ASPE

Question 1

ASPE

Revenue recognition

Answer 1

ASPE 3400 .04-.05 - Revenue

Revenue can be recognized if ALL criteria are met:

(1) Performance has been achieved - risks and rewards have all been transferred to the buyer
(2) Consideration is reasonably measured
(3) Reasonable assurance exists that consideration will be collectible

Question 2

ASPE

Inventory

Answer 2

ASPE 3031.07 - Inventories

Inventories are assets:

(i) Held for sale in the ordinary course of business;
(ii) In the process of production for such sale; or
(iii) In the form of materials or supplies to be consumed in the production process or in the rendering of services

Question 3

ASPE

Net realizable value

Answer 3

ASPE 3031.07 - Inventories

is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

Question 4

ASPE

Fair value

Answer 4

ASPE 3031.07 - Inventories

is the amount of the consideration that would be agreed upon in an arm’s length transaction between knowledgeable, willing parties who are under no compulsion to act.

Question 5

FOB - Free on board

FOB shipping

FOB destination

Answer 5

FOB shipping - buyer of the goods becomes the owner at the time goods are shipped.

FOB destination - buyer of the goods becomes the owner at the time goods are received.

Question 6

ASPE

Betterment to capital assets

(rather than expense)

Answer 6

ASPE 3061.14 - PPE

The cost incurred to enhance the service potential of an item of property, plant and equipment is a betterment when:

• The previously assessed physical output or service capacity is increased.
• Associated operating costs are lowered.
• The life or useful life is extended.
• The quality of output is improved.

Question 7

ASPE

Inventory write-down

Answer 7

ASPE 3031.10 - Inventories

Inventories shall be measured at the lower of cost and net realizable value.

Question 8

ASPE

Impairment of long-lived assets
- when to test for recoverability

Answer 8

ASPE 3063 .09-.10 - Impairment of long-lived assets

.09 A long-lived asset shall be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.

.10 Examples of such events or changes in circumstances related to a long-lived asset include, but are not restricted to:

(a) a significant decrease in its market price;
(b) a significant adverse change in the extent or manner in which it is being used or in its physical condition;
(c) a significant adverse change in legal factors or in the business climate that could affect its value, including an adverse action or assessment by a regulator;
(d) an accumulation of costs significantly in excess of the amount originally expected for its acquisition or construction;
(e) a current-period operating or cash flow loss combined with a history of operating or cash flow losses, or a projection or forecast that demonstrates continuing losses associated with its use; or
(f) a current expectation that, more likely than not, it will be sold or otherwise disposed of significantly before the end of its previously estimated useful life (“more likely than not” means a level of likelihood that is more than 50 percent).

Question 9

ASPE

Impairment of long-lived assets
- grouping assets

Answer 9

ASPE 3063.12 - Impairment of long-lived assets

long-lived asset should be grouped with other assets and liabilities to form an asset group at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

Eg. PC1: Given that the greenhouse cannot generate cash on its own, the land and greenhouse should be grouped together in assessing impairment.

Question 10

ASPE

Impairment of long-lived assets
- Recognition and measurement

Answer 10

ASPE 3063 .04-.05 - Impairment of long-lived assets

.04 An impairment loss shall be recognized when the carrying amount of a long-lived asset is not recoverable and exceeds its fair value.

.05 The carrying amount of a long-lived asset is not recoverable if the carrying amount exceeds the sum of the undiscounted cash flows expected to result from its use and eventual disposition.

Question 11

ASPE

Impairment of long-lived assets
- cash flow test for recoverability

Answer 11

ASPE 3063 .21-.23 - Impairment of long-lived assets

This assessment is based on the carrying amount of the asset at the date it is tested for recoverability, whether it is in use or under development.

Eg. PC1:

Rental income ($3,000 × 15 years) $45,000
Eventual land disposition 50,000
————
Total future cash inflow $95,000
Less: Tilling and fertilizing (20,000)
————-
Recoverable amount $75,000
Carrying amount at year end 85,000

The carrying value of the asset exceeds the recoverable amount; therefore, the land and greenhouse should be written down to their fair value.

