Busi 353 - Chapter 3 Accrual Accounting

Front 1

Deferral

Back 1

delayed recognition of cost as expense or receipt as revenue even though cash flow has been realized. Reason is that item has not yet contributed to earnings process.

Front 2

What is "true" income?

Back 2

No such thing as accrual accounting necessitates the use of estimates. Instead aim for unbiased and neutral

Front 3

Quality of earnings

Back 3

Can't be compared to true earnings. Cash flows not necessarily best way. So compare reported to unbiased earnings. Challenge is identifying unbiased vs. excessive accruals

Front 4

Subsequent events/cut-off

Back 4

cut-off: point in time at which one reporting period ends and next begins
subsequent event: occurs between cut-off and authorization of financial statements

Front 5

two types of subsequent events

Back 5

1) provide evidence of conditions that existed at end of reporting period (adjusting events after reporting period)
2) indicative of conditions that arose after reporting period (non-adjusting events after reporting period)

Front 6

Articulation

Back 6

connection of financial statements with each other

Front 7

Balance sheet

Back 7

-direct result of double entry bookkeeping
-financial position at point in time
-composition of assets and claims on those assets
-total assets=total financial claims
-presentation = current and non-current
-flexibility exists

Front 8

Statement of Changes in Equity/What kind of transactions cause changes in equity?

Back 8

5 classes of transactions that change equity:
-profit or loss
-OCI (ASPE: no)
-dividends
-capital transactions (e.g. share issuance)
-effect of changes in accounting policy and correction of errors
(ASPE: not required)

Front 9

Statement of Comprehensive Income

Back 9

-IFRS only
-provides measure return on capital/performance
-minimum: net income and total comprehensive income
-single or multi-step
-EPS required

Front 10

How should expenses be classified on Statement of Comprehensive Income?

Back 10

-nature: source of expense (mandatory)
-function: use to which expense has been put (optional)

Front 11

Minimal line items on Statement of Comprehensive Income

Back 11

1) Revenue
Operating expenses
2) Finance costs
3) Share of profit or loss of associates
4) Tax expense
5) Profit or loss
6) Other comprehensive income
7) Total comprehensive income

Front 12

Cash flow statement

Back 12

-helps understand change in financial position in terms of cash and cash equivalents
-separate operating/investing/financing activities
-use indirect or direct method

Front 13

Note disclosures

Back 13

-integral part of financial statements
-disclosures to enhance understanding
-future cash flow info
-different bases of measurement
-describes recognized and unrecognized items
-general requirements: explicit statement of compliance with IFRS/summary of significant accounting policies/disclosures required by specific standards

Front 14

Discontinued operations/non-current assets and liabilities "held for sale"

Back 14

Separate reporting required for non-current assets and liabilities "held for sale" (on balance sheet) and discontinued operations (on statement of comprehensive income)

Front 15

Discontinued operation definition

Back 15

results of operations of a component of enterprise that has been disposed of or is classified as held for sale. Should be reported in discontinued operations if: 1)operations and cash flows of component have been (or will be) eliminated from ongoing operations of enterprise as a result of transaction
2)enterprise will not have any significant continuing involvement in operations of component after disposal

Front 16

Component

Back 16

comprises operations and cash flows that can be clearly distinguished operationally and for financial reporting purposes from the rest of the enterprise

Front 17

Recognition criteria for Discontinued Operations

Back 17

-mgmt commits to plan to sell
-assets and liabilities are available for immediate sale
-sale is probably and expected to be completed w/in 1 year
-selling price is reasonable in relation to fair value

Front 18

Measurement of Disc. Operations

Back 18

-Capital assets should be measured at lower of a) carrying value (NBV) and b) fair value less costs to sell (NRV).
-Assets held for sale should NOT be amortized
-further expected gains or losses should NOT be accrued

Front 19

Presentation of Disc. Operations

Back 19

I/S: results of disc. operations (LESS INCOME TAXES) should be reported as separate element of income or loss for both current and PRIOR periods.
B/S: assets and liabilities of disc. operations classified as held for sale should be presented separately

Front 20

Disclosure of Disc. Operations

Back 20

-description of facts and circumstances leading to disposal
-expected manner and timing of disposal
-any amt of write-down of LT (capital) assets
-amt of revenue and pre-tax profit

Front 21

Accounting changes

Back 21

-errors
-changes in accounting policy
-changes in estimates

Front 22

Correction of errors

Back 22

retrospective with restatement (change retained earnings)

Front 23

Changes in accounting policy

Back 23

retrospective with restatement (change retained earnings)
-IFRS allows changes as long as provides more relevant and reliable information
-effect of change applies to all prior years affected

Front 24

Changes in estimates

Back 24

prospective
-estimates based on best info at time so not error