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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth CanadianEdition

CHAPTER 13

NON-FINANCIAL AND CURRENT LIABILITIES

ASSIGNMENT CLASSIFICATION TABLE

TopicsBrief

Exercises Exercises Problems

ri!i"#Assi#"-me"!s

1. Concet of lia!ilities"definition andclassification.

1 1 1 #, $

#. Current lia!ilitiesincluding accountsand notes aya!le,di%idends aya!le,sales and income ta&aya!le and short'term o!ligationse&ected to !erefinanced.

#, (, ), $,*, +, , -,1, 11, 1#

#, (, ), $,*, +, 1, #, (, )

(. Emloyee'relatedlia!ilities.

1(, 1), 1$,1*, 1+

*, -, 1,11, 1#, 1(

(, $, *, + )

). Asset retiremento!ligations.

1, 1-, # 1), 1$ 1, ), 1

$. /nearned re%enues,roduct guaranties,0arranties and othercustomer rograms.

#1, ##, #(,#)

*, 1*, 1+,1, 1-, #,#1, ##, #(

1, (, ), -,1, 11, 1#,1(, 1), 1$

1, (

*. Contingencies,guarantees and

uncertaincommitments.

#$, #* *, #) , -, 1*, 1+ 1, (, )

+. resentation andanalysis.

#+ #$, #*, #+ (, , -, 1+ $

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ASSIGNMENT C$ARACTERISTICS TABLE

I!em Descrip!io"Le%el of Diffic&l!'

Time(mi"&!es)

E1('1 3alance sheet classification of %ariouslia!ilities.

2imle 1'1$

E1('# Accounts and notes aya!le. Moderate #'#$ E1('( 4ia!ility for returna!le containers. Moderate 1$'# E1(') Entries for sales ta&. 2imle #'( E1('$ Income Ta&. Moderate 1$'# E1('* 5inancial statement imact of lia!ility

transactions.Moderate ('($

E1('+ 6efinancing of short'term de!t. 2imle 1'1# E1(' 6efinancing of short'term de!t. 2imle 1'1$ E1('- ayroll ta& entries. 2imle 1$'# E1('1 Comensated a!sences 7 %acation and

sick ay.Moderate #$'(

E1('11 Comensated a!sences 7 %acation andsick ay.

Moderate #$'(

E1('1# Comensated a!sences 7 arental!enefits.

Moderate #$'(

E1('1( 3onus calculation and incomestatement rearation.

Comle& 1$'#

E1('1) Asset retirement o!ligation. Moderate #'#$ E1('1$ Asset retirement o!ligation. Moderate #$'($ E1('1* Warranties 7 e&ense aroach and

cash !asis.2imle 1'1$

E1('1+ Warranties 7 e&ense aroach. Moderate 1$'# E1('1 Warranties 7 e&ense aroach and

re%enue aroach.Moderate #'#$

E1('1- Warranties 7 e&ense aroach andre%enue aroach.

Moderate 1$'#

E1('# remiums. Moderate 1$'# E1('#1 remiums. Moderate #'( E1('## remiums. 2imle 1'1$ E1('#( Couons and re!ates. Moderate 1$'# E1('#) Contingencies and commitments. Moderate #'(

E1('#$ 6atio calculations and discussion. 2imle 1$'# E1('#* 6atio calculations and analysis. 2imle #'#$ E1('#+ 6atio calculations and effect of

transactions.Moderate 1$'#$

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ASSIGNMENT C$ARACTERISTICS TABLE (Co"!i"&e*)

I!em Descrip!io"Le%el of Diffic&l!'

Time(mi"&!es)

1('1 Current lia!ility entries and ad8ustments. 2imle )'$ 1('# Instalment note. Moderate ('($ 1('( Current lia!ilities9 %arious. Comle& )$'$$ 1(') Asset retirement o!ligation and

0arranties.Moderate #$'($

1('$ ayroll ta& entries. Moderate #'( 1('* ayroll ta& entries. Moderate #'#$ 1('+ 3onus calculation. Moderate #$'( 1(' 4oss contingencies9 entries and essay. Moderate )$'$ 1('- Ad%ances, self'insurance, loss

contingencies, guarantees and

commitments.

Moderate #$'(

1('1 Warranties, accrual and cash !asis. 2imle #'#$ 1('11 E&tended sales 0arranties. Moderate #'( 1('1# Warranty calculations. Moderate #'#$ 1('1( remium entries. Moderate (')$ 1('1) remium entries and financial statement

resentation.Moderate (')$

1('1$ Warranties and remiums. 2imle #$'( 1('1* :uarantees and contingencies. Comle& ($')$ 1('1+ 4oss contingencies9 entries and essays. Moderate )$'$

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SOLUTIONS TO BRIEF E+ERCISES

BRIEF E+ERCISE ,-,

(.) or/i"# c.pi!.l is !0e excess of !o!.l c&rre"! .sse!s o%er !o!.l c&rre"! li.bili!ies1 I! represe"!s !0e li2&i* b&ffer !0.! is.%.il.ble !o mee! !0e fi"."ci.l *em."*s of !0e comp."'3soper.!i"# c'cle1 C&rre"! li.bili!ies pl.ce . *em."* o" !0ecomp."'3s c&rre"! .sse!s1 M.".#eme"! of !0e *&e *.!es of c&rre"! li.bili!ies ."* m.".#eme"! of c&rre"! .sse!s !o#e"er.!e c.s0 o" . !imel' b.sis .re impor!."! for effec!i%em.".#eme"! of b&si"ess oper.!io"s1 Effec!i%em.".#eme"! of 4or/i"# c.pi!.l !o .c0ie%e 0i#0 li2&i*i!'

m.' .lso co"!rib&!e !o posi!i%e c.s0 from oper.!i"#.c!i%i!ies .s see" o" !0e s!.!eme"! of c.s0 flo4s1

(b) ellso" c." impro%e i!s m.".#eme"! of 4or/i"# c.pi!.l b'foc&si"# o" m.".#eme"! of c&rre"! li.bili!ies .s 4ell .sc&rre"! .sse!s1 For ex.mple5 if ellso" 0.s . c.s0 flo4s0or!.#e5 i! c." !./e .*%."!.#e of !0e f&ll cre*i! perio*ex!e"*e* b' i!s s&ppliers1 As ."o!0er ex.mple5 ellso"m.' .lso !ime !0e *&e *.!es of s0or!-!erm "o!es p.'.ble !ocoi"ci*e 4i!0 expec!e* perio*s of posi!i%e c.s0 flo41

BRIEF E+ERCISE ,-6

7897, P&rc0.ses11111111111111111111111111111111111111111111111111111111111111111111111111:75777Acco&"!s P.'.ble1111111111111111111111111111111111111111111111111111:75777

Frei#0!-i"111111111111111111111111111111111111111111111111111111111111111111111111111,5677C.s011111111111111111111111111111111111111111111111111111111111111111 ,5677

7897 Acco&"!s P.'.ble1111111111111111111111111111111111111111111111111111111111111:5777P&rc0.se Re!&r"s ."* Allo4."ces111111111111111111111111:5777

789,7 Acco&"!s P.'.ble1111111111111111111111111111111111111111111111111111111111111;<5777C.s011111111111111111111111111111111111111111111111111111111111111111111111111;65=67P&rc0.se Disco&"!s111111111111111111111111111111111111111111111111,57>7

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BRIEF E+ERCISE ,-

7897, P&rc0.ses (?:75777 + =>@)1111111111111111111111111111111111111111111111;>5>77Acco&"!s P.'.ble1111111111111111111111111111111111111111111111111111;>5>77

Frei#0!-i"111111111111111111111111111111111111111111111111111111111111111111111111111,5677C.s011111111111111111111111111111111111111111111111111111111111111111 ,5677

7897 Acco&"!s P.'.ble (?:5777 + =>@)11111111111111111111111111111111111;5>>7P&rc0.se Re!&r"s ."* Allo4."ces111111111111111111111111;5>>7

789,7 Acco&"!s P.'.ble (?;<5777 + =>@)111111111111111111111111111111111;65=67

C.s011111111111111111111111111111111111111111111111111111111111111111111111111;65=67

BRIEF E+ERCISE ,-<

,,97,9,< C.s011111111111111111111111111111111111111111111111111111111111111111111111111111111111<75777No!es P.'.ble1111111111111111111111111111111111111111111111111111111111<75777

,69,9,< I"!eres! Expe"se111111111111111111111111111111111111111111111111111111111111111:77I"!eres! P.'.ble1111111111111111111111111111111111111111111111111111111:77 (?<75777 + =@ + 69,6)

7697,9,; No!es P.'.ble1111111111111111111111111111111111111111111111111111111111111111111<75777I"!eres! P.'.ble1111111111111111111111111111111111111111111111111111111111111111:77I"!eres! Expe"se11111111111111111111111111111111111111111111111111111111111111177

C.s011111111111111111111111111111111111111111111111111111111111111111111111111<75=77

BRIEF E+ERCISE ,-;

7,97,9,; I"!eres! P.'.ble1111111111111111111111111111111111111111111111111111111111111111:77I"!eres! Expe"se111111111111111111111111111111111111111111111111111111:77

7697,9,; No!es P.'.ble1111111111111111111111111111111111111111111111111111111111111111111<75777I"!eres! Expe"se111111111111111111111111111111111111111111111111111111111111111=77

C.s011111111111111111111111111111111111111111111111111111111111111111111111111<75=77

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BRIEF E+ERCISE ,-:

,,97,9,< C.s011111111111111111111111111111111111111111111111111111111111111111111111111111111111:75777No!es P.'.ble1111111111111111111111111111111111111111111111111111111111:75777

,69,9,< I"!eres! Expe"se111111111111111111111111111111111111111111111111111111111111111=77No!es P.'.ble1111111111111111111111111111111111111111111111111111111111=77 (?,5;7 + 69)

7697,9,; I"!eres! Expe"se111111111111111111111111111111111111111111111111111111111111111<;7No!es P.'.ble1111111111111111111111111111111111111111111111111111111111<;7

No!es P.'.ble1111111111111111111111111111111111111111111111111111111111111111111:,5;7C.s011111111111111111111111111111111111111111111111111111111111111111111111111:,5;7

BRIEF E+ERCISE ,-8

Acco&"!s Recei%.ble11111111111111111111111111111111111111111111111111111111<,5>,7S.les Re%e"&e1111111111111111111111111111111111111111111111111 85777$ST P.'.ble (?85777 + ,@)111111111111111111111111111111111 <5>,7

BRIEF E+ERCISE ,->

P&rc0.ses111111111111111111111111111111111111111111111111111111111111111111111111116=5<77GST Recei%.ble (?6=5<77 + ;@)111111111111111111111111111111111111111,5<87

Acco&"!s P.'.ble1111111111111111111111111111111111111111111111111111 75>87

Acco&"!s Recei%.ble11111111111111111111111111111111111111111111111111111111<856;7S.les Re%e"&e111111111111111111111111111111111111111111111111111111111 <;5777GST P.'.ble1111111111111111111111111111111111111111111111111111111111111 656;7

GST P.'.ble1111111111111111111111111111111111111111111111111111111111111111111111656;7C.s011111111111111111111111111111111111111111111111111111111111111111111111111 8>7GST Recei%.ble1111111111111111111111111111111111111111111111111111111 ,5<87

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BRIEF E+ERCISE ,-=

I"come T.x Expe"se111111111111111111111111111111111111111111111111111111111,65>77C.s0 (?5677 + <)11111111111111111111111111111111111111111111111111111 ,65>77

I"come T.x Expe"se (?675777 ?,65>77)1111111111111111111111185677I"come T.x P.'.ble1111111111111111111111111111111111111111111111111 85677

A! 'e.r e"*5 !0e comp."' 4o&l* repor! I"come T.x P.'.ble of ?85677 i" c&rre"! li.bili!ies1

BRIEF E+ERCISE ,-,7

I"come T.x Recei%.ble1111111111111111111111111111111111111111111111111111165:77I"come T.x Expe"se11111111111111111111111111111111111111111111111 65:77(?,65>77 ?,75677)

A! 'e.r e"*5 !0e comp."' 4o&l* repor! I"come T.x Recei%.bleof ?65:77 i" c&rre"! .sse!s1

BRIEF E+ERCISE ,-,,

(.) U"*er IFRS5 !0e ?:775777 *eb! is recl.ssifie* .s c&rre"!bec.&se !0e lo"#-!erm *eb! .#reeme"! is %iol.!e* ."* !0eli.bili!' becomes p.'.ble o" *em."*1 I! s0o&l* be "o!e*!0.! &"*er IFRS5 !0e *eb! is recl.ssifie* .s c&rre"!5 e%e" if !0e le"*er .#rees be!4ee" !0e *.!e of !0e s!.!eme"! of fi"."ci.l posi!io" ."* !0e *.!e !0e fi"."ci.l s!.!eme"!s .rerele.se* !0.! i! 4ill "o! *em."* rep.'me"! bec.&se of !0e%iol.!io"1

(b) U"*er ASPE5 !0e ?:775777 *eb! is recl.ssifie* .s c&rre"!&"less !0e cre*i!or 4.i%es i" 4ri!i"# !0e co%e"."!(.#reeme"!) re2&ireme"!s5 or !0e %iol.!io" 0.s bee" c&re*4i!0i" !0e #r.ce perio* !0.! is &s&.ll' #i%e" i" !0ese.#reeme"!s ."* i! is li/el' !0.! !0e comp."' 4ill "o! %iol.!e!0e co%e"."! re2&ireme"!s 4i!0i" . 'e.r from !0e b.l."ces0ee! *.!e1

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BRIEF E+ERCISE ,-,6

(.) U"*er IFRS5 si"ce !0e *eb! is *&e 4i!0i" ,6 mo"!0s from!0e repor!i"# *.!e5 i! is cl.ssifie* .s . c&rre"! li.bili!'1 T0iscl.ssific.!io" 0ol*s e%e" if lo"#-!erm refi"."ci"# 0.s bee"comple!e* before !0e fi"."ci.l s!.!eme"!s .re rele.se*1T0e o"l' excep!io" .ccep!e* for co"!i"&i"# lo"#-!ermcl.ssific.!io" is if5 .! !0e b.l."ce s0ee! *.!e5 !0e e"!i!'expec!s !o refi"."ce i! or roll i! o%er &"*er ." exis!i"#.#reeme"! for .! le.s! ,6 mo"!0s ."* !0e *ecisio" is solel'.! i!s *iscre!io"1

(b) U"*er IFRS5 !0e 40ole ?;775777 of m.!&ri"# *eb! 4o&l*s!ill be cl.ssifie* .s . c&rre"! obli#.!io" .! December ,5

67,<1 T0e i"!er".!io".l s!."*.r* 0.s . s!ri"#e"!re2&ireme"! !0.! !0e .#reeme"! m&s! be firm .! !0e *.!e of !0e s!.!eme"! of fi"."ci.l posi!io" i" or*er !o 2&.lif' for cl.ssific.!io" .s lo"#-!erm1 (T0is .ss&mes B&rr 0.* "o!e"!ere* i"!o . lo"#-!erm .#reeme"! prior !o !0e s!.!eme"!of fi"."ci.l posi!io" *.!e1)

(c) For p.r! (.)5 &"*er ASPE5 !0e *eb! 4o&l* be cl.ssifie* .s .lo"#-!erm li.bili!'1 If !0ere is irref&!.ble e%i*e"ce b' !0e!ime !0e fi"."ci.l s!.!eme"!s .re comple!e* ."* rele.se*!0.! !0e *eb! 0.s bee" or 4ill be co"%er!e* i"!o . lo"#-!ermobli#.!io"5 ASPE .llo4s c&rre"!l' m.!&ri"# *eb! !o becl.ssifie* .s lo"#-!erm o" !0e b.l."ce s0ee!1 I" !0is c.se5!0e *eb! 4.s refi"."ce* before !0e fi"."ci.l s!.!eme"!s4ere comple!e* ."* rele.se*1

For p.r! (b)5 &"*er ASPE5 !0e *eb! 4o&l* be cl.ssifie* .s .c&rre"! li.bili!' si"ce !0ere 4.s "o! irref&!.ble e%i*e"ce b'!0e !ime !0e fi"."ci.l s!.!eme"!s 4ere comple!e* !0.! !0e

*eb! 0.s bee" or 4ill be co"%er!e* i"!o . lo"#-!ermobli#.!io"1 (T0is .ss&mes B&rr 0.* "o! e"!ere* i"!o . lo"#-!erm .#reeme"! prior !o !0e rele.se of !0e fi"."ci.ls!.!eme"!s1) I" .**i!io"5 si"ce rep.'me"! occ&rre* beforef&"*s 4ere ob!.i"e* !0ro&#0 lo"#-!erm fi"."ci"#5 !0erep.'me"! &se* exis!i"# c&rre"! .sse!s1

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BRIEF E+ERCISE ,-,

S.l.ries ."* .#es Expe"se11111111111111111111111111111111111111111165777Emplo'ee I"come T.x De*&c!io"s

P.'.ble11111111111111111111111111111111111111111111111111111111111111111 5<6:CPP Co"!rib&!io"s P.'.ble111111111111111111111111111111111111 ==7EI Premi&ms P.'.ble1111111111111111111111111111111111111111111111 =67$e.l!0 I"s&r."ce Premi&ms P.'.ble111111111111111111111 6;7C.s011111111111111111111111111111111111111111111111111111111111111111111111111 ,85<,<

BRIEF E+ERCISE ,-,<

(.)

P.'roll T.x Expe"se1111111111111111111111111111111111111111111111111111111116568>EI Premi&ms P.'.ble (?=67 + ,1<)11111111111111111111111111 ,56>>CPP Co"!rib&!io"s P.'.ble111111111111111111111111111111111111 ==7

(b)

Emplo'ee I"come T.x De*&c!io"s P.'.ble11111111111111111115<6:CPP Co"!rib&!io"s P.'.ble (?==7 + 6)1111111111111111111111111111

EI Premi&ms P.'.ble (=67 + ,1<)1111111111111111111111111111,5=>7

EI Premi&ms P.'.ble (?=67 ?,56>>)111111111111111111111111111116567>C.s011111111111111111111111111111111111111111111111111111111111111111111111111 85:,<

BRIEF E+ERCISE ,-,;

S.l.ries ."* .#es Expe"se11111111111111111111111111111111111111111175777.c.!io" .#es P.'.ble11111111111111111111111111111111111111111 75777 (7 + 6 + ?;77)

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BRIEF E+ERCISE ,-,:

December ,5 67,<Emplo'ee Be"efi! Expe"se111111111111111111111111111111111111111111111,,5=;6

P.re"!.l Le.%e Be"efi!s P.'.ble1111111111111111111111111111EI ffffs P.'.ble (=67 + ,1<)11111111111111111111111111111111111111

,,5=;6

S.l.r' for ,8 4ee/s (?8<5777 ;6 + ,8) ?6<5,=6Less emplo'me"! i"s&r."ce

p.'me"!s (?86794ee/ + ,8 4ee/s) (,656<7)Emplo'ee Be"efi! Expe"se ?,,5=;6

For e.c0 of !0e < 4ee/s i" December5 67,<5 L.&ri" Corpor.!io"

4ill p.' R&be0 A4.* . !op &p .mo&"! ."* recor* !0e p.'me"!s.s follo4s

P.re"!.l Le.%e Be"efi!s P.'.ble11111111111111111111111111111111111118717>C.s011111111111111111111111111111111111111111111111111111111111111111111111111EI Premi&ms P.'.ble (=67 + ,1<)1111111111111111111111111111

8717>

(?8<5777 ;6 4ee/s) H ?,5<617> ?867177 H ?8717>

BRIEF E+ERCISE ,-,8

,69,9,< Bo"&s Expe"se11111111111111111111111111111111111111111111111111111111111111111;75777Bo"&s P.'.ble111111111111111111111111111111111111111111111111111111111;75777

69,;9,; Bo"&s P.'.ble11111111111111111111111111111111111111111111111111111;75777C.s011111111111111111111111111111111111111111111111111111111111111111111111111;75777


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BRIEF E+ERCISE ,-,>

Drilli"# Pl.!form1111111111111111111111111111111111111111111111111111111111111111;7756<=Asse! Re!ireme"! Obli#.!io"1111111111111111111111111111111111 ;7756<=(?,57775777 + 1;776;)

Usi"# . fi"."ci.l c.lc&l.!or

P Jiel*s ? ;7756<>1=8

I >@

N =

PMT 7

F ? (,57775777)

T'pe 7

BRIEF E+ERCISE ,-,=

(.) IFRSDepreci.!io" Expe"se111111111111111111111111111111111111111111111111111111,5,::5:=<

Acc&m&l.!e* Depreci.!io" Drilli"# Pl.!form1111111111111111111111111111111111111111111111111111111

,5,::5:=<

K(?,757775777 ?;7756<=) = 'e.rs

I"!eres! Expe"se111111111111111111111111111111111111111111111111111111111111111<75767Asse! Re!ireme"! Obli#.!io"1111111111111111111111111111111111 <75767(?;7756<= + >@)

(b) ASPEDepreci.!io" Expe"se111111111111111111111111111111111111111111111111111111,5,::5:=<

Acc&m&l.!e* Depreci.!io"Drilli"# Pl.!form1111111111111111111111111111111111111111111111111111111

,5,::5:=<

K(?,757775777 ?;7756<=) = 'e.rs

Accre!io" Expe"se11111111111111111111111111111111111111111111111111111111111<75767Asse! Re!ireme"! Obli#.!io"1111111111111111111111111111111111 <75767(?;7756<= + >@)


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BRIEF E+ERCISE ,-67

(.) IFRSI"%e"!or'1111111111111111111111111111111111111111111111111111111111111111111111111111;<5768

Asse! Re!ireme"! Obli#.!io"1111111111111111111111111111111111 ;<5768

(b) ASPEDrilli"# Pl.!form1111111111111111111111111111111111111111111111111111111111111111;<5768

Asse! Re!ireme"! Obli#.!io"1111111111111111111111111111111111 ;<5768

BRIEF E+ERCISE ,-6,

67,< C.s05 A9R5 e!c1111111111111111111111111111111111111111111111111111111111111111111165;775777

S.les Re%e"&ePro*&c!111111111111111111111111111111111111111165;775777

67,< .rr."!' Expe"se1111111111111111111111111111111111111111111111111111111111111:5777C.s05 I"%e"!or'5 e!c1111111111111111111111111111111111111111111111111:5777

,69,9,< .rr."!' Expe"se1111111111111111111111111111111111111111111111111111111111111<675777.rr."!' Li.bili!'111111111111111111111111111111111 <675777

BRIEF E+ERCISE ,-66

67,< C.s05 A9R5 e!c1111111111111111111111111111111111111111111111111111111111111111111165;775777S.les Re%e"&ePro*&c!1111111111111111111111111111111111111111,5=775777U"e.r"e* .rr."!' Re%e"&e1111111111111111111111111111111111:775777

67,< .rr."!' Expe"se1111111111111111111111111111111111111111111111111111111111111:5777Acco&"!s P.'.ble5

S.l.ries ."* .#es

P.'.ble5 e!c111111111111111111111111111111111111111111111111111111111

:5777

,69,9,< U"e.r"e* .rr."!' Re%e"&e1111111111111111111111111111111111111111111,;75777.rr."!' Re%e"&e111111111111111111111111111111111111111111111111111,;75777

?:775777 + 6;@

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BRIEF E+ERCISE ,-6

No!e !0.! !0is 4.rr."!' co"!r.c! is . sep.r.!e ser%ice ."* s0o&l*be .cco&"!e* for &si"# !0e re%e"&e .ppro.c05 40ic0 is !0epreferre* me!0o* &"*er bo!0 IFRS ."* ASPE for m&l!iple*eli%er.bles (b&"*le* s.les)1

(.) C.s011111111111111111111111111111111111111111111111111111111111111111111111111111111111,5=>75777U"e.r"e* .rr."!' Re%e"&e1111111111111111111111111111111111,5=>75777 (675777 + ?==)

(b) .rr."!' Expe"se1111111111111111111111111111111111111111111111111111111111111,>75777C.s05 I"%e"!or'5 e!c1111111111111111111111111111111111111111111111111,>75777

(c) U"e.r"e* .rr."!' Re%e"&e111111111111111111111111111111111111111111175777.rr."!' Re%e"&e11111111111111111111111111111111111111111111111111175777

K?,5=>75777 + (?,>757779?,57>75777) ?,>75777 ?=775777 H ?,57>75777

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BRIEF E+ERCISE ,-6<

(.) IFRSI"%e"!or' of Premi&ms111111111111111111111111111111111111111111111111111116;75777

C.s011111111111111111111111111111111111111111111111111111111111111111111111111 6;75777,775777 + ?61;7

C.s05 A9R5 e!c11111111111111111111111111111111111111111111111111111111111111111111<57775777S.les Re%e"&e111111111111111111111111111111111111111111111111111111111 5:775777U"e.r"e* Premi&m Re%e"&e111111111111111111111111111111111 <775777

,57775777 + ?<177 + ,7@

C.s011111111111111111111111111111111111111111111111111111111111111111111111111111111111>75777Premi&m Expe"se1111111111111111111111111111111111111111111111111111111111111,675777

I"%e"!or' of Premi&ms11111111111111111111111111111111111111111111 6775777 6<757779 + ?,177 6<757779 + ?61;7

U"e.r"e* Premi&m Re%e"&e1111111111111111111111111111111111111111111675777S.les Re%e"&e1111111111111111111111111111111111111111111111111111111111 675777

6<757779(,57775777 + 7@) + ?<775777

(b) ASPEI"%e"!or' of Premi&ms111111111111111111111111111111111111111111111111111116;75777

C.s011111111111111111111111111111111111111111111111111111111111111111111111111 6;75777,775777 + ?61;7

C.s05 A9R5 e!c11111111111111111111111111111111111111111111111111111111111111111111<57775777S.les Re%e"&e111111111111111111111111111111111111111111111111111111111 <57775777

C.s011111111111111111111111111111111111111111111111111111111111111111111111111111111111>75777Premi&m Expe"se1111111111111111111111111111111111111111111111111111111111111,675777

I"%e"!or' of Premi&ms11111111111111111111111111111111111111111111 6775777

6<757779 + ?,177 6<757779 + ?61;7

Premi&m Expe"se111111111111111111111111111111111111111111111111111111111111175777Premi&m Li.bili!'11111111111111111111111111111111111111111111111111111 75777

K(,57775777 + 7@) 6<75777 9 + (?61;7 -?,177)

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BRIEF E+ERCISE ,-6;

(.) Li!i#.!io" Expe"se1111111111111111111111111111111111111111111111111111111111118775777Li!i#.!io" Li.bili!'11111111111111111111111111111111111111111111111111118775777

(b) Li!i#.!io" Expe"se1111111111111111111111111111111111111111111111111111111111118775777Li!i#.!io" Li.bili!'11111111111111111111111111111111111111111111111111118775777

(c) No e"!r' is "ecess.r'1 T0e loss is "o! .ccr&e* bec.&se i! is"o! prob.ble !0.! . li.bili!' 0.s bee" i"c&rre* .! ,69,9,<1

(*) ASPE 40ere Li!i#.!io" Li.bili!' is li/el'

Li!i#.!io" Expe"se1111111111111111111111111111111111111111111111111111111111118775777

Li!i#.!io" Li.bili!'11111111111111111111111111111111111111111111111111118775777

ASPE 40ere Li!i#.!io" Li.bili!' is "o! li/el'

No e"!r' is "ecess.r'1 T0e loss is "o! .ccr&e* bec.&se i! is"o! li/el' !0.! . li.bili!' 0.s bee" i"c&rre* .! ,69,9,<1

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BRIEF E+ERCISE ,-6:

(.)