Carrying amount at year end $85,000
Fair value 50,000
————-
Impairment loss $35,000

Question 12

ASPE

Non-monetary transactions

Answer 12

ASPE 3831.6 & 3831.10 - Non-monetary transactions measurement

6. An entity shall measure an asset exchanged or transferred in a non-monetary transaction at the more reliably measurable of the fair value of the asset given up and the fair value of the asset received, unless:
   (a) the transaction lacks commercial substance (expected changes to future cash flow);
   (b) the transaction is an exchange of a product or property held for sale in the ordinary course of business for a product or property to be sold in the same line of business to facilitate sales to customers other than the parties to the exchange;
   (c) neither the fair value of the asset received nor the fair value of the asset given up is reliably measurable; or
   (d) the transaction is a non-monetary non-reciprocal transfer to owners to which paragraph 3831.14 applies.

.10 When an entity is able to reliably determine the fair value of both the asset received and the asset given up, the fair value of the asset given up is used to measure the asset received unless the fair value of the asset received is more reliably measurable.

Question 13

ASPE

Leases - Capital Leases

Answer 13

ASPE 3065.06 - Capital Leases AMORTIZE

a lease normally transfers substantially all of the benefits and risks of ownership to the lessee when, at the inception of the lease, one or more of the following criteria are met:

(a) There is reasonable assurance that the lessee will obtain ownership of the leased property by the end of the lease term. eg. title transfer or bargain purchase option
(b) The lease term is of such duration that the lessee will receive substantially all of the economic benefits expected to be derived from the use of the leased property over its lifespan (usually 75% or more)
(c) The lessor is assured of recovering the investment in the leased property and of earning a return on the investment as a result of the lease agreement. This condition exists if the present value, at the beginning of the lease term, of the minimum lease payments, excluding any portion thereof relating to executory costs, is equal to substantially all (usually 90% or more) of the fair value of the leased property, at the inception of the lease.

Question 14

ASPE

Leases - Capital lease vs operating lease

Answer 14

ASPE 3065 - Leases

Capital lease - should be capitalized as asset and amortized over the useful life
- 3065.16 capitalized at the lower of fair value and PVMLP

Operating lease - should be expensed

Question 15

ASPE

Revenue - Principal vs Agent

Answer 15

ASPE 3400.23 - Revenue

Revenue includes only the gross inflows of economic benefits received and receivable by the enterprise on its own account. Amounts collected on behalf of third parties such as sales taxes and goods and services taxes are not economic benefits that flow to the enterprise and do not result in increases in equity. Therefore, they are excluded from revenue.

Similarly, in an agency relationship, the gross inflows of economic benefits include amounts collected on behalf of the principal that do not result in increases in equity for the enterprise. The amounts collected on behalf of the principal are not revenue. Instead, revenue is the amount of commission.

Question 16

ASPE

Revenue - Principal

Answer 16

ASPE 3400.24 - Revenue

An enterprise is acting as a principal when it has exposure to the significant risks and rewards associated with the sale of goods or the rendering of services. Features that indicate that an enterprise is acting as a principal include, but are not limited to:

(a) the enterprise has the primary responsibility for providing the goods or services to the customer or for fulfilling the order (for example, by being responsible for the acceptability of the products or services ordered or purchased by the customer);
(b) the enterprise has inventory risk before or after the customer order, during shipping or on return;
(c) the enterprise has latitude in establishing prices, either directly or indirectly (for example, by providing additional goods or services); and
(d) the enterprise bears the customer’s credit risk for the amount receivable from the customer.

Question 17

ASPE

Investments - Significant Influence

Answer 17

ASPE 3051.05 - Investments

Significant influence differs from control and joint control. An investor may be able to exercise significant influence over the strategic operating, investing and financing policies of an investee even when the investor does not control or jointly control the investee. For example, the ability to exercise significant influence may be indicated by:

• representation on the board of directors,
• participation in policy-making processes,
• material intercompany transactions,
• interchange of managerial personnel or provision of technical information.

