Financial Reporting

Question 1

Asset Criteria (ASPE)

Answer 1

1) Future Benefit
2) Control the benefit

3) Event caused benefit already occurred

Question 2

Inventory Valuation (ASPE)

Answer 2

• Value at the lower of:
  a) cost

b) NRV (selling price - selling cost)

Question 3

Inventory Costs valuation (ASPE)

Answer 3

Purchase + conversion + other costs to bring inventory to current location/condition
- Excluded: trade discount, rebates, storage, admin OH, selling costs

Question 4

Intangible Assets (internally generated; R&D) - what is expensed and what is capitalizable?

IAS 38

Answer 4

Expensed: research costs
Capitalize (6 criteria): development costs

1) Technically feasible
2) Intention to complete
3) Ability to use/sell
4) Adequate resources (technical, financial, and other)to complete
5) Reliably measure expenditures attributed
6) Probable future economic benefits to be generated

Question 5

Intangible Assets (Goodwill)
Amortization methods

Answer 5

If useful life can be determined - amortize over useful life (how to determine this? see below)
a) expected use of the asset

b) expected useful life of related assets
c) contractual, legal, regulatory provisions and other economic factors

Indefinite life - test for impairment

all should be reviewed annually

Question 6

Impairment of Financial Instruments (ASPE) - how to impair?

Answer 6

If impairment exists, reduce carrying value to the highest of:
a) PV of CF expected from holding asset

b) NRV
c) Amount entity expects to realize from exercising its right to collateral

• *must test at the end of each reporting period**
• *can be reversed if asset recovers values

Question 7

Revenue recognition criteria: consignment sales (ASPE)

Answer 7

Revenue cannot be recognized until either:

1) goods can no longer be returned OR
2) payments is made

Question 8

Revenue recognition criteria (ASPE)

Answer 8

1) performance has been achieved (risk and reward transferred // significant act has been performed)
2) considerations can be reliably measured
3) collection is reasonably assured

ASPE 3400.04-.06

Question 9

Revenue recognition - collectability criteria (ASPE)

Answer 9

Met - reasonable assurance ultimate collection will occur, even if cash receipt is deferred
Not met - if there’s uncertainty to the ultimate collection, revenue should not be recognized until cash is received

Question 10

Revenue recognition - performance criteria (ASPE)

Answer 10

Met if….

• persuasive evidence an arrangement exists
• delivery occurred
• service rendered
• price to buyer is fixed or determinable

Question 11

Lease (ASPE)

Answer 11

Operating vs. Capital
If one of the criteria is satisfied, it will be Capital lease:

1) Title transfer or bargain purchase
2) Lease term is major part of the asset’s economic life (>75%)
3) PV of minimum lease payment (>90%) of FV of asset

Question 12

Lease - differences between ASPE vs. IFRS

Answer 12

ASPE - if one of the criteria met, deemed capital lease (terminology - operating & capital)

IFRS - suggests factors (similar to ASPE’s factors) to consider in deciding whether the lease as finance lease vs. operating lease. (terminology - operating & finance)

Question 13

Lease - explain title transfer and bargain purchase

Answer 13

Title Transfer: reasonable assurance title of asset will transfer to lessee at the end of term

Bargain Purchase: purchase of asset likely to occur, where purchase price is below FMV at the end of the lease

Question 14

Cash Flow - Indirect Method - how does it work?

Answer 14

Net income
+/- non cash expenses
(ie. amortization, gain/loss on sale of assets)

+/- Δ in working capital
(ie. AR, inventory, AP, taxes)

Question 15

Cash Flow - what are the components of cash flow from investing activities?

Answer 15

PP&E
Financial Investment
Intangibles

Question 16

Cash Flow - what are the components of cash flow from financing activities

Answer 16

Demand loans
Term loans
Share capital
Dividends paid

Question 17

Cash Flow - what are examples of non-cash items?

Answer 17

Amortization
Gain/loss from investments
Provision for losses on AR
Stock dividend

Question 18

Revenue Recognition on Consignment Inventory (IFRS)

Answer 18

1) Significant risk and reward have been transferred
2) Cost can be measured reliably
3) Amount of revenue can be measured reliably
4) Control over goods or managerial involvement relinquished
5) Probable future economic benefits associated with the consignment sale will flow

Question 19

Development phase capitalization criteria (IFRS)

Answer 19

1) Technical feasibility
2) Intention to complete and use/sell it
3) Ability to use or sell
4) Probable future economic benefit
5) Technical, financial, and other resources available
6) Measurement of costs

Question 20

Intangible Asset identification and recognition (IFRS)

Answer 20

1) Identifiable
2) Control
3) Future Benefits
Can only be recognized if…
1) Future benefit will flow in
2) Cost of asset can be measured reliably

Question 21

How to determine if the transaction has Commercial Substance?

Answer 21

It has commercial substance,
1) Risk, timing, and amount of future cash flow of asset received differ significantly from the risk, timing and amount of the cash flow of the asset given up

OR

2) Entity specific value of the asset received is significantly different from the asset given up

Question 22

Non-monetary transactions

ASPE 3831

Answer 22

Non-monetary transaction is measured at the fair value of the asset given up or received - whichever one is deemed to be more reliable.
However, it is measured at carrying cost of asset given up if:

1) the transaction lacks commercial substance
2) fair value of neither asset can be reliably measured

Question 23

PPE – Betterments

ASPE 3061

Answer 23

PPE – Betterments (ASPE)
• A “betterment” enhances service potential (increase in physical output or service capacity, associated operating costs are lowered, useful life is extended, or quality of output is improved)

• If the expenditure can be classified as a betterment capitalize asset
• If the expenditure cannot be classified as a betterment expense as repair and maintenance

Question 24

Government grants, including non-monetary grants can be recognized when?

Answer 24

a) the entity will comply with the conditions attached to them
b) grants will be received

Question 25

How are capital assets purchased with government grants recognized

Answer 25

• deduction from the cost of the capital assets or set up as deferred income on B/S
• amortize on the same basis as depreciation

Question 26

Revenue Recognition (IFRS)

Answer 26

1. Identify the contract
2. Identify the performance obligations
3. Determine the transaction price
   Consider:
   - variable consideration (amount you will receive)
   - right of return (cannot recognize until return is not likely)
   - significant financing components (discount if more than one year)
   - non-cash consideration (measure at fair value of consideration received)
   - consideration payable to a customer (voucher, coupon or credit)
4. Allocate the transaction price
   
   • determine stand-alone price
5. Recognize revenue (single point over over a period of time)

IFRS 15