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Advanced Financial Accounting > ACCT 434- Mod 1 & Mod 2 > Flashcards

ACCT 434- Mod 1 & Mod 2 Flashcards

1
Q

What are the 5 accounting frameworks? And who uses each?

A

IFRS- Publicly Traded Companies

ASPE- Private companies

Not for Profit- Not for profit organizations

Accounting standards for pension plans- Pension plans

Pre-Changeover Accounting Standards- Rules prior to 2011, this can no longer be used

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2
Q

What are the two fundamental qualitative characteristics of accounting?

A

Relevance

Representational faithfulness

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3
Q

What is representational faithfulness?

A

Complete
Without bias
Neutral

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4
Q

What are the 4 enhancing qualitative characteristics of accounting?

A

Comparability
Verifiability
Timeleness
Understandability

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5
Q

What is the main constraint on qualitative charecteristics?

A

COST
The more detailed you get the more it costs. This is a bigger issue for ASPE companies that usually have more limited resources than IFRS companies

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6
Q

What are Undepreciated capital costs (UCC)?

A

The balance remaining for further depreciation

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7
Q

What is public sector accounting?

A

Accounting standards for government. They have a separate handbook

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8
Q

What is the main theoretical difference between IFRS and ASPE?

A

ASPE sometimes allows for a choice between different reporting methods. IFRS is more rigid.

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9
Q

What is the difference between net realizable value and fair value?

A

NRV= Selling price minus cost to sell

Fair Value= What the item is worth on the market (if there is a market available)

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10
Q

Can anyone other than a public company use IFRS?

A

Yes, but most don’t due to the cost

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11
Q

How do IFRS and ASPE differ on Disclosure?

A

IFRS- Extensive, especially for financial instruments

ASPE- Moderate

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12
Q

How do IFRS and ASPE differ on Impaired loans?

A

IFRS- Discount future cash flow using original discount rate

ASPE- Discount future cash flow using current rate of interest

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13
Q

How do IFRS and ASPE differ on PPE revaluation?

A

IFRS- Revalued at fair value with adjustment to OCI

ASPE- Measured at cost less accumulated depreciation

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14
Q

How do IFRS and ASPE differ on Income taxes?

A

IFRS- Setup deferred income taxes

ASPE- Choice between taxes payable or future income tax methods

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15
Q

What is current ratio and how is it calculated?

A

Measures liquidity

Current assets/Current Liabilities

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16
Q

What is debt to equity and how is it calculated?

A

Ability to pay debt as it comes due

Total debt/Shareholders Equity

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17
Q

What is return on assets and how is it calculated?

A

Profitability of assets

Income before interest & taxe/Total assets

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18
Q

What is return on equity and how is it calculated?

A

Profitability of owners investment

Net income/Shareholders equity

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19
Q

What are the basic objectives of financial reporting?

A

Communicate information that is useful to investors, creditors and others in making decisions about resource allocation

20
Q

What do financial statements provide information about?

A

Economic resources (assets, liabilities and net equity)

Changes in economic resources

Economic performance of the business (Profit & loss)

21
Q

What is the principle of conservatism?

A

When you have a choice of different methods, you should choose the one the one that will not overstate net assets or net income

22
Q

What is materiality?

A

Information is material if its omission or misstatement would influence or change a decision

23
Q

Why must we revalue investments each time we issue a financial statement?

A

Because if we followed the historic cost principle and the investment changed in value, we would not show a gain or loss until the instrument is sold.

24
Q

When we revalue an investment, where do we show the gain/loss?

A

Net income or OCI

25
Q

What is other comprehensive income?

A

A way to show the potential gains/losses from transactions that haven’t happened yet, or from transactions that would not normally be included in net income

26
Q

For taxes, what is a temporary difference?

A

When the accounting rules and the Income Tax Act use different methods for calculations, but they will eventually agree

27
Q

What are the 6 most common temporary differences for tax?

A 
Unrealized gains and losses
CCA
Depreciation
Share issue costs
Warranties
Non-capital losses
28
Q

For taxes, what is a permanent difference?

A

When the accounting rules and the Income Tax Act use different methods for calculations, and they will NEVER agree

29
Q

What is the tax base of an asset?

A

Amount deductible for tax purposes against taxable benefits when entity recovers the asset

30
Q

What is the tax base of a liability?

A

Carrying amount less amount deductible for tax purpose in future periods

31
Q

Can you use your tax assets in Canada to offset tax liabilities in other countries?

A

No, assets and liabilities must be under the same tax authority

32
Q

Is the accounting treatment for taxes the same for IFRS and ASPE?

A

Yes, only the terminology is different.

ASPE uses FUTURE income taxes
IFRS uses DEFERRED income taxes

33
Q

What is Current Income tax payable?

A

The amount of the cheque to the government

34
Q

What is current income tax expense?

A

Taxes incurred as a result of this year’s transactions. Shown on the income statement.

35
Q

What is Deferred Income Tax Liability?

A

An obligation for taxes we will have to pay at some point in the future that arises from this years transactions. (Shown on the balance sheet)

36
Q

What is Deferred Income Tax Expense?

A

The amount of taxes we incurred this year, but won’t pay this year. (Shown on the income statement)

37
Q

What is Deferred Income Tax Asset?

A

An amount we will be able to use ,at some point in the future, to reduce the total amount of taxes payable. (Shown on the balance sheet)

38
Q

What is Deferred Income Tax Benefit?

A

The deductions we will be entitled to at some point in the future arising from this year’s transactions. (Shown on our income statement)

39
Q

What is the difference between INTER-period and INTRA-period tax allocation?

A

Inter-period: Allocation of income tax expense to the year that the income was earned (regardless of when the tax is paid)

Intra-period: Allocation of income tax expense to the appropriate financial statement categories in the current year

40
Q

What is the difference between accounting income and taxable income?

A

Accounting income: Income before taxes are calculated

Taxable income: Income upon which taxes are calculated

41
Q

How is accounting income calculated?

A

Revenue minus expense

42
Q

How is taxable income calculated?

A

Accounting income before tax
+
Expenses on financial statement that are NOT deductible for tax purposes
+
Taxable amounts not recorded as revenue (EX: unearned revenue)
-
Expenses on financial statement that ARE deductible for tax purposes
-
Amounts recorded as revenue that are not taxable

= Taxable Income

43
Q

For the 3 main permanent differences, do we add or deduct them from net income to determine taxable income?

A

Add

44
Q

How do we determine current tax expense?

A 
Start with net income, then add/deduct permanent and temp differences
The adjusted balance is taxable income
x 
Current income tax rate
=
Current tax provision
45
Q

How do we determine deferred tax expense?

A

Difference between the opening and closing net deferred tax balance on the balance sheet

46
Q

What are the 4 basic steps for problems asking you to determine the deferred tax balance and the current and deferred tax provision for the year?

A

Step 1- Read the question and focus on what they want you to do

Step 2- Identify the permanent and temporary differences

Step 3- Calculate the taxable income

Step 4- Match up the temporary differences to the assets or liabilities that they relate to

47
Q

What are the 3 main examples of permanent differences?

A

Meals and entertainment
Stock based compensation
Interest and penalties

Advanced Financial Accounting (7 decks)

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