Financial Accounting

Question 1

What are the revenue recognition criterion? (ASPE)

Answer 1

1. Risks and rewards of ownership have transferred to the buyer.
2. Reasonable assurance exists that consideration will be received.
3. Consideration is reasonably measured.

Question 2

What section is revenue recognition under ASPE?

Answer 2

ASPE 3400 Revenue Recognition

Question 3

What section is inventory under ASPE?

Answer 3

ASPE 3031 Inventories

Question 4

Under ASPE, how to determine when inventory should be recorded?

Answer 4

When ownership is passed to the purchaser and asset is held for sale at that time of reporting.

Question 5

What section is used to determine expense or capitalization? (ASPE)

Answer 5

Property, Plant and Equipment

Question 6

What section is PPE under ASPE?

Answer 6

ASPE 3061 Property, Plant and Equipment

Question 7

What is a betterment? (ASPE)

Answer 7

Betterments are improvements to enhance the service potential of a PPE

Question 8

How are betterment treated? (ASPE)

Answer 8

Betterments costs are included in teh cost of the asset and the amount is capitalized over the extension life.

Question 9

How are repairs and how is it treated? (ASPE)

Answer 9

Repairs are costs incurred to maintain the service potential of a PPE and are expensed

Question 10

What are some examples of betterments? (ASPE)

Answer 10

• increase in the output or service capacity
• operating costs are lowered
• useful life is extended
• quality of output is improved

Question 11

What are separately identifiable components

Answer 11

When a sales transactions includes the physical unit and a service unit.

Question 12

How are separately identifiable components treated?

Answer 12

ASPE 3400, separate identifiable components are recorded separately at its stand-alone fair value.

Question 13

What costs can be capitalized? (ASPE)

Answer 13

Costs that should be capitalized include all directly attributable costs in addition to the purchase price, so it includes:

• shipping and import charges
• installation and calibration costs
• costs to the test the equipment

Question 14

What is an operating lease and how is it treated? (ASPE)

Answer 14

Operating lease is a lease in which the lessor does not transfer substantially all the benefits and risks incident to ownership of property.

Operating lease is recognized in expense over a straight line basis over the lease term.

Question 15

What section is leases under ASPE?

Answer 15

ASPE 3065 Leases

Question 16

What are the criterion to recognize a capital lease? How many criterion must be met? (ASPE)

Answer 16

1. Title transfer or bargain purchase option
2. The lease term is for the major part of the building’s economic life, 75%
3. The present value of the minimum lease payments amount to at least substantially all of the fair value of the building, 90% or more of the FV of the building.

• only need to met one criterion to be recognized as a capital lease

Question 17

What is a bargain purchase option?

Answer 17

Indication that the purchase o the asset is likely to occur at the end of the contract term.

Question 18

What is a bargain purchase option?

Answer 18

Indication that the purchase o the asset is likely to occur at the end of the contract term.

Question 19

How is an capital lease initially recognized?

Answer 19

Initial Recognition:
record an asset and the corresponding obligation at the lower of 
      * its FV and 
      * the present value 
        minimum lease 
        payments

Question 20

How is an capital lease subsequent measured? (ASPE)

Answer 20

Lease asset: recognize depreciation on the building under ASPE 3065.17 over the lesser of the lease term and the asset’s useful life

Lease obligation: must recognize a finance charge related to the obligation in each period during the lease term under ASPE 3065. Each year the lease obligation will be reduced by the payments made, offset by interest expense

Question 21

What discount rate is used for calculating present value of minimum lease payments?

Answer 21

The discount rate used by the lessee is the lower of the:

1. lessee’s rate for incremental borrowing and,
2. the interest rate implicit in the lease, if known