Coverage of the CPA Competency Map Knowledge Supplement—The following table maps the knowledge reference list from the CPA Competency Map Knowledge Supplement to Intermediate Accounting, Eleventh Canadian Edition (Volumes and 2) The textbook in its entirety covers the knowledge component of the competencies as noted below SECTION 1: FINANCIAL REPORTING Introduction to Accounting Chapters • Objectives and fundamental accounting concepts and principles (qualitative characteristics of accounting information, basic elements) • Ethical professional judgement • Objectives of financial reporting • Methods of measurement • Difference between accrual accounting and cash accounting • Framework of standard setting (IFRS and ASPE) • Financial statement users and their broad needs, standard setting, and requirement for accountability • Accounting information systems • The role of information technology in the reporting of information, including real-time access, remote access to information, dashboard, spreadsheet, report generator, and XBRL (eXtensible Business Reporting Language) • Emerging trends in accounting standards and recent updates • Legislation that has an impact on accounting (Sarbanes-Oxley Act, Bill 198) 1, 2 and all chapters 1, 2, 3, 4A 1, 1, 3 All chapters Financial Statements—Process, Design, and Preparation • • • • • • • • The accounting cycle Internal control and cash (bank reconciliation, control over cash receipts and disbursements) Interim reporting Reportable segments Financial statements in accordance with applicable standards Routine disclosure requirements (notes to financial statements) Complex disclosure requirements (notes to financial statements) Role and composition of the MD&A 7, 7A 23 23 All chapters All chapters All chapters 23 Issues Regarding Items in Financial Statements (under various GAAPs) The appropriate accounting treatment for the following: • Cash and cash equivalents • Receivables • Inventories • Property, plant, and equipment • Goodwill and intangible assets • Depreciation, amortization, impairment, and disposition/derecognition • Provisions, contingencies, and current liabilities • Long-term liabilities • Owners’/shareholders’ equity • Earnings per share (basic, diluted) • Financial instruments • Investments in associates/significant influence • Revenue recognition/revenue from contracts with customers, and accounting for revenue and related expenses • Leases • Changes in accounting policies and estimates, and errors • Foreign currency transactions • Accounting for income taxes • Events after the reporting period • Uncommon capital assets (e.g., natural resources, exchanges of assets, decommissioning costs) • Pension plans and other employee future benefits • Assets held for sale and discontinued operations 7 10 12 11 13 14, 16 15, 16 4, 17 7, 9, 14, 15, 16 20 21 16 18 5, 23 10, 11, 13 19 Issues Regarding Items in Financial Statements (under various GAAPs) (continued) Chapters • • • • • • • 16 16 12 NA NA NA 16 Fair value and cash flow hedges Foreign currency translation Business combination Consolidated statements on date of acquisition Consolidated financial statements subsequent to acquisition date Joint ventures: proportionate consolidation or equity method Complex financial instruments (e.g., perpetual debt, convertible debt, derivatives) Financial Statement Analysis • • • • • Vertical and horizontal analysis Ratios and benchmarking Financial statement results for various users Pro forma statements Impact of financial results on the whole organization 5A, 23, and all chapters 5A, 23, and all chapters 5A, 23, and all chapters NA 5A, 23, and all chapters Meeting Financial Reporting Technical Competencies in the CPA Competency Map—The following table maps the Financial Reporting technical competencies from the CPA Competency Map to Intermediate Accounting, Eleventh Canadian Edition (Volume 2) The textbook covers the Financial Reporting competencies as noted below (see also Volume for coverage of Chapters 1–12) Detailed mapping of specific CPA Financial Reporting competencies to specific textbook Learning Objectives is provided in the charts at the beginning of each chapter FINANCIAL REPORTING 1.1 Financial Reporting Needs and Systems Chapters 1.1.1 1.1.2 1.1.3 1.1.4 1.1.5 1.1.6 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23 13, 14, 15, 16, 18, 19, 20, 22, 23 19, 20, 22, 23 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23 NA NA Evaluates financial reporting needs Evaluates the appropriateness of the basis of financial reporting Evaluates reporting processes to support reliable financial reporting Explains implications of current trends and emerging issues in financial reporting Identifies financial reporting needs for the public sector Identifies specialized financial reporting requirements for specified regulatory and other filing requirements 1.2 Accounting Policies and Transactions 1.2.1 1.2.2 1.2.3 1.2.4 Develops or evaluates appropriate accounting policies and procedures Evaluates treatment for routine transactions Evaluates treatment for non-routine transactions Analyzes treatment for complex events or transactions 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23 13, 14, 15, 16, 18, 19, 20, 22, 23 14, 15, 16, 17, 18, 19 1.3 Financial Report Preparation 1.3.1 Prepares financial statements 1.3.2 Prepares routine financial statement note disclosure 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23 1.4 Financial Statement Analysis 1.4.1 Analyzes complex financial statement note disclosure 1.4.2 Evaluates financial statements including note disclosures 1.4.3 Analyzes and provides input in the preparation of the management communication (e.g., management discussion and analysis (MD&A)) 1.4.4 Interprets financial reporting results for stakeholders (external or internal) 1.4.5 Analyzes and predicts the impact of strategic and operational decisions on financial results 14, 15, 16, 18, 19, 20, 21, 23 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23 15, 21, 23 13, 14, 15, 16, 17, 18, 19, 21, 22, 23 14, 15, 17, 22, 23 Other Technical Competencies—Coverage of other technical competencies (that is, Strategy and Governance, Management Accounting, Audit and Assurance, Finance, and Taxation competencies) is indicated here and has also been identified in the charts at the beginning of each chapter and in the end-of-chapter material Selected enabling competencies have also been identified throughout Strategy and Governance Chapters 2.1 Governance 2.3 Strategy Development 2.4 Strategy Implementation 16 2, 4, 5, 9, 10, 15, 16, 20 Management Accounting 3.1 Management Reporting Needs and Systems 3.2 Planning, Budgeting, and Forecasting 3.3 Cost Management 2, 22 8, 16, 21 Audit and Assurance 4.1 Internal Control 4.3 Internal Audit Projects and External Assurance Engagements 3, 2, 4, 8, 23 Finance 5.1 Financial Analysis and Planning 5.2 5.4 5.5 5.6 Treasury Management Valuation Financial Risk Management Corporate Finance Transactions 4, 5, 7, 8, 9, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 22, 23 1, 5, 7, 9, 13, 14, 15, 16, 17, 19, 20, 21, 22, 23 3, 4, 11, 12, 16 4, 16 14 Taxation 6.1 Corporate Tax 6.2 Personal Tax 2, 11, 18, 19, 20, 21 2, 13, 15, 16 Quickly identify areas of strength and weakness before the first exam, and use the information to build a learning path to success A little time with ORION goes a long way Based on usage data, students who engage in ORION adaptive practice—just a few minutes per week—get better outcomes In fact, students who used ORION five or more times over the course of a semester reported the following results: Streamlined Learning Objectives Easy to follow learning objectives help students make the best use of their time outside of class Each learning objective is addressed by reading content, watching educational videos, and answering a variety of practice questions, so that no matter where students begin their work, the relevant resources and practice are readily accessible Learning objectives include references to the CPA competency map This lets students know which of the CPA competencies they are mastering when they study a particular topic c02ConceptualFrameworkUnderlyingFinancialReporting.indd Page 34 05/11/15 2:10 PM f-0161 REFERENCE TO THE CPA COMPETENCY MAP /208/WB01716/9781119048534/ch02/text_s Reading Content LEARNING OBJECTIVES After studying this chapter, you should be able to: 1.1.1, 1.2.1, 1.2.2 Indicate the usefulness and describe the main components of a conceptual framework for financial reporting 1.1.2, 1.2.1, 1.2.2, 3.1.3, Identify the qualitative characteristics of accounting information 4.3.4 1.2.1, 1.2.2 Define the basic elements of financial statements 1.2.1, 1.2.2, 1.2.3, 6.1.1, Describe the foundational principles of accounting 6.2.1 Learning Objective 1.2.1, 1.2.2, 2.3.2, 4.3.5 Explain the factors that contribute to choice and/or bias in financial reporting decisions 1.1.4 Discuss current trends in standard setting for the conceptual framework Assessment Educational Videos Review and Practice Developing effective problem-solving skills requires practice, relevant feedback, and insightful examples with more opportunities for self-guided practice Review and practice opportunities in the text and in WileyPLUS include: • Summary of • Applied Accounting Learning Objectives Skills Videos • Glossary Review • Office Hour Videos • Practice Exercises Featuring Core • Demonstration Concept and Problem Problems Walkthroughs A new bridge course in WileyPLUS includes reading content, ORION questions, and practice assignments from introductory accounting to help students refresh their knowledge of basic accounting concepts A new filtering capability in the assignment area allows instructors to customize assignments by using different filters including criteria related to ASPE and IFRS, CPA competencies, Bloom’s Taxonomy, level of difficulty and even learning objectives Intermediate Accounting EL EVE NT H C A N A D I A N E D I T I O N Intermediate Accounting Donald E Kieso, Ph.D., CPA KPMG Peat Marwick Emeritus Professor of Accounting Northern Illinois University DeKalb, Illinois Jerry J Weygandt, Ph.D., CPA Arthur Andersen Alumni Professor of Accounting University of Wisconsin Madison, Wisconsin Terry D Warfield, Ph.D PWC Professor in Accounting University of Wisconsin Madison, Wisconsin Nicola M Young, M.B.A., FCPA, FCA Saint Mary’s University Halifax, Nova Scotia Irene M Wiecek, FCPA, FCA University of Toronto Toronto, Ontario Bruce J McConomy, Ph.D., CPA, CA Wilfrid Laurier University Waterloo, Ontario Copyright © 2016 John Wiley & Sons Canada, Ltd Copyright © 2015 John Wiley & Sons Inc All rights reserved No part of this work covered by the copyrights herein may be reproduced or used in any form or by any means—graphic, electronic, or mechanical—without the prior written permission of the publisher Any request for photocopying, recording, taping, or inclusion in information storage and retrieval systems of any part of this book shall be directed in writing to The Canadian Copyright Licensing Agency (Access Copyright) For an Access Copyright Licence, visit www.accesscopyright.ca or call toll-free, 1-800-893-5777 Care has been taken to trace ownership of copyright material contained in this text The publishers will gladly receive any information that will enable them to rectify any erroneous reference or credit line in subsequent editions Library and Archives Canada Cataloguing in Publication Kieso, Donald E., author Intermediate accounting / Donald E Kieso, PhD, CPA (KPMG Peat Marwick Emeritus Professor of Accounting, Northern Illinois University, DeKalb, Illinois), Jerry J Weygandt, PhD, CPA (Arthur Andersen Alumni Professor of Accounting, University of Wisconsin-Madison, Wisconsin), Terry D Warfield, PhD (Associate Professor, University of Wisconsin-Madison, Wisconsin), Nicola M Young, MBA, FCA (Saint Mary’s University, Halifax, Nova Scotia), Irene M Wiecek, FCPA, FCA (University of Toronto, Toronto, Ontario), Bruce J McConomy, PhD, CPA, CA (Wilfrid Laurier University, Waterloo, Ontario) — Eleventh Canadian edition Includes bibliographical references and indexes ISBN 978-1-119-04853-4 (volume 1: bound).