of each deliverable

Answer 6

1. Adjusted Market Assessment Approach - Evaluate the market and estimate the price 2. Estimate Cost Plus a Margin Approach - Estimate the cost of each deliverable and add a margin

Answer 7

Chapter 18 IFRS: 15, Revenue from Contracts with Customers

Answer 8

I-STAR - **I**dentify contract - identify **S**eparate performance obligation - determine the **T**ransaction price - **A**llocate the transaction price to each performance obligation - **R**ecognize revenue when each obligation is met

Answer 9

When ALL are met : IFRS 15.9 consider - Approved by both parties - Goods and services can be identified - Payment terms identified - Commercial substance exists - Probable that consideration will be received for the G/S

Answer 10

Only distinct G/S can be recognized as separate POs - Can the customer benefit from the goods/ service on its own or with other available resources - Can the promise to transfer the G/S be separately identified from other promises in the contract

Answer 11

If both criteria occur, treat as a separate contract - Change in scope is due to addition of distinct goods/services - Price of contract has now increased by price of stand-alone price of same goods/services

Answer 12

- Variable consideration (Price change per vol) - Constraining estimates of variable consideration (long rights of return) - Significant financing components (discount on financing) - Non-cash consideration (trade-in) - Consideration payable to a customer(Rebate)

Answer 13

IFRS 15.73 Use relative stand alone selling price (FV) OR * Adjusted market assessment approach * Expected cost plus margin * Residual approach

Answer 14

1. Adjusted market assessment approach 2. Expected cost plus margin 3. Residual approach : it is used if any of - The good/services being priced is sold for a broad range of amount OR - Seller has not yet established a price or its has never been sold as stand alone

Answer 15

1. Point in time - when risk /rewards has been transferred 2. Over time (based on any of 3 considerations)

Answer 16

- Customer simultaneously receives and consumes the benefits provided by the PO - The PO creates / enhances an asset the customer controls as the asset is being created/enhanced - The PO creates an asset with no alternative use to the seller and the seller has an enforceable right to payment for PO completed to date

Answer 17

Output Methods - Measures goods transferred to date relative to what is left. That is, % of job completed. Input Methods - It is based on estimates of percentage of completion based on inputs as resources consumed, labor expended. That % of cost incured to date.

Answer 18

Paragraphs B48-49 1. Entity must establsh whether it relates to the transfer of a promised goods/service (PO) 2. When it is not related to a PO or what the entity should undertake at the start of the contract, then, it is considered advance pymnt for future goods/service

Answer 19

IFRS 15.50 - When there is a consideration receivable that is not a fixed amount IFRS 15.53 - At the stat of the contract, the seller must estiamte the amount of consideation iyt is entitled to using the weighted average OR most likely probability IFRS 15.53 - The variable consideration should be reasssessed at the end of each reporting period

Answer 20

IFRS 15.B21

Answer 21

IFRS 15.57

Answer 22

1. Contract Asset Account - Costs & profits are debited 2. Progress Billing Account - A contra account linked to the Contract Asset account. Interim Billings are credited here Contra asset - Progress Billing = Asset/liability in SFP Both closed after contract is completed

Answer 23

Cost recovery /zero profit method - recognize revenue to the extent of the cost incurred

Answer 24

1. Estimate P/L on the contract 2. Determine the stage of completion using the input/output method 3. Calculate revenue for the period 4. Ascertain COGS

Answer 25

At sale: - Consignor recognizes sales income - Consignee recognizes commission

Answer 26

Chapter 19 IFRS : 16

Answer 27

* Often a single PO satisfied over a period in time * Costs and profit are debited to Contract Asset a/c * Billings are credited to contract asset OR Progress Billing a/c ***End of Period**** *** Net bal of contract asset and Progress billing a/cs are reported in SFP **End of Period** Contract asset and Progress billing a/cs are closed

Answer 28

Each period : * Estimate the P or L on the contract * Determine the stage of completion using the input or output based method * Calculate revenue to record in the period * Ascertain COGS (expense)

Answer 29

If an estimate can be made: - A refund liability is recognized for consideration received - A refund asset is recorded for goods to be returned - Refund asset/liabilities are recorded separately in the income statement after the liability period has lapsed