U"*er IFRS5 Si**le s0o&l* recor* . loss si"ce i! is prob.ble !0.!. li.bili!' 0.s bee" i"c&rre*5 ."* !0e .mo&"! is reli.bl'me.s&r.ble1 T0e .mo&"! s0o&l* be me.s&re* .! !0e prob.bili!'-4ei#0!e* expec!e* %.l&e of !0e loss1 Ass&mi"# !0.! . p.'o&! of ?,775777 ."* . p.'o&! of ?6;75777 .re e2&.ll' prob.ble5 . loss i"!0e .mo&"! of ?,8;5777 is recor*e*1

Li!i#.!io" Expe"se111111111111111111111111111111111111111111111111111111111111,8;5777Li!i#.!io" Li.bili!'1111111111111111111111111111111111111111111111111111 ,8;5777

T0e ?,775777 self-i"s&r."ce .llo4."ce c." be .c0ie%e* b' .".ppropri.!io" of re!.i"e* e.r"i"#s or b' "o!e *isclos&re1

(b)

U"*er ASPE5 Si**le s0o&l* recor* . loss si"ce i! is li/el' !0.! .li.bili!' 0.s bee" i"c&rre*5 ."* !0e .mo&"! c." be re.so".bl'es!im.!e*1 T0e .mo&"! s0o&l* be me.s&re* .! !0e bes! es!im.!ei" !0e r."#e of possible o&!comes1 If "o p.r!ic&l.r es!im.!e isbe!!er !0." ."o!0er5 !0e bo!!om of !0e r."#e is reco#"ie*5 ."*!0e .mo&"! of !0e rem.i"i"# expos&re !o possible loss is*isclose* i" !0e "o!es1 Ass&mi"# !0.! . p.'o&! of ?,775777 ."*. p.'o&! of ?6;75777 .re e2&.ll' li/el'5 . loss i" !0e .mo&"! of ?,775777 is recor*e*5 ."* !0e rem.i"i"# expos&re of ?,;75777 is*isclose* i" !0e "o!es1

Li!i#.!io" Expe"se111111111111111111111111111111111111111111111111111111111111,775777Li!i#.!io" Li.bili!'1111111111111111111111111111111111111111111111111111 ,775777

T0e ?,775777 self-i"s&r."ce .llo4."ce c." be .c0ie%e* b' .".ppropri.!io" of re!.i"e* e.r"i"#s or b' "o!e *isclos&re1

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BRIEF E+ERCISE ,-68

R.!io 67,: 67,; 67,<C&rre"! R.!io 61,8 61,, 6177

&ic/ R.!io 71;< 71;= 71::D.'s P.'.bles O&!s!."*i"# =1;< <1=> N9A

C&rre"! R.!io H C&rre"! Asse!s 9 C&rre"! Li.bili!ies67,< ?8577 9 ?5:;7 H 617767,; ?85>77 9 ?5877 H 61,,67,: ?>56;7 9 ?5>77 H 61,8

&ic/ R.!io H &ic/ Asse!s 9 C&rre"! Li.bili!ies

67,< (?:77 ?;77 ?,577) 9 ?5:;7 H 71 ::67,; (?877 ?;77 ?,5777) 9 ?5877 H 71;=67,: (?:;7 ?;77 ?=77) 9 ?5>77 H 71;<

D.'s P.'.bles O&!s!."*i"#H A%er.#e Tr.*e Acco&"!s P.'.ble

A%er.#e D.il' Cos! of Goo*s Sol*

67,; (?,5877 ?,58;7) 9 6 H <1=>

(,>5777 9 :;)67,: (?,5;;7 ?,5877) 9 6 H =1;<(,;5777 9 :;)

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BRIEF E+ERCISE ,-68 (Co"!i"&e*)

T0e comp."' s0o4s . posi!i%e !re"* i" !0e c&rre"! r.!io1$o4e%er5 !0e 2&ic/ r.!io s0o4s *e!erior.!io" i" !0e 2&.li!' of !0ec&rre"! .sse!s1 T0e !4o r.!ios combi"e* s0o4 !0.! !0ei"cre.si"# li2&i*i!' i" !0e c&rre"! r.!io is cre.!e* from less li2&i*.sse!s s&c0 .s i"%e"!or' ."* prep.i* expe"ses1 T0ese c&rre"!.sse!s .re less li2&i* !0." o!0er c&rre"! .sse!s1

T0e *.'s p.'.bles o&!s!."*i"# r.!io s0o4s ." i"cre.si"# !imeperio* for !0e comp."' !o p.' off i!s c&rre"! li.bili!ies from.pproxim.!el' ; *.'s i" 67,; !o .lmos! <7 *.'s i" 67,:1 If !0ecomp."'3s cre*i!ors "orm.ll' 0.%e cre*i! !erms of 7 *.'s5 !0iss0o4s . *is!&rbi"# !re"*5 especi.ll' 40e" combi"e* 4i!0 !0e

*e!erior.!io" i" !0e 2&ic/ r.!io1


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SOLUTIONS TO E+ERCISES

E+ERCISE ,-, (,7-,; mi"&!es)

(.) Cl.ssific.!io"s o" b.l."ce s0ee! prep.re* &"*er ASPE,1 C&rre"! li.bili!' fi"."ci.l li.bili!'161 C&rre"! .sse!11 C&rre"! li.bili!' or lo"#-!erm li.bili!' *epe"*i"# o" !erm of

4.rr."!' "o! . fi"."ci.l li.bili!'1<1 C&rre"! li.bili!' fi"."ci.l li.bili!'1 A comp."' 4o&l* 0.%e ."

obli#.!io" !o p.' c.s0 !o !0e b."/ for ."' o%er*r.f! ."* !0is4o&l* res&l! from !0e co"!r.c!&.l .#reeme"! 4i!0 !0e b."/1

;1 C&rre"! li.bili!' "o! . fi"."ci.l li.bili!' if !0is refers !o i"come!.x 4i!00ol*i"#s5 CPP ."* EI1 T0is is . fi"."ci.l li.bili!' if i!

refers !o o!0er 4i!00ol*i"#s of . co"!r.c!&.l ".!&re 4i!0emplo'ees (&"io" *&es5 for ex.mple)1

:1 C&rre"! li.bili!' fi"."ci.l li.bili!'181 C&rre"! or "o"c&rre"! li.bili!' *epe"*i"# &po" !0e !ime

i"%ol%e* "o! . fi"."ci.l li.bili!' (if *eposi! 4ill be re!&r"e* !0e"i! 4o&l* be . fi"."ci.l li.bili!')1

>1 C&rre"! li.bili!' "o! . fi"."ci.l li.bili!'1=1 C&rre"! li.bili!' "o! . fi"."ci.l li.bili!'1,71 C&rre"! li.bili!' "o! . fi"."ci.l li.bili!'1

,,1 C&rre"! li.bili!' fi"."ci.l li.bili!'1,61 No!e *isclos&re if .ss&me "o! re.so".bl' es!im.ble ."*9orli/eli0oo* of co"firmi"# f&!&re e%e"! c.""o! be *e!ermi"e*1 If.ss&me li/el' ."* re.so".bl' es!im.ble !0e" c&rre"! or"o"c&rre"! li.bili!' *epe"*i"# &po" !0e !ime i"%ol%e* "o! .fi"."ci.l li.bili!'1 A perso".l i"&r' s&i! !0.! re2&ires 'o& !o p.'is . res&l! of . co&r! or*er5 "o! . co"!r.c! ei!0er 4ri!!e" orimplie* be!4ee" !4o p.r!ies1

,1 C&rre"! li.bili!' fi"."ci.l li.bili!'1,<1 C&rre"! li.bili!' fi"."ci.l li.bili!'1

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E+ERCISE ,-, (Co"!i"&e*)

,;1 No!e *isclos&re "o! . fi"."ci.l li.bili!'1 Di%i*e"*s i" .rre.rs0.%e "o! bee" boo/e* so i! c.""o! be . fi"."ci.l li.bili!'1 I!

becomes . fi"."ci.l li.bili!' o"l' 40e" *ecl.re* b' !0ecomp."'1 T0e co"!r.c!&.l .rr."#eme"! be!4ee" . comp."' ."*i!s preferre* s0.re0ol*ers is !0.! !0e' .re e"!i!le* !o . *i%i*e"*e%er' 'e.r before !0e commo" #e! ."' *is!rib&!io"s5 b&! !0e'm&s! be *ecl.re* !o be . li.bili!' .! .ll1

,:1 Sep.r.!e prese"!.!io" i" ei!0er c&rre"! or lo"#-!erm li.bili!'sec!io" fi"."ci.l li.bili!'1

,81 C&rre"! li.bili!' "o! . fi"."ci.l li.bili!'1,>1 C&rre"! or "o"c&rre"! li.bili!' *epe"*i"# &po" !0e !ime

i"%ol%e* "o! . fi"."ci.l li.bili!'1,=1 C&rre"! li.bili!' fi"."ci.l li.bili!'1

(b) C0."#es if !0e b.l."ce s0ee! 4.s prep.re* &"*er IFRS

(,6) U"*er exis!i"# IAS 8 No!e *isclos&re &"less !0eli/eli0oo* of "ee*i"# f&!&re reso&rces !o se!!le !0eco"!i"#e"! li.bili!' is remo!e1 No!e *isclos&re .lso re2&ire*if .mo&"! "o! reli.bl' me.s&r.ble (0o4e%er5 !0e s!."*.r*i"*ic.!es !0.! i! is o"l' i" %er' r.re circ&ms!."ces !0.! !0is

4o&l* be !0e c.se)1 U"*er propose* .me"*me"!s !o IAS8 I! m&s! firs! be *e!ermi"e* 40e!0er !0e obli#.!io"exis!s .! !0e repor!i"# *.!e1 Li.bili!ies c." .rise o"l' from&"co"*i!io".l (or "o"-co"!i"#e"!) obli#.!io"s1 U"cer!.i"!'.bo&! !0e .mo&"!s !0.! mi#0! be p.'.ble i" !0e f&!&re is!./e" i"!o .cco&"! i" !0e me.s&reme"! of !0e li.bili!'5 "o!i!s exis!e"ce1 If . li.bili!' is reco#"ie*5 i! is me.s&re*5 ."*i! is !0e me.s&reme"! !0.! !./es i"!o .cco&"! !0e&"cer!.i"!ies !0.! exis!1


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E+ERCISE ,-6 (67-6; mi"&!es)

(.) Sep!1 , P&rc0.ses11111111111111111111111111111111111111111111111111111111111111111111111111;75777Acco&"!s P.'.ble1111111111111111111111111111111111111111111111111111;75777

Oc!1 , Acco&"!s P.'.ble1111111111111111111111111111111111111111111111111111111111111;75777No!es P.'.ble1111111111111111111111111111111111111111111111111111111111;75777

Oc!1 , C.s0111111111111111111111111111111111111111111111111111111111111111111111111111111111118;5777No!es P.'.ble11111111111111111111111111111111111111111111111111111111118;5777

(b) Dec1 , I"!eres! Expe"se111111111111111111111111111111111111111111111111111111111111111,5777I"!eres! P.'.ble1111111111111111111111111111111111111111111111111111111,5777 (?;75777 + >@ + 9,6)

Dec1 , I"!eres! Expe"se111111111111111111111111111111111111111111111111111111111111111,5;77No!es P.'.ble1111111111111111111111111111111111111111111111111111111111,5;77K(?>,5777 ?8;5777) + 9,6

(c) (,) No!e p.'.ble ?;75777I"!eres! p.'.ble ,5777

?;,5777

(6) No!e p.'.ble ?8;5777I"!eres! .ccr&e* ,5;77?8:5;77

(*) Oc!1 ,9,; I"!eres! Expe"se 11111111111111111111111111111111111111111111111111111111111115777I"!eres! P.'.ble1111111111111111111111111111111111111111111111111111111111111111,5777No!es P.'.ble1111111111111111111111111111111111111111111111111111111111111111111;75777

C.s0111111111111111111111111111111111111111111111111111111111111111111111111111;<5777(?;75777 + >@ + =9,6)

Oc!1 ,9,; I"!eres! Expe"se111111111111111111111111111111111111111111111111111111111111111<5;77No!es P.'.ble111111111111111111111111111111111111111111111111111111111111<5;77

K(?>,5777 ?8;5777) + =9,6

No!es P.'.ble1111111111111111111111111111111111111111111111111111111111111111111>,5777C.s0111111111111111111111111111111111111111111111111111111111111111111111111111>,5777

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E+ERCISE ,-6 (Co"!i"&e*)

(e) Orio" No!eQ."1 , I"!eres! P.'.ble1111111111111111111111111111111111111111111111111111111111111111,5777

I"!eres! Expe"se111111111111111111111111111111111111111111111111111111,5777

Oc!1 , I"!eres! Expe"se111111111111111111111111111111111111111111111111111111111111111<5777No!es P.'.ble1111111111111111111111111111111111111111111111111111111111111111111;75777

C.s011111111111111111111111111111111111111111111111111111111111111111111111111;<5777

B."/ No!eT0e &se of re%ersi"# e"!ries is more efficie"! for!0e i"!eres!-be.ri"# "o!e1 I" !0is c.se5 !0e

boo//eepi"# s!.ff 4ill *ebi! i"!eres! expe"se for!0e f&ll ,6 mo"!0s 40e" !0e "o!e is p.i* (!0.! is5for !0e *iffere"ce be!4ee" !0e "o!e3s c.rr'i"#.mo&"! ."* !0e c.s0 p.i*) ."*5 i" combi".!io"4i!0 !0e re%ersi"# e"!r'5 !0e expe"se i" 67,; 4illbe correc!1 i!0 !0e "o"-i"!eres! be.ri"# "o!e5!0ere is "o "ee* !o re%erse !0e i"!eres!1 0e" !0e"o!e is p.i* .! m.!&ri!'5 !0e *iffere"ce be!4ee"!0e "o!e3s c.rr'i"# .mo&"! ."* !0e .mo&"! p.i* is.ll c0.r#e* correc!l' !o i"!eres! expe"se1If re%ersi"# e"!r' &se*

Q."1 , No!es P.'.ble1111111111111111111111111111111111111111111111111111111111111111111,5;77I"!eres! Expe"se111111111111111111111111111111111111111111111111111111,5;77

Oc!1 , I"!eres! Expe"se111111111111111111111111111111111111111111111111111111111111111:5777No!es P.'.ble11111111111111111111111111111111111111111111111111111111111111111118;5777

C.s011111111111111111111111111111111111111111111111111111111111111111111111111>,5777

If re%ersi"# e"!r' "o! &se*

Oc!1 , I"!eres! Expe"se 11 <5;77No!e P.'.ble11 8:5;77 C.s0 1 >,5777

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E+ERCISE ,- (,;-67 mi"&!es)

(.) C.s011111111111111111111111111111111111111111111111111111111111111111111111111111111111>=<5777Li.bili!' for Re!&r".ble Co"!.i"ers111111111111111111111111>=<5777

Li.bili!' for Re!&r".ble Co"!.i"ers11111111111111111111111111111111187;5<77C.s01111111111111111111111111111111111111111111111111111111111111111111111111187;5<77

Li.bili!' for Re!&r".ble Co"!.i"ers111111111111111111111111111111111;;5777S.les Re%e"&e111111111111111111111111111111111111111111111111111111111;;5777 (?,875777 ?,,;5777)

(b) Li.bili!' for Re!&r".ble Co"!.i"ers

?:;75777 ,69,9, li.bili!'>=<5777 67,< *eli%eries

67,< re!&r"s ?87;5<7767,6 expire**eposi!s

;;5777 (8:75<77)

?8>5:77 ,69,9,< li.bili!'

(c) T0e cl.ssific.!io" of !0is li.bili!' .s c&rre"! or lo"#-!erm*epe"*s &po" !0e le"#!0 of !0e comp."'3s oper.!i"# c'cle1

If !0e comp."'3s oper.!i"# c'cle is o"e 'e.r or less5 !0e"!0e por!io" of !0e li.bili!' !0.! is expec!e* !o be se!!le*4i!0i" o"e 'e.r is cl.ssifie* .s c&rre"!1 T0e rem.i"i"#*eposi!s 4o&l* be cl.ssifie* .s lo"#-!erm1 If !0e comp."'3soper.!i"# c'cle is be!4ee" o"e 'e.r ."* !4o 'e.rs5 !0epor!io" of !0e li.bili!' !0.! is expec!e* !o be se!!le* 4i!0i"o"e oper.!i"# c'cle is cl.ssifie* .s c&rre"!1 If !0ecomp."'3s oper.!i"# c'cle is !4o 'e.rs or more5 !0e e"!ireli.bili!' (?8>5:77) is cl.ssifie* .s c&rre"!1

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E+ERCISE ,-< (67-7 mi"&!es)

(.) Pro%i"ce of O"!.rio

M.rc0 , Re"! Expe"se11111111111111111111111111111111111 ;5;77$ST Recei%.ble (?;5;77 + ,@)111111 8,; C.s011111111111111111111111111111111111111111111 :56,;

Acco&"!s Recei%.bleM.rc&s1111111 665:77 S.les Re%e"&e1111111111111111111111111111 675777 $ST P.'.ble (?675777 + ,@)1 1 1 65:77 Cos! of Goo*s Sol*11111111111111111111111111 ,,5777 I"%e"!or'1111111111111111111111111111111111111 ,,5777

; S.les Re!&r"s ."* Allo4."ces1111111 ;77$ST P.'.ble (?;77 + ,@)11111111111111 :; Acco&"!s Recei%.bleM.rc&s1 ;:;

8 I"%e"!or'1111111111111111111111111111111111111111111 ,<5777$ST Recei%.ble (?,<5777 + ,@)111 1 ,5>67 Acco&"!s P.'.bleTi""e'11111111 ,;5>67

,6 F&r"i!&re ."* Fix!&res 11111111111111111111 :77$ST Recei%.ble (?:77 + ,@)111111111 8> C.s011111111111111111111111111111111111111111111 :8>

, $ST P.'.ble (?65:77 ?:;)1111111111111 65;;$ST Recei%.ble11111111111111111111111111111111 8> $ST Recei%.ble11111111111111111111111111 65:,

(?8,; ?,5>67 ?8>)

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E+ERCISE ,-< (Co"!i"&e*)

(b) Pro%i"ce of Alber!.

M.rc0 , Re"! Expe"se111111111111111111111111111111111111 ;5;77GST Recei%.ble (?;5;77 + ;@)111111111 68; C.s01111111111111111111111111111111111111111111111 ;588;

Acco&"!s Recei%.bleM.rc&s11111111 6,5777S.les Re%e"&e11111111111111111111111111111 675777GST P.'.ble (?675777 + ;@)1111111 ,5777

Cos! of Goo*s Sol*11111111111111111111111111 ,,5777

I"%e"!or'111111111111111111111111111111111111111 ,,5777

; S.les Re!&r"s ."* Allo4."ces11111111 ;77GST P.'.ble (?;77 + ;@)11111111111111111 6;

Acco&"!s Recei%.bleM.rc&s1 1 ;6;

8 I"%e"!or'11111111111111111111111111111111111111111111 ,<5777GST Recei%.ble (?,<5777 + ;@)1111111 877

Acco&"!s P.'.bleTi""e'111111111 ,<5877

,6 F&r"i!&re ."* Fix!&res 111111111111111111111 :77GST Recei%.ble (?:77 + ;@)111111111111 7

C.s01111111111111111111111111111111111111111111111 :7

, GST P.'.ble (?,5777 ?6;)11111111111111 =8;GST Recei%.ble111111111111111111111111111111111 7

GST Recei%.ble(?68; ?877 ?7)1111111111111111111111 ,577;

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E+ERCISE ,-< (Co"!i"&e*)

(c)

M.rc0 , Re"! Expe"se11111111111111111111111111111111111111111111111111111111111111111111;5;77GST Recei%.ble (?;5;77 + ;@)1111111111111111111111111111111111111111168;C.s011111111111111111111111111111111111111111111111111111111111111111111111111;588;

Acco&"!s Recei%.bleM.rc&s111111111111111111111111111111111111111165,77S.les Re%e"&e111111111111111111111111111111111111111111111111111111111675777GST P.'.ble (?675777 + ;@)11111111111111111111111111111111111,5777PST P.'.ble111111111111111111111111111111111111111111111111111111111111165,77K(?675777 + ,17;) + ,7@

Cos! of Goo*s Sol*1111111111111111111111111111111111111111111111111111111111,,5777I"%e"!or'111111111111111111111111111111111111111111111111111111111111111111,,5777

; S.les Re!&r"s ."* Allo4."ces1111111111111111111111111111111111111111;77GST P.'.ble (?;77 + ;@)11111111111111111111111111111111111111111111111116;PST P.'.ble K(?;77 + ,17;) + ,7@1111111111111111111111111111111111;

Acco&"!s Recei%.b1M.rc&s11111111111111111111111111111111 ;8>

8 I"%e"!or'1111111111111111111111111111111111111111111111111111111111111111111111111111,<5777GST Recei%.ble (?,<5777 + ;@)111111111111111111111111111111111111111877

Acco&"!s P.'.bleTi""e'1111111111111111111111111111111111111,<5877

,6 F&r"i!&re ."* Fix!&res (?:77?:)111111111111111111111111111111111::GST Recei%.ble (?:77 + ;@)111111111111111111111111111111111111111111117

C.s011111111111111111111111111111111111111111111111111111111111111111111111111 := (?:77 + ,17;) + ,7@ H ?:

, GST P.'.ble (?,5777 ?6;)1111111111111111111111111111111111111111111111=8;GST Recei%.ble111111111111111111111111111111111111111111111111111111111111111117

GST Recei%.ble(?68; ?877 ?7)11111111111111111111111111111111111111111111111111 ,577;

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E+ERCISE ,-; (,;-67 mi"&!es)

(.) M.r1 , I"come T.x Expe"se111111111111111111111111111111111111111111111111111111111>5,77C.s011111111111111111111111111111111111111111111111111111111111111111111111111>5,77

Q&"e , C.s011111111111111111111111111111111111111111111111111111111111111111111111111111111111,,56;7I"come T.x Recei%.ble1111111111111111111111111111111111111111111,,56;7

Q&"e 7 I"come T.x Expe"se111111111111111111111111111111111111111111111111111111111>5,77C.s011111111111111111111111111111111111111111111111111111111111111111111111111>5,77

Sep1 7 I"come T.x Expe"se111111111111111111111111111111111111111111111111111111111>5,77C.s011111111111111111111111111111111111111111111111111111111111111111111111111>5,77

Dec1 , I"come T.x Expe"se111111111111111111111111111111111111111111111111111111111>5,77C.s011111111111111111111111111111111111111111111111111111111111111111111111111>5,77

Dec1 , I"come T.x Expe"se111111111111111111111111111111111111111111111111111111111;5<77I"come T.x P.'.ble1111111111111111111111111111111111111111111111111;5<77

Es!im.!e* i"come !.x ?85>77I"come !.x i"s!.lme"!s p.i*(?>5,77 + <) (65<77)I"come !.x p.'.ble ? ;5<77

(b) T0e i"come !.x p.'.ble 4ill be s0o4" .s . c&rre"!li.bili!'1

(c) Q&"e , C.s011111111111111111111111111111111111111111111111111111111111111111111111111111111111658;7Re!.i"e* E.r"i"#s111111111111111111111111111111111111111111111111111111111111>5;77

I"come T.x Recei%.ble1111111111111111111111111111111111111111111,,56;7

T0e error rel.!es !o . prior perio* ."* s0o&l* be !re.!e* .s

." .*&s!me"! !o ope"i"# re!.i"e* e.r"i"#s o" !0es!.!eme"! of re!.i"e* e.r"i"#s or s!.!eme"! of c0."#es i"e2&i!'1

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E+ERCISE ,-: (7-; mi"&!es)

Asse!s Li.bili!ies O4"ers3 E2&i!' Ne! I"come

, I I NE NE

6 NE NE NE NE

NE I D D

< I I NE NE

; NE I D D

: I I I I

8 D I D D

> NE I D D

= NE I D D

,7 NE NE NE NE

,, NE I D D

,6 NE I D D

, NE I D D

,< D D NE NE

,; I I I I

,: D NE D D

,8 NE D I I

,> NE I D D

,= I I NE NE

67 I D I I


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E+ERCISE ,-8 (,7-,6 mi"&!es)

(.)$or"sb' Corpor.!io"P.r!i.l B.l."ce S0ee!

December ,5 67,<

C&rre"! li.bili!iesNo!es p.'.ble (No!e ,) ?6;75777

Lo"#-!erm *eb!No!es p.'.ble refi"."ce* i"

Febr&.r' 67,; (No!e ,)=;75777

No!e , S0or!-!erm *eb! refi"."ce*

As of December ,5 67,<5 !0e comp."' 0.* "o!es p.'.ble!o!.lli"# ?,56775777 *&e o" Febr&.r' 65 67,;1 T0ese "o!es 4ererefi"."ce* o" !0eir *&e *.!e !o !0e ex!e"! of ?=;75777 recei%e*from !0e iss&."ce of commo" s0.res o" Q."&.r' 6,5 67,;1 T0eb.l."ce of ?6;75777 4.s li2&i*.!e* &si"# c&rre"! .sse!s1

OR

C&rre"! li.bili!ies

No!es p.'.ble (No!e ,) ?6;75777

Lo"#-!erm *eb!S0or!-!erm *eb! expec!e* !o be

refi"."ce* (No!e ,)=;75777

(S.me No!e .s .bo%e1)

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(b) U"*er IFRS5 si"ce !0e *eb! is *&e 4i!0i" ,6 mo"!0s from!0e repor!i"# *.!e5 !0e 40ole .mo&"! (?,16 millio") iscl.ssifie* .s . c&rre"! li.bili!'1 T0is cl.ssific.!io" 0ol*se%e" if . lo"#-!erm refi"."ci"# 0.s bee" comple!e* before!0e fi"."ci.l s!.!eme"!s .re rele.se*1 T0e o"l' excep!io".ccep!e* for co"!i"&i"# lo"#-!erm cl.ssific.!io" is if5 .! !0eb.l."ce s0ee! *.!e5 !0e e"!i!' expec!s !o refi"."ce i! or rolli! o%er &"*er ." exis!i"# .#reeme"! for .! le.s! ,6 mo"!0s."* !0e *ecisio" is solel' .! i!s *iscre!io"1 T0ei"!er".!io".l s!."*.r* 0.s . s!ri"#e"! re2&ireme"! !0.! !0e.#reeme"! m&s! be firm .! !0e b.l."ce s0ee! *.!e1

(c) T0e c&rre"! r.!io is c.lc&l.!e* .s c&rre"! .sse!s9c&rre"!li.bili!ies1 If $or"sb' follo4s ASPE5 c&rre"! li.bili!ies4o&l* i"cl&*e ?6;75777 rel.!e* !o !0e s0or!-!erm "o!esp.'.ble1 If $or"sb' follo4s IFRS5 c&rre"! li.bili!ies 4o&l*i"cl&*e ?,16 millio" rel.!e* !o !0e s0or!-!erm "o!esp.'.ble1 T0erefore5 !0e c&rre"! r.!io 4o&l* .ppe.r 0i#0er if $or"sb' follo4s ASPE1 A cre*i!or 4o&l* 4."! !o .ssess!0e comp."'3s li2&i*i!' ."* sol%e"c'5 ."* s0o&l* be .4.re!0.! cl.ssific.!io" of !0e s0or!-!erm "o!es p.'.ble o" !0eb.l."ce s0ee! 0.s . si#"ific."! imp.c! o" /e' r.!iosi"cl&*i"# !0e c&rre"! r.!io1 T0e cre*i!or s0o&l* refer !o .lli"form.!io" i" !0e fi"."ci.l s!.!eme"!s5 i"cl&*i"# "o!es !o!0e fi"."ci.l s!.!eme"!s5 !o *e!ermi"e !0e fi"."ci.lposi!io" of !0e comp."'5 especi.ll' 40e" comp.ri"# !0ecomp."'3s perform."ce !o !0.! of ."o!0er comp."' 4i!0fi"."ci.l s!.!eme"!s prep.re* &"*er . *iffere"! s!."*.r*1


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E+ERCISE ,-> (,7-,; mi"&!es)

immer Corpor.!io"P.r!i.l B.l."ce S0ee!

December ,5 67,<

C&rre"! li.bili!iesNo!es p.'.ble (No!e ,) ?<5<>75777

Lo"#-!erm *eb!No!es p.'.ble expec!e* !o be

refi"."ce* i" 67,; (No!e ,) 5<675777

No!e ,1U"*er . fi"."ci"# .#reeme"! 4i!0 Pro%i"ci.l B."/ !0e

comp."' m.' borro4 &p !o :7@ of !0e #ross .mo&"! of i!s.cco&"!s recei%.ble .! ." i"!eres! cos! of ,@ .bo%e !0e primer.!e1 T0e comp."' i"!e"*s !o iss&e "o!es m.!&ri"# i" 67,: !orepl.ce ?5<675777 of s0or!-!erm5 ,;@5 "o!es *&e perio*ic.ll' i"67,;1 Bec.&se !0e .mo&"! !0.! c." be borro4e* m.' r."#e from?5<675777 !o ?<567757775 o"l' ?5<675777 of !0e ?85=775777 of c&rre"!l' m.!&ri"# *eb! 0.s bee" recl.ssifie* .s lo"#-!erm *eb!1

Expec!e* r."#e of recei%.bles

lo4 i" M.' ?;58775777 + :7@ H ?5<675777 0i#0 i" Oc!ober ?857775777 + :7@ H ?<56775777

(b) U"*er IFRS5 si"ce !0e *eb! is *&e 4i!0i" ,6 mo"!0s from!0e repor!i"# *.!e5 !0e 40ole .mo&"! (?81= millio") iscl.ssifie* .s . c&rre"! li.bili!'1 T0is cl.ssific.!io" 0ol*se%e" if . lo"#-!erm refi"."ci"# 0.s bee" comple!e* before!0e fi"."ci.l s!.!eme"!s .re rele.se*1 T0e o"l' excep!io".ccep!e* for co"!i"&i"# lo"#-!erm cl.ssific.!io" is if5 .! !0eb.l."ce s0ee! *.!e5 !0e e"!i!' expec!s !o refi"."ce i! or rolli! o%er &"*er ." exis!i"# .#reeme"! for .! le.s! ,6 mo"!0s."* !0e *ecisio" is solel' .! i!s *iscre!io"1 T0ei"!er".!io".l s!."*.r* 0.s . s!ri"#e"! re2&ireme"! !0.! !0e.#reeme"! m&s! be firm .! !0e b.l."ce s0ee! *.!e1

2olutions Manual 1('(1 Chater 1(

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E+ERCISE ,-= (,;-67 mi"&!es)

(.) S.l.ries ."* .#es Expe"se111111111111111111111111111111111111111111<>;5777 Emplo'ee I"come T.x De*&c!io"s

P.'.ble111111111111111111111111111111111111111111111111111111111 >;5777 EI Premi&ms P.'.ble11111111111111111111111111111111111111 :5:>7 CPP Co"!rib&!io"s P.'.ble11111111111111111111111111 ,>57:> U"io" D&es P.'.ble11111111111111111111111111111111111111111 >5777 C.s01111111111111111111111111111111111111111111111111111111111111111111 :856;6 ?:;5777 + ,1>@ H ?:5,; ?:;5777 + <1=;@ H ?,>57:>

P.'roll T.x Expe"se111111111111111111111111111111111111111111111111685<,= EI Premi&ms P.'.ble111111111111111111111111111111111111111 =5;,

?:;5777 + 61;:6@CPP Co"!rib&!io"s P.'.ble11111111111111111111111111111 ,>57:>

(See pre%io&s c.lc&l.!io")

(b) Emplo'ee I"come T.x De*&c!io"sP.'.ble1111111111111111111111111111111111111111111111111111111111111111111111111>;5777

EI Premi&ms P.'.ble (?:5:>7 ?=5;,)11111111111111111,:57,CPP Co"!rib&!io"s P.'.ble1111111111111111111111111111111:5,:

(?,>57:> ?,>57:>) C.s01111111111111111111111111111111111111111111111111111111111111111111 ,85,:8

U"io" D&es P.'.ble111111111111111111111111111111111111111111111111>5777 C.s01111111111111111111111111111111111111111111111111111111111111111111 >5777

(c) S.l.ries ."* 4.#es for Sep!ember 67,< ?<>;5777P.'roll !.x expe"se 685<,=To!.l p.'roll cos! for Sep!ember 67,< ?;,65<,=Cos! per *oll.r of s.l.ries ."* 4.#es H (?;,65<,=

?<>;5777) H ?,17;8

(*) T0e comp."' m.' 0.%e .**i!io".l emplo'ee-rel.!e*cos!s s&c0 .s or/pl.ce S.fe!' ."* I"s&r."ce Bo.r*(SIB) co%er.#e5 0e.l!0 !.xes5 0e.l!0 ."* *is.bili!'i"s&r."ce5 pe"sio" be"efi!s5 compe"s.!e* .bse"ces(p.i* %.c.!io"5 m.!er"i!'9p.!er"i!' le.%e5 sic/ p.') ."*i"*irec! cos!s s&c0 .s . 0&m." reso&rces *ep.r!me"!1

2olutions Manual 1('(# Chater 1(

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E+ERCISE ,-,7 (6;-7 mi"&!es)

(.) To .ccr&e !0e expe"se ."* li.bili!' for %.c.!io"e"!i!leme"!

67, S.l.ries ."* .#es Expe"se 85677 .c.!io" .#es P.'.ble 85677(,)

67,< S.l.ries ."* .#es Expe"se 85=67 .c.!io" .#es P.'.ble 85=67 (6)

S.l.ries ."* .#es Expe"se :<>.c.!io" .#es P.'.ble :5<>7()

C.s0 85,6>(<)

(,) = emplo'ees + ?,717790r1 + > 0rs19*.' + ,7 *.'s H ?85677(6) = emplo'ees + ?,,17790r1 + > 0rs19*.' + ,7 *.'s H ?85=67() = emplo'ees + ?,717790r1 + > 0rs19*.' + = *.'s H ?:5<>7(<) = emplo'ees + ?,,17790r1 + > 0rs19*.' + = *.'s H ?85,6>

NOTE .c.!io" *.'s .re p.i* .! !0e emplo'ee3s c&rre"! 4.#e1

(b) To .ccr&e !0e expe"se ."* li.bili!' for sic/ *.'s

67, S.l.ries ."* .#es Expe"se <567 Sic/ P.' .#es P.'.ble <567(,)

To recor* p.'me"! for compe"s.!e* !ime 40e" &se* b'emplo'ees

Sic/ P.' .#es P.'.ble 65>>7(6) C.s0 65>>7

67,< S.l.ries ."* .#es Expe"se <58;6 Sic/ P.' .#es P.'.ble <58;6 ()

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E+ERCISE ,-,7 (Co"!i"&e*)

67,< S.l.ries ."* .#es Expe"se ,<<Sic/ P.' .#es P.'.ble 5>,:(<)

C.s0 5=:7(;)

(,) = emplo'ees + ?,717790r1 + > 0rs19*.' + : *.'s H ?<567(6) = emplo'ees + ?,717790r1 + > 0rs19*.' + < *.'s H ?65>>7() = emplo'ees + ?,,17790r1 + > 0rs19*.' + : *.'s H ?<58;6(<) = emplo'ees + ?,717790r1 + > 0rs19*.' + (:<) *.'s H ?,5<<7

= emplo'ees + ?,,17790r1 + > 0rs19*.' + (;6) *.'s H ?658: ?5>,:

(;) = emplo'ees + ?,,17790r1 + > 0rs19*.' + ; *.'s H ?5=:7

NOTE: Sick days are paid at the employee’s current wage.

