Financial Reporting

Question 1

Business Combination (IFRS)

Answer 1

Determine whether transaction is a business combination

Business combination = acquirer obtains control of 1 or more businesses

• Business:
  
  • Inputs
  • Processes applied to inputs that have the ability to contribute to the creation of outputs
  • Outputs
• Control, if all are met:
  
  • Power over investee
  • Exposure/rights to variable return
  • Ability to influence amount of return

Apply the acquisition method

1. Identify the acquirer
2. Determine the transaction date, date on which control obtained
3. Recognize and measure the identifiable assets acquried, the liabilities assumed and any NCI in the acquiree
   
   • Identifiable assets and liabilities must meet definition of asset and liability
   • Measure identifiable assets acquired and liabilities at acquisition-date FV
4. Recognize and measure goodwill or a gain from a bargain purchase

Question 2

Investments - Control (IFRS)

Answer 2

Control, if all are met:

• Power over investee
• Exposure/rights to variable return
• Ability to influence amount of return

Control = consolidation method

Consolidation method:
- Balance sheet:
- Identifiable assets & liabilities = 100% parent + 100% subsidiary + unamortized puchase price discrepancy
- Goodwill = (purchase price - net identifiable assets & liabilities) - impairment loss
- Non-controlling interest (present as a separate line in S/H’s equity) = NCI% * subsidiary’s net assets adjusted for
unamortized
- Eliminate interco balances & unrealized gains/losses arised post-acquisition
- Income statement:
- Revenue & expenses = 100% parent + 100% subsidiary + puchase price discrepancy amortization
- Eliminate post-acquisition interco transactions
- Non-controlling interest

Question 3

Investments - Significant Influence (IFRS)

Answer 3

Significant influence
- Between 20% and 50% ownership
- Other factors: BOD representation, participation in policy making processes, material interco transactions, interchange
of management personnel, provision of technical info

Significant influence = equity method

Equity method:
- Balance sheet (investment in xxx) = cost + % of NI/NL - dividend received
- Income statement (investment income/loss - xxx) = & of NI/NL +/- amortization of purchase price discrepancy
- Test for impairment at the end of each reporting period
Impairment loss = CV - recoverable amount (higher of FV less cost to sell and value in use)

Question 4

Investments - Joint Control (IFRS)

Answer 4

Joint control

• Unanimous consent
• Determine whether it is a:
  
  • Joint operation: parties that have joint control have rights to the assets and obligations for the liabilities
  • Joint venture: parties that have joint control have rights to the net assets of the arrangement

Joint venture = equity method
Joint operations = share of assets, liabilities, revenue, expenses

Equity method:
- Balance sheet (investment in xxx) = cost + % of NI/NL - dividend received
- Income statement (investment income/loss - xxx) = & of NI/NL +/- amortization of purchase price discrepancy
- Test for impairment at the end of each reporting period
Impairment loss = CV - recoverable amount (higher of FV less cost to sell and value in use)

Question 5

Investments - Financial Instrucments (IFRS)

Answer 5

Significant influence
- Between 20% and 50% ownership
- Other factors: BOD representation, participation in policy making processes, material interco transactions, interchange
of management personnel, provision of technical info

NO significant influence = financial instrument

Financial instrument
- Amortized cost:
- Financial assets held as part of a business model to collect contractural cash flows (= principal + interest)
- Initially measured at FV
- Transaction cost added to CV
- Subsequently amortized using effective interest method
- Test for impairment at the end of each reporting period
Impairment loss = discounted cash flow using ORIGINAL effective interest rate - CV
Impairment loss recognized in profit/loss
- FVTPL:
- Assets that do not meet amortized cost criteria
- Assets designated as FVTPL (designation is irrevocable)
- Initially measured at FV
- Transaction cost expensed immediately
- Subsequently adjusted to FV, changes in FV recognized in profit/loss
- No impairment as any impairment would be reflected in FV
- FVOCI:
- Equity investment: only allowed for investment that DO NOT qualify as held for trading
- Debt instruments: cash flows that are solely payments of principal and interest
- Initially measured at FV
- Transaction cost added to CV
- Subsequent measurement:
Equity investment not held for trading: adjust to FV, changes in FV recognized in OCI
Debt instruments: amortized cost using effective interest rate method
- Impairment:
Equity investment not held for trading: no impairment loss as any impairment would be reflected in FV
Debt instrument: cumulative loss transferred to profit/loss

Question 6

Investments - Investment Properties (IFRS)

Answer 6

Investment property:
- Property held by the owner or by the leasee as a right-of-use asset to earn rentals or for capital appreciation, or both
- Property held NOT to be used in the production/supply of goods/services or for admin pruposes, NOT for sale in the
ordinary course of business
- Recognized as an asset when:
- Probable future economic benefits will flow to the entity
- Cost can be measured reliably

Investment property

• Initially measured at cost
• Subsequently make policy choice to record at:
  
  • Cost less depreciation
  • FV with changes recorded in profit/loss

Question 7

Investments - Investment Entity (IFRS)

Answer 7

Investment entity

• Entity that:
  
  • Provides investment management services
  • Invests solely for returns from investment (cap appreciation, investment income, or both)
  • Measures and evaluates performance on FV basis

Investment entity

• DO NOT consolidate subsidiaries
• FVTPL - initially measured at at FV, subsequent changes in FV recognized in profit/loss

Question 8

Imapirment of Financial Assets (IFRS)

Answer 8

Determine whether the financial asset is impaired

• At each reporting date:
  
  • Assess whether credit risk increased significantly
  • Use the change in risk of default occurring over expected life of asset
  • Use information available without undue cost or effort
  • May assume no significant increase if credit risk is low
  • Consider TVM

Impairment loss - measurement:

• Amount of 12-month expected credit losses
• Amount of lifetime expected credit losses if credit risk has increased significantly since initial recognition

Question 9

Impairment of Goodwill (IFRS)

Answer 9

Test for impairment
- Annually, regardless of whether indication of impairment exists

Impairment test and write-down
1. Determine recoverable amount of the asset, equal to the HIGHER of:
- Value in use
= DCF from use and eventual disposal using pre-tax discount rate, exclude taxes and financing cash fows,
- FV less cost of disposal
Cost of disposal = legal costs, non-recoverable transaction taxes, cost of removing asset and direct incremental costs
to read the asset for sale
2. Compare recoverable amount to CV
Impaired = CV > recoverable amount
3. Determine whether impairment applies to a single asset or to a cash-generating unit with goodwill
Cash generating unit = smallest group of assets that generates cash flows independently from other assets or groups
of assets
4. Quantify impairment loss
Impairment loss = CV - recoverable amount
5. Record impairment loss in I/S
Recognize impairment to goodwill first, then to other assets
Goodwill impairment losses CANNOT be reversed