Answer 30

- Control must have been transferred (eg product paid for) - Reason for B&S must be substantive - Items must be separately identifiable - Goods must be ready for physical transfer - Entity cannot have ability to use or direct the goods to another customer

Answer 31

* - Another party is responsible for fulfilling the contract * - Entity does not bear inventory risk * - Has no discretion setting the price * - Consideration is in form of commission * - Not exposed to credit risk

Answer 32

Chapter 26 IAS:2, Inventories ASPE: 3031, Inventories

Answer 33

They are assets that are - Held in the normal course of biz for sale(finished) - in the process of production for sale (WIP) - Materials/supplies to be used for production or rendering service (raw materials/consumables)

Answer 34

- Costs to bring an item to its present location and condition. They include: - Cost of purchase - Cost of conversion and - Costs to bring an item to its present location and condition *Net of vendor rebate and discounts

Answer 35

* Cost of item * Shipping to receive * Import duties * Non recoverable tax * Transportation in (-) * Trade discounts * Subsidies

Answer 36

* Direct labour cost * Allocated fixed & variable manufacturing overhead

Answer 37

IFRS requires using the Cost Absorption method: 1. When production is less than normal capacity: - allocate overhead based on normal capacity - expense under-allocated fixed cost into COGS 2. When production is more than normal capacity - allocate overhead based on based on actual production. Meaning, overhead will be reduced

Answer 38

1. Periodic Inventory value is determined only when a physical count is carried out 2. Perpetual Inventory value is maintained on a continual basis. Cost is determined after each transaction (sale or purchase)

Answer 39

- FIFO - Weight average

Answer 40

Estimated selling price in ordinary course of business (-) Estimated cost of completion (-) Estimated cost to make the sale

Answer 41

The lower of cost and NRV * cost is not replacement cost * NRV = expected selling price - expected selling cost (as above)

Answer 42

- The entity will record an impairment if NRV is lower than cost. It can be recorded using the - **Direct method** (Adjusted against COGS) * DR COGS * CR Inventory Or - **Indirect (allowance) method** (Contra account is used and offset against inventory in SCI) * Dr Loss on inventory decline * Cr Allowance on inventory decline * the contra account will be adjusted in subsequent period to record the lower of cost and NRV*

Answer 43

- IAS 23 requires capitalization of borrowing costs(for custom inventories) - ASPE 3031gives a choice to capitalize or expense

Answer 44

Chapter 29 IAS: 16, Property, Plant and Equipment ASPE: HB 3061, Property, Plant and Equipment

Answer 45

They are tangible assets held for use in production or supply of goods and services (rental is investment asset) They are expected to be used for more than one period ( less is office supplies/inventory)

Answer 46

When both conditions are met: * Probable that future economic benefits will flow to the entity * Cost of PPE can be reliably measured

Answer 47

1. Purchase cost plus Import duties + unrecoverable taxes - discounts/rebate 2. Cost to bring it to its location & condition of use - Inspection cost - Spare part cost - Standy / Servicing equipment 3. Cost of dismantling, removal, and restoring For land & building, it includes commission, legal fees, and other costs to make them usable.

Answer 48

- Delivery & handling of asset - Site preparation cost - Professional fees - Installation cost - Testing that the asset is functional - Decommissioning cost

Answer 49

* Cost model or * Revaluation model

Answer 50

Assets are recorded at historical cost with accumulated depreciation and impairment loss taken. Depreciation methods: * Straight line = (cost-residual value)\ useful life * Declining balance = Carrying value x rate of depreciation * Unit of production = (cost-residual value)\units of production

Answer 51

Assets are measured at fair value amounts with depreciation taken. The revalued assets are subsequently reported at their depreciated cost less accumulated impairment losses.

