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
Which section of the CPA Canada Handbook talks about Impairment of Assets in IFRS?
IAS 36
Under IAS 36, what are the 4 steps for Impairment?
1) Level of asset grouping (indivudual asset or CGU)
2) When to test for impairment (when there are indicators of impairment, unless the asset is required to be tested annuall)
3) Measure the recoverable amount
4) Test for impairment and record loss, if any
Under IAS 36, how do you determine recoverable amount?
The recoverable amount is the higher of:
a. FV less costs of disposal b. Value in use (determined by discounting the estimated net future cash flows from continuing use or ultimate disposal)
Under IAS 36, how to you calculate Impairment loss/expense?
Impairment loss = carrying amount - recoverable amount
Under IAS 36, how do you record Impairment Loss for both individual assets and CGUs?
For Individual assets:
- Record impairment loss to NI, then adjust depreciation for future periods
For CGUs:
- Reduce goodwill of the CGU first, then the remaining loss is applied to the assets in the CGU on a pro rata basis
Under IAS 36, how do you reverse impairment? Can this be done in ASPE 3063?
Write the asset up to the lower of:
a) recoverable amount
b) carrying value that would have existed net of deprecation had the asset never been written down in the first place.
Recognize it in NI.
Cannot reverse impairment losses in ASPE.
In ASPE 3063, how are assets grouped for impairment instead of using CGUs (like in IAS 36)?
In ASPE, Asset impairment is based on asset group (concerned with cash inflows and outflows), not CGU (concerned with cash inflows only).
Under ASPE 3063, when can we test for impairment compared to IAS 36?
Only look for indicators of impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable
- IFRS requires you to look for impairment indicators each year, and requires that certain assets be tested each year
What are the steps to determine Impairment loss using ASPE 3063?
- Compare the carrying amount to undiscounted cash flows (recoverable amount).
- If the carrying amount > recoverable amount, impairment exists; move to Step 2.
- Determine fair value and compare it to the carrying amount.
Loss = Fair value – Carrying amount
Write the asset down to its FV.
Under IFRS, what are the 2 criteria to be able to classify financial instruments using the Amortized Cost Method?
a. The asset belongs within a business model whose objective is to hold financial assets in order to collect contractual cash flows, and
b. On specified dates, the contractual terms of the asset give rise to cash flows that are solely payments of principal and interest
Under IFRS, which assets are classified using the FVTOCI Method?
Includes:
a) equity investments designated as FVTOCI, and
b) debt instruments with cash flows that are solely payments of principal and interest where they’re held to collect cash flows and to eventually sell
Under IFRS, which assets can be classified using the FVTPL Method?
Includes a) assets that don’t qualify to be in amortized cost or FVTOCI, and b) assets classified as HFT (held for trading).
How does IFRS 1) measure/calculate impairment, and 2) account for Impairment of A/R?
- Impairment exists when PV of future cash flow < original amt
- uses Expected Credit Loss Approach: has an Allowance for Doubtful Accounts and Bad Debt Expense for PV of expected losses
- the difference in the ADA account is an impairment loss/gain called Bad Debts Exp or Bad Debts Recovery
How does ASPE account for and measure Impairment of A/R?
- Instead of the Expected Credit Loss Approach, ASPE requires that there is a “triggering event” before looking if there is any impairment.
- AR is adjusted to the highest of:
a. (usually)** PV of cash flows expected to be generated by holding the receivable (discounted to PV if collection is in longer than 1 year)
b. Amount that could be realized by selling the AR
c. Amount that’s expected to be realized by exercising the holder’s right to any collateral held to secure repayment of the AR (net any costs necessary to do it)
Under IFRS, what are the 3 Criteria to be a Held For Trading Asset? (Related to passive investments)
Criteria to be a HFT asset:
○ Acquired for the purpose of selling or repurchasing soon
○ Initially, its part of a portfolio of financial instruments that are managed together with a pattern of short term profit taking
○ It’s a derivative (except for a derivative that’s a financial guarantee contract or used as a hedge)
Under IFRS, what’s the subsequent measurement of DEBT instruments using FVTOCI?
Measured at amortized cost using the effective interest method, less impairment.
○ each reporting period, the asset is measured at fair value, with gains or losses reported in OCI net of tax
○ If it’s sold, the cumulative unrealized gains or losses are transferred to NI (recycled from OCI)
Under IFRS, what’s the subsequent measurement of EQUITY instruments using FVTOCI?
Measured at amortized cost using the effective interest method, less impairment losses.
○ measured at fair value, with gains and losses recognized in OCI net of tax
○ When it’s sold, it’s NOT recycled to NI. The cumulative gains/losses can be transferred from Accumulated OCI to another Equity account like RE
What are the 2 measurement methods available for Passive Investments under ASPE?