(c) Accr&e* li.bili!' .! 'e.r-e"*67, 67,<

.c.!io".#es

P.'.ble

Sic/ P.'.#es

P.'.ble

.c.!io".#es

P.'.ble

Sic/ P.'.#es

P.'.ble

Q."1 , b.l."ce ? 7 ? 7 ?85677 ?,5<<7

.ccr&e* 85677 <567 85=67 <58;6 p.i* ( 7) (65>>7) (:5<>7) (5>,:)Dec1 , b.l."ce ?85677(,) ?,5<<7(6) ?>5:<7 () ?658:(<)

(,) = emp1 + ?,717790r1 + > 0rs19*.' + ,7 *.'s H ?85677

(6) = emp1 + ?,717790r1 + > 0rs19*.' + (:<) *.'s H ?,5<<7

() = emp1 + ?,717790r1 + > 0rs19*.' + (,7=) *.'s H ? 867

= emp1 + ?,,17790r1 + > 0rs19*.' + ,7 *.'s H 85=67?>5:<7

(<) = emp1 + ?,,17790r1 + > 0rs19*.' +

(: : < ;) *.'s ?658:

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(*) Si"ce !0e sic/ *.'s e"!i!leme"! *oes "o! .cc&m&l.!e5 !0ecomp."' 4o&l* "o! .ccr&e &"&se* sic/ *.'s1 U"&se*

sic/ *.'s 4o&l* expire1 P.i* sic/ *.'s !./e" b'emplo'ees *&ri"# !0e 'e.r 4o&l* be *ebi!e* !o S.l.ries."* .#es Expe"se .s !./e" .! !0e 4.#e r.!e i" effec! i"!0.! 'e.r1

To recor* p.'me"! for compe"s.!e* !ime 40e" &se* b'emplo'ees

67, S.l.ries ."* .#es Expe"se 65>>7(,) C.s0 65>>7

67,< S.l.ries ."* .#es Expe"se 5=:7 C.s0 5=:7 (6)

(,) = emplo'ees + ?,717790r1 + > 0rs19*.' + < *.'s H ?65>>7(6) = emplo'ees + ?,,17790r1 + > 0rs19*.' + ; *.'s H ?5=:7

T0e .ccr&e* li.bili!' .! 'e.r-e"* 4o&l* be !0e s.me .s p.r! (c)for %.c.!io" 4.#es p.'.ble5 b&! "o .ccr&.l 4o&l* be re2&ire*

for sic/ *.'s1

.c.!io" .#es P.'.ble (67,) H ?85677.c.!io" .#es P.'.ble (67,<) H ?>5:<7

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E+ERCISE ,-,, (6;-7 mi"&!es)

(.)67, To .ccr&e !0e expe"se ."* li.bili!' for %.c.!io"s

S.l.ries ."* .#es Expe"se 858<7 (,) .c.!io" .#es P.'.ble 858<7

To recor* %.c.!io" !ime p.i*No e"!r'1

67,< To .ccr&e !0e expe"se ."* li.bili!' for %.c.!io"sS.l.ries ."* .#es Expe"se >5;6 (6) .c.!io" .#es P.'.ble >5;6

To recor* %.c.!io" !ime p.i*S.l.ries ."* .#es Expe"se ,:6.c.!io" .#es P.'.ble :5=:: () C.s0 85,6> (<)

(,) = emplo'ees + ?,718;90r1 + > 0rs19*.' + ,7 *.'s H ?858<7(6) = emplo'ees + ?,,1:790r1 + > 0rs19*.' + ,7 *.'s H ?>5;6() = emplo'ees + ?,718;90r1 + > 0rs19*.' + = *.'s H ?:5=::(<) = emplo'ees + ?,,17790r1 + > 0rs19*.' + = *.'s H ?85,6>

(b)67, To recor* sic/ !ime p.i*

S.l.ries ."* .#es Expe"se 65>>7 (,) C.s0 65>>7

67,< To recor* sic/ !ime p.i*S.l.ries ."* .#es Expe"se 5=:7 (6) C.s0 5=:7

(,) = emplo'ees + ?,717790r1 + > 0rs19*.' + < *.'s H ?65>>7(6) = emplo'ees + ?,,17790r1 + > 0rs19*.' + ; *.'s H ?5=:7

2olutions Manual 1('(* Chater 1(

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E+ERCISE ,-,, (Co"!i"&e*)

(c) Accr&e* li.bili!' .! 'e.r-e"* (%.c.!io" p.' o"l')67, 67,<

Q."1 , b.l."ce ? 7 ?858<7 .ccr&e* 858<7 >5;6 p.i* ( 7) (:5=::)Dec1 , b.l."ce ?858<7(,) ?=5,6:(6)

(,) = emplo'ees + ?,718;90r1 + > 0rs19*.' + ,7 *.'s H ?858<7

(6) = emplo'ees + ?,718;90r1 + > 0rs19*.' + , *.' H ? 88<= emplo'ees + ?,,1:790r1 + > 0rs19*.' + ,7 *.'s H >5;6

?=5,6:

2olutions Manual 1('(+ Chater 1(

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E+ERCISE ,-,6 (6;-7 mi"&!es)

(.) Oc!ober 6=5 67,<

Emplo'ee Be"efi! Expe"se111111111111111111111111111111111111111111111:5>,7P.re"!.l Le.%e Be"efi!s P.'.ble1111111111111111111111111111EI Premi&ms P.'.ble (=67 + ,1<)1111111111111111111111111111

:5>,7

T0e expe"se ."* li.bili!' .re reco#"ie* 40e" !0e e%e"! !0.!obli#.!es !0e e"!i!' occ&rs1 For m.!er"i!' ."* p.re"!.l le.%e5 !0e.pplic.!io" for le.%e is !0e e%e"! !0.! obli#.!es !0e corpor.!io"(CICA Handbook for Private Enterprises sec!io" <:,)1 T0e"o!ific.!io" i" Q&"e is "o! co"si*ere* .c!&.l .pplic.!io" for le.%e1

S.l.r' for ,6 mo"!0s ?;<5777Less emplo'me"! i"s&r."ce

p.'me"!s (?86794ee/ + ;6 4ee/s) (85<<7) S.l.r' for : mo"!0s .! 8;@ (?;<5777 + :9,6 + 8;@) 6756;7

Emplo'ee Be"efi! Expe"se ?:5>,7

For e.c0 of !0e = 4ee/s from Oc!ober 6=5 67,< !o December ,567,<5 Gol*4i"# Corpor.!io" 4ill p.' ei".b Qol." . !op &p.mo&"! ."* recor* !0e p.'me"!s .s follo4s

P.re"!.l Le.%e Be"efi!s P.'.ble1111111111111111111111111111111111111,>C.s011111111111111111111111111111111111111111111111111111111111111111111111111EI Premi&ms P.'.ble (=67 + ,1<)1111111111111111111111111111

,>

(?;<5777 ?85<<7) ;6 4ee/s H ?,>

(b) P.re"!.l Le.%e Be"efi!s P.'.ble111111111 67587>C.s01111111111111111111111111111111111111111111111 67587>

Top &p for o"e 'e.r (?;<5777 ?85<<7) ?,:5;:7Less por!io" &se* i" 67,< (= 4ee/s + ?,>) (65>:6)Rem.i"i"# = 4ee/s .! 8;@ of f&ll p.'

(?6756;7 + =96:) 857,7Be"efi!s p.i* *&ri"# 67,; ?67587>


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(c) P.re"!.l Le.%e Be"efi!s P.'.ble .! December ,5 67,< H?:5>,7 (= 4ee/s + ?,>) H ?5=<>

P.re"!.l Le.%e Be"efi!s P.'.ble .! December ,5 67,; H?5=<> ?67587> H ?,56<7

T0e p.re"!.l le.%e be"efi!s p.'.ble b.l."ce .! December ,567,< 4ill 0.%e bo!0 . c&rre"! ."* lo"#-!erm por!io"1 T0e.mo&"! p.'.ble 4i!0i" !0e comi"# 'e.r5 ?67587>5 4ill bes0o4" .s . c&rre"! li.bili!'5 40ere.s !0e rem.i"i"# ?,56<7540ic0 4ill be p.'.ble i" 67,:5 4ill be s0o4" .s . lo"#-!ermli.bili!'1

O" !0e December ,5 67,; b.l."ce s0ee!5 !0e rem.i"i"#.mo&"! of ?,56<7 4ill be s0o4" .s . c&rre"! li.bili!'1


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E+ERCISE ,-, (,;-67 mi"&!es)

(.)Q&s!i" Corp1

I"come S!.!eme"!For !0e Je.r E"*e* December ,5 67,<

S.les re%e"&e ?,757775777Cos! of #oo*s sol* 857775777Gross profi! 57775777A*mi"is!r.!i%e ."* selli"# expe"ses ?,57775777Profi!-s0.ri"# bo"&s !o emplo'ees 6<;5:,< ,56<;5:,<I"come before i"come !.x ,58;<5>:I"come !.x (7@) ;6:5,:Ne! i"come ? ,566>5787

C.lc&l.!io" of bo"&s ."* !.xT H 17 (?57775777 ?,57775777 B)B H 167 (?657775777 B T)B H 167 K?657775777 B 17 (?657775777 B)B H 167 (?657775777 B ?:775777 17B)B H 167 (?,5<775777 187B)B H ?6>75777 1,<B

,1,<B H ?6>75777Bo"&s H ?6<;5:,<17<

T H 17 (?657775777 ?6<;5:,<17<)T H 17 (?,58;<5>;1=:)

T.x H ?;6:5,;18=

(b) Bo"&s Expe"se111111111111111111111111111111111111111111111111111111111111111116<;5:,<Bo"&s P.'.ble111111111111111111111111111111111111111111111111 6<;5:,<

2olutions Manual 1(')1 Chater 1(

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E+ERCISE ,-,< (67-6; mi"&!es)

(.) Q."&.r' ,5 67,<Drilli"# Pl.!form ;5<:75777

C.s0 ;5<:75777

Drilli"# Pl.!form <,=57:Asse! Re!ireme"! Obli#.!io" <,=57:

(P of ?=;75777 &si"# iH>@ ."* "H:) + 87@?=;75777 + 1:7,8 + 87@

(b) December ,5 67,<Depreci.!io" Expe"se =8=5><<

Acc&m&l.!e* Depreci.!io"

Drilli"# Pl.!form =8=5><<(?;5<:75777 ?<,=57:) :

I"!eres! Expe"se 5;6;Asse! Re!ireme"! Obli#.!io" 5;6;

?<,=57: + >@

I"%e"!or' 656>Asse! Re!ireme"! Obli#.!io" 656>

(c) December ,5 67,;Depreci.!io" Expe"se =8=5><<

Acc&m&l.!e* Depreci.!io" Drilli"# Pl.!form =8=5><<

(?;5<:75777 ?<,=57:) :

I"!eres! Expe"se >58=Asse! Re!ireme"! Obli#.!io" >58=

(?<,=57: ?5;6; ?656>) + >@

I"%e"!or' <5=,<Asse! Re!ireme"! Obli#.!io" <5=,<

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E+ERCISE ,-,< (Co"!i"&e*)

(*) December ,5 67,=Asse! Re!ireme"! Obli#.!io" =;75777

G.i" o" Se!!leme"! of Asse!Re!ireme"! Obli#.!io" 6>5777

C.s0 =665777

(e) Q."&.r' ,5 67,<Drilli"# Pl.!form ;5<:75777

C.s0 ;5<:75777

Drilli"# Pl.!form <,=57:Asse! Re!ireme"! Obli#.!io" <,=57:

(P of ?=;75777 &si"# iH>@ ."* "H:) + 87@?=;75777 + 1:7,8 + 87@

December ,5 67,<Depreci.!io" Expe"se =8=5><<

Acc&m&l.!e* Depreci.!io" Drilli"# Pl.!form =8=5><<

(?;5<:75777 ?<,=57:) :

Accre!io" Expe"se 5;6;Asse! Re!ireme"! Obli#.!io" 5;6;

?<,=57: + >@

Drilli"# Pl.!form 656>Asse! Re!ireme"! Obli#.!io" 656>

December ,5 67,;Depreci.!io" Expe"se =>:5,7

Acc&m&l.!e* Depreci.!io"

Drilli"# Pl.!form =>:5,7(?;5<:75777 ?<,=57:) : ?656> ;

Accre!io" Expe"se >58=Asse! Re!ireme"! Obli#.!io" >58=

(?<,=57: ?5;6; ?656>) + >@

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E+ERCISE ,-,< (Co"!i"&e*)

Drilli"# Pl.!form <5=,<Asse! Re!ireme"! Obli#.!io" <5=,<

December ,5 67,=Asse! Re!ireme"! Obli#.!io" =;75777

G.i" o" Se!!leme"! of Asse!Re!ireme"! Obli#.!io" 6>5777

C.s0 =665777

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E+ERCISE ,-,; (6;-; mi"&!es)

(.)

Prese"! %.l&e of !0e .sse! re!ireme"! obli#.!io"H ?8;5777 + 1;;>= H ?<,5>8=

Usi"# . fi"."ci.l c.lc&l.!or

P Jiel*s ? <,5>8=1:,

I :@

N ,7

PMT 7

F ? (8;5777)

T'pe 7

Q&l' 65 67,<Oil T."/er Depo! :775777

C.s0 :775777

Oil T."/er Depo! <,5>8=Asse! Re!ireme"! Obli#.!io" <,5>8=

(b) December ,5 67,<

Depreci.!io" Expe"se 657=<Acc&m&l.!e* Depreci.!io"

Oil T."/er Depo! 657=<(?:775777 ?<,5>8=) ,7 + :9,6

Accre!io" Expe"se ,56;:Asse! Re!ireme"! Obli#.!io" ,56;:(?<,5>8= + :@ + :9,6)

(c) Q&"e 75 676<Asse! Re!ireme"! Obli#.!io" 8;5777Loss o" Se!!leme"! of Asse! Re!ireme"!

Obli#.!io" ;5777C.s0 >75777

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E+ERCISE ,-,; (Co"!i"&e*)

(*)

Je.r

Be#1 C.rr'i"#

Amo&"!

Accre!io"

Expe"se (:@)

E"*i"# C.rr'i"#

Amo&"!Q&"e75

67,; <,5>8=177 65;,618< <<5=,18<

67,: <<5=,18< 65::1;7 <857;;16<

67,8 <857;;16< 65>61, <=5>8>1;;

67,> <=5>8>1;; 65==618, ;65>8,16:

67,= ;65>8,16: 5,8616> ;:57<1;;

6767 ;:57<1;< 5:61:, ;=5<7:1,;

676, ;=5<7:1,; 5;:<18 :65=871;6

6766 :65=871;6 588>16 ::58<>18;

676 ::58<>18; <577<1= 8758;1:>

676< 8758;1:> <56<;166 8<5==>1=7

(e) B.l."ce S0ee!Proper!'5 Pl."!5 ."* E2&ipme"!Oil T."/er Depo! ?:<,5>8=Less Acc&m&l.!e* Depreci.!io" 657=< :7=58>;

Lo"#-!erm Li.bili!iesAsse! Re!ireme"! Obli#.!io" <5,;

(?<,5>8= ?,56;:)

I"come S!.!eme"!Oper.!i"# Expe"ses

Depreci.!io" Expe"se 657=<Accre!io" Expe"se ,56;:

(f) T0e .ccre!io" expe"se is . "o"-c.s0 expe"se1 I! 4o&l* beomi!!e* from c.s0 from oper.!io"s i" !0e s!.!eme"! of c.s0flo4s prep.re* &si"# !0e *irec! me!0o*1 I! 4o&l* be .**e*b.c/ !o "e! i"come i" !0e s!.!eme"! of c.s0 flo4s prep.re*&si"# !0e i"*irec! me!0o*1

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(#) If !0e comp."' repor!s &"*er IFRS5 !0e m.i" *iffere"ces i".cco&"!i"# for !0e .sse! re!ireme"! cos!s ."* obli#.!io".re .s follo4s

,1 If !0ere .re ."' co"s!r&c!i%e obli#.!io"s rel.!e* !ore!iri"# !0e oil !."/er *epo!5 !0e rel.!e* cos!s 4o&l* bei"cl&*e* i" !0e .sse! re!ireme"! obli#.!io" (ARO)5 i".**i!io" !o !0e le#.l obli#.!io"s reco#"ie* i" p.r! (.)10ere.s &"*er ASPE5 o"l' !0e cos!s .ssoci.!e* 4i!0le#.l obli#.!io"s .re i"cl&*e* i" !0e ARO1

61 T0e cos!s i"cl&*e* i" !0e c.pi!.l .sse! 4o&l* o"l' be

!0ose re!ireme"! obli#.!io"s rel.!e* !o !0e .c2&isi!io" of !0e .sse!5 "o! !0ose re!ireme"! obli#.!io"s rel.!e* !o !0es&bse2&e"! pro*&c!io" of #oo*s or ser%ices1 U"*er IFRS5 re!ireme"! cos!s rel.!e* !o !0e s&bse2&e"!pro*&c!io" of #oo*s or ser%ices .re i"cl&*e* .si"%e"!or' or pro*&c! cos!s .s !0e *epo! is &se* ."* !0ere!ireme"! cos!s i"cre.se *&e !o pro*&c!io"1 0ere.s&"*er ASPE5 !0e cos!s i"cl&*e* i" !0e c.pi!.l .sse! .re!0e re!ireme"! obli#.!io"s res&l!i"# from bo!0 !0e.c2&isi!io" of !0e .sse! ."* i!s s&bse2&e"! &se i"pro*&ci"# i"%e"!or'1

1 T0e i"!eres! .*&s!me"! !o !0e li.bili!' .cco&"! recor*e*i" p.r! (b) 4o&l* be reco#"ie* .s . borro4i"# cos! i"!0e i"!eres! expe"se .cco&"!1 0ere.s &"*er ASPE5 !0ei"!eres! .*&s!me"! is reco#"ie* .s ." oper.!i"#expe"se i" !0e .ccre!io" expe"se .cco&"!1

As ." ex.mple5 .ss&mi"# !0.! Cr&*e Oil follo4s IFRS ."*

!0.! !0e ARO of ?8;5777 .! !0e e"* of !0e *epo!3s &sef&l liferel.!es ;7@ !o .c2&isi!io" of !0e *epo! ."* ;7@ !o !0es&bse2&e"! pro*&c!io"

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• T0e Q&l' 65 67,< e"!r' !o .c2&ire !0e oil !."/er *epo! 4o&l*be !0e s.me .s &"*er ASPE1

•

I"s!e.* of c.pi!.lii"# !0e f&ll ?<,5>8= i" !0e Oil T."/er Depo! .cco&"!5 o"l' + ?<,5>8= or ?675=<7 4o&l* bec.pi!.lie* .! Q&l' 65 67,<1

• T0e *epreci.!io" expe"se for !0e six mo"!0s e"*e*December ,5 67,< 4o&l* be (?:775777 ?675=<7) ,7 +:9,6 H ?,57<8

• I"!eres! expe"se (40ic0 4o&l* be .ccre!io" expe"se &"*er ASPE .s *isc&sse* .bo%e) for !0e : mo"!0s e"*e*December ,5 67,< 4o&l* be lo4er !0." &"*er ASPE1 I!

4o&l* be ?675=<7 + :@ + :9,6 H ?:6>1• A" e"!r' 4o&l* 0.%e !o be m.*e !o reco#"ie !0e i"cre.se*

ARO *&e !o !0e pro*&c!io" .c!i%i!ies for !0e : mo"!0se"*e* December ,5 67,<5 4i!0 !0e cos!s c0.r#e* !oI"%e"!or'1 T0is 4o&l* be me.s&re* .! !0e prese"! %.l&e of !0e i"creme"!.l cos!s c.&se* b' !0is pro*&c!io"1 If ?85;77of !0e reme*i.!io" obli#.!io" (ARO) 4.s c.&se* b' !0e.c2&isi!io" of !0e .sse!5 !0e" !0e o!0er ?85;77 of !0e ARO5or ?,5>8; e%er' six mo"!0s5 4o&l* be c.&se* b'pro*&c!io"1 A! !0e e"* of December 67,<5 ?,578> is !0e

prese"! %.l&e of !0e i"creme"!.l cos! c.&se* b'pro*&c!io" (P ?,5>8; &si"# iH:@ ."* "H=1; perio*s 40ic0#i%es . P f.c!or of 1;8<=7)1 O" Q&"e 75 67,;5 .".**i!io".l ?,5,,7 4o&l* be reco#"ie* .s pro*&c!io" cos!s."* ." i"cre.se i" !0e ARO (P ?,5>8; &si"# iH:@ ."* "H=perio*s 40ic0 #i%es . P f.c!or of 1;=,=7)1 A! Q&"e 7567,;5 .**i!io".l i"!eres! expe"se 4o&l* be reco#"ie* .s4ell bec.&se ?,578> 0.s bee" i"cl&*e* i" !0e ARO si"ceDecember ,5 67,<1 $o4e%er5 o"l' ?,578> is c0.r#e* !o

I"%e"!or' ."* cre*i!e* !o !0e Asse! Re!ireme"! Obli#.!io".! December ,5 67,<1• A! Q&"e 75 676<5 !0e ARO 4ill 0.%e .cc&m&l.!e* !o

?8;57775 !0e s.me .s &"*er ASPE1 T0erefore !0e s.mee"!r' 4o&l* be m.*e !o reco#"ie !0e ?>75777 expe"*i!&refor reme*i.!io" ."* !0e ?;5777 loss1


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No!e !o i"s!r&c!ors T0is m.' be more *e!.il !0." 'o& 4o&l* li/e!o #e! i"!o 4i!0 'o&r s!&*e"!s5 b&! is pro%i*e* 0ere .s o"e 4.'!o c.lc&l.!e re.so".ble "&mbers for !0e e"!ries1 T0e follo4i"#!.ble se!s o&! . VproofW !0.! !0e ARO rel.!e* !o pro*&c!io".c!i%i!' ."* i"!eres! for !0e firs! 'e.r3s pro*&c!io" 4ill.cc&m&l.!e !o ,9,7 of !0e es!im.!e* re!ireme"! cos!s .! !0e e"*of ,7 'e.rs or ?58;71

For e.c0 perio*5 !0e ARO rel.!i"# !o !0e c&rre"! pro*&c!io" isrecor*e* .! i!s prese"! %.l&e .! !0e e"* of !0e perio* of pro*&c!io"5 .**e* !o !0e s.me li.bili!' .cco&"! for !0e AROreco#"ie* for !0e .sse! .c2&isi!io"5 ."* !0e" .ccre!e* &"!il !0e

obli#.!io" is e%e"!&.ll' re!ire*1

T0ere is "o .mo&"! i" !0e ARO .cco&"! rel.!e* !o i"%e"!or'pro*&c!io" &"!il December ,5 67,<5 so "o .ccre!io" is "ee*e*i" !0.! firs! perio*1

Prese"! %.l&eof .**i!io".l

cos!sres&l!i"# from

pro*&c!io" i"firs! 'e.r

Accre!io" .! :@per 'e.r

B.l."ce of AROrel.!e* !o

pro*&c!io" .c!i%i!'for firs! 'e.r

Q&l1,9,< 7 7 7

Dec1,9,< ,578> 7 ,578>

Q&l1,9,; ,5,,7 6 65667

Q&l1,9,: 7 , 65;

Q&l1,9,8 7 ,<, 65<=<

Q&l1,9,> 7 ,;7 65:<<

Q&l1,9,= 7 ,;= 65>7Q&l1,967 7 ,:> 65=8,

Q&l1,96, 7 ,8> 5,<=

Q&l1,966 7 ,>= 5>

Q&l1,96 7 677 5;>

Q&l1,96< 7 6,6 58;7

2olutions Manual 1(')- Chater 1(

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E+ERCISE ,-,: (,7-,; mi"&!es)

(.) C.s0 (,;7 + ?<5777)1111111111111111111111111111111111111111111111111111111111:775777S.les Re%e"&e111111111111111111111111111111111111111111111111111111111:775777

.rr."!' Expe"se1111111111111111111111111111111111111111111111111111111111111,85777C.s05 I"%e"!or'5 e!c1111111111111111111111111111111111111111111111111,85777

.rr."!' Expe"se (?<;5777 ?,85777)111111111111111111111111116>5777.rr."!' Li.bili!'111111111111111111111111111111111111111111111111111116>5777

(,;7 + ?77)

(b) C.s011111111111111111111111111111111111111111111111111111111111111111111111111111111111:775777S.les Re%e"&e111111111111111111111111111111111111111111111111111111111:775777

.rr."!' Expe"se1111111111111111111111111111111111111111111111111111111111111,85777C.s05 I"%e"!or'5 e!c1111111111111111111111111111111111111111111111111,85777

(c) T0e c.s0 b.sis of .cco&"!i"# for 4.rr."!' cos!s is.ccep!.ble 40e" !0e cos!s .re "o! m.!eri.l or 40e" !0e4.rr."!' perio* is rel.!i%el' s0or!1 I! m.' .lso be.ccep!.ble 40e" !0e .mo&"! of !0e li.bili!' c.""o! bere.so".bl' es!im.!e* or if f&!&re cos!s .re "o! li/el' !o bei"c&rre*1


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E+ERCISE ,-,8 (,;-67 mi"&!es)

(.) Es!im.!e* 4.rr."!' expe"se for 67,<

O" 67,< s.les ?,57:5777 + 17= H ? =56<7

(6@ of s.les firs! 'e.r @ of s.les seco"* 'e.r <@ of s.les!0ir* 'e.r H =@ of s.les)

Es!im.!e* 4.rr."!' cos!sO" 67,6 s.les ? >,75777 + 17= ? 865=77O" 67, s.les ?,57875777 + 17= =:577O" 67,< s.les ?,57:5777 + 17= =56<7To!.l es!im.!e* cos!s 6:65<<7

To!.l 4.rr."!' expe"*i!&res >;5877B.l."ce of li.bili!'5 ,69,9,< ?,8:58<7

67,6?:5;77 67,?,856775 ."* 67,<?:657771

T0e li.bili!' .cco&"! 0.s . b.l."ce of ?,8:58<7 .! ,69,9,< b.se*o" !0e *iffere"ce be!4ee" !0e es!im.!e* 4.rr."!' cos!s(!o!.lli"# ?6:65<<7) for !0e !0ree 'e.rs3 s.les ."* !0e .c!&.l4.rr."!' expe"*i!&res (!o!.lli"# ?>;5877) *&ri"# !0.! s.me

perio*1

(b) T0e *iffere"ce be!4ee" .c!&.l 4.rr."!' expe"*i!&res ."*!0e es!im.!e* .mo&"! 4o&l* be !re.!e* .s . c0."#e i".cco&"!i"# es!im.!e ."* .pplie* !o !0e c&rre"! ."* f&!&re'e.rs1 T0e *iffere"ce 4o&l* be &se* .s p.r! of Cool So&"*3sexperie"ce i" se!!i"# !0e r.!e for c&rre"! ."* f&!&re 'e.rs3!r."s.c!io"s1 If !0e *iffere"ce is co"si*ere* m.!eri.l5 !0e.**i!io".l 4.rr."!' expe"*i!&res 4o&l* be 4ri!!e" off !o !0ei"come s!.!eme"! i" !0e c&rre"! 'e.r1

2olutions Manual 1('$1 Chater 1(

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E+ERCISE ,-,> (67-6; mi"&!es)

(.) Acco&"!s Recei%.ble1111111111111111111111111111111111111111111111111111111157775777S.les Re%e"&e11111111111111111111111111111111111111111111111111111111157775777 (;77 + ?:5777)

.rr."!' Expe"se111111111111111111111111111111111111111111111111111111111111175777C.s05 I"%e"!or'5 e!c111111111111111111111111111111111111111111111111175777

.rr."!' Expe"se1111111111111111111111111111111111111111111111111111111111111=75777.rr."!' Li.bili!'11111111111111111111111111111111111111111111111111111=75777 (?,675777 ?75777)

(b) Acco&"!s Recei%.ble1111111111111111111111111111111111111111111111111111111157775777S.les Re%e"&e11111111111111111111111111111111111111111111111111111111165><75777U"e.r"e* .rr."!' Re%e"&e1111111111111111111111111111111111,:75777

.rr."!' Expe"se111111111111111111111111111111111111111111111111111111111111175777C.s05 I"%e"!or'5 e!c111111111111111111111111111111111111111111111111175777

U"e.r"e* .rr."!' Re%e"&e1111111111111111111111111111111111111111111<75777.rr."!' Re%e"&e111111111111111111111111111111111111111111111111111<75777K?,:75777 + (?757779?,675777)

2olutions Manual 1('$# Chater 1(

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E+ERCISE ,-,> (Co"!i"&e*)

(c)

S.les Re%e"&e ?57775777 ?65><75777.rr."!' Re%e"&e 7 <75777.rr."!' Expe"se (,675777) (75777)Ne! I"come ?65>>75777 ?65>;75777

Tre.!i"# !0e 4.rr."!' .s ." i"!e#r.l p.r! of !0e s.le &"*er !0e Vexpe"se-4.rr."!'W .ppro.c0 4ill !ri##er . l.r#er expe"se1 T0is is bec.&se !0e f&ll cos! of ser%ici"# !0epro*&c! o%er !0e co&rse of !0e 4.rr."!' perio* m&s! bees!im.!e* ."* *isclose* i" !0e perio* of s.le1 T0e 4.rr."!'

expe"se &"*er . Vs.les-4.rr."!'W .ppro.c0 recor*s o"l'expe"ses i"c&rre* i" !0e c&rre"! perio*1

T0e prese"!.!io" of s.les re%e"&e 4ill .lso *iffer &"*er !0e!4o .ppro.c0es1 U"*er !0e Vexpe"se-4.rr."!'W .ppro.c05!0e s.les procee*s from selli"# !0e pro*&c! #e"er.!e o"l'o"e re%e"&e so&rce1 U"*er !0e Vs.les-4.rr."!'W .ppro.c05!0e s.le of !0e pro*&c! #e"er.!es !4o *iffere"! re%e"&es!re.ms (!0e s.le of !0e pro*&c! ."* !0e s.le of !0e 4.rr."!'co"!r.c! .s . ser%ice re%e"&e) .s 4ell .s !4o #ross profi!so&rces (s.les re%e"&e less cos! of #oo*s sol* ."*4.rr."!' re%e"&e "e! of 4.rr."!' expe"se)1

Si"ce !0e s.me selli"# price is &se* &"*er bo!0 .ppro.c0es54e c." see !0.! !0e Vs.les-4.rr."!'W .ppro.c0 #e"er.!es .lo4er i"come i" !0e c&rre"! 'e.r bec.&se . por!io" of !0eprofi! is *eferre* !o f&!&re perio*s &"!il i! is e.r"e* .s !0eser%ice is pro%i*e*1

(*) If !0e 4.rr."!' cos!s .re co"si*ere* !o be imm.!eri.l5 !0ec.s0 b.sis me!0o* co&l* be &se* ."* 4.rr."!' cos!sexpe"se* reco#"ie* i" !0e 'e.r !0e' .re i"c&rre*1 $o4e%er5if !0e 4.rr."!' cos!s .re co"si*ere* m.!eri.l !o !0ecomp."'3s fi"."ci.l s!.!eme"!s5 !0e comp."' m.' 0.%e !o*efer reco#"ii"# !0e re%e"&e from !0e s.le of !0e pro*&c!