Question 10

Business Combination (ASPE)

Answer 10

Determine whether transaction is a business combination

Business combination = transaction/event in which acquirer obtains control of 1 or more businesses
- Business:
Intigrated set of activities and assets capable of being conducted and managed for the purpose of providing a return in
the form of dividends, lower costs or other economic benefits directly to investors or other owners, members or
participants
- Control:
- Greater than 50% ownership
- Other factors:
- Power to determine strategic, operating, investing and financing policies without co-operation of others
- Contractual arrangement providing control
- Commitment to ensure operations as designed

Apply the acquisition method

1. Identify the acquirer
2. Determine the transaction date, date on which control obtained
3. Recognize and measure the identifiable assets acquried, the liabilities assumed and any NCI in the acquiree
   
   • Identifiable assets and liabilities must meet definition of asset and liability
   • Measure identifiable assets acquired and liabilities at acquisition-date FV
4. Recognize and measure goodwill or a gain from a bargain purchase

Question 11

Investments - Control (ASPE)

Answer 11

Control

• Greater than 50% ownership
• Other factors:
  
  • Power to determine strategic, operating, investing and financing policies without co-operation of others
  • Contractual arrangement providing control
  • Commitment to ensure operations as designed

Control = POLICY CHOICE for all such investments to use consolidation or equity method or cost method

Consolidation method:
- Balance sheet:
- Identifiable assets & liabilities = 100% parent + 100% subsidiary + unamortized puchase price discrepancy
- Goodwill = (purchase price - net identifiable assets & liabilities) - impairment loss
- Non-controlling interest (present as a separate line in S/H’s equity) = NCI% * subsidiary’s net assets adjusted for
unamortized
- Eliminate interco balances & unrealized gains/losses arised post-acquisition
- Income statement:
- Revenue & expenses = 100% parent + 100% subsidiary + puchase price discrepancy amortization
- Eliminate post-acquisition interco transactions
- Non-controlling interest

Equity method:
- Balance sheet (investment in xxx) = cost + % of NI/NL - dividend received
- Income statement (investment income/loss - xxx) = & of NI/NL +/- amortization of purchase price discrepancy
- Test for impairment at the end of each reporting period
Impairment loss = CV - recoverable amount (higher of PV of future cash flows and amount realized from selling
investment)

Cost method:

• Balance sheet (investment in xxx) = cost
• Income statement: dividend/interest received/receivabe

Question 12

Investments - Significant Influence (ASPE)

Answer 12

Significant influence
- Between 20% and 50% ownership
- Other factors: BOD representation, participation in policy making processes, material interco transactions, interchange
of management personnel, provision of technical info

Significant influence = POLICY CHOICE for all such investments to use equity method or cost method
Equities quoted in ACTIVE MARKET = equity method or at its quoted amount, with changes recorded in net income

Equity method:
- Balance sheet (investment in xxx) = cost + % of NI/NL - dividend received
- Income statement (investment income/loss - xxx) = & of NI/NL +/- amortization of purchase price discrepancy
- Test for impairment at the end of each reporting period
Impairment loss = CV - recoverable amount (higher of PV of future cash flows and amount realized from selling
investment)

Cost method:

• Balance sheet (investment in xxx) = cost
• Income statement: dividend/interest received/receivabe

Question 13

Investments - Joint Control (ASPE)

Answer 13

Joint control
- Unanimous consent
- Determine whether it is a:
- Jointly controlled operations - use of assets and resources of the investors,
rather than the establishment of a separate structure
- Jointly controlled assets - joint control or ownership of 1+ assets dedicated to
purposes of joint arrangement where each investor may take a share of the
benefits and shares expenses incurred
- Jointly controlled enterprises - establishment of a corporation, partnership or
other structure in which each investor has an interest

Recognition
- Jointly controlled operation = assets it controls, liabilities it incurs, shares of
revenue and expenses
- Jointly controlled assets = share of jointly incurred assets/liabilities/revenue/
expenses
- Jointly controlled enterprise = POLICY CHOICE for all such investments -
equity method, cost method, or share of assets/liabilities/revenue/expenses

Question 14

Investments - Financial Instruments (ASPE)

Answer 14

Significant influence
- Between 20% and 50% ownership
- Other factors: BOD representation, participation in policy making processes, material interco transactions, interchange
of management personnel, provision of technical info

NO significant influence = financial instruments

Financial instruments
- Initially measured at FV
- Recognition of transaction cost depends on subsequent measurement:
Transaction cost added to CV if subsequently carried at cost
Transaction cost expensed if subsequently carried at FV
- Subsequent measurement:
Equity investment quoted in ACTIVE MARKET = carried at FV
Equity investment NOT quoted in active market = carried at cost, less impairment
Other instruments (e.g. debt) = amortized cost using effective interest rate method or straight-line method
- Impairment
Valued at the highest of PV of expected cash flow, selling price, amount realizable from collateral net of costs
Impairment loss = value - CV

Question 15

Investments - Investment Company (ASPE)

Answer 15

Investment Company
- Primary business activity is buying, holding and selling investments

Investment Company

• DO NOT consolidate subsidiaries
• FVTPL - initially measured at FV, subsequent changes in FV recognized in profit/loss

Question 16

Impairment of Financial Assets (ASPE)

Answer 16

Determine whether the financial asset is impaired
- At each reporting date:
- Asess whether any indicators exist that show asset may be impaired
E.g. significant financial difficulty of the customer or issuer; breach of
contract; enterprise granting a concession to the customer/issuer;
becoming probable that the customer/issuer will enter bankruptcy or
other financial reorg; disappearance of an active market due to the
issuer’s financial difficulties; significant adverse change in technology,
market, economy or legal environment; adverse national/local
economic/industry conditions indicate there is a decrease in the
estimated future cash flows from a group of financial assets since the
initial recognition although the decrease can’t yet be identified with the
individual financial assets in the group
- If so, evaluate if significant adverse change has occured during period in
expected timing or amount of future cash flows

Determine the impairment loss
- Reduce CV to the higher of:
- PV of cash flows expected from holding the investment, discounted using
current market rate
- Amount that could be realized by selling the asset at the B/S date
- Amount expected to be realized by excercising the right to any collateral,
net of losses
- CV may be reduced directly or through an allowance account, impairment loss
recognized in net income
- Impairment on financial assets may be reversed

Question 17

Impairment of Investments (ASPE)