1) Amortized Cost, and
2) Fair value
Which financial assets must be measured using Fair Value under ASPE? (there are 2 of them)
1) equity instruments quoted in active markets, and
2) certain derivatives
Which 2 methods are available when using Amortized Cost under ASPE? (for passive investments)
Choice of the effective interest method and straight line method.
What are the 2 ways to measure a Related Party Transaction under ASPE?
AND how are gains/losses treated for both?
Either at:
1) carrying amount
- any difference between the carrying amounts of the goods exchanged go to equity. Gains: go to Contributed Surplus. Losses: go to debit CS up to the amount of previous gains, and the rest debited to RE
2) exchange amount
- gains/losses recognized in income, up to the FV of the asset. If exchange value < carrying amt, see if there’s impairment to the asset before transferring.
What are the 2 conditions for a government grant be recorded in Income under IAS 20?
Only recognize when 2 Criteria are met:
1. The entity will comply with the conditions of the grant
2. The grant will be received
What are the 2 ways that Government grants related to Income can be PRESENTED under IAS 20?
Either:
1) presetned separately as “Other Income”, or
2) Deducted from the related Expenses
What are the 2 ways that Government grants related to Assets can be PRESENTED under IAS 20?
Either:
a. As deferred income and brought into income over the life of the asset as iit’s depreciated
- For a non-depreciable asset, if the grant has conditions with it, it should be recognized as the conditions are met
b. Deducted from the asset’s carrying amount
What are the criteria for government loans to be treated as gov’t grants under IAS 20?
Criteria:
1. The entity will comply with the conditions of the grant
2. The grant will be received
When a gov’t loan provides favourable terms that basically qualify it as a grant, how do you calculate the amount that is a grant?
The grant is equal to the benefit derived from the loan.
Benefit Derived = Proceeds of the loan - discounted value using the effective interest method
What are the 2 choices in measurement for non-monetary grants under IAS 20?
Under IAS 20 you have the option to recognize the grant at FV or nominal value.
How can non-monetary grants be measured under ASPE 3831?
Measured at FV. No choice to use nominal value.
Where can you find the seciton on Non-Monetary transactions under ASPE in the CPA Canada Handbook?
ASPE 3831
How are non-monetary transactions measured using ASPE 3831?
Measured at the fair value of the asset received or given up, whichever is more reliable
○ If both are reliable, use fair value of asset given up
Under ASPE 3831, you can’t use FV to measure a non-monetary transaction when (4 things):
○ The transaction has no commercial substance
○ The transaction is an exchange of a product/property HFS in the ordinary course of business for a product/property to be sold in the same line of business to customers
○ Neither of the fair values of the asset received or the asset given up is reliable
○ Transaction is a non-monetary, non-reciprocal transfer to owners
Under ASPE 3831, when part of the consideration in a non-monetary transaction is Cash, A/R, or an N/R, then how do you account for it if the asset had been valued at its FAIR VALUE?
Cash is included in the fair value of the asset given up/received. It’s treated the same as a purely NMT
Under ASPE 3831, when part of the consideration in a non-monetary transaction is Cash, A/R, or an N/R, then how do you account for it if the asset had been valued at its CARRYING VALUE?
It depends on if the entity is giving up or receiving the cash.
- Entity paying the cash measures the NM asset received at the carrying amount of the asset given up, PLUS the fair value of the cash - Entity receiving cash measures the NM asset received at the carrying amount of the asset given up, LESS the fair value of the cash received. If the cash > carrying amount, a gain is recorded for the excess
Under IFRS Non-monetary transactions, when a revenue transaction occurs where the customer pays in consideration OTHER THAN CASH, how is the transaction valued?
The vendor measures the transaction at the fair value of the non-cash consideration received
○ If the fair value of the goods received isn’t available, use the stand-alone selling price of the goods/services promised to the customer in exchange for the consideration
Where are Leases in the CPA Canada Handbook under IFRS?
IFRS 16
Where are Leases in the CPA Canada Handbook under ASPE?
ASPE 3065
How do lessees present a lease under IFRS 16?
A lease liability and ROU asset
How is the Lease liability measured, and what is included in the value of the lease liability for Lessees under IFRS? (6 components)
Lease Liability is measured at the present value of all future lease payments.
Components of Measurement:
○ Fixed payments
○ Variable payments based on an index or a rate that is in effect at the commencement date
○ Bargain purchase option if the lessee is expected to pay
○ Guaranteed residual value, but only the expected amount is included
○ Termination penalties included if intended to pay
○ Non-lease component costs included if the lessee elects to include them
Which costs are included in ROU asset for Lessees under IFRS 16? (4 things)
ROU Asset is recognized at cost which includes:
○ Initial measurement of the lease liability
○ Lease payments made at or before commencement dates, less any lease incentives received
○ Initial directs costs incurred by lessee
○ Estimate of the costs to be incurred by the lessee at the termination of the lease to dismantle and remove the ROU asset and restore to conditions required under the lease
Under IFRS 16 for Lessees, what is the subsequent measuresment method for the ROU asset? (2 options)
1) Cost Model or 2) Revaluation model, but if it’s investment property, then can use the fair value model too
Under IFRS 16 for Lessees, the ROU asset is depreciated over the lessor of: ___
When is this not the case?
a. the lease term
b. the asset’s useful life
BUT If there’s reasonable certainty that the lessee will own the asset after the lease term (ex. BPO) then asset must be depreciated over the useful life of the asset
Under IFRS 16 for Lessees, if lease payments are made at the beginning of the period, how do you treat the first lease payment?
