Cfe - Financial Reporting

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Capital Lease - Journal Entries

Back 1

DR Asset FMV/PVMLP (lower of)*

CR Liability FMV/PVMLP (lower of)

DR Amort (over econ life if ownership transfers/term if no transfer)

CR Acc Amort

DR Interest Exp

CR Liability

DR Liability

CR Cash

*Discount rate=lower of:

1. incremental borrowing rate
2. rate implicit in lease

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Loan/Note receivable (no interest)

Back 2

If loan doesn't have interest or rate is lower than market rate for comparable loans, fair value not equal to cash consideration.

FV should be estimated as PV of future cash receipts discounted using prevailing market rates

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Inventory Valuation (ASPE)

Back 3

Lower of cost and NRV

NRV = estimated selling price in ordinary course of business less estimated selling costs.

Case: Bruin Car PartsReference: ASPE3031.07, .10

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Betterment (ASPE)

Back 4

3061.14: Cost incurred to enhance service potential of an item of PPE

Service potential may be enhanced when:

1. increase in output/service capacity
2. operating costs are lowered
3. life/useful life extended
4. quality of output improved

Case: Fire in the Sky

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Asset Exchange (non-monetary)

Back 5

3831: Should be at more reliably measurable of FMV of assets unless:

1. transaction lacks commercial substance
2. exchange in ordinary course of business for product/property to be sold in same line of business
3. FMV of both asset is not reliably measurable
4. transaction is non-monetary non-reciprocal transfer to owners

If meets 1 of above, should be measured at carrying amount of asset given up, adjusted by FMV of monetary consideration received/given.

Case: Fire in the Sky

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Commercial Substance

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3061.11 Non-monetary transaction has commercial substance when entity's future cash flows are expected to change significantly as a result of the transaction

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Contingent Asset (IFRS)

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IAS 37:

Should not be recognized unless realization of income is virtually certain.

ASPE 3290:

Should not be recognized.

Front 8

Related Party Transactions (ASPE 3840)

Back 8

General:

• Measure at Carrying Amt & any difference booked to equity
  

Transactions in normal course of operations:

• Monetary or non-monetary RPT w/ commercial substance recorded @ exchange amt, unless:

1. it is a non-monetary RPT that is exchange of product/property to be resold in same line of business (carrying amt adjusted for additional consideration)

Transactions NOT in normal course of business:

• Monetary or non-monetary RPT w/ commercial substance recorded @ exchange amt IF:

1. change in ownership interest is substantive, and (20% ownership change - unrelated parties acquire or give up)
2. exchange amt is supported by independent evidence

Case: Lock Stock & Barrel, KinfolkReference: ASPE 3840.08-.09,.18, .22, .29

Front 9

Revenue Recognition - Gross vs. Net

Back 9

If agent, should report net (IFRS and ASPE)

ASPE additional guidance:

Acting as principal when exposure to significant risks and rewards associate with sale, such as:

1. Primary responsibility for providing goods/services
2. Inventory risk
3. Latitude in establishing prices
4. Bears customer's credit risk

Acting as agent:

1. amount earned is predetermined, e.g. fixed fee per transaction or stated percentage of amount billed

Front 10

Related party transactions (IFRS)

Back 10

Recorded as normal transaction with appropriate disclosure

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Subsequent events (ASPE 3820)

Back 11

2 Types:

1. Those that provide further evidence of conditions that existed at the FS date
2. Those that are indicative of conditions that arose subsequent to the FS date

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Impairment of Long-lived assets (ASPE 3063)

Back 12

1. Test for recoverability whenever events/circumstances that carrying value not recoverable)
2. Determine if write-down required (Undiscounted cash flows plus residual value < carrying value)
3. Determine amount of write down needed (Carrying value > FMV)
4. Reversal - not permitted

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Impairment of Long-lived assets (ASPE 3063) - indicators of impairment

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• Significant decrease in market prices
• Change in use that reduces value
• Adverse change in legal factors
• Current period operating losses
• More than 50% chance that asset will be disposed before est. useful life

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Stock options (IFRS 2/ASPE 3870)

Back 14

IFRS: measure at FMV of goods/services received, unless not reasonably measurable

ASPE: Recognize fair value of options using pricing model (e.g. Black-scholes) when employee entitled to award.

