Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

CPA CORE 1 > General Terms / Glossary > Flashcards

General Terms / Glossary Flashcards

1
Q

Interest

A

Interest is the money paid by a borrower to a lender for the use of the lender’s money over a certain period of time. The sum of money borrowed or loaned is called the principal.
The rate of interest is the amount charged for the use of the principal over that given period of time.
Interest rates are normally quoted as a nominal (for example, ignoring compounding effects) annual rate.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Compound interest

A

Compound interest
Compounding is when interest is calculated on the outstanding principal plus accumulated
unpaid interest, rather than just the principal balance.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Time value of money

A

Time value of money
The premise of the time value of money (TVM) is that a dollar that you have today is worth more than the value of a dollar in the future.
Money that you hold today is worth more because you can invest it and earn interest.
Given that many financial liabilities are measured at the present value of the future cash flow stream, it is important to have a working knowledge of TVM.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Annuity

A

Annuity - Series of payments of the same amount paid or received at regular intervals.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Annuity due

A

Annuity due is the annuity in which payments are paid or received at the beginning of the period, with the first payment due when the obligation is incurred

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Accretion expense

A

Accretion expense is interest expense arising on an asset retirement obligation under ASPE.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Amortized cost (net book value)

A

Amortized cost (net book value) is the carrying cost of the financial liability as recorded in the books of the borrower.
The amortized cost is the amount initially recognized as an obligation, less principal payments, plus amortization of the discount or minus amortization of the premium arising on issuance.
The effective interest method is used to amortize discounts and premiums under IFRS.
Under ASPE, the straight-line method may also be used.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Asset retirement obligation

A

Asset retirement obligation is the terminology used in ASPE for decommissioning and site restoration obligations.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Constructive obligations

A

Constructive obligations are liabilities that arise from recurring past practice, rather than a contractual or legal responsibility.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Contingent asset

A

Contingent asset is an asset that the entity may be entitled to at a future date if one or more uncertain events occur and these events are not wholly within the control of the entity.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Contingent liability

A

Contingent liability can be either a) a liability that the entity may be responsible for at a future date if one or more uncertain events occur and these events are not wholly within the control of the entity
or
b) a present obligation that is not recognized because either it is not probable that the entity will have to pay the obligation or the obligation cannot be reliably measured.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Coupon (stated rate) of interest

A

Coupon (stated rate) of interest the stated rate of interest used to determine the interest payments on a financial liability.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Decommissioning (site restoration) obligations

A

Decommissioning (site restoration) obligations arise from an entity’s constructive or legal obligation to restore or remediate a site.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Defeasance

A

Defeasance is when a borrower places sufficient assets in trust to liquidate a loan at maturity, and as a result the lender discharges the borrower from its obligation to pay.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Deferred revenue

A

Deferred revenue (deposits, revenue received in advance, unearned revenue) are a liability that arises from accepting full or partial payment in advance for the future delivery of a good or service

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Derecognition

A

Derecognition occurs when a financial statement element is removed from the statement of financial position.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Discount rate (market rate of interest)

A

Discount rate (market rate of interest) is the required rate of return for a given transaction that factors in a number of items including the probability of default; the time to maturity; the security offered; the risk-free lending rate and inflationary expectations.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Discounting

A

Discounting is the process of calculating the present value of amounts to be paid or received at a future date or dates.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Discounts

A

Discounts may arise on obligations if a financial liability does not pay interest or the stated rate of interest is less than the market rate of interest.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Effective interest

A

Effective interest rate is the interest rate actually paid when comparing the total amount repaid to the amount initially received and accounting for the effects of compounding.
In the absence of transaction costs, the effective rate of interest will equal the market rate of
interest when the liability was incurred.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Effective interest method

A

Effective interest method refers to the method used to determine the amortized cost of
financial liabilities.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Expected value

A

Expected value is the probability-weighted average of all possible outcomes.
Expected values are calculated by multiplying each possible outcome by the probability of occurrence.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Expense-type warranties

A

Expense-type warranties are provided by the manufacturer with no additional fee being
charged for them.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Fair value (market value)

A 
Fair value (market value) is the price (dollar amount) that willing participants under no
compulsion to act will agree upon for a particular transaction.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Financial liability

A

Financial liability is a contractual obligation to deliver cash or another financial asset to
another entity.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Financial liability at fair value through profit or loss

A

Financial liability at fair value through profit or loss is a financial liability that is initially
and subsequently measured at fair value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Future value (FV)

A

Future value (FV) is the amount to be paid or received at a future point in time.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

In-substance defeasance

A

In-substance defeasance is when a borrower places sufficient assets in trust to liquidate a
loan at maturity, but the lender does not discharge the borrower from its obligation to pay.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Initial measurement

A

Initial measurement is how a financial statement element (such as a liability) is measured
(assigned a dollar amount) when it is first included in the financial statements.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Liability

A

Liability is a present obligation to pay money or deliver a good, other asset or service to
another party at a future date.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Non-financial liability

A

Non-financial liability is an obligation that meets the definition of a liability but is noncontractual
in nature and/or will be settled by means other than the payment of cash or
delivery of another financial asset

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Not probable

A

Not probable is a term used in accounting for contingencies. For contingent assets and
contingent liabilities, “not probable” denotes a probability of less than 50%.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

Onerous contract

A

Onerous contract is a contract in which the unavoidable costs of meeting an obligation
exceed the economic benefits expected to be earned by fulfilling the contract.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

Other financial liability

A

Other financial liability is a financial liability that is normally initially measured at fair value
less transaction costs and subsequently measured at amortized cost.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

Own-party awards

A

Own-party awards are customer loyalty awards supplied by the company making the sale.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

Perpetuity

A

Perpetuity is a special case of an annuity where the contract runs forever, that is, there is
no end to the payments to be paid or received.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

Possible

A

Possible is a term used in accounting for contingencies.

