Accounting Flashcards
(194 cards)
1
Q
Inventory Criteria
A
a) held for sale in ordinary course of business
b) in the process of productions for sale
c) in the form of materials or supplies to be consumed in the production process or in the rendering of services
2
Q
Inventory Framework
A
ASPE - 3031
IFRS - IAS 23
3
Q
Inventory Conversion Costs
A
Costs required to turn raw material into produce
- Direct Labour
- Allocated Manufacturing Overhead
4
Q
Inventory - Difference between ASPE and IFRS
A
IFRS - Requires the capitalization of borrowing costs
ASPE - Allows a choice to either capitalize borrowing costs or expense them
5
Q
Valuation of Inventory on Balance Sheet
A
Carried at the lower of Net Realizable Value (NRV) or Cost
6
Q
Inventory Manufacturing Overhead (POHR)
A
POHR is determined before manufacturing occurs
= (est period OH costs) / (Normal volume of CD)
variance is adjusted through COGS
7
Q
Inventory - Journal Entry for Over/ Under Allocated MOH
A
Over-Allocated
Dr Manufacturing Overhead (temporary)
Cr COGS
Under-Allocated
Dr COGS
Cr Manufacturing overhead (temporary)
8
Q
Define PP&E Residual Value Salvage Value Asset life Useful Life
A
PPE - Tangible asset with future benefit of longer than one year and held to produce goods and services or rental to others
Residual value - Proceeds sale less any disposition costs
Salvage value - Assumes end of life and value as scrap
Asset Life - estimated length of time that the asset will last
Useful life - Period of time that the asset produces economic benefit for the business
9
Q
PP&E - Depreciation
- Define
- Types
A
Subsequent Measurement - Cost Model
Systematic allocation of the cost of a long-lived asset into income over its useful life
- Straight-line
- Declining Balance
- Units of Production
10
Q
PP&E Framework
A
ASPE - 3061
IRFS - IAS 16
11
Q
PP&E - Recognition
A
- Recognition Criteria
a) Probable that future economic benefits will flow to the entity
b) Cost of the item can be measured reliably - Can it be capitalized?
- Costs incurred for asset to be available for use
12
Q
PP&E - Subsequent Measurement
A
Cost Method - Depreciation
Revaluation Model
13
Q
PP&E - Revaluation Model
A
- Made for each class of assets (not individual)
- Degree of reliability in measuring FMV estimates
Increase to FMV
- Gain recognized to Net Income up to previous amount of losses
- Remaining amount recognized to OCI
Decrease to FMW
- Loss is recorded to OCI up to amount of previous gains
- Remaining amount to net income
14
Q
PP&E - Revaluation Model - Methods
A
Elimination Method
- Accumulated Depreciation is reduced to 0 and asset cost is adjusted accordingly
Proportional Method
- Both Cost and Accumulated Depreciation are adjusted to achieve overall carrying value of FMV
15
Q
PP&E - Differences between ASPE and IFRS
- Borrowing Costs
A
ASPE - Can choose to capitalize borrowing costs or expense them
IFRS - Capitalize borrowing costs that are directly attributed to the construction of the asset
16
Q
PP&E - Differences between ASPE and IFRS
- Subsequent Measurement
A
ASPE - Cost model only
IFRS - Cost or Revaluation Model
17
Q
PP&E - Differences between ASPE and IFRS
- De-recognition
A
ASPE - Not required when replaced, as long as recoverable from future CF’s
IFRS - Required when replaced
18
Q
PP&E - Differences between ASPE and IFRS
- Straight-line Depreciation
A
ASPE - Greater of:
- (Cost - RV) / UL
- (Cost - SV) / UL
IFRS - (Cost - RV)/ UL
19
Q
Impairment Framework
A
IFRS - IAS 36
ASPE - 3063
20
Q
Define: Impairment CGU FV Carrying Value
A
Impairment - Unable to recover the carrying amount of the asset
CGU: Cash Generating Unit - Smallest group of assets that generate independent cash flows from other assets or groups of assets
FV = Price that would be received to dispose of asset in an active market
Carrying Value = Purchase Price - Depreciation
21
Q
Impairment - IFRS
A
- Identify independent assets - if they do not generate income, use CGU
- Annual Testing
- Determine Recoverable Amount (discounted)
- Write Down to Recoverable Amount
- Can be reversed up to the lessor of its recoverable amount and carrying value that would have existed had the asset never been written down
22
Q
Impairment - ASPE
A
- Identify Asset Group
- Monitor for indicators of impairment
- Determine Recoverable Amount (undiscounted)
- Write Down to Fair Value
- Cannot be reversed
23
Q
Impairment - Calculate Recoverable Amount
A
Higher of