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&"!il .ll cos!s c." be me.s&re* ."* m.!c0e* .#.i"s! !0erel.!e* re%e"&es1

2olutions Manual 1('$) Chater 1(

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E+ERCISE ,-,= (,;-67 mi"&!es)

(.) Expe"se Appro.c0

C.s0 9 Acco&"!s Recei%.ble1111111111111111111111111111111111111111111157775777S.les Re%e"&e11111111111111111111111111111111111111111111111111111111157775777 (,5777 + ?5777)

.rr."!' Expe"se1111111111111111111111111111111111111111111111111111111111111,7;5777C.s05 I"%e"!or'5 e!c1111111111111111111111111111111111111111111111111,7;5777

.rr."!' Expe"se1111111111111111111111111111111111111111111111111111111111111=;5777.rr."!' Li.bili!' 1111111111111111111111111111111111111111111111111111=;5777 K(,5777 + ?677) ?,7;5777

December ,5 67,< fi"."ci.l s!.!eme"! .mo&"!s repor!e*

B.l."ce S0ee! .rr."!' li.bili!' ?=;5777

I"come S!.!eme"! S.les re%e"&e ?57775777 .rr."!' expe"se 6775777

2olutions Manual 1('$$ Chater 1(

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E+ERCISE ,-,= (Co"!i"&e*)

Re%e"&e Appro.c0

C.s0 9 Acco&"!s Recei%.ble1111111111111111111111111111111111111111111157775777S.les Re%e"&e11111111111111111111111111111111111111111111111111111111165:;75777U"e.r"e* .rr."!' Re%e"&e1111111111111111111111111111111111;75777

.rr."!' Expe"se1111111111111111111111111111111111111111111111111111111111111,7;5777C.s05 I"%e"!or'5 e!c1111111111111111111111111111111111111111111111111,7;5777

U"e.r"e* .rr."!' Re%e"&e1111111111111111111111111111111111111111111,>58;7.rr."!' Re%e"&e111111111111111111111111111111111111111111111111111,>58;7K?;75777 + (?,7;57779?6775777)

December ,5 67,< fi"."ci.l s!.!eme"! .mo&"!s repor!e*

B.l."ce S0ee! U"e.r"e* 4.rr."!' re%e"&e ?,::56;7

I"come S!.!eme"! S.les re%e"&e ?65:;75777 .rr."!' re%e"&e ,>58;7 .rr."!' expe"se ,7;5777

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E+ERCISE ,-,= (Co"!i"&e*)

(b) 0e" !0e expe"se .ppro.c0 is &se* !o .cco&"! for 4.rr."!' cos!s5 s.les re%e"&e 4ill be 0i#0er bec.&se i! is.ll co"si*ere* !o be e.r"e* &po" !0e s.le of !0e pro*&c!1As 4ell5 !0e expe"se o" !0e i"come s!.!eme"! 4illreprese"! !0e !o!.l es!im.!e* cos!s of ser%ici"# !0e4.rr."!ies (i1e15 !0e .c!&.l cos!s of ser%ici"# !0e 4.rr."!'i" !0e perio*5 pl&s . 'e.r e"* .*&s!me"! for expec!e*f&!&re cos!s1) T0erefore !0e !o!.l #ross profi! o" !0e4.rr."!' 4or/ is reco#"ie* i" !0e perio* !0e e2&ipme"! issol*1

0e" !0e re%e"&e .ppro.c0 is &se*5 s.les re%e"&e 4ill be

lo4er bec.&se !0e !o!.l selli"# price is .lloc.!e* be!4ee"!0e s.le of !0e pro*&c! ."* !0e s.le of !0e 4.rr."!' ser%ice1T0ere 4ill be ." &"e.r"e* 4.rr."!' re%e"&e li.bili!'.cco&"! for !0e por!io" of !0e 4.rr."!' !0.! 0.s "o! bee"!./e" i"!o re%e"&e .! 'e.r e"*1 .rr."!' expe"se 4ill bee2&.l !o !0e .c!&.l cos!s of ser%ici"# !0e 4.rr."!' *&ri"#!0e 'e.r1 I" s&mm.r'5 !0e profi! o" !0e 4.rr."!' 4or/ isreco#"ie* l.!er &"*er !0e re%e"&e .ppro.c0i" !0eperio* i" 40ic0 !0e 4.rr."!' 4or/ is performe*1

I" !0is si!&.!io"5 i! m./es more se"se !o c0oose !0ere%e"&e .ppro.c01 I" !0is 4.'5 i"come is repor!e* .s i! ise.r"e*5 ."* is . be!!er me.s&re of perform."ce1 I".**i!io"5 .s !0e comp."' is co"si*eri"# #oi"# p&blic i" .fe4 'e.rs5 ."* !0e bif&rc.!io" of re%e"&es !o m&l!iple*eli%er.bles is re2&ire* b' IFRS5 !0e re%e"&e .ppro.c04o&l* be co"sis!e"! 4i!0 40.! 4ill be re2&ire* .f!er 4e #op&blic1 I! 4o&l* m./e se"se !o .*op! !0is .cco&"!i"#polic' "o4 so !0.! . re!rospec!i%e c0."#e is "o! re2&ire*

l.!er1

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E+ERCISE ,-67 (,;-67 mi"&!es)

(.)I"%e"!or' of Premi&ms (>5>77 + ?71=7)11111111111111111111111111185=67

C.s011111111111111111111111111111111111111111111111111111111111111111111111111 85=67

C.s0 (,675777 + ?17)11111111111111111111111111111111111111111111111111111=:5777S.les Re%e"&e111111111111111111111111111111111111111111111111111111111 =:5777

Premi&m Expe"se11111111111111111111111111111111111111111111111111111111111115=:7I"%e"!or' of Premi&ms11111111111111111111111111111111111111111111 5=:7 K(<<5777 ,7) + ?71=7

Premi&m Expe"se111111111111111111111111111111111111111111111111111111111111165;67

Premi&m Li.bili!'11111111111111111111111111111111111111111111111111111 65;67 K(,675777 + :7@) <<5777 ,7 +

?71=7

(b) B.l."ce S0ee!

C&rre"! Asse!sI"%e"!or' of Premi&ms (?85=67 ?5=:7) ?5=:7

C&rre"! Li.bili!ies Premi&m Li.bili!' 65;67

I"come S!.!eme"! S.les Re%e"&e ?=:5777 Less Premi&m Expe"se (?5=:7 ?65;67) (:5<>7)


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E+ERCISE ,-6, (67-7 mi"&!es)

, Li.bili!' for s!.mp re*emp!io"s5 ,69,9, ?,57775777Cos! of re*emp!io"s re*eeme* i" 67,< (:57775777)

857775777Cos! of re*emp!io"s !o be re*eeme* i" 67,;

(?;56775777 x >7@) <5,:75777Li.bili!' for s!.mp re*emp!io"s5 ,69,9,< ?,,5,:75777

6 (.) To!.l co&po"s iss&e* ?>775777Re*emp!io" r.!e :7@To be re*eeme* <>75777$."*li"# c0.r#es (?<>75777 + ,7@) <>5777

To!.l cos! ?;6>5777

To!.l cos! ?;6>5777To!.l p.'me"!s !o re!.ilers 75777Li.bili!' for &"re*eeme* co&po"s ?,=>5777

(b) Premi&m expe"se ?;6>5777

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E+ERCISE ,-6, (Co"!i"&e*)

(.) Boxes sol* 8775777S.le price per &"i! rel.!e* !o premi&m + ?,177U"e.r"e* re%e"&e recor*e* i" 67,< ?8775777

To!.l co&po"s expec!e* !o be re*eeme*(8775777 x :7@)

<675777

Less co&po"s re*eeme* *&ri"# 67,< ,7;5777Co&po"s s!ill !o be re*eeme*5 ,69,9,< ,;5777To!.l co&po"s expec!e* !o be re*eeme*

<675777

@ of &"e.r"e* re%e"&e !o be e.r"e* .f!er 67,< 8;@

U"e.r"e* re%e"&e recor*e* i" 67,<?8775777

@ of &"e.r"e* re%e"&e !o be e.r"e* .f!er 67,< + 8;@U"e.r"e* re%e"&e (.*&s!e*)5 ,69,9,< ?;6;5777

(b) To!.l co&po"s re*eeme* i" 67,< ,7;5777

Cos! per re*emp!io" (?:16; ?<18;) ?,1;7

Premi&m expe"se ?,;85;77

(c)C.s0 11111111111111111111111111111111111111111111111111111111111111111111111111111111115,;75777

S.les Re%e"&e (8775777 + ?1;7)1111111111111111111111111111 65<;75777U"e.r"e* Re%e"&e (8775777 x ?,177)111111111111111111111 8775777

C.s0 (,7;5777 + ?<18;)11111111111111111111111111111111111111111111111111111<=>58;7Premi&m Expe"se (,7;5777 + K?;177

?,16; - ?<18;)111111111111111111111111111111111111111111111111111111111111111111,;85;77

I"%e"!or' of Premi&ms (,7;5777 +?;177)11111111111111111111111111111111111111111111111111111111111111111111 ;6;5777

C.s09Acco&"!s P.'.ble (,7;5777 +?,16;)

,,56;7

U"e.r"e* Re%e"&e (8775777 + 6;@)1111111111111111111111111111111,8;5777


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S.les Re%e"&e111111111111111111111111111111111111111111111111111111111 ,8;5777

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E+ERCISE ,-6, (Co"!i"&e*)

(*) A" &"re*eeme* co&po" represe"!s ." obli#.!io" !0.!.rose from . p.s! s.le !r."s.c!io"5 40ic0 m.' res&l! i" .!r."sfer of .sse!s (c.s0 ."* i"%e"!or') &po" co&po"re*emp!io"1 T0e comp."' 0.s li!!le or "o *iscre!io" !o.%oi* !0e obli#.!io"1 T0erefore !0e &"re*eeme* co&po"smee! !0e *efi"i!io" of . li.bili!'1 T0eir f.ir %.l&e s0o&l* bereprese"!e* .s &"e.r"e* re%e"&e o" !0e b.l."ce s0ee!bec.&se . co&po" 4.s offere* 4i!0 e.c0 box of pie mixp&rc0.se*5 ."* . por!io" of !0e s.les re%e"&e rel.!e* !oe.c0 box of pie mix sol* 4.s rel.!e* !o !0e promo!io".lco&po" !0.! 4.s i"cl&*e* 4i!0 e.c0 box1 T0e &"re*eeme*co&po"s represe"! &"e.r"e* re%e"&e !o be se!!le* b'

*eli%er' of #oo*s i" !0e f&!&re5 &po" co&po" re*emp!io"1

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E+ERCISE ,-66 (,7-,; mi"&!es)

(.) B.l."ce S0ee! C&rre"! Li.bili!ies Premi&m Li.bili!' ?:77

I"come S!.!eme"! Premi&m Expe"se ?,5;77

To!.l es!im.!e* re*emp!io"s of s!ic/ers5 .!cos! (6;5777 + ,7@ ,7 + ?,7) + :7@ ?,5;77S!ic/ers re*eeme* i" c&rre"! 'e.r

(6;5777 x :@ ,7 x ?,7) + :7@ =77Es!im.!e* f&!&re re*emp!io"s5 .! cos! ? :77

(b)Premi&m Expe"se1111111111111111111111111111111111111111111111111111111111111=77

I"%e"!or'111111111111111111111111111111111111111111111111111111111111 =77(cos! of free pro*&c! #i%e" i" exc0."#e40e" s!ic/ers .re re*eeme*)

Premi&m Expe"se1111111111111111111111111111111111111111111111111111111111111:77Premi&m Li.bili!'11111111111111111111111111111111111111111111111111111 :77

(li.bili!' for &"re*eeme* s!ic/ers)

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E+ERCISE ,-6 (,;-67 mi"&!es)

(.)(i) Co&po"Es!im.!e* promo!io" expe"se !o be repor!e* o" i"comes!.!eme"!Rem.i"i"# es!im.!e* re*emp!io"s of co&po"s (;7 co&po"s !o be &se* i" f&!&re + ,7@ *isco&"! + ?8; .%er.#e s.le) ?8;Co&po"s .lre.*' &se* 6;7

To!.l promo!io" expe"se ?:6;

B.l."ce s0ee! *isclos&re U"re*eeme* co&po"s li.bili!' ?8;

(ii) Sic/ !imeAs i! is possible !0.! !0ese .mo&"!s 4ill be p.i* i" !0ef&!&re5 ."* !0ere is li!!le li/eli0oo* !0.! !0e emplo'ees 4illresi#"5 !0e f&ll .mo&"! s0o&l* be .ccr&e*1

B.l."ce S0ee! Sic/ p.' 4.#es p.'.ble

(6 emplo'ees + ?,779*.' + < *.'s + ;7@) ?<77

I"come S!.!eme"!I"cre.se !o s.l.ries ."* 4.#es expe"se o" !0e i"comes!.!eme"!

- For !0e sic/ *.'s bo"&s o&!s!."*i"# rel.!e* !o !0e li.bili!' (6 emplo'ees + ?,779*.' + < *.'s + ;7@) ?<77

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(b) T0e c&s!omer lo'.l!' pro#r.m offers f&!&re *isco&"!s of ?,7 for .cc&m&l.!i"# s.les of ?6;71 U"*er ASPE5 !0ese!'pes of pro#r.ms m.' be e%.l&.!e* .s . re%e"&e.rr."#eme"! 4i!0 m&l!iple *eli%er.bles1 T0e f.ir %.l&e of !0e .4.r* cre*i!s 4o&l* be reco#"ie* .s &"e.r"e*re%e"&e5 . li.bili!'5 4i!0 e.c0 s.le1 0e" c&s!omersre*eem !0eir .4.r* cre*i!s5 !0e .mo&"! 4o&l* bereco#"ie* .s re%e"&e1

$o4e%er5 "o! .ll of !0e .4.r*s 4ill be re*eeme*5 .sc&s!omers m.' lose !0eir c.r*5 mo%e .4.'5 or for#e! !ore*eem !0eir .4.r* o"ce i! is e.r"e*1 O"ce !0e comp."'

0.s some experie"ce i" or*er !o es!im.!e 0o4 m."' .4.r*cre*i!s 4ill be re*eeme*5 comp.re* !o !0e !o!.l cre*i!s.4.r*e* !o c&s!omers5 some .*&s!me"! c." be m.*e !o!0e li.bili!' .cco&"! .! 'e.r e"*1

If !0e pro#r.m is .cco&"!e* for .s . re%e"&e .rr."#eme"!4i!0 m&l!iple *eli%er.bles5 . li.bili!' m&s! be recor*e* .se.c0 c&s!omer e.r"s s.les Vcre*i!sW !o4.r*s !0e ?6;7!o!.l1 T0e f.ir %.l&e of e.c0 cre*i! #i%e" for e.c0 *oll.r of s.les is ?717< (?,79?6;7)1 T0erefore5 e.c0 s.le !o .c&s!omer 40o is . member of !0e c&s!omer lo'.l!'pro#r.m m&s! be spli!5 4i!0 <@ of !0e s.le bei"# recor*e*.s &"e.r"e* re%e"&e5 ."* !0e b.l."ce .s . s.le i" !0eperio* of !0e !r."s.c!io"1 0e" c&s!omers .cc&m&l.!e?6;7 i" cre*i!s5 ."* come i" !o recei%e !0eir ?,7 *isco&"!s5!0is .mo&"! 4ill be .*&s!e* from &"e.r"e* re%e"&e !os.les1

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E+ERCISE ,-6< (67-7 mi"&!es)

,1T0e CICA Handbook for Private Enterprises section 3290 re2&ires !0.!5 40e" some .mo&"! 4i!0i" !0e r."#e .ppe.rs.! !0e !ime !o be . be!!er es!im.!e !0." ."' o!0er .mo&"!4i!0i" !0e r."#e5 !0.! .mo&"! be .ccr&e*1 0e" "o .mo&"!4i!0i" !0e r."#e is . be!!er es!im.!e !0." ."' o!0er .mo&"!5 !0e *oll.r .mo&"! .! !0e lo4 e"* of !0e r."#e is.ccr&e* ."* !0e *oll.r .mo&"! of !0e 0i#0 e"* of !0e r."#eis *isclose*1 Si"ce !0e i"form.!io" i"*ic.!es !0.! i! is li/el'!0.! . li.bili!' 0.s bee" i"c&rre* .! December ,5 67,<5 ."*. r."#e of possible .mo&"!s c." be re.so".bl'*e!ermi"e*5 !0e cri!eri. for recor*i"# . li.bili!' .re me!1 I"!0is c.se5 !0erefore5 S&#.rpos! I"c1 4o&l* repor! . li.bili!'

of ?=775777 .! December ,5 67,<1

61 S& Li Corp1 4o&l* "o! be re2&ire* !o m./e ."' e"!r'1 T0e4.#e i"cre.se is for !0e comi"# !4o 'e.rs ."* *oes "o!rel.!e !o !0e c&rre"! or prior 'e.rs1

1(.) T0e loss s0o&l* be .ccr&e* si"ce bo!0 cri!eri. (i! is li/el'!0.! . loss is i"c&rre* ."* !0e .mo&"! of !0e loss c." bere.so".bl' *e!ermi"e*) for recor*i"# !0e co"!i"#e"c' .reme!1 Gi%e" !0.! !0e loss is co%ere* b' i"s&r."ce5 excep! for !0e ?;775777 *e*&c!ible5 o"l' !0e ?;775777 s0o&l* be.ccr&e*1

(b) U"*er IFRS re2&ireme"!s5 !0e reco#"i!io" cri!erio" &se* !o*e!ermi"e !0e c0."ce of occ&rre"ce of . co"firmi"# f&!&ree%e"! is Vprob.ble5W 40ic0 is i"!erpre!e* !o me." Vmoreli/el' !0." "o!1W T0is is . some40.! lo4er 0&r*le !0." !0eVli/el'W re2&ire* &"*er ASPE1 If !0e .mo&"! c.""o! beme.s&re* reli.bl'5 "o li.bili!' is reco#"ie* &"*er IFRS

ei!0er 0o4e%er5 !0e s!."*.r* i"*ic.!es !0.! i! is o"l' i"%er' r.re circ&ms!."ces !0.! !0is 4o&l* be !0e c.se1 If reco#"ie*5 IAS 8 re2&ires !0e bes! es!im.!e ."* ."Vexpec!e* %.l&eW me!0o* !o be &se* !o me.s&re !0eli.bili!'1 As i" p.r! (.) .bo%e5 !0is 4o&l* be !0e ?;775777*e*&c!ible1

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E+ERCISE ,-6< (Co"!i"&e*)

<1 T0is is . #.i" co"!i"#e"c' bec.&se !0e .mo&"! !o berecei%e* 4ill be i" excess of !0e c.rr'i"# .mo&"! of !0epl."!1 U"*er ASPE5 #.i" co"!i"#e"cies .re "o! recor*e*."* .re *isclose* i" !0e "o!es o"l' 40e" !0e prob.bili!ies.re 0i#0 !0.! . #.i" co"!i"#e"c' 4ill become re.li!'1

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E+ERCISE ,-6; (,;-67 mi"&!es)

(.) C&rre"! R.!io HC&rre"! Asse!s

H?6,75777

H 177C&rre"! Li.bili!ies ?875777

C&rre"! r.!io me.s&res !0e s0or!-!erm .bili!' of !0ecomp."' !o mee! i!s c&rre"!l' m.!&ri"# obli#.!io"s1

(b) Aci*-!es!r.!io

HC.s0 M.r/e!.ble Sec&ri!ies Recei%.bles

C&rre"! Li.bili!ies

H ?,,;5777 H ,1:<?875777

Aci*-!es! r.!io .lso me.s&res !0e s0or!-!erm .bili!' of !0ecomp."' !o mee! i!s c&rre"! m.!&ri"# obli#.!io"s1$o4e%er5 i! elimi".!es .sse!s !0.! mi#0! be slo4 mo%i"#5s&c0 .s i"%e"!or' ."* prep.i* expe"ses1

(c) Deb! !o !o!.l .sse!s HTo!.l Li.bili!ies

H?6,75777

To!.l Asse!s ?<75777

H <>1><@

T0is r.!io pro%i*es !0e cre*i!ors 4i!0 some i*e. of !0ecorpor.!io"3s .bili!' !o 4i!0s!."* losses 4i!0o&! imp.iri"#!0e i"!eres! of cre*i!ors1

(*)R.!e of re!&r" o"

.sse!sH

Ne! I"comeA%er.#e To!.l Asse!s

H ?685777 H :16>@?<75777

T0is r.!io me.s&res !0e re!&r" !0e comp."' is e.r"i"# o"i!s .%er.#e !o!.l .sse!s ."* pro%i*es o"e i"*ic.!io" rel.!e*!o !0e profi!.bili!' of !0e e"!erprise1


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E+ERCISE ,-6; (Co"!i"&e*)

(e)D.'s p.'.bles

o&!s!."*i"#H

A%er.#e Tr.*e Acco&"!sP.'.ble

A%er.#e D.il' Cos! of To!.lOper.!i"# Expe"ses

H ?875777 H ;<16 *.'s?<8,57779:;

(?<675777 ?;,5777)

T0is r.!io me.s&res !0e !ime i! !./es . comp."' !o p.' i!s!r.*e .cco&"!s p.'.ble ."* pro%i*es o"e i"*ic.!io" rel.!e*

!o !0e li2&i*i!' of !0e e"!erprise if !0e "&mber of *.'sexcee*s !0e "orm.l cre*i! perio* for !0e i"*&s!r'5 or if !0er.!io re%e.ls ." i"cre.si"# !re"*1

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E+ERCISE ,-6: (67-6; mi"&!es)

(.)

,1 C&rre"! r.!io H?885777

H 166 !imes

?6<75777

61 Aci*-!es! r.!io H?;65777 ?,=>5777 ?>75777

H ,1> !imes?6<75777

1 Acco&"!s recei%.ble !&r"o%er H

?,5:<75777?>75777 ?,=>5777

H ,,1> !imes6

(or .pproxim.!el' e%er' , *.'s)

<1 I"%e"!or' !&r"o%er H

?>775777?:75777 ?<<75777

H 6 !imes6

(or .pproxim.!el' e%er' ,> *.'s)

;1 D.'s p.'.bles o&!s!."*i"# H

?,<;5777 ?6675777 ?>775777H > *.'s

6 :;

:1 R.!e of re!&r" o" .sse!s H

?:75777?,5<775777 ?,5:75777

H 618:@6

81 Profi! m.r#i" o" s.les H

?:75777 ?,5:<75777 H 6,1=;@


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E+ERCISE ,-6: (Co"!i"&e*)

(b) Fi"."ci.l r.!ios s0o&l* be e%.l&.!e* i" !erms of i"*&s!r'pec&li.ri!ies ."* pre%.ili"# b&si"ess co"*i!io"s1 Al!0o&#0i"*&s!r' ."* #e"er.l b&si"ess co"*i!io"s .re &"/"o4" i"!0is c.se5 !0e comp."' .ppe.rs !o 0.%e . rel.!i%el' s!ro"#c&rre"! posi!io"1 T0e m.i" co"cer" from . s0or!-!ermperspec!i%e is !0e .pp.re"!l' lo4 i"%e"!or' !&r"o%er ."*!0e 0i#0 *.'s p.'.bles o&!s!."*i"#1 T0e !4o r.!ios m.' beli"/e* 40ere ex!e"*e* cre*i! !erms .re pro%i*e* b's&ppliers if !0e i"%e"!or' is slo4-mo%i"#1 T0e r.!e of re!&r"o" .sse!s ."* profi! m.r#i" o" s.les .re ex!remel' #oo*."* i"*ic.!e !0.! !0e comp."' is emplo'i"# i!s .sse!s.*%."!.#eo&sl'1

(c) U"e.r"e* re%e"&e is . li.bili!' !0.! .rises from c&rre"!s.les b&! for 40ic0 some ser%ices or pro*&c!s .re o4e* !oc&s!omers i" !0e f&!&re1 A! !0e !ime of s.le5 c&s!omers p.'"o! o"l' for !0e *eli%ere* pro*&c!5 b&! !0e' .lso p.' for f&!&re pro*&c!s or ser%ices1 I" !0is c.se5 !0e comp."'reco#"ies re%e"&e from !0e c&rre"! pro*&c! ."* p.r! of !0e s.le procee*s is recor*e* .s . li.bili!' (&"e.r"e*re%e"&e) for !0e %.l&e of f&!&re pro*&c!s or ser%ices !0.!

.re Vo4e*W !o c&s!omers1 A" i"cre.se i" !0e &"e.r"e*re%e"&e li.bili!'5 r.!0er !0." r.isi"# . re* fl.#5 of!e"pro%i*es . posi!i%e si#".l .bo&! s.les ."* profi!.bili!'10e" !0e s.les .re #ro4i"#5 !0e &"e.r"e* re%e"&e .cco&"!s0o&l* #ro41 T0&s5 ." i"cre.se i" . li.bili!' m.' be #oo*"e4s .bo&! comp."' perform."ce1 I" co"!r.s!5 40e"&"e.r"e* re%e"&es *ecli"e5 !0e comp."' o4es less f&!&re.mo&"!s b&! !0is .lso me."s !0.! s.les of "e4 pro*&c!sm.' 0.%e slo4e*1

2olutions Manual 1('+1 Chater 1(

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E+ERCISE ,-68 (,;-6; mi"&!es)

(.) ,1 ?,>5777 ?>85777 H 1:: !imes

61 ?>675777 ?6775777 ?,875777 H <1< !imes H >6 *.'s6

1 ?,5<775777 ?=;5777 H ,<18< !imes

<1 :; ,<18< !imes H 6; *.'s

;1 ?65777 ?>675777 + :; H ,< *.'s

:1 ?<,75777 ;65777 H ?81>>

81 ?<,75777 ?,5<775777 H 6=1@

>1 ?<,75777 ?<>>5777 H ><176@

(b) ,1 No effec! o" c&rre"! r.!io1

61 e./e" c&rre"! r.!io b' i"cre.si"# c&rre"! .sse!s."* c&rre"! li.bili!ies b' . li/e .mo&"!1

1 Impro%e c&rre"! r.!io b' re*&ci"# c&rre"! .sse!s ."*c&rre"! li.bili!ies b' . li/e .mo&"!1

<1 No effec! o" c&rre"! r.!io1

;1 e./e" c&rre"! r.!io b' i"cre.si"# c&rre"! li.bili!ies1

:1 No effec! o" c&rre"! r.!io1

2olutions Manual 1('+# Chater 1(

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TIME AND PURPOSE OF PROBLEMS

ro!lem 1('1 ;Time )'$ minutes<

urose=to resent the student 0ith an oortunity to reare 8ournal entries for a %ariety of situations related to lia!ilities. The situations resented includeurchases and ayments on account, and !orro0ing funds !y gi%ing a >ero'interest'!earing note, sales ta&, deosits and income ta&. The student is alsore?uired to reare year'end ad8usting entries and to calculate sales ta& t0o0ays.

ro!lem 1('# ;Time ('($ minutes<

urose=to resent the student 0ith an instalment note 0ith a current and long'term ortion. The student must reare the amorti>ation schedule for the noteand the related 8ournal entries. The !alance sheet resentation is also re?uired toemhasi>e the current amounts related to the note for t0o consecuti%e year ends.

ro!lem 1('( ;Time )$'$$ minutes<

urose=to ro%ide the student 0ith e&erience in calculating the amounts of %arious lia!ilities and determining the ortion relating to current lia!ilities. Thestudent must calculate the interest aya!le on !onds aya!le and notes aya!le,0arranty lia!ility, emloyee 0ithholding amounts aya!le, :2T aya!le, andother miscellaneous aya!les. The student is also re?uired to discuss 0hycertain items 0ere e&cluded from current lia!ilities and 0hich items areconsidered financial lia!ilities. @ournal entries are not re?uired. The student mustalso discuss de!t co%enants and income statement resentation of re%enue fromgift cards. This ro!lem is an e&cellent o%er%ie0 of chater content.

ro!lem 1(') ;Time #$'($ minutes<

urose=to resent the student a comrehensi%e ro!lem in determining%arious lia!ilities and resent findings in 0riting. Issues addressed relate to assetretirement o!ligation, 0arranties, 2T and litigation.

ro!lem 1('$ ;Time #'( minutes<

urose=to resent the student 0ith an oortunity to reare 8ournal entries for four 0eekly ayrolls. The student must calculate income ta& to !e 0ithheld, Cremiums, and emloyment insurance. The student must record t0o ay eriods0here emloyees are on %acation.

2olutions Manual 1('+( Chater 1(

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TIME AND PURPOSE OF PROBLEMS (CONTINUED)

ro!lem 1('* ;Time #'#$ minutes<

urose=to ro%ide the student 0ith the oortunity to reare 8ournal entriesfor a monthly ayroll. The student must calculate income ta& to !e 0ithheld, Ccontri!utions and Emloyment Insurance. The student must also calculate thetotal e&ense for the comany for the month.

ro!lem 1('+ ;Time #$'( minutes<

urose=to ro%ide the student 0ith e&erience in calculating !onuses under a%ariety of comensation lans. The student must calculate a !onus !eforededuction of !onus and income ta&, after deduction of !onus !ut !efore

deduction of income ta&, and !efore deduction of !onus !ut after deduction of income ta&.

ro!lem 1(' ;Time )$'$ minutes<

urose=to ro%ide the student 0ith a comrehensi%e ro!lem dealing 0ithcontingent losses. The student is re?uired to reare 8ournal entries for each of four indeendent situations. 5or each situation the student must also discuss thearoriate disclosure in the financial statements. The situations resentedinclude a la0suit, an en%ironmental assessment, an e&roriation, and self'insurance situation. This ro!lem challenges the student not only to aly the

guidelines set forth in CICA Handbook, Part II, Section 32905 !ut also to de%eloreasoning as to ho0 the guidelines relate to each situation. The student is alsore?uired to discuss ethical issues inherent in contingent lia!ilities. A good

ro!lem to analy>e the effects of Section 3290 on a %ariety of situations.

ro!lem 1('- ;Time #$'( minutes<

urose=to ro%ide a ro!lem in determining %arious lia!ilities, includingad%ance ayments, self insurance, litigation, commitments, guarantees, and losscontingencies. The students must also discuss any re?uired disclosures.

ro!lem 1('1 ;Time #'#$ minutes<

urose=to ro%ide the student 0ith an oortunity to reare 8ournal entriesand !alance sheet resentations for 0arranty costs under the cash !asis and thee&ense aroach. Entries in the sales year and one su!se?uent year arere?uired. The ro!lem highlights the differences !et0een the t0o methods in theaccounts and on the !alance sheet.

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ro!lem 1('11 ;Time #'( minutes<

urose=to ro%ide the student 0ith a ro!lem co%ering the re%enue aroach.The student is re?uired to reare 8ournal entries in the year of sale and insu!se?uent years as 0arranty costs are incurred. Also re?uired are !alancesheet resentations for the year of sale and t0o su!se?uent years.

ro!lem 1('1# ;Time #'#$ minutes<

urose=to resent the student 0ith a comrehensi%e ro!lem in determiningthe amounts of %arious lia!ilities. The student must calculate ;for indeendentsituations< the 0arranty lia!ility, and an estimated lia!ility for remium claims

outstanding. @ournal entries are not re?uired. This ro!lem should challenge the!etter students.

ro!lem 1('1( ;Time (')$ minutes<

urose=to ro%ide the student 0ith a !asic ro!lem in accounting for remiumoffers. The student is re?uired to reare 8ournal entries relating to sales, theurchase of the remium in%entory, and the redemtion of couons. The studentmust also reare the year'end ad8usting entry reflecting the estimated lia!ilityfor remium claims outstanding. The student is re?uired to reare the entriesunder t0o different aroaches, the remium redemtions are recorded as

remium e&ense or as a decrease of the remium lia!ility. 2tatementresentation is also re?uired.

ro!lem 1('1) ;Time (')$ minutes<

urose=to resent the student 0ith a ro!lem related to accounting for remium offers. The ro!lem is more comlicated in that couons redeemed areaccomanied !y cash ayments, and in addition to the cost of the remium item,ostage costs are also incurred. The student is re?uired to reare 8ournalentries for %arious transactions including sales, urchase of the remiumin%entory, and redemtion of couons for t0o years. The second yearBs entries

are more comlicated due to the e&istence of the lia!ility for claims outstanding.5inally the student is re?uired to indicate the amounts related to the remiumoffer that 0ould !e included in the financial statements for each of t0o years anddetermine if the lia!ility is financial. This %ery realistic ro!lem challenges thestudentBs a!ility to account for all transactions related to remium offers.

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ro!lem 1('1$ ;Time #$'($ minutes<

urose=the student must calculate 0arranty e&ense, 0arranty lia!ility,

remium e&ense, in%entory of remiums, and estimated lia!ility for remiums.The student is also re?uired to discuss ho0 the accounting 0ould !e affected if the 0arranty 0ere treated under the re%enue aroach.

ro!lem 1('1* ;Time ($')$ minutes<

urose=to ro%ide the student 0ith e&erience in guarantees of inde!tednessand contingencies. The student is re?uired to ro%ide 8ournal entries related toguarantees and loss contingencies and to identify related disclosures. Thesituation is comlicated !y recei%a!les from the guaranteed customer andre%enue recognition issues related to the guarantee fee. A challenging ro!lem.

ro!lem 1('1+ ;Time )$'$ minutes<

urose=to resent the student 0ith the ro!lem of determining the roer amount of and disclosure for t0o contingent losses due to la0suits. The studentis re?uired to reare 8ournal entries and notes. The student is also re?uired todiscuss any lia!ility incurred !y a comany due to the risk of loss from lack of insurance co%erage. A straightfor0ard ro!lem dealing 0ith contingent losses.

