Chapter 4 - Reporting Financial Performance Flashcards
What are the six criteria required for an asset to be classified as held for sale when it is not a discontinued business?
1) Sale must be probable
2) The asset must be available for sale in its current form.
3) Formal plan to dispose of the asset
4) Reasonable priced and actively marketed
5) Changes to the plan are unlikely
6) Active program to find the buyer
What are the two reasons that an asset would be classified as held for sale?
1) It is a discontinued operation
2) The company is going to get rid of the assets they no longer want and has met the six criteria.
What is the treatment for the abandonment of an asset?
These would not be classified as held for sale.
How would you present the assets held for sale under ASPE?
They would be segregated in the statement of financial position as “Assets held for sale” in their respective categories, so inventory in the current section and equipment in the PPE.
How would you present the assets held for sale under IFRS?
They would be segregated in the statement of financial position as “Assets held for sale” in the current category.
What is a discontinued operation?
It is a component of an entity that a company has sold or classified as held for sale.
What is a component?
A separate line of business or geographical area of operation.
What are the characteristics of a component?
1) A major line of business or a geographical area that is a distinct operating segment.
2) A reporting unit
3) A subsidary
4) An asset group that has cash flows largely independent of other cash flows within the business.
What are the two criteria that must be determined to classify a component as discontinued?
1) The company plans to eliminate or has already eliminated the operations and cash flows relating to that component.
2) No more continuing involvement with that component.
How do you determine a loss from a discontinued business?
1) The after tax operating loss of the discontinued business plus the impairment on the assets that are sold.
What does it mean to list expenses by their function?
To list them based on the department totals, or the business activity. A manufacturing business will have production, selling, and head office functions thus you will list it as such.
What does it mean to list expenses by nature?
You list them by their type. For example selling expenses will list all the different types of expenses.
When do we use the retrospective basis? What is a retrospective restatement?
We use the retrospective basis when there are changes in accounting policies or corrections of errors. We determine the effect of the policy change on the income of prior periods that are affected on an after tax basis.
When do we use the prospective basis?
We use it when there is a change in estimate, not including a catch up adjustment.
What is the retained earnings?
Retained earnings show the companies accumulated throughout the years. It consists of Previous year retained earnings + Net Income (Loss) - Dividends Declared