For contingent liabilities, “possible” denotes the range of >5%/10% to 50%.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

Premiums

A

Premiums may arise on obligations if the stated rate of interest of a financial liability is
greater than the market rate of interest.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

Present value (PV)

A 
Present value (PV) is the value today of a single payment or a series of payments to be
paid or received in the future given a specified interest (discount) rate.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

Probable

A

Probable is a term used in accounting for contingencies. For contingent assets, “probable”
denotes the range of >50% to 95%. For contingent liabilities, “probable” denotes a
probability of greater than 50%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

Provision

A

Provision is a liability where there is uncertainty about the amount of the obligation and/or
the timing of the payment.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

Recognition

A

Recognition is when a transaction is first included in one of the financial statements. This
would normally be accomplished by processing a journal entry that creates an asset,
liability, equity, income or expense.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q

Regular annuity

A

Regular annuity is an annuity in which the payments are paid or received at the end of
each period.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

Remote

A

Remote is a term used in accounting for contingencies. For contingent liabilities, “remote”
denotes the range of 0% to 5%/10%.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
45
Q

Sales-type warranties

A

Sales-type warranties are sold separately from the warranted product either by the
manufacturer or another party.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
46
Q

Subsequent measurement

A

Subsequent measurement is how a financial statement element (such as a liability) is
measured (assigned a dollar amount) when it is included in subsequent financial
statements.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
47
Q

Third-party awards

A

Third-party awards are customer loyalty awards supplied by a company different from that
making the sale.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
48
Q

Unavoidable costs under a contract

A

Unavoidable costs under a contract are the lower of the cost of fulfilling the contract and
the compensation that must be paid for not fulfilling the contract.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
49
Q

Virtually certain

A

Virtually certain is a term used in accounting for contingencies. For contingent assets,
“virtually certain” denotes a probability of 95% or greater.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
50
Q

Warranties

A

Warranties are a guarantee provided by the manufacturer or other party that it will fix or
replace defective products for a specified period.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
51
Q

Opportunity cost rate

A

the interest rate that would be earned under another use for the funds

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
52
Q

CBCA

A

Canada Business Corporations Act

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
53
Q

Accumulated other comprehensive income (AOCI)

A

Accumulated other comprehensive income (AOCI) is reported on the statement of
financial position as a component of equity. Other comprehensive income is closed to
AOCI. The most common sources of AOCI are changes in fair value of investments valued
at fair value through OCI; unrealized holding gains on property, plant and equipment valued
using the revaluation method; and unrealized gains and losses on plan liabilities and
actuarial gains and losses on plan liabilities for defined benefit pension plans.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
54
Q

Benchmark price

A

Benchmark price for SARs is the price to which the market price of the underlying shares
is compared to determine the amount of the award under a stock appreciation rights plan.
This is analogous to the exercise price for employee stock options. See also exercise price.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
55
Q

Call options

A

Call options are contracts that give the holders the right, but not the obligation, to buy a
specified amount of an item for a specified price and for a specific period of time.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
56
Q

Cash dividends

A

Cash dividends are a distribution of cash to shareholders in direct proportion to their
ownership

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
57
Q

Common (ordinary) shares

A

Common (ordinary) shares are the class(es) of shares that have the right to share in the
profit or loss of the company and the residual amount on liquidation.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
58
Q

Compound financial instruments

A

Compound financial instruments are financial instruments that include at least two
components, one or more of which is a convertible security.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
59
Q

Contributed capital

A

Contributed capital is the amount received by the corporation from selling (issuing) shares
to the shareholders, net of redemptions or repurchases. Contributed capital incudes
common shares and preference shares.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
60
Q

Contributed surplus

A

Contributed surplus is an ASPE term used to describe the equity account used, for
example, to accumulate gains and losses on share redemptions.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
61
Q

Convertible bonds

A

Convertible bonds are compound financial instruments that include a) a bond that pays
interest at the specified rate and the face amount at maturity and b) an option to exchange
that bond for a predetermined number of common shares during a specified time frame.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
62
Q

Convertible preference shares

A

Convertible preference shares are compound financial instruments that include a) a
preference share that is entitled to dividends at the stated rate and b) an option to
exchange that preference share for a predetermined number of common shares during a
specified time frame.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
63
Q

Cumulative preference shares

A

Cumulative preference shares are shares for which all previously missed dividend
payments, together with the current entitlement, must be paid before any monies can be
distributed to the common shareholders by way of dividend.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
64
Q