Don’t include it in the value of the Lease Liab, just credit cash instead. Include it in the ROU Asset value though.
For Lessees under IFRS 16, what is the subsequent measurement of the Lease liab? (what increases/decreases it?)
Interest exp increases the liab and lease payments decrease it.
For Lessees under IFRS 16, what is the difference in calculating the Interest Expense for the lease when payments are a) at the beginning of the year, and b) at the end of the year?
PMT at the beginning of the year: take balance of lease obligation at end of the prior year, LESS current year lease pmt * interest rate
PMT at the end of the year: lease obligation at end of the year before pmt * interest rate
For lessees under IFRS 16, how is the accounting for Low Value leases different than the usual treatment?
Can elect to expense lease payments on a straight-line or systematic basis over the lease term instead of ROU asset and liab
Asset is Low value if ALL of the following (3 items) apply:
○ Asset is of low value when new (< $5000 USD)
○ Lessee can benefit from the use of the asset on its own or together with available resources
○ The lease asset is not highly dependent on or highly integrated with other assets
How should Lesses derecognize a ROU assest under IFRS 16?
ROU asset should be full depreciated and written off along with the Accumulated Depreciation
How should Lessees derecognize a Lease Liability under IFRS 16 when there is a Residual Guarantee?
There’s a gain/loss on derecognition equal to the difference between the Cash promised for the residual guarantee, and the balance of the Lease Liab
For Lessees under IFRS 16, how should a ROU asset be derecognized (JE) if there’s no BPO and title transfers to the lessee automatically, if:
a) the company owns the asset
b) company doesn’t want to own the asset
a) Dr. Asset
Dr. Accumulated Depreciation
Cr. ROU asset
b) Dr. Loss
Dr. Accumulated Depreciation
Cr. ROU asset
For Lessees under IFRS 16, how should a Lease Liab be derecognized (JE) if there’ is a BPO and:
a) the company pays the BPO
b) company doesn’t pay the BPO
a) Dr. Lease Liability
Cr. Cash
b) Dr. Lease Liability
Cr. Gain on derecognition
Under IFRS 16 for Lessors, what are the 2 types of leases?
Operating lease and finance lease.
What is the 1 main requirement to be a finance lease under IFRS 16 for Lessors?
Lease transfers ALL risks/rewards of ownership to the lessee.
Under IFRS 16 for Lessors, what are the 5 Primary Criteria to be finance lease (if any 1 met, it is a finance lease):
- Title transfers to lessee at end of lease term
- BPO exists and it’s reasonably certain that the lessee will use it
- Lessee will receive substantially all (90%) of the economic benefits of the asset. Lease term/asset’s lifespan
- PV of the minimum lease pmt’s equal substantially all (90%) of the FV of asset
- Asset is specialized and only the lessee can use it without major modifications
For Lessors under IFRS 16, what are the Secondary Criteria to be Finance Lease?
○ Lessee can cancel the lease and any losses are borne by the lessee
○ Gains/losses from fluctuation in FV of the residual accrue to the lessee
○ Lessee is able to continue the lease for another period at a substantially lower rent than market rent
Under IFRS for Lessors, how is a finance lease initially recorded?
Consider it basically sold. Record Revenue and COGS, and credit the equipment and debit a receivable.
Under IFRS for Lessors, what is the Subsequent treatment for the Lease Receivable?
Interest income INCREASES the receivable, and pmt’s DECREASE the receivable.
Under IFRS 16 for Lessors, how is an operating lease recorded over the lease term?
Simply record lease revenue over the course of the lease straight-line or on another systematic basis regardless of the timing of cash flows.
What happens under IFRS 16 for Lessors when at the end of the lease the FV of the leased asset > expected residual value?
There’s a GAIN on derecognition
What happens under IFRS 16 for Lessors when at the end of the lease the FV of the leased asset < expected residual value? (when there’s a residual guarantee vs. when there’s no residual guarantee)
If there is a Residual Guarantee: The lessee pays the difference and there’s NO GAIN OR LOSS on derecognition
If there is no Residual Guarantee: There’s a LOSS on derecognition
For Sale and Leaseback transactions under IFRS 16, what is the first criteria to consider?
