Financial Reporting Flashcards
Investment in Associates: When to use Cost, Equity, or Consolidation method?
Cost - Less than 20% of shares
Equity - Between 20-50% of shares deems significant influence, or if under significant influence use other factors of influence
Consolidation - Over 50% of shares deems control
Investment in Associates: Indicators of Significant Influence if under 20% of shares
Indicators of significant influence if under 20%
- Representation on board of directors
- Participation in policy making
- Material transactions between entity & investee
- Interchange of managerial personnel
- Provision of essential technical information
Capital Lease Criteria
ONLY 1 needs to be met of the following criteria (ownership, term, or pmts)
- Title transfer to lessee by end of lease term
- Bargain purchase option exists, & reasonably certain it will be exercised
- Lease term covers a major portion (over 75%) of the economic life of leased proprty
- Present value of minimum lease payments amount to substantially all of the fair value of the leased property (over 90%)
Inventory: Definition & Measurement
Definition: inventory are assets
- held for sale in the ordinary course of business; OR
- in the process of production of goods; OR
- materials/supplies to be consumed in production or rendering or service
Measurement:
- Recorded at lower of cost & net realizable value
R&D: Criteria for Capitalizing Development Costs
Development cost capitalized if meets all 6:
- Technical feasibility
- Intention to complete
- Ability to use/sell
- Probable to generate future economic benefits
- Sufficient resources to complete development
- Ability to reliably measure associated costs
Intangible Asset: Definition & Recognition Criteria
Definition:
- Identifiable - needs to be either:
(A) Separable (can be sold/rented/exchanged on its own)
(B) Arises from contractual or legal rights
- Control - power to obtain/restrict benefits from resources
- Future Economic Benefits - bring future economic benefits
Recognize if:
1) Probable to receive future economic benefits
2) Costs can be reliably measured
Non-monetary transaction: Definition & Recording Conditions
Definition - Exchanges of non-monetary financial instruments with little/no monetary consideration
Conditions (record at carrying value if met):
1. Lacks commercial substance
2. In ordinary line of business
3. Neither fair value of asset received or given up can be reliably measured
4. Non-monetary, non-reciprocal transfer to owners (restructuring/liquidation)
Investment Property: Definition & Initial/Subsequent measurment
Definition - land/building held to earn rental income, capital appreciation, or both
Initial measurement - record at cost (purchase price plus directly attributable costs)
Subsequent measurement (either cost or FV model)
- Cost - land/building recorded at cost, building depreciated over useful life, impairment tested if indicator in CY
- FV - adjusted to FV at end of each reporting period, changes to FV recorded to I/S, no depreciation
Impairment of Assets Steps
- Identify - any indicators of impairment
- Analysis - impairment required to be assessed at end of each reporting period if there’s an indicator of impairment, & impairment loss recorded if carrying amount exceeds recoverable amount
+ Recoverable amount is higher of: (proceeds less costs of disposal); OR (value in use (discounted future CF’s) - Conclude - record impairment loss if applicable, & adjust depreciation for new carrying value & adjusted useful life
ASPE: Revenue Recognition Criteria
- Risks/rewards of ownership have transferred, no further obligations
- Consideration received can be reliably measured
- Collection is reasonably assured
PP&E - Definition & Measurment
Definition - Tangible assets must be both:
a) assets held for use in production of goods, rental to others, or for admin; AND
b) expected to be used for more than one reporting period (1 year)
Measurement
- Capitalizable costs - purchase price, costs for getting asset to location & getting it operational, & estimated costs to dismantle asset & restoration
- Noncapitalizable costs - financing costs, training of staff to use new asset
IFRS - Revenue Recognition Criteria
- Identify Contract
- Identify performance obligations
- Determine transaction price
- Allocate transaction price across performance obligations
- Recognize revenue upon completion of performance obligations
Discontinued Operations Criteria
Definition - a component of an entity that either has been disposed of or classified as held for sale
- Represents a separate major line of the business
- Management is planning to sell this line, and not likely to change decision
- Is a subsidiary acquired exclusively with a view for resale
NPO - Contribution Recognition
Recognition criteria for contributions to be met:
1) Fair value can be reasonably estimated; AND
2) Materials/services are used in normal course of organizations operations and would otherwise have been purchased
Measurement
- Contribution of assets - measure at fair value
- Contribution of materials/services - measure at fair value
Grant Revenue Recognition
Revenue for Operating Expenses
a) Grant income initially recorded to deferred revenue
b) Revenue recorded from deferred when related expenses incurred
c) Any amount for expenses not covered & needs to be reimbursed adjusted from deferred revenue to liability
Revenue for Capital Expenses
- Under ASPE chose either:
a) Deduct grant income from cost of the asset, and calculate depreciation on net amount; OR
b) Record the grant as deferred revenue & recognize on same basis as depreciation is recorded on related capital assets
Cash basis vs ASPE (accrual)
Cash basis
- Timing of transactions - recorded when cash exchanged not when transaction occurs (Ex. Purchase of equipment recorded when invoice is paid)
- Less costly due to being simpler
ASPE
- Timing of transactions - recorded when transaction occurs (ex. purchase of equipment recorded when invoice received)
- Accrual accounting explained - recorded when transaction occurs (revenue earned or expenses incurred), regardless of when cashflows occur
- Preferred by Investors/Creditors - provides more reasonable view on entity’s financials including receivables/payables
Indicators of impairment
Long-lived assets tested for recoverability whenever events indicate carrying amount may not be recoverable, events include:
- significant decrease in market price of asset
- significant adverse change in manner of asset is being used (ex. licence was required by gov prior but not anymore
- significant adverse in legal factors or business climate that could impact value
- accumulation of costs significantly in excess of the amount originally expected for its acquisition
- reasonable expectation that asset will be sold/disposed of significantly before the end of its previously estimated useful life
IFRS - Asset Definition
Definition - Asset is:
- a right that has the potential to produce economic benefits
- controlled by the entity
- as a result of past events
IFRS - Foreign Currency Transactions - Recording
Revenue/expenses
- record using spot rate on date of transaction
Balance sheet
- adjusted to spot rate at year end
IFRS - Provisions
Definition - a liability of uncertain timing or amount
Recognize when:
- entity has a present obligation as a result of a past event
- probable that an outflow of economic resources will be needed to settle obligation
- able to reliably estimate the amount of the obligation
Measurement
- provision recorded at best estimate of cost to settle the obligation on balance sheet date
IFRS - Onerours contract (under provisions) - Definition & Recording
Definition
- Onerous contact is one which the unavoidable costs of meeting the obligations under the contract are greater than the economic benefits expected to be received by the contract
Recording - if contract is onerous, recorded at lower of:
a) net cost of fulfilling the contract; OR
b) cost of cancelling the contract
Capital Lease - Recording
Asset - depreciate over useful life
Liability - recorded interest & principial payment on liability
Componentization - land & building treated as one lease when:
- lease doesn’t include terms that allow for ownership to pass or bargain purchase option
- fair value of land at inception of lease is minor in relation to fair value of total leased property
PP&E - Componentization & Derecognition
Componentization - Per IAS 16, each part of PP&E with a significant cost in relation to total cost shall be depreciated separately
- Recommend each part be recorded at their respective useful life and the assets depreciation & carrying amount be tracked for each individual asset
Derecognition - Carrying amount of PP&E unrecognized if:
a) On disposal
b) No future economic benefits expected from use/disposal