Date of record

A

Date of record is the cut-off date established by a company in order to determine
which shareholders are eligible to receive a dividend or distribution.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
65
Q

Derivatives

A

Derivatives are financial instruments that change in value with an underlying economic
item such as a specified interest rate, commodity price or foreign exchange rate. They
require no or relatively little initial investment, and are settled at a future date.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
66
Q

Dividend declaration date

A

Dividend declaration date is the date the board of directors declares a dividend payable.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
67
Q

Dividend distribution (payment) date

A

Dividend distribution (payment) date is the date that the cash dividend is paid, or the stock or property dividend is distributed.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
68
Q

Dividends

A

Dividends are a distribution of capital to the owners of the corporation.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
69
Q

Dividends in kind (property dividends)

A

Dividends in kind (property dividends) are a distribution of non-cash assets to
shareholders in direct proportion to their ownership.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
70
Q

Employee stock options

A

Employee stock options are a form of call option on a corporation’s shares offered to select employees as part of their compensation package.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
71
Q

Employee stock option plans (ESOPs)

A

Employee stock option plans (ESOPs) are plans in which the employer offers select
employees the option of purchasing common shares in the company at a pre-established price for a specified period of time.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
72
Q

Ex-dividend date

A

Ex-dividend date is the date on or after which a security is traded without a previously declared dividend or distribution. If the stock is purchased before the ex-dividend date, the purchaser is entitled to receive the recently declared dividend; if purchased on or after the ex-dividend date, the seller is entitled to receive the dividend.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
73
Q

Exercise date

A

Exercise date is the date on which the employee may exercise (cash in) the stock option or stock appreciation right.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
74
Q

Exercise (strike) price

A

Exercise (strike) price is the pre-established price at which the employee may buy the shares under an employee share ownership program. This is analogous to the benchmark price for stock appreciation rights.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
75
Q

Expiration date

A

Expiration date is the last date on which the employee may exercise the stock option or stock appreciation right.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
76
Q

Forward contracts

A

Forward contracts are contracts where one party agrees to buy and the counterparty agrees to sell a specified amount of something (for example, a foreign currency or gold) for a specified price, at a specified time in the future. Forward contracts can be customized with respect to quantity, price and delivery date.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
77
Q

Futures contracts

A

Futures contracts are contracts where one party agrees to buy and the counterparty agrees to sell a specified amount of something (for example, a foreign currency or gold) for a specified price, at a specified time in the future. Futures contracts are standardized with respect to quantities, prices and delivery dates, and are exchange traded.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
78
Q

Grant date

A

Grant date is the date on which the employee stock option or stock appreciation right is granted to the employee.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
79
Q

Intrinsic value of a call option

A

Intrinsic value of a call option equals the market price of a share minus the exercise
price, subject to a minimum value of $0.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
80
Q

Intrinsic value of a stock appreciation right

A

Intrinsic value of a stock appreciation right equals the market price of a share minus the benchmark price, subject to a minimum value of $0.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
81
Q

Net assets (shareholders’ equity)

A

Net assets (shareholders’ equity) is defined as assets minus liabilities. It represents the residual interest in the net assets of the company.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
82
Q

No par value shares

A

No par value shares are shares to which the issuing corporation has not legally assigned a monetary value.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
83
Q

Non-cumulative preference shares

A

Non-cumulative preference shares are shares for which previously missed dividend
payments are not required to be paid. Rather, only the current entitlement must be paid before monies can be distributed to the common shareholders by way of dividend

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
84
Q

Offset method

A

Offset method is the method under which share issuance costs are deducted from
(debited to) the related share capital account.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
85
Q

Option-pricing models

A

Option-pricing models are used to determine the fair value of options. Black-Scholes and binomial pricing models are examples of option-pricing models.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
86
Q

Options

A

Options are contracts that give the holders the right, but not the obligation, to buy or sell a specified amount of something (for example, a commodity or common equity in a corporation) for a specified price and for a specific period of time.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
87
Q

Par value shares

A

Par value shares are shares to which the issuing corporation has legally assigned a
monetary value.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
88
Q

Preference (preferred) shares

A

Preference (preferred) shares are additional categories of shares that offer rights and privileges other than a residual interest in the company.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
89
Q

Put options

A

Put options are contracts that give the holders the right, but not the obligation, to sell a specified amount of something for a specified price and for a specific period of time.

90
Q

Reserves

A

Reserves is the IFRS term for all components of equity that are not share capital or
retained earnings. It is reported on the statement of financial position as a component of equity.

91
Q

Retained earnings

A

Retained earnings are the corporation’s cumulative profits (net of losses) that have not been distributed by way of dividends to the owners (shareholders). They are the sum of the earnings retained or kept by the company every year since its inception. The balance of the retained earnings account can also be affected by adjustments from prior periods and the
repurchase of shares.

92
Q

Retained earnings method

A

Retained earnings method is the method under which share issuance costs are charged (debited) directly to retained earnings.

93
Q

Service (vesting) period

A

Service (vesting) period is the period of time between which the employee stock option or stock appreciation right is first granted and may first be exercised.

94
Q

Share issuance costs

A

Share issuance costs are legal, underwriting and other fees that are directly attributable to the issuance of shares.