If the sale actually took place
Under IFRS 16 for a sale and leaseback, the sale did NOT take place if… (1 of 4 things)
○ seller-lessee has an obligation to repurchase the asset
○ seller-lessee has a right/option to repurchase the asset
○ seller-lessee has an obligation to repurchase the asset at the buyer-lessor’s request for an amount less than the original selling price of the asset
○ seller-lessee can or must repurchase the asset at the buyer’s request, for an amount equal to or more than the original selling price of the asset, and this amount is greater than the asset’s expected market value
In a sale and leaseback situation under IFRS 16, what would the transaction be considered as if:
a) the sale has taken place
b) the sale hasn’t taken place
a) sale and leaseback situation
b) financing arrangement
How would the seller-lessee recognize a sale and leaseback transaction under IFRS 16? (just the accts)
a) derecognize the asset and the gain is restricted by the buyer’s proportionate claim
b) Record a ROU asset and lease liability
How would you calculate the gain on sale for the seller-lessee for a sale and leaseback transaction under IFRS 16?
Gain = buyer’s proportionate claim * (FV of asset - BV of asset)
How would you calculate the proportionate claim of the seller-lessee for a sale and leaseback transaction under IFRS 16?
Seller-Lessee’s Proportionate Claim = PV of lease payments / Fair value of asset
How would you calculate the proportion of claim of the buyer-lessor for a sale and leaseback transaction under IFRS 16?
Buyer-Lessor Proportion of Claim = (FMV of asset – PV of lease payments) / FMV of asset
How would you calculate the value of the ROU asset for the seller-lessee for a sale and leaseback transaction under IFRS 16?
ROU asset initially recognized = (PV of lease payments / FV of asset) × Book value of asset
How would the buyer-lessor recognize a sale and leaseback transaction under IFRS 16? (just the accts)
- Buyer recognizes the asset purchased
- Buyer recognizes either an operating or finance lease according to IFRS 16 for Lessors
Under ASPE 3065, what are the two categories of leases for both Lessees and Lessors?
Capital Lease and Operating Lease
What is the main criteria to be a capital lease under ASPE 3065?
A capital lease transfers substantially all of the risks/rewards of ownership to the lessee
What accts would a Lessee use to recognize a Capital lease vs to recognize an Operating lease under ASPE 3065?
Capital lease: Lease Liab and Leased Asset are recorded
Operating lease: lease pmt’s are expensed as incurred
What are the 3 Capital Lease criteria for Lessees under ASPE 3065?
○ There’s reasonable assurance that ownership will transfer to lessee at the end of the term (either transfer of title or a BPO)
○ lessee receives substantially all the economic benefits from the asset (when lease term/useful life of asset > 75%)
○ PV of lease payments are substantially all (>90%) of the fair value of the asset
What is the difference between the measurement of a Capital lease for Lessees under ASPE 3065 compared to the measurement of a Finance Lease for lessors under IFRS 16?
ASPE doesn’t give thhe choice to elect to include non-lease components into the measurement of the Lease Liab like IFRS does.
What is the disocunt rate used in IFRS 16 for Lessees with a finance lease?
Rate implicit in the lease (if available), otherwise use the entity’s incremental borrowing rate.
What is the disocunt rate used in ASPE 3065 for a capital lease?
Discount rate used is the LOWER OF:
a. Rate implicit in the lease (if known)
b. Entity’s incremental borrowing rate
What is the restriction for the measurement of the Leased Asset under ASPE 3065 for a capital lease?
Leased asset can’t be recognized for an amount higher than its fair value.
What are the Capital Lease criteria under ASPE 3065 for Lessors? (total of 8)
- Title transfers to lessee at end of lease term
- BPO exists and it’s reasonably certain that the lessee will use it
- Lessee will receive substantially all (90%) of the economic benefits of the asset. Lease term/asset’s lifespan
- PV of the minimum lease pmt’s equal substantially all (90%) of the FV of asset
- Asset is specialized and only the lessee can use it without major modifications
- It meets any 1 of the Capital Lease Criteria for Lessees
○ There’s reasonable assurance that ownership will transfer to lessee at the end of the term (either transfer of title or a BPO)
○ lessee receives substantially all the economic benefits from the asset (when lease term/useful life of asset > 75%)
○ PV of lease payments are substantially all (>90%) of the fair value of the asset - The credit risk is normal compared to the risk of similar receivables
- Any reimbursable costs that are likely to be incurred by the lessor can be reasonably estimated
Are there any differences between Operating Leases for Lessors between IFRS 16 and ASPE 3065?
No, they are treated the same
Where can Discontinued Operations and Assets HFS be found in the CPA Canada Handbook under IFRS?
IFRS 5
Where can Discontinued Operations and Assets HFS be found in the CPA Canada Handbook under ASPE?
ASPE 3475
What are the 3 HFS Asset Criteria under IFRS 5?
- Asset is available for immediate sale in present condition
- Terms of the sale are usual
- The sale is highly probable
What are the 5 conditions for a sale of be highly probable for a HFS asset under IFRS 5?