a) FV - Cost of Disposal
b) Value in Use
24
Q
Impairment - Reversal of Impairment
A
Only under IFRS
- Determine Recoverable Value
- Higher of (FV-Disposal) or Value in Use - Lessor of Recoverable Value or ORIGINAL Carrying Value
25
Revenue from Contracts Framework
IFRS - IAS 15
| ASPE - 3400
26
Revenue Recognition - From Contracts (IFRS)
1. Identify the contract
2. Identify Performance Obligation
3. Determine the transaction price
4. Allocate Transaction Price
5. Recognize Revenue
27
Criteria to Recognize Contract
1. Approved by both parties
2. Identifies goods/ service
3. Identifies payment terms
4. Has commercial substance
5. Probable that consideration will be collected
28
Criteria to identify Distinct Good
1. Customer can benefit from good or service on its own
| 2. Promise to transfer good/ service is separable from other promises in contract
29
Revenue Recognition - From Contracts (ASPE)
1. Risks and rewards of ownership have transferred
- Goods: Seller has no continuing involvement or control
- Services: Percentage of completion
2. Revenue can be measured reliably
3. Collection is reasonably assured
30
Revenue from Contracts - Transaction Price
Amount of consideration expected to be entitled to excluding amount collected on behalf of 3rd party
31
Revenue from Contracts - Right of Return Journal Entries
Date of Sale
Dr Cash
Cr Revenue
Cr Refund Liability
Dr COGS
Dr Asset - Right to Recover
Cr Inventory
to record Refund after expiry
Dr Refund Liability
Cr Revenue (amount not returned)
Cr Asset
Dr COGS
Dr Inventory
Cr Asset - Right to Recover
32
Revenue from Contracts - Criteria for Satisfied over time
1. Customer simultaneously receives and consumes the benefits
2. Vendors performance creates or enhances a customer-controlled asset
3. Vendors performance does not create an asset with an alternative use to the vendor and the vendor has no enforceable right to payment for performance completed to date
33
Revenue from Contracts - Criteria for Satisfied at a Point in Time
1. Present right to payment
2. Legal title has transferred
3. Physical Possession has transferred
4. Customer has significant risks and rewards of ownership
5. Customers Acceptance
34
Government Grant - Definition
Assistance by government in the form of transfers to resources to an entity in return for past or future compliance with certain conditions relating to the operating activities of the entity
- Forgivable Government Loans
- Grants related to Income
- Grants related to Assets
35
Government Grant Framework
IFRS - IAS 20
| ASPE - 3800
36
Government Grants - Recognition Criteria
Reasonable assurance exists that:
- Entity will comply with the conditions of the grant
- Grant will be received
37
Government Grants - Received but does not comply with conditions
Recorded as a liability and reduced once conditions are met
38
Government Grants - Related to Income
```
To cover expenses when it is incurred
- Separately as "Other Income"
Dr Expense
Cr Cash
Dr Deferred Gov Grant
Cr Other Income - Gov Grant
```
```
- Deducted from the related expense
Dr Expense
Cr Cash
Dr Deferred Gov Grant
Cr Expense
```
39
Government Grants - Related to Assets
Recognized as income on a systematic basis, in line with asset's depreciation
- As deferred income as depreciation is incurred over life of the asset
Dr Depreciation Expense
Cr Accumulated Depreciation (actual cost)
Dr Deferred Government Grant
Cr Other Income - Dep Expense
- Deducted from assets carrying value (proceeds against equipment)
Dr Depreciation (Cost - Grant)
Cr Accumulated Depreciation
40
Government Grants - Received prior to conditions being met
Recognize as deferred grant (liability) until the conditions are met
41
Government Grants - Conditions met but grant not yet received
Recognize as government grant receivable (an asset)
42
Government Grants - Non-Monetary
Dr Equipment
Cr Deferred Gov Grant
IFRS - Recognize grant at FV or Nominal Amount
ASPE: Recorded at FV
43
Government Grants - Favorable Interest Terms
Recognize benefit as government grant
Loan Proceeds - Discounted Value
Dr Cash
Cr Gov Loan Payable (discounted value)
Cr Deferred Gov Grant (proceeds - discounted value)
44
Cash and Cash Equivalents Definition
IFRS - IAS 7
Cash on hand or investments that are readily convertible to cash and are subject to insignificant risk of change in value
45
Cash and Cash Equivalents - Restricted Cash
Company is not able to utilize cash for general purposes.