Answer 17

Determine whether the financial asset is impaired
- At each reporting date:
- Asess whether any indicators exist that show asset may be impaired
E.g. significant financial difficulty of the customer or issuer; probable that
the customer/issuer will enter bankruptcy or other financial reorg;
disappearance of an active market due to the issuer’s financial
difficulties; significant adverse change in technology, market, economy
or legal environment; acquisition of an additional interest or sale of a
portion of an interest in an investee for consideration paid/received that
is less than the proportionate share of the CV of the interest in an
investee immediately before the acquisiton/sale; dilution in an
investor’s interest in an investee that indicates the expected amount
future cash flows from holding/selling the investment is less than the
CV of the investement immediately before the dilution
- If so, evaluate if significant adverse change has occured during period in
expected timing or amount of future cash flow

Determine the impairment loss
- Reduce CV to the higher of:
- PV of cash flows expected from holding the investment, discounted using
current market rate
- Amount that could be realized by selling the asset at the B/S date
- CV may be reduced directly or through an allowance account, impairment loss
recognized in net income
- Impairment on financial assets may be reversed

Question 18

Impairment of Goodwill (ASPE)

Answer 18

Test for impairment
- Whenever events or changes in circumstance indicate that CV of reporting unit may exceed FV

Events or changes in circumstances - definition criteria:

• Significant adverse change in legal factors or business climate
• Adverse action or assessment by regulator
• Unanticipated competition
• Loss of key personnel
• More likely than not expectation that all/significant portion of reporting unit will be sold/disposed of
• Testing for impairment of a significant asset group within a reporting unit

If event indicates, determine if impairment exists:
- Impaired = CV of reporting unit > FV
- Goodwill is only included in the CV of an asset group if it is or includes a
reporting unit
- Reporting unit = operating segment or component of entity to which
goodwill relates
- Goodwill impairment test occurs after tests of individual assets or asset groups
- When asset or asset group is impaired, impairment loss is recognized prior
to goodwill being tested for impairment

Quantify impairment loss

• Impairment loss = CV - FV
• Goodwill imapirment loss CANNOT be reversed

Question 19

Revenue Recognition (IFRS)

Answer 19

5-Step Process:
1. Identify the contract
Parties involved, each party’s right, payment terms, commerial substance, collection probable
2. Identify performance obligation(s)
Performance obligation = promise to transfer to the customer either:
- A distinct good/service
- Customer can benefit from the good/service
- Entity’s promise to transfer is separately identifiable from other promises in the contract
- A series of distinct goods/service that are substantially the same or have the same pattern of transfer to the
customer
- Each distinct good/service would meet criteria to be performance obligation satisfied over time
- Same method would be used for each distinct good/service to measure progress towards complete satisfaction
3. Determine the transaction price
4. Allocate the transaction price to each performance obligation
- Based on STAND-ALONE selling price
5. Recognize revenue when performance obligations have been satisfied
Performance obligation satisfied = control transferred to the customer
- Control:
- Ability to direct the use of asset
- Ability to prevent other entities from directing the use or obtain the benefits of the asset
- Whether there is any agreement to repurchase the asset
- Satisfied over time, if 1 is met:
- The customer simultaneously receives and consumes benefits
- Entity’s performance creates/enhances asset
- Entity’s performance doesn’t create an asset with alternative use to entity and entity has enforceable right to
payment for performance completed to date
Choose method that best measures progress overtime (output or input method)
- Satisfied at a point in time, if not over time, consider:
- Seller’s right to payment
- Legal title
- Physical possession
- Assumption of significant risk & reward of ownership
- Customer acceptance

Question 20

Revenue Recognition - Specicial Items (IFRS)

Answer 20

Right of return

• Recognize all of the following:
  
  • Revenue for transferred products in the amount expected (net of returns)
  • Refund liability
  • Asset for right to recover products (CV - expected costs to recover)
• Subsequently update for changed expectations

Customer option for additional goods & services
- Consider option as separate performance obligation if provides a material right that would not be received without the
contract
- Material right = the customer is essentially paying the entity in advance for future goods/services
- Customer option includes:
- Sales incentives
- Customer reward credits (royalty points)
- Contract renewal options
- Discount on future goods/services
- Allocate transaction price to performance obligations on relative stand-alone selling price
- If not directly observable, may estimate including discount available without excercising option and likelihood option
will be excercised

Consignment arrangement
- Entity delivers a product to another entity for sale to end customers
- Full payment typically only made when sale to end customer occurs, and if no sale occurs after a specified time, product
is returned
- Indicators of a consignment arrangement:
- Product controlled by entity until specified event occurs, e.g. sale to end customer or specified time period expires
- Entity able to require return of the product or transfer to 3rd party
- Dealer does not have unconditional obligation to pay for the product

Non-refundable upfront fees
- Assess whether the fee relates to the transfer of a promised good/service:
- Typically charged as part of compensation for costs incurred in setting up a contract, or to commit customers to a
long-term contract and fee deemed as advance payment for future goods/services and recognized when future
goods/services are provided
- Revenue recognition period may extend beyond initial contractual term if option to renew contract and option is a
material right
- If fee relates to the transfer of a promised good/service, may recognize as separate performance obligation

Bill and hold arrangements

• Entity bills a customer for product but entity retains physical possession until transferred to customer in the future
• Recognize revenue = customer obtains control, when:
  
  • Indicators of transfer of control met
  • Reasons for the arrangement is substantive (i.e. customer requested)
  • Product identified separately as belonging to the customer
  • Product currently ready for physical transfer to the customer
  • Entity cannot have ability to use product or direct to another customer

Revenue: gross or net

• Principal (gross basis): promises to provide the specified goods/serivces itself
  
  • Primary responsibility for providing goods/services or fulfilling the order
  • Bears inventory risk
  • Latitude in establishing prices
• Agent (net basis): arrange for those goods/services to be
  
  • Does not control the specified good/service before it is transferrred to the customer

Question 21

Warranties (IFRS)

Answer 21

Criteria to determine type of warranty:

• Customer doesn’t have the option to purchase the warranty separately
• The warranty doesn’t provide the customer with additional services

If both met = assurance-type warranty
If either/neither met = service-type warranty

Assurance-type warranty
- IAS 37: provisions, contingencies and asset retirement obligations

Service-type warranty
- IFRS 15: revenue recognition

Question 22

Revenue Recognition (ASPE)

Answer 22

Identify issue with timing of revenue recognition

Identify separate components

Assess criteria for revenue recognition:

• Collectibility
• Mesurable
• Performance:
  
  • Persuasive evidence of arrangement exists
  • Goods delivered / service rendered
  • Seller’s price is fixed/determinable

For sale of goods, performance achieved when:

• Significant risk & reward tranferred from seller to customer
• Seller has no continuous involvement or effective control

For sale of services and long-term contracts, performance determined user either:

• % of completion method
  
  • 1+ act
  • Recognize revenue proportionately to performance of each act
  • Straight-line basis if the number of acts over the term is indeterminate
  • Output or input method
  • Amounts billed is not appropriate basis of measurement
• Completed contract method, only appropriate when:
  