—ISBN 978-1-119-04854-1 (volume 2: bound) Accounting—Textbooks I Weygandt, Jerry J., author II Warfield, Terry D., author III Young, Nicola M., author IV Wiecek, Irene M., author V McConomy, Bruce J (Bruce Joseph), 1958-, author VI Title HF5636.K54 2015 657’.044 C2015-906298-5 Production Credits Executive Editors: Zoë Craig and Emily McGee Vice President and Director, Market Solutions: Veronica Visentin Senior Marketing Manager: Anita Osborne Editorial Manager: Karen Staudinger Developmental Editor: Daleara Jamasji Hirjikaka Media Editor: Luisa Begani Assistant Editor: Ashley Patterson Production and Media Specialist: Meaghan MacDonald Typesetting: Aptara Cover and Interior Design: Joanna Vierra Cover Photo: Rolf Hicker/All Canada Photos/Getty Printing and Binding: Quad Graphics References to the CPA Canada Handbook—Accounting are reprinted (or adapted) with permission from Chartered Professional Accountants of Canada (CPA Canada), Toronto, Canada Any changes to the original material are the sole responsibility of the author (and/or publisher) and have not been reviewed or endorsed by CPA Canada Questions adapted from the Uniform Final Evaluation and the Financial Accounting: Assets (FA2) Exams or Financial Accounting: Liabilities & Equities (FA3) Exams are reproduced with permission from Chartered Professional Accountants of Canada, Toronto, Canada Any changes to the original material are the sole responsibility of the author (and/or publisher) and have not been reviewed or endorsed by Chartered Professional Accountants of Canada The International Accounting Standards Board and the International Financial Reporting Standards Foundation not accept responsibility for any loss caused by acting or refraining from acting in reliance on the material in this publication, whether such loss is caused by negligence or otherwise Printed and bound in the United States of America QG 20 19 18 17 16 www.downloadslide.net Subject Index disclosure (continued) insider trading, 1456 intangible assets, 716–718 interim reporting, 1464–1467, 1481 inventories, 444–445 investments, 518–523 key disclosure documents for public companies, 1456 leases, 1247–1250, 1259, 1260–1261, 1262–1263 liabilities, 829 long-term debt, 888–889 Management Discussion and Analysis (MD&A), 55–56 measurement uncertainty, 1325 misleading disclosure, 1456 note disclosures, 4, 888 notes to financial statements, 176, 228–229, 1458 operations income, 167 parenthetical explanations, 228 pension plan, 1187–1192, 1194 property, plant, and equipment, 651–652 receivables, 371–373 reconciliation of contract balances, 307 remaining performance obligations, 307 restatement of, 18 revenue recognition, 306–307 sale of receivables, 370 segmented reporting, 1459–1464, 1481 selective disclosure, 1456 share-based compensation, 999 significant judgements, 306 statement of cash flows, 1401–1402, 1408 supporting schedule, 230 taxes payable method, 1120 techniques, 228–230 untimely disclosure, 1456 discontinued operations, 158–162 assets held for sale, 158–159 disclosure of per share amount, 1052–1053 measurement, 159–160 presentation, 159–162 separate component, 158 discount, 288, 291, 362, 871 bonds and notes, 871–873 cash discounts, 288, 348–349, 563 employee discounts, 454 prompt settlement discounts, 288 purchase discounts, 422, 454 sales discounts, 348–349, 454 trade discounts, 348 discounted cash flow model, 100 discounted free cash flow method, 728 discounting, 1124 discounting the future cash flows, 115 discount period, 727 discount rate, 100, 308, 726–727, 1231 discrete earnings process, 294 discrete view, 1465 discussion papers (DPs), 15 dismantling costs, 562 disposal costs, 645 disposition, 158 see also sale business perspective, 628 derecognition, 649–650 donations of capital assets, 650 held for sale, 648–649, 650 IFRS-ASPE comparison, 656 involuntary conversion, 650 long-lived assets to be disposed of by sale, 648–649 miscellaneous issues, 650 sale of property, plant, and equipment, 649–650 dividend payable, 799 dividends, 638, 918–919, 920, 927–932 cash dividends, 927–928 consistent treatment, 993 date of declaration, 927 date of payment, 927 date of record, 927 dividend preferences, 930–931 dividends in kind, 928 financial conditions, and dividend distribution, 921–922 large stock dividend, 932 legality of dividend distribution, 920–921 and liability, 799 liquidating dividends, 638, 927, 930 non-payment of dividends, 922 preferred dividends in arrears, 799 property dividend, 928 reduction of shareholders’ equity, 927 stock dividend, 928–932, 1050–1051 on term preferred shares, 1398, 1416 Dividends account, 93 dividends in kind, 928 dividends receivable, 345 Division I proposals, 1473–1474 donations of capital assets, 650 double-declining-balance method, 634, 641 double-entry accounting, 79 double-entry bookkeeping, 79 due date, 865–866 due on demand, 797–798 due process, 13 E earned capital, 933 Earned Revenue account, 811 earnings adjusted net earnings, 207 all-inclusive approach, 156 announced earnings, 1044 earnings process, 49 higher-quality earnings, 155 non-GAAP earnings, 177 normalized earnings, 725, 1067 presentation, 155 quality of, 153–156, 210, 1122–1123 retained earnings, 224 I-13 smoothing earnings, 1328 sustainability of, 154, 1067 earnings approach, 280, 293–295, 307–308 earnings before interest, taxes, depreciation, and amortization (EBITDA), 635 earnings management, 155, 580 earnings multiple, 178 earnings per share (EPS), 156, 157, 172–173, 244, 1478 additional disclosures, 1059–1061 analysis, 1067 basic EPS, 1046–1053, 1063 comprehensive exercise, 1061–1066 diluted EPS, 1046, 1053–1066 disclosure, 1046–1047 IFRS-ASPE comparison, 1067–1068 interim reporting, 1465, 1466 objective of, 1045–1046 presentation, 1046–1047 earnings process, 294 earnings surprise, 1044 economic activity, 46 economic benefits, 695 economic conditions, 921 economic consequences argument, 40, 1328–1329 economic entity, 47–48, 518 economic entity assumption, 46–48 economic environment, 58 economic factors, 631 economic life test, 1230 economic obligation, 793 economic resources, 44, 214 economics of sales transactions, 274–278 economic substance, 39 economic theory, 10 effective (economic) hedge, 1004 effective interest method, 97, 360–361, 492, 493, 874–877, 1234, 1237 effective interest rate, 358 effective tax rate, 1106 effective yield, 871 efficiency of asset use, 653–655 efficient markets hypothesis, 10 efficient use of resources, elements of financial statements, 37, 43–45, 81 assets, 43 basic elements, 43 equity, 44 expenses, 44 fair value, measurement of, 102–104 gains, 44 liabilities, 43–44 losses, 44 measurement of, 97–104 present value-based accounting measurements, 99 recognition, 46–49 revenues, 44 valuation techniques, 98–101 value in use measurements, 101–102 www.downloadslide.net I-14 Subject Index embedded derivatives, 972 employee discounts, 454 employee-related liabilities, 803–807 bonus, 807 payroll deductions, 803–804 profit-sharing plan, 807 short-term compensated absences, 804–807 employee stock option or purchase plans (ESOPs), 994–995 Employment Insurance (EI), 803 enforceable promise, 278 enhancing qualitative characteristics, 41–42 entity concept, 46 entity perspective, entity-specific measure, 53, 101 environmental liabilities, 99 E.O.M (end of the month), 348 equipment, 573, 1388, 1397, 1415 equitable obligations, 44 equity, 44, 214, 887 see also shares equity claims, 518 equity instruments, 213, 214, 486, 972, 987–988 equity investments, 344 equity market, equity method, 513–517 equity pickup, 513 equity securities, 498 equity vs debt, issuer perspective, 986–993 error correction, 1330 accounting methods, 1327 correcting entries, 1338–1339 correction of a prior period error, 1304, 1307–1308 disclosure, 1323 presentation on comparative financial statements, 1342–1343 retrospective restatement, 1319–1323 errors accounting errors, 1459 bank or depositor errors, 381 correction of See error correction counterbalancing errors, 1334–1336 error analysis, 1332–1343 freedom from material error, 40–41 in income statement, 1333–1338 income tax effects, 1338–1339 inventory errors, 419–421 non-counterbalancing errors, 1334, 1336–1338 numerous errors, comprehensive illustration, 1339–1342 prior period errors, 1304, 1307–1308 in statement of financial position, 1333–1338 in statement of financial position and income statement, 1334–1338 ESOPs, See employee stock option or purchase plans estimated items, 84 adjusting entries, 91–92 bad debts, 84, 92 unrealized holding gain or loss, 92 estimates accounting items requiring estimates, 1307 and accrual accounting, 154 cash flow estimates, 99 change in See change in accounting estimate depreciation, 629 disclosure of use of, 227 for income measurement, 154 inventories, 442–444 recoverable reserves, 637 significant estimates, and ratios, 1480 in statement of financial position, 212 uncollectible trade accounts receivable, 350–351 for unperformed work, 315 useful life, 631 variable consideration, 285–286 ethical dilemmas, 19 ethical sensitivity, 19 ethics biased revenue numbers, 279 centrality of ethics, 19 code of ethics, 18 cost deferrals, 50 earnings management, 155, 580 ethical dilemmas, 19 ethical sensitivity, 19 principles-based GAAP, 57 and professional judgement, 227 structured financings, 60 European Financial Reporting Advisory Group, 20 event, 78 see also transaction event accrual method, 806 excess-earnings approach, 724–727 exchange of debt instruments, 881 exchange price, 347, 563 exchange rate risk, 1003 exchange-traded options, 994 executory contracts, 416, 822, 977–978, 1225 executory costs, 1231 exercise date, 997 exercise period, 978 exercise price, 978, 1055 exit costs, 77 exit price, 53 expected cash flow approach, 100 expected cost plus a margin, 289 expected credit losses, 351, 375 expected loss impairment model, 508–511 expected present value technique, 100–101 expected return, 1176 expected value, 285 expected value method, 819 expenditures, major types of, 580–584 expense account, 79 expense approach, 812, 815, 817 expenses, 44 see also specific expenses accrued expenses, 84, 89–91 current tax expense, 1128, 1133 deductible for tax purposes, 1092, 1093 deferred income tax expense, 1098 deferred tax expense, 1095, 1129–1130, 