- Mgmt is committed to a plan to sell the asset
- there’s an active program to find a buyer
- The asset is actively marketed at a reasonable price compared to its FV
- The sale will be completed within 1 year - unless there are events outside of the entity’s control that causes a delay, then this criteria can be waived
- Not likely that there will be significant changes to the plan
Under IFRS 5, HFS assets are measured at:
Also how are losses on classification recorded?
The lower of:
a. Carrying value
b. Fair value less costs to sell
Losses on classification are recognized in NI.
Is there depreciation on assets HFS under IFRS 5?
No, assets are deprecated until they are classified as HFS, then depreciation stops
How are subsequent increases in FV (less costs to sell) of an asset HFS recognized in IFRS 5?
The asset can only be written up to the extent of any previously recorded impairment (even from before the asset was classified as HFS).
A gain is recognized for the reversal.
What are the 3 Criteria to be classified as a Doscontinued Operation under IFRS 5?
Are there any additional criteria?
- Represents a major line of business or area of operations
- It’s part of a co-ordinated plan to dispose of a major line of business or area of operations
- It’s a subsidiary acquired just to resell
Also after applying this criteria, it also needs to either a) already be sold, or b) meet the HFS criteria
How are discontinued operations measured under IFRS 5?
And how are losses on classification recorded?
Measured at LOWER OF:
a. Carrying value
b. Fair value less costs to sell
Losses on the classification to HFS are recognized in income.
Under ASPE 3475, what type of transaction can the HFS Criteria NOT be applied to?
Doesn’t apply to assets held for distribution to owners.
How are subsequent increases in FV (less costs to sell) of an asset HFS recognized in ASPE 3475?
The reversal of any previous write-down is limited to the losses incurred since the asset was classified as HFS.
Reversal is a gain in NI.
What is the difference in presentation of non-current assets HFS in IFRS 5 vs ASPE 3475?
IFRS: Non-current assets HFS are reported in Current Assets section
ASPE: Non-current HFS assets are non-current on the BS if not sold before financial statements are completed.
If the assets are sold before the financial statements are completed, then they’re classified as current on the BS under ASPE
Where can you find Intangible assets in the CPA Canada Handbook under IFRS?
IAS 38
Where can you find Intangible assets in the CPA Canada Handbook under ASPE?
ASPE 3064
Intangibles need to meet two sets of criteria to be recognized as assets. What are the names of the criteria sets?
And what happens if both sets of criteria are not met?
1) Definition criteria
2) Recognition Criteria
If both are not met, then it is expensed.
What are the 3 definition criteria for an intangible asset?
Definition Criteria:
1. Asset is identifiable
a. Separate so it can be sold or transferred to another entity
b. It arises from contractual or other legal rights
2. Entity controls the future economic benefits of the asset
3. The asset will generate future economic benefits
What are the 2 recognition criteria for an intangible asset?
Recognition Criteria
1. Its probable that the expected future economic benefit of the asset flows to the entity
2. Its cost can be measured reliably
Which costs are included in the measurement of an intangible asset?
The asset is measurable at the cost it was purchased for (include direct costs, so purchase price + non-refundable taxes + directly attributable costs of preparing the asset for its intended use)
When a company gets an intangible by way of gov’t grant, what are the 2 options for recognition?
Choice to either:
1. record the asset and the grant at fair value initially
2. recognize asset at nominal value, plus direct expenses to prepare for use
When an intangible is exchanged for a non-monetary asset or a combo of monetary and non-monetary assets, the Cost of the intangible is the fair value of the assets given up, UNLESS:
- Transaction lacks commercial substance, - OR -
- Fair value of the asset received or given up can’t be measured reliably
^If either happens, intangible is measured at the carrying amount of the assets given up.
Which 4 Internally generated intangibles CANNOT be capitalized?
CANNOT Capitalize: internally generated brands, publishing titles, customer lists, and similar items.
What is the treatment for costs incurred in the Research Phase and why?
Costs are EXPENSED because entity can’t demonstrate that expenditures will result in a future economic benefit.
To capitalize development costs, the entity must demonstrate 6 things:
1) its intention to complete the asset
2) Technical feasibility of completing the asset
3) the availability of resources to complete
4) its ability to use or sell the intangible asset
5) the intangible asset will generate probable future economic benefits (existence of a market or the usefulness of the asset to use internally)
6) ability to measure expenditures during development
Give me 4 examples of directly attributable costs that were necessary to generate the intangible that CAN be deferred.
a) cost of materials/services used to consume or generate intangible
b) costs of employee benefits
c) fees to register a legal right
d) amortization of patents and licenses that are used to generate the intangible
Give me 3 examples of costs you CAN’T defer for an intangible asset?
1) selling admin or general overhead exp’s unless directly attributable
2) identified inefficiencies before asset achieved planned performance
3) expenditure to train staff to operate the asset
What are the 2 valuation model choices for the subsequent measurement of Intangible assets with finite useful lives?
Cost or Revaluation
What is the subsequent measurement of intangibles with infinite useful lives?