  • Execution of single act, or
  • Cannot reasonably estimate extent of progress toward completion

Other types of revenue

• Recognize when reasonable assurance exists regarding measurement and collectibility
  
  • Interest: on a time proportion basis
  • Royalties: as accrue, in accordance wth the terms
  • Dividends: when declared (i.e. when shareholder’s right to receive payment is established)

Bill and hold arrangements
- Assess criteria to determine whether revenue can be recognized when delivery has not occured

Upfront non-refundable fees/payments

• Even if non-refundable, typically are earned as goods/services are delivered/rendered
• Deferred and recognized systematically over the periods that the fees are earned

Question 23

Inventory (IFRS & ASPE)

No significant difference

Answer 23

Inventories are assets:

• Held for sale
• Used in the production to make such sale
• Materials or supplied consumed in the production process or in the rendering of services

Cost of inventory

• Cost of purchase (net of discounts & rebates, includes taxes & shipping)
• Cost of conversioin (DL, VOH, FOH)
• Other costs (non-production OH, design, interest)
• EXCLUDES abnormal wastage, storage costs, admin OH, selling cost

Valuation

• Record at lower of cost or NRV
  
  • NRV = selling price - estimated cost to complete - estimated cost to sell
• If CV higher than the value, write-down is required

Valuation methods

• Specific identification: unique items
• Average cost: items are interchangeable
• FIFO (LIFO not permitted)

Recognize as expense

• In the same period related revenue is recognized
• Write-downs are recognized as expense in the period occured

Question 24

Foreign Exchange - Transaction (IFRS & ASPE)

No significant difference

Answer 24

Transaction date
- Translated into presentation currency at spot rate

Period end date

• Adjust all foreign denominated monetary items to reflect exchange rate at period-end
• Non-monetary assets at cost NOT adjusted
• Non-monetary assets at FV at measurement date
• FX gains/losses recorded in net income

Settlement date

• Record settlement at spot rate
• FX gains/losses = settlement - CV of receivable/payable
• FX gains/losses recorded in net income

Question 25

Foreign Exchange - Translation (IFRS & ASPE)

No significant difference

Answer 25

Assess the type of foreign operations
- Integrated:
- Financially or operationally interdependent with the operating enterprise
- Exposure to FX rate changes is similar to the exposure that would exist had the transactions and activites of the foreign
operation been undertaken by the reporting enterprise
- Self-sustaining:
- Financially and operationally independent of the reporting enterprise
- Exposure to FX rate changes is limited to the reporting enterprise’s net investment in the foreign operation

Determine functional currency

Explain translation methods

• If functional currency = presentation currency (CAD) -> Integrated operation -> Temporal method
  
  • Monetary items: rate at B/S date
  • Non-monetary items & capital stock: historical rate
  • R/E: accumulated translated net incomes - accumulated translated dividends (rate at date of declaration)
  • Revenue/expense: historical rate
  • Depreciation: historical rate of asst
  • FX gains/losses recorded in net income
• If functional currency = local currency -> Self-sustaining operation -> Current rate method
  
  • Assets & liabilities: rate at B/S date
  • Capital stock: historical rate
  • R/E: accumulated translated net incomes - accumulated translated dividends (rate at date of declaration)
  • Revenue/expense (inc. depreciation): average rate of the year
  • FX gains/losses: deferred and included in OCI (IFRS) or separate section of S/H’s equity (ASPE)

Question 26

Property, Plant and Equipment (IFRS)

Answer 26

Definition criteria

• Held for use in product/supply of goods/services, for rental to others, or for admin purposes
• Expected to be used during more than 1 period

Recgonition criteria

• Probable future economic benefits
• Costs can be measured reliably

Initial measurement: at cost

• Purchase cost (net of discounts & rebates, includes taxes & duties)
• Costs directly attributable to bringing asset to location and condition necessary for use
• Initial estimate of ARO
• Borrowing cost directly attributable to the construction of the asset

Subsequent measurement
- POLICY CHOICE to use cost method or revaluation method, applied to entire class of assets
- Cost method = cost - accumulated depreciation - impairment loss
- Revaluation method = FV - accumlated depreciation
- Only if FV can be measured reliably
- Revaluaton must occur regularly enough to ensure CV does not differ materially from FV at end of each reporting
period
- Entire class must be revalued
- Increase in FV resulted from revaluation, recognized in revaluation surplus (OCI)
Decrease in FV resulted from revaluation, recognized in net income
Increase or decreaes first offset previous valuations
- Depreciation based on useful life and pattern of use, considering residual value
- Compnentization: each significant component should be separately depreciated if useful life differs from asset

Question 27

Impairment of Long-Lived Assets (IFRS)

Answer 27

Test for impairment
- At the end of each reporting period whether there is any indication that an asset may be impaired
- Assets with indefinite useful life or assets not yet available for use must be tested for impairment ANNUALLY, regardless
of whether indicators of impairment exist
- Indicators of impairment:
- Observable indicators that the assets value has declined
- Significant adverse effects on entity have/will take pace
- Impact of interest rates on discount rates
- Obsolescence or physical damage
- Changes to the manner the asset is used
- Economic performance worse than expected

Impairment test and write-down
1. Determine recoverable amount of the asset, equal to the HIGHER of:
- Value in use
= DCF from use and eventual disposal using pre-tax discount rate, exclude taxes and financing cash fows,
- FV less cost of disposal
Cost of disposal = legal costs, non-recoverable transaction taxes, cost of removing asset and direct incremental costs
to read the asset for sale
2. Compare recoverable amount to CV
Impaired = CV > recoverable amount
3. Determine whether impairment applies to a single asset or to a cash-generating unit with goodwill
Cash generating unit = smallest group of assets that generates cash flows independently from other assets or groups
of assets
4. Quantify impairment loss
Impairment loss = CV - recoverable amount
5. Record impairment loss in I/S
Recognize impairment to goodwill first, then to other assets
Impairment loss of long-lived assets may be reversed back to CVif no impairment had occured

Question 28

Property, Plant and Equipment (ASPE)

Answer 28

Definition criteria
- Held for use in product/supply of goods/services, for rental to others, for admin purposes, or for the development,
construction, maintenance or repair of other PP&E
- Intended to be used on a continuing basis
- Not intended for sale in the ordinary course of business

Initial measurement: at cost
- Purchase cost
- Other acquisition costs (e.g. commissions, installation, legal fees, survey costs, site prep costs, freight charges,
transportion insurance costs, duties, testing and preparation charges)
- Betterment = costs incurred to enhance the service potential of a PP&E:
- Increase output or capacity
- Reduce operating cost
- Extend useful life
- Improve quality of output
- Basket purchase: allocate price to each item based on FMV at acquisiton

