Financial Reporting

Question 1

Asset Criteria (ASPE)

Answer 1

1) Future Benefit
2) Control the benefit
3) Event caused benefit already occurred

Question 2

Inventory Valuation (ASPE)

Answer 2

• Value at the lower of:
  a) cost
  b) NRV (selling price - selling cost)

Question 3

Define NRV

Answer 3

Estimated selling price in the ordinary course of business - estimated selling cost

Question 4

Inventory Costs valuation (ASPE)

Answer 4

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

Question 5

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

Answer 5

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

Question 6

Intangible Assets (Goodwill) - Amortization methods

Answer 6

If useful life can be determined - amortize over useful life (how to determine this? see below)

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

Indefinite life - test for impairment

all should be reviewed annually

Question 7

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

Answer 7

If impairment exists, reduce carrying value to the highest of:

a) PV of CF expected from holding asset
b) NRV
c) Amount entity expects to realize from exercising its right to collateral

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

Question 8

Define: Consignment sales

Answer 8

Sales that are shipped, not yet billed.

• Could be returned
• risk and reward not transferred to buyer

Question 9

Revenue recognition criteria: consignment sales (ASPE)

Answer 9

Revenue cannot be recognized until either:

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

Question 10

Revenue recognition criteria (ASPE)

Answer 10

1) collection is reasonable assured
2) considerations can be reliably measured
3) performance has been achieved (risk and reward transferred // significant act has been performed)
ASPE 3400.04-.06

Question 11

Revenue recognition - collectability criteria (ASPE)

Answer 11

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

Question 12

Revenue recognition - performance criteria (ASPE)

Answer 12

Met if….

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

Question 13

Lease (ASPE)

Answer 13

Operating vs. Capital
If one of the criteria is satisfied, it will be Capital lease:
1) Title transfer or bargain purchase
2) Lease term is major part of the asset’s economic life (>75%)
3) PV of minimum lease payment (>90%) of FV of asset

Question 14

Lease - differences between ASPE vs. IFRS

Answer 14

ASPE - if one of the criteria met, deemed capital lease (terminology - operating & capital)
IFRS - suggests factors (similar to ASPE’s factors)to consider in deciding whether the lease as finance lease vs. operating lease.
(terminology - operating & finance)

Question 15

Lease - explain title transfer and bargain purchase

Answer 15

Title Transfer: reasonable assurance title of asset will transfer to lessee at the end of term
Bargain Purchase: purchase of asset likely to occur, where purchase price is below FMV at the end of the lease

Question 16

Cash Flow - Indirect Method - how does it work?

Answer 16

Net income
+/- non cash expenses (ie. amortization, gain/loss on sale of assets)
+/- Δ in working capital (ie. AR, inventory, AP, taxes)

Question 17

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

Answer 17

PP&E
Financial Investment
Intangibles

Question 18

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

Answer 18

Demand loans
Term loans
Share capital
Dividends paid

Question 19

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

Answer 19

Amortization
Gain/loss from investments
Provision for losses on AR

Stock dividend

Question 20

Revenue Recognition on Consignment Inventory (IFRS)

Answer 20

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

Question 21

Development phase capitalization criteria (IFRS)

Answer 21

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

Question 22

Intangible Asset identification and recognition (IFRS)

Answer 22

1) Identifiable
2) Control
3) Future Benefits

Can only be recognized if…

1) Future Benefit will flow in
2) Cost of asset can be measured reliably

Question 23

How to determine if the transaction has Commercial Substance?

Answer 23

It has commercial substance,
1) Risk, timing, and amount of future cash flow of asset received differ significantly from the risk, timing and amount of the cash flow of the asset given up
OR
2) Entity specific value of the asset received is significantly different from the asset given up

Question 24

Non-monetary transactions

Answer 24

Non-monetary transaction is measured at the fair value of the asset given up or received - whichever one is deemed to be more reliable.
However, it is measured at carrying cost of asset given up if:
1) the transaction lacks commercial substance
2) fair value of neither asset can be reliably measured

Question 25

Held for Sale(?!)

Answer 25

1) Availability to sell
2) Carry amount is intended to be recovered through sale instead of cash inflow
3)