PMR- ASPE Sections

Question 1

Revenue recognition criteria (ASPE)

Answer 1

• Performance is complete (risks and rewards transferred, significant acts performed)
• Consideration is measurable
• Collection reasonably assured
• Reference: ASPE 3400.04 - .05*

Question 2

Revenue recognition - Performance criteria (ASPE)

Answer 2

• Persuasive evidence of an arrangement exists
• Delivery has occurred or services rendered
• Price to the buyer is fixed or determinable
• Reference: ASPE 3400.07*

Question 3

Revenue recognition – Returns (ASPE)

Answer 3

• If significant and unpredictable amounts of goods being returned, do not recognize revenue
• Reference: ASPE 3400.21*

Question 4

Revenue recognition - Multiple deliverables (ASPE)

Answer 4

• Evalute all deliverables to determine whether they represent separate deliverables
• If you can identify separate deliverables, revenue recognition criteria should be assessed for each deliverable separately
• If two or more transactions are linked together in such a way the commercial effect can’t be understood without reference to the series of transactions as a whole, then the recognition criteria will be applied to the series of transactions as one
• Reference: ASPE 3400.11*

Question 5

Revenue recognition – Services and long-term contracts (ASPE)

Answer 5

• Performance determined using either the percentage of completion method or the completed contract method, whichever relates the revenue to the work accomplished
• Percentage of completion
  
  • Revenue recognized as work progresses (based on sales value, associated costs, extent of progress or number of acts)
  • Must be able to estimate with reasonable assurance
  • Costs must be recorded
• Completed contract
  
  • Revenue not recognized until contract complete
  • Only appropriate if substantial completion depends on specific event or can’t reasonably estimate extent of completion

Reference: ASPE 3400.06, .16 - .18

Question 6

** Revenue recognition –Gross vs. Net (ASPE)**

Answer 6

• No impact on net income
• When acting as principle in a transaction, revenues should be reported at gross
• When acting as agent in a transaction, revenues should be reported at net
• Reference: ASPE 3400.23 - .24*

Question 7

Liability characteristics (ASPE)

Answer 7

• A duty to others requiring future settlement of assets or provisions
• Can’t avoid duty
• Event that caused the obligation has occurred
• Reference: ASPE 1000.29*

Question 8

Current Liabilities (ASPE)

Answer 8

• Current liabilities include amounts payable within one year from the B/S date or within the normal operating cycle
• Reference: ASPE 1510.08 - .10 *

Question 9

Asset criteria (ASPE)

Answer 9

• Future benefit
• Entity can control the benefit
• Event that caused benefit already occurred
• Reference: ASPE 1000.25*

Question 10

Inventory valuation (ASPE)

Answer 10

• Valued at lower of cost and net realizable value (NRV)
• NRV is the estimated selling price in the ordinary course of business less estimated selling costs
• Reference: ASPE 3031.07, .10*

Question 11

Internally generated intangible assets (ASPE)

Answer 11

• Research costs are expensed
• Accounting policy choice to capitalize or expense development costs
• Development costs can be capitalized if all of the following exist:
  
  • Technically feasible
  • Intention to complete it
  • Ability to use or sell it
  • Availability of adequate technical, financial and other resources
  • Ability to reliably measure the expenditures attributed
  • Probable future economic benefits will be generated

Reference: ASPE 3064.37, .40, .41

Question 12

Goodwill and Intangible Assets – Amortization (ASPE)

Answer 12

• Intangibles are to be amortized over their estimated useful lives unless they are considered to have an indefinite life
• Assets with indefinite lives are not to be amortized until the life is no longer considered indefinite (however it must still be tested for impairment)
• Amortization method and useful life should be reviewed annually
• Consider expected use, life of related assets, contractual provisions and other economic factors
• Reference: ASPE 3064*

Question 13

Impairment of long-lived assets (ASPE)