95
Q

Shares authorized

A

Shares authorized is the maximum number of a particular class of shares that may be issued as set out in the company’s articles of incorporation.

96
Q

Shares issued

A

Shares issued is the total number of each class of shares issued by the corporation

97
Q

Shares outstanding

A

Shares outstanding is the total number of each class of issued shares that are owned by investors. Shares outstanding include shares owned by employees and directors of the company but do not include shares repurchased by the company.

98
Q

Shares sold

A

Shares sold on a subscription basis occur when the purchaser makes an initial cash
payment for shares in the corporation and agrees to pay the balance at a future date(s).

99
Q

Stock appreciation rights (SARs) plans

A

Stock appreciation rights (SARs) plans are a form of share-based compensation offered to select employees.

100
Q

Stock-based compensation plans

A

Stock-based compensation plans include employee stock option plans and stock
appreciation rights plans.

101
Q

Stock dividends

A

Stock dividends are a distribution of additional shares to the existing shareholders in direct proportion to their pre-existing ownership. The value of stock dividends reduces the retained earnings of the company.

102
Q

Stock splits

A

Stock splits are a distribution of additional shares to the existing shareholders in direct proportion to their pre-existing ownership. Stock splits differ from stock dividends in that splits do not affect retained earnings and are not a distribution of earnings.

103
Q

Swaps

A

Swaps are derivative contracts in which two parties agree to exchange sequences of cash flows for a set period of time.

104
Q

Vesting date

A

Vesting date is the date on which the employee stock option or stock appreciation right may first be exercised by the employee.

105
Q

Warrants

A

Warrants are a form of call option on a corporation’s shares. The underlying mechanics with respect to recognition, measurement and derecognition are the same as those for call options.

106
Q

Accounting base of an asset or liability

A

Accounting base of an asset or liability is the amount attributed to the asset or liability
for accounting purposes. For example, the accounting base of a depreciable asset is its
cost less accumulated depreciation.

107
Q

Accounting gain (on capital property)

A 
Accounting gain (on capital property) is the excess of the selling price of capital property
over its depreciated net book value less the costs of disposition.
108
Q

Accounting loss (on capital property)

A 
Accounting loss (on capital property) is the excess of the depreciated net book value of
capital property over its selling price less the costs of disposition.
109
Q

Canada Revenue Agency (CRA)

A

Canada Revenue Agency (CRA) is the government agency responsible for administering
the Income Tax Act in Canada and collecting income taxes at the federal level and for all
provinces and territories except Quebec.

110
Q

Capital cost allowance (CCA)

A

Capital cost allowance (CCA) is the method of depreciating assets permitted by the
Canadian Income Tax Act. It is generally calculated by multiplying the opening UCC
balance of a class of assets by the appropriate CCA rate. There are many complex rules in
the ITA governing specific calculations of CCA.

111
Q

Current income tax expense (recovery)

A

Current income tax expense (recovery) is the amount of income taxes payable or
recoverable in respect of the taxable profit or loss for the period. It equals the amount of
income taxes paid or payable for the period and is reported on the statement of
comprehensive income. These notes primarily use the term current income tax expense.
Debits to current income tax expense are expenses, and credits are recoveries.

112
Q

Deductible temporary differences

A

Deductible temporary differences result in amounts that are deductible in determining
taxable income of future periods when the carrying amount of the asset or liability is
recovered or settled. Deductible temporary differences create a DIT asset.

113
Q

Deferred tax assets

A

Deferred tax assets are the amount of income taxes recoverable in future periods arising
from deductible temporary differences, the carryforward of unused tax losses and the
carryforward of unused tax credits. Deferred tax assets are normally netted with deferred
tax liabilities and reported as a non-current asset or liability on the statement of financial
position. These notes refer to the general ledger account as deferred tax (SFP).

114
Q

Deferred tax expense (recovery)

A

Deferred tax expense (recovery) is the increase (decrease) in the deferred tax liability, or
alternatively the decrease (increase) in the deferred tax asset balance from the beginning
to the end of the accounting period. It is reported on the statement of comprehensive
income. These notes primarily use the term deferred tax expense. Debits to deferred tax
expense are expenses, and credits are recoveries.

115
Q

Deferred tax liabilities

A

Deferred tax liabilities are the amounts of income taxes payable in future periods arising
from taxable temporary differences. Deferred tax liabilities are normally netted with deferred
tax assets and reported as a non-current asset or liability on the statement of financial
position. These notes refer to the general ledger account as deferred tax (SFP).

116
Q

Enacted or substantively enacted tax rate

A

Enacted or substantively enacted tax rate — DIT amounts are measured using the
income tax rates to be in effect when the temporary difference reverses. This would be a
future tax rate. However, only enacted or substantively enacted rates may be used, not
estimates. The governing standards recognize that a change to the tax rates may be
effective when substantively enacted, though the governing legislation has not yet been
passed. In these circumstances, tax assets and liabilities are measured using the
substantively enacted tax rate

117
Q

Future income taxes

A

Future income taxes is the term used by ASPE rather than “deferred taxes.” The two
phrases have essentially the same meaning.

