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CFE Financial Reporting > Financial Reporting > Flashcards

Financial Reporting Flashcards

1
Q

ASPE 3064 : Intangible Assets > Development Costs

A

Mention both definition and Recognition
Steps:
1) General intangible asset definition:
A) Identifiable - separable and arises from contractual/legal rights
B) Control
C) Existence of future benefits

2) Recognition Criteria
A) Reliably measurable
B) Probable it will generate future economic benefits

3) Specific criteria for development costs (all met):
A) Technically feasible
B) Intention to complete it
C) Ability to use or sell it
D) Availability of adequate technical, financial and other resources to complete the development
E) Ability to reliably measure the expenditures attributed
F) Probability that future economic benefits will be generated

ASPE: Accounting Policy Choice is provided
Research costs are always expensed when incurred
Accounting policy choice to either capitalize or expense development costs

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2
Q

Goodwill and intangible assets - Amortization - Financial Reporting (ASPE) Core Level A

Definition and Recognition

A

Definition:

  1. Identifiable
  2. Control over the asset
  3. Future economic benefit

Recognition:

  1. Meet Definition
  2. Meet recognition criteria (future economic benefit + costs reliably measured)
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3
Q

ASPE 3051: Investments subject to significant influence

Method of accounting

A
  • Investments subject to significant influence can be accounted for using the equity or cost method
  • Investments without significant influence:
    1) Not quoted on an active market - accounted for using the cost method
    2) Quoted on an active market - accounted for at fair value
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4
Q

ASPE 3856: Impairment of Financial Instruments

A

Financial instruments tested for impairment at the end of EACH reporting period

Where impairment exists, reduce the carrying value to the HIGHEST of:

1) PV of cash flows expected from holding the asset
2) Net realizable value of the asset if sold
3) Amount entity expects to realize from exercising its right to collateral

Impairment can be reversed if asset subsequently recovers in value
ASPE 3856

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5
Q

Accounts Receivable - Financial Reporting (ASPE) Core Level A
ASPE 3856

A

Accounts Receivable (ASPE)

  • considered a financial instrument (financial asset) as it represents a contractual right to receive cash or another financial asset from another party
  • therefore, AR must be tested for impairment at the end of the reporting period if significant adverse changes during the period cast doubt on collectibility
  • if impaired, write down to the amount expected to be collected through the use of an allowance account
  • amount of the reduction shall be recognized as a bad debt expense in net income
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6
Q

Deductability of expenses : Tax

A

General limitation:
to be deductible, expense or outlay must be made or incurred by the taxpayer for the purpose of gaining, producing, or maintaining income, and be expected to generate income related to the taxpayer’s business or property

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7
Q

Tax: Common Business Expenses Disallowed

A

Common business expenses disallowed:

1) Amortization/impairment/accounting gains and losses (deducted as CCA)
2) Personal expenses and membership/club dues (esp. Golf club)
3) Charitable donations - deduction to determine taxable income for a corporation
4) Political contributions - limited tax credit available for an individual. Federal Accountability Act deems corporate political contributions to be illegal, resulting in no deduction or credit
5) Taxes, interest and penalties related to tax
6) Meals and entertainment (50% for business purposes; 100% deductible for remote or temporary work sites, or special events for employees)
7) Expenses re: issue or sale of shares and refinancing costs (deductible over 5 years)
8) Life insurance premiums (except where the policy has been assigned as collateral)
9) Unpaid amounts and unpaid remuneration (accrued salary which is unpaid 180 days after fiscal period is deemed not to have been incurred until actually paid)
10) carrying charges on vacant land (non-deductible portion added to ACB)
11) soft costs on construction of building (include interest, legal, accounting fees, insurance, property taxes; must be capitalized)

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8
Q

Revenue Recognition: IFRS 15 > Revenue from Contracts with customers

A

Steps in revenue model:

  1. Identify contract with customers
  2. Identify the separate performance obligations
  3. Determine the transaction price
  4. Allocate the transaction price to the performance obligation
  5. Recognize revenue as (and when) performance obligation is satisfied
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9
Q

Revenue Recognition : IFRS 15

CONTRACT

A

Contract: An agreement between two or more parties that creates legally enforceable rights and obligations.

  • Can be written, oral, or implied by customary practices
  • Contract does NOT exist if each party has the unilateral right to terminate the contract without compensating the other party. Wholly unperformed should meet BOTH the below criteria
    • Goods and Services not yet been transferred to the customer
    • Consideration has not yet been received

Contract Must meet ALL of the below criteria

  1. Both parties APPROVE contract and are committed to perform their obligations
  2. Can identify each party’s rights
  3. Can identify payment terms
  4. Commercial substance exists
  5. Collection is probable (ability and intention to pay when due)

Criteria not met but consideration received - Recognize when EITHER of following has occurred:

  1. No remaining obligation to transfer goods or services (substantially all goods/services have been received) and it’s nonrefundable.
  2. Contract terminated and consideration received is non-refundable.

Unearned Revenue: Record as a liability until earned.

Combination Contracts: Account as single if ANY of the following are met:

  1. Contracts negotiated as a package with a single commercial objective.
  2. Amount of consideration to b paid in one contract is dependent on price or performance of another contract.
  3. Goods or services (all or some) are part of a single performance obligation
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10
Q

Revenue Recognition : IFRS 15

Step 1: Identify the contract with the customer

A

Change in the scope or price that is approved by both parties aka change order, amendment, variation.