Answer 52

1. Interest Capitalization IFRS - Must capitalize for self-constructed assets. ASPE - Not necessary 2. Componentization IFRS - Required, gives guidance ASPE - Required, less guidance 3. Measurement basis IFRS - Cost or Revaluation method ASPE - Cost alone 4. Derecognition IFRS - Required when replaced ASPE - Not required if future cashflow from the new asset will cover the value 5. Straight-line basis of depreciation IFRS - Cost less residual value over useful life (A) ASPE - Greater of (A) above and Cost less salvage value over asset life

Answer 53

1. Calculate the weighted average investment (Get avg of all amt spent throughout the yr) 2. Consider first interest cost on asset- specific borrowings (If a specific loan applies to the PPE, put that aside before calculating avg rate for other general loans) 3. Calculate Cap rate to be applied to general borrowing. Interest paid during the period / by weighted avg general borrowing 4. General borrowing rate (3) is applied to the diff between weighted avg investment and asset-specific borrowing 5. Borrowing cost = int on asset-sp + gen borrowing. * It should not exceed the total interest cost

Answer 54

1. Calculate the weighted avg investment Amounts spent on PPE during the year b4 its ready for intended use Took - Jan 80k, Mar 70k and Jul 105k Calculate average amount for the yr - Given the following loans taken by the entity Note 150k @ 6.5% specific for the PPE throughout the year Bond 8m @ 8% throughout the year Bank loan 12m @ 6% throughout the year 2. Remove specific borrowing from avg investment above. Balance is general borrowed amount Weighted avg inv (- )150k Notes (=) General borrowing 3. Calculate interest on avg specific loan - since its taken thru yr, it is 150k x 6.5% 4. Calculate avg general borrowing rate (8m/20m)x8% + (12m/20m)x6% 5. Apply the rate in No4 to the gen avg in No1 to get gen interest 6. Add specific int (no3) to general int (no5) to get interest to be capitalized

Answer 55

* They are living plants * Used in the production and supply of agricultural produce * Have the probability of being used for more than one period * There is a remote likelihood of them being sold as agricultural produce

Answer 56

Betterments are costs incurred to improve the service potential of capital assets.

Answer 57

They include: 1. Quantity of physical output or service capacity increased 2. Life extended 3. Operating cost lowered 4. Quality of output improved

Answer 58

Chapt 56 IAS 40 No ASPE

Answer 59

Criteria : 1. Meets definition 2. Probable that future economic benefits will flow to the entity 3. Cost can be reliably measured

Answer 60

They are land and buildings held to earn rental income or capital appreciation

Answer 61

They are : 1. Land held for long-term capital appreciation 2. Land with undetermined future use 2. Building owned by the entity and leased as an operating lease 4. Vacant building to be leased as an operating lease 5. Property being constructed to be leased as an investment property

Answer 62

Purchase price and cost to bring it to its intended location and condition of use

Answer 63

1. Fair Value Model - FV at each reporting date - Gains/losses from valuation is passed through P&L - No depreciation recorded - If FV cannot be ascertained, use the cost model - Depreciation is stated as amortization for investment properties 2. Cost Model Same as IAS 16 *Must stick to one model for all investments

Answer 64

- FV Model Nothing is done. Fair value already recognizes impairment - Cost Model Dr Impairment loss Cr Accumulated Impairment loss - Land

Answer 65

Guidance under ASPE3061: It uses only cost model even for subsequent measurement.

Answer 66

Chapt 1 CAS

Answer 67

An Assurance engagement has 5 elements. All should be confirmed as MET before it can be considered an Assurance engagement 1. Three-party relationship 2. Subject matter 3. Criteria 4. Evidence 5. conclusion

Answer 68

According to CAS 200, Audit risk is the risk that an auditor will express an inappropriate opinion when the FSs are materially misstated It is a function of Risk of material misstament + Detection risk

Answer 69

It is the difference between a classification(C), Amount(A), Presentation (P) and Disclosure (D) reported in the financial statement and the CAPD required in the applicable framework

Answer 70

An audit of a F/S is when the financial statement of an entity is assessed to be fairly presented in line with applicable accounting framework and an opinion is expressed on same. The responsibilities of an auditor include: 1. Follow ethical requirements including independence, competence and due care 2. Assess the risks of material misstatement in the F/Ss 3. Collect sufficient appropriate evidence relating to the existence of risks of material misstatement in the F/Ss 4. Express an opinion whether the F/Ss present fairly in material respect the financial condition of the entity in relation to the applicable framework