If the investor holds less than 20 percent of the voting interest in the investee, it is presumed that the investor does not have the ability to exercise significant influence, unless such influence is clearly demonstrated. On the other hand, the holding of 20 percent or more of the voting interest in the investee does not in itself confirm the ability to exercise significant influence.

Question 18

ASPE

Investments - Significant Influence Accounting Policy

Answer 18

ASPE 3051.06 - Investments

An investor that is able to exercise significant influence over an investee shall make an accounting policy choice to account for the investment using either:

(a) the equity method; or
(b) the cost method.

Question 19

ASPE

Investments - Significant Influence Accounting Policy

Answer 19

ASPE 3051.06 - Investments

An investor that is able to exercise significant influence over an investee shall make an accounting policy choice to account for the investment using either:

(a) the equity method; or
(b) the cost method.

Question 20

ASPE
Investments - Significant Influence Accounting Policy
Cost Method

Answer 20

ASPE 3051.07A - Investments

(a) Cost shall be measured at the acquisition-date fair value of the consideration transferred to the other party in exchange for the investment or in exchange for the interest in a jointly controlled enterprise. Cost includes consideration transferred on the acquisition date and any consideration transferred before or after the acquisition date. Consideration includes monetary and non-monetary consideration.
(b) Acquisition-related costs shall be recognized as expenses in the periods in which the costs are incurred and the services are received

Question 21

ASPE
Investments - Significant Influence Accounting Policy
Equity Method

Answer 21

ASPE 3051.08 - .12 - Investments

.08 Investment income, as calculated by the equity method, shall be the investor’s share of the income or losses of the investee.

.12 The investment account of the investor reflects:

(a) the cost of the investment in the investee
(b) the investment income or loss
(c) the investor’s share of a change in an accounting policy, a correction of an error relating to prior period financial statements
(d) the investor’s proportion of dividends paid by the investee

Question 22

ASPE
Goodwill Intangible Assets - R&D
Research Phase

Answer 22

ASPE 3064.37-.39 - Goodwill Intangible Assets

.37) No intangible asset arising from research (or from the research phase of an internal project) shall be recognized. Expenditure on research (or on the research phase of an internal project) shall be recognized as an expense when it is incurred.

.38) In the research phase of an internal project, an entity cannot demonstrate that an intangible asset exists that will generate probable future economic benefits. Therefore, this expenditure is recognized as an expense when it is incurred.

.39) Examples of research activities are:

(a) activities aimed at obtaining new knowledge;
(b) the search for, evaluation and final selection of, applications of research findings or other knowledge;
(c) the search for alternatives for materials, devices, products, processes, systems or services; and
(d) the formulation, design, evaluation and final selection of possible alternatives for new or improved materials, devices, products, processes, systems or services.

Question 23

ASPE
Goodwill Intangible Assets - R&D
Development Phase

Answer 23

ASPE 3064.40-.41 - Goodwill Intangible Assets

.40) In accounting for expenditures on internally generated intangible assets during the development phase, an entity shall make an accounting policy choice to either:

(a) expense such expenditures as incurred; or
(b) capitalize such expenditures as an intangible asset (provided the criteria in paragraph 3064.41 are met).

.41) An intangible asset arising from development (or from the development phase of an internal project) is recognized if, and only if, an entity can demonstrate all of the following:

(a) the technical feasibility of completing the intangible asset so that it will be available for use or sale;
(b) its intention to complete the intangible asset and use or sell it;
(c) its ability to use or sell the intangible asset;
(d) the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset;
(e) its ability to measure reliably the expenditure attributable to the intangible asset during its development; and
(f) how the intangible asset will generate probable future economic benefits. Among other things, the entity can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset.

.43) Examples of development activities are:

(a) the design, construction and testing of pre-production or pre-use prototypes and models;
(b) the design of tools, jigs, moulds and dies involving new technology;
(c) the design, construction and operation of a pilot plant that is not of a scale economically feasible for commercial production; and
(d) the design, construction and testing of a chosen alternative for new or improved materials, devices, products, processes, systems or services.