Modification as a separate contract if both are present:

  • Scope of the contract increases (additional goods that are distinct)
  • Price of contract increases by stand alone price to reflect circumstances of particular contract

If no separate contact

  1. Terminate existing contract and create a new one if remaining goods and services are distinct from goods and services transferred on or before modification. Allocation will be sum of unearned revenue from old contract + consideration from modification.
  2. As Part of existing contract
  3. Combination of above
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11
Q

Revenue Recognition : IFRS 15

Step 2: Identify the separate performance obligations

A

Performance Obligations is a promise to transfer to the customer either:

  1. Goods or services that is distinct
  2. A series of goods orservices that are substantially the same and that have the same pattern of transfer to the customer

Goods or services are distinct if BOTH of the following criteria are met:

  1. Customer can benefit from the goods or services on its own or with other readily available reources
  2. Entity’s promise to transfer goods or services to the customer is separately identifiable from other promises in the contract.
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12
Q

Inventory IAS 2

Definition

A

Inventories are assets:

(a) Held for sale in the ordinary course of business;
(b) In the process of production for such sale; or
(c) In the form of materials or supplies to be consumed in the production process or in the rendering of services.

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13
Q

Inventory

IAS 2.9 - ASPE 3031

Measurement - Lower of cost and NRV

A

As per IAS 2.9, inventories should be measured at the lower of:
1. Cost
2. Net Realizable Value
IAS 2 Inventories, paragraph 9, states, “inventories shall be measured at the lower of the cost and net realisable value,” and

  • paragraph 10 states, “the cost of inventories shall comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.”
  • ASPE 3031 Inventories should be consulted to determine the measurement of inventory.*
  • ASPE 3031 requires that inventory be measured at the lower of cost and net realizable value (NRV). NRV is the estimated selling price in the ordinary sale of the inventory. NRV = Proceeds less costs of completion and selling costs.*
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14
Q

Inventory Write Down JE

A

Dr. Cost of Goods Sold XXXXX

(not inventory write down expense)

Cr. Inventory XXXXX

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15
Q

Inventory

(ASPE IFRS converged)

Inclusions in costs of inventory

A
  1. Costs of Purchase
  2. Purchase price
  3. Import duties
  4. Other taxes
  5. Transport
  6. Handling and other costs directly attributable to the acquisition
  7. Net of trade discounts
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16
Q

PPE - OUT OFSCOPE

IAS 16 (PPE), IFRS 6 (mineral resources), ASPE 3031 (PPE) ASPE 3110 (ARO)

A

IAS 16 does not apply to the below:

  1. PPE classified as HFS
  2. Biological Assets other than bearer plants
  3. Recognition and Measurement (R&M) of exploration and evaluation assets (mineral reserves)
  4. Non-Regenerative assets such as Minerals, oils, natural gas,etc.

IAS 16 DOES apply to:

  1. PPE used to develop or maintain assets described above
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17
Q

PPE IAS 16 (Definition and Recognition)

A

Defitnition: PPE are tangible assets that are

  1. used in the production or supply of goods and services, for rental to others, and for administrative purposes.
  2. And are expected to be used for more than one period.

AND

Recognition: Record as PPE if

  1. It is probable that future economic benefit*FEB will flow to the entity AND
  2. The cost of the item can be reliably measured*REM

*

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18
Q

PPE IAS 16 (outliers)

A
  • Spareparts, servicing and standby equipement should be classified as PPE IF they meet the Def&Rec. If no, then expense them
  • For Major inspections (aircraft etc) capitalize if above criteria are met.
  • PPE acquired for safety or environmental reasons - CAPITALIZE if necessary to entity to obtain future economic benefit.
  • Subsequent costs: Capitalize if they meet Rec. If no, expense it.
    • Major inspection for faults (aircraft) may be required . Capitalize if Rec. Criteria are met.
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19
Q

PPE IAS 16

Elements of Cost - Initial measurement

(Inclusions and Exclusions)

A

Purchase price + import duties + related taxes - trade discounts

Inclusions: Any costs directly attributable to bringing the asset to the location and condition for intended use such as

  • Employee benefits arising directly from construction or acquisition
  • Site preparation
  • Initial delivery and handling costs
  • Testing for functioning less revene from sale of samples produced while testing
  • Professional Fees
  • Initial estimate of costs of dismantling and site restoration (ARO - Accretion expense)

Exclusions:

Opening new facility , introducing new product, admin and general OH, initial operating losses, relocation of company’s operations expense.

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20
Q

PPE IAS 16

Self-Constructed Asset

(same method for Bearer plant)

A

Cost: Purchase price + import duties + related taxes - trade discounts ( +Others, same as PPE)

  • Don’t include internal profits in cost
  • Don’t include abnormal wastage of DM, DL and other resources - expense them.
  • Capitalize Interest

Payment by no-interest or low interest loan: Discount purchase price to determine cost

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21
Q

PPE IAS 16

Acquisiton by Non-Monetary asset or Combination of Non-Monetary and Monetary asset

A

Measure Cost at FV. If the entity can reliably measure the FV of either the asset received or the asset given up, use the FV of the asset given up.

If FV of the asset received is more clearly evident, use it instead.

Exception to the FV measurement if the exchange transaction lacks commercial substance, or the FV of neither the asset transferred or the asset received can be received is reliably measurable, measure the cost of the asset received at the carrying value of the asset given up.

Commercial Substance: Commercial substance exists if:

  1. ConfiguRATion (risk, amount, timing) of the asset given up differes from the asset received.
  2. Entity specific value of the portion of entity’s operation varies as a result of the exchange
  3. Difference in either of the above factors is significant relative to the FV of the asset exchanged.

Capitalization of the carrying costs of the asset ceases when the asset is substantially complete or ready for use.

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22
Q

PPE IAS 16

Subsequent measurement

A

Subsequent measurement can be done using either 1 . Cost model or 2. Revaluation model

Cost Model: Carried at cost less accumulated depreciation and impairment losses

Revaluation model: For PPE whose FV can be reliably measured, carried at FV on the date of revaluation less any subsequent accumulated depreciation and impairment losses.