Subsequent measurement

• Cost method ONLY
• Amortization based on useful life and pattern of use
• Amortization based on the higher of:
  
  • (Cost - residual value) / useful life
  • (Cost - salvage value) / asset life
• Componentization: each significant component should be separately depreciated if useful life differs from asset

Question 29

Impairment of Long-Lived Assets (ASPE)

Answer 29

Test for impairment

• Test for recoverability whenever events or changes in circumstances indicate that the CV might not be recoverable
• Indicators of impairment:
  
  • Decrease in market price
  • Change in way asset is being used/physical condition
  • Change in legal/economic factors
  • Costs in excess of amount expected for acquisition/construction
  • Current period operating or cash flow loss with history/projection of losses
  • Expectation that the asset will be sold/disposed of before the end of useful life

Determine if impairment exists
- Impairment loss recognized when the CV is not recoverable and exceeds its FV
- CV not recoverable = CV > sum of undiscounted cash flows from use and eventual disposition
Undiscounted cash flow:
- Use remaining useful life as term for cash flows
- Include principal amount of related liabilities, ARO costs
- Exclude interest costs
- Conclude whether impairment applies to a single asset or to an asset group
- Asset group = lowest level for which identifiable cash flows are largely independent of the cash flows of other assets
and liabilities
- Quantify impairment loss
Impairment loss = CV - FV
- Impairment loss of long-lived assets CANNOT be reversed

Question 30

Provisions, Contingencies and Asset Retirement Obligations (IFRS)

Answer 30

Provision recognition criteria

• Present obligation (legal/constructive) as a result of a past event
• Probable (more likely than not) that must settle obligation
• Reliable estimate can be made of amount

Initial measurement

• Record at best estimate of expenditure required to settle at B/S date
• When a large population of outcomes, use expected value (EV) method (i.e. probability weighted amount)
• When a range of estimates available (all equally likely), accrue at mid-point of range
• When material, incorporate time value of money
• ARO: Dr. PP&E, Cr. Provision

Subsequent measurement

• Recognize changes resulting from passage of time: Dr. Borrowing cost, Cr. Provision
• Recognize revisions to estimates of cash flow or discount rate: Dr./Cr. PP&E, Dr./Cr. Provision

Onerous contract

• Onerous contract = unavoidable cost of meeting the obligations > benefits
• Recognize and measure as provision

Contingent assets

• NOT recognized
• Disclosure only permitted when PROBABLE
  
  • Nature of contingency
  • Estimate of amount, or statement that estimate cannot be made

Contingent liabilities
- NOT recognized becasue:
- Not probable that an outflow of resources embodying economic benefits will be required to settle the obligation, or
- Amount of the obligation cannot be measured reliably
- Contingent liabilities are disclosed unless probability of an outflow of resources embodying economic benefits is r
remote

Reconstructuring
- Constructive obligation to restructure arises when:
- Detailed formal plan undertaken (inc. pat of business, location, function, # of employees terminated, expenditures,
timing)
- Valid expectation that the reconstructuring will be carried out by starting to implement plan or announce main
features to those affected
- Recognize and measure as provision

Question 31

Contingent Liabilities (ASPE)

Answer 31

Contingency - definition criteria:

• Existing condition
• Uncertainty as to possible gain/loss
• Resolution based on future event

Contingency loss - accrual criteria

• LIKELY to occur (higher threshold than probable)
• Amount reasonably estimable

Contingency loss - measurement

• Record at:
  
  • Best estimate of amount required to settle
  • When a range of estimates available (all equally likely), accrue at MINIMUM of range

Contingency loss - disclosure criteria

• LIKELY but the amount of the loss can’t be resonably estimated
• LIKELY and an accrual has been made but an exposure to loss in excess of amount accrued exists
• Not determinable

Contingency loss - dislosure:

• Nature of the contingency
• Estimated amount of contingency loss or a statement that such estimate can’t be made
• Any exposure to loss in excess of the amount accrued

Contingent gains

• NOT recognized
• Disclosure only permitted when LIKELY to occur
  
  • Nature of contingency
  • Estimate of amount, or statement that estimate can’t be made

Question 32

Asset Retirement Obligation (ASPE)

Answer 32

Definition criteria

• LEGAL obligation ONLY associated with retirement of a tangible long-lived asset
• Required to settle as a result of an existing/enacted law, statute, ordinance, writte/oral contract

Recognition criteria

• In period in which liability is first incurred
• Resonabe estimate of amount of obligation can be made

Initial measurement

• Record at best estimate of expenditure required to settle at B/S date
  
  • Management’s judgement
  • May consider reductions in cost due to future expected change in technology, etc.
  • Typically use PV to determine initial measurement
  • Discount rate = Rf rate
  • Risks are incorporated into cash flow considerations
• Dr. PP&E, Cr. ARO liability

Subsequent measurement

• Recognize changes result from passage of time: Dr. Accretion expense, Cr. ARO liability
• Recognize revisions to estimates of cash flows or discount rate: Dr./Cr. PP&E, Dr./Cr. ARO liability

Question 33

Assets Held for Sale (IFRS & ASPE)

No significant difference

Answer 33

Identify issues with assets being held for sale

Assess held for sale criteria:

• CV principally recovered through sale transaction
• Available for immediate sale in present condition
• Sale is highly probable:
  
  • Managment commit to a plan to sell
  • Active program to locate a buyer has started
  • Actively marketed for a resonable price
  • Expected to complete the sale within a year
  • Plan unlikely to change significantly
  • Shareholders’ approval likely to be obtained

Initial measurement

• Measured at lower of CV and FV less cost to sell
  
  • Cost to sell = incremental direct cost (e.g. commissions, title transfer fee, closing costs. EXCLUDE future losses)
• STOP amortization
• Interest and other expenses continued to be accrued

Subsequent measurement

• Write-down to FV less cost to sell -> recognize as loss
• Increase in FV less cost to sell -> recognize as gain but NOT in excess of cumulative loss recognized

Presentation

• IFRS: present as current assets separate from other asssets on the B/S
• ASPE: present as non-current asset separate from PP&E until sold

Question 34

Discontinued Operations (IFRS & ASPE)

No significant difference

Answer 34

Discontinued operation - definition criteria
- Component of an entity: clearly distinguishable operationally and financially from the rest of the entity
- Has been disposed of or classified as held for sale (HFS criteria below)
- One of:
- Represents a separate major line of business or geographic area of operations
- Part of a single co-ordinated plan to dispose a separate major line of business or geographic area of
operations
- A subsidiary acquired exclusively for resale

Assess held for sale criteria:

• CV principally recovered through sale transaction
• Available for immediate sale in present condition
• Sale is highly probable:
  
