Contingencies

Question 1

What are contingencies

Answer 1

Depends on another event to confirm it

Question 2

Contingent Assets

Answer 2

NEVER RECORDED

If likely to occur = disclose

Question 3

Contingent Liabilities definition

Answer 3

Liability =
1. obligation from past event
2. settlement = outflow of assets/benefits
3. Reasonably measured
Contingent Liability = future event likely to confirm liability
reasonably measured

Question 4

Contingent Assets

Answer 4

NEVER RECORDED
If likely to occur = disclose
ASPE 100%, IFRS judgement

Question 5

Contingent Liabilities criteria

Answer 5

1. obligation from past event (that will be confirmed by future event)
2. settlement = probable outflow of assets/benefits
3. Reasonably measured

Question 6

ASPE vs IFRS

Answer 6

ASPE
LIKELY>70%
record
If range at lower amt
POSSIBLE 11-70%
disclose

UNLIKELY 10%LESS
none

IFRS
PROBABLE>50%
Record
If range, average
POSSIBLE11-50%
Disclose
REMOTE0-10%

Question 7

Colin Inc. (Colin) entered into a transaction to exchange equipment (with a carrying value of $30,000 and an approximate fair value of $35,000) and cash of $3,000, for 100% of the shares in Water Corp. Water Corp. is a private company with a fair value of $40,000. The fair value of the equipment is not reliably measurable.

At what amount will Colin recognize the new shares in Water Corp.?

a)

$37,000

b)

$38,000
Correct Answer
c)

$40,000
Incorrect Response
d)

$43,000

Answer 7

Answer d) is incorrect. The cash was paid, not received, by Colin, and therefore should not be added to the value of the shares received. Answer c) is correct. This transaction has commercial substance and is therefore measured at fair value. However, the fair value of the equipment given up is not reliably measurable, so the fair value of the shares is used to recognize the assets received.

Question 8

John Book, a designated accountant with Books Accounting (Books), offers to prepare the first-year tax return for New Web Design (New Web), a start-up company. In exchange for Book’s services to file New Web’s tax return, New Web will design its first trial cloud-based service application for John’s accounting business. How should this transaction be recorded, as per ASPE?

a)

Neither company is required to record this transaction.

b)

Only New Web should record this transaction at the fair value of the service given up.
Incorrect Response
c)

Both New Web and Books should record this transaction at the fair value of the asset given up.
Correct Answer
d)

Both New Web and Books should record this transaction at an amount equal to the fair value of the tax return filing service.

Answer 8

Answer c) is incorrect. Per ASPE 3831, the transaction should be measured and recorded at the fair value of the asset (or service) given up, unless the fair value of the asset (or service) received is a more reliable measure. Answer d) is correct because the fair value of the tax return filing service is more reliably measured than the design of the new trial cloud-based application.