Notes:

  1. Policy should be applied to entire class of assets
  2. REvaluation should be done regularly (3-5 years) to ensure that the difference between FV and carrying value is not material
  3. All items of the same class are revalued at the same time
  4. Surplus or deficit should be recognized (JEs should be shown)
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23
Q

PPE IAS 16

Subsequent measurement : Revaluation surplus/deficit JE

A

REVALUATION SURPLUS

Dr PPE00

Cr. OCI (to the amount of previous deficit recognized)

Cr. Gain on revaluation

REVALUATION LOSS

Dr. Loss on revaluation

Dr OCI (to the extent of previous gain if recognized)

Cr. PPE

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24
Q

PPE IAS 16

Depreciation General notes

A
  1. Each part of the asset with significant cost depreciated seperately (e.g aircraft)
  2. Depreciation starts when asset is available for use
  3. Depreciation ceases when asset is HFS or derecognized
  4. Depreciation does not cease when asset is idle or is retired from use.
  5. Residual value should be reviewed at least annually. Any changes are accounted for prospectively as changes in estimates.
  6. If residual value> carrying amount, do not depreciate any further

Depreciation Methods

  1. Straight Line : Smooths income
  2. Productive Output: Good Matching
  3. Diminishing Balance: Smooths total expense when considering depreciation and repairs and maintenance, Assumes that newer assets produce more benefits up front and require less repairs.
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25
Q

Intangible Asset

IAS 38, SIC 32 (website costs), ASPE 3064

A

Intangible assets: Identifiable non-monetary asset without physical substance.

Should only be recognized if definition and recognition critera are met.

Key characteristics from definition:

  1. Identifiable: Asset meet this criteria when it is
    a. Separable: Able to be sold or transferred on its own
    b. Arising from legal or contractual rights
  2. Control : Control arises from being able to obtain future economic benefit from the resource or restrict access to those resources.
  3. Future Economic benefit

Recognize if:

  1. Future economic benefit is probable
  2. Costs can be reliably measured.

Costs: purchase price + duties + taxes less any discounts PLUS directly attributable costs of preparing the asset for its intended use.

Directly attributable costs: employee benefits + professional fees to get the asset to its working condition + testing if the asset is functioning properly.

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26
Q

Intangible Asset

Inclusions to Development costs

A

Development expenditures are those that are incurred after the research phase. Examples include:

  • the design, construction, and testing of pre-production or pre-use prototypes and models
  • the design of tools, jigs, moulds, and dies involving new technology
  • the design, construction, and operation of a pilot plant that is not of a scale economically feasible for commercial production
  • the design, construction, and testing of a chosen alternative for new or improved materials, devices, products, processes, systems, or services

In addition, an entity may defer directly attributable costs that were necessary to generate the intangible. Examples include:

  • costs of materials and services used or consumed in generating the intangible asset
  • costs of employee benefits (as defined in IAS 19 Employee Benefits) arising from the generation of the intangible asset
  • fees to register a legal right
  • amortization of patents and licences that are used to generate the intangible asset

NOTE: Proprietary rights — Purchased proprietary rights are appropriate to capitalize; however, these would meet the definition of a separately acquired intangible with an indefinite life and should be assessed for impairment on an annual basis or if there are indications of impairment.

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27
Q

Intangible Asset

Ineligible Development costs

A

In addition to research expenditures, the following costs are not eligible to be deferred as development costs:

  • selling, administrative, and other general overhead expenditure unless this expenditure can be directly attributed to preparing the asset for use
  • identified inefficiencies and initial operating losses incurred before the asset achieves planned performance
  • expenditure on training staff to operate the asset

It is important to note that expenditures that were incurred prior to the deferral criteria being met may not be retroactively deferred (that is, they must remain expensed). In addition, expenditures can only be deferred to the extent that the costs can be recovered from future net cash flows generated from the intangible asset.

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28
Q

Notes Receivable

Collection period more than 1 year

A
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29
Q

Notes Receivable

Collection period more than 1 year

A
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30
Q

Accounts REceivable / Financial Asset

IFRS 9

Amortized cost

A

AR is a financial asset that is measured at amortized cost, per paragraph 4.1.2 in IFRS 9:

  • A financial asset shall be measured at amortised cost if both of the following conditions are met:*
  • (a) the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows and*
  • (b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.*
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31
Q

Financial asset Categories

A
  1. Amortized cost
  2. FVOCI
  3. FVTPL
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32
Q

Financial assets Classification Basis

A

Financial assets are classified based on BOTH the following

  1. Entity’s business model for managing financial asses
  2. Contractual cash flow characteristics of the financial asset
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33
Q

Financial Asset classification at Amortized cost conditions

A
  • A financial asset shall be measured at amortized cost if both of the following conditions are met:*
  • (a) the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows and*
  • (b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.*
  • Debt: Bonds that are expected to be held to maturity (but not required), AR, term deposits etc*
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34
Q

Financial asset Designated as FVOCI conditions

A
  • A financial asset to be designated as FVOCI both of the following conditions are met:*
  • (a) the financial asset is held within a business model whose objective is both to hold financial assets in order to collect contractual cash flows and selling financial assets*
  • AND*
  • (b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.*
  • Examples:*

Debt instruments: Investment in corporate or govt bonds expected to be sold before maturity

Equity: Can make irrevocable selection to be designated as FVOCI, they will otherwise be FVTPL

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35
Q

Financial asset Designated as FVTPL conditions

A
  1. Should not be classified as amortized cost or FVOCI
  2. Can also make irrevocable designation at the initial recognition to be designated as FVTPL if doing so enables or significantly reduces measurement inconsistencies

Examples:

Equity: shares in public companies not designated as FVOCI

Derivatives not designated as hedges

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36
Q

Measuring credit losses for financial assets (how)

A

An entity should measure credit losses of a financial asset in a way that reflects:

  1. Unbiased and probability weighted amount determined by evaluation of a range of possible outcomes
  2. TVM
  3. Reasonable and supportable information acquired without undue cost or effort at the reporting date about past events, current conditions and forecasts and future economic conditions
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37
Q

Hedge Accounting criteria

A

Per IFRS 9 Chapter 6.5, hedge accounting may only be used if all of the following criteria are met, as summarized below

  1. The hedging relationship must consist of an eligible hedged item and an eligible hedging instrument.
  2. At the inception of the hedge, the hedging relationship is formally designated and the hedging relationship and the entity’s risk management objective and strategy for undertaking the hedge are documented. This includes documentation of:
  • the hedging relationship
  • the objective for undertaking the hedge
  • the hedged item and the hedging instrument
  • how hedged effectiveness will be assessed
  1. The following three effectiveness requirements are met:
  • an economic relationship exists between the hedged item and the hedging instrument
  • credit risk does not dominate the change in value
  • the hedge ratio 1 is the same for both of the following:

o the hedging relationship

o the quantity of the hedged item that the entity actually hedges and the quantity of the hedging instrument

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38
Q

Forward Contract new accounts

A
  • due to broker — a payable to the broker
  • due from broker — a receivable from the broker

The other side of the contract will be fixed at the forward contract rate.

Over the term of the contract, the account that varies with exchange rates is updated to the forward rate until the settlement date, at which time this account is updated to the spot rate on the settlement date.

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39
Q

Forward contract components

A

Fixed Variable

Payable D2B D4B

Receivable D4B D2B

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40
Q

Leases

IFRS 16

Lessee

A

IFRS 16 Leases requires leases be recognized as an asset with a related lease obligation. The asset represents a right-of-use (ROU) asset for a period of time and the obligation represents the payments required under the lease agreement.

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41
Q

Leases

IFRS 16

Initial measurement

A

The lease liability is initially measured at the present value of all the future payments. The discount rate used to arrive at the present value is the interest rate implicit in the lease, if it is readily determinable; if it is not, the discount rate is the entity’s incremental borrowing rate.

Liability @ PV of all future payments

Discount rate @ Interest implicit else incremental borrowing rate

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42
Q

Leases

IFRS 16

Initial measurement (variable payments)

A

Include in lease liability calcultion if based on an index or rate in effect at the commencement of the lease.

All other variable payments are expensed.

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43
Q

Leases

IFRS 16

BPO

A

Include in lease calculation of Leasee is expected to pay the BPO

44
Q

Leases

IFRS 16

Rate Implicit

A

Rate implicit is when the FV of leased asset = PV of minimum lease payments + PV of unguaranteed residual value

45
Q

IFRS 16 Leases

Subsequent measuremet model

A

The ROU asset can be subsequently measured using the cost model or the revaluation model. If the ROU asset qualifies as an investment property, the fair value model may also be used

46
Q

Leases

IFRS 16 ROU depreciation

A

Generally, the ROU asset is depreciated over the lesser of:

  • the lease term
  • the asset’s useful life

If there is reasonable certainty that the lessee will obtain ownership by the end of the lease term (for example, if there is a BPO), then the asset must be depreciated over the useful life of the asset.

47
Q

Leases

IFRS 16 ROU depreciation

A

Guaranteed residual (cash outflow) value NOT EQUAL TO Residual value (cash inflow) for depreciation

48
Q

IFRS 16 Leases

Conditions for expensing lease payments

A

If the lease is a short term lease of one year or less, or if the leased asset is of low value, the company may elect to expense lease payments on either a straight line or other systematic basis over the term of the lease. The election is considered for each individual lease.

A leased asset is of low value only if ALL of the below apply:

  1. The asset is of low value when it is new.
  2. The lessee can benefit from the use of the asset either on its own or along with other readily available resources.
  3. The lease asset is not highly dependent or highly integrated with other assets.
49
Q

IFRS 16 Lease

Derecognition JE

  1. without GRA
  2. With GRA
A

Without GRA

Dr Accumulated Dep Cr ROU asset

With GRA

  1. Dr Accumulated Dep, Cr. ROU asset
  2. Dr Lease liability DR/CR Gain-Loss on lease derecognition Cr. Cash
50
Q

Leases

IFRS 16

Finance lease criteria

A

Finance lease - lease that transfers substantially all of the risks and rewards of the ownership of the leased asset.

Primary criteria - meet ANY ONE

  1. Transfer of title/ BPO exists
  2. Lease term is major part of the economic life of the asset (IFRS - judgement. ASPR>_75%)
  3. PV of lease payments amounts to substantially all of the FV of the leased asset
  4. The leased asset is so specialized that only the lessee will be able to use it without majpr modifications.

Secondary factors

  1. Cost of Cancellation: If the lessee can cancel the lease, the cost of cancelation for the lessor will be borne by the lessee.
  2. FV fluctuation : Gain or loss from the fluctuations in the FV of the residual accrue to the lessee
  3. Second period: Lessee has the ability to continue the lease for a second period of lease at a rent that is substantially lower than the market rate.
51
Q

IFRS 16

Finance lease

Journal entries with guaranteed residual value for Lessor

A

Include GRV in your PV calculation

Initiation date

Dr Lease receivable Cr LEase revenue >>> ( Both are R words)

Dr COGS CR Inventory (equipment) >>> to record reduction of asset and COGS

Dr Cash Cr Lease receivable >>> to record the cash received at initiation date, which reduces the receivable

Year end

Dr Lease receivable Cr Interest income >>> This is the interest on outstanding amount earned at YE causing the receivable to increase again.

