Financial Reporting Flashcards
Asset Criteria (ASPE)
1) Future Benefit
2) Control the benefit
3) Event caused benefit already occurred
Inventory Valuation (ASPE)
- Value at the lower of:
a) cost
b) NRV (selling price - selling cost)
Define NRV
Estimated selling price in the ordinary course of business - estimated selling cost
Inventory Costs valuation (ASPE)
Purchase + conversion + other costs to bring inventory to current location/condition
- Excluded: trade discount, rebates, storage, admin OH, selling costs
Intangible Assets (internally generated; R&D) - what is expensed and what is capitalizable?
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
Intangible Assets (Goodwill) - Amortization methods
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
Impairment of Financial Instruments (ASPE) - how to impair?
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
Define: Consignment sales
Sales that are shipped, not yet billed.
- Could be returned
- risk and reward not transferred to buyer
Revenue recognition criteria: consignment sales (ASPE)
Revenue cannot be recognized until either:
1) goods can no longer be returned OR
2) payments is made
Revenue recognition criteria (ASPE)
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
Revenue recognition - collectability criteria (ASPE)
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
Revenue recognition - performance criteria (ASPE)
Met if….
- persuasive evidence an arrangement exists
- delivery occurred
- service rendered
- price to buyer is fixed or determinable
Lease (ASPE)
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
Lease - differences between ASPE vs. IFRS
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)
Lease - explain title transfer and bargain purchase
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
Cash Flow - Indirect Method - how does it work?
Net income
+/- non cash expenses (ie. amortization, gain/loss on sale of assets)
+/- Δ in working capital (ie. AR, inventory, AP, taxes)
Cash Flow - what are the components of cash flow from investing activities?
PP&E
Financial Investment
Intangibles
Cash Flow - what are the components of cash flow from financing activities
Demand loans
Term loans
Share capital
Dividends paid
Cash Flow - what are examples of non-cash items?
Amortization
Gain/loss from investments
Provision for losses on AR
Stock dividend
Revenue Recognition on Consignment Inventory (IFRS)
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
Development phase capitalization criteria (IFRS)
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
Intangible Asset identification and recognition (IFRS)
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
How to determine if the transaction has Commercial Substance?
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
Non-monetary transactions
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
Held for Sale(?!)
1) Availability to sell
2) Carry amount is intended to be recovered through sale instead of cash inflow
3)
