Oral Exam Flashcards
What is the difference between research and development? What is the purpose
behind requiring an entity to meet the “test” before allowing development costs to
be capitalized?
Research is the process of performing activities to gather information on an idea where as development is formulating that idea into something feasible.
The test is designed to ensure that a company can demonstrate future economic benefits will derive from the development being completed. They must have the ability to use or sell the asset and demonstrate the technical and commercial feasibility of the asset before capitalizing costs.
Why does IFRS not allow entities to capitalize training costs?
Training is never capitalized because employees can leave at any time so it doesn’t make sense to capitalize those costs to the asset as you have no control over your employees.
We shouldn’t make over-arching generalized statements, but in general what is the difference between ASPE and IFRS?
In general, ASPE is a more simplified accounting standard for small businesses. It makes it easier for small business owners to properly account for their dealings.
An entity received a government grant to cover expenses for a three-year period.
They recorded the entire amount to grant revenue when they received the
cheque for the full amount at the beginning of the three years. Was that correct?
No the company should be recognizing the revenue as deferred income and recognize the revenue as the related expenses associated with the grant are incurred.
What are the main criteria that have to be met for a company to record a
provision. What amount would be recorded?
A provision is recognized when
1) a present obligation (legal or constructive) has arisen as a result of a past event (the obligating event)
2) payment is probable (‘more likely than not’)
3) the amount can be estimated reliably.
The amount recorded is the best estimate of the expenditure required to settle the obligation. This can be the most likely amount or a weighted average probability of possible amounts.
An NPO received a donation of a van to use for deliveries. How can/should they
record the receipt of the asset?
They can record at cost or FMV. If FMV is undeterminable can record the van at a nominal amount. Since this is a donation and no cash being exchanged, they should record the van at FMV or a nominal amount
What is the point of recognizing stock option benefit over time? Explain the concepts behind the calculations.
Recognize it over time as you believe the stock options available to the employee are motivating them to work harder. Have to measure the economic benefit of your employees working harder over the vesting period.
Measured at the FV of equity instruments granted as it is impossible to measure the perceived increased work ethic of your employees.
What is a “timing difference” and how does it generate a deferred income tax asset or liability? What is an example of a DIT asset? Liability?
A timing difference is the difference between accounting and tax amounts because of the difference in recognition. An example would be CCA and amortization. A DIT asset would arise when the the amortization of an asset is greater than the CCA of that asset as the difference will create a reduction in taxable income in the future. A DIT liability would arise in the opposite situation.
What is the main difference between IFRS and ASPE in accounting for leases?
The main difference is in the classification of an operating lease or finance lease criteria. ASPE defines major part of economic life as 75% or more and substantially all of the FV as 90% or more
If an employee is allowed 10 sick days per year and only uses up 6 of them, will their employer have to account for the 4 they didn’t use at the end of the year? If so, how? If not, why?
Since sick days are non accumulating the employer will not have to account for the unused sick days.
Non accumulating benefits are recorded when the event occurs and do not carryforward
In pension accounting, what is an actuarial review and how is it accounted for?
An actuarial review is a complex calculation which estimates the value of the pension plan obligation. The difference between the actuarial estimate and final result is recorded as a gain or loss in OCI
If I say a company has a current ratio of 3.0 what does that mean? Is it good?Bad?Don’t know?
This means that for every dollar of current liabilities the company has $3 of current assets. In general this would be good as the company can easily cover their current liabilities with their current assets. But to have a more clear picture on the ratio, have to compare to the industry.
There are basic rules around impairment testing under IFRS. What are those rules? Why is it done?
Assets must be tested for impairment at the end of each reporting period, this includes PPE, inventory and intangible assets. Must compare the CV to the NRV and value in use to determine if there is impairment. Testing for impairment is done to ensure that the books are represented fairly and correctly
What is a bearer plant? How do we account for it?
A bearer plant is a living plant that
– is used in the production or supply of agricultural produce;
– is expected to bear produce for more than one period;
–has a remote likelihood of being sold as agricultural produce
Accounted for with IAS 16, recorded at cost and depreciated over its life.
If I am a home builder, when can I recognize the revenue on the homes I am building?
A home builder can recognize revenue over time as ownership is transferred over time as the house is being built. They can use the percentage of completion method to record revenue, this can be done using the input or output method.