52
Q

IFRS 16

Operating Lease criteria

A

IFRS 16 requires that the lease be recognized on a straight-line basis over the lease term or on some other systematic basis depending on use, irrespective of the timing of cash flows.

53
Q

IFRS 16

Operating lease

JE for lessor

A

Initiation date:

Dr Cash Cr Deferred lease revenue >>>To reognize cash received.

Dr Lease equipment Cr Inventory>>> To recognize movement from inventory to lease equipment

Year end

Dr Deferred lease revenue

53
Q

IFRS 16

Operating lease

JE for lessor

A

Initiation date

Dr Cash Cr Deferred lease revenue >>>To reognize cash received.

Dr Lease equipment Cr Inventory>>> To recognize movement from inventory to lease equipment

Year end

Dr Deferred lease revenue Cr Lease revenue >>> to recognize as income

Dr Depreciation expense Cr Accumulated Depreciation >>> To record depreciation of leased equipment

54
Q

IFRS 16

Derecognition ( Lessee returns the asset)

A

If lessee returns the asset, a gain/loss may occur.

FV> previously expected residual = gain on derecognition in SCI (P&L)

FVNOT guaranteed = loss on derecognition in SCI

FV< previously expected residual and value guaranteed = neither gain nor loss, 3rd party guarantor is called upon to make up the difference.

55
Q

Government Assistance

IAS 20 ASPE 3800

Recognition

A

Grants are recognized when reasonable assurance exists that:

 the entity will comply with the conditions of the grant

 the grant will be received

Other:

If a grant does not meet the first criterion above, it is recorded as a liability (deferred government grant). The liability is reduced as the conditions are met (or as there is reasonable assurance that they will be met).

If received and costs were incurred in a previous period, recognize it in the period it becomes receivable.

56
Q

Government Assistance

IAS 20 ASPE 3800

Presentation - Grants related to income

A

Presentation

A grant relating to income may be presented in one of two ways:

  • separately as “other income”; or
  • deducted from the related expense (a credit to the expense account)

Other income JE - Final movement Dr Deferred grant revenue Cr Other income

Related expense: Dr Deferred grant revenue Cr Salary exp (reduced by the amount of grant recognized)

57
Q

Government Assistance

IAS 20 ASPE 3800

Presentation - Grants related to assets

A

Presentation

A grant relating to assets may be presented in one of two ways:

• as deferred income (a liability), and brought into income over the life of the asset as depreciation is incurred

In the case of a non-depreciable asset, the grant is likely to carry conditions with it. The grant would be recognized over the period in which those conditions are met.

• deducted from the asset’s carrying amount

58
Q

Government Grant in kind

recognition

A

A government may contribute land or other resources.

IFRS : Entity has the option to recognize the grant at fair value or at a nominal amount.

ASPE: record at FV, no option to record at nominal value

59
Q

Government Grant - Disclosures

A
  • method of presentation
  • nature and extent of amounts recognized and benefits received
  • unfulfilled conditions and outstanding contingencies
60
Q

ASPE Intangible assets definition

A

Intangible assets definition

  1. General intangible asset definition:
    A) Identifiable - separable and arises from contractual/legal rights
    B) Control
    C) Existence of future benefits

ICE ICE baby! ;)

61
Q

Non-Current Assets Held for Sale - what is it?

Discontinued operation - what it is?

IFRS

A

A non-current asset held for sale is one that will have its carrying value recovered through a sale transaction rather than through continuing use.

A discontinued operation is a component of an entity that either has been disposed of or is classified as held for sale

62
Q

Held for sale

IFRS Classification

A

Per IFRS 5.7, in order to be considered held for sale (HFS), a non-current asset must meet the following conditions:

 be available for immediate sale in its present condition

 terms of sale must be usual and customary

 sale must be highly probable:

o management must be committed

o has initiated an active program to locate a buyer

o must be actively marketed for sale at a reasonable price

o sale should be expected to be completed within one year

o unlikely significant changes to the plan will be made

63
Q

Non-current assets held for sale (HFS)

Measurement

A

 measured at lower of carrying value and fair value less costs to sell.

o loss recognized in income

 depreciation ceases once classified as HFS

 if fair value less costs to sell subsequently increases write-up to extent of previous impairment losses

o gain recognized

64
Q

Non-current assets held for sale (HFS)

Presentation

A

Presented as current assets separate from other assets in the statement of financial position.

65
Q

Discontinued Operations

IFRS

Classification and criteria

A

Discontinued Operation is a component of an entity that either has been disposed of or is classified as HFS (refer to non-current assets HFS) and meets one of the following criteria:

  • o represents a separate major line of business or geographical area
  • o is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area
  • o is a subsidiary acquired exclusively to resell

 A component of an entity comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity.

66
Q

Discontinued Operations

IFRS

Measurement

A

A discontinued Operation’s non current assets are presented separately from other assets on the statement of financial position. Additionally, a discontinued operation may have liabilities wich are also presented separately from other liabilities

Measurement is considered at the component level and not at the individual asset level.

67
Q

HFS - ASPE

Classification

A

Non-current HFS assets are classified as non-current on the balance sheet if the assets are not sold prior to the completion of the financial statements. If the non-current assets are sold prior to the completion of the financial statements, then under ASPE, they are classified as current on the balance sheet.

68
Q

Contingent liability

IFRS 37

A

Contingent liability: a potential liability resulting from a past event for which a future independent event will determine
if an outflow of economic benefits is required.