- Minimum balance requirements
- Funds in escrow
- Donations
- Legally binding
46
Accounts Receivable Definition
Arise our of credit sale transactions from the normal course of business, and are typically short term and unsecured
47
Accounts Receivable - Classification
Amortized costs
1. Held to collect contractual CF's
2. Payments on principle and interest
FVOCI
Fair Value - Other Comprehensive Income
1. Collect contractual CF's
2. Purpose to sell
FVTPL
Fair Value through Profit or Loss
1. Holding to sell as part of an active portfolio
48
Accounts Receivable - Recognition - Amortized Cost
Initial at FV
| Subsequent using the effective interest rate method less any impairment losses
49
Allowance for Doubtful Accounts - Subsequent Measurement
Recognized annually
- Equal to the present value of all cash shortfalls over the life of the receivable
- Reverse up to amount of AC that would have been if no impairment was recognized
- Changes in loss allowance are recognized in P/L
50
When should AR be written off
As soon as they are known to be uncollectable
51
AFDA - Criteria
Expected loss reflects
1. Unbiased and probability weighted amount
2. Time value of money
3. Reasonably and Supportable information is available at report date
52
Net Discounts - Journal Entry
Initial
Dr AR
Cr Sales Revenue
Collection within time
Dr Cash
Dr Sales Revenue
Cr AR
53
Passive Investments - FVTPL
```
Designation is irrevocable
Initial Measurement - Fair Value (FV)
Transaction Costs - Expense Immediately
Subsequent Measurement - FV
Classification Unrealized Gain or Loss - Profit/Loss
Impairment - not separated from FV
Derecognition - G/L recognized in P/L
```
54
Passive Investments - Amortized Cost
Initial Measurement - Fair Value (FV)
Transaction Costs - Added to Carrying Value
Subsequent Measurement - AC Effective Interest Method
Classification Unrealized Gain or Loss - n/a
Impairment - DCF using original interest rate < CV, record loss if P/L
Derecognition - G/L recognized in P/L
55
Passive Investments - FVTOCI
Equity - only for investments that are not held for training
Debt - held for CF and to sell instrument
Initial Measurement - Fair Value (FV)
Transaction Costs - Added to Carrying Value
Subsequent Measurement -
Equity - FV
Debt - AC Effective Interest Method
Classification Unrealized Gain or Loss - OCI, net of tax
Impairment
Equity - not separated from other FV changes
Debt - Cumulative loss on P/L
Derecognition
Equity - Amounts in OCI are not recycled to NI
Debt - Current G/L plus cumulative G/L transferred from OCI to P/L
56
RPT - Difference between IFRS and ASPE
IFRS does not provide guidance on measurement
57
What is a considered a related party
1. Any entity exercises direct or indirect control or joint control, or significant influence
2. Any party that can exert direct or indirect control or joint control or significant influence over the entity
3. Parties subject to common control, joint control or common significant influence
4. Management of the entity
5. Members of the immediate family on an individual who is a related party
58
Exchange amount
Consideration paid or received as agreed to by the related parties (sales price)
59
Carrying Amount
Book value of the transferred item recorded by the transfer
60
Substantive change in ownership
When a transaction results in unrelated parties having acquired or given up at least 20% of the total equity of ownership
61
Leases - Non lease costs (Repairs and Maintenance)
Are specifically excluded unless lessee elects not to separate
62
Leases - Initial Measurement (Lessee)
ROU (Right of use asset)
- Includes direct costs incurred by the leessee
Lease Liability
- When payment is due on the 1st it is ecluded from lease liability
- Discounted rate = implicit unless it is not determinable
63
Leases - Lessor Perspective - Fiance Lease Criteria
1. Title transfer to lessee by the end of lease term
2. BPO option exists at date least begins and it is reasonably certain the lessee will exercise it
3. Lease term duration - lessee will receive substantially all the economic benefits expected to be derived from property over lifespan
4. PV of minimum lease payments amount to substantially all FV
5. Asset is specialized in nature and only the lessee can use it without major modifications
64
Leases - Lessor Perspective - Operating Lease
Recognize payments on a straight-line basis into income over the lease term or on some other systematic basis depending on use irrespective of the timing of CF's
65
Leases - Lessor Perspective - Initial Recognition
BPO
Revenue & Receivable - PV of lease payments + PV of BPO
COGS - Cost of Inventory
Guaranteed RV
Revenue & Receivable - PV of lease payments + PV of GRV
COGS - Cost of Inventory
Unguaranteed RV
Revenue - PV of lease payemnts
Receivable - PV of lease & PV of Residual
COSG - Cost of inventory less PV of residual
66
Leases - Lessor Perspective - Derecognition
Title Transfers - Lease receivable is derecognized through receipt of payment
Asset is returned - Gain/ Loss is recognized
67
What is a sale and leaseback transaction?
