CPA ASPE Flashcards

Question

Lease inducements Financial Reporting (ASPE)

Answer 1

Lease inducements (ASPE)  Lease inducements are an inseparable part of the lease agreement and, accordingly, are accounted for as reductions of the lease expense over the term of the lease. Reference: ASPE 3065.27

Answer 2

Revenue recognition criteria (ASPE) Revenue from sales and service transactions shall be recognized when:  Performance is satisfied (risks and rewards transferred, significant acts complete, no continuing managerial involvement)  Consideration is measurable  Collection reasonably assured Reference: ASPE 3400.04 - .06

Answer 3

Revenue recognition – performance criteria (ASPE) Performance would be regarded as being achieved when all of the following criteria have been met:  Persuasive evidence of an arrangement exists  Delivery has occurred or services rendered  Price to the buyer is fixed or determinable In determining if the seller's price to the buyer is fixed or determinable, an entity would consider the impact of the following factors:  Cancellable sales arrangements;  Right of return arrangements;  Price protections and/or inventory credit arrangements; and  Refundable fee for service arrangements. Reference: ASPE 3400.07, .10

Answer 4

Revenue recognition – collectability criteria (ASPE)  Recognition of revenue requires that the revenue is measurable and that ultimate collection is reasonably assured  When there is reasonable assurance of ultimate collection, revenue is recognized even though cash receipts are deferred  When there is uncertainty as to ultimate collection, recognize revenue only as cash is received Reference: ASPE 3400.19

Answer 5

Revenue recognition – multiple deliverables (ASPE)  Evaluate all deliverables to determine whether they represent separate deliverables  If you can identify separate deliverables, revenue recognition criteria should be assessed for each deliverable separately  If two or more transactions are linked together in such a way the commercial effect can’t be understood without reference to the series of transactions as a whole, then the recognition criteria will be applied to the series of transactions as one Reference: ASPE 3400.11

Answer 6

Government assistance (ASPE)  Assistance for non-capital items: o Include in net income for period when incurred o When government assistance relates to expenses of future accounting periods, the appropriate amounts shall be deferred and amortized to income as related expenses are incurred.  Assistance for capital items: o Reduce cost of capital item with any depreciation computed on the net amount; or o Defer and amortize on the same basis of depreciation  Provided there is reasonable assurance that the enterprise has complied and will continue to comply with the conditions for receipt of the government assistance, the accrual basis of accounting for the assistance is appropriate Reference: ASPE 3800

Answer 7

Discontinued operation (ASPE)  A discontinued operation is a component of an entity where its operations and cash flows can be clearly distinguished from the rest of the entity and it has been disposed of or classified as held for sale  Report results of discontinued operations on I/S for current and prior periods, net of tax Reference: ASPE 3475.03, .30

Answer 8

Assets held for sale (ASPE)  Long-lived assets to be disposed of other than by sale should continue to be classified as held and used until they are disposed of  Long-lived assets to be sold should be classified as held for sale when all of the following are met: o Management commits to a plan to sell o It’s available for immediate sale in its present condition o Steps to locate a buyer and complete the sale have started o The sale is probable and expected to occur within a year o It’s being actively marketed at a reasonable price o Actions required to complete the sale indicate it’s unlikely significant changes to the plan will be made or that the plan will be withdrawn  Asset held for sale should be measured at lower of carrying amount or fair value less cost to sell, and should not be amortized Reference: ASPE 3475.04, .08, .13

Answer 9

Accounting changes – change in estimate (ASPE)  The use of reasonable estimates is an essential part of the preparation of financial statements and does not undermine their reliability  An estimate may need revision if changes occur in the circumstances on which the estimate was based or as a result of new information or more experience  By its nature, the revision of an estimate does not relate to prior periods and is not the correction of an error.  The effect of a change in an accounting estimate is recognized prospectively by including it in net income in: o the period of the change, if the change affects that period only; or o the period of the change and future periods, if the change affects both. Reference: ASPE 1506.20 - .23

Answer 10

Related Party Transactions (ASPE)  For transactions carried out in the normal course of operations - monetary related party transactions, or non-monetary RPT with commercial substance should be recorded at their exchange amount, unless > it is a non-monetary RPT that is an exchange of a product/property to be resold in the same line of business. This type of RPT will be recorded at carrying amount, adjusted for any additional consideration/  For transaction NOT in the normal course of business - monetary RPT, or non-monetary RPT with commercial substance should be recorded at their exchange amount, IF > the change in ownership interest in item transferred/service provided is substantive, and > the exchange amount is supported by independent evidence - When the RPT has been measured at carrying amount, any difference between the carrying amounts of items exchanged, together with any related tax amounts, shall be booked to equity. Reference: ASPE 3840.08-.09, .18, .22, .29

Answer 11

Lease Accounting – Land & Building (ASPE) When a lease contains both land and building, it must first be determined whether the terms allow ownership to pass or provide for a bargain purchase option. o If yes, the lessee will capitalize the land separately from the building, based upon fair values. o If no, is the FV of the land at the inception of the lease significant in relation to the total FV of the leased property? > If yes, the land and building(s) are considered separately for purposes of classification. The lessee and lessor allocate the minimum lease payments between the land and building(s) in proportion to their fair values. Both parties classify the portion of the lease applicable to land as an operating lease. > If no, the land and building are considered a single unit, and the economic life of the building is considered the economic life of the unit. Reference: ASPE 3065.70 - .72

Answer 12

Subsequent Events (ASPE)  In general, there are two types of subsequent events: > those that provide further evidence of conditions that existed at the financial statement date; and > those that are indicative of conditions that arose subsequent to the financial statement date.  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.  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: > cause significant changes to assets or liabilities in the subsequent period; or > will, or may, have a significant effect on the future operations. Reference: ASPE 3820.04, .07, .10

Answer 13

Contingencies (ASPE)  Existing condition involving uncertainty as to a possible gain or loss  Uncertainty will result in a range of probabilities o likely o unlikely o not determinable  Contingent losses o must be accrued if the future event is likely and a reasonable estimate of the loss can be made o disclosed if the future event is likely but a reasonable estimate of the loss CANNOT be made o disclosed if the future event is not determinable  Contingent gains o must NOT be accrued o disclosed if the future event is likely Reference: ASPE 3290

Answer 14

Stock options (ASPE)  Initial measurement: o The fair value is initially estimated based on the stock price at the grant date of stock options. o The stock options are recorded as contributed surplus, which is an equity account.  Subsequent measurement: o The fair value of an option estimated at the grant date is not subsequently adjusted for changes in the price of the underlying stock or its volatility, the life of the option, dividends on the stock, or the risk-free interest rate. o The compensation cost is recognized as an expense over the period in which the related employee services are rendered. o An entity can choose whether to set up full compensation cost in the year of issuance or use the best available estimate of the stock options expected to be exercised. Reference: ASPE 3870.24-.51

Answer 15

Stock appreciation rights (ASPE)  Initial measurement: o The initial compensation expense is calculated as the amount that the market value of the shares of the enterprise’s stock covered by the grant exceeds the value of the rights specified. o The compensation cost is recorded as a liability.  Subsequent measurement: o Increases or decreases in the market value of those shares between the date of grant and the measurement date result in a change to compensation expense. o The compensation cost is recognized as an expense over the period in which the related employee services are rendered. o An entity can choose whether to set up full compensation cost in the year of issuance or use the best available estimate of the rights expected to be exercised. Reference: ASPE 3870.24-.51