  1. Potential liability arising from past events
  2. Probable outflow of resources
  3. Reliable estimate of probable outflow of resources
69
Q

IFRS: Foreign Currency Transactions

Disclosures

A

Disclosure

 entity’s functional currency

 amount of foreign exchange (FX) gain/loss in the income statement

 if a change in the functional currency: nature and rationale

70
Q

Significant influence

IFRS

A

IFRS 28.5 28.6

“Significant influence” is when an entity is able to participate in and influence financial and operating policy decisions of an investee, but is not able to control the decisions without the help of others.

An entity is generally considered to have significant influence if it holds between 20% and 50% of the voting shares of the company. However, other factors can contribute to the entity having significant influence, including:

  • representation on the board of directors
  • participation in policy-making processes, including decisions about dividends or other distributions
  • material transactions between the investor and the associate
  • interchange of managerial personnel
  • provision of essential technical information
71
Q

Joint Arrangement IFRS

A

IAS 28.3 (definitions)

A joint arrangement is an arrangement of which two or more parties have joint control.

Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

72
Q

IAS 28: Equity method Measurement

A

Associates and entities under joint control are accounted for using the equity method.

(JC = Equity)

  1. Initially recognized at cost
  2. Subsequent measurement:
     Add: equity income for the period
     Deduct: dividends received from associate
    during the period

Amount of equity income =

Associate’s net income
× Ownership %
= Share of associate’s income
+/– FV differential amortization, net of tax
+ Realized intercompany profits/gains (or – losses) from prior year, net of tax
__ Unrealized intercompany p_rofits/gains (or + losses) in current year, net of tax Equity income

73
Q

Business Combinations

A

Business combinations are covered in IFRS 3 Business Combinations and refer to any event where one entity obtains control over another entity. Business combinations generally happen in two ways:

  • purchase of assets of another entity
  • purchase of shares of another entity
73
Q

Business Combinations

A

Business combinations are covered in IFRS 3 Business Combinations and refer to any event where one entity obtains control over another entity. Business combinations generally happen in two ways:

  • purchase of assets of another entity
  • purchase of shares of another entity
74
Q

Assessing control

IFRS 10 B

A

B2 To determine whether it controls an investee an investor shall assess whether it has all the following:

(a) power over the investee;
(b) exposure, or rights, to variable returns from its involvement with the investee; and
(c) the ability to use its power over the investee to affect the amount of the investor’s returns.

B3 Consideration of the following factors may assist in making that determination:

(a) the purpose and design of the investee (see paragraphs B5–B8);
(b) what the relevant activities are and how decisions about those activities are made (see paragraphs B11–B13);
(c) whether the rights of the investor give it the current ability to direct the relevant activities (see paragraphs B14–B54);
(d) whether the investor is exposed, or has rights, to variable returns from its involvement with the investee (see paragraphs B55–B57); and
(e) whether the investor has the ability to use its power over the investee to affect the amount of the investor’s returns (see paragraphs B58–B72).

B4 When assessing control of an investee, an investor shall consider the nature of its relationship with other parties (see paragraphs B73–B75)

75
Q

What is goodwill?

A

goodwill is the difference between the consideration given up and the FV of all the identifiable net assets received. goodwill is It is the excess of the consideration paid over the FV of the identifiable net assets acquired.

76
Q

Business Combinations - IFRS

Intercompany transactions

A

Intercompany Transactions

Intercompany receivables and payables may exist at acquisition due to transactions between the parent and subsidiary prior to acquisition.

• These should be eliminated upon consolidation.

The parent may also own a portion of the subsidiary’s preferred shares.

  • The ownership in preferred shares should be eliminated upon consolidation.
  • Any dividends payable / receivable should be eliminated upon consolidation.
  • The preferred shares should be allocated to the NCI.

The parent and subsidiary are considered one economic entity in the consolidation; therefore, an entity cannot owe itself something. In addition, it cannot own preferred shares in itself.

77
Q

Elimination Entry

Consolidations

A

The adjustments referred to are posted through elimination entries. These entries are similar to journal entries in that the debits must equal the credits. However, they are different in that they are only used to prepare the consolidation; they are never posted to the general ledger.

78
Q

Business Combinations > Definition

IFRS 3

A

Definition of Business Combination:

” A transaction or other event in which an acquirer obtains control of one or more businesses.

  • = Must be a business
  • =Must obtain control

(same definition under ASPE and IFRS)

BUSINESS: IFRS 3: “An integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing goods or services to customers, generating investment income (such as dividends or interest) or generating other income from ordinary activities.”

CONTROL: (IFRS 10) a. Power over investee b. Exposure /rights to variable returns c. Ability to use power over investee to affect the amount of the returns.

79
Q

Changes in Accounting Estimate

A

A change in estimate is a result of new information that was not available at the statement of financial position date being available at a later date. A change in estimate is not the subsequent identification of an error that should have been identified originally.

Required disclosures:

  • the nature and amount of the change in estimate that affects the current period, or is expected to have an effect on future periods
  • if it is not possible to estimate the effect on future periods, disclosure of that fact
80
Q

Change in Accounting Policy

Conditions and IAS Standard

A

Under IFRS, for a company to make an accounting policy change, it must be a result of one of two conditions:

  • The effect of the voluntary change provides reliable and more relevant information to the users of the financial statement.
  • The standard, or interpretation of the standard, requires the change (the change is required by a primary source of GAAP).

Per IAS 1 Presentation of Financial Statements, at a minimum, it is required that the previous year’s and the beginning balance of the previous year’s statements of financial position be amended to reflect the change. In addition, the previous year’s statement of comprehensive income, statement of changes of equity, and statement of cash flows would also have to be amended to reflect the new accounting policy.

81
Q

Change in Accounting Policy

Disclosures

A

Change in policy due to a new standard:

  1. Title of the standard or interpretation resulting in the change.
  2. Nature of the change in accounting policy.
  3. Description of transitional provisions
  4. For current and prior period impacted, amount of adjustment and the financial statement items adjusted.
  5. If retrospective treatment is not practical, an explanation of how the change in policy was applied.

