Financial Reporting

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three characteristics of an asset

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1 embody a future benefit

2. Entity controls access to the benefit

3. Transaction or event giving rise to entity’s right to, or control of, the benefit has already occurred

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Three characteristics of a liability

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1. Embody a duty or responsibility to others that entail settlement by future transfer or use of asset.

2. Duty or responsibility obligates the entity leaving little or no discretion to avoid it

3. Transaction obligating the entity already occurred

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What are costs included in inventory

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Any cost incurred to move inventory from its purchased state to a point where it may be sold should be included in the cost

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Characteristics of an inventory. these are assets:

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1. Held for sale in ordinary course of business; or

2. In the process of production for such sale; or

3. In the form of materials or supplies to be consumed in the production process or in the rendering of services

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How is inventory carried in the balance sheet

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Lower of cost or net realizable value

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How is NRV calculated

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Proceeds of disposition less selling cost

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When is PPE recognized as an asset in IFRS

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1. Probable that future economic benefits associated with the item will flow to the entity

2. Costs can be measured reliably

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When is PPE recognized as asset in ASPE

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Meets all:

1. Held for use in the production or supply of goods or services

2. Have been acquired, constructed or developed with the intention of being used in a continuous basis

3. Not intended for sale in the ordinary course of business

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What are the three methods of depreciation

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1. Straight line

2. Double declining (asset cost x dep. rate)

3. Units of production

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IFRS: how are leases recognized in a lessee‘s financial statement

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They recognize an ROU asset and a lease liability

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IFRS: how do you initially measure lease liability

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Initially measured at PV of all future payments, discount rate used is the implicit rate in the lease

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What is the journal entry for subsequent measurement of lease liability

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Dr lease liability

Cr cash

Dr interest expense

Cr lease liability

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IFRS: What is the classification criteria for a finance lease

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1. Title transfers to the lessee by the end of the lease term

2. BPO exists

3. Lease term is such a duration that the lesse will receive substantially all the economic benefit expected to be derived from the use of the leased property over its lifespan

4. PV of minimum lease payment amounts to substantially all of the FV of the asset

5. Asset is specialized in nature and only the lesssee can use it without major modifications

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What is the difference between a finance lease and an operating lease

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Finance - record a dr lease receivable , dr cogs, cr revenue, cr equipment/inventory

Operating - payments are expensed

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ASPE: criteria for capital leases

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1. Transfer of title at end of lease or existence of BPO

2. Lease term is major portion of asset’s useful life or 75%

3. PV of minimum payments is equal to substantially all of FV of the asset or 90%

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ifrs: what is the definition of an intangible asset

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ALL must be met:

1. Asset is identifiable:

a. Being separable such that it can be transferred or sold to another entity

b, arising from contractual or legal rights

2. Entity controls the future economic benefit of the asset

3. Asset will generate future economic benefit

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IFRS: what are the criteria to recognize an intangible asset

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1. Probable that the expected future economic benefit of the asset flows to the entity

2. Costs can be measured reliably

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IFRS: to capitalize a development cost the entity must be able to demonstrate all of what:

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1. Is the asset technically able to be completed?

2. Does the entity plan to complete it?

3. Once completed, does the entity have a use for the asset?

4. When the asset is in use, Will it generate economic benefit?

5. As the entity plans to complete it, does it have the means to do so?

6. Does the entity know the cost that Are directly attributable so that It can measure the asset?

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What are development costs that cannot be capitalized

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Selling, admin, and other general overhead expenditures unless directly attributable to preparing the asset for use

Identified inefficiencies and initial operating losses

Expenses on training staff to operate asset

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IFRS: how do you measure the recoverable amount of an impaired asset

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Higher of:

1. FV less cost of disposal

2. Value in use

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How do you calculate impairment loss

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Recoverable amount- carrying cost

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IFRS: when do you recognize a decommissioning provision as a liability

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When ALL are met:

1. Present obligation as a result of past events

2. Probable that an outflow of resources embodying economic benefits will be required to settle the obligation

3. Reliable estimate can be made of amount of obligation

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What is the journal entry for the initial measurement of a decommissioning provision

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Dr asset

Cr decommissioning provision (liability)

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What do you call a decommissioning provision in ASPE

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Asset retirement obligation

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IFRS: when do you recognize contingency

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1. Entity has present obligation arising as a result of a past event

2. Considered probable that the entity will have an outflow of economic resources

3. Entity is able to make a reliable estimate of outflow of economic resources

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IFRS: What are the three ranges of probability for a contingency

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1. Remote - low probability

2. Possible

3. Probable - more likely to occur than not to

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What is the difference between IFRS and ASPE when it comes to contingencies

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ASPE does not use “provision”. It uses “contingent loss”. Use “likely”.