Transfers an asset to another entity and then leases the asset back
68
Criteria for a leaseback - Sale occurred?
Seller-Lessor
- seller derecognizes asset and gain in recognized at time of sale limited to the proportion of claims on the asset that were transferred
- Lease is recognized as an ROU and lease liability
Buyer-Lessor
- Buyer recognizes the asset has been purchased
- Lease is accounted for as an operating or finance lease
69
Lease Back Transactions - Entries
Proportion of claim on asset retained by seller-lessee
= PV of lease payments/ FV of asset given up
Buyer-Sellers Proportionate Claim
= (FMV asset sold - PV of lease payments) / FMV of asset
ROU Asset
= (PV lease payments / FV asset given up) * BV asset given up
Gain on Sale
= Buyer-Lessors proportional claim * (FMV asset sold - BV asset sold)
70
Lease Framework
IFRS - IFRS 16
| ASPE - 3065
71
Leases - Lessee - ASPE / IFRS Differences
IFRS - All leases are capitalized with limited exceptions for ST leases 1 year or less (lease expense)
ASPE - Can be capital or Operating
72
Leases - Other Costs - ASPE / IFRS Differences
IFRS - Non Lease Component Costs
Elections can be made for to include non lease components in cost of lease payments
ASPE - Executory Costs
Executory costs must be excluded from minimum lease payents
73
Leases - Discount Rates - ASPE / IFRS Differences
IRFS - Discount rate is the implied rate. Only use borrowing rate is not readily available
ASPE - Discount rate is lower of: Implicit, if known and borrowing rate
74
Leases - Revaluation - ASPE / IFRS Differences
IFRS - Tested for impairment at each reporting period
ASPE - Cannot be initially recognized at amount higher than FV
- Discount rate must be adjusted to show that the PV of minimum payments is equal to the FV of leased asset
75
Definition - Non Current Asset held for sale
Asset that will have its carrying value recovered through a sale transaction rather than through continuing use
76
Define - Discontinued Operation
Component of an entity that either has been disposed of or is classified as held for sale
- Operations and CF's that can be clearly distinguished, operatioanlly and for financial reporting purposes
77
Criteria - Non-Current Asset Held for Sale
1. Must be available for immediate sale in present condition
2. Terms of sale must be usual and customary
3. Sale must be highly probable
- Management is committed
- Initiated active program to locate buyer
- Actively marketed for sale at a reasonable price
- Sale expected to be completed in 1 year
- Unlikely significant changes to the plan will be made
78
Measurement - Non Current Assets HFS
Measured at lower of CV and FV - cost to sell
- Loss recognized to income
Depreciation stops
Presented as current assets separate from other assets
Recognize gain if FV-costs increases writeup to previous impairment
79
Criteria - Discontinued Operation
Meets one of the following:
1. Represent a separate major lien of business or geographical area
2. Part of a single co-ordinated plan to dispose of a separate major line or business or geographical area
3. Is a subsidiary acquired exclusively to resell
80
Measurement - Discontinued Operations
Measured same as HFS
Presented separately on statement of comprehensive income
- Post-Tax profit or loss from discontinued operations
- Post-Tax gain or loss related to re-measurement of disposal of discontinued operations
81
Framework HFS and Discontinued Operations
IFRS - IFRS 5
| ASPE - 3475
82
HFS - Calculating Amount on Statement of Comprehensive Income
Net Income -
Is there a difference between CV and FV?
CV - (FV - Costs) = write down or write up
83
Presentation - Does not count as a Discontinued Operation
Not reported as a discontinued operation
Net Income = Net income before taxes - (any write downs to lower of FV - costs or Carrying Value)
84
Non-Monetary Transaction
Non-Monetary Item
Exchanges that occur between parties where both items exchanged are non-monetary in nature.
Not cash or the right to cash in the future (such as inventory, capital assets, or services)
85
Non-Monetary Non-reciprocal Transaction
One-sided transfer of a non-monetary asset
- in-kind dividends, donations of goods or services, and liquidation of company assets to owners
Measured at the carrying amount of the non-monetary assets or liabilities transferred
Other than the recognition of any impairment, this disposal does not result in any gain or loss of the company's financial statements.