Question 24

ASPE

Contingencies - Contingent Losses

Answer 24

ASPE 3290.08, .12 - Contingencies

.08) The treatment of contingent losses in financial statements depends upon the likelihood that a future event will confirm that an asset had been impaired or liability incurred as at the financial statement date.

.12) The amount of a contingent loss shall be accrued in the financial statements by a charge to income when both of the following conditions are met:

(a) it is likely that a future event will confirm that an asset had been impaired or a liability incurred at the date of the financial statements; and
(b) the amount of the loss can be reasonably estimated.

Question 25

ASPE

Contingencies - Contingent Gains

Answer 25

ASPE 3290.16-.17 - Contingencies

.16) Contingent gains are not accrued in financial statements, as this accounting treatment could result in the recognition of revenue that might never be realized.

.17) Contingent gains shall not be accrued in financial statements.

Question 26

ASPE

Asset Retirement Obligations - Definition

Answer 26

ASPE 3110.03a - Asset Retirement Obligations

An asset retirement obligation is a legal obligation associated with the retirement of a tangible long-lived asset that an entity is required to settle as a result of an existing or enacted law, statute, ordinance or written or oral contract or by legal construction of a contract under the doctrine of promissory estoppel.

Question 27

ASPE

Asset Retirement Obligations - Recognition

Answer 27

ASPE 3110.05, .14 - Asset Retirement Obligations

.05) An entity shall recognize a liability for an asset retirement obligation in the period in which it is incurred when a reasonable estimate of the amount of the obligation can be made. If a reasonable estimate of the amount of the obligation cannot be made in the period the asset retirement obligation is incurred, the liability shall be recognized when a reasonable estimate of the amount of the obligation can be made.

.14) A present value technique is often the best available technique with which to estimate the expenditure required to settle the present obligation at the balance sheet date. When a present value technique is used, an entity estimates future cash flows used in that technique on a basis consistent with the objective of measuring the asset retirement obligation. Uncertainties surrounding the amount to be recognized as an asset retirement obligation are incorporated in the best estimate of the expenditure required to settle the obligation.

IP5 - ARO should increase the capital asset, or expensed if arises from operating lease.

Question 28

ASPE
Asset Retirement Obligations - Recognition
Accretion Expense

Answer 28

ASPE 3110.03 - Asset Retirement Obligations

d)Accretion expense is the increase in the carrying amount of an asset retirement obligation due to the passage of time.

Dr. Accretion expense
Cr. Asset retirement obligation

Question 29

ASPE
Disposal of long-lived assets and discontinued operations
Discontinued Operations

Answer 29

ASPE 3475.03e - Disposal of long-lived assets and discontinued operations

A discontinued operation is a component of an enterprise that either has been disposed of (by sale, abandonment or spin-off) or is classified as held for sale, and:

(i) represents a separate major line of business or geographical area of operations;
(ii) is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or
(iii) is a subsidiary acquired exclusively with a view to resale.

Question 30

ASPE
Disposal of long-lived assets and discontinued operations
Discontinued Operations - COMPONENT

Answer 30

ASPE 3475.03e - Disposal of long-lived assets and discontinued operations

A component of an enterprise comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the enterprise.

Question 31

ASPE
Disposal of long-lived assets and discontinued operations
Discontinued Operations - HELD FOR SALE

Answer 31

ASPE 3475.08 - Disposal of long-lived assets and discontinued operations

A long-lived asset to be sold shall be classified as held for sale in the period in which all of the following criteria are met:

(a) management, having the authority to approve the action, commits to a plan to sell;
(b) it is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets;
(c) an active program to locate a buyer and other actions required to complete the sale plan have been initiated;
(d) the sale is probable, and is expected to qualify for recognition as a completed sale within one year, except as permitted by paragraph 3475.09;
(e) it is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and
(f) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

Question 32

ASPE
Disposal of long-lived assets and discontinued operations
Discontinued Operations - HELD FOR SALE measurement

Answer 32

ASPE 3475.13 - Disposal of long-lived assets and discontinued operations

A long-lived asset classified as held for sale shall be measured at the lower of its carrying amount and fair value less costs to sell. A long-lived asset shall not be amortized while it is classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale shall continue to be accrued

Question 33

ASPE

Subsequent Events - Types

Answer 33

ASPE 3820.04 - Subsequent Events

In general, there are two types of subsequent events:

(a) those that provide further evidence of conditions that existed at the financial statement date; and
(b) those that are indicative of conditions that arose subsequent to the financial statement date.