Not amortized but are assessed annually for impairment
What is the difference in subsequent measurement of intangibles not yet in use between IAS 38 and ASPE 3064?
In IFRS, intangibles not yet in use must be tested at least annually or when there are indicators of impairment.
ASPE does not require annual impairment tests on intangibles that are not in use.
Where can Contingencies be found in the CPA Canada Handbook under ASPE?
ASPE 3290
Where can Contingencies/Provisions be found in the CPA Canada Handbook under IFRS?
IAS 37
Under IFRS, what is the difference between a Contingent Liab and a Provision?
Continent Liabs don’t meet the recognition criteria but Provisions do meet the criteria
Contingent liability can be called a Provision when 3 criteria are met:
a. Entity has a present obligation arising as a result of a past event
b. It is considered PROBABLE that the entity will have an outflow of economic resources
c. The entity can reliably MEASURE the outflow of economic resources
When there are a small number possible outcomes, what amount do you record the provision for?
Record provision at the most likely outcome.
When a large number of possible outcomes, what amount do you record the provision for?
The expected value
If there’s a range of equally likely possible outcomes, how do you value the provision under a) IFRS and b) ASPE ?
a) use midpoint of the range
b) use the lowest value
When do you record a contingent asset (IFRS) or contingent gain (ASPE) under both standards?
For IFRS needs to be virtually certain (95%), for ASPE needs to be certain (100%).
When company has a foreign currency transaction, what is the name and meaning of the exchange rate that is used?
The spot exchange rate, which is the exchange rate at the date of the transaction
For foreign currency transactions, which exchange rate should be used to recognize Revenues and Expenses?
The rate of exchange on the date of recognition
What is the subsequent measurement of monetary items (assets/liabs) for foreign currency transactions?
They should be translated using the exchange rate at year end, with gains/losses in NI
What is the subsequent measurement of non-monetary items (assets/liabs) for foreign currency transactions?
They are NOT translated at each year end, but the gains/losses are recognized at derecognition.
Where can Decommissioning Provisions be found in the CPA Canada Handbook under IFRS?
IAS 37
Where can decommissioning provisions be found in the CPA Canada Handbook under ASPE?
ASPE 3110
A decommissioning provision is recorded when 3 criteria are met:
When all of the Criteria apply:
1. The entity has a present obligation (legal or constructive) from past event
2. Its probable that an outflow of resources is needed to settle the obligation
3. Amount of the obligation can be estimated reliably
What is the initial measurement of the Decommissioning provision under IFRS? (JE)
Credit Decommissioning Provision and debit the asset
What is the difference between the types of decommissioning provisions that may be recorded in IFRS vs ASPE?
IFRS can record provision for Legal and Constructive obligations. ASPE can only recordprovision for legal obligations.
Which account is used to increase the Decommissioning Provision over time in IFRS vs ASPE?
In IFRS, increase Decommissioning provision each year using Interest Expense.
In ASPE, increase by using Operating Expense.
How are a) permanent differences and b) temporary differences treated under IFRS?
a) adjusted to get Taxable Income
b) used to calculate deferred taxes
How far backward and forward can tax losses be carried?
carried back 3 yrs, forward 20 yrs
Which accts are used in the JE for loss carrybacks?
Income taxes receivable and Current Income tax expense (recovery).
What is the Criteria before recording a Deferred Tax Asset for loss Carry-forwards?
Company has to assess if it is probable that it will earn sufficient taxable income in the future to use the benefit. If probable then use future enacted tax rate to calculate deferred tax asset
What is the JE in a) the year that a loss carryforward is done and b) the future year it’s actually used?
a) Dr. Deferred tax asset
Cr. Deferred income tax expense (recovery)
b) Dr. Deferred income tax expense (recovery)
Cr. Deferred tax asset
What is the ASPE phrase for “deferred taxes”?
Future income taxes
What are the Methods allowed for Income Taxes under IFRS and ASPE?
IFRS: Future Income Taxes Method is required
ASPE: Either Future Income Taxes Method or the Taxes Payable Method
Under IFRS, which Method(s) can be used when accounting for Investments in associates (significant influence)?
Equity Method
Under ASPE, which Method(s) can be used when accounting for Investments in associates (significant influence)?
Choice between the equity method and the cost method.
NOTE: if the shares in the associate are publicly traded with a quoted price, must use FV and not Cost
What is the formula to calculate Equity Income?
Equity Income =
Share of associate’s income
+/- FV differential
+ realized intercompany profits/gains (or - losses ) from previous year, net of tax
-unrealized intercompany profits /gains (or + losses) in current year, net of tax
Using the Equity Method, how are intercompany transactions treated?
Calculate amount reduced from Equity income as:
Sales in ending inventory * gross profit % * investor’s % ownership
- when the inventory is sold to a third party, the profit is realized and accounted for as an addition to equity income
For a Defined Contribution Plan, what amounts are included in Pension Expense?