Answer 13

1. Determine if factors indicating impairment exist
2. Group asset with other assets/liabilities to form group at the lowest level that generates cash flow (i.e.: cash generating unit)
3. Calculate impairment by comparing net book value to net realizable value (i.e.: fair value less costs to sell or future cash flows)
   * Cannot reverse write downs
   * Reference: ASPE 3063.09, .12, .18*

Question 14

PPE - Betterments (ASPE)

Answer 14

• Capitalize betterment because enhances service potential (increase in physical output or service capacity, associated operating costs are lowered, useful life is extended, or quality of output is improved)
• Expense repair and maintenance
• Reference: ASPE 3061.14*

Question 15

Capital lease [Lessee] (ASPE)

Answer 15

• Transfer of ownership or bargain purchase option
• Lease term at least 75% of economic life of asset
• PV of minimum lease payments at least 90% of FV of leased asset (Discount rate = lower of lessee’s incremental borrowing rate and implicit rate)
• Reference: ASPE 3065.06*

Question 16

Capital leases [Lessor] (ASPE)

Answer 16

• Capital lease if the following exist:
• Any one of the following criteria are met:
  • Transfer of ownership or bargain purchase option
  • Lease term at least 75% of economic life of asset
  • PV of minimum lease payments at least 90% of FV of leased asset (Discount rate = lower of lessee’s incremental borrowing rate and implicit rate)

Reference: ASPE 3065

Question 17

Asset Retirement Obligations (ASPE)

Answer 17

• Legal obligation associated with the retirement of a tangible long-lived asset
• Recognize liability in the period in which it is incurred
• Measurement is based on best estimate of the expenditure required to settle the present obligation at the balance sheet date
• Cost is capitalized to the carrying value of the related asset and then amortized to income systematically
• In subsequent periods, the liability would be adjusted for the passage of time (accretion expense) and any changes in the amount or timing of the future cash flows needed to settle the obligation.
• Reference: ASPE 3110*

Question 18

Foreign Currency Translation (ASPE)

Answer 18

* Translate monetary items at current (balance sheet) rate

• Translate non-monetary items at historic rate
• Translate transactions using the rate at the time of transaction (annual average rate acceptable)
• FX gains and losses to be included in net income
• Reference: ASPE 1651*

Question 19

Foreign Translation of Foreign Operations (ASPE)

Answer 19

• Integrated foreign operation – foreign operation that is financially or operationally interdependent with the reporting enterprise (whereby the exposure to foreign exchange rate changes is similar to what the reporting enterprise would have experienced)
• Self-sustaining Foreign Operations – foreign operation that is financially or operationally independent of the reporting enterprise (whereby the exposure to foreign exchange rate changes is limited to the net foreign investment)
• Reference: ASPE 1651.03*

Question 20

Foreign translation – Temporal method (ASPE)

Answer 20

• Used for integrated foreign operations:
  
  • CDN $ unit of measure
  • Monetary items translated at rate at balance sheet date
  • Non-monetary items translated at historical rate (unless carried at market)
  • Revenues and expenses translated at rate in effect on date that they occur
  • Amortization uses rate of related asset
  • FX gains and losses are included in income

Reference: ASPE 1651.03

Question 21

Foreign translation – Current rate method (ASPE)

Answer 21

• Used for self-sustaining foreign operations:
  
  • Foreign $ unit of measure
  • Assets and liabilities translated at rate at balance sheet date
  • Revenues and expenses (including amortization) translated at rate in effect on date that they occur
  • Exchange gains and losses are included in equity (no income effect)

Reference: ASPE 1651.03

Question 22

Investments (ASPE)

Answer 22

• Investments subject to significant influence can be accounted for using the equity or cost method
• Investments without significant influence:
  • Not quoted on an active market - accounted for using cost method (can be designated at FV upon first recognition)
  • Quoted on active market – accounted for at FV

Reference: ASPE 3051 and 3856.11 - .15 

Question 23

Financial Instruments – Impairment (ASPE)