  • Managment commit to a plan to sell
  • Active program to locate a buyer has started
  • Actively marketed for a resonable price
  • Expected to complete the sale within a year
  • Plan unlikely to change significantly
  • Shareholders’ approval likely to be obtained

Presentation

• Presented separately on the I/S for CURRENT and PRIOR periods
• Single amount = post-tax gain/loss of discontinued operatons + post-tax gain/loss related to remeasurement

Question 35

Government Assistance (IFRS & ASPE)

No significant difference

Answer 35

Definition
- Assistance by government in the form of transfers of resources to an entity in return for past or future compliance with
certain conditions relating to the operating activities of the entity
- Includes forgivable government loans

Recognition criteria

• Reasonable assurance exists that:
  
  • The entity will comply with the conditions
  • The grant will be received

Identify the types of grant

• Grants related to income: provides resources to cover expenses
• Grants related to assets: provides resources to cover purchase of asset(s)

Recognition and measurement

• Grants related to income, either:
  
  • Recognize as the related expense is incurred (defer grant for future expenses)
  • Present separately as other income OR deducted from the related expense
• Grant related to assets, either:
  
  • As deferred income (a liability) and brought into income as depreciation incurred over life of asset
  • Deducted from the asset’s CV, depreciation on the net amount

If grant received prior to conditions being met: Dr. Cash, Cr. Deferred government grant (liability)

If conditions have been met but grant not yet received: Dr. Grant receivable, Cr. Other income or PP&E

For a government loan with favourable interest terms:
- Recognize a benefit equal to the proceeds of the loan less the discounted value using the effective interest method and
account for the benefit as a government grant

Non-monetary grants

• IFRS: recognize at FV or at a nominal amount
• ASPE: ALWAYS recognize at FV

Forgivable loans
- Treated as government grant

Repayments
- Accounted for in the period in which conditions arise that will cause it to be repayable

Disclosure

• Accounting policy adopted for grants, including method of balance sheet presentation
• Nature and extent of grants recognised in the financial statements
• Unfulfilled conditions and contingencies attaching to recognised grants

Question 36

Non-Monetary Transactions (IFRS)

Answer 36

Definition
- Non-monetary exchanges, which are exchanges of non-monetary assets, or a combination of monetary and non-monetary assets

Recognition and measurement
- Measure at FV
- When measuring the value of a NMT that is GENERATING REVENUE, and the FV of both the asset given up and
received are known, the revenue should be measured at the FV of the asset RECEIVED
- Gains/losses recorded in net income
- Measure at CV of asset GIVEN UP if any of the exceptions is met:
- Lacks commercial substance
Commercial substance = entity’s cash flow is expected to change significantly
- FV of neither the asset given up nor received is reliably measurable

Question 37

Non-Monetary Transactions (ASPE)

Answer 37

Definition

• Non-monetary exchanges, which are exchanges of non-monetary assets, liabilities or services for other non-monetary assets, liabilities or services with little or no monetary consideration involved
• Non-monetary non-reciprocal transfers, which are transfers of non-monetary assets, liabilities, or services without consideration (e.g. donations of non-monetary assets or services, payments of dividends-in-kind)

Recognition and measurement
- Measure at THE MORE RELIABLY MEASURABLE FV of asset given up and received
- The FV of the asset given up is preferred when FV of both the asset given up and received are reliably measured
- Gains/losses recorded in net income
- Measure at CV of asset GIVEN UP if any of the exceptions is met:
- Lacks commercial substance
Commercial substance = entity’s cash flow is expected to change significantly
- Exchange of a product/property held for sale in the ordinary course of business for a product/property to be sold in
the same line of business
- FV of neither the asset given up nor received is reliably measurable
- Non-monetary non-reciprocal transfer to owners

Question 38

Intangible Assets - Acquired (IFRS & ASPE)

No significant difference

Answer 38

Definition criteria

• Identifiable (separable or arise from contractual/legal rights)
• Controlled by the entity (power to obtain future economic benefits from the asset or restrict others from doing so)
• Future economic benefits

Recognition criteria - acquired intangible assets

• Probable future economic benefits
• Cost reliably measurable

Initial measurement
- Initially measured at cost = purchase cost + directly attributable cost of preparing the asset for its intended use
- Purchase cost = cost of purchase net of rebates/discounts, incl. taxes&duties
- Directly attributable costs: salaries, benefits, professional fees arising directly from bring the asset to its working
condition, cost of testing whether the asset is functioning properly
- EXCLUDES cost of introducing a new product/service (e.g. advertising, promotion), cost of conducting business in a
new location or with new customers, admin and other general OH costs

Subsequent measurement
 - IFRS: POLICY CHOICE to use cost model or revaluation model, must be applied to entire class of assets
      - Cost model: carried at cost - amortization - impairment loss (test for impairment annually)
      - Revaluation model: adjusted to FV - amortization (impairment incorporated in FV)
        only available for intangible assets that are traded on an active market
      - Assets with indefinite life (incl. goodwill) must be assessed for impairment at least annually or when events dictate
 - ASPE: cost model ONLY
      - Impairment test is done whenever events indicate (not annually)

Question 39

Intangible Assets - Internally Generated (IFRS & ASPE)

No significant difference

Answer 39

Definition criteria

• Identifiable (separable or arise from contractual/legal rights)
• Controlled by the entity (power to obtain future economic benefits from the asset or restrict others from doing so)
• Future economic benefits

Recognition criteria

• Technical feasibility
• Intension to complete
• Ability to use/sell
• Future economic benefits
• Adequate resources available (financial, technological, other)
• Cost reliably measurable

Costs

• Research costs must be EXPENSED
• Development cost:
  
  • IFRS: must be CAPITALIZED
  • ASPE: policy choice to capitalize or expense

Cannot recognize as intangible assets if it is:

• Internally generated goodwill
• Research costs
• Expenditure initially expensed cannot be capitalized as part of the cost of an intangible asset after F/S finalized
• Internally generated brands, mastheads, publishing titles, customer lists

Initial measurement
- Initially measured at cost
- All directly attributable costs necessary to create, product and prepare the asset to be capable of operating in the
manner intended by management
Directly attributable costs: cost of materials/services used/consumed, salaries&benefits, fees to register a legal right,
amortization of patents&licences used to generate the intangible asset, interest cost (ASPE - when accounting policy
is to capitalize interest costs)
- EXCLUDES SG&A expenditures unless directly attributable to preparing the asset for use, identified inefficiencies and
initial operating losses incurred before the asset achieves planed performance, cost of training staff to operate the
asset

