Chapter 3

Question 1

Steps during the accounting cycle as each transaction occurs

Answer 1

Steps that are repeated every reporting period:

1. Identify the transaction
2. Analyze the transaction
3. Perform journal entries
4. Post to general ledger (or t-accounts)

Question 2

At the end of the accounting period you must prepare the following

Answer 2

1. Trial balance
2. Adjusting entries
3. Adjusted trial balance (include effects of adjusting entries)
4. Financial statements
5. Closing entries (to close income statement and dividends to income summary account)
6. Post closing trial balance

Question 3

Accounting equation

Answer 3

Assets = liabilities + equity

Where total débits must = total credits for the equation to balance

Question 4

Two types of adjusting entries

Answer 4

1.Accruals
2. Deferrals
Both justified on basis of the going concern

Question 5

Accruals

Answer 5

Cash is received or paid after the expense (bad debt expense, accrued)

Question 6

Deferrals

Answer 6

Cash received or paid before the revenue or expense is recorded (prepaid, depreciation, recognition of previously deferred)

Question 7

Measurement bases

Answer 7

Under IFRS and ASPE, différent measurement bases exist for various assets

Question 8

Cost

Answer 8

Really means cost (what you gave up for the asset) less and accumulated amortization and impairment if any

Question 9

Amortized cost

Answer 9

Financial assets or liabilities over longer term: initial face value of the instrument +/- unamortized discount or premium (PV)

Question 10

Net Realizable Value (NRV)

Answer 10

Used for inventories as well as biological assets: ultimate cost to sell something - cost to completion

Question 11

Fair value

Answer 11

The value between which a buyer and a seller freely transaction. Specific standard with IFRS and ASPE no. More relevant but less valuable than cost

Question 12

IFRS standard for fair value

Answer 12

Level 1
Level 2
Level 3

Question 13

Level 1

Answer 13

Directly observable market price for something (publicly quoted share price)

Question 14

Level 2

Answer 14

“Ball park” estimates: value of a condo in the same area… less precise but close. More measurement uncertainty —> more note disclosure required

Question 15

Level 3

Answer 15

Even more uncertain than level 2: estimating future cash flows for impairment

Question 16

Measurement models

Answer 16

1. Cost model
2. Revaluation model
3. Fair value model

Question 17

Cost model

Answer 17

Used under IFRS & ASPE

cost accumulated amortization and impairments (only model used under ASPE)

Question 18

Revaluation model

Answer 18

IFRS only
Optional model for a given class of assets (all assets in a class must follow same model) that is not investment property or biological assets.

Question 19

Fair value model

Answer 19

IFRS only

Optional model for investment properties