Answer 23

• Financial instruments tested for impairment at the end of each reporting period. Where impairment exists, reduce the carrying value to the highest of:
  
  • PV of cash flows expected from holding the asset
  • Net realizable value
  • Amount entity expects to realize
• Impairment can be reversed if asset subsequently recovers in value
• Reference: ASPE 3856.16 - .19*

Question 24

Hedging (ASPE)

Answer 24

• Hedge accounting is a method of recognizing the gains, losses, revenues and expenses associated with the items in a hedging relationship so they are recognized in net income in the same period when they would otherwise be recognized in different periods.
• Hedge accounting is optional, can only be used when the following are met:
  • At the inception of the hedging relationship, the company:
    
    • Designates hedge accounting will apply
    • Formally documents the hedging relationship
  • At inception and throughout the term, the company has reasonable assurance that the critical terms are the same
  • When the hedged item is an anticipated transaction, it’s probable the anticipated transaction will occur at the time and amount designated

Reference: ASPE 3856

Question 25

Subsidiaries (ASPE)

Answer 25

• If subsidiary is controlled:
  
  • Can use consolidation, equity or cost method
  • Can’t use cost method if subsidiary quoted on active market

Reference: ASPE 1590.15 - .16

Question 26

Related Party Transactions (ASPE)

Answer 26

• One party has the ability to exercise control or influence over another
• Transactions should be recorded at the carrying amount
• Exception - transaction has commercial substance and carried out in normal course of operations (record at the exchange amount, the amount of consideration agreed to between the related parties)
• Reference: ASPE 3840.03, .08, .18*

Question 27

Government Assistance (ASPE)

Answer 27

• Assistance for non-capital items:
  
  • Include in net income for period when incurred
• Assistance for capital items:
  
  • Reduce cost of capital item; or
  • Defer and amortize on the same basis of depreciation

Reference: ASPE 3800

Question 28

Future income taxes (ASPE)

Answer 28

• Future income tax assets arise when an expense is recognized first for accounting and deducted later for tax
• Future income tax liabilities arise when an expense is deducted first for tax and recognized later for accounting or when revenue is recognized first for accounting and included in taxable income later
• Reference: ASPE 3465.02*

Question 29

Defined benefit pension plan (ASPE)

Answer 29

• Pension expense = current service cost + interest on ABO + past service amortization + expected earnings on plan assets + actuarial gain / (loss)
• Accrued benefit asset / (liability) = opening – current services – interest on ABO – past service amortization + expected earnings on plan assets – benefits paid + funding + actuarial gain / (loss)
• Reference: ASPE 3461*

Question 30

Discontinued operation (ASPE)

Answer 30

• A component of an entity where its operations and cash flows can be clearly distinguished from the rest of the entity and it has been disposed of or classified as held for sale
• Disclose if:
  
  • Operations and cash flows of the component have been or will be eliminated from the ongoing operations as a result of the transaction
  • The entity will not have any significant continuing involvement in the operations of the component after the transaction
• Report results of discontinued operations on I/S for current and prior periods, net of tax
• Reference: ASPE 3475.27, .30*

Question 31

Assets held for sale (ASPE)

Answer 31

• Long-lived assets to be disposed of other than by sale should continue to be classified as held and used until it is disposed of
• Long-lived assets to be sold should be classified as held for sale when all of the following are met:
  
  • Management commits to a plan to sell
  • It’s available for immediate sale in its present condition
  • Steps to locate a buyer and complete the sale have started
  • The sale is probable and expected to occur within a year
  • It’s being actively marketed at a reasonable price
  • Actions required to complete the sale indicate it’s unlikely significant changes to the plan will be made or that the plan will be withdrawn
• Asset held for sale should be measured at lower of carrying amount or fair value less cost to sell, and should not be amortized
• Reference: ASPE 3475.04, .08, .13*