1. If awarded for future service - recognized over period in which services are rendered (vesting period)
2. If for past service - recognized in period granted
3. JE entry - DR expense CR Contributed surplus

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Subsidiaries (ASPE 1591)

Back 15

>50% - presumed control

3 options available:

1. Consolidate
2. Equity
3. Cost

Can't use cost if quoted on active mkt

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Interests in Joint Ventures (joint control - 50%) (ASPE 3056)

Back 16

No one venturer has control

3 accounting choices:

1. Proportionate consolidation
2. Equity
3. Cost

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Investments (significant influence - 20-50%) (ASPE 3051)

Back 17

2 choices:

1. Cost
2. Equity

*if quoted in active mkt, must use equity or FMV

Front 18

Financial Instruments (ASPE 3856)

Back 18

Must measure at cost unless quoted in active mkt (FMV).

Can designate FV measurement at recognition

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Asset Retirement Obligation (3110)

Back 19

Should be recognized when reasonable estimate of amount of obligation can be made.

• Measurement: best estimate of PV of expenditure required
• Capitalize PV of liability to related asset and amortize into income over useful life
• Record liability and accrete up to final payment amount at the applicable interest rate OR by usage of the asset

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Revenue Recognition - Separately identifiable

Back 20

IFRS (IAS 18.13); ASPE 3400.11

The recognition criteria in this Standard are usually applied separately to each transaction. However, incertain circumstances, it is necessary to apply the recognition criteria to the separately identifiablecomponents of a single transaction in order to reflect the substance of the transaction. For example,when the selling price of a product includes an identifiable amount for subsequent servicing, thatamount is deferred and recognised as revenue over the period during which the service is performed

Front 21

Returns

Back 21

Revenue Recognition

IAS 18.16-17/ASPE 3400.21

• If uncertain about probability of return, risks and rewards of ownership not transferred

• If can reliably estimate, can recognize revenue for returns
  

Dash Computing

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Warranties

Back 22

IAS 37/ASPE ?

• Should recognize expense and provision (liability) at time of sale.
• Then clear out provision as warranty costs are incurred.
• Use expected value approach (i.e. weighted average)
• Discount if necessary

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Interim reporting

Back 23

IAS 34/ASPE - X

Minimum components:

• Condensed Statement of Fin'l Position
• Condensed Statement of Comp. Income
• Condensed Statement of Changes in equity (cumulative for YTD)
• Condensed Statement of CFs (cumulative for YTD)
• Selected explanatory notes

See section for minimum disclosures

Dash Computing

Front 24

Contingencies vs provisions (IFRS)

Back 24

IAS 37

Provision:

• Recognize when present obligation (legal or constructive) as result past event
• Probable that outflow of resources required
• Reliable estimate can be made of amount

Contingent Liability

• No recognition
• Disclose unless remote possibility
• Disclose nature and amount (if estimable, or fact that it is not)

Front 25

Contingent Liabilities (ASPE)

Back 25

ASPE 3290

Recognize when:

1. Likely that future event will confirm liability
2. Amount of loss can be reasonably estimated

Disclose when:

• Occurrence is likely but amt can't be reasonably estimated.
• Occurrence is not determinable

Disclosures:

• nature
• estimate (or statement that estimate cannot be made)
  
• exposure to loss in excess of accrual

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Accounting policy changes

Back 26

IAS 8/ ASPE 1506

Retrospective

*Can only change if:

1. Required by IFRS/ASPE
2. Provides more relevant/reliable info
3. (ASPE: specified in 1506.09)

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Accounting estimate changes

Back 27

IFRS/ASPE - same

Prospective only

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Entries for % completion

Back 28

DR CIP inventory

CR Cash/AP

DR AR

CR Billings on contract

DR Cost of construction

DR Construction in progress inventory

CR Revenue

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Long-term contracts - Difference between IFRS/ASPE

Back 29

If % complete not estimable:

ASPE: completed contract

IFRS: cost recovery

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Revaluation Model

Back 30

IFRS only

• Gains: OCI
• Loss: Net income

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Sale-Leaseback (substantially same ASPE/IFRS)

Back 31

Finance lease

• Profit on sale deferred & amortized over term
  
• If FMV < NBV, recognize immediately (impairment)

Operating lease

If established at FMV:

• If sale price > FMV, defer & amortize over term ,>
• If FMV at inception < NBV, recognize immediately,>

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Forgivable Loan from Gov't

Back 32

IAS 20/ASPE 3800 (same)

Treated same as grant as long as reasonable assurance entity will comply with terms

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Gov't Grant

Back 33

IAS 20/ASPE 3800 (same)

Recognize when reasonable assurance that:

• entity will comply with conditions attached
• grants will be received

Front 34

Borrowing costs

Back 34

IAS 23/(ASPE - Policy choice)

An entity shall begin capitalising borrowing costs as part of the cost of a qualifying asset on the commencement date. The commencement date for capitalisation is the date when the entity firstmeets all of the following conditions:

1. it incurs expenditures for the asset;
2. it incurs borrowing costs; and
3. it undertakes activities that are necessary to prepare the asset for its intended use or sale.