- Current service cost
- Past service cost
- Net Interest cost
Which 2 off-balance sheet accts are required for a Defined Benefit Plan?
1) Defined benefit obligation
2) plan assets
What is the difference in recognition of Actuarial/Remeasurement gains and losses in a) IFRS and b) ASPE?
a) gains and losses are netted and recognized in OCI
b) Gains/losses on DBO are recnogized in NI separate from gains/losses on Plan Assets
What are 3 costs that can increase the DBO and 1 thing that will decrease the obligation?
Increase: Current service cost, past service cost, net interest cost
Decrease: Benefits paid in the year
How do you calculate Remeasurement/Actuarial gains/losses on DBO and Plan Assets?
Expected ending amount - Actual ending amount
What are 2 things that increase Plan Assets and things that decreases it?
Increase: funding payments, interest income
Decrease: benefits paid in the year
How do you calculate net interest cost for a Defined Benefit Plan?
interest expense on the DBO net of interest income earned on plan assets
How do you calculate the Net Defined Benefit Asset/Liab?
DBO - Plan Assets
Net Defined Benefit Asset is measured at the LEAST OF:
a) the surplus in the plan
b) the asset ceilling
How is the asset ceiling for Defined Benefit plans calculated?
Asset Ceiling = net present value of SUM of:
○ Future reduction in funding as a result of the existing surplus
○ A cash refund of part or all of the surplus
What is the main difference between a Share Option and a Share Appreciation Right (SAR)?
For share options the employee has to pay an exercise price to purchase the shares, but SARs can simply be redeemed without paying anything.
How do you calculate Compensation Expense at year end for Share Options?
FV of option x # of months so far this year x % expected to vest
What is the difference between the subsequent remeasurement of Stock Options vs SARs?
Both are measured at FV initially, but Stock Options aren’t revalued, while SARs are remeasured to FV at each reporting date
What is the difference in measurement of a cash-settled SAR in IFRS vs ASPE?
IFRS measures them using FV, but ASPE measures uding Intrinsic value:
Intrinsic value = Market price - exercise price
When is a cash flow hedge entered into in comparison to a fair value hedge?
Cash flow hedges are entered into BEFORE the hedged item, while fair value hedges are entered into DURING/AFTER the hedged item.
Which of the following has its gains/losses recognized in OCI and then reclassified to NI on the date of derecognition?:
a) cash flow hedge
b) FV hedge
Cas flow hedge.
Gains/losses on FV hedges are updated on the reporting date and settlement date, with gains/losses in NI
EPS must be reported by this type of company
Public company
Formula for Basic EPS =
= Net earnings (loss) available to common shareholder / WACSO
The formula for Incremental EPS when calculating Diluted EPS =
Incremental EPS = income impact of Potential Common Shares / share impact of Potential Common Shares
What is the formula for the Acquisition Differential?
= Consideration paid - Book value of investee’s net assets
How do you calculate Goodwill for Business Combos on the Date of Acquisition?
Goodwill = Acquisition Differential +/- FV Differential
How do Deferred Income Taxes affect the calculation of Goodwill?
Find all the net temporary differences (BV-FV) and multiply by the tax rate to be DIT
§ If positive DIT, add it to determine goodwill
§ If negative, deduct it to determine goodwill
How are FV differentials amortized?
Amortized to the consolidated statements over time using the income statement account impacted by its respective BS acct.
Which approach is used for Change in Estimate for both IFRS and ASPE?
Prospective approach
When is a company allowed to make a Policy Change under IFRS? (2 Conditions)
- Voluntary change results in more reliable and relevant info for users
- Change under GAAP
Which Approach is used for Changes in Policy under both IFRS and ASPE?
Retrospective
Which Approach is required for Correction of errors under both IFRS and ASPE?
Retrospective
What is the difference in required presentation for Correction of Errors under IFRS vs ASPE?
IFRS allows for the earliest period that is practical to be restated, but ASPE requires that ALL periods are restated regardless of practicality
Where can Events After the Reporting Period be found in the CPA Canada Handbook for IFRS?
IAS 10
Where can Subsequent Events be found in the CPA Canada Handbook under ASPE?
ASPE 3820
What is the period where events would be considered ‘Subsequent events’?
Events that occur between the end of the reporting period and the date when the financial statements are authorized for issue
Whats the first step in considering Subsequent events?
If the event is material or immaterial to users
What do you do if a subsequent event is material to users vs immaterial?
Material: decide if it’s an adjusting event or a non-adjusting event
Immaterial: do nothing
What is the difference between adjusting and non-adjusting events?
Adjusting events are related to conditions that existed at year end. Must be recorded.
Non-adjusting events are not related to conditions that existed at year end. Not recorded but disclosed.
If a change in the going concern assumtion happens during the subsequent event period, what do you do?
Must restate the current period’s balance sheet at liquidation value
What is the difference in the subsequent event date in ASPE vs IFRS?