2olutions Manual 1('+* Chater 1(

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SOLUTIONS TO PROBLEMS

PROBLEM ,-,

(.) Febr&.r' 6P&rc0.ses (?<:5777 + =>@)1111111111111111111111111111111111111111111111<;57>7

Acco&"!s P.'.ble1111111111111111111111111111111111111111111111111111 <;57>7

Febr&.r' 6:Acco&"!s P.'.ble1111111111111111111111111111111111111111111111111111111111111<;57>7P&rc0.se Disco&"!s Los!1111111111111111111111111111111111111111111111111=67

C.s011111111111111111111111111111111111111111111111111111111111111111111111111 <:5777April ,

Tr&c/s11111111111111111111111111111111111111111111111111111111111111111111111111111111;75777

C.s011111111111111111111111111111111111111111111111111111111111111111111111111 ;5777No!es P.'.ble1111111111111111111111111111111111111111111111111111111111 <;5777

M.' ,C.s011111111111111111111111111111111111111111111111111111111111111111111111111111111111>5777

No!es P.'.ble1111111111111111111111111111111111111111111111111111111111 >5777

Q&"e 7I"come T.x Expe"se111111111111111111111111111111111111111111111111111111111,=5777

C.s011111111111111111111111111111111111111111111111111111111111111111111111111 ,=5777

A&#&s! ,<Re!.i"e* E.r"i"#s (Di%i*e"*s Decl.re*)111111111111111111111111,5777

Di%i*e"*s P.'.ble111111111111111111111111111111111111111111111111111 ,5777

Sep!ember ,7Di%i*e"*s P.'.ble111111111111111111111111111111111111111111111111111111111111,5777

C.s011111111111111111111111111111111111111111111111111111111111111111111111111 ,5777

December ;

C.s0111111111111111111111111111111111111111111111111111111111111111111111111111111111118;7Re!&r".ble Deposi!11111111111111111111111111111111111111111111111111 8;7

2olutions Manual 1('++ Chater 1(

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PROBLEM ,-, (Co"!i"&e*)

December ,7Displ.' C.ses (?>5777 + ,17>)111111111111111111111111111111111111111111>5:<7GST Recei%.ble (?>5777 + 17;)11111111111111111111111111111111111111111<77

Acco&"!s P.'.ble1111111111111111111111111111111111111111111111111111 =57<7

December ,C.s011111111111111111111111111111111111111111111111111111111111111111111111111111111111>=5687

S.les Re%e"&e111111111111111111111111111111111111111111111111111111111 8=5777S.les T.x P.'.ble (?8=5777 + 17>)11111111111111111111111111 :567GST P.'.ble (?8=5777 + 17;)11111111111111111111111111111111111 5=;7

December ,Re"! Expe"se11111111111111111111111111111111111111111111111111111111111111111111<5>87

Re"! P.'.ble111111111111111111111111111111111111111111111111111111111111 <5>87(?65;77 K@ + ?8=5777)

December ,P.r/i"# Lo!111111111111111111111111111111111111111111111111111111111111111111111111<:5777

Asse! Re!ireme"! Obli#.!io"1111111111111111111111111111111111 <:5777

December ,I"come T.x Expe"se111111111111111111111111111111111111111111111111111111111,=5777

C.s011111111111111111111111111111111111111111111111111111111111111111111111111 ,=5777

December ,I"come T.x Expe"se 111111111111111111111111111111111111111111111111111111115777

I"come T.x P.'.ble1111111111111111111111111111111111111111111111111 5777(?67;5777 + 67@) (?,=5777 + 6)

December ,

I"!eres! Expe"se (?<;5777 + >@ + X)11111111111111111111111111111165877I"!eres! P.'.ble1111111111111111111111111111111111111111111111111111111 65877

December ,I"!eres! Expe"se (?=5777 + >9,6)1111111111111111111111111111111111111:5777

No!es P.'.ble1111111111111111111111111111111111111111111111111111111111 :5777


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(b) C&rre"! Li.bili!iesAcco&"!s P.'.ble1111111111111111111111111111111111111111111111111111 ?=57<7No!es P.'.ble1111111111111111111111111111111111111111111111111111111111?<;5777I"!eres! P.'.ble1111111111111111111111111111111111111111111111111111111 65877 <85877No!es P.'.ble1111111111111111111111111111111111111111111111111111111111 >=5777S.les T.x P.'.ble1111111111111111111111111111111111111111111111111111 :567GST P.'.ble (?5=;7 ?<77)1111111111111111111111111111111111 5;;7Re"! P.'.ble111111111111111111111111111111111111111111111111111111111111 <5>87I"come T.x P.'.ble1111111111111111111111111111111111111111111111111 5777Re!&r".ble Deposi!11111111111111111111111111111111111111111111111111 8;7

To!.l C&rre"! Li.bili!ies1111111111111111111111111111111111111 ?,:<567

(c) December ,7Displ.' C.ses (?>5777 K?>5777 + ,17; + 17>)111111111111111>5:86GST Recei%.ble (?>5777 + 17;)11111111111111111111111111111111111111111<77

Acco&"!s P.'.ble1111111111111111111111111111111111111111111111111111 =5786

December ,C.s011111111111111111111111111111111111111111111111111111111111111111111111111111111111>=5;>:

S.les Re%e"&e 11111111111111111111111111111111111111111111111111111111 8=5777

S.les T.x P.'.ble(?8=5777 + ,17; + 17>)1111111111111111111111111111111111111111111 :5::GST P.'.ble (?8=5777 + 17;)11111111111111111111111111111111111 5=;7

(*) As . le"*er of mo"e'5 !0e b."/er is i"!eres!e* i" !0epriori!' 0is90er cl.im 0.s o" !0e comp."'3s .sse!s rel.!i%e!o o!0er cl.ims1 Close ex.mi".!io" of !0e li.bili!' sec!io"."* !0e rel.!e* "o!es *iscloses .mo&"!s5 m.!&ri!' *.!es5coll.!er.l5 s&bor*i".!io"s5 ."* res!ric!io"s of exis!i"#co"!r.c!&.l obli#.!io"s5 .ll of 40ic0 .re impor!."! !o

po!e"!i.l ."* exis!i"# cre*i!ors1 T0e .sse!s ."* e.r"i"#po4er .re li/e4ise impor!."! !o . b."/er co"si*eri"# .lo."1

2olutions Manual 1('+- Chater 1(

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(e) C&rre"! li.bili!ies .re obli#.!io"s 40ose li2&i*.!io" isre.so".bl' expec!e* !o re2&ire !0e &se of exis!i"#reso&rces properl' cl.ssifie* .s c&rre"! .sse!s5 or !0ecre.!io" of o!0er c&rre"! li.bili!ies1


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PROBLEM ,-6

(.)

D.!e P.'me"!I"!eres!

(8@)Pri"cip.l

rep.'me"!

C.rr'i"#Amo&"!of No!e

,9,9,< ?>;5777,9,9,; ?65>= ?;5=;7 ?6:5<= ;>5;:,,9,9,: ?65>= ?<57== ?6>56=7 7568,,9,9,8 ?65>= ?65,,= ?7568, 7 ro&"*i"# of ?,

(b),9,9,< M.c0i"er'11111111111111111111111111111111111111111111111111111111111111111111111111>;5777

No!es P.'.ble1111111111111111111111111111111111111111111111111111111111>;5777

,69,9,< I"!eres! Expe"se111111111111111111111111111111111111111111111111111111111111111;5=;7I"!eres! P.'.ble1111111111111111111111111111111111111111111111111111111111;5=;7

,9,9,; I"!eres! P.'.ble1111111111111111111111111111111111111111111111111111111111111111;5=;7No!es P.'.ble11111111111111111111111111111111111111111111111111111111111111111116:5<=

C.s0111111111111111111111111111111111111111111111111111111111111111111111111111165>=

(c)Bi." I"c1

B.l."ce S0ee! (p.r!i.l)December ,5 67,<

C&rre"! Li.bili!iesI"!eres! P.'.ble ?;5=;7C&rre"! por!io" of lo"#-!erm "o!e

p.'.ble 6:5<= ?65>=

Lo"#-!erm Li.bili!iesNo!e P.'.ble ?>;5777Less c&rre"! por!io" (6:5<=) ?;>5;:,


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PROBLEM ,-6 (Co"!i"&e*)

(*)Bi." I"c1

B.l."ce S0ee! (p.r!i.l)December ,5 67,;

C&rre"! Li.bili!iesI"!eres! P.'.ble ?<57==C&rre"! por!io" of lo"#-!erm "o!e

p.'.ble 6>56=7 ?65>=

Lo"#-!erm Li.bili!iesNo!e P.'.ble ?;>5;:,Less c&rre"! por!io" (6>56=7) ?7568,

(e)Bi." I"c1

B.l."ce S0ee! (p.r!i.l)December ,5 67,<

C&rre"! Li.bili!iesI"!eres! P.'.ble ?65=8;C&rre"! por!io" of lo"#-!erm "o!e

p.'.ble 6:5<= ?6=5<,<

Lo"#-!erm Li.bili!iesNo!e P.'.ble ?>;5777Less c&rre"! por!io" (6:5<=) ?;>5;:,

?;5=;7 + :9,6 H ?65=8;


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PROBLEM ,-

(.)

C&rre"! Li.bili!iesAcco&"!s p.'.ble (?<,<5777 ?65777) ? =,5777Li.bili!' !o .ffili.!e* comp."' 65777No!es p.'.ble (?,;75777 ?6775777) ;75777GST p.'.ble (Sc0e*&le :) ,,5=77

Di%i*e"*s p.'.ble ;75777

Bo"&s p.'.ble (8;@ + ?6;5777) ,>58;7

U"e.r"e* re%e"&e Gif! c.r*s (Sc0e*&le ,) :;85;77

Accr&e* li.bili!ies (Sc0e*&le 6) ;<;58<=

To!.l c&rre"! li.bili!ies ?657<85>==

Sc0e*&le ,

U"e.r"e* Re%e"&es Gif! c.r*s5 M.r1 ,5 67, ? =;75777

Ne4 #if! c.r* p&rc0.ses 66;5777

Gif! c.r* re*emp!io"s (8;5777)

,;@ of M.r1 ,5 67, b.l."ce reco#"ie* .sre%e"&e (,;@ + ?=;75777) (,<65;77)

U"e.r"e* re%e"&e Gif! c.r*s5 Feb1 6>5 67,< ?:;85;77

Sc0e*&le 6

I"!eres! p.'.ble (Sc0e*&le ) ? ,66587=

.rr."!' li.bili!' (Sc0e*&le <) ,56<7

S.l.ries ."* 4.#es p.'.ble 6675777

Emplo'ee 4i!00ol*i"#s p.'.ble (Sc0e*&le ;) ,7;577

U"io" *&es p.'.ble 6,5;77A&*i! fee p.'.ble 8;5777

To!.l .ccr&e* li.bili!ies ?;<;58<=


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PROBLEM ,- (Co"!i"&e*)

Sc0e*&le

I"!eres! o" !0e bo"*

(?<57775777 + 8@ + 9,6) ? 875777

I"!eres! o" No!e *&e 7<97,9,<

(?,;75777 + >@ + ,,9,6) ,,5777

I"!eres! o" No!e *&e 7,9,9,; (?6775777 + =@ + ,9,6) ,5;77

I"!eres! o" No!e *&e 79,;9,;

(?;775777 + 8@ + ,,1;9,6) 5;<6

I"!eres! o" No!e *&e ,7979,: (?6;75777 + >@ + <9,6) :5::8

To!.l i"!eres! p.'.ble ? ,66587=

Sc0e*&le <.rr."!' li.bili!' 7696>9, ?;5877

Less 4.rr."!' cl.ims o" 67,6-67, s.les (<5=77)

Rem.i"i"# 4.rr."!' li.bili!' >77

.rr."!' li.bili!' o" 67,-67,< s.les for follo4i"#,6 mo"!0s (?,;<5777 + ,@) ,5;<7

Less 4.rr."!' cl.ims o" 67,-67,< s.les (,5,77)

C&rre"! 4.rr."!' li.bili!' 7696>9,< ?,56<7

Sc0e*&le ;

EI premi&ms p.'.ble (61< + ?=5;77) ? 665>77CPP co"!rib&!io"s p.'.ble (6 + ?,:5=77) 5>77Emplo'ee i"come !.x *e*&c!io"s p.'.ble <>5877Emplo'ee 4i!00ol*i"#s p.'.ble ?,7;577

Sc0e*&le :

Ne! GST p.'.ble5 7,9,9,< (?:75777 ?<5777) ? 6:5777

Less p.'me"! !o #o%er"me"! o" ,;!0

of Feb19,< (6:5777)GST c0.r#e* o" Febr&.r' s.les =5=77

Ne! of GST Recei%.ble (6>5777)

Ne! GST p.'.ble5 7696>9,< ?,,5=77


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(b) All c&rre"! li.bili!ies lis!e* 4i!0 !0e excep!io" of !0e&"e.r"e* re%e"&es #if! c.r*s5 !0e 4.rr."!' li.bili!'5 !0eemplo'ee 4i!00ol*i"#s p.'.ble (emplo'ee i"come !.x*e*&c!io"s p.'.ble5 EI premi&ms p.'.ble ."* CPPco"!rib&!io"s p.'.ble)5 ."* GST p.'.ble .re fi"."ci.lli.bili!ies1

A fi"."ci.l li.bili!' is ."' li.bili!' !0.! is . co"!r.c!&.lobli#.!io" !o *eli%er c.s0 or o!0er fi"."ci.l .sse!s !o."o!0er p.r!'5 or !o exc0."#e fi"."ci.l .sse!s or fi"."ci.lli.bili!ies 4i!0 ."o!0er p.r!' &"*er co"*i!io"s !0.! .repo!e"!i.ll' &"f.%o&r.ble !o !0e e"!i!'1 A co"!r.c!&.l

obli#.!io" refers !o ." .#reeme"! be!4ee" !4o or morep.r!ies !0.! 0.s cle.r eco"omic co"se2&e"ces !0.! !0ep.r!ies 0.%e li!!le5 if ."'5 *iscre!io" !o .%oi*5 &s&.ll'bec.&se !0e .#reeme"! is e"force.ble .! l.41 Co"!r.c!s5."* !0&s fi"."ci.l i"s!r&me"!s5 m.' !./e . %.rie!' of forms."* "ee* "o! be i" 4ri!i"#1

I!ems s&c0 .s &"e.r"e* re%e"&e ."* mos! 4.rr."!'obli#.!io"s .re "o! fi"."ci.l li.bili!ies bec.&se !0eprob.ble o&!flo4 of eco"omic be"efi!s .ssoci.!e* 4i!0!0em is !0e *eli%er' of #oo*s ."* ser%ices r.!0er !0." c.s0or ."o!0er fi"."ci.l .sse!1

GST p.'.ble ."* emplo'ee 4i!00ol*i"#s p.'.ble .re "o!co"si*ere* fi"."ci.l li.bili!ies bec.&se !0e' .re "o!co"!r.c!&.l i" ".!&re1 T0e' .re cre.!e* .s . res&l! of s!.!&!or' re2&ireme"!s impose* b' #o%er"me"!s1


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(c) I!ems excl&*e* from c&rre"! li.bili!ies,1 Bo"*s p.'.ble 4ere excl&*e* b.se* o" !0e

.ss&mp!io" !0.! !0e bo"*s 4ill "o! be re*eeme* i"!0e comi"# perio* or oper.!i"# c'cle5 40ic0e%er islo"#er1

61 No!es p.'.ble *&e 79,;9,; ."* ,7979,: 4ereexcl&*e* bec.&se !0eir *&e *.!e is be'o"* !0ecomi"# perio*1

1 .rr."!' li.bili!' for cos!s of ,1;@ of 67,-67,< s.les(,1;@ + ?,;<5777 H ?65,7) 4o&l* be s0o4" .s . lo"#-!erm li.bili!'1 T0e cos!s of 0o"o&ri"# !0e 4.rr."!'4o&l* occ&r be'o"* !0e comi"# perio*1

<1 Bo"&s p.'.ble i" M.rc0 67,; (?6;5777 + 6;@ H?:56;7)1

(*) U"*er ASPE5 if $r&*/. is "o! i" compli."ce 4i!0 !0e b."/3s*eb! co%e"."!s5 !0e "o!e 4o&l* be recl.ssifie* .s . c&rre"!li.bili!'1 A bre.c0 of !0e co%e"."!s of lo"#-!erm *eb! #i%es!0e cre*i!or !0e ri#0! !o *em."* s0or!-!erm rep.'me"! of !0e *eb! (!0e li.bili!' becomes p.'.ble o" *em."*)1 T0e"o!e c." be cl.ssifie* .s lo"#-!erm o"l' if !0e cre*i!or 4.i%es i" 4ri!i"# !0e co%e"."! (.#reeme"!) re2&ireme"!s5or !0e %iol.!io" 0.s bee" c&re* 4i!0i" !0e #r.ce perio* ."*i! is li/el' $r&*/. 4ill "o! %iol.!e !0e co%e"."!re2&ireme"!s 4i!0i" . 'e.r from !0e b.l."ce s0ee! *.!e1

(e) Re%e"&e from re*eeme* c.r*s s0o&l* be s0o4" 4i!0 o!0er pro*&c! s.les ."* offse! .#.i"s! cos! of s.les !o .cc&r.!el'me.s&re #ross profi!1 Re%e"&e from &"re*eeme* #if! c.r*s*o "o! 0.%e . rel.!e* pro*&c! cos! ."* 4ill *is!or! !0e#ross m.r#i" if !0e' .re i"cl&*e* i" pro*&c! s.les

re%e"&es1 T0e' s0o&l* be s0o4" .s . sep.r.!e so&rce of re%e"&e1 Gi%e" !0e i"cre.si"# pop&l.ri!' of #if! c.r*s5 !0ere%e"&e s0o&l* be s0o4" .s ." o"#oi"# so&rce of re%e"&ei" !0e i"come from oper.!io"s sec!io" of !0e i"comes!.!eme"! ."* "o! .s Vo!0er re%e"&esW1


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PROBLEM ,-<

(a)

Cos! of s!or.#e !."/s111111111111111111111111111111111111111111111111111?,,75777Asse! re!ireme"! cos! (?6>5777 + 1;;>=) KP of ?6>5777 ("H,75 iH:@)1111111111111111111111111111111111111 ,;5:;B.l."ce i" .sse! .cco&"!5 Feb1 6>5 67,< ?,6;5:;

Depreci.!io" for 67,< (?,6;5:; ,7 + ,79,6)11111111111 ?,75<87

Prese"!.!io" o" Dec1 ,5 67,< b.l."ce s0ee! Asse! cos!11111111111111111111111111111111111111111111111111111111111111111?,6;5:;

Less Acc&m&l.!e* *epreci.!io"1111111111111111111111111111 (,75<87)?,,;5,:;

(b)

Asse! re!ireme"! obli#.!io" (ARO)5 Feb1 6>5 67,< (from .bo%e)111111111111111111111111111111111111111 ?,;5:;67,< i"!eres! expe"se (?,;5:; + :@ + ,79,6)111111111111111111111111111111111111111111111 8>6

B.l."ce of ARO5 December ,5 67,< ,:5<,867,; i"!eres! expe"se (?,:5<,8 + :@)1111111111111111111111111111111111111111111111111111111111 =>;B.l."ce of ARO5 December ,5 67,; ,85<7667,: i"!eres! expe"se (?,85<76 + :@)1111111111111111111111111111111111111111111111111111111111 ,57<<B.l."ce of ARO5 December ,5 67,: ?,>5<<:

(c)

U"e.r"e* 4.rr."!' re%e"&e recor*e* i" 67,<(?=87 + 67) ?,=5<77Por!io" &"e.r"e* .! December ,5 67,< + 8;@U"e.r"e* 4.rr."!' re%e"&e5 December ,567,< ?,<5;;7


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PROBLEM ,-< (Co"!i"&e*)

(d) Warranty expense on the 2014 income statement will be$2,700.

(e)

$ST collec!e* o" s.les (."* !0erefore p.'.ble !o !0e #o%er"me"!) (67 m.c0i"es + ?,65777 + ,;@)111111111111111111111111111111 ?:5777$ST p.i* o" p&rc0.se of &"*er#ro&"* !."/s (."* !0erefore recei%.ble from #o%er"me"!) (?,,75777 + ,;@)111111111111111111111111111111111111111111111111111111 ,:5;77

?,=5;77

Healy will send a cheque to the federal government for $19,500to pay its net HST liability.

(e)$e.l'3s 4.rr."!' obli#.!io" represe"!s . s!."*-re.*'obli#.!io" !o pro%i*e p.r!s ."* l.bo&r &"*er !0e 4.rr."!'.#reeme"! .! ."' !ime !0ro&#0o&! !0e !4o-'e.r co"!r.c!perio*1 T0is .r#&me"! m.' s&ppor! s!r.i#0!-li"ereco#"i!io" of 4.rr."!' re%e"&e o%er !0e !4o-'e.r co"!r.c!!erm1 O" !0e o!0er 0."*5 if 0is!oric.l e%i*e"ce i"*ic.!es

!0.! 4.rr."!' ser%ices .re &s&.ll' pro%i*e* l.!er i" !0e!4o-'e.r 4.rr."!' perio*5 . 0i#0er propor!io" of 4.rr."!'re%e"&e is .c!&.ll' e.r"e* i" !0e l.!er 'e.rs of !0e co"!r.c!perio*5 ."* . 0i#0er propor!io" of 4.rr."!' re%e"&es0o&l* be reco#"ie* l.!er i" !0e co"!r.c!1 T0is 4o&l*res&l! i" lo4er 4.rr."!' re%e"&e ."* "e! i"come i" 'e.r ,5."* . 0i#0er &"e.r"e* 4.rr."!' re%e"&e li.bili!' i" 'e.r ,1


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PROBLEM ,-< (Co"!i"&e*)(e) Co"!i"&e*

I" !0is c.se5 !0e comp."'3s 6;@ es!im.!e of 4.rr."!'

re%e"&e bei"# e.r"e* i" 67,< loo/s re.lis!ic1 T0e ?65877 of cos!s i"c&rre* i" 67,< is ex.c!l' 6;@ of !0e es!im.!e of !o!.l cos!s o%er !0e !0ree 'e.rs1 I" .**i!io"5 if !0e.ss&mp!io" is !0.! !0e 4.rr."!ies 0.%e bee" o&!s!."*i"#5o" .%er.#e5 for 0.lf . 'e.r i" 67,<5 !0e' 4ill be o&!s!."*i"#.lso for . f&ll 'e.r i" 67,; ."* !0e rem.i"i"# 0.lf 'e.r i"67,:1 T0is s&ppor!s ." .ss&mp!io" of bei"# e.r"e* e%e"l'o%er !0e !4o 'e.r 4.rr."!' perio*1

A fi"."ci.l s!.!eme"! &ser s0o&l* be .4.re !0.!.cco&"!i"# for 4.rr."!ies .ffec!s li.bili!ies o" !0es!.!eme"! of fi"."ci.l posi!io"5 .s 4ell .s re%e"&e ."* "e!i"come o" !0e i"come s!.!eme"!5 for m&l!iple perio*s1 If &"s&ppor!e* or bi.se* .ss&mp!io"s .re &se* i".cco&"!i"# for 4.rr."!ies5 !0e res&l!i"# fi"."ci.ls!.!eme"!s m.' "o! reflec! !0e .ppropri.!e fi"."ci.lposi!io" or perform."ce of !0e comp."'1


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PROBLEM ,-;

(.) E"!ries for P.'roll , ."* < (i"*i%i*&.ll')

S.l.ries ."* .#es Expe"se11111111111111111111111111111111111111111165;<7177Emplo'ee I"come T.x De*&c!io"s

P.'.ble (,7@ + ?65;<7)11111111111111111111111111111111111111 6;<177EI Premi&ms P.'.ble 111111111111111111111111111111111111111111 <:1<>CPP Co"!rib&!io"s P.'.ble 1111111111111111111111111111111 ,6;18U"io" D&es P.'.ble (,@ + ?65;<7)111111111111111111111111 6;1<7C.s011111111111111111111111111111111111111111111111111111111111111111111111111 657>>1=

?<;7 ?,,7 ?6;7 ?,56;7 ?<>7 H ?65;<7

P.'roll T.x Expe"se111111111111111111111111111111111111111111111111111111111,=71>7EI Premi&ms P.'.ble (,1< + ?<:1<>)11111111111111111111111 :;178CPP Co"!rib&!io"s P.'.ble111111111111111111111111111111111111 ,6;18

EI Premi&ms H ?65;<7 + ,1>@ H ?<:1<>

CPP Co"!rib&!io"s H ?65;<7 + <1=;@ H ?,6;18

E"!ries for P.'roll 6 ."* (i"*i%i*&.ll')

.c.!io" .#es P.'.ble(?<;7 ?,,7 ?,56;7)111111111111111111111111111111111111111111111111111,5>,7177

S.l.ries ."* .#es Expe"se (?6;7 ?<>7)111111111111111111187177

Emplo'ee I"come T.x De*&c!io"sP.'.ble (,7@ + ?65;<7)11111111111111111111111111111111111111 6;<177

EI Premi&ms P.'.ble 111111111111111111111111111111111111111111111 <:1<>CPP Co"!rib&!io"s P.'.ble111111111111111111111111111111111111 ,6;18U"io" D&es P.'.ble (,@ + ?65;<7)111111111111111111111111 6;1<7C.s011111111111111111111111111111111111111111111111111111111111111111111111111 657>>1=

P.'roll T.x Expe"se111111111111111111111111111111111111111111111111111111111,=71>7EI Premi&ms P.'.ble (,1< + ?<:1<>)11111111111111111111111 :;178CPP Co"!rib&!io"s P.'.ble111111111111111111111111111111111111 ,6;18


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PROBLEM ,-; (Co"!i"&e*)

(b) Mo"!0l' P.'me"! of P.'roll Li.bili!ies

Emplo'ee I"come T.x De*&c!io"s P.'.ble

(?6;<177 + <)11111111111111111111111111111111111111111111111111111111111111111,57,:177EI Premi&ms P.'.ble

K(?<:1<> + <) (?:;178 + <)11111111111111111111111111111111111111111<<:167CPP Co"!rib&!io"s P.'.ble (?,6;18 + >)11111111111111111111111,577;1><U"io" D&es P.'.ble (?6;1<7 + <)1111111111111111111111111111111111111,7,1:7

C.s011111111111111111111111111111111111111111111111111111111111111111111111111 65;:=1:<

(c) .c.!io" E"!i!leme"! for A&#&s!

S.l.ries ."* .#es Expe"se1111111111111111111111111111111111111111116:,1:7

.c.!io" .#es P.'.ble 1111111111111111111111111111111111111111 6:,1:7?65;<7 + 6 4ee/s + <@ H ?67167?87 + 6 4ee/s + <@ H ;>1<7

?6:,1:7

2olutions Manual 1('-1 Chater 1(

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PROBLEM ,-:

(.)

N.meE.r"i"#s!o A&#1 ,

Sep!1E.r"i"#s

I"comeT.x i!0-0ol*i"# CPP EI

U"io"D&es

L1 Meloc0e ? :5>77 ? >77 ? >7 ? =1:7 ?,<1:< ?>177P1 Groo! :577 877 87 <1:; ,61>, 8177D1 Be.&c0.mp 85:77 ,5,77 ,,7 ;<1<; 671, ,,177C1 Re#ier ,5:77 ,5=77 ,=7 =<17; <188 ,=177 To!.l ?<577 ?<5;77 ?<;7 ?66618; ?>61; ?<;177

S.l.ries ."* .#es Expe"se111111111111111111111111111111111111111111<5;77177Emplo'ee I"come T.xDe*&c!io"s P.'.ble 111111111111111111111111111111111111111111<;7177

EI Premi&ms P.'.ble 111111111111111111111111111111111111111111111 >61;CPP Co"!rib&!io"s P.'.ble11111111111111111111111111111111111166618;U"io" D&es P.'.ble111111111111111111111111111111111111111111111111 <;177C.s0111111111111111111111111111111111111111111111111111111111111111111111111115:==1=7

(b) P.'roll T.x Expe"se111111111111111111111111111111111111111111111111111111111>17<EI Premi&ms P.'.ble (,1< + ?>61;)11111111111111111111111,,;16=

CPP Co"!rib&!io"s P.'.ble11111111111111111111111111111111111166618;

(c) Emplo'ee I"come T.x De*&c!io"s

P.'.ble1111111111111111111111111111111111111111111111111111111111111111111111111<;7177

EI Premi&ms P.'.ble(?>61; ?,,;16=)111111111111111111111111111111111111111111111111111111111,=81:<

CPP Co"!rib&!io"s P.'.ble(?66618; ?66618;)111111111111111111111111111111111111111111111111111111<<;1;7

U"io" D&es P.'.ble 11111111111111111111111111111111111111111111111111111111<;177

C.s011111111111111111111111111111111111111111111111111111111111111111111111111,5,>1,<

(*) S.l.ries ."* .#es Expe"se ?<5;77177P.'roll !.x expe"se >17<To!.l cos! for Sep!ember 67,< ?<5>>17<

2olutions Manual 1('-# Chater 1(

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PROBLEM ,-8

(B H bo"&s T H !.x)

(.) B H 71,6 (?6;75777)B H ?75777T H 17 (?6;75777 ?75777)T H ?::5777

(b) B H 71,6 (?7>5777 B)B H ?:5=:7 1,6B

,1,6B H ?:5=:7B H ?5777

T H 717 (?7>5777 ?5777)T H ?>65;77

(c) B H 71,6 (?;75777 T)T H 717 (?;75777 B)B H 71,6 K?;75777 717 (?;75777 B)B H 71,6 (?;75777 ?,7;5777 1B)B H ?6=5<77 17:B

71=:<B H ?6=5<77

B H ?75<=81=T H 17 (?;75777 ?75<=81=)T H ?=;5>;71:6

2olutions Manual 1('-( Chater 1(

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PROBLEM ,->

(.),1 Li!i#.!io" expe"se 1111111111111111111111111111111111111111111111111111111111166;5777

Li!i#.!io" Li.bili!'111111111111111111111111111111111111111111111111111166;5777

61 Loss D&e !o E"%iro"me"!.l Cle."-&p11111111111111111111111111111;775777Li.bili!' for E"%iro"me"!.l

Cle."-&p11111111111111111111111111111111111111111111111111111111111111111;775777

1 Loss from Expropri.!io"11111111111111111111111111111111111111111111111111656<;5777I"%e"!or'5 Acc&m&l.!e*

Imp.irme"! Losses5 e!c1 (for e.c0i"*i%i*&.l .sse! !0.! 0.s . %.l&e.ssesse* !o be imp.ire*)1111111111111111111111111111111111111111111111111

656<;5777

K?;586;5777 (<7@ + ?>58775777)

<1 No e"!r' re2&ire*1

(b),1 A loss ."* . li.bili!' 0.%e bee" recor*e* i" !0e firs! c.se

bec.&se (i) i"form.!io" is .%.il.ble prior !o !0e iss&."ce of !0e fi"."ci.l s!.!eme"!s !0.! i"*ic.!es i! is li/el' !0.! .li.bili!' 0.* bee" i"c&rre* .! !0e *.!e of !0e fi"."ci.ls!.!eme"!s ."* (ii) !0e .mo&"! is re.so".bl' es!im.ble1T0.! is5 !0e occ&rre"ce of !0e &"i"s&re* .cci*e"!s *&ri"#!0e 'e.r pl&s !0e o&!s!."*i"# i"&r' s&i!s ."* !0e le#.lco&"sel3s es!im.!e of prob.ble loss re2&ire* reco#"i!io" of . loss co"!i"#e"c'1No o&r".l e"!r' is recor*e* i" !0e c.se of !0e ?:75777i"&r' s&i! si"ce i! is co"si*ere* &"li/el' !0.! . li.bili!' 0.sbee" i"c&rre* .! !0e *.!e of !0e fi"."ci.l s!.!eme"!s1 If !0e

.mo&"! 4ere co"si*ere* m.!eri.l i! 4o&l* be *esir.ble !o*isclose !0e exis!e"ce of !0e l.4s&i! i" !0e "o!es !o !0efi"."ci.l s!.!eme"!s1

2olutions Manual 1('-) Chater 1(

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PROBLEM ,-> (Co"!i"&e*)

61 A loss ."* . li.bili!' 0.%e bee" recor*e* bec.&sei"form.!io" is .%.il.ble prior !o !0e iss&."ce of !0efi"."ci.l s!.!eme"!s !0.! i"*ic.!es i! is li/el' !0.! . li.bili!'