Front 35

Provisions

Back 35

IAS 37:

Recognize when:

1. present obligation
2. probable that outflow of resources
3. reliable estimate of amount

Front 36

Biological Assets/Produce

Back 36

IAS 41/ (ASPE - no separate section)

Both should be measured at FVLCTS

For change in FV:

Dr biological assets

Cr gain (due to change in price or physical change)

For sale:

Dr cash/AR

Cr biological assets (assuming already recorded @FV)

Front 37

Discontinued Operations (ASPE 3475) (IFRS 5)

Back 37

1. Consider whether component
2. Disposed of or held for sale?
3. If HFS,disposed, determine if discontinued operation

*If abandoned, don't need to go through HFS (see IFRS 5.13)

ASPE: Same (clearer guidance for HFS, Disc op guidance is in definitions)

Nationwide Mail, Nationwide Transportation

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Discontinued Operations - disclosure

Back 38

Disclose a single amount in I/S = total of:

• post-tax profit/loss of disc ops
• post-tax gain/loss on measurement to FVLCTS on disposal of assets

*Prior year comparatives also need to be adjusted

Front 39

Journal Entries for Bond

Back 39

DR Cash

CR Bond payable

DR Bond interest expense

CR Cash

DR/CR bond payable (plug)

Front 40

Types of financial instruments (IFRS)

Back 40

1. Financial instruments at fair value through profit/loss - change in FMV through profit/loss

2. AFS - change in FMV through OCI

3. HTM & Loans/Receivables - Gains/losses through profit/loss in period in which they arise

Front 41

Financial instruments - initial recognition

Back 41

Recognize @ FMV when Co becomes party to contractual provisions

Front 42

Financial instruments - transaction costs

Back 42

Expensed through profit/loss

*except if measured at cost/amortized cost (add to carrying value)

Front 43

Financial instruments - impairment (IFRS)

Back 43

Assess @ end of each reporting period whether any indications impairment

• Amortized cost: PV of est. future CFs discounted @ assets original effective interest rate (can reverse to extent of impairment previously recorded)
• Cost: PV of est. future CFs discounted @ interest rate of similar financial asset (no reversal)
• AFS: Reclassify cumulative loss in OCI to profit/loss (Equity: NO reversal, Debt: can reverse)

Front 44

Financial instruments - impairment (ASPE)

Back 44

Assess @ end of each reporting period whether any indications impairment

Impairment loss = highest of:

1. PV of CFs discounted @ current mkt rate of interest
2. Amt could be realized by selling asset
3. Amt entity expects to realize by exercising right to collateral, net of costs

Can reverse to extent previously recorded

Front 45

Bonuses - should they be accrued?

Back 45

"An entity shall recognize financial asset/liability when they become party to the contractual provisions"

If amount not known at year end and subject to discretion of the BOD, may not be liability @ y/e

*But may be constructive obligation if they always pay

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PPE - separate components

Back 46

Significant separable component parts should be separated when practicable and when estimates can be made of useful life

*should use appropriate useful life

Front 47

PPE - Derecognition

Back 47

IFRS only

If entity replaces, then it must derecognize the carrying value of the part replaced

Front 48

Preferred shares -equity or liability

Back 48

IAS 32:

Preferred shares that provide mandatory redemption for fixed/determinable amt or gives holder right to require issuer to redeem for fixed/determinable amt

=Liability

Same for ASPE but hidden in appendix A26

Front 49

Convertible Debt (ASPE 3856)

Back 49

Classify component parts as liability or equity based on substance of contractual arrangement

Acceptable methods:

1. Equit component = 0 (simpler by results in higher debt)
2. Less easily measurable component (equity) is allocated residual after deducting from entire proceeds of issue amount that is more easily measurable (liability)

*Method 2) required under IFRS

Front 50

Convertible Debt - How to calculate

Back 50

• Use actual payments
• Use market interest rate
• The remainder is allocated to equity component

Payments split and classified as interest/dividends in proportion to liability/equity

Front 51

Calculate the balance of a bond at a point in time

Back 51

• Use remaining years
  
• Use market rate