Financial Reporting Flashcards
IFRS Revenue Recognition STEP #1: Is there a Contract
What are the criteria to be considered a contract? (5 criteria)
○ Must be approved by all parties
○ Rights to the goods/services to be transferred are identified
○ Payment terms can be identified
○ Contract has commercial substance (will affect future cash flows)
○ Customer is able and intends to pay consideration due
IFRS Revenue Recognition STEP #1: Is there a Contract?
What are the Criteria to combine contracts? (Must meet 1 or more of the following 3 Criteria)
○ If contracts are negotiated as a package with a single commercial objective
○ Amount of consideration to be paid for one contract depends on the price or performance of the other contract
○ Goods or services promised for one contract (or a portion of the goods/services) are a single performance obligation
Where is IFRS Rev Rec in the CPA Canada Handbook?
IFRS 15
Where is ASPE Rev Rec in the CPA Canada Handbook?
ASPE 3400
When can you recognize Revenue under IFRS? (Step 5)
When PO’s are satisfied, or when CONTROL is transferred (either at a single point in time or over time).
Under IFRS 15, when can revenue be recognized over time? (3 criteria)
○ customer simultaneously receives and consumes the benefits provided by the vendor’s performance (ex. rental of an office space)
○ vendor’s performance creates or enhances an asset (ex. work in progress on a construction contract on land owned by the customer) that the customer controls as the asset is created or enhanced
○ vendor’s performance does not create an asset with an alternative use to the vendor, and the vendor has an enforceable right to payment for performance completed to date (ex. work in progress on custom equipment that the vendor cannot sell to another party due to the customization)
Under ASPE 3400, when can revenue be recognized?
○ Performance is achieved (when the seller has transferred the significant risks and rewards of ownership to the buyer)
○ Reasonable assurance exists regarding the measurement of the consideration
○ Collection is reasonably assured
What are the methods of recording revenue under ASPE 3400?
- Percentage of completion method:
- when performance consists of more than one act
- may be on the basis of number of acts completed, extent of progress toward completion, or costs incurred relative to budgeted costs
- revenue can be recognized using a straight-line basis when performance consists of an indeterminate number of acts over a specific period of time - Completed contract method
- only appropriate when performance of a service consists of a single act or when the extent of progress toward completion cannot be measured
Where can Inventories be found in the CPA Canada Handbook for ASPE?
ASPE 3031
Under IAS 2, Inventories are made up of:
Inventories are assets:
A) held for sale in the ordinary course of business,
B) in the process of production for such a sale, or
C) in the form of materials or supplies to be consumed in the production process or in the rendering of services
Under IAS 2, which costs are Included in Inventory?
Costs Included in Inventory: any cost incurred to bring inventory to its present location and condition
○ Deduct any rebates or other costs that can be recovered
○ Storage and shipping to customer are EXCLUDED
Under IAS 2, Inventory is measured at the lower of:
Cost and Net Realizable Value.
NRV is estimated selling price in normal course of business LESS estimated costs of completion and costs to make the sale.
What is the difference in the treatment of Borrowing Costs in IFRS vs ASPE?
In IFRS you must capitalize borrowing costs, but in ASPE you have a choice whether to capitalize or expense them.
Where can you find PPE in CPA Canada Handbook under ASPE?
ASPE 3061
Under IAS 16, when can PPE be recognized as an asset? (2 Criteria)
PP&E is only recognized as an asset if the following criteria apply:
○ It is probable that future economic benefits associated with the item will flow to the entity (indirectly or directly)
○ The cost of the item can be measured reliably
Under IAS 16, what is included in the cost of PPE?
Cost of PPE includes:
○ its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates (sales taxes such as GST and HST are refundable, so not included)
○ 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
○ Decommissioning costs
○ DOES NOT INCLUDE: maintenance, training for employees
Where can Inventories be found in the CPA Canada Handbook for IFRS?
IAS 2
Where can you find PPE in CPA Canada Handbook under IFRS?
IAS 16
Under IAS 16, what are the measurement model choices for PPE?
Measurement Models: Cost Model and Revaluation Model
○ Under CM, asset is valued at cost and depreciated
○ Under RM, asset is valued at FMV and depreciated (must be used for an entire class of assets, not just one, and revaluations must be done regularly)
Under IAS 16, how do you record gains AND losses under the Revaluation Model?
To record an increase in FMV, or a gain:
- First record the gain in NI up to the amount of losses that were previously recorded as a result of revaluations of the asset
- Then record whatever gain is left in OCI
To record a decrease in FMV, or a loss:
- First record the loss in OCI up to the amount of gains that were previously recorded as a result of revaluations of the asset
- Then record whatever loss is left in NI
Under ASPE 3061, which Measurement Models are available for PPE?
Cost Model only
How do you calculate depreciation expense under IAS 16?
Cost less residual value, divided by useful life
How do you calculate depreciation expense under ASPE 3061?
Greater of:
a) Cost less residual value, divided by useful life
b) Cost less salvage value, divided by asset life
Which section of CPA Canada Handbook talks about Impairment of Assets under ASPE?
ASPE 3063