118
Q

Income tax payable

A

Income tax payable is the amount of money owed to the government for income taxes. It
is reported as a current liability on the statement of financial position.

119
Q

Income tax receivable

A

Income tax receivable is the amount of money due from the government relating to
income taxes. It is reported as a current asset on the statement of financial position.

120
Q

Loss carrybacks (LCBs)

A

Loss carrybacks (LCBs) result from an entity’s ability to offset a loss for income tax
purposes against taxable profits in the immediately preceding three years. They give rise to
an income tax receivable.

121
Q

Loss carryforwards (LCFs)

A 
Loss carryforwards (LCFs) result from an entity’s ability to offset a loss for income tax
purposes against taxable profits in the 20 years following the loss. Normally they give rise
to a deferred tax asset, when it is probable that they can be used in the future.
122
Q

Losses for income tax purposes

A

Losses for income tax purposes occur when an entity’s tax deductible expenses and
losses for the period exceed its taxable revenue and gains.

123
Q

Permanent differences

A

Permanent differences result from income or expense items that are reported on the
statement of comprehensive income but will never be reported on the entity’s tax return, or
vice versa.

124
Q

Tax base of an asset or liability

A

Tax base of an asset or liability is the amount attributed to the asset or liability for
taxation purposes. For example, the tax base of a depreciable asset is its UCC.

125
Q

Tax expense

A

Tax expense is the total amount included in profit or loss for the period with respect to
current income tax expense and deferred tax expense.

126
Q

Taxable income

A

Taxable income is income for the period determined in accordance with the Income Tax
Act. This amount is used to calculate current income tax expense and income taxes
payable.

127
Q

Taxable temporary differences

A

Taxable temporary differences result in taxable amounts in determining taxable income
of future periods when the carrying amount of the asset or liability is recovered or settled.
Taxable temporary differences create a deferred tax liability.

128
Q

Taxes payable method

A

Taxes payable method is a method of accounting that simply expenses the amount of
income tax paid or payable for the period. There are no deferred taxes under the taxes
payable method. This method may be used under ASPE but is not permitted under IFRS.

129
Q

Temporary differences

A

Temporary differences result from income or expenses that are reported on both the
statement of comprehensive income and the entity’s tax return but in different reporting
periods. Temporary differences consist of accumulated timing difference

130
Q

Timing differences

A

Timing differences are the differences between accounting income subject to tax and
taxable income that originate in one period and reverse in another. All timing differences
are temporary differences and most temporary differences are timing differences.

131
Q

Undepreciated capital cost (UCC)

A

Undepreciated capital cost (UCC) is the tax base of depreciable assets, which is their
cost less accumulated CCA. It is the net book value of the asset for taxation purpose.

132
Q

Bargain purchase option (BPO)

A

Bargain purchase option (BPO) is the lease term by which many leases grant the lessee
the option to purchase the asset from the lessor at the end of the lease term. If the price
specified is sufficiently lower than the expected fair value of the asset at the purchase date,
the option is referred to as a bargain purchase option. That is to say that the lessee has the
option to purchase the asset at a “bargain” price, below fair market value. What constitutes
“sufficiently lower” is a matter of professional judgment. The governing standard generally
assumes that the lessee will exercise the BPO at the end of the lease term.

133
Q

Capital lease

A

Capital lease is the ASPE equivalent to a finance lease under IFRS.

134
Q

Commencement date of the lease

A

Commencement date of the lease is the date that the right of use is first available to the
lessee.

135
Q

Direct financing lease

A

Direct financing lease (terminology used in ASPE) is a financing mechanism provided by
a finance company or other lender. The entity does not have a prior interest in the asset to
be leased; rather, it purchases the asset at fair value and leases it out immediately. This
lease transfers substantially all the risks and benefits of ownership to the lessee and, at the
commencement of the lease, the fair value of the leased property is the same as the
lessor’s carrying amount.

136
Q

Economic life of the asset

A

Economic life of the asset is the period of time during which the asset is expected to be
economically usable by one or more users.

137
Q

Executory costs

A

Executory costs is an ASPE term. Executory costs are costs related to the operation of
the leased property (for example, insurance, maintenance cost and property taxes).

138
Q

Fair value (lease)

A

Fair value in IFRS 16 Leases is used in relation to applying the lessor accounting
requirements in the standard. It is defined as the amount for which an asset could be
exchanged, or liability settled, between knowledgeable, willing parties in an arm’s length
transaction.

139
Q

Finance lease

A

Finance lease is a classification used by the lessor for a lease that transfers substantially
all the risks and rewards incidental to ownership of an asset. Title may or may not
eventually be transferred.

140
Q

Fixed payments (lease)

A

Fixed payments are payments made by the lessee to the lessor for the right to use the
asset. They are referred to as “fixed payments” because they exclude variable lease
payments.

141
Q

Gross investment in the lease

A

Gross investment in the lease is the total of the lease payment receivable under a
finance lease and any unguaranteed residual value.

142
Q

Guaranteed residual value

A

Guaranteed residual value is the amount specified in the residual value guarantee
provided by the lessee or independent third party.