Question 34

ASPE

Subsequent Events - Adjustments

Answer 34

ASPE 3820.07 - Subsequent Events

Financial statements shall be adjusted when events occurring between the date of the financial statements and the date of their completion provide additional evidence relating to conditions that existed at the date of the financial statements.

Question 35

ASPE

Subsequent Events - No adjustments

Answer 35

ASPE 3820.08 - Subsequent Events

Adjustment of the financial statements for subsequent events is not appropriate if such events do not relate to conditions existing at the financial statement date.

Examples of subsequent events that would not require adjustment of the financial statements but, if significant in their effect, would require disclosure in notes to the financial statements include:

(a) an event such as a fire or flood that results in a loss;
(b) a decline in the market value of investments;
(c) purchase of a business;
(d) commencement of litigation when the cause of action arose subsequent to the date of the financial statements;
(e) changes in foreign currency exchange rates; and
(f) the issue of capital stock or long-term debt.

Question 36

ASPE

Subsequent Events - No adjustment, Disclosure

Answer 36

ASPE 3820.10-.11 - Subsequent Events

.10 Disclosure shall be made of those events occurring between the date of the financial statements and the date of their completion that do not relate to conditions that existed at the date of the financial statements but:

(a) cause significant changes to assets or liabilities in the subsequent period; or
(b) will, or may, have a significant effect on the future operations of the enterprise.

.11 At a minimum, the disclosure shall include:

(a) a description of the nature of the event; and
(b) an estimate of the financial effect, when practicable, or a statement that such an estimate cannot be made.

Question 37

ASPE

Accounting changes - prior period errors

Answer 37

ASPE 1506.27

An entity shall correct material prior period errors retrospectively in the first set of financial statements completed after their discovery by:

(a) restating the comparative amounts for the prior period(s) presented in which the error occurred; or
(b) if the error occurred before the earliest prior period presented, restating the opening balances of assets, liabilities and equity for the earliest prior period presented.

Question 38

ASPE

Accounting changes - changes in account estimates

Answer 38

ASPE 1506.23-.24

.23 The effect of a change in an accounting estimate, other than a change to which paragraph 1506.24 applies, shall be recognized prospectively by including it in net income in:

(a) the period of the change, if the change affects that period only; or
(b) the period of the change and future periods, if the change affects both.

.24 To the extent that a change in an accounting estimate gives rise to changes in assets and liabilities, or relates to an item of equity, it shall be recognized by adjusting the carrying amount of the related asset, liability or equity item in the period of the change.

Question 39

ASPE

Financial Instruments

Answer 39

ASPE 3856.02 Financial Instruments

Common examples of financial instruments include:

(a) cash;
(b) demand and fixed-term deposits;
(c) commercial paper, bankers’ acceptances, treasury notes and bills;
(d) accounts, notes and loans receivable and payable;
(e) bonds and similar debt instruments, both issued and held as investments;
(f) common and preferred shares and similar equity instruments, both issued and held as investments; and
(g) options, warrants, futures contracts, forward contracts, and swaps.

Question 40

ASPE

Financial Instruments compared to IFRS

Answer 40

There are no differences with regards to recognition or initial measurement.

For subsequent measurement, ASPE measures the following instruments at fair value:
• investments in equity instruments that are quoted in an active market
• certain derivatives

All other financial assets are recorded at amortized cost. However, an entity may choose to recognize any financial asset at fair value (including those not listed above). This choice must be made upon initial recognition and the entity must be able to determine fair value in each reporting period.

When amortized cost is used, ASPE allows the use of both the effective interest method and the straight-line method in the application of amortized cost.