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IFRS: what are the revenue recognition steps

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1. Identify the contract

2. Identify the performance obligation

3. Identify the transaction price

4. Allocate the transaction price to the performance obligation

5. Recognize revenue when performance obligation is complete

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IFRS: what are the attributes of a contract

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1. Approved by all parties

2. Identifies good and services

3. Payment terms identified

4. Has commercial substance

5. Probable that consideration will be collected

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IFRS: when do you combine contracts in revenue recognition

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1. Contracts are negotiated as a package with a single commercial objective

2. Amount of consideration to be paid in one contract depends on the price or performance of the other contract

3. Goods or services promised in the contract are single performance activities

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IFRS: when do you combine contracts in revenue recognition

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1. Contracts are negotiated as a package with a single commercial objective

2. Amount of consideration to be paid in one contract depends on the price or performance of the other contract

3. Goods or services promised in the contract are single performance ablicible

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IFRS: when does the vendor transfer control when an obligation is satisfied overtime

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1. Customer simultaneously receives and consumes the benefits provided by vendor’s performance

2. Vendor’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced

3. vendor’s performance does not create an asset with an alternative use to the vendor

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IFRS: indicators of transfer of control when the performance obligation is satisfied at a point in time

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1. Present right to payment

2. legal title has transferred

3. Physical possession has transferred

4. customer has significant risks and rewards of ownership

5. customer has accepted the asset

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ASPE: revenue recognition criteria

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1. risks and rewards of ownership have been transferred

2. collectibility is reasonably assured

3. consideration can be reliably measured

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What are the features that indicate that an enterprise is acting as a principle?

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1. Enterprise has primary responsibility for providing goods or service to customer

2. Enterprise has inventory risk before or after the customer order, during shipping, or on return

3. Enterprise has latitude in establishing prices

4. Enterprise Bears customer’s credit risk for the amount receivable from customer

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NMT are measured in FV unless one of the following are met.

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1. transaction lacks commercial substance

2. Transaction is an exchange of product held for sale in the ordinary course of business for a product to be sold in the same line of business

3. Neither the FV of either the asset received nor asset given up can be reliably measured

4. Transaction is a non-monetary nonreciprocal transfer to owners

If you say yes to one, measure at CV

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Commercial substance exists when either criteria are met.

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1. Configuration of future cash flows of the asset received differs from those of asset given up

2. Value of the asset based on how the entity plans to use it is different from the other entity

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When is government assistance recognized

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When there is a reasonable assurance of two criteria:

1. Entity will comply with conditions of the grant

2. Grant will be received

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To be recorded as held for sale, noncurrent asset must meet the following conditions

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1. be available for immediate sale in its present condition

2. Terms of sale must be usual in customary

3. Sales must be highly probable

A. Management must be committed

B

Has initiated an active program to locate a buyer

C must be actively marketed for sale at reasonable price

D sales should be expected to be completed within one yr

E unlikely significant changes to the plan will be made

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How do you measure a noncurrent asset held for sale

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Measured at lower of carrying value and fair value less costs to sell

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How do you classify a discontinued operations

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It is a component of an entity that either has been disposed of or is classified as HFS and meets one of the following criteria:

1 represents a separate major line of business or geographical area

2 part of single-coordinated plan to dispose of a separate major line of business

3 subsidiary acquired exclusively to resell

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What are the factors to be considered for an entity to have significant influence over another

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1. ownership typically between 20 to 50%

2. Consider: board representation, participation in policy making decisions, material transactions, interchange of managerial personnel, provision of technical information

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What are the three types of accounting changes

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Change in accounting estimates

Change in accounting policies

Correction of prior period error

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How do you correct changes in accounting estimate

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Applied prospectively

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How do you correct changes in accounting estimate

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Applied prospectively

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How do you record changes in accounting policies

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1 if it is an effect of voluntary change that provides more reliable and more relevant information, it is applied retrospectively

2 if it is a standard requiring change, it is applied consistent with transitional provisions

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How are correction of errors applied

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Applied retrospectively

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What are the two types of subsequent events

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1 adjusting events – provide evidence of conditions that existed at end of the reporting period

2 non-adjusting events – indicative of conditions that arose after reporting period