86
Non Monetary Transactions - Measurement Criteria
If no to any - More reliable of FV asset given up/ FV asset received
1. Does transaction lack commercial substance
2. Is Exchange in ordinary course of business sold in same line
3. Are neither FV given/ received reliably measured
4. Is the transaction non-monetary, non reciprocal?
87
Intangible Asset - Criteria
Has to meet both the definition and the recognition criteria
- Otherwise it is expensed
Definition Criteria
1. Identifiable as either:
- Separable - Can be transferred/ sold to another entity
- Arises from contractual or other legal rights
2. Entity controls future economic benefits
3. Asset will generate future economic benefits
Recognition criteria
1. Probable that expected future economic benefits will flow through the entity
2. Cost can be reliably measured
88
Intangible Asset - Definition and Examples
An identifiable, non-monetary asset without physical substance
- Customer Lists
- Trademarks
- Copyright
- Patents
- Franchise Rights
89
Recognition of Research as Intangible Asset
Early stages/ preliminary work cannot demonstrate will result in future economic benefits
- Is expensed
90
Recognition of Development Costs
Capitalize after the point in time when all criteria are met
- Cannot retroactively defer
1. Technical feasibility upon completion
2. Intent to complete
3. Ability to use or sell
4. Probable future economic benefits
5. Adequate technical, financial and other resources are available
6. Able to reliably measure the expenditures
91
Definition - Goodwill
Not considered an identifiable asset and only recognized in a business combination.
- Internally generated goodwill is never recognized
92
Intangible Assets - Development Costs - Eligible for Capitalization
- Costs of materials and services used to generate intangible asset
- Cost of employee salaries, wages and benefits incurred to generate intangible assets
- Fees to register a legal right
- Amortization of patents and licenses used to generate the intangible asset
- Interest Costs
93
Intangible Assets - Development Costs - Not Eligible for Capitalization
- Selling, Admin and other overhead unless directly attributed to preparing asset for use
- Inefficiencies or initial operating losses incurred before planned performance
- Cost of training staff to use the asset
94
Intangible Assets - ASPE or IFRS differences
ASPE
- No guidance on government grants
- Policy choice to capitalize or expense development costs for internal projects
- Revaluation model is not an option
- Impairment testing is done when events indicate
- Does not give guidance on residual value
95
Intangible Assets - Subsequent Measurement
Assets with Finite Life
1. Cost Method
- Determine UL, amortize and annually test for impairment
2. Revaluation
- Only available if traded on an active market
- FV less AD less Impairment
Infinite Life
- Assessed at least annually for impairment or whenever events indicate.
96
Define - Foreign Currency Transaction
Occurs in a different currency than the companys functional currency
97
Define -
| Functional Currency
FC - Currency of the primary economic environment in which the company operates
- currency used in day to day operations
98
Foreign Currency - initial measurement
Translate to functional currency using the exchange rate on the date of the transaction
99
Foreign Currency - Subsequent measurement
Monetary Items - Translated at closing rate on balance sheet date
Non-Monetary Items - Measured at historical cost or rate on revaluation date
100
Foreign Currency - Monetary Items
Units of currency or Assets/ Liabilities to be received on paid in a fixed or determinable amount, such as cash, receivables, payables or loans
101
Foreign Currency - Non Monetary Items
Doesn't meet the definition of a monetary item
| - Inventory, prepaid expenses, PP&E, Intagibles
102
Foreign Currency - Framework
IFRS - IAS 31
| ASPE - 1651
103
Foreign Currency - ASPE/ IFRS Differences
No significant differences
104
Foreign Currency - Disclosures
Entities Functional Currency
Fx Gain/Loss in Income Statement
Change in functional currency
105
Contingent Liability/ Asset- Definition
A potential liability/ asset resulting from a past event for which a future independent event will determine if an outflow of economic benefits is required/ occur
106
Contingencies - Required Disclosures
1. Brief description of the nature, timing and uncertainty of payments
2. Amount of any expected reimbursements
3. Carrying amount at the beginning and end of the period
4. Increases, Decreases, or reversals due to the passage of time
107
Contingencies - Framework
IFRS - IAS 37
| ASPE - 3290
108
Contingencies - Liabilities - Disclosure/ Record
Nothing required if liability is remote
| Record Provision if liability is probably, likely and measureable
109
Contingencies - Assets - Disclosure/ Record
Nothing required if gain is less than probable
Record asset if contingency is certain and measurable