143
Q

Incremental borrowing rate (IBR)

A

Incremental borrowing rate (IBR) is the rate of interest the lessee would have to pay on a
similar lease or a similarly secured loan over the same term.

144
Q

Initial direct costs

A

Initial direct costs are incremental costs that are directly attributable to negotiating and
arranging a lease, unless these costs are incurred by manufacturer or dealer lessors.

145
Q

Interest rate implicit in the lease

A

Interest rate implicit in the lease is the expected rate of return (interest rate) earned by
the lessor. The implicit rate is defined as the rate of interest that causes the present value
of the lease payments and the unguaranteed residual value to equal the total of the fair
value of the asset and initial direct costs of the lessor. The lessor always uses the implicit
interest rate for lease accounting. Under IFRS, the lessee uses the implicit interest rate, if
known; otherwise, the lessee uses its incremental borrowing rate. Under ASPE, the lessee
uses the implicit interest rate, if known, unless its incremental borrowing rate is lower, in
which case it uses its incremental borrowing rate.

146
Q

Lease

A

Lease is a rental contract whereby the lessor grants the lessee the right to use an asset for
an agreed period of time in return for a payment or series of payments.

147
Q

Lease component

A

Lease component is the portion of a lease contract that pertains to the right to use the
leased asset, rather than to services associated with the right-of-use asset.

148
Q

Lease of low-value asset

A

Lease of low-value asset is a lease for which the underlying asset is of low value, subject
to a number of requirements being met. Low value is not specifically defined in IFRS 16,
although the supporting basis of conclusions suggests that this is US$5,000 at the current
time.

149
Q

Lease payments

A

Lease payments are the total payments made by the lessee to the lessor over the lease
term. These include fixed payments; variable lease payments that are linked to an index
(such as the consumer price index) or a rate (such as the Bank of Canada overnight
interest rate); a bargain purchase option; and, in certain circumstances, the payment of
penalties for terminating the lease. Lease payments also include amounts relative to
residual value guarantees. The lessor includes the entire guaranteed amount as a lease
payment, while the lessee only includes the guaranteed amount it expects to pay. Lease
payments do not normally include amounts allocated to non-lease components.

150
Q

Lease term

A

Lease term is the non-cancellable period for which the lessee has agreed to lease the
asset. The lease term also includes optional renewal terms if it is reasonably certain that
the lessee will exercise the option. What constitutes “reasonably certain” is a matter of
professional judgment.

151
Q

Lessees

A

Lessees are the entities that use the assets and make payments to the lessor.

152
Q

Lessors

A

Lessors are the entities that own the assets and receive payments from the lessee.

153
Q

Manufacturer or dealer lease

A

Manufacturer or dealer lease is a lease offered by a manufacturer or retailer as a
financing mechanism to facilitate the sale of its own products.

154
Q

Net investment in the lease

A

Net investment in the lease is used by the lessor. It is the gross investment in the lease
discounted using the interest rate implicit in the lease. Each component within the gross
investment must be discounted to reflect the timing of its cash flow.

155
Q

Non-lease component

A

Non-lease component is the portion of a lease contract that pertains to the provision of
services associated with the right-of-use asset provided by the lessor, rather than the right
to use the leased asset. They are incidental costs that would be incurred by the lessee
irrespective of whether the entity leased or purchased the asset, such as maintenance and
service agreements. Both the lessor and lessee normally account for the lease and nonlease
components of the lease contract separately. A practical expedient is available to
lessees under IFRS, however, that permits them to account for the lease and non-lease
components of the contract as a single amount.

156
Q

Operating lease

A

Operating lease is a classification used by the lessor for a lease that does not transfer
substantially all the risks and rewards incidental to ownership of the underlying asset.

157
Q

Present value of the lease payments (PVLP)

A

Present value of the lease payments (PVLP) is the present value of lease payments
discounted using the implicit rate in the lease, if known, or the incremental borrowing rate if
otherwise.

158
Q

Residual value

A

Residual value is the estimated value of the asset at the end of the asset’s useful life.
Note, however, that guaranteed and unguaranteed residual values are implicitly referring to
the value at the end of the lease term.

159
Q

Residual value

A

Residual value guarantee is a guarantee made by the lessee or an independent third
party to the lessor that the value of the asset at the end of the lease term will be at least the
specified amount. The amount specified is the guaranteed residual value.

160
Q

Right-of-use (ROU) asset

A

Right-of-use (ROU) asset is an asset that the lessee has the right to use for the lease
term.

161
Q

Sale and leaseback transaction

A

Sale and leaseback transaction is the term used when an entity sells an asset and
immediately reacquires the right to use the asset by leasing the asset from the purchaser.

162
Q

Sales-type lease

A

Sales-type lease is the terminology used in ASPE to describe a lease that transfers
substantially all the risks and benefits of ownership to the lessee and, at the
commencement of the lease, the fair value of the leased property is greater or less than the
lessor’s carrying amount. This type of lease is usually offered by the manufacturer or dealer
and gives rise to a profit or loss to the lessor at the commencement of the lease.

163
Q

Short-term lease

A

Short-term lease is a lease that, at the commencement date, has a lease term of 12
months or less, providing that the lease does not contain a purchase option.