Answer 71

They are 11 1. Report title 2. Addressee 3. Audit Opinion (UQAD) 4. Basis of opinion 5. Key audit matters 6. Opinion on other matters - Legal & regulatory req. 7. Management responsibilities 8. Auditor's responsibilities 9. Auditor's signature 10. Auditor's office location 11. Date of audit report

Answer 72

1. Identify and assess the engagement risk - Acceptance risk for new clients - Continuance risk for existing clients 2. Establish engagement preconditions 3. Obtain a signed engagement letter

Answer 73

- Integrity of client - Competence and resources of the engagement team - Ethical standards - Independence - Other significant matters

Answer 74

- Determine if the accounting framework is appropriate - Document Management responsibilities - Consider the limitation of scope

Answer 75

- Objective and scope of audit - Management responsibilities - Auditor's responsibilities - Identification of the financial reporting framework - Expected form and content of the audit report

Answer 76

* Users - Public coys, SHolders, potential investors, Lenders/ creditors, BOD * Assurance - Reasonable * Opinion - Yes * Procedures Reqd - CIIROAR * Type of report - Independent Auditor's Report * Timing - Most time consuming * Cost - Most expensive * Independence - Required * Practitioners objective - to determine if the FS are presented fairly in all material respect

Answer 77

* Users - Public private coys,ext investors, lenders, creditors, mgmt * Assurance - Limited * Opinion - Conclusion * Procedures Reqd - I A Inquiry, Analytical procedure * Type of report - Review Engagement Report * Timing - Somewhat time consuming * Cost - Moderately expensive * Independence - Required * Practitioners objective - to determine if the FS are plausible

Answer 78

* Users - Private coys, Mgmgt for tax purposes, Small business that dont have to be audited. Reqd by CRA * Assurance - None * Opinion - None * Procedures Reqd - None. Performance is to compile FS + note describing basis of accounting applied * Type of report - Compilation Engagement Report * Timing - Least time consuming * Cost - Least expensive * Independence - Not required * Practitioners objective - Help mgmt in the preparation of the compiled fin info in line with the basis of accounting they have selected

Answer 79

Chapt 6 - 13 CAS 300

Answer 80

R isk assessment A pproach M ateriality P rocedures

Answer 81

- Audit planning (AP) includes developing an overall audit strategy (AS) and a detailed audit plan - AS is an overview whereas AP is a response to the issues identified in the AS * AS identitifies the characteristics of an engagement that defines the - Its scope - Ascertain reporting objectives to plan the timing of the audit and - Considers factors that are significant in the direction of the engagement team's efforts - Also determines if preliminary efforts are necessary - Ascertains the nature, timing and extent of resources to needed perform the engagement *AP is deisgned to provide detailed response to the matters in the AS which in the nature, timing and extent of audit procedures to be performed to obtain adequate evidence to reduce audit risk to acceptable level. - In developing the AP, auditor will develop audit procedures such as test of controls or substantive test of details.

Answer 82

According to CAS 200, Audit risk is the risk that an auditor will express an inappropriate opinion when the FSs are materially misstated It is a function of Risk of material misstament + Detection risk

Answer 83

It is the difference between a classification(C), Amount(A), Presentation (P) and Disclosure (D) reported in the financial statement and the CAPD required in the applicable framework

Answer 84

Audit risk = Risk of Mistatement x Detection Risk Audit Risk = (Inherent Risk + Control Risk) x Detection Risk

Answer 85

- Auditor should gain understanding of the entity, its environment and its internal controls - After gaining understanding, the risk is assessed at the OFSL. This is pervasive and covers the whole FS - Then at the Assertion level. This is specific to balances , classes of transactions, presentations or disclosures.

Answer 86

It is the likelihood x magnitude of a mistatement

Answer 87

* identify the users of the financial statement * identify users' objectives * Determine the base for materiality * Identify the percentage threshold for materiality * Calculate overall materiality * Calculate performance materiality * Calculate specific materiality (if needed) * Calculate specific performance materiality (if needed)

Unit 1 Flashcards

Accounting Principles, Assumptions & Concepts (115 cards)