Intermediate Financial Accounting

594 Pages·2016·3.19 MB·English

with Open Texts
Intermediate Financial Accounting
Volume 1
by Glenn Arnold & Suzanne Kyle
Edited by Athabasca University
*Creative Commons License (CC BY)

i
Intermediate Financial Accounting
Glenn Arnold & Suzanne Kyle
Edited by Athabasca University
Version2016 — RevisionA
Section6.6hasbeenreusedfromIntroductiontoFinancialAccounting byHenryDauderis
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Table of Contents
Table of Contents v
1 Review of Intro Financial Accounting 1
Chapter 1 Learning Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Adjusting and Closing Entries . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Merchandising Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Inventory Costing Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Bank Reconciliations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Receivables Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.6 Long-Lived Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.7 Current and Long-Term Liabilities . . . . . . . . . . . . . . . . . . . . . . . . 3
1.8 Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2 Why Accounting? 5
Chapter 2 Learning Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Chapter Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.1 Definition and Information Asymmetry . . . . . . . . . . . . . . . . . . . . . 7
v
vi TableofContents
2.2 Trade-Offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.3 How Are Standards Set? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.4 The Conceptual Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.4.1 The Objective of Financial Reporting . . . . . . . . . . . . . . . . . . 12
2.4.2 Qualitative Characteristics of Useful Information . . . . . . . . . . . 12
2.4.3 Elements of Financial Statements . . . . . . . . . . . . . . . . . . . 15
2.4.4 Recognition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.4.5 Measurement Base . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.4.6 Capital Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.5 Challenges in Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . 22
2.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.7 IFRS/ASPE Key Differences . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Chapter Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3 Financial Reporting 37
Chapter 3 Learning Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Chapter Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
3.1 Financial Reporting: Overview . . . . . . . . . . . . . . . . . . . . . . . . . 39
3.2 Factors that Influence Financial Reports . . . . . . . . . . . . . . . . . . . . 40
3.2.1 Accounting Year-end . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
3.2.2 Changes in Accounting Estimates, Changes in Accounting Policy,
and Correction of Errors . . . . . . . . . . . . . . . . . . . . . . . . . 42
vii
3.3 Financial Statements and Their Interrelationships . . . . . . . . . . . . . . . 45
3.3.1 Financial Statement Differences Between IFRS and ASPE . . . . . 49
3.4 Statement of Income and Comprehensive Income . . . . . . . . . . . . . . 49
3.5 Statement of Changes in Equity (IFRS) and Statement of Retained Earn-
ings (ASPE) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
3.6 Analysis of Statement of Income and Statement of Changes in Equity . . . 62
3.7 IFRS and ASPE Applicable Standards . . . . . . . . . . . . . . . . . . . . . 64
Chapter Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
4 Financial Reports – Statement of Financial Position and Statement of Cash
Flows 77
Chapter 4 Learning Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Chapter Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
4.1 Financial Reports: Overview . . . . . . . . . . . . . . . . . . . . . . . . . . 80
4.2 Statement of Financial Position/Balance Sheet . . . . . . . . . . . . . . . . 82
4.2.1 Disclosure Requirements . . . . . . . . . . . . . . . . . . . . . . . . 83
4.2.2 FactorsAffectingtheStatement ofFinancialPosition/Balance Sheet
(SFP/BS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
4.3 Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
4.3.1 Preparing a Statement of Cash Flows . . . . . . . . . . . . . . . . . 102
4.3.2 Disclosure Requirements . . . . . . . . . . . . . . . . . . . . . . . . 113
4.3.3 Interpreting the Statement of Cash Flows . . . . . . . . . . . . . . . 115
4.4 Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
viii TableofContents
Chapter Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
5 Revenue 143
Chapter 5 Learning Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
Chapter Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
5.1 Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
5.2 Revenue Recognition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
5.2.1 Risks, Rewards, and Control . . . . . . . . . . . . . . . . . . . . . . 147
5.2.2 Measurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148
5.2.3 Collectibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
5.2.4 Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
5.3 Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
5.3.1 Bundled Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
5.3.2 Consignment Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
5.3.3 Instalment Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154
5.3.4 Barter Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
5.3.5 Long-Term Construction Contracts . . . . . . . . . . . . . . . . . . . 155
5.4 Presentation and Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
5.5 IFRS 15: The New Standard . . . . . . . . . . . . . . . . . . . . . . . . . . 160
5.6 IFRS/ASPE Key Differences . . . . . . . . . . . . . . . . . . . . . . . . . . . 164
Chapter Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164