0.* bee" i"c&rre* .! !0e *.!e of !0e fi"."ci.l s!.!eme"!s1U"*er ASPE5 40ere . r."#e of possible .mo&"!s is*e!ermi"e* ."* "o o"e .mo&"! 4i!0i" !0e r."#e is moreli/el' !0." ."o!0er5 !0e bo!!om of !0e r."#e is &s&.ll'.ccr&e* 4i!0 !0e .mo&"! of !0e rem.i"i"# expos&re*isclose* i" !0e "o!es1

1 A" e"!r' !o recor* . loss ."* !o es!.blis0 re*&ce* .sse!%.l&es *&e !o !0re.! of expropri.!io" is "ecess.r' bec.&se

!0e expropri.!io" is immi"e"! .s e%i*e"ce* b' !0e forei#"#o%er"me"!3s comm&"ic.!e* i"!e"! !o expropri.!e5 ."* !0eprior se!!leme"!s for proper!ies .lre.*' expropri.!e*1E"o&#0 e%i*e"ce exis!s !o re.so".bl' es!im.!e !0e .mo&"!of !0e prob.ble loss res&l!i"# from imp.irme"! of .sse!s .!!0e b.l."ce s0ee! *.!e1 T0e .mo&"! of !0e loss is me.s&re*b' !0e excess of !0e c.rr'i"# .mo&"! of !0e .sse!s o%er !0eexpec!e* compe"s.!io"1 A! !0e !ime !0e expropri.!io"occ&rs5 !0e rel.!e* .sse!s .re 4ri!!e" off ."* ."'*iffere"ces be!4ee" !0e .mo&"! recei%e* ."* !0e re*&ce*

.sse! %.l&es 4ill be .*&s!e* !o !0e Loss fromExpropri.!io"1 I" !0is c.se5 i! is .sse! %.l&es !0.! 0.%e bee"imp.ire*5 "o! ." .**i!io".l li.bili!' !0.! 0.s bee" i"c&rre*1If !0ere is si#"ific."! &"cer!.i"!' .bo&! 40ic0 specific.sse!s .re .ffec!e*5 #e"er.l .llo4."ce .cco&"!s (co"!r..sse! .cco&"!s) co&l* be cre*i!e* for e.c0 #e"er.lc.!e#or' of .sse!1

2olutions Manual 1('-$ Chater 1(

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PROBLEM ,-> (Co"!i"&e*)

<1 E%e" !0o&#0 S.0o!o3s c0emic.l pro*&c! *i%isio" is&"i"s&r.ble *&e !o 0i#0 ris/ ."* 0.s s&s!.i"e* repe.!e*losses i" !0e p.s!5 .s of !0e b.l."ce s0ee! *.!e "o .sse!s0.%e bee" imp.ire* or li.bili!ies i"c&rre* "or is ." .mo&"!re.so".bl' es!im.ble1 T0erefore5 !0is si!&.!io" *oes "o!s.!isf' !0e cri!eri. for reco#"i!io" of . loss co"!i"#e"c'1Also5 &"less . c.s&.l!' 0.s occ&rre* or !0ere is someo!0er e%i*e"ce !o i"*ic.!e imp.irme"! of ." .sse! prior !o!0e iss&."ce of !0e fi"."ci.l s!.!eme"!s5 !0ere is "o*isclos&re re2&ire* rel.!i%e !o . loss co"!i"#e"c'1 T0e.bse"ce of i"s&r."ce *oes "o! of i!self res&l! i" !0eimp.irme"! of .sse!s or !0e i"c&rre"ce of li.bili!ies1

Expec!e* f&!&re i"&ries !o o!0ers or *.m.#e !o !0eproper!' of o!0ers5 e%e" if !0e .mo&"! is re.so".bl'es!im.ble5 *oes "o! re2&ire recor*i"# . loss or . li.bili!'1T0e c.&se for loss or li!i#.!io" or cl.im m&s! 0.%eocc&rre* o" or prior !o !0e b.l."ce s0ee! *.!e ."* !0e.mo&"! of !0e loss m&s! be re.so".bl' es!im.ble i" or*er for . loss co"!i"#e"c' !o be recor*e*1 Disclos&re isre2&ire* 40e" o"e or bo!0 of !0e cri!eri. for . lossco"!i"#e"c' .re "o! s.!isfie* ."* !0ere is . re.so".blepossibili!' !0.! . li.bili!' m.' 0.%e bee" i"c&rre* or .".sse! imp.ire*5 or5 i! is prob.ble !0.! . cl.im 4ill be.sser!e* ."* !0ere is . re.so".ble possibili!' of ."&"f.%o&r.ble o&!come1

(c) I" co"!i"#e"cies rel.!e* !o le#.l procee*i"#s5 !0e .ccr&.lfor co"!i"#e"cies ."* !0e rel.!e* *isclos&re c." beco"s!r&e* .s ." .*missio" of #&il! ."* co&l* 4e./e" !0ecomp."'3s posi!io"1 Comp."'3s m.".#eme"! 0.s !ob.l."ce !0e "ee* for f&ll *isclos&re 4i!0 !0e "ee* for

c.ref&l m.".#eme"! of !0e le#.l procee*i"#s ."*pro!ec!i"# s0.re0ol*er3s i"!eres!s b' .%oi*i"# cos!l'l.4s&i! *.m.#es1 T0e e!0ic.l iss&es .lso i"%ol%e !0ei"!erpre!.!io" of !erms s&c0 .s Vli/el'W ."* Vre.so".bl'es!im.bleW i" *e!ermi"i"# 40e" ."* 0o4 m&c0 is s0o4"o" fi"."ci.l s!.!eme"!s1

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PROBLEM ,-=

(.) ASPE

,1 U"e.r"e* S&bscrip!io"s Re%e"&e1111111111111111111111111111111111<775777S.les Re%e"&e111111111111111111111111111111111111111111111111111111111<775777 (To recor* s&bscrip!io"s e.r"e*

*&ri"# 67,<)

C.rr'i"# .mo&"! b.l."ce of li.bili!'.cco&"! .! ,69,9,< ?65775777

A*&s!e* b.l."ce (?:775777 ?;775777 ?>775777) ,5=775777

Cre*i! !o s.les re%e"&e .cco&"! ? <775777

61 No e"!r' s0o&l* be m.*e !o .ccr&e for ." expe"se5bec.&se !0e .bse"ce of i"s&r."ce co%er.#e *oes "o! me."!0.! ." .sse! 0.s bee" imp.ire* or . li.bili!' 0.s bee"i"c&rre* .s of !0e b.l."ce s0ee! *.!e1 T0e comp."' m.'50o4e%er5 .ppropri.!e re!.i"e* e.r"i"#s for self-i"s&r."ce.s lo"# .s .c!&.l cos!s or losses .re "o! c0.r#e* !o !0e.ppropri.!io" of re!.i"e* e.r"i"#s ."* "o p.r! of !0e

.ppropri.!io" is !r."sferre* !o i"come1 Appropri.!io" of re!.i"e* e.r"i"#s ."*9or *isclos&re i" !0e "o!es !o !0efi"."ci.l s!.!eme"!s .re "o! re2&ire*5 b&! .rerecomme"*e*1

1 Li!i#.!io" Expe"se 775777Li!i#.!io" Li.bili!' 775777

(To recor* es!im.!e* mi"im&m *.m.#es o" bre.c0-of-co"!r.c! li!i#.!io")

No!e *isclos&re 4o&l* .lso be re2&ire* i"*ic.!i"# !0e".!&re of !0e loss co"!i"#e"c' ."* !0.! !0ere is ."expos&re !o loss i" excess of !0e .mo&"! recor*e*1

2olutions Manual 1('-+ Chater 1(

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PROBLEM ,-= (Co"!i"&e*)

<1 No e"!r' s0o&l* be m.*e for !0is loss co"!i"#e"c'5bec.&se i! is "o! li/el' !0.! ." .sse! 0.s bee" imp.ire* or .li.bili!' 0.s bee" i"c&rre* ."* !0e loss c.""o! bere.so".bl' es!im.!e* .s of !0e b.l."ce s0ee! *.!e1 T0ecomp."' m&s! 0o4e%er *isclose !0e #&.r."!ee i" !0e"o!es !o i!s fi"."ci.l s!.!eme"!s5 e%e" if !0e li/eli0oo* of loss is remo!e1 T0e "o!e *isclos&re s0o&l* i"cl&*e !0e".!&re of !0e #&.r."!ee5 !0e m.xim&m po!e"!i.l .mo&"! of f&!&re p.'me"!s5 !0e ".!&re ."* ex!e"! of ."' reco&rsepro%isio"s ."* !0e c.rr'i"# .mo&"! of ."' li.bili!'1

;1 No e"!r' s0o&l* be m.*e si"ce i! *oes "o! represe"! .

li.bili!' .! !0e b.l."ce s0ee! *.!e1 T0e comp."' s0o&l*0.%e . "o!e *isclos&re for !0is co"!r.c!&.l obli#.!io" si"cei! represe"!s . m.or c.pi!.l expe"*i!&re commi!me"!1

:1 No e"!r' s0o&l* be m.*e for !0is loss co"!i"#e"c'5bec.&se i! is "o! li/el' !0.! ." .sse! 0.s bee" imp.ire* or .li.bili!' 0.s bee" i"c&rre* ."* !0e loss c.""o! bere.so".bl' es!im.!e* .s of !0e b.l."ce s0ee! *.!e1 T0eloss co"!i"#e"c' s0o&l* be *isclose* i" !0e "o!es !ofi"."ci.l s!.!eme"!s1


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PROBLEM ,-= (Co"!i"&e*)

(b) IFRS

1 IAS 8 4o&l* be simil.r !o !0e ASPE s!."*.r* excep! !0.!&"*er IAS 85 pro%isio"s .re re2&ire* for si!&.!io"s 40erei! is Vprob.bleW or Vmore li/el' !0." "o!W !0.! . prese"!obli#.!io" exis!s1 T0is is . some40.! lo4er 0&r*le !0." !0eVli/el'W re2&ire* &"*er ASPE1 If !0e .mo&"! c.""o! beme.s&re* reli.bl'5 "o li.bili!' is reco#"ie* &"*er IFRSei!0er 0o4e%er5 !0e s!."*.r* i"*ic.!es !0.! i! is o"l' i"%er' r.re circ&ms!."ces !0.! !0is 4o&l* be !0e c.se1 If reco#"ie*5 IAS 8 re2&ires !0.! !0e bes! es!im.!e ."* ."Vexpec!e* %.l&eW me!0o* be &se* !o me.s&re !0e li.bili!'1

T0is .ppro.c0 .ssi#"s 4ei#0!s !o !0e possible o&!comes.ccor*i"# !o !0eir .ssoci.!e* prob.bili!ies 40e" me.s&ri"#!0e .mo&"! of !0e pro%isio"5 if . r."#e of possible .mo&"!sis .%.il.ble1

2olutions Manual 1('-- Chater 1(

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PROBLEM ,-,7

(.) C.s0 (<77 + ?65;77)1111111111111111111111111111111111111111111111111111111111,57775777

S.les Re%e"&e111111111111111111111111111111111111111111111111111111111,57775777

(b) C.s0 (<77 + ?65;77)1111111111111111111111111111111111111111111111111111111111,57775777S.les Re%e"&e111111111111111111111111111111111111111111 ,57775777

.rr."!' Expe"se 111111111111111111111111111111111111111111111111111111111111,:5777.rr."!' Li.bili!'11111111111111111111111111111111111111111111111111111,:5777(<77 + K?,;; ?,>;)

(c) No li.bili!' 4o&l* be *isclose* &"*er !0e c.s0 b.sisme!0o*5 4i!0 respec! !o f&!&re cos!s *&e !o 4.rr."!ies o"p.s! s.les1

(*) C&rre"! Li.bili!ies.rr."!' Li.bili!' ?:>5777

Lo"#-!erm Li.bili!ies.rr."!' Li.bili!' ?:>5777

(e) .rr."!' Expe"se1111111111111111111111111111111111111111111111111111111111111:,577I"%e"!or'1111111111111111111111111111111111111111111111111111111111111111116,5<77S.l.ries ."* .#es P.'.ble1111111111111111111111111111111111=5=77

(f) .rr."!' Li.bili!'11111111111111111111111111111111111111111111111111111111111111:,577I"%e"!or'1111111111111111111111111111111111111111111111111111111111111111116,5<77S.l.ries ."* .#es P.'.ble1111111111111111111111111111111111=5=77


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PROBLEM ,-,7 (Co"!i"&e*)

(#) T0e .ccr&.l b.sis expe"se .ppro.c0 res&l!s i" m.!c0i"# of 4.rr."!' cos!s 4i!0 !0e re%e"&es !0.! #e"er.!e !0em1 T0ec.s0 b.sis 4o&l* be .ccep!.ble o"l' 40ere !0e 4.rr."!'cos!s .re imm.!eri.l or 40e" !0e 4.rr."!' perio* isrel.!i%el' s0or!1 T0is is "o! !0e c.se for Broo/sCorpor.!io"1 I"cre.si"#l' !o*.'5 !0e .sse! ."* li.bili!' %ie4."* f.i!0f&l represe"!.!io" *ri%e !0e .cco&"!i"# mo*el5res&l!i"# i" !0e bif&rc.!io" or sep.r.!io" of !0e procee*srecei%e* i"!o !4o or more re%e"&e .mo&"!s for !0e %.rio&s*eli%er.bles promise*1 T0is is referre* !o .s !0e re%e"&e.ppro.c01

(0) $i#0er !0." pre*ic!e* 4.rr."!' expe"*i!&res 4ill c.&se !0eEs!im.!e* .rr."!' Li.bili!' .cco&"! !o 0.%e ."&"*ers!.!e* b.l."ce !0.! 4ill "o! be s&fficie"! for f&!&re4.rr."!' obli#.!io"s1 M.".#eme"! m&s! re%ie4 .c!&.l4.rr."!' cl.ims experie"ce .#.i"s! !0e es!im.!e* 4.rr."!'li.bili!' b.l."ces i" or*er !o .*&s! !0e r.!e &se* !o recor*4.rr."!' expe"se i" !0e c&rre"! ."* f&!&re 'e.rs1 T0e*iscrep."c' is !re.!e* .s . c0."#e i" ." .cco&"!i"#es!im.!e ."* is .pplie* !o !0e c&rre"! ."* f&!&re perio*s1 I"67,:5 m.".#eme"! of Broo/s Corpor.!io" 4o&l* 0.%e !orecor* . l.r#er 4.rr."!' expe"se i" or*er !o .cc&r.!el'me.s&re !0e Es!im.!e* .rr."!' Li.bili!'1


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PROBLEM ,-,,

(.) C.s01111111111111111111111111111111111111111111111111111111111111111111111111111111111168=577S.les Re%e"&e (77 + ?>;7)111111111111111111111111111111111116;;5777

U"e.r"e* .rr."!' Re%e"&e11111111111111111111111111111111116<577 (687 + ?=7)

.rr."!' Expe"se 11111111111111111111111111111111111111111111111111111111111185;77 .rr."!' Li.bili!'111111111111111111111111111111111111111111111111 85;77

(77 + ?6;)

(b) C&rre"! Li.bili!ies.rr."!' Li.bili!'11111111111111111111111111111111111111111111111111111? 85;77

Lo"#-!erm Li.bili!iesU"e.r"e* .rr."!' Re%e"&e1111111111111111111111111111111111?6<577

(c) .rr."!' Li.bili!' 11111111111111111111111111111111111111111111185;7I"%e"!or'111111111111111111111111111111111111111111111111111111111111111111 <5<,7S.l.ries ."* .#es P.'.ble1111111111111111111111111111111111 65=<7

.rr."!' Li.bili!' (?85;77 - ?85;7) 11 ,;7 .rr."!' expe"se ,;7

(*) C&rre"! Li.bili!iesU"e.r"e* .rr."!' Re%e"&e11111111111111111111111111111111? >5,77

Lo"#-!erm Li.bili!iesU"e.r"e* .rr."!' Re%e"&e1111111111111111111111111111111111?,:5677

T0e ex!e"*e* 4.rr."!' re%e"&es .re expec!e* !o be e.r"e*e%e"l' o%er !0e 4.rr."!' perio* (?6<577 9 H ?>5,77)1


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PROBLEM ,-,, (Co"!i"&e*)

(e) U"e.r"e* .rr."!' Re%e"&e1111111111111111111111111111111111111111111>5,77.rr."!' Re%e"&e111111111111111111111111111111111111111111111111111 >5,77

.rr."!' Expe"se1111111111111111111111111111111111111111111111111111111111111;5777I"%e"!or'111111111111111111111111111111111111111111111111111111111111111111 65777S.l.ries ."* .#es P.'.ble1111111111111111111111111111111111 5777

(f) C&rre"! Li.bili!iesU"e.r"e* .rr."!' Re%e"&e1111111111111111111111111111111111? >5,77

Lo"#-!erm Li.bili!iesU"e.r"e* .rr."!' Re%e"&e1111111111111111111111111111111111? >5,77


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PROBLEM ,-,6

(.)

C.lc&l.!io" of !0e s.les price of b.!!eries expec!e* !o bere!&r"e*

Q&l' Sep!ember s.les + >@ re!&r" r.!e (?,5>775777 ?,5:;75777 ?657;75777) + >@1111111111111111111?<<75777Oc!ober December s.les + ,7@ re!&r" r.!e (?,5<6;5777 ?,57775777 ?=775777) + ,7@11111111111111111111 65;77See .lso !o!.l i" p.r! (b) ?8865;77

Es!im.!e* cos! !o repl.ce b.!!eries !0.! 0.%e bee" re!&r"e* .s*efec!i%e (me.s&re* .s !0e s.les price of b.!!eries !o bere!&r"e* + cos! of #oo*s sol* perce"!.#e)

T0e .cco&"! b.l."ce i" !0e VB.!!er' .rr."!' Expe"seW .cco&"!for !0e perio* Q&l' , !o December ,5 67,< is c.lc&l.!e* .sfollo4s

Es!im.!e* cos! of repl.ci"# b.!!eries rel.!e* !o!0e Q&l' December s.les Cos! !o repl.ce b.!!eries (?8865;77 + :7@)1111111111111111111?<:5;77

Frei#0! cos! (?8865;77 + ,7@)11111111111111111111111111111111111111118856;7 Less S.l%.#e %.l&e (?8865;77 + ,<@)111111111111111111111111111 (,7>5,;7)See .lso !o!.l i" p.r! (b) <65:77Less .*&s!me"! for !0e 4.rr."!' li.bili!' "o! "ee*e* from expe"se es!im.!e for !0e firs! 0.lf of !0e 'e.r1111111111111111111111111111111111111111111111111111111111 (;5777)B.!!er' 4.rr."!' expe"se5 Q&l' , Dec1 ,5 67,<1111111111111?<685:77


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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition


(b)

T0e .mo&"! of !0e pro%isio" re2&ire* i" !0e .rr."!' Li.bili!' .cco&"! (for !0e b.!!er' 4.rr."!').s .! December ,5 67,< is c.lc&l.!e* .s follo4s

Mo"!0

S.les.mo&"! for

mo"!0

@ of b.!!er're!&r"s

expec!e*

S.les priceof b.!!eriesexpec! !o

be re!&r"e*

Cos! !o repl.ce*efec!i%e b.!!eries

(H :7@ ,7@ ,<@ H ;:@ of s.les re!&r"s)

@ of *efec!i%eb.!!eries

rem.i"i"# !o bere!&r"e* .s .!

December ,5 67,<

Pro%isio"re2&ire* (H cos!!o repl.ce + @

rem.i"i"# !o bere!&r"e*)

Q&l' ?,5>775777 >@ ? ,<<5777 ? >75:<7 ,7@ ? >57:<

A&#&s! ,5:;75777 >@ ,65777 85=67 67@ ,<58><

Sep!ember 657;75777 >@ ,:<5777 =,5><7 7@ 685;;6

Oc!ober ,5<6;5777 ,7@ ,<65;77 8=5>77 ;7@ =5=77

No%ember ,57775777 ,7@ ,775777 ;:5777 >7@ <<5>77

December =775777 ,7@ =75777 ;75<77 ,77@ ;75<77

?8865;77 ?<65:77 ? ,>;5;77


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PROBLEM ,-,

(.)

I"%e"!or' of Premi&ms11111111111111111111111111111111111111111111111111111:75777C.s011111111111111111111111111111111111111111111111111111111111111111111111111 :75777 (To recor* p&rc0.se of <75777

p&ppe!s .! ?,1;7 e.c0)

C.s011111111111111111111111111111111111111111111111111111111111111111111111111111111111,5>775777S.les Re%e"&e111111111111111111111111111111111111111111111111111111111 ,5>775777 (To recor* s.les of <>75777 boxes .! ?18; e.c0)

Premi&m Expe"se1111111111111111111111111111111111111111111111111111111111111<5;77I"%e"!or' of Premi&ms11111111111111111111111111111111111111111111 <5;77 KTo recor* re*emp!io" of ,,;5777

co&po"s1 C.lc&l.!io"(,,;5777 ;) + ?,1;7 H ?<5;77

Premi&m Expe"se111111111111111111111111111111111111111111111111111111111111165,77Es!im.!e* Li.bili!' for Premi&ms111111111111111111111111111 65,77 KTo recor* es!im.!e* li.bili!' for

premi&m cl.ims o&!s!."*i"# .!December ,5 67,<1

C.lc&l.!io" To!.l co&po"s iss&e* i" 67,< <>75777

To!.l es!im.!e* re*emp!io"s (<7@) ,=65777Co&po"s re*eeme* i" 67,< ,,;5777Es!im.!e* f&!&re re*emp!io"s 885777

Cos! of es!im.!e* cl.ims o&!s!."*i"#(885777 ;) + ?,1;7 H ?65,77

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(b)


p&ppe!s .! ?,1;7 e.c0)

C.s011111111111111111111111111111111111111111111111111111111111111111111111111111111111,5>775777S.les Re%e"&e111111111111111111111111111111111111111111111111111111111 ,5>775777 (To recor* s.les of <>75777 boxes .! ?18; e.c0)

Premi&m Expe"se1111111111111111111111111111111111111111111111111111111111111;85:77Es!im.!e* Li.bili!' for Premi&ms111111111111111111111111111 ;85:77 KTo recor* premi&m expe"se for

!0e f&ll es!im.!e* cos! of !0epremi&m pl."

C.lc&l.!io"

To!.l co&po"s iss&e* i" 67,< <>75777

Re*emp!io" r.!e + <7@

To!.l es!im.!e* re*emp!io"s (<7@) ,=65777N&mber of co&po"s per premi&m ;

N&mber of premi&m cl.ims >5<77Cos! of premi&m + ?,1;7To!.l premi&m expe"se for !0e 'e.r 67,< ?;85:77

Es!im.!e* Li.bili!' for Premi&ms111111111111111111111111111111111111<5;77I"%e"!or' of Premi&ms11111111111111111111111111111111111111111111 <5;77 KTo recor* re*emp!io" of ,,;5777

co&po"s1 C.lc&l.!io"(,,;5777 ;) + ?,1;7 H ?<5;77


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(c) T0e fi"."ci.l s!.!eme"! prese"!.!io" 4o&l* be !0e s.me for bo!0 .ppro.c0es &se* i" p.r!s (.) ."* (b)1

B.l."ce S0ee!

C&rre"! Asse!s I"%e"!or' of Premi&ms (?:75777 ?<5;77) ?6;5;77

C&rre"! Li.bili!ies Es!im.!e* Li.bili!' for Premi&ms (?;85:77 ?<5;77) ?65,77

I"come S!.!eme"!

S.les Re%e"&e ?,5>775777 Less Premi&m Expe"se ;85:77

(*)


p&ppe!s .! ?,1;7 e.c0)

C.s011111111111111111111111111111111111111111111111111111111111111111111111111111111111,5>775777S.les Re%e"&e (<>75777 + ?1;;)1111111111111111111111111111 ,587<5777U"e.r"e* Re%e"&e11111111111111111111111111111111111111111111111111 =:5777 (To recor* s.les of <>75777 boxes .! ?1;; e.c0 ."* &"e.r"e*

re%e"&e of <>75777 + ?7167 e.c0)

Es!im.!e* "&mber of p&ppe!s !o be.4.r*e* (<>75777 + <7@) ; H >5<77

Premi&m re%e"&e per .4.r* ?=:5777 >5<77 p&ppe!s H ?61;7Cos! per .4.r* ?,1;7 p&rc0.se cos!

Premi&m Expe"se1111111111111111111111111111111111111111111111111111111111111<5;77I"%e"!or' of Premi&ms11111111111111111111111111111111111111111111 <5;77 (,,;5777 ;) H 65777 p&ppe!s

65777 p&ppe!s + ?,1;7 e.c0 H ?<5;77


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I"%e"!or' of Premi&ms11111111111111111111111111111111111111111111111111111:75777


U"e.r"e* Re%e"&e11111111111111111111111111111111111111111111111111111111111;85;77S.les Re%e"&e111111111111111111111111111111111111111111111111111111111 ;85;77

65777 p&ppe!s .4.r*e* + ?61;7H ?;85;77

(e)

B.l."ce S0ee!

C&rre"! Asse!s

I"%e"!or' of Premi&ms (?:75777 ?<5;77) ?6;5;77

C&rre"! Li.bili!ies U"e.r"e* Re%e"&e (?=:5777 ?;85;77) ?>5;77

I"come S!.!eme"! S.les re%e"&e - cere.l ?,587<5777 S.les re%e"&e - premi&ms ?;85;77 Less premi&ms expe"se <5;77

Ne! premi&ms i"come 65777

Al!er".!i%el'5 !0e !4o S.les .mo&"!s co&l* be repor!e* !o#e!0er ."* !0e cos! of !0e premi&ms co&l* be i"cl&*e* i" Cos! of Goo*s Sol*5 .lo"# 4i!0 !0e cos! of !0e cere.l1

(f)

U"*er !0e expe"se .ppro.c0 i" p.r! (c)5 !o!.l re%e"&e recor*e*i" 67,< is 0i#0er !0." &"*er !0e re%e"&e .ppro.c0 i" p.r! (e)1

$o4e%er5 !0e expe"se .ppro.c0 !ri##ers . l.r#er premi&mexpe"se i" 67,< bec.&se !0e f&ll cos! of pro%i*i"# !0e premi&mis es!im.!e* ."* recor*e* i" 67,< 40ere.s !0e premi&mexpe"se recor*e* &"*er !0e re%e"&e .ppro.c0 represe"!s o"l'expe"ses i"c&rre* i" !0e c&rre"! perio*1 I" 67,<5 "e! i"come is0i#0er &"*er !0e expe"se .ppro.c0 !0." &"*er !0e re%e"&e


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.ppro.c01 C&rre"! li.bili!ies .re 0i#0er &"*er !0e re%e"&e

.ppro.c0 !0." &"*er !0e expe"se .ppro.c05 *&e !o bif&rc.!io"PROBLEM ,-, (Co"!i"&e*)

of !0e s.le procee*s be!4ee" !0e pro*&c! ."* !0e premi&m ."**eferr.l of !0e re%e"&e rel.!e* !o !0e premi&m5 &"*er !0ere%e"&e .ppro.c01

C&s!omer lo'.l!' pro#r.ms .re *isc&sse* i" IFRIC ,5 40ic0re2&ires !0.! c&rre"! s.le procee*s be bif&rc.!e* be!4ee" !0eori#i".l pro*&c! sol* ."* !0e .4.r* cre*i!s (.s &"e.r"e*re%e"&e)1 I"cre.si"#l' !o*.'5 f.i!0f&l represe"!.!io" ."* !0e.sse! ."* li.bili!' %ie4 of !0e fi"."ci.l s!.!eme"!s *ri%e !0e.cco&"!i"# mo*el i" f.%o&r of !0e re%e"&e .ppro.c01


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PROBLEM ,-,<

(.) 67,<I"%e"!or' of Premi&ms11111111111111111111111111111111111111111111111111111<;75777C.s011111111111111111111111111111111111111111111111111111111111111111111111111 <;75777 (To recor* !0e p&rc0.se of 6;75777

CDs .! ?,1>7 e.c0)

C.s011111111111111111111111111111111111111111111111111111111111111111111111111111111111>:>5:67S.les Re%e"&e111111111111111111111111111111111111111111111111111111111 >:>5:67 (To recor* !0e s.le of 65>=;5<77

c."*' b.rs .! 7 ce"!s e.c0)

C.s0 (?<>75777 ?,675777)1111111111111111111111111111111111111111111111:75777Premi&m Expe"se1111111111111111111111111111111111111111111111111111111111111865777

I"%e"!or' of Premi&ms (6<75777 x?,1>7)11111111111111111111111111111111111111111111111111111111111111111111

<65777

KTo recor* !0e re*emp!io" of,56775777 4r.ppers5 !0e receip! of?<>75777 (,56775777 ;) + ?61775."* !0e m.ili"# of 6<75777 CDs

C.lc&l.!io" of premi&m expe"se 6<75777 CDs + ?,1>7 e.c0 H ?<65777 Pos!.#e6<75777 + ?1;7 H ,675777

?;;65777 Less C.s0 recei%e* 6<75777 + ?6177 <>75777 Premi&m expe"se for CDs iss&e* ? 865777

Premi&m Expe"se1111111111111111111111111111111111111111111111111111111111111,85<77Es!im.!e* Li.bili!' for Premi&ms111111111111111111111111111 ,85<77 (To recor* !0e es!im.!e* li.bili!' for premi&m cl.ims o&!s!."*i"# .!

,69,9,<) (6=75777 ;) + (?,1>7 ?1;7 ?6177) H ?,85<77


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PROBLEM ,-,< (Co"!i"&e*)

67,;

I"%e"!or' of Premi&ms11111111111111111111111111111111111111111111111111111;=<5777C.s011111111111111111111111111111111111111111111111111111111111111111111111111 ;=<5777 (To recor* !0e p&rc0.se of 75777 CDs .! ?,1>7 e.c0)

C.s011111111111111111111111111111111111111111111111111111111111111111111111111111111111>657>7S.les Re%e"&e111111111111111111111111111111111111111111111111111111111 >657>7 (To recor* !0e s.le of 658<5:77 c."*' b.rs .! 7 ce"!s e.c0)

C.s0 (?:775777 ?,;75777)1111111111111111111111111111111111111111111111<;75777Es!im.!e* Li.bili!' for Premi&ms111111111111111111111111111111111111,85<77Premi&m Expe"se1111111111111111111111111111111111111111111111111111111111111865:77

I"%e"!or' of Premi&m CDs (775777 x?,1>7)11111111111111111111111111111111111111111111111111111111111111111111111

;<75777

(To recor* !0e re*emp!io" of ,5;775777 4r.ppers5 !0e receip! of ?:775777 K(,5;775777 ;) + ?61775 ."* !0e

m.ili"#

of 775777 CDs1)

C.lc&l.!io" of premi&m expe"se775777 CDs + ?,1>7 H ?;<75777Pos!.#e775777 + ?71;7 H ,;75777

:=75777Less C.s0 recei%e* (,5;775777 ;) + ?6177 :775777

Premi&m expe"se for CDs iss&e* =75777Less O&!s!."*i"# cl.ims .! ,69,9,<

c0.r#e* !o 67,< b&! re*eeme* i" 67,; ,85<77Premi&m expe"se c0.r#e.ble !o 67,; ? 865:77

Premi&m Expe"se11111111111111111111111111111111111111111111111111111111111116,5777Es!im.!e* Li.bili!' for Premi&ms111111111111111111111111111 6,5777 (;75777 ;) + (?,1>7 ?1;7 ?6177) H ?6,5777


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PROBLEM ,-,< (Co"!i"&e*)

(b) Amo&"!

Acco&"! 67,< 67,; Cl.ssific.!io"

I"%e"!or' of Premi&ms ?,>5777, ?8657776 C&rre"! .sse!Es!im.!e* Li.bili!' for Premi&ms ,85<77 6,5777 C&rre"! li.bili!'Premi&m Expe"se >=5<77 =5:77< Selli"# expe"se

, ?,1>7 + (6;75777 6<75777)6 ?,1>7 + (,75777 75777 775777) ?865777 ?,85<77< ?865:77 ?6,5777

(c)T0e Es!im.!e* Li.bili!' for Premi&ms is "o! . fi"."ci.lli.bili!' si"ce i! is ." obli#.!io" !o c&s!omers !o pro%i*e . CD5"o! . co"!r.c!&.l obli#.!io" !o p.' o&! c.s0 or o!0er fi"."ci.l.sse!s1 T0e f.c! !0.! !0ere is some c.s0 .mo&"!s i"%ol%e* i"i!s me.s&reme"! *oes "o! m./e i! . fi"."ci.l li.bili!'1


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PROBLEM ,-,;

(.)