1133–1134 development expenses, 220 function, 169–171 future income tax expense, 1095, 1098 IFRS-ASPE comparison, 178 nature, 169–171 non-tax-deductible expenses, 1093 operating expenses, 183–184, 220 prepaid expenses, 84–87, 219 presentation, 169–171 in single-step income statements, 165 supplementary schedules, 168 experience adjustment, 1175 experience gain or loss, 1174 expiration, 998 exploration and evaluation assets, 637 Exposure Drafts (EDs), 15 conceptual framework, 60, 105, 179, 240, 792, 809, 830 Disclosure Initiative: Proposed Amendments to IAS 7, 267 financial statement presentation, 240 income taxes, 1125 proposed amendments to IAS 7, 240 proposed amendments to IAS 37, 830 provisions vs liabilities, 823 extended payment terms, 287 extended warranties, 301–302 extensible business reporting language (XBRL), 22 external users, extinguishment of debt, 880 extractive industries, 587–588, 657 F face rate, 358 face value, 358–359, 871 factoring receivables, 365 fair value, 575, 643 advanced models for measurement of, 1017–1021 best-quality fair value measure, 103 company’s own debt, 104 “cost” on the books, 570 disclosure, 1018–1021 estimate of, 53 less costs of disposal, 645 less costs to sell, 574, 578 loans receivable, 357–358, 364 marketable securities, 877 measurement, using IFRS 13, 102–104 measurement of, 1017–1021 nonmonetary transactions, 567 not equal to cash consideration, 364 notes receivable, 357–358 property, plant, and equipment, 575–576 relative fair value, 309, 924 and revenue recognition, 288 www.downloadslide.net Subject Index fair value hedge, 1005–1007 fair value hierarchy, 103 fair value less costs to sell, 439–442 fair value loss impairment model, 510, 511 fair value model (FVM), 575, 578–579, 584 fair value option, 54, 214, 505, 879–880 fair value principle, 53–54 fair value standard, 566–568 fair value test, 710 fair value through net income (FV-NI), 92, 495–499, 505, 882–883, 1003, 1004, 1006 analysis of, using work sheet, 1413 direct and indirect method, 1394 fair value through other comprehensive income (FV-OCI), 92, 157, 500–506, 1004, 1006, 1120 analysis of, using work sheet, 1414 income from FV-OCI investments (debt instruments), 503–504 income from FV-OCI investments (shares), 501–502 investments in debt instruments of other entities, 503–506 investments in shares of other entities, 500–502 with recycling, 500 sale of FV-OCI investments (debt instruments), 504–506 sale of FV-OCI investments (shares), 502 without recycling, 500 fair value through profit or loss (FVTPL), 527 FASB See Financial Accounting Standards Board (FASB) favourable lease, 707 feedback, 38, 153 feedback value, 156, 167 finance leases, 1226, 1240–1244, 1251–1257 financial accounting, Financial Accounting Standards Board (FASB), 12, 15–16 conceptual framework, 36 derecognition of receivables, 375 financial statement presentation, 240, 1375, 1408 impairment approach, 1115 intangible assets, 722 last-in, first-out (LIFO) accounting, 41 leases, 1222 nonmonetary exchange, 567 performance reporting project, 179 post-retirement benefits other than pensions, 1185 projected benefit method, 1172 financial assets, 214, 218, 342, 350 financial calculators, 117–118, 120–121 financial components approach, 369 financial crisis, 7–8, 18 financial engineering, 58 financial flexibility, 211–213, 223, 237 financial fraud, 1332–1333 financial guarantees, 821–824 financial institutions, 5, financial instruments, 213–216, 456, 793, 971 financial liabilities, 793–794, 972, 1266 definition, 987 long-term financial liabilities See long-term debt measurement, 794 recognition at fair value, 877 financial ratios See ratio analysis financial reorganization, 943–945 financial reporting, bias in, 10–11, 154, 279 conceptual framework See conceptual framework decision-usefulness approach, economic or business environment, 58 entity perspective, financial engineering, 58 fraudulent financial reporting, 58–59 integrated reporting, 22–23 issues, 57–59 objective of financial reporting, 8–9, 57 other pressures, 59 proprietary perspective, stakeholders, 5–7 well-reasoned and supported analysis, 58 financial risks, 243, 519, 974–975 financial statement analysis common-size analysis, 1479 horizontal analysis, 1479 limitations, 1477, 1480 overview, 1476 ratio analysis See ratio analysis techniques of, 1477–1480 trend analysis, 1477, 1480 vertical analysis, 1479 financial statements, 4, 55, 78, 93 see also specific types of financial statements analysis See analysis basic elements, 43 basic presentation requirements, 163 comparative financial statements, 1342–1343 condensed financial statements, 168–169 consolidation, 48, 518 credible financial statements, 40 disclosure, 1456 discounting, 1124 elements of financial statements, 37, 43–45, 81, 97–104 general-purpose financial statements, 8, 36 IFRS-ASPE comparison, 104 measurement of financial statement elements, 97–104 note disclosures, notes to financial statements, 55, 176, 1458, 1482 as point estimates, 153 I-15 preparation from work sheet, 110–112 presentation See presentation supplementary information, 55 users, 4, 6, 37, 274 financing activities, 150, 231, 234, 824, 1375–1376, 1388, 1406 finished goods inventory, 410 finite life, 221, 702–703 firm underwriting, 866 first-in, first-out (FIFO) cost formula, 432–433, 454 first principles, 57 five-step revenue recognition process allocation of transaction price to separate performance obligations, 289–291 determination of transaction price, 285–288 example, 281 identification of separate performance obligations, 283–285 identification of the contract with customers, 282–283 recognition of revenue when each performance obligation satisfied, 291–292 summary of, 292–293 fixed assets, 558 see also property, plant, and equipment flexibility, 57, 1224 f.o.b destination, 278, 414 f.o.b shipping point, 278, 414 foreign currencies, 344 foreign currency risk, 1004 forfeitures, 998 formal plan to sell, 159 forms of organization, 46–47 for-profit companies, 916 forward contract, 972, 976, 978, 981–984, 1056 forward purchase contracts, 1056 forward sales contract, 1056 foundational principles, 45–57 measurement, 50–54 presentation and disclosure, 55–57 recognition and derecognition, 46–49 franchise, 706–707 fraud, financial, 1332–1333 fraudulent financial reporting, 58–59 Fraudulent Financial Reporting: 1998-2007, 59 Freakonomics (Levitt and Dubner), 11 free cash flow, 238–239, 1372, 1407 freedom from material error, 40–41 freight costs, 454 fresh start accounting, 943 full cost method, 574 full disclosure principle, 55–57, 163, 223, 278, 867, 1456–1457 full retrospective application, 1310–1313, 1327 function, 169–171, 213 fundamental qualitative characteristics, 38–41 www.downloadslide.net I-16 Subject Index funded, 1167 future income tax assets, 222, 1095, 1100 future income taxes See deferred/future income taxes future income tax expense, 1095, 1098, 1311 future income tax liabilities, 223–224, 1095, 1098–1099 future income tax method, 1095, 1103, 1120–1121 futures contract, 972, 978, 983–984 future tax rates, 1107–1108 FV-NI See fair value through net income (FV-NI) FV-OCI model See fair value through other comprehensive income (FV-OCI) G GAAP See generally accepted accounting principles (GAAP) GAAP hierarchy, 16–17, 1304 gain contingencies, 818 gains, 44 actuarial gains and losses, 1174–1175, 1178, 1182–1184, 1194 consistent treatment, 993 contingent gains, 227 experience gain or loss, 1174 realized, 489, 1092 vs revenues, 163 taxation of, 1092–1093 unrealized holding gains or losses, 84, 489, 1092 unusual gains, 163 general and administrative expenses, 425 general chequing account, 378 general hedge accounting, 1001 general journal, 82, 83 general ledger, 78, 81 generally accepted accounting principles (GAAP), 6, 12 see also Accounting Standards for Private Enterprises (ASPE); International Financial Reporting Standards (IFRS) in absence of specific GAAP guidance, 57 changes in accounting principle, 1305–1307 comprehensive income, 156 conceptual framework, 17 consolidated statements, 47 CPA Canada Handbook, 13, 16 disclosure of accounting methods, 154 entities responsible for GAAP, 12 GAAP hierarchy, 16–17 under IFRS, 17 levels of GAAP, 1304–1305 non-consolidated entities, 886 not always optimal, 154 other sources of GAAP, 16–17 primary sources, 16–17, 45, 1305, 1306 principles-based approach, 21, 57 principles versus rules, 21 professional judgement, 17–18 rational and systematic allocation policy, 49 rules-based approach, 21 sources of GAAP, 16–17 stock dividends, 929 taxable income, 802 U.S GAAP, 15, 21–22, 434 see also Financial Accounting Standards Board (FASB) general-purpose financial statements, 8, 36 going concern assumption, 52 goods, 274 consigned goods, 414 distinct goods, 283 notes issued for, 879 physical goods, 413–417 sale of goods, 294–295 see also sales transaction vs sales of services, 274 Goods and Services Tax (GST), 800–801 goods in transit, 414 goodwill, 222, 694 analysis, 719–720, 1415 bargain purchase, 713 business importance, 694 characteristics, 694 direct and indirect method, 1397 disclosure, 716–718 discounted free cash flow method, 728 excess-earnings approach, 724–727 IFRS, effects of, 692–693 IFRS-ASPE comparison, 721 impairment, 714–715 internally generated goodwill, 711 measurement, 694, 711–712 negative goodwill, 713 number of years method, 728 presentation, 716–717 present value-based accounting measurements, 99 purchased goodwill, 711–712 recognition, 711–712 total-earnings approach, 727 valuation after acquisition, 713–714 valuation of goodwill, 713–714, 724–728 government business enterprises, 916 government grants, 570–572, 588 government units, 916 grant date, 996–997 Great Depression, 12 gross average accounts receivable (GAAR), 355 gross investment in lease, 1252 gross margin, 299 gross method, 299, 348–349, 422 gross profit margins, 170, 299 gross profit method, 442 gross profit percentage, 443 guaranteed residual value, 1231, 1233, 1240–1241, 1244 guarantees financial guarantees, 821–824 product guarantees, 811–815 see also warranties H half-year rule, 660 hard numbers, 41, 154, 212 Harmonized Sales Tax (HST), 801 hedge accounting, 975, 977, 1000–1001, 1003, 1004–1013 see also hedging hedged item, 1003 hedging, 975, 1003 act of hedging, 1003 anticipated purchases, 1011–1013 cash flow hedge, 1005, 1007–1013 derivatives used for, 1002–1003 effective (economic) hedge, 1004 fair value hedge, 1005–1007 general hedge accounting, 1001 hedge accounting, 975, 977, 1000–1001, 1003, 1004–1013 hedge accounting standards, need for, 1002–1003 hedged item, 1003 hedging item, 1003 interest rate swaps, 1007–1011 macro hedging, 1001 no symmetry in accounting, and need for special hedge accounting, 1004 purchase commitments, 1007 recognized assets as hedged items, 1005–1007 symmetry in accounting, and no need for special hedge accounting, 1004 hedging item, 1003 held for sale, 158–159, 648–650, 656 held for trading instruments, 488, 505 held to maturity instruments, 490, 505 highest and best use, 102 high/low preferred shares, 988–989 historical cost-based model, 53 historical cost measures, 97–98 historical cost principle, 52–53, 1474, 1480 depreciable assets, 86 on statement of financial