Subsequent measurement
- IFRS: POLICY CHOICE to use cost model or revaluation model, must be applied to entire class of assets
      - Cost model: carried at cost - amortization - impairment loss (test for impairment annually)
      - Revaluation model: adjusted to FV - amortization (impairment incorporated in FV)
        only available for intangible assets that are traded on an active market
      - Assets with indefinite life (incl. goodwill) must be assessed for impairment at least annually or when events dictate
 - ASPE: cost model ONLY
      - Impairment test is done whenever events indicate (not annually)

Question 40

Leases - Leasee’s Perspective (IFRS)

Answer 40

Assess criteria to determine whether contract contains a lease
- Contains a lease if contract conveys the right to control the use of an identified asset for a period of time in exchange
for consideration
- Throughout the period of use, the customer has the right to:
- Obtain substantially all of the economic benefits from use of the identified assset
- Direct the use of the identified asset

DO NOT recognize a lease if:
- Short-term lease (< 1 year)
- Lease for which the underlying asset is of low value
For these leases,
- Recognize lease payments as expense on a straight-line basis
- Rent-free periods amortized over lease term

Initial measurement
- Right-of-use asset:
- Record at cost
- Cost = initial measurement of lease liability + lease payments made at/before start date + initial direct cost incurred +
estimated dismantling cost
- Lease laibility:
- Record at PV of unpaid lease payments
Unpaid lease payments include fixed & variable lease payments, residual value guarantees, exercise price of
purchase option if reasonably certain to exercise and penalties for termination if reasonably certain to terminate
- Use lease implicit rate if readily available, otherwise use leasee’s incremental borrowing rate
- Lease term is non-cancellable period of a lease, including periods covered by an option to:
Extend if leasee is reasonably certain to excercise the lease
Terminate if leasee is reasonably certain not to excercise the option

Subsequent measurement
- Right-of-use asset:
Apply Cost model unless leasee applies FV (for investment property) or revaluation model to other right-f-use assets in
that class
- Lease liability:
- Increase (Cr. Lease liability) to reflect interest on lease liability
- Decrease (Dr. Lease liability) to reflect lease payments made
- Remeasure CV to reflect any reassessments or modifications

Question 41

Leases - Leasor’s Perspective (IFRS)

Answer 41

Classificaton criteria

• Primary indicators:
  
  • Transfer of ownership at the end of the lease term
  • BPO
  • Lease term accounts for substantially all of the useful life
  • PV of MLP accounts for substantially all of the FV
  • Assets are so specialized that only leasee can use them without major modifications
• Secondary indicators:
  
  • Leasor’s losses associated with cancellation are borne by leasee if leasee cancels
  • Gains/losses from fluctuation in FV of residual accrue to the leasee
  • Ability to continue the lease for secondary period at rent substantially lower than market rent

1 or more criteria met = finance lease
All criteria unmet = operating lease

FINANCE LEASE
- Initial measurement:
- Lease receivable = net investment in lease (incl. initial direct cost)
- Lease payments (Dr. Cash, Cr. Lease receivable, Cr. Interest income)
- Manufacturer/dealer leasors:
- Revenue = FV of underlying asset, or if lower, the PV of lease payments, discounted using market rate
- Cost of sale = cost/CV of underlying asset - PV of unguaranteed residual value
- Selling profit/loss = revenue - cost of sale
- If artificially quoted lower interest rate, selling price restricted to FMV
- Subsequent measurement:
- Recognize finance income over lease term, based on a pattern reflecting periodic rate of return on leasor’s net
investment in the lease

OPERATING LEASE

• Initial measurement:
  
  • Lease payments recognized in income on a straigh-line basis
  • Add initial direct costs to CV of leased asset
  • Present underlying assets on B/S according to the nature of asset
• Subsequent measurement:
  
  • Depreciation consistent with leasor’s normal depreciation

Question 42

Leases - Leasee’s Perspective (ASPE)

Answer 42

Classification criteria
- Transfer of ownership at the end of the lease or bargin purchase option (BPO)
BPO = the right to purchase the asset for lower than its FMV
- Lease term is greater than 75% of the asset’s useful life
- PV of minimum future lease payments (MLP) is greater than the asset’s FV

1 or more criteria met = capital lease
All criteria unmet = operating lease
- Capital lease: the leasor transfers substantially all risk and rewards of ownership to the leasee
- Operating lease: the leasor doesn’t transfer substantially all risk and rewards of ownership to the leasee

Initial and subsequent measurement
- Capital lease
- Recognize asset and liability at lower of PV of MLP or FV (Dr. Asset under capital lease, Cr. Lease liability)
- Asset amortized over lease term
If there is BPO or transfer of ownership, amortize over useful life
- MLP (Dr. Interest expense, Dr. Lease liability, Cr. Cash)
- Operating lease
- Lease payments expensed on a straight-line basis
- Rent-free period (i.e. lease inducements) amortized over lease term

Question 43

Leases - Leasor’s Perspective (ASPE)

Answer 43

Classification criteria
- One of:
- Transfer of ownership at the end of the lease or bargin purchase option (BPO)
BPO = the right to purchase the asset for lower than its FMV
- Lease term is greater than 75% of the asset’s useful life
- PV of minimum future lease payments (MLP) is greater than the asset’s FV
- Credit risk associated with the lease is normal compared to similar receivable
- Amounts of any unreimbursable costs can be reasonably estimated

All criteria met = capital lease
Any criterion unmet = operating lease
- Capital lease: the leasor transfers substantially all risk and rewards of ownership to the leasee
- Operating lease: the leasor doesn’t transfer substantially all risk and rewards of ownership to the leasee

If CAPITAL LEASE, determine if it’s a sales-type lease or a direct financing lease:
- Sales-type lease:
At the inception of the lease, FV of the leased property >/< CV, resulting in a profit or loss to the leasor
- Direct financing lease:
At the inception of the lease, FV of the leased property = CV to the leasor

Measurement

• Operating lease:
  
  • Lease payments recognized in income on a straight-line basis
  • Present assets on B/S (net of accumulated depreciation)
  • Add initial direct cost to the CV of the leased asset
• Sales-type lease:
  
  • Sales revenue = PV of MLP
  • Cost of sale = CV of the leased asset
  • Interest income = sum of MLP - PV of MLP
  • Initial direct cost expensed as incurred
• Direct financing lease:
  
  • Lease receivable = net investment in leaese - initial direct cost
  • MLP (Dr. Cash, Cr. Lease receivable, Cr. Interest income)
  • Initial direct cost expensed as incurred

Question 44

Income Taxes (IFRS)

Answer 44

Must use deferred income tax method

Record deferred income taxes for all taxable temporary differences (except initial recognition of goodwill)

Record deferred income taxes for all deductible temporary differences and carried forward unused tax losses to the extent that is probable that taxable profit will be available against which the difference/losses can be utilized.