- ASPE required 100% certainty
110
Contingencies - Measurement IFRS
- Best estimate of most likely amount
- Multiple Likely outcomes - weighted average
- continuous range - mid point
111
Valuation - If company is not a going concern
Asset Based Approach - Liquidation approach
112
Two types of Liquidation Scenarios
Orderly (voluntary) Liquidation
- Resolution of the entity's members
- Not forced
Forced Liquidation
- Asset is sold to the highest bidder
- Generally results in lower NRV
113
Steps in performing liquidation valuation
1. Adjust BS to reflect NRV on valuation date
2. Liabilities are deducted from NRV of assets
3. Determine the proceeds available for distribution (after corporate tax)
4. Personal income taxes are calculated on proceeds
114
Valuation -
Company does not maintain active operations
or has active operations but does not have excess earnings
Inherent value of goodwill is nil
| Asset Based Approach - Adjusted Net Assets
115
Decommissioning Provision
Obligation for an expected future cost to decommission a tangible asset
116
Calculating PF of Decommissioned Asset
PV = (FV) / (1 + RATE)^ UL
117
Calculating Interest Expense (Accretion)
Current Value of Decommissioning Asset * Pre-Tax Rate
118
Define Accretion
Systematic increase of obligation over time
119
Criteria for decommissioned asset
1. Present obligation arising from past event
2. Probable outflow to settle obligation
3. Reliable estimate can be made
120
Decommissioned Assets - Framework
IFRS - IAS36
| ASPE - 3063
121
Decommissioned Assets - Difference between IFRS and ASPE
IFRS
- Legal and Constructive Obligations
- Accretion as an interest expense over passage of time
ASPE
- Legal Obligation only
- Accretion as an operating expense for the passage of time
- Retirement Obligation
122
Decommissioned Assets - Journal Entry - Accretion
Dr Interest Expense
| Cr Decommissioned Asset
123
Income Taxes - Permanent Differences
Income
- Dividends from CAD Corps
- 50% Capital
Expenses
- Golf Memberships
- 50% Meals and Entertainment
- Political Contributions
- Interest/ Penalties on taxes
124
Income Taxes - Temporary Differences
```
Warranty liability (-ve)
Leases (+ve)
Decommissioning Provision
Lawsuit Accruals (-ve)
PP&E
Deferred Development Costs (+ve)
Investments (+ve)
```
125
Define Temporary Differences
When accounting treatment and tax treatment differ over time and these differences reverse
Taxable Difference - Higher Income paid in the future
Deductible Difference - Less tax paid in the future
126
Taxes Payable Method
Only current income taxes are recorded, deferred taxes are ignored
only under ASPE
127
Income Taxes - Difference between ASPE and IFRS
IFRS
- Deferred Taxes
- Always account for current and deferred
- Deferred are considered LT
ASPE
- Future Income Taxes
- Choice of Future Income Taxes method or Taxes Payable Method
- Current = Current and Non-Current = Non-Current
128
Income Taxes - Loss Carryback
Losses can only be carried back 3 years
Dr Income Taxes Receivable
Cr Current Income Tax Expense (recovery)
129
Income Taxes - Loss Carryforward
Losses not applied is prior 3 years are applied if:
1) probable earn sufficient taxable income to use benefit
2) Enacted rate in future is expected
3) Re-asses at each reporting period
Dr Deferred Tax Asset
Cr Deferred Income Tax Expense (recovery)
130
Income Taxes - Framework
IFRS - IAS12
| ASPE - 3465
131
Acquisition Differential
Difference between purchase price and book value of associate at date of purchase
```
Acquisition Price
- BV net assets * Ownership
= AD
+/- FV differential (BV-FV) * Ownership
= Goodwill
```
132
Investments in Associates - Framework
IFRS - IAS 28
| ASPE - 3051
133
Calculation - Realized Profit in Inventory
Opening Inventory
* GP%
* Ownership%
* (1-TR)
134
Calculation - Unrealized Profit in Inventory
Closing Inventory
* GP%
* Ownership%
* (1-TR)
135
Investments in Associates - ASPE/ IFRS Differences
ASPE
- Significant Influence - choice to use equity or cost method
- If shares are publicly traded with quoted price, choice is equity method or FV
136
Investments in Associates - Significant Influence %
20 - 50%
137
Post Acquisition - starting point
1. Combine parent and subsidy legal entity financial statements
2. adjust combined number for FV differentials
138
After Acquisition - FV differentials period and impact
- Inventory
- Depreciable Capital Assets
- Land
- LT Debt
Inventory
- In first year (turnover)
- Cost of Sales
Depreciable
- Over remaining useful life
- Depreciation/ AD
Land
- In period sold
- Gain of Loss on Sale of Asset
LT Debt
- Remaining term to maturity
- Interest Expense
139
Define
Current Period Amortization
Unamortized FV Differential
Current Period Amortization
- amount of amortization of FV differential recognized in the consolidated income statement of the current period
Unamortized FV Differential
- FV differential at acquisition cost less the accumulated amortization recognized to date