,1 S.les of m&sic.l i"s!r&me"!s ."* so&"*e2&ipme"! ?;5<775777Es!im.!e* 4.rr."!' r.!e 176

.rr."!' expe"se for 67,< ? ,7>5777

61 .rr."!' li.bili!' ,9,9,< ? ,:577767,< 4.rr."!' expe"se (Re2&ireme"! ,) ,7>5777

S&b!o!.l 6<<5777Ac!&.l 4.rr."!' cos!s *&ri"# 67,< ,:<5777.rr."!' li.bili!' ,69,9,< ? >75777

1 Co&po"s iss&e* (, co&po"9?, s.le) ,5>775777Es!im.!e* re*emp!io" r.!e 1:7Es!im.!e* "&mber of co&po"s !o be re*eeme* ,57>75777Exc0."#e r.!e (677 co&po"s for . CD pl.'er)

677Es!im.!e* "&mber of CD pl.'ers !o be iss&e* ;5<77Ne! cos! of CD pl.'ers (?< ?67) ,<

Premi&m expe"se for 67,< ? 8;5:77

<1 I"%e"!or' of premi&ms,9,9,< ? =5=;7Premi&m CD pl.'ers p&rc0.se* *&ri"# 67,< (:5;77 + ?<) 66,5777Premi&m CD pl.'ers .%.il.ble 6:75=;7Premi&m CD pl.'ers exc0."#e* for co&po"s *&ri"# 67,< (,567757779677 + ?<) ? 67<5777I"%e"!or' of premi&ms,69,9,< ? ;:5=;7

;1 Es!im.!e* li.bili!' for premi&ms,9,9,< ? <<5>7767,< premi&m expe"se (Re2&ireme"! ) 8;5:77S&b!o!.l ,675<77

Ac!&.l re*emp!io"s *&ri"# 67,< K,567757779677 + (?< ?67) ><5777Es!im.!e* li.bili!' for premi&ms,69,9,< ? :5<77


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PROBLEM ,-,; (Co"!i"&e*)

(b) If !0e 4.rr."!' ."* premi&m offers .re co"si*ere* re%e"&e.rr."#eme"!s 4i!0 m&l!iple *eli%er.bles ."* !0e re%e"&e.ppro.c0 is &se* !o .cco&"! for !0e 4.rr."!ies5 . por!io" of !0e s.les re%e"&e from m&sic.l i"s!r&me"!s ."* so&"*e2&ipme"!5 ."* recor*e* ."* s0ee! m&sic 4ill 0.%e !o be*eferre* .s &"e.r"e* re%e"&e1 T0is re%e"&e 4ill bereco#"ie* o%er !0e !erm of !0e 4.rr."!' perio* ."*premi&m offer perio* .s re%e"&e .s co&po"s .re re*eeme*."* 4.rr."!ies .re 0o"o&re*1 M.".#eme"! 4ill "ee* !o*e!ermi"e 40.! por!io" of !0e s.les price represe"!sre%e"&e from 4.rr."!ies ."* premi&ms1

0e" !0e m&sic.l i"s!r&me"!s ."* so&"* e2&ipme"! .resol*5 . por!io" of !0e s.les price 4ill be cre*i!e* !oU"e.r"e* .rr."!' Re%e"&e1 For !0e premi&ms5 . por!io" of !0e recor*e* ."* s0ee! m&sic s.les 4ill be cre*i!e* !oU"e.r"e* Re%e"&e1

As 4.rr."!ies .re cl.ime* . por!io" of !0e U"e.r"e*.rr."!' Re%e"&e 4ill be e.r"e* ."* 4ill be !r."sferre* !o!0e i"come s!.!eme"!1 Ac!&.l 4.rr."!' cos!s 4ill berecor*e* .s 4.rr."!' expe"se1

As co&po"s for premi&ms .re re*eeme*5 . por!io" of !0eU"e.r"e* Re%e"&e 4ill be e.r"e* ."* 4ill be !r."sferre* !o!0e i"come s!.!eme"!1 T0e premi&m expe"se (or cos! of premi&m) 4ill be !r."sferre* !o !0e i"come s!.!eme"!1

2olutions Manual 1('11+ Chater 1(

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PROBLEM ,-,:

(.)

C.s01111111111111111111111111111111111111111111111111111111111111111111111111111111111175777U"e.r"e* G&.r."!ee Re%e"&e1111111111111111111111111111111 75777

Acco&"!s Recei%.ble11111111111111111111111111111111111111111111111111111111,;5777C.s011111111111111111111111111111111111111111111111111111111111111111111111111 ,;5777

U"e.r"e* G&.r."!ee Re%e"&e11111111111111111111111111111111111111111,75777G&.r."!ee Re%e"&e1111111111111111111111111111111111111111111111111 ,75777 (?75777 )

Loss o" G&.r."!ee111111111111111111111111111111111111111111111111111111111175777Li.bili!' for G&.r."!ee11111111111111111111111111111111111111111111 75777

T0is e"!r' is b.se* o" m.".#eme"!3s *e!ermi".!io" of !0eli/eli0oo* of loss i" pro%i*i"# #&.r."!ees for $&!!er1 Si"ce !0ecoll.!er.l for !0e lo." i"%ol%es ri#0!s o" &"pro%e" !ec0"olo#'5 i!.ppe.rs !0.! !0e possibili!' of loss is li/el'1 Acco&"!s recei%.ble4.s "o! *ebi!e* si"ce D&"#.""o" 0.%e "o! 'e! m.*e p.'me"!

o" $&!!er3s *eb!1 T0e' *o "o! 0.%e . b.l."ce o4i"# from $&!!er1

T0e G&.r."!ee Re%e"&e 0.s bee" reco#"ie* o" . s!r.i#0!-li"eb.sis1 Comp."' m.".#eme"! m.' co"si*er ."o!0er b.sis more.ppropri.!e5 s&c0 .s ." .mo&"! propor!io".!e !o !0e .mo&"! of *eb! bei"# co%ere* b' !0e #&.r."!ee1

D&"#.""o" 4ill .lso "ee* !o .ssess !0e collec!ibili!' of !0e.cco&"! recei%.ble ."* i"cl&*e i! i" i!s b.* *eb! expe"se ."*.llo4."ce for *o&b!f&l .cco&"!s *e!ermi".!io" .s p.r! of i!s

.*&s!i"# e"!ries1 I" p.r!ic&l.r5 si"ce !0e .**i!io".l expos&re !oloss of ?75777 for $&!!er3s li.bili!ies i"%ol%es ri#0!s o"&"pro%e" !ec0"olo#'5 !0e es!im.!e of b.* *eb! expe"se o" !0eo&!s!."*i"# recei%.ble .ppe.rs li/el'1


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PROBLEM ,-,: (Co"!i"&e*)

(b) D&"#.""o" "ee*s !o *isclose !0e follo4i"# i"form.!io"rel.!i"# !o i!s #&.r."!ees

• T0e ".!&re of !0e #&.r."!ee5 0o4 i! .rose5 ."*circ&ms!."ces !0.! re2&ire !0e #&.r."!or !o perform &"*er !0e #&.r."!ee

• T0e m.xim&m po!e"!i.l .mo&"! of f&!&re p.'me"!s !0.! !0e#&.r."!or co&l* be re2&ire* !o m./e5 4i!0o&! ."'re*&c!io" for recei%.ble .mo&"!s

• T0e ".!&re ."* ex!e"! of ."' reco&rse pro%isio"s or coll.!eri.l 0el*

• T0e c.rr'i"# .mo&"! of !0e li.bili!'5 if ."'1

Disclos&re i" D&"#.""o"3s "o!es

T0e comp."' pro%i*es #&.r."!ees !o cer!.i" c&s!omers40ereb' !0e comp."' .ss&mes !0eir lo"#-!erm *eb! i" !0e e%e"!of "o"-p.'me"! !o !0eir cre*i!ors1 T0e #&.r."!ee .rr."#eme"!co%ers . !0ree-'e.r perio* from !0e *.!e of !0e .#reeme"!1 T0em.xim&m po!e"!i.l .mo&"! of f&!&re p.'me"!s !0.! !0eComp."' co&l* be re2&ire* !o m./e is ?+++++1 T0e Comp."'

*oes "o! 0.%e ."' reco&rse pro%isio"s or coll.!er.l .#.i"s! !0ec&rre"! ."* po!e"!i.l li.bili!ies .risi"# from !0ese #&.r."!ees1T0e Comp."' 0.s m.*e p.'me"!s &"*er !0e #&.r."!ee of ?,;5777 ."* 0.s .ccr&e* ." .**i!io".l ?75777 for !0e s.mec&s!omer1 T0e possibili!' of f&r!0er loss from !0is c&s!omer c.""o! be *e!ermi"e* .! !0is poi"!1 All o!0er c&s!omers &"*er #&.r."!ee 0.%e 0o"o&re* !0eir *eb! .rr."#eme"!s ."* !0eComp."' belie%es !0e possibili!' of loss &"*er #&.r."!ees !o!0ese o!0er c&s!omers !o be &"li/el'1


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PROBLEM ,-,8

(.) ,1 (,) ASPE Sec!io" 6=7I! is li/el' . loss ."* li.bili!' 0.%e bee" i"c&rre* ."* .re.so".ble es!im.!e c." be m.*e of !0e .mo&"!1 T0e loss."* li.bili!' s0o&l* be recor*e* .s follo4s

Li!i#.!io" Expe"se 11111111111111111111111111111111111111111111111111111111111>775777Li!i#.!io" Li.bili!' 1111111111111111111111111111111111111111111111111111111>775777

No!e !o !0e Fi"."ci.l S!.!eme"!sT0e comp."' is . *efe"*."! i" . perso".l i"&r' s&i! for

?<577757771 T0e comp."' is c0.r#i"# !0e 'e.r of !0e .cci*e"!4i!0 ?>775777 i" es!im.!e* losses5 40ic0 represe"!s !0e .mo&"!!0e comp."' es!im.!es 4ill li/el' be .4.r*e*1

(6) IFRSIAS 8 4o&l* be simil.r !o !0e ASPE s!."*.r* excep! !0.!&"*er IAS 85 pro%isio"s .re re2&ire* for si!&.!io"s 40erei! is Vprob.bleW or Vmore li/el' !0." "o!W !0.! . prese"!obli#.!io" exis!s1 T0is is . some40.! lo4er 0&r*le !0." !0e

Vli/el'W re2&ire* &"*er ASPE1 If !0e .mo&"! c.""o! beme.s&re* reli.bl'5 "o li.bili!' is reco#"ie* &"*er IFRSei!0er 0o4e%er5 !0e s!."*.r* i"*ic.!es !0.! i! is o"l' i"%er' r.re circ&ms!."ces !0.! !0is 4o&l* be !0e c.se1 If reco#"ie*5 IAS 8 re2&ires !0.! !0e bes! es!im.!e ."* ."Vexpec!e* %.l&eW me!0o* be &se* !o me.s&re !0e li.bili!'1T0is .ppro.c0 .ssi#"s 4ei#0!s !o !0e possible o&!comes.ccor*i"# !o !0eir .ssoci.!e* prob.bili!ies 40e" me.s&ri"#!0e .mo&"! of !0e pro%isio"5 if . r."#e of possible .mo&"!sis .%.il.ble1


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(.) (Co"!i"&e*)

61 (,) ASPE Sec!io" 6=7Bec.&se !0e c.&se for li!i#.!io" occ&rre* before !0e *.!e of !0e fi"."ci.l s!.!eme"!s ."* bec.&se ." &"f.%o&r.bleo&!come is li/el' ."* re.so".bl' es!im.ble5 $.mil!o"Airli"es s0o&l* repor! . loss ."* . li.bili!' i" !0e December ,5 67,<5 fi"."ci.l s!.!eme"!s1 T0e loss ."* li.bili!' mi#0!be recor*e* .s follo4s

Li!i#.!io" expe"se11111111111111111111111111111111111111111111111111111111111157775777Li!i#.!io" Li.bili!'1111111111111111111111111111111111111111111111111111111157775777

(?;57775777 + :7@)

No!e !o !0e Fi"."ci.l S!.!eme"!sD&e !o ." .cci*e"! !0.! occ&rre* *&ri"# 67,<5 !0e comp."'

is . *efe"*."! i" perso".l i"&r' s&i!s !o!.lli"# ?;577757771 T0ecomp."' is c0.r#i"# !0e 'e.r of !0e c.s&.l!' 4i!0m.".#eme"!3s bes! es!im.!e for !0e !o!.l expec!e* losses5 40ic0represe"!s !0e .mo&"! !0e comp."' es!im.!es 4ill fi".ll' be.4.r*e*1

(6) IFRSIAS 8 4o&l* be simil.r !o !0e ASPE s!."*.r* 4i!0 !0es.me excep!io"s for IAS 8 .s "o!e* i" p.r! (.)(,)(6) .bo%e1

(b) $.mil!o" Airli"es "ee* "o! es!.blis0 . li.bili!' for ris/ of

loss from l.c/ of i"s&r."ce co%er.#e i!self1 CICA

Handbook for Private Enterprises Section 3290 does not

require or allow the establishment of a liability for expected

future injury to others or damage to the property of otherseven if the amount of the losses is reasonably estimable.

IAS 37 would mirror the ASPE standards in this situation.

T0e c.&se for . loss m&s! occ&r o" or before !0e b.l."ces0ee! *.!e for . loss co"!i"#e"c' !o be recor*e*1 $o4e%er5

2olutions Manual 1('1#1 Chater 1(

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!0e f.c! !0.! $.mil!o" is self-i"s&re* s0o&l* be *isclose*i" . "o!e1

2olutions Manual 1('1## Chater 1(

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CASES

2ee the Case rimer on the 2tudent 0e!site, as 0ell as the

2ummary of the Case rimer in the front of the te&t. ote that the firstfe0 chaters in %olume 1 lay the foundation for financial reortingdecision making.

CA ,-, ABC AIRLINES

O%er%ie4

The comany is in a highly cometiti%e and risky industry. Theeconomic en%ironment o%er the ast fe0 years has caused many

airlines to restructure or fold in the face of declining sales, increasedcometition, and falling seat rices. A3C has held its o0n !yundergoing t0o restructurings, the most recent of 0hich re%ol%esaround increases in net0ork rofita!ility and cutting costs. E%en so,the comany is in a %ery recarious osition 0ith a long'term de!t toe?uity ratio of (.# to 1 and a current ratio of .* to 1. 4osses for theast t0o years ha%e !een significant at close to D# million eachyear.

/sers of the statements 0ill !e e&isting creditors and shareholders0ho 0ill !e monitoring the li?uidity of the comany gi%en the ratiosidentified a!o%e. Emloyees, 0ho are also shareholders, 0ill !e0atching the statements for information a!out financial and 8o!sta!ility. This is a ri%ate comany and therefore there is nore?uirement to follo0 :AA. Assume ho0e%er that A2E is aconstraint due to the fact that !ut the users 0ill 0ant the most usefulinformation. ote that as a ri%ate entity, the comany may elect tofollo0 I562. The comany is interested in understanding anydifferences !et0een I562 and A2E.

Management 0ill !e concerned 0ith full disclosure of the situation,due to the li?uidity issues 0hich are aarent in the statements andyet 0ill also !e concerned 0ith assuring the stakeholders that thecomany 0ill continue to oerate.

2olutions Manual 1('1#( Chater 1(

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CA ,-, (Co"!i"&e*)

Analysis and 6ecommendations

The issue here is accounting for the free flights. As already noted,these flights are similar to the 5re?uent 5lyer oints.

ne otion is to treat them the same as the 5re?uent 5lyer ointssince they are, in su!stance, the same, i.e., the more you fly, themore free flights you earn. In this case, the comany could defer re%enues to co%er the otential future flights. In essence, the fullamount of re%enues from the ticket sold includes the flight taken anda otential future flight. Although A2E does not e&licitly refer to

these tyes of lans, I562 e&licitly deals 0ith this in I56IC 1( andre?uires accounting for the transaction as unearned re%enue as artof a multile element arrangement.

In the notes to the financial statements, the comany assumes thatthere is a cost to ro%iding these free flights, 0hich must !e accruedand matched 0ith the re%enues. The re%enues in ?uestion 0ould !ethe re%enues from the aid flights that 0ould !e recorded in thecurrent eriod. The cost of the free flights should !e tied to thecurrent re%enues as they are seen as an inducement to !uy tickets

and are therefore like ad%ertising costs. Also, the rogram creates alia!ility to the customers since, as the customers fly more, A3C has aduty to them that they cannot a%oid and the e%ent o!ligating thecomany is the fact that the customers ha%e taken the flight. There isa measurement issue here since not all customers 0ill comlete there?uirement for a free flight, i.e., fi%e flights and, e%en if they do, notall customers 0ill indeed take the free flight. The comany does ha%esome history 0ith these tyes of rograms and this might helro%ide e%idence as to the amount although this is a ne0 and

different rogram. This treatment 0ould not !e used under I562 asnoted a!o%e.

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CA ,-, (Co"!i"&e*)

Another otion is to note disclose the rogram only. This otion 0ould!e !ased on the fact that there are minimal incremental costs for freeflights. The lane 0ill !e flying any0ay. In addition, it is difficult tomeasure ho0 many eole 0ill earn and actually take these freeflights. The only ossi!le cost might !e if a aying customer is!umed. :i%en increased cometition, it is unlikely that the lanes0ill al0ays !e full and A3C might rotect itself against this !y onlyallo0ing the free flights on certain flights that might not normally e%er reach caacity. ote, ho0e%er, that art of the latest restructuringstrategy is to increase net0ork rofita!ility, 0hich means filling ueach lane. This might result in aying assengers !eing !umed in

the future and therefore a real cost.

Conser%ati%e accounting ;deferral of re%enues< in this situation, along0ith full disclosure, 0ould !e rudent for the comany.

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INTEGRATED CASES

IC ,-, ENIROCOMPANJ LIMITED

%er%ie0

This is a u!lic entity ;shares trade on a u!lic stock e&change< andtherefore, the statements 0ill follo0 I562. The shareholders may not0ant the ro!lem o%eremhasi>ed since it might dri%e the share ricedo0n. Emloyees 0ill likely feel the same 0ay since they could losetheir 8o!s if the comany 0ere forced to close. Management might !ereluctant to disclose too much for the same reasons, esecially untilthey figure out an acceta!leFfeasi!le lan of action. 5urthermore,

any negati%e disclosures reflect oor ste0ardshi. otential in%estors,on the other hand, 0ould 0ant full disclosure in order to assess therisks !efore in%esting. Whate%er is disclosed could !e used againstthe comany !y the u!lic Gat largeH in an effort to rotect themsel%esand the en%ironment and also !y la0yers in any la0suits.

ther users 0ould !e the go%ernment en%ironmental agencies 0homight use the information against E4. The 3oard of irectors mightresist disclosures that imly negligence or guilt since they might !eheld ersonally lia!le.

The controller 0ill ha%e to ensure transarency.

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IC ,-, (Co"!i"&e*)

Analysis and 6ecommendations

Issue9 la0suit

3ased on a traditional interretation of :AA, there is no lia!ility for the ollutants until the comany is sued. E4 has no duty or resonsi!ility to the erson suing the comany until it is ro%en in acourt of la0 that E4 is guilty. 4ike0ise, until the erson actually suesthe comany, and a court rules against the comany, there is anoortunity to a%oid the otential o!ligation ;i.e., hire good la0yers,resent a good defence<. The e%ent that otentially o!ligates the

entity may !e the act of olluting or the act of the erson getting sickand, therefore, this may ha%e already haened. o0e%er, as noteda!o%e, the o!ligation has not yet necessarily !een esta!lishedalthough the la0yers ha%e ackno0ledged the otential for a classaction suit. I562 re?uires accrual of a otential loss if occurrence of afuture e%ent is ro!a!le ;more likely than not< and measura!le. Itdoes not sound as if this is the case here.

ote9 disclosure might !e rudent" ho0e%er, gi%en that the ersonhas only threatened to sue and has not actually done it, traditionallythis 0ould not !e disclosed, as it is difficult to assess the ro!a!ilitythat the erson or others 0ill actually sue. What a!out otentialin%estorsJ oes management in all good conscience ha%e to 0arnthemJ :i%en the increasing onus on 3oards of irectors to take fullresonsi!ility for the actions of the comany, should they disclose thero!lem in order to rotect themsel%esJ

6egarding the secific la0suit threat, it is likely unnecessary todisclose it for the a!o%e'noted reasons ;rimarily the uncertainty and

the fact that the loss from a otential la0suit is not measura!le<.o0e%er, regarding the larger ro!lem ;i.e., the inescaa!le fact thatthe ollution is harmful<, it could !e argued that they should disclose.o0e%er, since the information 0ill already !e in the ne0saers;i.e., the en%ironmental studies are likely u!lic and oliticians arein%ol%ed< and since the ro!lem is industry'0ide, chances are thatthere is no additional need to disclose anything further.

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IC ,-, (Co"!i"&e*)

In conclusion, no disclosure is re?uired since, at !est, the threatenedla0suit is a contingent lia!ility and it could !e argued that it is unlikelythat the comany 0ill suffer a material loss from it, esecially sinceE4Bs insurance 0ill co%er u to D1 million. There is no reason to alarmeole unless there is a real ro!lem and no reason too%eremhasi>e this eisode to the oint of utting the comany out of !usiness.

Issue9 asset retirement o!ligationFimairment9

4ittle detail is gi%en in the case regarding 0hether the comany has

an asset retirement o!ligation. /nder I562, the comany 0ould ha%eto accrue an o!ligation if there 0as a legal o!ligation or a constructi%eo!ligation. 2imilarly, although little information is gi%en in the case,the comany should consider 0hether the assets are imaired.


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IC ,-6 LANDFILL LIMITED

%er%ie0

44 is in the 0aste disosal !usiness and as such en%ironmentalconcerns increase the !usiness risk. The comany has many usersof its financial statements. The !ank, 0hich financed the ac?uisitions,0ill use the statements to assess cash flo0s. The go%ernment mightuse the statements to assess 0hether the comany is in comliance0ith regulations 0ith resect to closure and ost'closure acti%ities,etc. The statements 0ill also !e used !y e&isting and otentialcustomers 0ho 0ill look to see if the comany is sta!le and incomliance 0ith en%ironmental standards. A final user is theurchaserBs la0yers 0ho 0ill use the statements to erhas assess

0hat the comany is 0orth in terms of negotiating a otentialsettlement regarding the to&ins that are leaking ;since 44 hasguaranteed to&in'free land<.

E%en though the comany is a ri%ate comany, :AA 0ill likely !e aconstraint gi%en the num!er of users of the information 0ho 0ill 0antrelia!le and rele%ant information. The comany may use A2E or I562 and is interested in any differences !et0een the t0o.

As the auditor, this is a ne0 client and so the risk is greater eseciallygi%en the num!er of users and the otential la0suit. Care must !etaken to ensure that conser%ati%e accounting is alied so as not too%erstate income or net assets.

Analysis and recommendations

Issue9 Asset retirement o!ligationsFimairment

2ince the go%ernment regulations re?uire caing, closure, and ost'closure acti%ities, a legal o!ligation e&ists and a lia!ility must !erecogni>ed as soon as measura!le. The o!ligation 0ould !emeasured at the !est estimate of the e&enditure re?uired to settlethe resent o!ligation.

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IC ,-6 (Co"!i"&e*)

It is also rudent to ensure that the lia!ility is accrued since 44 mustay for cleanu 0here to&ins are found uon sale of land. There is anadditional risk here since the land sold !y the comany recently has!een found to contain to&ins.

The amount 0ould !e added to the cost of the land. The treatment0ould essentially !e the same under A2E and I562 ho0e%er, themeasurement might differ. /nder A2E, if there is a range of %alues,the comany 0ould ick the most likely estimate 0ithin the rangeunless this amount 0as not determina!le in 0hich case the lo0estamount in the range 0ould !e accrued. /nder I562, the amount0ould !e measured at the ro!a!ility 0eighted e&ected %alue.

Care should !e taken to assess the e&isting landfill sites to ensurethat the %alue is not imaired. The otential la0suit reresents achange in circumstances that might signal imairment.


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IC ,-6 (Co"!i"&e*)

Issue9 ereciation

ereciate sites o dereciation' The gar!age sites ha%e a

life of # years ;finite life<.' 2ince they contri!ute to

re%enues, the cost should!e allocated to the eriodsin 0hich re%enues aregenerated ;matching<.

' 2ince %arying amounts of

gar!age are dumed,erhas a unit of roductiontye method might !e used.This 0ill allo0 the costs to!e !etter matched 0ith there%enues generated.

' Although the land holds its%alue, it is difficult tomeasure sal%age %alue.

' :i%en the otential lia!ility

for cleanu costs, the landmay !e 0orthless at theend of its life if the comanydoes not manage theen%ironmental issuesroerly.

' The current la0suit 0ouldsuort this.

' The land has historicallyheld its %alue ;as long asthere are no to&ins resent<and therefore, an estimateof sal%age %alue might !e!ased on ast land %alues.

' Currently, it is in the !estinterest of the comany to

deal 0ith en%ironmentalissues and ensure no to&insgi%en that e&isting andfuture customers assessthis on an ongoing !asis.The !ank 0ill also 0atch for this since to&ins 0ill destroythe %alue.

' The go%ernment 0ill assessfor comliance 0ith

regulations.

It might !e more rudent to dereciate the land %alues.En%ironmental standards change ;and are increasing< and therefore,gi%en the otential lia!ility if to&ins are su!se?uently found, the %alueof the land could !e 0ied out.

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IC ,-6 (Co"!i"&e*)

Issue9 otential lia!ilities relating to the land that has !een sold

isclose Accrue' The issue of to&ins !eing

disco%ered must at least !edisclosed as it could !ematerial.

' The comany hasguaranteed that there areno to&ins and has agreed toay if there are. The

e&istence of the to&ins isyet to !e ro%ed. Inaddition, the urchase ricehas already !een reducedfor an estimate of thesecosts.

' The ?uestion is also one ofmeasurement. :i%en theearly stages of the

notification !y the la0yers,it is unlikely that thecomany 0ill !e a!le tomeasure the otential cost.

' isclosing or accruing asecific amount mightre8udice the comanyBsosition in terms of ho0much is o0ed to theurchaser.

' The comany must reflectthe otential costs in thefinancial statements andmust try to estimate as thefinding of to&ins is %erymaterial to users ;the !ank,urchaser and otentialcustomers<.

' E%en though the urchaserhas yet to ro%e thee&istence of to&ins, it might!e argued that the comanyhas a constructi%e o!ligation;it 0orks hard to signal thatit is resonsi!le anden%ironmentally friendly<.

' I562 re?uires accrual if the

o!ligation is ro!a!le and A2E re?uires accrual if it islikely.

' Measurement may alsodiffer under A2E %ersusI562 as noted a!o%e.

It 0ould !e more rudent to accrue the costs if they are measura!le.The comany should contact the la0yers and %erify the status.

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IC ,- CANDELABRA LIMITED

%er%ie0

' T0o ma8or users ;!ank and ension comany< and therefore:AA is likely a constraint ;as it 0ill gi%e the users greater assurance as to rele%ance and relia!ility<

' As a ri%ate comany, may use I562 as an accounting olicychoice or A2E 7 differences 0ill !e noted !et0een the t0o

' 6e%enues steadily increasing 7 may !e ressure to reser%etrend

' 3ondholders are key users and !ond contains de!t co%enant 7sensiti%e ratio since comany is almost at the limit ;de!tFe?uity

L #91<' Issued shares to fund 7 held !y large ension comany 0ho 0ill0ant to assess %alue of in%estment 7 key user

' The auditor may 0ant to ensure full disclosure and conser%ati%eaccounting

Analysis and recommendations

Issue9 3ond 7 1 years

This is clearly a lia!ility since there is an o!ligation to deli%er cash inthe form of interest ayments.

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IC ,- (Co"!i"&e*)

Issue9 Car!on credits

6ecogni>e o not' 6eresents an asset to thecomany since allo0s them toroduce ollution 0ithoutincurring a enalty.' Credits trade on a markettherefore measura!le %alue.' The credits gi%en !y thego%ernment are essentially

go%ernment grants 0hich should!e reflected in the statements.' If recogni>ed, is this a deri%ati%einstrument or notJ If so, 0ould%alue at fair %alue andgainsFlosses 0ould !e !ooked toincome ;note that this is gettingahead as deri%ati%es arediscussed in chater 1*<. otethat the contracts meet thedefinition of a deri%ati%e sincetheir %alue changes as the sulyof car!on dio&ide changes, little0as aid for the credits ufrontand they 0ill likely !e settled infuture ;I562<. /nder A2Ederi%ati%es accounting 0ould notaly since these are note&change'traded futures and

therefore are not co%ered !y2ection ($*<

' o cost to the comany for theallocated credits.' /nder the historical costrincile 7 0ould !e no laid do0ncost.' Therefore %alued at D.' It may !e difficult to measuresince the go%ernment esta!lished

market lace is informal and maynot ha%e many transactions.

These definitely reresent an asset to the comany and therefore, inthe interests of transarency, the entity should recogni>e them. 2incethe credits trade on a market and meet the definition of a deri%ati%e,

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they should !e %alued at fair %alue ;measura!le< if I562 is follo0ed.ote that recognition of ositi%e %alue 0ill imro%e de!t to e?uityIC ,- (Co"!i"&e*)

ratio. If A2E is follo0ed, recogni>e the asset as a go%ernment grant!ut donBt re%alue it su!se?uently.

Issue9 Ca%e

Caitali>e costs E&ense' ery %alua!le if feasi!le ;future!enefit<.' Already storing car!on dio&idethere on a test !asis so could

argue technically feasi!le.' 2trong moti%ation to succeedhere since roduce lots of car!ondio&ide and 0ill other0ise ha%e toay to urchase car!on credits.

Also 7 ha%e committed asignificant amount of funds to thisro8ect and so ha%e a %estedinterest in its success and almostreaching the comletion stages.

' a%e not esta!lished feasi!ilityyet er engineers.' This is clearly a matter of

8udgement and there is significant

uncertainty.' There is no e%idence that future!enefits e&ist.

More conser%ati%e not to recogni>e as an asset yet as the engineersare the e&erts in terms of feasi!ility and they are suggesting thatthere is uncertainty.

Issue9 2hares

2hares are redeema!le !ut only at otion of comany 7 so there is

no o!ligation to ay cash. Therefore shares are e?uity.

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TIME AND PURPOSE OF RITING ASSIGNMENTS

WA 1('1 ;Time (7) minutes<

urose=to resent the student 0ith a comrehensi%e challenge in determining%arious lia!ilities and resenting findings in 0riting. Issues addressed relate tocontingencies, 0arranties, litigation, and unethical !eha%iour on the art of management.

WA 1('# ;Time (7($ minutes<

urose=to ro%ide the student 0ith the oortunity to define lia!ility, todistinguish !et0een current and long'term lia!ilities and to distinguish !et0eenfinancial and non'financial lia!ilities. The student must also think a!out instances0hen tyical short'term items might not !e classified as current.

WA 1('( ;Time (7) minutes<

urose=to ro%ide the student 0ith the oortunity to look at recordinglia!ilities related to customer loyalty rograms, onerous contracts andconstructi%e o!ligations.

WA 1(') ;Time #7#$ minutes<

urose=to ro%ide an oortunity for the student to discuss %arious emloyee

!enefit lia!ility issues and to reare the aroriate 8ournal entries for the year end under A2E and I562.

WA 1('$ ;Time 1$7# minutes<

urose=to ro%ide the student 0ith an oortunity to understand thedifferences !et0een A2E and I562 and the concetual reasons for anydifferences.

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SOLUTIONS TO RITING ASSIGNMENTS

A ,-,

;a<

Memo reared !y9 Ethical Accountantate9 @anuary #1$

roision Cororationecem!er (1, #1)

Issue 19 6ecognition of Warranty E&ense

uring @une of this year, the comany !egan the manufacture and sales of a ne0line of dish0asher. 2ales of 1, dish0ashers during this eriod amounted toD$,,. These dish0ashers 0ere sold under a one'year 0arranty, and the

client estimates 0arranty costs to !e D#$ er aliance and that similar 0arranties are a%aila!le for sale for D+$.

As of the !alance sheet date, the comany had aid out D1,, in 0arrantye&enditures that 0as also the amount e&ensed in its income statement. orecognition of any further lia!ility associated 0ith the 0arranty has yet !eenmade.