Deferred income tax asset/liability = sum of accumulated temporary differences * tax rate

Classify deferred income tax payable/receivable as non-current

Measurement:
- Tax rate used should be enacted or substantially enacted by end of reporting
period
- For current taxes, use tax rate at end of reporting period
- For deferred taxes, use rate that is expected to apply to period where asset
is realized or liability is settled

Question 45

Income Taxes (ASPE)

Answer 45

POLICY CHOICE to use:

• Taxes payable method
• Future income tax method

Taxes payable method
- Only current income tax assets and liabilities are recognized
- Current income taxes, to extent unpaid or recoverable, recognized as a liability
or asset

Future income tax method
- Current income tax assets and liabilities are recognized
- Future income tax assets and liabilities recognized for all taxable temporary
differences, except for goodwill that is not deductible for tax purposes
- Future income tax asset recognized for all deductible temporary differences,
unused tax losses and income tax reductions, amount limited to the amount
that is more likely than not to be realized

Measurement
- Tax rates used should be enacted or substantially enacted by end of reporting
period
- For current taxes, use tax rate at end of reporting period
- For deferred taxes, use tax rate that is expected to apply to period when
asset is realized or liability is settled

Question 46

Not-for-Profit Accounting - Contributions Revenue Recognition

Answer 46

Identify method of accounting for contributions
- Restricted fund method: details of F/S elements are reported by fund (e.g. total general funds, restricted funds,
endowment fund)
- Deferral method: any restricted contributions related to future period expenses are deferred and recognized into
revenue when related expenditures incurs

Determine type of contribution:
- Restricted contribution = subject to externally imposed stipulations that specify the purpose for which the contribution is
to be used
- Endowment contribution = type of restricted contribution whereby resources contributed must be maintained permanently
- Unrestricted contribution = a contribution that is not a resticted or endowment contribution

Measurement
- Measured at FV at the date of contribution if can be reasonably estimated

When to record the contribution
- Restricted fund method:
- Reported as revenue in the related fund when RECEIVED
- Restricted contributions that do not have a related restricted fund should be recognized in the general fund in
accordance with the deferral method
- Endowment contributions are reported as revenue in the endowment fund when RECEIVED
- All other contributoins are reported as revenue in the current period
- Deferral method:
- Restricted contributions related to expenses of the current period are recognized as revenue in the current period
- Restricted contributions related to future expenses are deferred and recognized as revenue as expenses incur
- Restricted contributions for the purchase of capital assets that will be amortized are deferred and recognized as
revenue on the same basis as amortization
- Restricted contributions for the purchase of capital assets that will NOT be amortized are recognized as a direct
increase in net assets
- Endowment contributions are reported as direct increases in net assets
- All other contributions are reported as revenue in the current period

Question 47

Not-for-Profit Accounting - Contributions Receivable

Answer 47

Contributions receivable - definition criteria
- Pledge: promise to contribute cash or other assets to a not-for-profit organization
- Bequests: subject to considerable uncertainty surrounding the timing of the receipt and the amount that will actually be
received

Contribution receivable - recognition criteria

• Amount to be received can be reasonably estimated
• Ultimate collection is reasonably assrued
  
  • Current economic conditions
  • Continued goodwill of individual/entity making the pledge
  • Ability of the individual/entity making the pledge to pay
  • Length of time before pledges fall due (< 1 year from reporting date)
  • Large, annual fundraising campaign with sufficient historical support for realizable value of pledges

Question 48

Not-for-Profit Accounting - Contributed Materials and Services

Answer 48

Identify the materials/services contributed

Recognition

• Recognition criteria:
  
  • FV can be reasonably esimated
  • Used in the normal course of operations
  • Otherwise have been purchased
• If all met, POLICY CHOICE to recognize the contribution or not

Question 49

Not-for-Profit Accounting - Tangible Capital Assets

Answer 49

Exception

• NFPs with < $500,000 in annual AVERAGE revenues (current or preceding period) may choose whether they wish to record capital assets:
  
  • Capitalize and amortize
  • Capitalize and not amortize
  • 100% expense

Tangible capital assets - definition criteria

• Held for use
• Intended to be used on a continuing basis
• Not intended for sale in the ordinary course of operations
• Not held as part of a collection (*see collection flashcard)

Tangible capital assets - recognition and initial measurement
- Recorded at cost = FV at the contribution date + all costs directly attributable costs
If the cost is not resonably determinable, record at nominal value
- If purchased substantially below FV, recognize at FV iwth the difference reported as a contribution
- Amortization based on cost less residual value, recorded over useful life, according to useage patterns
- Land and certain works of art and historical treasures that are NOT collections are not amortized (lives are so long as
to be virtually unlimited)

Tangible capital assets - subsequent measurement

• May need to assess whether events or changes in circumstances indicate that the CV may exceed FV
• Net CV written down to FV or replacement cost and amount recognized as an expense in the statement of operations
• Write-downs CANNOT be reversed

Question 50

Not-for-Profit Accounting - Intangible Assets

Answer 50

Exception

• NFPs with < $500,000 in annual AVERAGE revenues (current or preceding period) may choose whether they wish to record intangible assets:
  
  • Capitalize and amortize
  • Capitalize and not amortize
  • 100% expense

Intangible assets - definition criteria

• Identifiable (separable or arise out of contractual rights)
• Non-monetary
• Without physical substance

Intangible assets - recognition and initial measurement

• Recognition criteria:
  
  • Probable future economic benefits
  • Cost reliably measurable
• Initially measured at COST

Intangible assets - subsequent measurement

• May need to assess whether events or changes in circumstances indicate that the CV may exceed FV
• Net CV written down to FV or replacement cost and amount recognized as an expense in the statement of operations
  
  • May choose FV or replacement cost on an asset-by-asset basis to measure the write-down
• Write-downs CANNOT be reversed

Question 51

Not-for-Profit Accounting - Collection

Answer 51

Identify the collection (e.g. work of art, historical treasure)

Collection - definition criteria
- Held for public exhibition, education or reserch
- Protected, cared for and preserved
- Subject to an organizational policy that requires proceeds from their sale to be used to acquire other items to be added
to the collection or for the direct care of the existing collection

Collection - recognition and initial measurement
- At cost or nominal value
- For items acquired, cost = purchase cost
- For items contributed, cost = FV + all directly attributable costs
- Costs incurred in protecting and preserving collection items are considered repair and maintenance (expense as
incurred)
- Must use same method for ALL collections
- NO AMORTIZATION recorded on collection

Collection - subsequent measurement

• May need to assess whether events or changes in circumstances indicate that the CV may exceed FV
• Net CV written down to FV or replacement cost and amount recognized as an expense in the statement of operations
  
  • May choose FV or replacement cost on an asset-by-asset basis to measure the write-down
• Write-downs CANNOT be reversed