Change in policy due to a Voluntary change in policy

  1. Nature of the change in accounting policy
  2. Reason why the change results in reliable and more relevant information
  3. For the current and each prior period impacted, the amount of the adjustment and the financial statement items adjusted
  4. If retrospective treatment is not practical, an explanation of how the change in policy was applied
82
Q

Correction of Errors

A

Errors in the financial statements must be corrected retrospectively to the period(s) in which the error occurred.

Required disclosures:

  • a description of the nature of the error
  • for each prior period presented, the amount of the error and each financial statement line item impacted
  • if retrospective restatement is not practical, a description of how the error has been corrected.

Cue: Description, amount, Account impacted (line item), how correction has been done

83
Q

Non - Monetary transaction ASPE

Definition

A

According to ASPE 3831, NMT are defined as exchanges of non-monetary assets, liabilities, or services for other non-monetary assets, liabilities, or services with little or no monetary consideration involved

  1. Exchanges of non-monetary assets, liabilities, or services
  2. For non-monetary assets, liabilities, or services
  3. With little or no monetary consideration involved
84
Q

Non Monetary transaction

ASPE Measurement

A

Transactions should be measured at the more reliably measurable of FV of the asset given up and the asset received unless:

  1. Transaction lacks commercial substance (R - A - T of cash flows and ent spec value of asset given up differs from ent. spec. value of the asset received and the difference is significant relative to FV of assets exchanged)
  2. The transaction is an exchange of a product or property HFS in the ordinary course of business for a product or property to be sold in the same line of business
  3. Neither FV of the asset received nor FV of the asset given up is reliably measurable; or
  4. The transaction is a non-monetary non-reciprocal transfer to owners
84
Q

Non-Monetary transaction

ASPE Measurement (3831)

A

ASPE 3831 .05, .06 and .11A

Transactions should be measured at the more reliably measurable of FV of the asset given up and the asset received unless any one of the below is met in which case, it should be measured at the cost of asset given up.

  1. Transaction lacks commercial substance (R - A - T of cash flows and ent spec value of asset given up differs from ent. spec. value of the asset received and the difference is significant relative to FV of assets exchanged)
  2. The transaction is an exchange of a product or property HFS in the ordinary course of business for a product or property to be sold in the same line of business
  3. Neither FV of the asset received nor FV of the asset given up is reliably measurable; or
  4. The transaction is a non-monetary non-reciprocal transfer to owner
85
Q

ARO

Search with decommissioning

IAS 37 (provisions, contingent liabilities and contingent assets)

A

IAS 37

PAR 14 : For a provision to be recognized, the below criteria have to be met:

  1. Present obligation due to past event
  2. Outflow of resources embodying economic benefit
  3. Reliably estimable

IAS 37.36 : Provision amount will be the best estimate of the expense to settle the obligation

IAS 37.45+47: Use PV calculation to get the most reliable estimate

86
Q

ARO

Search with decommissioning

IAS 37 (provisions, contingent liabilities and contingent assets)

A

IAS 37

PAR 14 : For a provision to be recognized, the below criteria have to be met:

  1. Present obligation due to past event (POPE)
  2. Outflow of resources embodying economic benefit (OReEB)
  3. Reliably estimable (REm)

IAS 37.36 : Provision amount will be the best estimate of the expense to settle the obligation

IAS 37.45+47: Use PV calculation to get the most reliable estimate

87
Q

ARO

ASPE 3110

Search : Accretion in ASPE

A

ASPE 3110

Par: 03a+ 05: Legal obligation > reasonable estimate possible, recognize now. Not possible, recognize later.

Par 09: Amount of ARO is based on a reasonable estimate on YE date

Par 14: PV technique is the best way to estimate ARO

88
Q

PPE IFRS - What is PPE

How is it measured?

A

IAS 16 PPE

Recognition (FEB & REALM)

7 The cost of an item of property, plant and equipment shall be recognized as an asset if, and only if:

(a) it is probable that future economic benefits associated with the item will flow to the entity; and
(b) the cost of the item can be measured reliably.

Measurement

16 The cost of an item of property, plant and equipment included:

(a) its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates. (Purp + duties etc)
(b) any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. ( location and condition)
(c) the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an entity incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period.

89
Q

PPE IFRS - PPE Directly attributable costs

A

17 Examples of directly attributable costs are:

(a) costs of employee benefits (as defined in IAS 19Employee Benefits ) arising directly from the construction or acquisition of the item of property, plant and equipment;
(b) costs of site preparation;
(c) initial delivery and handling costs;
(d) installation and assembly costs;
(e) costs of testing whether the asset is functioning properly (ie assessing whether the technical and physical performance of the asset is such that it is capable of being used in the production or supply of goods or services, for rental to others, or for administrative purposes); and
(f) professional fees.

90
Q

Lawsuit - IFRS

A

Apply criteria for provision

IAS 37.14 Recognition

  • 14 A provision shall be recognized when:*
  • (a) an entity has a present obligation (legal or constructive) as a result of a past event;*
  • (b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and*
  • (c) a reliable estimate can be made of the amount of the obligation.*
  • If these conditions are not met, no provision shall be recognized.*
91
Q

Financial Asset Definition - IFRS

A

IAS 32.11

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

A financial asset is any asset that is:

(a) cash;

b) an equity instrument of another entity;

(c) a contractual right:

(i) to receive cash or another financial asset from another entity; gold

(ii) to exchange financial assets or financial liabilities with another entity under conditions that are potentially favorable to the entity; gold

(d) a contract that will or may be settled in the entity’s own equity instruments and is: ….