164
Q

Commencement date of the lease

A

Start date of the lease

165
Q

Unguaranteed residual value

A

Unguaranteed residual value is the portion of the residual value of the asset that is not
guaranteed by the lessee or an independent third party.

166
Q

Variable lease payment

A

Variable lease payment is the portion of the lease payment that is not fixed in amount but
is based on the future amount of a factor that varies because of changes in facts or
circumstances occurring other than with the passage of time, such as the inflation rate or
future sales.

167
Q

Actuarial gains and losses

A

Actuarial gains and losses are changes in the present value of the defined benefit
obligation resulting from either a change in the underlying actuarial assumptions (forwardlooking,
such as average life expectancy) or experience adjustments (backward-looking).
Experience adjustments reflect the difference between the actual present value of the
defined benefit obligation and the value previously forecasted by the actuary.

168
Q

Actuary’s report of pension obligations

A

Actuary’s report of pension obligations is a report provided by the plan actuary that
provides a reconciliation of the change in the value of the pension plan obligations for the
period.

169
Q

Asset ceiling

A

Asset ceiling is the present value of the amount by which future contributions to the
pension plan can be reduced, plus the amount of the surplus, if any, that the company can
withdraw from the plan. When a pension plan is in a surplus position, the asset is measured
at the lesser of the surplus or the asset ceiling.

170
Q

Current service cost (CSC)

A

Current service cost (CSC) is the increase in the present value of the defined benefit
obligation resulting from employee service in the current period.

171
Q

Deficit

A

Deficit occurs when the present value of the defined benefit obligation exceeds the fair
value of the plan assets.

172
Q

Defined benefit obligations

A

Defined benefit obligations are the expected gross future payments to settle the
obligation resulting from employee service in the current and prior periods.

173
Q

Defined benefit plans

A

Defined benefit plans are plans in which the amount to be paid to the employee in
retirement is based on a formula specified in the pension agreement — for example, 2% of
the employee’s average salary for the last five years times the number of years worked for
the company. The employer must provide the funds required to make the agreed-upon
pension payments.

174
Q

Defined contribution plans

A

Defined contribution plans are plans in which the employer is required to contribute a
specified amount to the pension plan on behalf of the employee — for example, 6% of the
employee’s salary — on an annual basis. The amount that will be paid to the employee in
retirement will be determined by the amount of money accumulated in the employee’s
name in the pension plan.

175
Q

Net defined benefit asset

A

Net defined benefit asset is the lesser of a) the plan assets less the present value of the
defined benefit obligation and b) the asset ceiling. In the absence of an asset ceiling, the
defined benefit asset is simply the plan surplus.

176
Q

Net defined benefit liability

A

Net defined benefit liability is the present value of the defined benefit obligation less the
plan assets, also referred to as the plan deficit.

177
Q

Past service cost (PSC)

A

Past service cost (PSC) is the change in the present value of the defined benefit
obligation for prior periods resulting from the introduction of a new plan, changes to the
existing plan or the curtailment of the plan. Curtailment involves significantly reducing the
number of employees covered by the plan.

178
Q

Pension trusts

A

Pension trusts are independent legal entities that hold the assets of pension plans and
make payments to the retirees. Trusts are managed by pension trustees.

179
Q

Plan assets

A

Plan assets are assets held by the pension trust for the benefit of the employees and
retirees. The assets are held by an entity (the trust) that is legally separate from the
reporting entity and exists solely to pay or fund employee benefits. The pension trustee
typically invests the cash received from the company in different asset classes, including
bonds, stocks and real estate, with a view to increasing the value of the plan assets over
time.

180
Q

Present value of the defined benefit obligation (PVDBO)

A

Present value of the defined benefit obligation (PVDBO) is the present value of the
expected future payments to settle the obligation resulting from employee service in the
current and prior periods.

181
Q

Remeasurement gains and losses on plan assets

A

Remeasurement gains and losses on plan assets are the adjustment reflecting the
difference between the actual fair value of the plan assets and the value previously
forecasted.

182
Q

Surplus

A

Surplus occurs when the fair value of the plan assets exceeds the present value of the
defined benefit obligation.

183
Q

Trustee’s report of plan assets

A

Trustee’s report of plan assets is a report provided by the pension trustee that provides a
reconciliation of the change in the value of the pension plan assets for the period.

184
Q

Anti-dilution

A

Anti-dilution is an increase in earnings per share or a reduction in the loss per share
resulting from the assumed conversion of potential ordinary shares.

185
Q

Anti-dilutive potential common share

A

Anti-dilutive potential common share is a PCS that, if converted to a common share,
would increase EPS or reduce the loss per share.

186
Q

At-the-money call option

A

At-the-money call option is an option in which the market price of the share is equal to
the exercise price. For EPS purposes, this equation is expressed as: average market price
of the share = exercise price.

187
Q

Basic earnings per share (basic EPS)

A

Basic earnings per share (basic EPS) is a variant of EPS that is based on profit or loss
for the period available to common shareholders and the weighted average number of
shares outstanding during the period.

188
Q

Complex capital structure

A

Complex capital structure is a capital structure that includes potential common shares.

189
Q

Contingently issuable shares

A

Contingently issuable shares are common shares that may be issued for little or no cash
consideration upon the satisfaction of specified conditions.