position, 212 historical costs, 575 holder, 365 horizontal analysis, 268, 1479 human behaviour, 10 hybrid/compound instruments, 986–990 examples of, 988 measurement, 989–990 presentation, 987–989 hyperinflation, 52 I IAS See International Accounting Standards (IAS) www.downloadslide.net Subject Index IASB See International Accounting Standards Board (IASB) identifiable, 695 identifiable net assets, 694 if-converted method, 1053–1055 IFRIC See International Financial Reporting Interpretation Committee (IFRIC) IFRIC 1, 811 IFRIC Interpretation 13 Customer Loyalty Programs, 815 IFRS See International Financial Reporting Standards (IFRS) IFRS Advisory Council, 14 IFRS-ASPE comparison, 1329–1330 see also Accounting Standards for Private Enterprises (ASPE); International Financial Reporting Standards (IFRS) accounting changes, 179 cash and cash equivalents, 374 cash flow per share information, 239 complex financial instruments, 999–1000 contingencies, 828, 829 contingent gains, 828 current/non-current classification, 829 current vs non-current liabilities, 239 decommissioning and restoration obligations, 828 depreciation, 655–656 derecognition, 375 disclosure, 1481 disclosure, liabilities, 829 disclosure, property, plant, and equipment, 657 disclosure of date financial statement authorized for issue, 239 discontinued operations, 178 earnings per share (EPS), 179, 1067–1068 equity, accounting for, 939 expenses, 178 financial statements, 104 fundamental similarities, 59 goodwill, 721 held for sale, 656 impairment, 375, 655–656 income taxes, 1124–1125 intangible assets, 720–721 inventories, 446–447 investments, 524–525 leases, 1235–1237, 1261–1263 liabilities, 827–829 long-term debt, 890–891 measurement, 104–105, 1481–1482 non-financial liabilities, 829 non-financial obligations, 808 other comprehensive income/ comprehensive income, 179 pension plan, 1193–1194 post-employment benefits, 1193–1194 premium offers, 816–817 “probable,” and recognition of losses and liabilities, 46 property, plant, and equipment, 585–587 receivables, 375 revenue recognition, 307–309 statement of cash flows, 239, 1407–1408 statement of changes in shareholders’ equity, 179 statement of financial position (balance sheet), 239 statement of income/comprehensive income (income statement), 178–179 statement of retained earnings, 179 uncertain commitments, 828, 829 IFRS Foundation, 14, 34 illegal acts, 1459 immediate recognition approach, 1177 impaired, 642 impairment, 641–642, 1234 accounts receivable, 350–356 asset groups, 646–648 business perspective, 628 cash-generating unit (CGU), 646–648 cost recovery impairment model, 642–646, 709 goodwill, 714–715 IFRS-ASPE comparison, 375, 655–656 indefinite-life intangibles, 710 indicators of impairment, 642 limited-life intangibles, 708–709 rational entity impairment model, 643–646, 709 recognition and measurement models, 642–646 recoverable amount, 644 in value, equity method, 516 impairment approach, 1115 impairment loss, 507, 643–644, 646–648 impairment models, 507–511 expected loss impairment model, 508–511 fair value loss impairment model, 510, 511 incurred loss impairment model, 507–508, 510–511 summary of, 510–511 implicit interest rate, 359, 877 impracticable, 1310, 1313 imprest bank accounts, 378 imprest system, 379–380 imputation, 363 imputed interest rate, 363, 877 incidental transactions, 44, 167 income accounting income, 1090–1091 all-inclusive approach, 156 under amortized cost model, 492–494 comprehensive income, 45, 156 from continuing operations, 207 leases, 1252, 1256 measurement, 154 multiple view of income, 157 net income See net income nonrecurring income or losses, 167 I-17 numbers, and accounting methods, 154 operating income, 153, 156 operations income, 167 other comprehensive income See other comprehensive income (OCI) sustainability of, 155 taxable income, 802, 1090–1094, 1128, 1133 tax income, 1099 income approach, 571 income available to common/ordinary shareholders, 1048–1049 income bonds, 867 income models, 98 income statement, 4, 78, 150, 176, 1090, 1118–1120, 1187, 1333–1338, 1465, 1479 see also statement of income/ comprehensive income (income statement) Income Summary account, 94 Income Tax Act, 660 income tax benefit, 1099 income taxes, 108–109, 802–803 analysis, 1122–1124 from a business perspective, 1079–1090 calculation of current income taxes, 1094–1095 capital cost allowance (CCA), 660, 1093 capital cost allowance method, 659–663 capital gain, 663 comprehensive illustration, 1127–1135 current income taxes, 1090–1095 current tax expense, 1095, 1128, 1133, 1311 deductible temporary difference, 1097, 1100 deferred/future income taxes, 1095–1102 deferred tax asset account, 1115–1116 deferred tax assets, 222, 1095, 1100–1102, 1117–1118, 1124, 1129–1130, 1133–1134 deferred tax expense, 1095, 1098, 1129–1130, 1133–1134, 1311 deferred tax liabilities, 223–224, 1095, 1097–1099, 1129–1130, 1133–1134, 1399, 1417 depreciation, 659–663 disclosure, 1120–1122, 1125 disclosure requirements, 1120–1122 discounting of deferred tax assets and liabilities, 1107 discrete view, 1465 effective tax rate, 1106 errors, income tax effects of, 1338–1339 future income tax assets, 222, 1095, 1100 future income tax expense, 1095, 1098 future income tax liabilities, 223–224, 1095, 1098–1099 future income tax method, 1095, 1103, 1120–1121 www.downloadslide.net I-18 Subject Index income taxes (continued) future taxable income not probable, 1112–1114 future taxable income probable, 1111–1112 future tax rates, 1107–1108 ideal corporate tax rate, 1088–1089 IFRS-ASPE comparison, 1124–1125 income statement presentation, 1118–1120 income tax accounting objectives, 1103 income tax withholding, 803–804 interperiod tax allocation, 1103 intraperiod tax allocation, 172, 1118 loss carryback, 1109, 1110 loss carryforward, 1109–1111, 1113–1115 loss for income tax purposes, 1109–1115 multiple differences, 1093–1094, 1104–1106 originating difference, 1094 permanent differences, 1091–1094 presentation, 1116–1120, 1125, 1130–1131, 1134–1135 recognition, 1124–1125 reversible differences, 1091–1094 statement of financial position presentation, 1116–1118 substantively enacted rate, 1107 taxable income, 802, 1090–1094, 1128, 1133 taxable temporary difference, 1097–1098, 1107 taxes payable, 802–803, 1128, 1133, 1388, 1398, 1416 taxes payable method, 1095, 1120 tax rate change, 1132–1133 tax rate considerations, 1106–1108 temporary difference, 1093, 1097 temporary difference approach, 1095, 1103, 1123 timing differences, 1093 work sheet, 108–109 incremental borrowing rate, 1231 incremental costs, 305 incremental method, 989 incurred loss impairment model, 507–508, 510–511 indefinite life, 221, 702, 704, 707, 710, 714 independent finance company, 1223–1224 indirect costs, 972, 973 indirect method, 235, 437, 1378, 1379, 1384–1401 induced conversion, 991 industries, 150–153 industry practice, 17 inflation, 51 inflation accounting, 52 information integrity of, 154 quality of, 153–156 information asymmetry, 9–11, 37, 1044 adverse selection, 10, 37 moral hazard, 10, 37 information overload, 55 information symmetry, initial direct costs, 1260 in-process research and development (R&D), 697 input measures, 292, 312 input tax credit, 801 insider trading, 1456 insolvency, 1473–1474 inspections, 580–584 instalment purchases, 1225–1226 institutional investors, 8, 9, 484–485 in-substance common shares, 918 in-substance defeasance, 886 insurance, 85–86, 219 insurance claims, 345 intangible assets, 221–222, 695, 1234 at acquisition, 696–697 after acquisition, 701–704 amortization, 629, 702 analysis, 719–720 artistic-related intangible assets, 706 business combination, 697 business importance, 694 characteristics, 695 contract-based intangible assets, 706–707 customer-related intangible assets, 705 derecognition, 710 development phase, 698–700 disclosure, 716–718 finite life, 221 IFRS-ASPE comparison, 720–721 impairment of indefinite-life intangibles, 710 impairment of limited-life intangibles, 708–709 indefinite life, 221, 702, 704, 710 internally developed intangible assets, 222, 698–701 limited-life intangibles, 702–703, 708–709 marketing-related intangible assets, 704–705 measurement, 696–704 measurement difficulties, 222 prepayments, 697 presentation, 716–717 purchased intangibles, 696 recognition, 696–704 research phase, 698–699 technology-based intangible assets, 707–708 useful life, 221 valuation difficulties, 222 integral view, 1465 integrated reporting, 22–23 intellectual capital, 719 interest, 563 accrued interest, 90 capitalization of interest, 561–562 compound interest, 114–115 consistent treatment, 993 costs, and defined benefit plan, 1174 nature of, 113 nonrecognition of interest element, 350 notes receivable, 356 simple interest, 114 interest-bearing investment, 492 interest-bearing note issued, 796–797 interest-bearing notes, 356, 361–363 interest rate implicit in the lease, 1231 interest rate risk, 974, 975, 1003 interest rates bonds, 871 calculation of, 122–123 current market rate, 1174 effective interest rate, 358 implicit interest rate, 359, 877 imputed interest rate, 363, 877 incremental borrowing rate, 1231 interest rate implicit in the lease, 1231 long-term debt, 865–866 market rate, 358, 362, 363 non-market interest rates, 877–878 present value calculations, 122 stated interest rate, 358, 362, 363 yield rate, 358 interest rate swaps, 1007–1011 interest receivable, 345 interim reporting, 1464–1467, 1481 changes in accounting, 1466 continuing controversy, 1466–1467 and continuous disclosures, 1467 discrete view, 1465 earnings per share, 1466 integral view, 1465 requirements, 1465–1466 seasonality, 1466 tax expense, calculation of, 1465 unique problems in, 1466–1467 interim reports, 1464 internal control, 378 internal control systems, 18 internal users, International Accounting Standards (IAS), 17 see also International Financial Reporting Standards (IFRS) accounting policies, changes in accounting estimates and errors, 1323 agriculture, 34–35, 439, 574, 588 bearer plants, 34–35 biological assets and agricultural produce, 34–35, 309, 446 borrowing costs, 561 contingencies, 819 cost, 563 depreciation, 635 disclosure, 444, 1457 employee benefits, 1168 fair value through other comprehensive income, 157 financial instruments, 407 government grants and disclosure of government assistance, 588 hyperinflation, 52, 575 impairment of assets, 657, 721, 1234 www.downloadslide.net Subject Index International Accounting Standards (IAS) (continued) impracticable, 1310 income taxes, 1090, 1096, 1114, 1121 intangible assets, 698, 703, 722, 1234 inventories, 440, 446 investment classifications, 933 investment measurement models, 505–506 investment property, 573, 579 leases, 1222, 1226–1230, 1248, 1259– 1263, 1267–1268, 1270–1271 markdowns, 454 notes to financial statements, 1482 pension plans, 1168, 1194 presentation of financial statements, 822–823, 1307, 1323, 1408 property, plant, and equipment, 34, 558, 573, 649, 657 provisions, contingent liabilities, and contingent assets, 416, 792, 823, 830 remeasurement of pension plans, 933 revenue, 209 statement of cash flows, 240, 1375, 1408 taxable profit, 1091 timing difference, 1093 International Accounting Standards Board (IASB), 12, 13, 14–15, 16, 20 see also International Financial Reporting Standards (IFRS) accounting policies and estimates, 1330–1331 adoption date for IFRS 15, 309 biological assets, 34 conceptual framework, 36, 60, 105, 157, 891 derecognition of receivables, 375 disclosures, 60, 939, 1456–1457 estimation uncertainty, 1330 extractive industries, 587–588, 657 fair value disclosure, 1019 financial instruments with characteristics of equity, 891, 939, 940 financial statement presentation, 240, 939, 940, 1375, 1408 hedge accounting, 1001 income taxes, 1125 intangible assets, 722 leases, 1222, 1304 liabilities, 830 long-term debt, 891 materiality, 60 notes to financial statements, 1482 performance reporting project, 179 post-employment benefits, 1171 projected benefit method, 1172 reporting entity, defining, 48 revenue recognition, 280 revised definitions of terms, 792 segmented reporting, 1461 temporary difference approach, 1123 International Accounting Standards Committee (IASC), 14 International Financial Reporting Interpretation Committee (IFRIC), 14, 17, 1125 International Financial Reporting Standards (IFRS), 12, 1305 see also generally accepted accounting principles (GAAP); IFRS-ASPE comparison; International Accounting Standards (IAS); International Accounting Standards Board (IASB) accounting changes, 1304, 1327 accounting income, 1091 accounting policies, 1329, 1458 accounts receivable, 350, 351 affirmative judgement approach, 1115 aggregated segments, 1462 all-inclusive approach, 156 amounts payable under residual value guarantee, 1241 asset impairment, 101 asset-liability approach, 280, 307–308 asset retirement costs, 562 associates, investments in, 512, 523 assurance-type warranty, 812, 813, 815 balance sheet approach, 49 biological assets and agricultural produce, 440–441 bonus, 807 book value method, 991 callable debt, 798 capital disclosures, 935–936 capitalization of costs, 560 cash equivalents, 344 cash flow hedge accounting, 1009–1010 cash flows, classification of, 1376 change in accounting estimate, 1324 combined statement of income/ comprehensive income, 164–165 components, 559, 630 comprehensive income, 45 contingencies, 819, 824 control, 48, 517 convertible debt at time of conversion, 992 current assets, 518–519 current liabilities, 795 current tax expense (income), 1311 customer loyalty programs, 815 decommissioning and restoration obligations, 808, 810 deferred tax assets and liabilities, 1117 deferred tax expense (income), 1311 defined benefit obligation, 1179 defined benefit plan, 1170, 1176, 1177–1178, 1184 defined contribution plan, 1168 depreciation, 630 derecognition of receivables, 367–369 derivatives, 985 direct method, 1378 disclosure, 716, 1457 disclosure, long-term debt, 888 I-19 earnings per share (EPS), 1047 effective interest method, 358, 360, 492, 874 equity instruments, 987–988 evolution of a new or revised IFRS, 15 expense approach, 815 expenses, 169, 170 fair value, 53, 101, 102–104, 645, 657, 721, 880 fair value option, 54, 880 financial assets, 350, 506 financial instruments, 214, 1266 financial liabilities, 793, 987, 1266 financial risks, 974 forfeitures, 998 future income tax method, 1121 future tax expense or benefit, 1108 GAAP under IFRS, 17 goodwill, 692–693, 714, 715 hedge accounting, 1005, 1007, 1009–1010, 1012, 1013 held for sale, 649 held-for-sale assets and liabilities, 160 impairment, 375, 507, 509, 510–511, 519–520, 642 income, 156 increased disclosure, 57 indefinite life, 704 indefinite-life intangibles, 710 intangible assets, 698, 700–701 interest, and defined benefit plan, 1174 interest rate swap, 1009, 1010 interim reporting, 1464 inventory, 41, 412, 444 inventory cost, 422 investment measurement models, 505–506 investment property, 573, 575 investments, 495, 501 issued but unpaid-for shares, 923 and large stock dividend, 932 leases, 1221, 1222, 1226, 1227–1229, 1231–1244, 1245, 1248, 1258, 1259, 1261–1263, 1266–1267, 1269–1270 liabilities, definition of, 793 liabilities, recognition of, 227 lifetime expected credit losses, 350, 509 limited-life intangibles, 709 measurement uncertainty, 1324 mineral resources, 588 mixed measurement model, 1003 non-consolidated entities, 886 non-financial liabilities, 794 non-financial obligations, 808 off–balance sheet financing, 886 other comprehensive income, 45, 157, 172 own equity instruments, 985 past service costs, 1174 pension plan, disclosure, 1188 post-employment benefits, 1186 premiums and coupons, 816, 817 primary sources of GAAP, 1305 www.downloadslide.net I-20 Subject Index International Financial Reporting Standards (IFRS) (continued) principles-based approach, 21, 57 “probable,” 46 product costs, 424 professional judgement, 17 profit-sharing payments, 807 provisions, 223, 227, 807 purchase commitments, 977 rational entity impairment model, 709 rational entity model, 645 reacquisition of shares, 927 receivables, 367–368, 369, 371, 375 reclassification of debt as current, 798 refund liability, 349–350 related-party transactions, 1468 replacements, major overhauls, and inspections, 584 residual value method, 990 retirement of shares, 927 retrospective application, 1312–1314 retrospective restatement, 1319 revaluation model, 702 revaluation of company’s own debt, 104 revenue approach, 815, 817 revenue from contracts with customers, 49, 280, 1267 revenue recognition, 295 sales revenue, 349 service-type warranty, 812, 815 share appreciation rights plans, 1014 share-based payment, 566 short-term liability expected to be refinanced, 798, 799 significant influence, 516 statement of cash flows, 1378, 1401–1403 statement of changes in equity, 173–175 statement of income/comprehensive income, 163–165, 169–170 subsequent events, 1470 tax base, 1095 transaction costs, 358 United States, and IFRS, 21–22 upside-down presentation, 822–823 vs U.S GAAP, 21–22 voluntary change, 1306 warranties, 812 zero-profit method, 311 International Integrated Reporting Committee (IIRC), 23 Internet, 11, 22 interperiod tax allocation, 1103 in the money, 980, 1055 intraperiod tax allocation, 172, 1118 intrinsic value, 980, 1018 intrinsic value method, 1014 inventories, 413 accounting definition, 413 analysis, 446, 1414 basket purchases and joint product costs, 425 beginning inventory, 95 categories, 410 change in control, 417 companies with inventory, 410 consigned goods, 414 and cost of goods sold, 95 costs See inventory costs as current asset, 218–219 direct and indirect method, 1395 disclosure, 444–445 ending inventory, 95, 419–420 estimates, 442–444 finished goods inventory, 410 goods in transit, 414 IFRS-ASPE comparison, 446–447 indirect method, 1387 information for decision-making, 411–412 inventory cost formulas, and interim reports, 1465 inventory errors, 419–421 inventory tracking, 408–409 last-in, first-out (LIFO) cost formula, 41 manufacturing inventory, 218 measurement, 411, 421–444 merchandise inventory, 410 physical count, 95 physical goods, 413–417 planning and control, 410–411 presentation, 444–445 vs property, plant, and equipment, 558–559 purchase commitments, 416–417 purchase discounts, 422 purchases and inventory misstated, 420–421 raw materials inventory, 410 recognition, 412–421 risks and rewards, 417 sales with buyback agreements, 415 sales with delayed payment terms, 415–416 sales with high rates of return, 415 types of inventory, 456 understatement of, 414 vendor rebate, 422–423 work-in-process inventory, 410 inventory accounting systems periodic inventory system, 95, 427–428, 432, 437 perpetual inventory system, 95, 426–428, 430, 432, 437 quantities only system, 428 inventory costs, 421–422, 450–455 borrowing costs, 424 cost formula See cost formulas cost of service providers’ work in progress, 425 costs excluded from inventory, 425 exceptions to lower of cost and net realizable value model, 438–442 fair value less costs to sell, 439–442 flow of costs, 417–418 lower of cost and market (LCM), 434 lower of cost and net realizable value, 434–438 net realizable value, 438–439 product costs, 424–425 retail inventory method, 450–455 standard cost system, 424 inventory errors, 419–421 inventory turnover ratio, 244, 446, 1478 investee, 487 investing activities, 150, 231, 235, 237, 1375, 1376, 1388, 1406 investment grade securities, 868 investment property, 573, 575 investments amortized cost model, 491–495 analysis, 523–524 application of accounting models, 490 associates, investments in, 512–516, 523, 1395–1396, 1414 available for sale, 488 cost model, 490–495 in debt instruments of other entities, 503–506 disclosure, 518–523 equity investments, 344 expected loss impairment model, 508–511 fair value loss impairment model, 510–511 fair value through net income (FV-NI), 495–499 fair value through other comprehensive income (FV-OCI), 500–506 held for trading, 488, 505 held to maturity investments, 490, 505 IFRS-ASPE comparison, 524–525 impairment models, 507–511 incurred loss impairment model, 507–508, 510–511 information for decision-making, 488 long-term investments, 220 on margin, 489 measurement, 489–511 non-current investments, 220 non-equity investments, 1375 presentation, 518–523 present value-based accounting measurements, 99 recoverable amount, 516 returns, 487 in shares of other entities, 500–502 short-term investments, 217, 343 significant influence investments, 513 strategic investments, 511–518 subsidiaries, investments in, 517–518 types of companies, 487–488 types of investments, 486 without significant influence or control, 518–523 investors, 7, 8, 9, 487 involuntary conversion, 650 IOUs, 343, 345 irregular activities, 167 irregular items, 156, 172 item-by-item approach, 436 www.downloadslide.net Subject Index J Japan, 807 joint cost, 425 joint venture, 512 journal entries, 78 see also specific journal entries journalizing, 81–82 journals, 17, 78 general journal, 82–83 special journal, 82 judgement See professional judgement junk bonds, 867 just-in-time inventory ordering, 975 K knowledge assets, 719 L laid-down costs, 52 land, 1269, 1387–1388, 1396–1397, 1415 land and building, 1269–1270 language of accounting and business, 43 large stock dividend, 932 last-in, first-out (LIFO) cost formula, 41, 433–434 law, corporate, 917 lawsuits, 820 leasehold, 707 leasehold improvements, 572–573 leases, 707, 1223 see also lessee; lessor advantages of leasing, 1224–1225 under ASPE, 1226–1232, 1235–1246, 1248, 1250–1251, 1258–1263, 1267–1268, 1270 asset recognition, 1235–1236 bargain purchase option, 1232, 1258 bargain renewal option, 1230 basics of leasing, 1222–1227 business perspective, 1222 capitalized leases, 1225–1226 capital lease method, 1237–1244 capital leases, 1226, 1235–1236, 1245–1248 classification approach, 1225–1226, 1229 conceptual nature of a lease, 1225–1226 contract-based approach, 1226, 1227, 1232–1235 current and non-current lease liabilities, 1239 current standards, 1226–1227 definitions, importance of, 1230 depreciable amount, period, and method, 1236–1237 depreciation expense, 1234 direct financing lease, 1251 disclosure, 1247–1250, 1259–1263 discount rate, 1231 “double dipping” at international level, 1225 economic life test, 1230 effective interest method, 1237 executory contract approach, 1225 favourable lease, 707 finance leases, 1226, 1240–1244, 1251–1257 financial engineering, 1229 flexibility, 1224 gross investment in lease, 1252 guaranteed residual value, 1231, 1233, 1240, 1244 under IAS 17, 1222, 1226–1228, 1230, 1248, 1250, 1259–1263, 1267–1268, 1270–1271 under IFRS 16, 1221, 1222, 1226–1229, 1231–1246, 1248, 1250–1251, 1258–1259, 1261–1263, 1266–1267, 1269–1270 IFRS-ASPE comparison, 1235–1237, 1261–1263 initial direct costs, 1260 interest rate implicit in the lease, 1231 land, 1269 land and building, 1269–1270 lease amortization schedule, 1238 lease criteria, 1227–1229 lease term, 1230, 1233 leasing environment, 1223 liability recognition, 1235–1236 low-value leases and lease portfolios, 1228–1229 manufacturer or dealer lease, 1251, 1255–1259 measurement, 1262 minimum lease payments, 1230, 1236, 1237, 1241 net investment in lease, 1252 non-capitalization method, 1244 obsolescence, protection against, 1224 off–balance sheet financing, 1225, 1227 100% financing at fixed rates, 1224 operating leases, 887, 1226–1227, 1244–1246, 1248, 1251, 1260, 1268 presentation, 1246–1247 present value-based accounting measurements, 99 purchase options, 1240–1244, 1256–1259 real estate leases, 1263, 1269–1270 recognition, 1261–1262 recovery of investment by lessor test, 1230–1231 as rent expense, 1222 residual value, 1230–1231, 1233, 1240–1244, 1256–1259 right-of-use approach, 1226, 1227, 1237–1244 right-of-use asset, 1232–1234 right-of-use leases, 1247–1248 sale-leaseback transactions, 1263, 1266–1269 sales-type lease, 1251, 1255–1259 I-21 substance versus form, 1225 transfer of ownership test, 1230 transition to IFRS 16, 1263 transparency, lack of, 1222 unearned finance or interest income, 1252 unguaranteed residual value, 1231, 1240, 1242–1243, 1258, 1259 variable payments, 1233 lease term, 1230, 1233 ledger, 78 general ledger, 78, 81 subsidiary ledger, 78 legal capital, 921 legal control, 512 legal defeasance, 869, 885–886 legal entity, 47 legal life, 631 legal obligations, 808 legal title, 274, 277, 278, 295, 414 lenient return or payment policy, 277 lessee, 1223 see also leases current standards, 1226 disclosure, 1262 discount rate, 1231 executory costs, 1231 under IAS 17, 1270–1271 under IFRS 16, 1232–1235 incremental borrowing rate, 1231 initial measurement, 1233 land, 1269 lease amortization schedule, 1238, 1241, 1243 lease disclosure, illustration of, 1248–1250 less costly financing, 1225 liability to make lease payments, 1233, 1234 measurement after recognition, 1234 minimum lease payments, 1230, 1241 purchase option, 1244 recognition, 1261–1262 recovery of investment by lessor test, 1230–1231 residual value, 1241–1244 right-of-use asset, accounting for, 1232–1234 risks and benefits of ownership, transfer of, 1229 sale-leaseback transactions, 1266, 1267 unguaranteed residual value, 1242–1243 lessor, 1223 see also leases under ASPE, 1229–1231, 1250–1251 classification criteria, 1250–1251 cost of the leased asset being sold, 1255 current standards, 1226 determination of rental payments, 1231–1232 disclosure, 1259–1263 www.downloadslide.net I-22 Subject Index lessor (continued) financing-type lease, 1252–1257 gross investment in lease, 1252 gross profit from sale, 1256 under IAS 17, 1229 under IFRS 16, 1229, 1250–1251 initial direct costs, 1260 interest or finance income, 1256 land, 1269 lease amortization schedule, 1253, 1257 manufacturer or dealer lease, 1255–1259 net investment in lease, 1252 operating lease, 1260 purchase options, 1256–1259 recognition, 1262 risks and benefits of ownership, 1229 sale-leaseback transactions, 1267, 1268 sales-type lease, 1255–1259 selling price of the asset, 1255 tax incentives, 1225 terminology, 1252, 1255 types of, 1223–1224 unearned finance or interest income, 1252 leverage, 937 leveraged buyouts, 867, 925–926 liabilities, 43–44, 792 accrued liabilities, 1398 characteristics, 792–793 classification, importance of, 794 classification in statement of financial position, 213 contingent liability, 792, 818 contract liability, 305 contractual obligations to pay, 214 current liabilities, 222–223 see also current liabilities current vs non-current classification, 52 deferred income tax liabilities, 223–224 deferred tax liabilities, 1095, 1097–1099, 1129–1130, 1133–1134 definition, 792–793 due on demand, 797–798 employee-related liabilities, 803–807 environmental liabilities, 99 and financial flexibility, 213 financial liabilities, 793–794 future income tax liabilities, 223–224, 1095, 1098–1099 held for sale, 160 historical cost, 212 IFRS-ASPE comparison, 827–829 liquidation approach, 52 long-term financial liabilities See long-term debt monetary liabilities, 213 non-current liabilities, 794 non-financial liabilities See nonfinancial liabilities nonmonetary liabilities, 213 recognition, 227 short-term liabilities, 794 on statement of financial position, 214 tax base of a liability, 1096 types of liabilities, 792 liability account, 79 licences, 706–707 licensing agreements, 706 life-cycle development stages, 1377 lifetime expected credit losses, 350, 509 limited liability, 920 limited liability partnerships (LLPs), 47 limited life, 702–703, 707–709 limited resources, line of credit, 795–796 liquidating dividends, 638, 927, 930 liquidation approach, 52 liquidity, 12, 210, 211, 215, 236–237, 824, 880, 1374 liquidity ratios, 211, 212, 243, 244, 1477, 1478 liquidity risk, 212, 974, 975, 982, 1003 litigation, 820 loan foreclosure, 882 loans, 346, 358 loans receivable, 341, 346, 347 see also notes receivable fair value, 357–358, 364 long-term loans receivable, 357–364 short-term loans receivable, 356–357 transaction costs, 358 lockbox accounts, 378–379 longer-term returns, 487 long-lived assets, 648–649 long-term compensation plans, 993 long-term contracts, 310–317 completed-contract method, 315–316 losses on, 316–317 loss in current period, 316–317 loss on unprofitable contract, 317 percentage-of-completion method, 311–315 progress billings, 311 long-term debt, 223–224, 865 analysis, 889–890 continuation, with modifications, 881, 883 credit ratings, 868–869 vs current liability, 887 debt settlement, 882–884 as decision-making information, 870 defeasance, 869, 885–886 derecognition, 880–887 disclosures, 888––889 early retirements and modifications of debt, 885 vs equity, 887 exchange of debt instruments, 881 extinguishment of debt, 880 fair value option, 879–880 IFRS-ASPE comparison, 890–891 measurement, 870–880 non-market interest rates, marketable securities, 877–878 non-market interest rates, nonmarketable instruments, 878–879 non-substantial modification of terms, 884–885 notes issued for property, goods, and services, 879 off–balance sheet financing, 886–887 presentation, 887 recognition, 880–887 refunding, 881 repayment before maturity date, 880–881 special situations, 877–880 troubled debt restructuring, 881 types of companies with significant debt financing, 869–870 understanding debt instruments, 865–870 long-term employee benefit plans, 1185–1186 long-term financial liabilities bonds payable, 866–867 notes payable, 866–867 long-term investments, 220 long-term liabilities, 223–224 long-term loans receivable, 357–364 long-term notes receivable, 357–364 long-term solvency, 936 loss carryback, 1109, 1110 loss carryforward, 1109–1111, 1113–1115 losses, 44 actuarial gains and losses, 1174–1175, 1178, 1182–1184, 1194 allowance for credit losses, 355 consistent treatment, 993 contingent loss, 818–819 in current period, 316–317 deductible for tax purposes, 1092, 1093 expected credit losses for accounts receivable, 351 experience gain or loss, 1174 on long-term contracts, 316–317 nonrecurring income or losses, 167 realized, 489 tax loss, 1109–1115 on unprofitable contract, 317 unrealized holding gains or losses, 84, 489 unusual losses, 163 loss events, 507 loss for income tax purposes, 1109–1115 low-cost/high-volume strategy, 153 lower of cost and market (LCM), 434 lower of cost and net realizable value (LC&NRV), 434–438, 454, 456, 641–642 lower of cost and net realizable value (LC&NRV) standard, 435–436 loyalty programs, 815–816 lump-sum price, 565 lump-sum sales, 924–925 M macro hedging, 1001 major overhauls, 580–584 maker, 356 management approach, 1461 www.downloadslide.net Subject Index management best estimate, 40 management bias, 10–11, 19 Management Discussion and Analysis (MD&A), 55–56, 818, 1456 management information circulars, 1456 management intent, 798 managerial accounting, mandatorily convertible instruments, 1051 manufacturer finance companies, 1223–1224 manufacturer or dealer lease, 1251, 1255–1259 manufacturer’s or dealer’s profit, 1251 manufacturing inventory, 218 markdown cancellations, 451 markdowns, 451 market, 434 capital markets, 10 debt market, efficient markets hypothesis, 10 equity market, most advantageous market, 102 principal market, 102 marketable securities, 877–878 market-based measure, 53 marketing expenses, 817 marketing-related intangible assets, 704–705 market models, 98 market participant view, 101 market rate, 358, 362, 363, 871 market risk, 974–976, 979, 983 market valuation model, 53 market value, 87 markup, 451 markup cancellations, 451 markup on cost, 443 matching, 49–50 and adjusting entries, 84 depreciable assets, 86 depreciation, 631 estimate of bad debts, 92 percentage-of-sales approach, 353 material change reports, 1456 materiality, 38–39, 60, 163, 278, 580 material right, 285 maturity value, 871 MD&A: Guidance on Preparation and Disclosure (CICA), 55 measurement, 50–54 accounts receivable, 347–350 bankruptcy, 1473–1474 cash, 342–345 cash-settled and other stock compensation plans, 1000 of company performance, 4–5 compound instruments, components of, 1000 at cost, 696 cost-based measures, 97, 794 current value measures, 97 decommissioning and restoration obligations, 808–811 defined benefit plan, 1194 discontinued operations, 159–160 dividends, 927–932 entity-specific measure, 53, 101 equity, accounting for, 939 ÈSOP when using options pricing model, 1000 fair value, 1017–1021 fair value principle, 53–54 of fair value using IFRS 13, 102–104 financial assets, 350 financial liabilities, 794 going concern assumption, 52 goodwill, 694, 711–712 hedge accounting, 1000 historical cost principle, 52–53 hybrid/compound instruments, 989–990 hybrid measures, 97 IFRS-ASPE comparison, 104–105, 1481–1482 impairment, 642–646 income measurement, 154 intangible assets, 222, 696–704 inventory, 411, 421–444 investments, 489–511 items recognized in financial statements, 81 leases, 1262 long-term loans receivable, 357–364 long-term notes receivable, 357–364 market-based measure, 53 measurement uncertainty, 51, 53, 1325 monetary unit assumption, 51–52 non-financial liabilities, 794 non-GAAP measures, 177 non-market interest rates, marketable securities, 877–878 non-market interest rates, nonmarketable instruments, 878–879 notes issued for property, goods, and services, 879 other key measures, 177–178 pension plan, 1194 periodicity assumption, 51 present value-based accounting measurements, 99 property, plant, and equipment—after acquisition, 574–579 property, plant, and equipment—cost, 563–574 receivables, 347–370 receivership, 1473–1474 and recognition, 50–51 related-party transactions, 1468–1470, 1481 remeasurement, 159 of revenue, 280–295 right-of-use assets, and leases, 1233–1235 segmented reporting, 1463 share-based compensation, 995–998 shares, 922–927 short-term loans receivable, 356–357 short-term notes receivable, 356–357 statement of income/comprehensive income, 156–157 I-23 subsequent events, 1470–1472, 1482 tools, 51 unincorporated businesses, 1473, 1482 value in use measurements, 101–102 measurement date, 997 measurement uncertainty, 51, 53, 176 memo accounts, 1178 merchandise inventory, 410 mineral resource properties, 573–574, 587–588, 626–627 see also depletion mineral resources, 573 see also depletion minimum lease payments, 1230, 1236, 1237, 1241 minority interest, 518 misleading disclosure, 1456 mixed measurement model, 1003 mixed valuation model, 53 modified cash basis, 182 modified opinion, 1476 monetary assets, 213, 566, 695 monetary liabilities, 213 monetary unit assumption, 51–52 money, 217 money-market funds, 342, 344 money orders, 342 moral hazard, 10, 37 more likely than not, 1111 mortgage bonds or notes, 867 mortgage payable, 1388 most advantageous market, 102 most likely amount, 285 moving-average cost formula, 430 multiple deliverables, 274 multiple performance obligations, 289–290 multiple-step income statement, 166–168 N natural resources, 573–574 see also mineral resources nature, 169–171 negative goodwill, 713 negotiable instruments, 342 net approach, 299 net assets, 214 net carrying amount, 690 net cash inflows, 153 net income, 51, 156, 235, 299 accrual-based net income, 185 analysis of, using work sheet, 1413 vs cash flow from operating activities, 1374 income approach, 571 losses, 84 significantly higher than cash flows from operations, 210 work sheet, 110 net income per share See earnings per share (EPS) net investment in lease, 1252 net markdowns, 451 net markups, 451 www.downloadslide.net I-24 Subject Index net method, 348–349, 422 net realizable value (NVR), 52, 351, 434–439 net working capital, 223 neutrality, 40, 57, 74, 632, 1329 news releases, 1456 nominal rate, 871 non-accumulating compensated absences, 806–807 non-cancellable purchase contracts, 416 noncash consideration, 288 non-consolidated entities, 886 non-contingent obligations, 830 non-contributory plans, 1167 noncontrolling interest, 518 non-counterbalancing errors, 1334, 1336–1338 non-current investments, 220 non-current liabilities, 794 non-equity investments, 1375 non-financial derivatives, 977–978 non-financial liabilities, 807–822 commitments, 822, 823–824 contingencies, 818–821, 823–824 customer loyalty programs, 815–816 decommissioning obligations, 808–811 financial guarantees, 821–824 vs financial liabilities, 793–794 IFRS-ASPE comparison, 829 measurement, 794, 829 premiums, 816–817 product guarantees, 811–815 rebates, 816–817 recognition, 793 restoration obligations, 808–811 uncertain commitments, 818–821 understanding, 792 unearned revenue, 811 non-GAAP earnings, 177 non-GAAP measures, 177 non–interest-bearing investment, 492, 497 non–interest-bearing notes, 356, 357 non-marketable instruments, 878–879 non-market interest rates marketable securities, 877–878 non-marketable instruments, 878–879 nonmonetary, non-reciprocal transactions, 53 nonmonetary assets, 213, 566, 696 nonmonetary liabilities, 213 nonmonetary reciprocal transaction, 998 nonmonetary transactions, 53, 276, 566–570 non-operating transactions, 166 non-reciprocal transfers, 570 nonrecurring income or losses, 167 non-refundable upfront fees, 302, 303 non-substantial modification of terms, 884–885 non-taxable revenue, 1093 non-tax-deductible expenses, 1093 nontrade receivables, 341, 346 normal business practices, 278 normalized cash flow, 1067 normalized earnings, 725, 1067 normal production capacity, 424 normal selling terms, 277 normal shortages, 454 Norwalk Agreement, 16 note disclosures, 4, 888 notes issued for property, goods, and services, 879 notes payable, 796, 866 see also bonds notes receivable, 213, 346, 347 face value, 358–359 fair value, 357–358 interest-bearing notes, 356, 361–363 long-term notes receivable, 357–364 non–interest-bearing notes, 356, 357 received for property, goods, or services, 361–362 short-term notes receivable, 356–357 transaction costs, 358 zero-interest-bearing notes, 356, 359–361 notes to financial statements, 55, 99, 176, 228–229, 1458, 1482 not-for-profit corporations, 916 not-sufficient-funds (NSF) cheques, 381 number of years method, 728 O objective of financial reporting, 8–9, 36, 37, 57 obsolescence, 86, 631, 642, 1224 OECD countries, 1089–1090 off–balance sheet, 212 off–balance sheet accounts, 1178 off–balance sheet financing, 886–887, 1222, 1225, 1227 oil and gas properties, 574, 587–588 one-line consolidation, 516 one-person pension plan, 1196–1199 onerous contract, 416, 815 on margin, 489 Ontario Retirement Pension Plan (ORPP), 803 Ontario Securities Commission (OSC), 2, 12, 16, 31, 32, 40, 177 operating activities, 150, 231, 233–235, 824, 1374–1376, 1405–1407 operating cycle, 795 operating expenses, 183–184, 220 operating income, 153, 156 operating items, 156 operating leases, 887, 1226–1227, 1244–1246, 1248, 1251, 1260, 1268 operating risk, 243 operating segments, 1461–1462 operating transactions, 166 operations income, 167 opportunities, 150 opportunities for accounting profession, 18–23 opportunity costs, 972–973 options, 972, 978–981, 984, 1055–1058 options pricing model, 996, 1000, 1017–1018 ordinary activities, 44, 163 ordinary annuity, 1247 ordinary enterprise operations, 223 ordinary repairs, 584 ordinary revenue-generating activities, 44 ordinary trade accounts, 217 organization costs, 700 original oil in place, 638 originating difference, 1094 other assets, 222 other comprehensive income (OCI), 45, 157 accumulated other comprehensive income, 93 IFRS-ASPE comparison, 179 revaluation of company’s own debt, 104 unrealized holding gain or loss, 84 other price risk, 974 output measures, 312 outstanding cheques, 381 overfunded, 1177 overhead, 561 oversight in capital marketplace, 18–19 over-the-counter markets, 972 own equity instruments, 984–985, 999 Owners’ Drawings account, 93 owners’ equity, 93, 94, 224–225 ownership leases and, 1229 ownership interest, 44 ownership structure, 93 risk of, 294 share ownership, 918 substantive change in, 1470 transfer of ownership test, 1230 P paid-in capital, 933 paid-in capital in excess of par, 941 parent corporation, 517 parenthetical explanations, 228 parking transactions, 415 partial periods, and depreciation, 638–640 partial retrospective application, 1313, 1327 participating shares, 919 partnership, 46–47, 93, 94, 916 par value, 871 par value shares, 920, 941–942 past service costs, 1169, 1174, 1178, 1181–1182, 1194, 1199 patent, 707 Patent Office, 707 payee, 356 payment policy, 277 payout ratio, 244, 937, 1478 payroll deductions, 803–804 payroll taxes, 1465 pension benefit cost, 1178 pension expense, 1178 pension obligation, 1171–1172 www.downloadslide.net Subject Index pension plan, 99, 1167 analysis, 1192–1193 contributory plans, 1167 costs, 1164–1165 current service cost, 1169, 1178, 1197 defined benefit obligation, 1171, 1198 defined benefit plan See defined benefit plan defined contribution plan, 1168–1169, 1193 disclosure, 1187–1192, 1194 funded, 1167 IFRS-ASPE comparison, 1193–1194 illustration of pension accounting, 1178–1184 importance, from business perspective, 1166–1168 measurement, 1194 non-contributory plans, 1167 one-person plan, example, 1196–1199 overview, 1166–1168 past service costs, 1169, 1199 pension accounting, 1167 pension work sheet, 1178–1184 presentation, 1187 vesting, 1169 pensions See pension plan P/E ratio See price earnings ratio percentage-of-completion method, 308, 311–315, 1092 percentage-of-receivables approach, 351 percentage-of-sales approach, 353 performance business models, 150–153 communication of information about performance, 153 industries, 150–153 quality of earnings/information, 153–156 performance obligations, 49, 283, 1267 allocation of transaction price, 289–291 identification of, 283–285 remaining performance obligations, 307 satisfaction of, 291–292 performance-type plans, 994, 1016–1017 period costs, 51, 425 periodic inventory system, 95, 427–428, 432, 437 periodicity assumption, 51, 1471 periodic payment, 123–124 peripheral activities, 163 peripheral transactions, 44 permanent account, 78 permanent differences, 1091–1093, 1094 permits, 706 perpetual bonds or notes, 867 perpetual franchise, 707 perpetual inventory system, 95, 426–428, 430, 432, 437 petty cash, 379–380 petty cash funds, 343, 345 physical count, 95 physical factors, 631 physical goods, 413–417 physical life, 631 plain vanilla debt, 986 plan assets, 1171, 1175–1176 plant assets, 558 see also property, plant, and equipment point of delivery, 294 political costs, 1328 political environment, standard setting in, 20 possession, 274, 278, 295 postage stamps, 343, 345 post-closing trial balance, 78, 95–96 postdated cheques, 343, 345 post-employment benefit plans, 1185–1187, 1193–1194 see also pension plan posting, 78, 82–83 post-retirement benefits, 99 potential common/ordinary share, 1047 predictive value, 38, 53, 153, 155, 156, 167 pre-emptive right, 917 preferred creditors, 1473 preferred dividends in arrears, 799 preferred shares, 344, 918–920, 941 callable/redeemable shares, 919 as component of shareholders’ equity, 933 convertible shares, 919 cumulative shares, 919 dividends payable on term preferred shares, 1398 features of, 919–920 high/low preferred shares, 988–989 participating shares, 919 percentage of issue price, 918 redeemable shares, 919, 988, 1001 retractable shares, 919 term preferred shares, 1398, 1416–1417 premium, 363, 816–817, 871–872, 875–877 prepaid expenses, 84, 219, 697 adjusting entries, 85–87 analysis of, using work sheet, 1414 depreciation/amortization, 86 direct and indirect method, 1395 expiration of, 85 indirect method, 1387 insurance, 85–86 vs unearned revenues, 87–88 prepayments, 84 adjusting entries, 85–88 alternative method for adjusting, 88 as current assets, 219 intangible assets, 697 prepaid expenses, 84–87, 697 unearned revenues, 84–88 presentation, 55–57 accounting changes, 1330 accumulated other comprehensive income, 935 basic presentation requirements, 163 certain puttable shares, 1000 commitments, 823–824 contingencies, 823–824 contract assets, 304–305 I-25 contributed surplus, 934 current liabilities, 822–823 defined benefit plan, 1187 discontinued operations, 159–162 of earnings, 155 earnings per share (EPS), 1046–1047 equity, 939 equity-settled CSOP for private entities, 1000 error correction, 1342–1343 expenses, 169–171 Exposure Draft, “staff draft” of, 240 financial guarantees, 823–824 goodwill, 716–717 hybrid/compound instruments, 987–989 income taxes, 1116–1120, 1125, 1130–1131, 1134–1135 intangible assets, 716–717 inventories, 444–445 investments, 518–523 issues, 239 leases, 1246–1247 long-term debt, 887 multiple-step income statement, 166–168 ordinary vs peripheral activities, 163 own equity instruments, 999 pension plan, 1187 percentage-of-completion method, 314–315 property, plant, and equipment, 651–652 purchase commitments, 999 receivables, 371–373 retained earnings, 934–935 retrospective application, 1312–1313, 1330 revenues and revenue recognition, 304–306 shareholders’ equity, 932–934 single-step income statements, 165–166 statement of cash flows, 232–235, 1401–1404, 1408 statement of changes in equity, 174–176 statement of financial position (balance sheet), 215–226 statement of income/comprehensive income, 162–173 statement of retained earnings, 173–174 upside-down presentation, 822–823 present obligations, 214 present value, 113–124 calculation methods, 115–122 compound interest, 114–115 of consideration, 563 exchange price, 563 expected present value technique, 100 financial assets, 350 financial calculators, 117–118, 120–121 fundamental variables, 113–115 interest, nature of, 113 interest rate calculation, 122–123 interest rates and time periods, 122 notes, 357–358, 360 www.downloadslide.net I-26 Subject Index present value (continued) periodic payment, calculation of, 123–124 present value formula, 115–116, 119–120 present value tables, 116–117, 120 series of future cash flows (annuities), 118–121 simple interest, 114 single future amount, 115–118 spreadsheets, 118, 121 value in use 101–102 present value–based accounting measurements, 99 present value factor, 360 price cash price equivalent, 563 exchange price, 347, 563 exercise price, 978, 1055 lump-sum price, 565 other price risk, 974 reacquisition price, 881 selling price of the asset, 1255 stand-alone selling price, 289 strike price, 978 transaction price, 285–291 price earnings ratio, 178, 244, 937, 1478 price-level change, 51–52 price risk, 276 primary financial instruments, 971–972 primary forms of business organization, 916 primary sources of GAAP, 16–17, 45, 439, 1305, 1306 principal-agent relationship, 298–299, 303 principal amount, 871 principal-at-risk variable-rate notes, 867 principal market, 102 principles-based approach, 21, 57 principles versus rules, 21 printed coupons, 816 prior period errors, 1304, 1307–1308 private companies, 13, 916, 998 Private Enterprise Advisory Committee, 722 private entity GAAP See Accounting Standards for Private Enterprises (ASPE) private placement, 866, 920 private sector corporation, 916 probable, 819, 1111 producers, as derivative users, 975–976 product costs, 50, 424–425 product guarantees, 811–815 see also warranties product market risks, 243 professional corporations, 47 professional judgement, 17–18, 57, 212, 227, 306, 932 profitability, 936 profitability ratios, 243, 244, 1477, 1478 profit margin on sales, 244, 1478 profit margin ratio, 654–655 profit margins, 167, 170 profits, 18, 1090, 1091 profit-sharing plan, 807 pro forma numbers, 635 projected benefit method, 1172 projected unit credit, 1172 promise, 278 promissory note, 356, 357 see also loans receivable; notes receivable prompt settlement discounts, 288 pronouncements, 17 property investment property, 573, 575 notes issued for, 879 property, plant, and equipment, 220–221, 558 additions, 580, 581 analysis, 653–655 asset exchanges, 566–570 biological assets, 574 borrowing costs, 561–562 buildings, 572 business perspective, 557–558 cash discounts, 563 cash not exchanged at acquisition, 563–572 characteristics, 558–559 contributed assets, 570–572 cost elements, 560–562 cost model (CM), 574, 575 costs associated with specific assets, 572–574 costs incurred after acquisition, 580–585 deferred payment terms, 563–564 definition, 58 depreciation See depreciation disclosure, 651–652 dismantling and restoration costs, 562 disposal See disposition economic benefits, 628 efficiency of asset use, 653–655 equipment, 573 expenditures, major types of, 580–584 fair value model (FVM), 575, 578–579, 584 fair value standard, 566–568 government grants, 570–572 IFRS-ASPE comparison, 585–587, 657 impairment See impairment inspections, 580–584 vs inventory, 558–559 investment property, 573 leasehold improvements, 572–573 lump-sum purchases, 565 major overhauls, 580–584 measurement after acquisition, 574–579 measurement of cost, 563–574 natural resource properties, 573–574 net basis, 234 nonmonetary exchanges, 565–570 nonmonetary transactions, 566–570 presentation, 651–652 rearrangement and reinstallation costs, 580, 584 recognition principle, 559 repairs, 580, 584 replacement of assets, 653 replacements, 580–584 return on investment, 653–655 revaluation model (RM), 574–578, 584 sale of, 649–650 self-constructed assets, 561 share-based payments, 565–566 property dividend, 928 property rights approach, 1226 see also right-of-use approach proportional method, 702, 989 proprietary perspective, proprietorship, 916 prospective application, 1309, 1323–1327 prospectus, 1456 provincial sales tax, 800 provincial securities commissions, 12, 16 provision matrix, 351 provisions, 223, 227, 792, 807 public companies, 13, 914, 916, 1044, 1456, 1457–1458 Public Company Accounting Oversight Board (PCAOB), 18 publicly accountable entity, 1390 Public Sector Accounting Handbook, 558 public sector corporations, 916 purchase allowances, 454 purchase commitments, 416–417, 977–978, 999, 1007 purchase discounts, 422, 454 purchased options, 979, 1056 purchase options, 1240–1244, 1256–1259 purchase returns, 454 purchasers of receivables, 365 put option, 979, 1055, 1056 Q qualified opinion, 1476 qualifying assets, 590–592 qualitative characteristics, 37–42, 154 comparability, 41 cost-benefit relationship, 42 elements of financial statements, 37 enhancing qualitative characteristics, 41–42 fundamental, 38–41 relevance, 38–39, 42 representational faithfulness, 38–42 timeliness, 41 trade-offs, 42 understandability, 41–42 verifiability, 41 quality of earnings, 153–156, 210 quantitative data, 51 quantitative factors, 39 quantities only system, 428 Quebec Pension Plan (QPP), 803 quick ratio, 211, 244, 825, 1478 www.downloadslide.net Subject Index R radio-frequency identification (RFID), 408–409 rate of return on assets (ROA), 244, 655, 1478 rate of return on common share equity, 244, 1478 rate of return on common shareholders’ equity, 936–937 ratio analysis, 177–178, 243, 1477–1478 acid test ratio, 211, 244, 825, 1478 activity ratios, 211, 243, 244, 1477, 1478 asset turnover, 244, 1478 average days to sell inventory, 446 benchmarking, 244–245 book value per share, 244, 937–938, 1478 business risks, 242–243 cash debt coverage ratio, 237, 244, 1478 cost-to-retail ratio, 450 coverage ratios, 211, 243, 244, 1477, 1478 current cash debt coverage ratio, 211, 236–237, 244, 1478 current ratio, 211, 215, 244, 419, 421, 824–825, 1478 days payable outstanding, 825 debt to equity ratios, 104, 215 debt to total assets ratio, 244, 890, 1478 earnings per share (EPS) See earnings per share (EPS) inventory turnover ratio, 244, 446, 1478 limitations, 1480 liquidity ratios, 211, 212, 243, 244, 1477, 1478 long-term debt, 889–890 major types of ratios, 243 misclassification, effect of, 239 payout ratio, 244, 937, 1478 price earnings ratio, 178, 244, 937, 1478 profitability ratios, 243, 244, 1477, 1478 profit margin on sales, 244, 1478 profit margin ratio, 654–655 quick ratio, 211, 244, 825, 1478 rate of return on assets (ROA), 244, 655, 1478 rate of return on common share equity, 244, 1478 rate of return on common shareholders’ equity, 936–937 receivables turnover ratio, 373–374, 1478 solvency ratios, 212, 1477 times interest earned ratio, 890, 1478 working capital ratio, 825 rational entity impairment model, 643–646, 709 ratios See ratio analysis raw materials inventory, 410 reacquisition of shares, 925–927 reacquisition price, 881 real estate income or investment trusts (REITs), 916 real estate leases, 1263, 1269–1270 realizable (revenue), 49 realized (gains and losses), 489, 1092 realized (revenue), 49 real-time financial information, 51 rearrangement and reinstallation costs, 580, 584 reasonable knowledge, 41 rebate coupon, 816 rebates, 288, 816–817 recapture, 663 receivables, 346 see also accounts receivable analysis, 373–374 as current asset, 217–218 definition, 346 derecognition, 364–370 disclosure, 370–373 estimated uncollectible receivables, 92 factoring receivables, 365 IFRS-ASPE comparison, 375 loans receivable See loans receivable measurement, 347–370 nontrade receivables, 341, 346 notes receivable See notes receivable presentation, 371–373 recognition, 347–370 with recourse, 369–370 reporting, 347 sale of receivables, 365–370 sale without recourse, 369 secured borrowings, 365 securitization of, 1406 trade receivables, 341, 346 receivables management, 341 receivables turnover ratio, 244, 373–374, 1478 receivership, 1473–1474 reciprocal exchange, 52 reciprocal transaction, 275–276 reclassification adjustment, 502 reclassified items, 157 recognition, 46–49 accounts receivable, 347–350 cash, 342–345 cash-settled and other stock compensation plans, 1000 control, 46–48 decommissioning and restoration obligations, 809–811 deferred tax assets, 1124 defined benefit plan, 1194 dividends, 927–932 economic entity assumption, 46–48 equity, accounting for, 939 estimated uncollectible receivables, 92 goodwill, 711–712 hedge accounting, 1000 hybrid/compound instruments with contingent settlement provisions, 1000 immediate recognition approach, 1177 impairment, 642–646 income taxes, 1124–1125 intangible assets, 696–704 inventory, 412–421 I-27 liabilities, 227 long-term debt, 880–887 long-term loans receivable, 357–364 long-term notes receivable, 357–364 matching principle, 49–50 and measurement, 50–54 non-financial liabilities, 793 property, plant, and equipment, 559 realized and realizable, 49 receivables, 347–370 revenue recognition See revenue recognition share-based compensation, 995–998 shares, 922–927 short-term loans receivable, 356–357 short-term notes receivable, 356–357 when to recognize an item, 81 reconciliation of bank balances, 380–383 recording process adjusting entries, 84–92 closing process, 94–97 identification of transactions and other events, 80–81 journalizing, 81–82 posting, 82–83 recording transactions and other events, 80–81 reversing entries, 96–97 trial balance, 83 recoverability test, 643, 710 recoverable amount, 644 recoverable reserves, 637 recycled items, 157 recycling, 500–501 redeemable shares, 919, 988, 1001 redemption, 918 refinancing, 798–799 refunding, 881 refund liability, 349–350 registered bonds, 867 regular activities, 167 regular-way purchase or sale, 552 reinstallation, 580, 584 related-party transactions, 53, 217, 1468–1470, 1481 relative fair value, 309 relative fair value method, 924, 989 relative sales value method, 425 relevance, 38–39, 42, 163, 719 reliability, 719 rental payments, 1223 rental real estate, 573 rents payable, 800 repairs, 580, 584 replacement cost, 434–435 replacements, 580–584, 653 reportable segment, 1462 reported profit (loss) test, 1462 reporting entity, 48 representational faithfulness, 38–42, 150, 575 repurchase agreements, 296–297, 303 research, 698 ... Chapters 1.1.1 1.1 .2 1.1.3 1.1.4 1.1.5 1.1.6 13, 14, 15, 16, 17, 18, 19, 20 , 21 , 22 , 23 13, 14, 15, 16, 18, 19, 20 , 22 , 23 19, 20 , 22 , 23 13, 14, 15, 16, 17, 18, 19, 20 , 21 , 22 , 23 NA NA Evaluates... financial results 14, 15, 16, 18, 19, 20 , 21 , 23 13, 14, 15, 16, 17, 18, 19, 20 , 21 , 22 , 23 15, 21 , 23 13, 14, 15, 16, 17, 18, 19, 21 , 22 , 23 14, 15, 17, 22 , 23 Other Technical Competencies—Coverage... studying this chapter, you should be able to: 1.1.1, 1.1 .2, 1.1.4, 5 .2. 1 1 .2. 1, 1 .2. 2 1 .2. 1, 1 .2. 2, 5 .2. 1, 6 .2. 1 1 .2. 1, 1 .2. 2 1 .2. 1, 1 .2. 2, 1 .2. 3 Understand the importance of non-financial and current