92
Q

IFRS - Loan receivable criteria

A

IAS 32.11 for financial asset criteria: The asset is a contractual arrangement that gives rise to a financial asset for one party and a financial liability or equity to another entity..

IFRS 9. 4.1.2

A financial asset shall be measured at amortized cost if both of the following conditions are met:

(a) the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows and
(b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

93
Q

Note receivable audit procedures

A

Existence: Obtain confirmations from customers to confirm the amount and terms of the note receivable

Valuation: Recalculate the amortized cost to ensure that the note receivable is recorded at the correct amount.

Valuation: Inspect invoice of the sale to confirm the selling price

Cut-off: AND agree invoice to the shipping document to ensure sale was entered into during this period.

94
Q

Warranty - financial obligation

A

No, as warranties are outflow associated with them is delivery of goods and services and not of another financial asset or liability.

IAS 32.11: Financial Liability conditions not met

95
Q

Shares of another entity:

What is the criteria for what kind of asset they are?

How should they be measured?

A

Criteria for asset > Financial asset IAS 32.11

A financial asset is any asset that is:

(a) cash;

(b) an equity instrument of another entity;

(c) a contractual right:

Measurement: IFRS 4 4.1.4

4.1.4 A financial asset shall be measured at fair value through profit or loss unless it is measured at amortized cost in accordance with paragraph 4.1.2 or at fair value through other comprehensive income in accordance with paragraph 4.1.2A .

However, an entity may make an irrevocable election at initial recognition for particular investments in equity instruments that would otherwise be measured at fair value through profit or loss to present subsequent changes in fair value in other comprehensive income.

96
Q

Contract - what is the standard and the criteria?

A

IFRS 15.9

(a) the parties to the contract have approved the contract
(b) the entity can identify each party’s rights regarding the goods or services to be transferred
(c) the entity can identify the payment terms for the goods or services to be transferred
(d) the contract has commercial substance
(e) it is probable that the entity will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer

97
Q

Future obligations relating to revenue: Loyalty points

A

The condition set under IFRS 15.B40 is that in if there is a material right that is given to the customer by the loyalty points then a performance obligation might be accrued by the company.

98
Q

AUDIT:

OFSL risks - stating WHY a factor increases or decreases risk.

  1. Audited since inception 2. New loan is taken by the company 3. The company considers going public 4. significant expansion
A
  1. Audited since inception > long history gives assurance over its past performance.
  2. New loan is taken by the company > Pressure to overvalue its accounts to present better results.
  3. The company considers going public > Desire to inflate accounts to present better results
  4. Significant expansion> entice management to present better results to show successful execution of expansion
99
Q

Revenue recognition basic

IFRS 15 criteria

A

9 An entity shall account for a contract with a customer that is within the scope of this Standard only when all of the following criteria are met:

(a) the parties to the contract have approved the contract (in writing, orally or in accordance with other customary business practices) and are committed to perform their respective obligations;
(b) the entity can identify each party’s rights regarding the goods or services to be transferred;
(c) the entity can identify the payment terms for the goods or services to be transferred;
(d) the contract has commercial substance (ie the risk, timing or amount of the entity’s future cash flows is expected to change as a result of the contract); and
(e) it is probable that the entity will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer. In evaluating whether collectability of an amount of consideration is probable, an entity shall consider only the customer’s ability and intention to pay that amount of consideration when it is due.

100
Q

Impairment of assets IFRS

A

IAS 36

Three steps

  1. Individual asset or CGU (CGU : A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Definitions IAS 36.6)
  2. Assess for Impairment: IAS 36.12 internal/external/Dividend
  3. Compare carrying value to the recoverable amount - greater of
    1. FV less costs to sell
    2. Value in Use (PV of future cash flows)
      1. NEXT STEP: Carrying Value MINUS Recoverable amount
101
Q

IFRS Lease - How should it be accounted?

A

IFRS 16 leases should be consulted

IFRS 16.22, “At the commencement date, a lessee shall recognise a right-of-use asset and a lease liability.

Per IFRS 16.24: The cost of the right-of-use asset shall comprise:
(a) the amount of the initial measurement of the lease liability, as described in paragraph 26;

(b) any lease payments made at or before the commencement date, less any lease incentives received…

Per IFRS 16.32, since the purchase option is unlikely to be exercised, the ROU asset should be depreciated over the lease term.

n addition, per IFRS 16.36:
After the commencement date, a lessee shall measure the lease liability by:
(a) increasing the carrying amount to reflect interest on the lease liability;
(b) reducing the carrying amount to reflect the lease payments made;

102
Q

Revenue: IFRS Right of return

A

IFRS 15

A sale with a right of return is covered in IFRS 15.B21:
To account for the transfer of products with a right of return (and for some services that are provided subject to a refund), an entity shall recognize all of the following:
(a) revenue for the transferred products in the amount of consideration to which the entity expects to be entitled (therefore, revenue would not be recognized for the products expected to be returned);
(b) a refund liability; and
(c) an asset (and the corresponding adjustment to cost of sales) for its right to recover products from customers on settling the refund liability.

In assessing this, guidance on constraining variable consideration should be addressed. IFRS 15.57 states

(a) the amount of consideration is highly susceptible to factors outside the entity’s influence. Those factors may include volatility in a market, the judgment or actions of third parties, weather conditions and a high risk of obsolescence of the promised good or service.

(b) the uncertainty about the amount of consideration is not expected to be resolved for a long period of time.
(c) the entity’s experience (or other evidence) with similar types of contracts is limited, or that experience (or other evidence) has limited predictive value.

(d) the entity has a practice of either offering a broad range of price concessions or changing the payment terms and conditions of similar contracts in similar circumstances.
(e) the contract has a large number and broad range of possible consideration amounts.

CFE Financial Reporting (3 decks)

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