190
Q

Diluted earnings per share (diluted EPS)

A

Diluted earnings per share (diluted EPS) is a worst-case scenario variant of EPS that
determines what EPS for the period would be if all dilutive PCS were converted to common
shares.

191
Q

Dilution

A

Dilution is a decrease in earnings per share or an increase in the loss per share resulting
from the assumed conversion of potential ordinary shares.

192
Q

Dilutive potential common share

A

Dilutive potential common share is a PCS that, if converted to a common share, would
decrease EPS or increase the loss per share.

193
Q

Earnings per share (EPS)

A

Earnings per share (EPS) measures the amount of a company’s profit or loss attributable
to common shareholders for the period that “belongs” to each common shareholder.

194
Q

If-converted method

A

If-converted method measures the incremental EPS of a PCS on the assumption that the
PCS was converted into a common share at the beginning of the period and that the
related interest or dividends were not paid on the PCS during the period.

195
Q

Income effect

A

Income effect is the additional after-tax profit that will be available to the common
shareholders if a PCS is converted.

196
Q

Incremental EPS

A

Incremental EPS is the income effect of PCS divided by the share effect of PCS.

197
Q

In-the-money call option

A

In-the-money call option is an option in which the market price of the share is greater
than the exercise price. For EPS purposes, this equation is expressed as: average market
price > exercise price.

198
Q

Out-of-the-money call option

A

Out-of-the-money call option is an option in which the market price of the share is less
than the exercise price. For EPS purposes, this equation is expressed as: average market
price < exercise price.

199
Q

Potential common shares (PCS)

A

Potential common shares (PCS) are financial instruments or other contracts that may
entitle their holder to common shares.

200
Q

Profit or loss attributable to common shareholders

A

Profit or loss attributable to common shareholders is the profit or loss for the period,
less dividends on preference shares. There are rules that determine the amount of
dividends on preference shares that must be deducted from profit or loss.

201
Q

Prospective application

A

Prospective application is required to recognize the effects of a change in accounting
policy (if appropriate) or a change in accounting estimate in current and future periods
affected by the change; prior years are not restated.

202
Q

Provisional earnings per share (provisional EPS)

A

Provisional earnings per share (provisional EPS) denotes an interim calculation in the
process used to determine whether a given PCS is dilutive or anti-dilutive.

203
Q

Retrospective application

A

Retrospective application is required for the application of a new accounting policy as if
that policy had always been applied; full restatement is applied to all prior years.

204
Q

Retrospective restatement

A

Retrospective restatement is required to correct prior-period errors as if they had never
occurred; full restatement is applied to all prior years.

205
Q

Share effect

A

Share effect is the additional number of common shares that will be issued if a PCS is
converted.

206
Q

Simple capital structure

A

Simple capital structure is a capital structure that does not include potential common
shares.

207
Q

Treasury stock method

A

Treasury stock method measures the share effect of the assumed conversion of call
options and warrants.

208
Q

Weighted average number of common shares outstanding (WASO)

A

Weighted average number of common shares outstanding (WASO) depicts the
average number of common shares outstanding for the period determined on a weighted
average basis in the same manner that other weighted averages are calculated. There are
various rules that must be considered when determining WASO.

209
Q

Asset management ratios

A

Asset management ratios provide information about how fast cash is flowing into or out of
the organization and how efficiently the company is managing its asset resources.

210
Q

Benchmarking

A

Benchmarking, as it pertains to ratio analysis, involves comparing an entity’s financial
results against industry leaders, main competitors and/or industry averages.

211
Q

Horizontal analysis

A

Horizontal analysis measures the change, as a percentage, in financial statement line
items year over year to see if there are trends or inconsistencies in performance.

212
Q

Liquidity ratios

A

Liquidity ratios provide information regarding the company’s ability to pay its liabilities as
they come due.

213
Q

Peer group analysis

A

Peer group analysis involves comparing critical aspects of the entity’s performance on a
spot comparative basis with other entities in the same industry.

214
Q

Pro forma financial statements

A

Pro forma financial statements provide information about prospective results of
operations, financial position and/or cash flows based on assumptions about future
economic conditions and courses of action.

215
Q

Profitability ratios

A

Profitability ratios provide an indication of the efficiency of the company at generating
income from its available resources.

216
Q

Ratio analysis

A

Ratio analysis is a technique used to scrutinize the financial results of a company. Ratios
are constructed between financial statements metrics that are related to each other in the
business model

217
Q

Solvency ratios

A

Solvency ratios provide an indication of a company’s ability to meet long-term obligations.

218
Q

Trend analysis

A

Trend analysis involves comparing critical aspects of the entity’s performance on a year-over-year basis with other entities in the same industry.

219
Q

Vertical analysis

A

Vertical analysis measures the balance sheet line items as a percentage of total assets
(or total liabilities and equity). It can also be performed on the income statement with sales
as a base.

220
Q

Covenant (Bank)

A

A covenant is a promise on the part of businesses that borrow money to uphold certain conditions stated in its loan agreement. They’re meant to protect the creditor from risk associated with lending.

CPA CORE 1 (6 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions