Financial Reporting Flashcards

Question

ASPE & IFRS Government Assistance

Answer 1

``` ASPE 3800 IAS 20 Recognize when • Entity can and will comply with conditions • Grant will be received Grants related to income: • Other Income (separated) or • Deduct from expenses Grants related to assets • Deferred revenue and brought into income as depreciation occurs or • Deducted from asset carrying amount Non-monetary grants recorded at FV ```

Answer 2

Criteria 3065 – meets risks and rewards (capital lease) when one or more: • Title transfer or BPO • Lease term is major part of useful life 75% • PV of min lease pmts is 90% of FV Measurement • Initial – Lower of FV or PV of min pmts • Subsequent- Depreciation on item • Non-lease component costs excluded • Discount rate is lower of lease rate and entity borrowing rate

Answer 3

IFRS 16 -All leases are capitalized (Unless less than one year) • ROU asset less costs and liability = PV of all future pmts • Non-lease component costs – election is allowed to include in lease payments • Discount rate is the lease rate, if not avail then borrowing rate • Tested for impairment each period • Lease liability – Initial – include any lease payments and any variables, purchase options, guaranteed residuals • Subsequent - measure at amortized cost, interest expense is recognized using the rate used to PV the pmts • ROU – Initially measure at the lease liability + any costs or future costs to be incurred in relation to the lease • Subsequent - Amortize over the life of the lease

Answer 4

ASPE 3856 IAS 32 • Not a financial instrument because it is not an obligation that will result in having to pay cash or other financial assets

Answer 5

ASPE 3831 Measure at fair value unless any are true: • Transaction lacks commercial substance • Products exchanged that are held for sale in ordinary course of business are similar in nature • FV of both assets are not reliably measured • Is a NMT, non-reciprocal transfer to owners Otherwise measure at carrying value • When both FV of assets are known, measure at FV of asset given up • No impact to the financial statements because recording revenue and expense

Answer 6

• When both FV of assets are known, revenue to be recognized at FV of asset received

Answer 7

Acquired intangible ASPE 3064 recognize if: Definition • Separately identifiable and costs reliably measured • Control of asset • Future economic benefits Recognition • Expected future economic benefits are probable • Cost can be reliably measured • Future benefit is assessed reasonability with supportable assumptions of mgmt. best estimate Development costs capitalize if: • Probable economic benefits • Intention to complete and use or sell • Resources available to – either technical or financial to use or sell • Ability to use or sell • Technical Feasibility of completing to be available for use or sale • Expenditures reliably measured Expenditure on an intangible item that was initially recognized as an expense shall not be recognized as part of the cost of an intangible asset at a later date Measurement • Research costs expensed • Can choose to capitalize or expense development costs • Amortize over useful life if not indefinte

Answer 8

Acquired intangible IAS 38 recognize if: Definition • Separately identifiable and costs reliably measured • Control of asset • Future economic benefits Recognition • Expected future economic benefits are probable • Cost can be reliably measured • Future benefit is assessed reasonability with supportable assumptions of mgmt. best estimate Development costs must capitalize if: • Probable economic benefits • Intention to complete and use or sell • Resources available to – either technical or financial to use or sell • Ability to use or sell • Technical Feasibility of completing to be available for use or sale • Expenditures reliably measured expenditures that were incurred prior to the deferral criteria being met may not be retroactively deferred Subsequent – finite life- • choice of cost model or revaluation model for assets traded on active market • Amortize over life Infinite life (including GW) – • Assessed annual for impairment • No amortization

Answer 9

ASPE 3064 • Internally generated goodwill shall not be recognized as an asset. Recognize the following expenditures: • Cost of materials and services used in generating the asset • Fees to register a legal right • Amortization of patents and licenses that are used to generate asset • Interest costs when elected to capitalize Not components: • Selling & amin other general overhead • Identified inefficiencies, initial operating losses • Training staff Speak to how the asset will be measured and amortized

Answer 10

``` Criteria ASPE 3290 if both: • Likely that future event will confirm impairment or liability 100% likely • The amount is reasonably estimated Measurement • Use minimum amount estimated • Do not accrue for contingent gain • Disclose ```

Answer 11

Criteria IAS 37 if both: • Likely that future event will confirm impairment or liability (probable) • The amount is reasonably estimated Measurement • Best estimate of most likely outcome • If multiple outcomes likely use weighted average

Answer 12

Criteria ASPE 3475 Non-current asset held for sale: Available for sale in present condition, terms of sale usual, sale must be highly probable: • Mgmt. committed to sell • initiated active program to locate buyer, • expected to be sold in one year, • unlikely changes made If write up is needed, recognize gain to extent of prior losses Discontinued Operations, meets one criteria: • Separate major line of business or area, • part of a single coordinated plan to dispose of major business or area, • a subsidiary acquired exclusively to resell Measurement • Lower of carrying value and FV less disposal • After-tax Loss to P&L • Classified as non-current assets if they have not sold prior to the completion of the financial statements • Disclosure • Recommends the write down of the assets and the loss on the discontinued operations be presented separately on the income statement

Answer 13

Criteria IFRS 5 Non-current asset held for sale: Available for sale in present condition, terms of sale usual, sale must be highly probable: • Mgmt. committed to sell • initiated active program to locate buyer, • expected to be sold in one year, • unlikely changes made If write up is needed, recognize gain to extent of prior losses Discontinued Operations, meets one criteria: • Separate major line of business or area, • part of a single coordinated plan to dispose of major business or area, • a subsidiary acquired exclusively to resell Measurement • Lower of carrying value and FV less disposal • After-tax Loss to P&L (discontinued operations to OCI, post tax) • Classified as current assets since the assumption is they will be disposed of in 12 months • Recommends the write down of the assets and the loss on the discontinued operations be presented separately on the income statement

Answer 14

ASPE 1651 IAS 21 Measurement • Initial- record as functional curr using spot rate between the functional and foreign currency • Functional curr of the primary economic activity. (day to day operations) • Year-end- Monetary: closing rate of each period • Year-end-Non-monetary: FX rate at date of transaction

Answer 15

Criteria ASPE 3051 • Significant influence – Equity method – assets and income higher • Cost method • Strategic decisions will result in intercompany transactions • Equity method will result in better looking financials, as long as the investment is profitable • Equity method, no affect on tax purposes. Earnings reported under equity method are not taxable

Answer 16

Criteria IAS 28 – Equity method: Initially at cost • Subsequent add income, deduct dividends Calculation: Associate NI x Ownership% = Share of income +/- FV differential, net of tax + realized interco G/L from prior year, net of tax -Unrealized interco G/L in current year, net of tax Unrealized inventory profit: sales in ending inventory X GP% X % ownership

Answer 17

• To assess assets for collateral • Cash flow projection to assess ability to meet the loan payments but will not provide a pic of A&L • To assess obligations to other lenders • Bank is looking to protect its interests GAAP helps the bank ensure comparability and consistency

Answer 18

ASPE o Used by private companies that have simple reporting systems and operations o Allows for simpler accounting policy choices with less note disclosures that take less resources to administer o More cost-effective method IFRS o Must be used by public companies but can be used by private companies if they need more guidance on complex transactions and operations. o Often used by private companies that have external investors to satisfy the needs of the users or if the company is planning to go public o Increased requirement of note disclosures can be difficult or costly to administer o Would need to spend more time of training and compliance

Answer 19

ASPE only allows hedge accounting to be used when: • A forward contract is used to hedge an anticipated foreign currency cash flow. • A forward contract is used to hedge an anticipated purchase or sale of a commodity. • An interest rate swap is used to hedge interest rate risk in a recognized interest-bearing loan receivable or loan payable. As a result of these restrictions, hedge accounting cannot be applied to foreign debt Measurement If the forward contract qualifies for hedge accounting, generally it is not recognized until it matures, and the gain or loss is recorded as an adjustment against the hedged item, not to OCI or net income.

Answer 20

Per IFRS 9 hedge can only be used when all are met • Must consist of eligible hedged item and eligible hedge instrument • At inception, the relationship is formally designated and documented along with the risk mgmt. objective and strategy • Three effectiveness requirements are met: • Economic relationship between the hedge item and the hedge instrument • Credit risk does not dominate the change in value • Hedging ratio is the same for the relationship and the quantity of the hedged item and the quantity of the instrument • Eligible hedged item • Existing asset or liability • Unrecognized firm commitment • Highly probable future transaction Net investment in foreign operations

Answer 21

ASPE 1506: Voluntary policy change that provides more reliable information o Apply retrospectively o Disclose nature, reason, amount, years and accounts impacted o Do not need to prove more reliable information for subsidiaries, defined benefit obligation, jointly controlled enterprise, income taxes, development costs, convertible debt Standard requires the change o Apply consistent with transitional provision o Disclose title of standard, nature, description, periods Change in estimate that provides new information not previously available o Prospectively o Disclose, nature, amount Error from prior period o Retrospectively o Disclose description, amount, account and priors impacted, restatement o ASPE does not allow for impartibility of restatement

Answer 22

IFRS 8: Voluntary policy change that provides more reliable information o Apply retrospectively o Disclose nature, reason, amount, years and accounts impacted Standard requires the change o Apply consistent with transitional provision o Disclose title of standard, nature, description, periods Change in estimate that provides new information not previously available o Prospectively o Disclose, nature, amount Error from prior period o Retrospectively o Disclose description, amount, account and priors impacted, if retrospective restatement not practical then description of how error was corrected

Answer 23

Adjusting events • Court case related to an event that occurred prior to year end settled • Information indicating asset was impaired • Customer goes bankrupt • Sales of inventories give evidence to NRV lower than BV • Discovery of fraud or errors Non-adjusting events – not reported but disclose nature and estimate • Dividends declared after reporting period • Destruction of a major plant • Announcing a major restructuring • Changes in tax rates or tax laws enacted or announced Financial statement Prior year impact – Net of tax affects net income and deferred tax liability IFRS: Board authorization date of the financial statements

Answer 24

ASPE 3056 Joint Arrangements • Jointly controlled operations o Require the investor to recognize its share of assets, liabilities revenues and expenses • Jointly controlled assets o Require the investor to recognize its share of assets, liabilities revenues and expenses • Jointly controlled enterprises o Either use the equity method or cost method

Answer 25

IFRS 11 Joint operations • No investment account • Recognize share of assets, liabilities, revenues, expenses • Each party has rights to the assets of the joint arrangement Joint Ventures • Use equity method • Acquisition- Transfer asset to JV • GW from fair value differentials as part of investment, not separate • Increase or decrease investment by share of P&L, offsetting to equity income • Dividends received is a reduction to investment • The parties have rights to the net assets of the entity.

Answer 26

``` Direct Method • Cash Receipts from customers o +- in def rev o +- in AR • - cash paid to suppliers • +- in AP and accrued liabilities • +- in inventory and prepaid • Possible cogs items like amort • -cash paid to employees o +- in wage payable • -cash paid for interest o +- interest expense • -cash paid for taxes o +- in tax payable • = Cash flows from operating activities Indirect method • Net Income • + Depreciation • +- loss or gain on assets • Changes in working capital: +-change in: • AR • Inventory • Prepaids • AP and accruals • Def rev • =Cash flows from operating activities ```

Answer 27

• Indirect advantage: it focuses on the differences between net income and net cash flow from operations o Simpler o More cost effective to prepare • The direct method id though of being superior and is the recommended standard. • The difference between the two only impacts cash flows from operations. Cash flow from investing and financing are the same under both methods As a general rule (watch for exceptions): • Operating activities impact current assets and liabilities. • Investing activities impact long-term assets. • Financing activities impact long-term liabilities and equity. • Interest paid can be shown as either operating or financing • Interest earned can be shown as operating or investing • Dividends can be shown as operating or financing • ASPE: interest, dividend income are all operating. Dividends paid are financing

Answer 28

Under ASPE 3400 the following criteria are required to be met to recognize revenue when delivery has not occurred: • the risks of ownership must have passed to the buyer; • the customer must have made a fixed commitment to purchase the goods; • the buyer, not the seller, must request that the transaction be on a bill and hold basis, and the buyer must have a substantial business purpose for ordering the goods on a bill and hold basis; • there must be a schedule for delivery of the goods that is reasonable and consistent with the buyer's business purpose • the seller must not have retained any specific performance obligations such that the earning process is not complete; • the ordered goods must have been segregated from the seller's inventory and not be subject to being used to fill other orders; and • the product must be complete and ready for shipment.

Answer 29

net income available to common shareholders after any preferred share dividends are paid / WACSO

Answer 30

Net earnings available to common shareholders + income effect of dilutive PCS / WACSO + share effect of dilutive PCS PCS = potential common stock Step 1: Calculate basic EPS Step 2: Identify all PCS (convertible bonds or shares, stock options Step 3: Calculate incremental EPS for each class of PCS (dilutive or anti-dilutive) Income impact / number of additional common shares Bonds: the after-tax interest that will not be paid if option is exercised Convertible preferred shares: number of shares X dividend per share (include cumulative) / number of additional shares Stock options: Only when in the money Exercise price