140
Post Acquisition - NCI Impacts to BS
- NCI's share of amortization to date of FV differential
| - NCI's share of unrealized gain/ losses on upstream transactions
141
Post Acquisition - Impact on retained earnings
- amortization to date on FV differentials that arose at aquisition
- unrealized profit in closing inventory on intercompany sales
- unrealized loss on intercompany sale of equipment
142
Post Acquisition - Intercompany adjustments to BS - Inventory
1. Decrease sales & cost by intercompany selling price
2. Decrease/ Increase Sales & Cost by unrealized profits
Sales - unrealized in previous
Cost - unrealized in current
143
Post Acquisition - Intercompany adjustments to BS - Depreciable Assets
Year of sale - eliminate reported gain/ loss from income statement
Subsequent - for remaining useful life - adjust depreciation expense
Gain - reduce
Loss - increase
144
Post Acquisition - Intercompany adjustments to BS - Land
Year of sale - eliminate reported gain/ loss from income statement
Subsequent - outside entity adjust gain or loss on sale
145
Net Earnings available to shareholders
Net Income After Tax less any dividends on preferred Shareholders
Cumulative - Dividends owed (regardless if declared)
Non-Cumulative - Only dividends declared
146
WASCO
```
Date
Activity
Shares
Shares Outstanding (cumulative)
Adjustment
Fraction of year
WASCO
```
Treasure shares issued but not outstanding are not included
Stock Splits and dividends increase in the adjustments as if they occurred at the beginning of the year
147
Diluted EPS - Define
Hypothetical measure of company earnings attributed to each CS holder assuming all dilutive securities have been converted to CS
148
Calculate EPS - equation and 5 steps
Net earnings + Income Effect
divided by
WASCO + share effect
149
EPS - Define
Income Impact
Share Effect
Income Impact
- change in AT income if PCS are converted to CS
Share Effect
- number of additional CS that would be outstanding if PCS is converted to CS
Incremental EPS
= Income Effect/ Share Effect
150
EPS - Convertible Bonds
| - Calculation
Income Impact
= Bond CV * Effective IR * Fraction of Year * (1-TR)
Share Impact
= Bond CV/ Cost of bond * No. Shares * Fraction of Year
151
Change is Accounting - Approaches
Prospective
- In the future
- Effects are limited to current and future statements only
Retrospective
- Past financial statements that are affected are adjusted
152
Types of accounting changes and their approach
1. Change in Accounting estimate
- Prospective
2. Change in Accounting Policy
- Retrospective if voluntary
- Prospectively if standard requires or permits
3. Correction of error
- Retrospective
153
Changes in Estimates - Required Disclosures
nature and account
| - If it is not possible to estimate effect on current periods
154
Changes in Accounting Policy - two reasons
Voluntary - relevant and reliable information
- Retrospectively
Standard - required by GAAP
155
Changes in Accounting Policy - Presentation and Disclosures
Balance Sheet - 3 years
| Income statement - 2 years
156
Objective of MD&A
Supplement and complement the information in the FS by helping readers understand what the FS show and do not show
157
Purpose of MD&A
Provide historical and discussion of future plans to continue operations
158
Subsequent Event - Define
Events after the reporting period
Favorable or unfavorable that occur between the end of the reporting period and the date when the financial statements are authorized for issue
159
Subsequent Events - procedure
1. Is it material
- If no - no future work is required
2. Adjusting or Non-Adjusting Event
160
Subsequent Event - Types
Adjusting - conditions existed at the end of the reporting period
Non Adjusting - conditions that arose after the reporting period
161
Subsequent Events - Disclosures
- Date financial statements were authorized
| - who has power to amend after they are issued
162
Subsequent Events - ASPE Vs IFRS
ASPE
- Completion Date of FS
IFRS
- Authorization date of FS
163
Acquisition at Date - Consolidated Common Shares
100% of parents CS only
164
Acquisition at Date - Eliminated Entries in Consolidated FS
recorded to adjust subs A/L to FV and remove investment account and pre-aquisition equity
No journal entries are made to the GL
165
Acquisition at Date - Adjustment to FV Differentials
FV > BV - Debit
| BV > FV - Credit
166
Acquisition at Date - Factors that affect power to control
- Potential Voting rights
- Right to appoint, reassign or remove key management personnel
- Right to direct investee to enter into transactions that benefit investor
- Appoint 50% of board members
167
Acquisition at Date - ASPE = Methods for accounting Policy
If traded in an active market - cannot use Cost method
- Acquisition Method
- Equity Method
- Cost Method
168
Acquisition at Date - Disclosures
- Gross proceeds paid
- Values assigned to assets acquired
- Details of contingent payments
