ACCT 434- Mod 1 & Mod 2

Question 1

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

Answer 1

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

Question 2

What are the two fundamental qualitative characteristics of accounting?

Answer 2

Relevance

Representational faithfulness

Question 3

What is representational faithfulness?

Answer 3

Complete
Without bias
Neutral

Question 4

What are the 4 enhancing qualitative characteristics of accounting?

Answer 4

Comparability
Verifiability
Timeleness
Understandability

Question 5

What is the main constraint on qualitative charecteristics?

Answer 5

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

Question 6

What are Undepreciated capital costs (UCC)?

Answer 6

The balance remaining for further depreciation

Question 7

What is public sector accounting?

Answer 7

Accounting standards for government. They have a separate handbook

Question 8

What is the main theoretical difference between IFRS and ASPE?

Answer 8

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

Question 9

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

Answer 9

NRV= Selling price minus cost to sell

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

Question 10

Can anyone other than a public company use IFRS?

Answer 10

Yes, but most don’t due to the cost

Question 11

How do IFRS and ASPE differ on Disclosure?

Answer 11

IFRS- Extensive, especially for financial instruments

ASPE- Moderate

Question 12

How do IFRS and ASPE differ on Impaired loans?

Answer 12

IFRS- Discount future cash flow using original discount rate

ASPE- Discount future cash flow using current rate of interest

Question 13

How do IFRS and ASPE differ on PPE revaluation?

Answer 13

IFRS- Revalued at fair value with adjustment to OCI

ASPE- Measured at cost less accumulated depreciation

Question 14

How do IFRS and ASPE differ on Income taxes?

Answer 14

IFRS- Setup deferred income taxes

ASPE- Choice between taxes payable or future income tax methods

Question 15

What is current ratio and how is it calculated?

Answer 15

Measures liquidity

Current assets/Current Liabilities

Question 16

What is debt to equity and how is it calculated?

Answer 16

Ability to pay debt as it comes due

Total debt/Shareholders Equity

Question 17

What is return on assets and how is it calculated?

Answer 17

Profitability of assets

Income before interest & taxe/Total assets

Question 18

What is return on equity and how is it calculated?

Answer 18

Profitability of owners investment

Net income/Shareholders equity

Question 19

What are the basic objectives of financial reporting?

Answer 19

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

Question 20

What do financial statements provide information about?

Answer 20

Economic resources (assets, liabilities and net equity)

Changes in economic resources

Economic performance of the business (Profit & loss)

Question 21

What is the principle of conservatism?

Answer 21

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

Question 22

What is materiality?

Answer 22

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

Question 23

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

Answer 23

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.

Question 24

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

Answer 24

Net income or OCI

Question 25

What is other comprehensive income?

Answer 25

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

Question 26

For taxes, what is a temporary difference?

Answer 26

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

Question 27

What are the 6 most common temporary differences for tax?

Answer 27

``` Unrealized gains and losses CCA Depreciation Share issue costs Warranties Non-capital losses ```

Question 28

For taxes, what is a permanent difference?

Answer 28

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

Question 29

What is the tax base of an asset?

Answer 29

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

Question 30

What is the tax base of a liability?

Answer 30

Carrying amount less amount deductible for tax purpose in future periods

Question 31

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

Answer 31

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

Question 32

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

Answer 32

Yes, only the terminology is different. ASPE uses FUTURE income taxes IFRS uses DEFERRED income taxes

Question 33

What is Current Income tax payable?

Answer 33

The amount of the cheque to the government

Question 34

What is current income tax expense?

Answer 34

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

Question 35

What is Deferred Income Tax Liability?

Answer 35

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)

Question 36

What is Deferred Income Tax Expense?

Answer 36

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

Question 37

What is Deferred Income Tax Asset?

Answer 37

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)

Question 38

What is Deferred Income Tax Benefit?

Answer 38

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

Question 39

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

Answer 39

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

Question 40

What is the difference between accounting income and taxable income?

Answer 40

Accounting income: Income before taxes are calculated Taxable income: Income upon which taxes are calculated

Question 41

How is accounting income calculated?

Answer 41

Revenue minus expense

Question 42

How is taxable income calculated?

Answer 42

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

Question 43

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

Answer 43

Add

Question 44

How do we determine current tax expense?

Answer 44

``` 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 ```

Question 45

How do we determine deferred tax expense?

Answer 45

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

Question 46

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?

Answer 46

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

Question 47

What are the 3 main examples of permanent differences?

Answer 47

Meals and entertainment Stock based compensation Interest and penalties