Subsequent events would stop being considered after the date the f/s are COMPLETED in ASPE.
Subsequent events would stop being considered after the date the f/s are AUTHORIZED in IFRS.
What are the types of Joint Arrangements under IFRS?
1) Joint Operation
2) Joint Venture
What are the types of Joint Arrangements under ASPE?
1) Jointly controlled operation
2) Jointly controlled Assets
3) Jointly controlled Enterprise
Which of the following usually involves a separate legal entity?
a) Joint operation
b) Joint Venture
Joint Venture
How does an investor acct for a Joint Operation in IFRS?
They would report their share of assets, liabs, revs, and exps in their F/S
How would an investor acct for a Joint Venture?
Equity Method
How is a Joint Venture intially valued?
The value of the consideration given up
How would gains/losses for the JV affect the “Investment in JV” acct?
Increases/decreases the investment acct for the portion of the entity’s share in the JV. Gain/loss in NI
How does money received from the Joint Venture affect the “investment in Joint Venture” acct?
decreases the investment acct but doesn’t affect NI
How would an investor acct for a Jointly controlled operation under ASPE?
Investor recognizes its share of assets liabs, revs and exps.
How would an investor acct for Jointly controlled Assets under ASPE?
Investor recognizes its share of assets liabs, revs and exps.
How would an investor acct for a Jointly controlled Enterprise under ASPE?
Equity method or Cost method
What are the 2 types of Foreign Operations?
1) Integrated Operation
2) Self Sustaining Operation
What is the difference in Funtional Currency of an Integrated Operation vs a Self Sustaining Operation?
Functional currency for Integrated Operation is CAD $
Functional currency for Self sustaining Op is not CAD $
What is the actg treatment for an Integrated Operation vs a Self Sustaining Operation?
IO: operates as an extension of the parent, so as if the parent made those transactions.
SSO: Operates independently from parent, so parent treats it as an investment
Which accounting standard choices are available for Not for Profit entities?
IFRS, ASPE, ASNPO
What are the 4 types of funds available when using Fund Actg?
- General Fund
- Restricted Fund
- Capital Asset Fund
- Endowment fund
What are the 2 Actg Methods for Contributions?
1) Restricted fund method
2) deferral method
When is it mandatory for a NPO to use Fund Actg?
When they use the restricted fund method of actg for contributions
What are the 2 criteria for a NPO to record Revenue for Unrestricted contributions?
- The amount to be received is reasonably estimated
- Ultimate collection is reasonably assured
What are the 3 types of Contributions a NPO can receive?
1) unrestricted, 2) restricted, 3) endowment
What is the JE when an NPO receives a restricted contribution under the Deferral Method?
Dr. Cash
Cr. Deferred Contribution
What is the JE when an NPO uses a restricted contribution?
Dr. Exp
Cr. Cash/AP
Dr. Deferred Contribution
Cr. Contribution Rev
What is the JE when an Endowment Contribution is made to an NPO under the Deferral Method?
Dr. Cash
Cr. Net Assets (instead of Contribution Rev)
What is the JE when an unrestricted contribution is received by an NPO using the Deferral method?
Dr. Cash
Cr. Contribution Rev
What is the JE when an unrestricted contribution is received by an NPO using the Restricted Fund method?
Dr. Cash
Cr. Contribution Rev (general fund)
What is the JE when a NPO receives restricted funds and a separate fund a) is set up, and b) isn’t set up
a) Dr. Cash
Cr. Contribution revenue (specify fund)
b) Dr. Cash
Cr. Deferred Contribution
JE when the specific expense is incurred:
Dr. Expense
Cr. Cash or AP
Dr. Deferred Contribution
Cr. Contribution revenue (general fund)
What is the JE when a capital asset is given to a NPO using the restricted fund method?
Dr. Capital asset
Cr. Contribution rev (capital asset fund)
What are the 2 Conditions to recognize contributed goods/services?
○ FV of the goods/services can be reasonably estimated
○ Goods/services are used in normal operations and would have been purchased otherwise
If conditions are met, recognize at FV.
What is the JE to record the contribution of goods/services?
Dr. Contribution Exp
Cr. Contribution Rev
- both at FV
What is the leeway given to NPOs with average annual rev’s less than $500K in the current and previous year?
They may choose to do one of the following:
1) Directly expense the cost of tangible capital assets
2) Capitalize and amortize the cost of tangible capital assets
In IFRS 15 Revenue Recognition Step #2, how can you determine if the PO’s are distinct? (2 factors)
1) Customer can benefit from the goods/services on their own, or 2) the promise to transfer the good/service is separate from other promises in the contract.
In IFRS 15 Revenue Recognition Step #5, what are the criteria or factors to consider to record revenue at a single point in time?
□ Significant risks and rewards of ownership are transferred
□ Seller has a present right to payment
□ Physical possession has transferred
□ Customer accepted the asset
□ Legal title has transferred