169
Acquisition at Date - Calculating Goodwill (100%)
Purchase price
- CS
- RE
= AD
```
FV Differentials
Assets BV - FV
Liabilities FV - BV
Goodwill
Deferred Income Tax
```
```
DIT
Assets (opposit sign)
Liabilities (Opposit sign)
Land @ 50%
* TR
```
170
Acquisition at Date - Calculating Goodwill (<100%)
Price Paid by Parent
| + Imputed Price for NCI (INA/ FVE)
171
Acquisition at Date - NCI - Measurement Approaches
Identifiable Net Assets (ina)
= (FV Assets - FV Liabilities) * (1-% Ownership)
Fair Value Enterprise (FVE)
= No shares * (1 - % ownership) * price per share
172
Joint Venture - 2 types and describe
Joint Operation - rights to assets and obligations for liabilities of joint arrangement
Joint Venture - Rights to only net assets of the joint arrangement
173
Classifying Joint Venture or Joint Arrangement - 4 criteria
```
1. Structure - Separate Vehicle
No - Joint Operation
Yes -
2. Legal Form
3. Contractual terms
4. Other facts and circumstances
Obligation to liabilities
```
174
Joint Operation
- No investment account for interest
- Recognizes portion of assets and liabilities at FV of compensation given up
- Subsequent Measurement - share of assets/ liabilities/ revenues/ expenses
175
Joint Venture
- Do not have contractual right to assets/ liabilities
- Not appropriate to show individual assets and liabilities on statements of invested parties
- Use the equity method (unless exempt)
Exemptions - Venture capital orgs, mutual funds, trusts, investment insurance funds
176
Joint Venture - Journal Entries
1. Acquisition - Cash
2. Acquisition - Assets
FV of consideration given up
Dr Investment in JV
Cr Cash
Dr Investment in JV
Cr Gain on Disposal (FV-BV) * (1-%)
Cr Unrealized Gain on disposal (FV-BV) * %
Cr Equipment Contributed BV
177
Joint Venture - Subsequent Measurement
Profits/ Losses increase/ decrease investment account
- Corresponding gain or loss is recognized in Net Income
Monies received decrease investment account and do not affect NI
178
Joint Arrangements - Framework
ASPE 3056
| IFRS IAS 11
179
Joint Arrangements ASPE - 3 categories
Jointly controlled operations - JO
Jointly controlled assets - JO
jointly controlled enterprises - JV
180
Joint Arrangement - Describe
A joint arrangement is where by contractual agreement, control is shared, and decisions require unanimous consent
181
Joint Venture -
Recording Sales
Sales for JV are not included in parent IS
| - indirectly reported in investment income
182
Calculate NI Associated to Parent
Net Income (sub)
Less: Unrealized - Upstream
* % Interest
Less: Unrealized - Downstream
Unrealized = EI * GP * (1-TR)
183
Objectives of Government Financial Reporting
- Describe financial position with respect to financing activities and its ability to meet its liabilities
- Changes to financial position
- Nature and extend of financial affairs
184
Characteristics of Government Business Enterprises
- Separate legal entities
- Power to contract in own name
- Sue or be Sued
- Sell goods/ services outside government
ie Crown Corporations
185
Characteristics of Government Not for Profit Organizations
- No transferable ownership
- Operated for social/ educational/ ect
ie Universities or health organizations
186
Foreign Operation
Entity that is a subsidiary, associate, JV or branch of a reporting entity, who's activities are conducted or based in a country of currency different than the reporting company
187
Determining Functional Currency
Primary
1. Influences sales prices
2. Country who's competitive forces/ regulations determine SP
3. Influences input costs
Secondary
1. Financing activities
2. Funds retained from operations
188
Presentation Currency
Currency in which entity reports its financial results
189
Types of Foreign Operations
1. Integrated - Functional Currency is in CAD
= Temporal Method
2. Self-Sustaining - Function Currency is not CAD
= Current Rate Method
190
Statement of CF's - Difference between Indirect and Direct Method
The amount of net cash flow from the operations, investing, and financing sections is the same under both methods. The presentation of the operations section is different under both methods.
191
NPO Financial Statement Terminology
- Income Statement
- Balance Sheet
- Retained Earnings
- Statement of Operations
- Statement of Financial Position
- Statement of Changes in Net Assets
192
NPO - Fund Accounting
Allows organization to segment its financial statements based on nature of various projects, programs and expenditures
- Self-balancing
- Must be used when restricted fund method is used for contributions
- May have one bank account that includes several funds
193
NPO Contribution Policy Method
- Deferral
| - Restricted Fund Method
194
NPO Contribution - and types
Non-reciprocal transfer
- Unrestricted Contribution
= can be used for any purpose
- Restricted Contribution
= Externally imposed stipulations
- Endowment Contribution
= Contributor specifies principal contribution