There are t0o alternati%es to reorting 0arranties9 the earnings aroach andthe re%enue aroach. ;It is assumed that the re%enue aroach 0ill !e used !y!oth A2E and I562 at this time.< /sing the re%enue aroach, the sale of each

dish0asher is a !undled sale 0hich includes the dish0asher and the 0arrantyser%ice 0hich 0ill e&ire one year from the date of sale. Conse?uently, there%enue related to the 0arranty ser%ice must !e deferred at the oint of sale andis calculated to !e D+,$, ;1, N D+$<. The sales should ha%e !eenreorted as9

1. CashFAccounts 6ecei%a!le................................... $,,2ales............................................................. )#,$,/nearned 0arranty re%enue ........................ +,$,

;To record sale of 1, dish0ashers and unearned 0arranty re%enue<

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A,-, (Co"!i"&e*)

(.) (Co"!i"&e*) Issue 1

#. Warranty E&ense................................................. 1,,

Cash, In%entory, Accrued ayroll................. 1,, ;To record 0arranty costs incurred<

(. Estimated 4ia!ility /nder Warranties.................... #,*#$,Warranty 6e%enue........................................ #,*#$,

OTo record 0arranty re%enue earned on ($, units ;($, N D+$<P

/nder the earnings aroach, the entries 0ould !e9

1. CashFAccounts 6ecei%a!le................................... $,,2ales............................................................. $,,

;To record sale of 1, dish0ashers<

#. Warranty E&ense................................................. 1,,Cash, In%entory, Accrued ayroll,................ 1,,

;To record 0arranty costs incurred<

(. Warranty E&ense................................................. 1,$,Estimated 4ia!ility /nder Warranties............ 1,$,

OTo accrue estimated 0arranty costs ;1, N D#$< 7 D1,,P

As can !e seen, the amounts to !e reorted on the income statement 0ill !edifferent under the t0o aroaches9

6e%enue !ased

aroachE&ense !ased

aroach2ales ' ish0ashers D)#,$, D$,,2ales 7 Warranty ser%ice #,*#$,

E&enses ' 0arranties ;1,,< ;#,$,<et imact on income D)),1#$, D)+,$,


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A,-, (Co"!i"&e*)

(.) (Co"!i"&e*) Issue 1

The re%enue aroach more accurately reflects the contract'!ased aroach for

re%enue recognition, and more faithfully resents that resulting lia!ilities andassets as a result of the sale transactions as the lia!ility on the !alance sheet isreflected at the fair %alue of the ser%ices still !e ro%ided. The earnings aroachmeasures the lia!ility as the estimated costs to ro%ide the ser%ice, 0hich 0ill !eless than the fair %alue of this ser%ice. Conse?uently, the lia!ility is understatedusing this method.

Issue #9 6ental Charges of 6etail i%ision 3ased on 6etail rofits

In re%ie0ing the estimates used for !ad de!ts e&ense and 0arranty costs, Inoticed an increase from re%ious years. Mr. 3urt Wilson, roisionBs CE had

instructed the re%ious accountant to increase these estimates in order to keethe retail di%isionBs rofits at D)+$,. 2ince a ortion of the rental costs are!ased on retail rofits in e&cess of D$,, the increase in estimates results inlo0er rent e&ense.

The increases in the estimates do not seem to !e 8ustified !y changes ineconomic conditions, the credit'0orthiness of customers, ast e&erience, or changes to roducts.

I ad%ise that the estimates !e reduced to le%els more consistent 0ith those usedin re%ious years unless they can su!stantially 8ustify the ne0 estimates. Theyshould also record the additional e&ense and lia!ility related to the rental costs.

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A,-, (Co"!i"&e*)

(.) (Co"!i"&e*)

Issue (9 Asset retirement o!ligation

The treatment of asset retirement o!ligations under A2E and I562 are different.In !oth cases, the resent %alue of the estimated future cash flo0s has to !edetermined. In the case of A2E, the dismantling of the e?uiment and anyadded costs that result from the roduction rocess are added to the cost of theasset, and amorti>ed aroriately. /nder I562, only the cost of dismantling thee?uiment is added to the caital cost. Any costs resulting from the roductionrocess are added to the cost of roduction and e&ensed through cost of goodssold. The resent %alue of the dismantling costs at @une 1, #1) 0ill !e theresent %alue of D( million due in 1# months, at .$Q er month discount rate isD(,, N .$)-*( D1,*),-.

/nder A2E, the 8ournal entries re?uired are as follo0s9To record the dismantling costs related to the e?uiment and the asset retiremento!ligation

E?uiment..................................................................... 1,*),- Asset 6etirement !ligation................................. 1,*),-

To record the cleanu costs related to the roduction rocess and the assetretirement o!ligation at ecem!er (1, #1)resent %alue of estimated clean u costs9

Estimated cash flo0s D*,F1# N + months D($,resent %alue of D($, to !e aid in 11( monthsB time at .$Q er

monthD($, N .$*-1*

E?uiment..................................................................... 1-,-#1 Asset 6etirement !ligation................................. 1-,-#1


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A,-, (Co"!i"&e*)

(.) (Co"!i"&e*) Issue (

ec (1, #1)

To record the dereciation on the e?uiment9 O;D11,*),- N +F1#< R D1-,-#1P

ote9 While the cost of the A6 that has !een caitali>ed for the e?uiment as a0hole is amorti>ed o%er the full 1# months, the cost of the monthly clean'ucosts should !e recogni>ed in the months the clean'u costs relate to. Whilethese costs are recogni>ed at their resent %alue, the o!ligation 0ill ha%e to !eaccreted !ecause the o!ligation for these costs 0ill not !e aid for another 11(months.

ereciation E&ense................................................... *--,)) Accumulated ereciation 7 E?uiment............... *--,))

ec (1, #1)To record the accretion of the asset retirement o!ligation assuming there is nochange in the estimate of cash flo0s, timing or discount rate. resent %alue atecem!er (1, #1) is9

resent %alue of D( million in 11( months at .$Q D(,, N .$*-1* D1,++,)

Accretion D1,++,) 7 D1,*),-

Accretion E&ense........................................................ $,$- Asset 6etirement !ligation................................. $,$-

ote9 The resent %alue of the D($, clean'u costs of D1-,-#1 is already at itsec. (1, #1) resent %alue. Therefore the !ook %alue and of the A6 atec. (1F1) is no0 D1,++,) R D1-,-#1 D1,+#+,)1. At ec. (1F1$, this total0ill !e su!8ect to accretion.

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A,-, (Co"!i"&e*)

(.) (Co"!i"&e*) Issue (

/nder I562, the 8ournal entries re?uired are as follo0s9@une 1, #1)To record the dismantling costs related to the e?uiment and the asset retiremento!ligation

E?uiment..................................................................... 1,*),- Asset 6etirement !ligation................................. 1,*),-

To record the cleanu costs related to the roduction rocess and the assetretirement o!ligation at ecem!er (1, #1)resent %alue of estimated clean'u costs9

Estimated cash flo0s D*,F1# N + months D($,resent %alue in 11( monthsB time at .$Q er monthD($, N .$*-1*

roduction %erhead Costs.......................................... 1-,-#1 Asset 6etirement !ligation................................. 1-,-#1

;ote the roduction o%erhead costs 0ould !e either e&ensed in Cost of :oods2old or included in in%entory, deending on the num!er of dish0ashers still inin%entory.<

ec (1, #1)To record the dereciation on the e?uiment ;D11,*),- N +F1#<

ereciation E&ense................................................... *+-,$1- Accumulated ereciation 7 E?uiment *+-,$1-

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A,-, (Co"!i"&e*)

(.) (Co"!i"&e*) Issue (

ec (1, #1)To record the accretion of the asset retirement o!ligation assuming there is nochange in the estimate of cash flo0s, timing or discount rate. resent %alue atecem!er (1, #1) is9

resent %alue of D( million in 11( months at .$Q D(,, N .$*-1* D1,++,)

Accretion D1,++,) 7 D1,*),-

Interest E&ense........................................................... $,$- Asset 6etirement !ligation................................. $,$-

As can !e seen, the amounts to !e reorted on the income statement 0ill likely!e the same under the t0o aroaches. 3ecause the clean'u costs incurred forthe + months carry no future !enefit to the comany, they should !e recogni>edin dereciation e&ense under A2E for the + month eriod. The dereciatione&ense 0ill likely !e charged as a comonent of roductionFcon%ersion costsand then !e allocated !et0een in%entory and cost of goods sold.

A2EA2E I562

ereciation e&ense D*--,)) D*+-,$1-

Interest e&ense $,$- Accretion e&ense $,$-roduction o%erhead costs ; may !eartially e&ensed or in%entoried< 1-,-#1

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A,-, (Co"!i"&e*)

(.) (Co"!i"&e*)

Issue )9 4itigation

4oss Contingency onatent Infringement 4itigation

/nder A2E, the contingent lia!ility is recogni>ed if it is G likely W to occur and can!e relia!ly measured. In this case, since the la0suit is still ending and has !eenassessed as Gmore likely than not H, this is not ?uite as high as G likely H. As a result,under A2E, there 0ould !e no lia!ility recogni>ed, !ut note disclosure 0ould !ere?uired.

3ecause the likelihood of loss is not determina!le, it must !e disclosed in thenotes to the financial statements. This note should include a discussion of this

ending litigation along 0ith the la0yerBs assessment that the likelihood of loss isnot determina!le. In addition, the estimated amount of this loss contingencyshould also !e disclosed.

/nder I562, the current treatment is different. 2ince the threshold of more likely than not has !een met, the ne&t ste is to reasona!ly estimate the amount, usinge&ected ro!a!ilities. /sing the information in the ?uestion, the !est estimate0ould !e calculated as follo0s9;#Q N D$ million< R ;($Q N D( million< R ;)$Q N < D#.$ million

A lia!ility for D#.$ million 0ould !e accrued as follo0s94a0suit 4oss.................................................................. #,$,

4a0suit 4ia!ility..................................................... #,$,

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A,-, (Co"!i"&e*)

;!< 5or issues 1, ( and ), it is difficult to determine 0hether the issues relate toerrors on the art of management or from unethical !eha%iour. 5or issue #ho0e%er, the increase in estimates is clearly unethical and is meant to

decrease rental costs !y sho0ing lo0er rofits. The !enefits of this tye of !eha%iour are short'term in nature and 0ill cause long'term difficulties for the comany. The trend of higher estimates cannot !e maintainedindefinitely. The results can include losing the rental location, ci%il actionagainst the comany, as 0ell as criminal action for fraudulent !eha%iour. Inaddition, the current shareholders are harmed !ecause the lo0er netincome reduces the current %alue of their holdings.

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A ,-6

;a< /nder A2E and e&isting I562, a lia!ility is defined as Go!ligations of anenterrise arising from ast transactions, the settlement of 0hich may resultin the transfer of assets.H In other 0ords, it has three essential characteristics

including9 there is a resonsi!ility to transfer assets, this duty cannot !ea%oided, and the e%ent causing the o!ligation to arise has occurred.

The roosed definition of a lia!ility under I562Bs concetual frame0ork isthat a lia!ility is a resent current o!ligation for 0hich the entity is the o!ligor.Encomassed in this definition are essential characteristics including9 alia!ility e&ists at the resent time, and reresents an enforcea!le o!ligationfor the entity.

;!< /nder I562, the definition of current lia!ilities are Go!ligations 0hoseli?uidation 0ill lace a demand on the entityBs current assets and must !e

settled 0ithin the ne&t 1# months from the reort date, or the comanyBsoerating cycle ;if longer than 1# months<" are held for trading uroses" or for 0hich the entity does not ha%e an unconditional right to defer ayment!eyond the ne&t 1# months. Although A2E does not ha%e a definition of current lia!ilities, the e&amles ro%ided in the standards meet a similar definition as ro%ided for I562.

;c< A financial lia!ility under A2E and I562 is any lia!ility that is a contractualo!ligation to deli%er cash" or to e&change financial instruments 0ith another arty under conditions that may not !e fa%oura!le for the entity. The key0ord here is that the financial lia!ility results from a contractual agreement!et0een t0o or more arties that has clear economic conse?uences that thearties ha%e little, if any, discretion to a%oid, usually !ecause the agreementis enforcea!le !y la0. Contracts, and thus financial instruments, may take a%ariety of forms and need not !e in 0riting.

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A ,-6 (Co"!i"&e*)

(c) (Co"!i"&e*)

on'financial lia!ilities relate to o!ligations that 0ill not !e settled in cash,

!ut instead 0ith the ro%ision of goods or ser%ices such as 0arrantyo!ligations, asset retirement o!ligations, and unearned re%enue. /nder I562, these non'financial lia!ilities, at each reorting eriod, are measuredat their !est estimate of 0hat the entity 0ould ha%e to ay to settle theo!ligation using resent %alues and the e&ected ro!a!ility of %ariousoutcomes. A2E does not ro%ide any general guidance on non'financiallia!ilities, !ut discusses each tye under secific standards, 0here differentmeasurement !ases could !e used. The %arious methods include9 the fair %alue of goods and ser%ices to !e deli%ered" the cost of the goods andser%ices to !e deli%ered or managementBs !est estimates.

;d<1. :enerally, accounts aya!le 0ould !e classified as a current lia!ility. In this

case, since the due date is @anuary #1$, the amount 0ould !e classified asa current lia!ility.

#. 2ince the notes aya!le are due in more than one year from the !alancesheet date, they 0ould generally !e reorted as non'current lia!ilities. If there is any ortion of the amount that 0ill !e re?uired to !e aid 0ithin thene&t 1# months, this amount 0ould sho0 as a current lia!ility.

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A ,-6 (Co"!i"&e*)

(*) (Co"!i"&e*)

(. :enerally, deosits from customers 0ould !e classified as a current lia!ility.

o0e%er, the classification of deosits as current or non'current deends onthe time in%ol%ed !et0een the date of deosit and the termination of therelationshi that re?uired the deosit. In this case, the D#$, 0ould !ee&cluded from current lia!ilities only if the e?uiment 0ould not !e deli%eredfor more than one year ;or one oerating cycle, if longer<. In addition, if thereis a long eriod of time !et0een the deosit and the deli%ery, then the deosit0ould !e recorded at net resent %alue under I562. /nder A2E, the fair %alue of this unearned re%enue 0ould !e used.

). 2alaries aya!le is an accrued lia!ility that in almost all circumstances 0ould!e reorted as a current lia!ility.

$. This !ond is due in the ne&t 1# months and should !e reorted as a currentlia!ility. /nder I562, there is no unconditional right to defer at ecem!er (1,#1), since the agreement 0as not signed !efore the reort date. This could!e disclosed in a su!se?uent e%ent note, !ut the amount due 0ould !ereorted as current.

This treatment 0ould !e different under A2E. 5or this !ond aya!le to?ualify for e&clusion from current lia!ilities, the comany must meet thefollo0ing criteria9

;a< It must intend to refinance the o!ligation on a long'term !asis, and;!< It must demonstrate an a!ility to consummate the refinancing.


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A ,-6 (Co"!i"&e*)

(*) (Co"!i"&e*)

The second criteria, a!ility to refinance, can !e demonstrated either !y

actually refinancing !efore the !alance sheet is issued or !y entering into anon'cancella!le financing agreement, 0hich has not !een %iolated, 0ith acaa!le lender. nly that ortion of the !onds aya!le that has !eenrefinanced can !e reclassified. In this case, the entire amount of the !ondsaya!le 0as refinanced rior to the issue date of the reort, and therefore,the comany could sho0 the full amount of the !onds aya!le as a non'current lia!ility.

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A ,-

1. The customer loyalty rogram reresents an o!ligation for the comany./nder I562, each sale has multile deli%era!les that include not only thegood sold, !ut also the %alue of the oints a0arded. The fair %alue of the

oints must !e recogni>ed as unearned re%enue until they are redeemed atsome future date. 3ased on +, oints !eing a0arded during the year,the amount of unearned re%enue should ha%e !een D($, ;+, ND.$<. The 8ournal entry to record the sales for the year should ha%e !een9

Cash F Accounts 6ecei%a!le................................. NNNN2ales............................................................. NNN

/nearned 6e%enue 7 4oyalty rogram........ ($,

At the end of the year, , oints ha%e !een redeemed, 0hen thecomany anticiated that -Q of +, 0ould !e redeemed e%entually.

Conse?uently the amount of the re%enue to !e recorded is9O, F ;+, N -Q<P N D($, D)),)))

The 8ournal entry to record the amount of earned re%enue for the loyaltyoints to !e recorded is9

/nearned 6e%enue 7 4oyalty rogram................. )),)))6e%enue 7 Customer 4oyalty rogram ........ )),)))

The treatment under A2E 0ould !e similar to the a!o%e.

#. The second issue is an onerous contract. The comany is no longer gainingany !enefits from the lease of this retail location since the store has !eenclosed. o0e%er, it still has to make ayments on the lease until March 1,#1*. The comany has a legal o!ligation to continue to make the aymentsunder the lease agreement, and these ayments are una%oida!le costs. Thelandlord is likely to accet a lum sum ayment no0 e?ual to the resent%alue of the remaining lease ayments. /nder I562, the lia!ility must !erecogni>ed and measured at the resent %alue of the una%oida!le aymentsthat must !e made. At @anuary (1, #1$, the comany has 1) ayments leftfrom 5e!ruary 1, #1$ to March 1, #1*.

The resent %alue of these annuity due ayments is9 D#,( each month, for 1)months at an interest rate of .$Q er month D(1,1+- ;found using a financialcalculator<.

The 8ournal entry re?uired is94ease ayments 7 nerous Contract 4oss.......... (1,1+-

4ease Contract 4ia!ility................................. (1,1+-


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A ,- (Co"!i"&e*) /nder A2E, onerous contracts are not secifically addressed" !ut ractice

has !een to recogni>e the lia!ility and the loss !ased on the fact that theentity has an o!ligation to ay for something that ro%ides no future !enefitto the entity.

(. This last issue is a constructi%e o!ligation. The comany has made a racticeof gi%ing refunds to dissatisfied customers. /nder I562, an estimate of thislia!ility must !e made at the fiscal year end using managementBs !estestimate. When a ro%ision relates to a large oulation of items, then thee&ected outcome is all the ossi!le outcomes 0eighted !y their ro!a!ilities as follo0s9

5or the sales made in the #1$ fiscal year, the e&ected amount of returns0ill !e9 ;#$Q N *Q< R ;$$Q N )Q< R ;#Q N #Q< ).1Q of total sales.2ince total sales in the fiscal year 0ere D($ million, the e&ected returns are9

D($,, N ).1Q D1,)($,

2ince there 0as D1,1, refunds already made, this lea%es D(($,estimated to still !e refunded. Therefore the refund lia!ility should !erecorded for D(($, as follo0s9

4oss on 6efunds on 2ales.................................... (($,Estimated Liability for Refunds on Sales...... 335,000

/nder A2E, this constructi%e o!ligation 0ould also !e re?uired to !erecogni>ed.

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A ,-<

I!em ,The sick lea%e is an accumulated !enefit that %ests 0ith the emloyees since theemloyee is entitled to a cash e?ui%alent if the !enefit has not !een taken !y the

end of the ne&t year. This o!ligation arises as the emloyee ro%ides a ser%ice tothe comany and therefore must !e accrued at ecem!er (1, #1). /nder I562,the amount of the o!ligation is Gthe additional amount that the entity e&ects toay as a result of the unused entitlement that has accumulated at the end of thereorting eriodH ;IA2 1-.1)<. 5or this case, the (Q increase has already !eenagreed to so the e&ected amount 0ould include this increase and the !estestimate 0ould !e calculated as follo0s9

* days N D#$ er day N 1(Q D1$,)$

The follo0ing 8ournal entry 0ould !e re?uired on ecem!er (1, #1)

Emloyee 3enefits F Wages E&ense................... 1$,)$2ick ay Wages aya!le.............................. 1$,)$

A2E does not ro%ide any secific guidance on this tye of !enefit e&cet that alia!ility arises from ast transactions and re?uires the settlement in the future0ith a ossi!le transfer of assets. Esta!lished ractice 0ould record similar amounts as under I562.

I!em 6arental lea%e is a non'accumulating !enefit and only arises 0hen an e%enttakes lace. In this case, the emloyee 0ho has already started maternity lea%eon ecem!er 1$ is entitled to the !enefit and any o!ligation of this !enefit to !eaid in #1$ 0ill !e accrued at ecem!er (1, #1). The amount of this o!ligationis9D1, N 11.$ months D11,$.

The 8ournal entry is9Emloyee 3enefits E&ense................................. 11,$

arental 4ea%e 3enefit aya!le................... 11,$

5or the other emloyee, the adotion has not yet taken lace, and therefore thee%ent has not occurred. There 0ill !e no o!ligation to set u for this emloyeeuntil the time of the adotion and the arental lea%e commences.

I562 and A2E treatment 0ould !e the same for these !enefits.

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A ,-< (Co"!i"&e*)I!em This !onus is aya!le at ecem!er (1, #1), since it relates to comensationthat 0as earned during #1). The total amount of the !onus is D# million N (Q

D*,. This e?uates to9

Managers 7 (Q N D*, D1,on'managers 7 +Q N D*, D)#,. 5or each non'manager, the !onusis D)#, S ) D1,$

o0e%er, there is a stiulation that the !onus 0ill only !e aid to emloyees 0hoare still 0orking for the comany on cto!er (1, #1$ 7 1 months from no0. Asa result, the !est estimate of the lia!ility 0ould take into the consideration theturno%er that is e&ected to occur o%er the ne&t 1 months.

With the estimated turno%er of $Q, this means that only ( emloyees ;) N-$Q< 0ould still !e emloyed !y the comany !y the ayout date.

Therefore, the !est estimate of the ayment to non'managers 0ill !e9 ( ND1,$ D(-,-.

Therefore, the total !onus aya!le is9 D1, R D(-,- D$+,-

The 8ournal entry re?uired for the !onus aya!le 0ill !e9Comensation E&ense........................................ $+,-

3onus aya!le.............................................. $+,-

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A ,-< (Co"!i"&e*)

I!em <The %acation aya!le is an accumulating !enefit that %ests since the emloyee isentitled to this amount. o0e%er, the legal entitlement is only # 0eeks, and the

additional amount of 1 0eek is a constructi%e o!ligation. Currently, the 1emloyees are still o0ed # 0eeksB %acation ;ha%ing taken 1 0eek already duringthe year<. /nder I562, the entire # 0eeks 0ould !e reorted as an o!ligation atecem!er (1, #1), !ut ad8usted for the ro!a!ilities related to all emloyees!eing entitled to this full amount. 3ased on the information, this 0ould !ecalculated to !e9O1 emloyees N $ days & #$ & 1(QP R O;1 emloyees N $Q< R ;- emloyeesN 1$Q<P N $ days N D#$ D1#,+$ R D1#,*# D#$,$$+The 8ournal entry re?uired 0ould !e9

Wages E&ense ................................................... #$,$$+acation Wages aya!le.............................. #$,$$+

/nder A2E, this tye of constructi%e o!ligation 0ould also !e recorded as is thenormal !usiness ractice.

I!em ;This is a contingent o!ligation. It aears that settlement 0ill Gmore likely thannotH !e re?uired, and that the o!ligation arose from a ast e%ent. The emloyeeis asking for D*#,$ ;#$ years N 1 days N D#$Fday<.Conse?uently, someamount must !e reorted at ecem!er (1, #1).

/nder I562, a ro!a!ility 0eighted e&ected %alue is determined. /sing theestimates ro%ided !y the la0yer, this amount is estimated to !e9;#$Q N D#,< R ;*Q N D#,< R ;1$Q N D(,< D#*,(.

The estimated o!ligation 0ould !e recorded as follo0s9

Emloyee Wages ' 4a0suit 4oss.................................. #*,(4a0suit 4ia!ility..................................................... #*,(

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A ,-< (Co"!i"&e*)

I!em ; (Co"!i"&e*)

In addition, note disclosure of the ending la0suit 0ould !e re?uired, indicating

that a loss of D$*,( had !een recogni>ed as the !est estimate of the outcome.

/nder A2E, this contingency aears to !e likely and it 0ill re?uire someamount of settlement !ased on the estimates ro%ided !y the la0yer. o0e%er,the amount to !e recorded is either the !est estimate 0ithin a range if it can !edetermined, or the lo0est of the ranges of ossi!le outcomes if no one amount isany more likely than any other. In this case, the range of settlements is D#,to D(,. Assuming a !est estimate could !e determined to !e D#,, !asedon the information gi%en in the ?uestion this 0ould !e used to measure thelia!ility.

The estimated o!ligation 0ould !e recorded as follo0s9Emloyee Wages ' 4a0suit 4oss.......................... #,4a0suit 4ia!ility............................................. #,

2imilar note disclosure as under I562 0ould !e re?uired under A2E.

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A ,-;

There are many differences !et0een I562 and A2E 0ith resect tomeasurement and reorting for lia!ilities. rimarily, A2E has !een 0ritten tokee recognition and measurement issues simle and therefore re?uiring less

cost and time to calculate and reort. It also has a %ariety of 0ays of measuringnon'financial lia!ilities, deending on ho0 the lia!ilities arise. These are !asedon ast ractices used in Canada, and ha%e not !een changed on adotion of

A2E. 5inally, A2E has !een designed 0ith the creditor as the rimary user inmind, rather than outside shareholders and creditors. :i%en that creditorsgenerally ha%e access to management, the disclosure has also !een simlified.

These differences are highlighted !elo09• ifferences in terminology 7 I562 uses the term Gro%isionH to mean an

o!ligation of uncertain timing and amount and a contingent lia!ility refersto conditional o!ligations that are not recogni>ed. ro%isions are

recogni>ed if it is Gmore likely than notH to occur. /nder A2E, a contingentlia!ility refers to conditional o!ligations and may !e recogni>ed insituations 0here it is GlikelyH to re?uire an outflo0 of economic !enefits inthe future. The term ro%ision under A2E is not used in reference tolia!ilities.

• A2E does not ha%e a secific standard to address non'financial lia!ilities 7 these are considered in %arious standards as the need arises. As aresult, the measurement of these non'financial lia!ilities is differentranging from fair %alue to costs of the goods and ser%ices to !e ro%ided.

Also, although I562 has a secific standard on customer loyaltyayments, there is no e&licit standard under A2E.

• nly legal o!ligations are recognised under A2E for asset retiremento!ligations 7 0hereas I562 0ould recogni>e legal and constructi%eo!ligations. ne reason for this is to reduce the costs of rearation of ri%ate comany financial statements in trying to determine constructi%eo!ligations related to asset retirement o!ligations. ;ote that for other forms of lia!ilities, A2E 0ould recogni>e legal, constructi%e or e?uita!leo!ligations<.

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A ,-; (Co"!i"&e*)

• 5or asset retirement o!ligations, all retirement costs related to thee?uiment or the roduction rocess are caitali>ed to the related caitalassets. The rimary reason for this is again to simlify the tracking of

these costs 0ithout ha%ing to determine secifically ho0 these costsarose. /nder I562, the costs related to roduction rocesses areconsidered roduct costs and charged to in%entory and costs related tothe caital assets are caitali>ed.

• Measurement of non'financial lia!ilities has also !een simlified under A2E in comarison 0ith I562. /nder A2E, the most likely %alue isused. In the case of a contingent lia!ility, the !est estimate 0ithin aossi!le range of %alues is used or the lo0est %alue in the range. /nder I562, ro!a!ilities and e&ected %alues must !e determined and aro!a!ility 0eighted a%erage %alue is used.

• resentation of long term de!t coming due ;either !ecause of maturity or

%iolation of the agreement< is also different. /nder A2E, if an agreementto refinance can !e accomlished rior to the issue date of the statements,then this de!t can !e reorted as non'current. o0e%er, under I562, thisrefinancing agreement 0ould ha%e to !e in lace rior to the reort date inorder to sho0 the de!t as long term. This difference is follo0ing normalacceted ast ractices esta!lished in Canada rior to con%ersion to I562or A2E.

• I562 re?uires far more e&tensi%e disclosure of ro%isions, includingreconciling oening and closing !alances for each tye of ro%ision.

A2E does not re?uire this disclosure 7 again to reduce costs inrearation of the financial statements.

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RESEARC$ AND FINANCIAL ANALJSIS

RA,-, Shoppers Drugmart Corporation

;a< The current lia!ilities of 2hoers rugmart Cororation at ecem!er (1,#11, are detailed !elo0.

#11

;DCanadian thousands< 3alance

3ank inde!tedness D 1+#,#*# Accounts aya!le and accruedlia!ilities

1,1-,)))

Income ta&es aya!le #*,$(

i%idends aya!le $(,11-Current ortion of long'term de!t #)-,-+1ro%isions 1#,#)

Associate interest 1$#,Total current lia!ilities D 1,++*,#(

;!< ro%isions ;note ( ;t<< are legal or constructi%e o!ligations that result fromast e%ents and it is ro!a!le that the o!ligation 0ill !e settled 0ith a futureoutflo0 of economic !enefits, and if it can !e measured relia!ly. If the time%alue of money is material, the ro%isions are discounted using a re'ta&discount rate that takes into account the risks associated 0ith the lia!ility.

ro%isions are re%ie0ed on a regular !asis and ad8usted to reflect !estestimates. ro%isions for 2hoers include insurance claims, litigationclaims and store closing costs.

;c< 2hoersB current ratio and ?uick ratio for each eriod resented arecalculated !elo0. The comanyBs li?uidity, !ased on these ratios, hasdecreased o%er the rior year !ased on the current lia!ility, !ut the ?uickratio has !een ?uite sta!le. The in%entory is a large comonent of thecurrent assets ;+*Q<, so it is less likely that the ?uick ratio and current ratio0ill mo%e in the same direction ;as comared to some comanies<. Althoughthere is an increase in current assets, current lia!ilities ha%e also

significantly increased, resulting in reduced li?uidity. The largest change inthe current assets is due to an increase in in%entory, 0hile current lia!ilitiesincreased mainly due to an increase in the current ortion of long'term de!t.


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RA,-, S0oppers Dr&#m.r! Corpor.!io"1 (Co"!i"&e*)

In general, a ?uick ratio of more than 1 to 1 indicates that the comanyshould ha%e no ro!lem meeting its current o!ligations as they come due.o0e%er that deends on the industry. 2hoers should !e comared to

other retailers, and ideally those 0ith a similar roduct mi&, to assess theade?uacy of their li?uidity. While 2hoersB li?uidity decreased relati%e to therior year, it remains !etter than the li?uidity # years ago.

In /2 D thousandsecem!er (1,

#11 @anuary 1, #11@anuary (,

#1Current assets #,*-$,*)+ #,$)#,# #,))1,-+(uick assets *11,-) $1*,#+ $1$,(#*Current lia!ilities 1,++*,#( 1,$#+,$*+ 1,+*,$)1Current ratio 1.$# 1.** 1.)(

uick ratio .() .() .(

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RA,-6 CANADIAN TIRE CORPORATION LIMITED1

;a< Canadian TireBs current lia!ilities include the follo0ing amounts9

#1

;D millions< 3alance3ank inde!tednesseosits

D1#).

1,1#.(Trade and other aya!les 1,*).-ro%isions2hort'term !orro0ings4oans aya!leIncome ta&es aya!leCurrent ortion of long'term

de!t

1-1.-($#.**#.+

(.-#+.-

D1,---.+

GTrade and other aya!lesH includes lia!ilities such as deferred re%enue andderi%ati%es. It ro!a!ly mainly relates to regular trade accounts recei%a!le, !ut itis ossi!le that the accrued lia!ilities 0ould include items like 0ages and salariesaya!le, :2T and sales ta&es aya!le, di%idends aya!le, %acation ayaccruals, and interest aya!le.


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RA,-6 CANADIAN TIRE CORPORATION LIMITED1 (Co"!i"&e*)

;!< ;1< Working caital Current assets less current lia!ilities.

D In millions #11 #1Current assets *,-$*.* *,$)-.#Current lia!ilities ),1$(. (,#$1.$Working caital #,(.* (,#-+.+

;#< Acid'test ratio Cash R short'term in%estments R trade and

other recei%a!les R loans recei%a!leCurrent lia!ilities

#119 1.#* times D(#$. R D1-*.) R D*+(.- R ),$1.D),1$(.

#19 1.+$ times D$*. R D1-*.+ R D#-.( R ),1.+

D(,#$1.$

;(< Current ratio Current assets

Current lia!ilities

#119 1.*+$ times D*,-$*.*D),1$(.

#19 #.1 times D*,$)-.#D(,#$1.$

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;)< 5i%e year history9

#11 #1 #- # #+

Currentassets *,-$*.* *,$)-.# *,-(. (-+-. (,1(.#

Currentlia!ilities

),1$(. (,#$1.$ (,-+1.- 1,---.+ #,11(.+

Workingcaital

#,(.* (,#-+.+ #,-#1.1 1,-+-.( 1,#).$

Currentratio

1.*+$ #.1 1.+) 1.-- 1.)

Canadian Tire CororationBs li?uidity is good in general, since it has sufficientcurrent assets to meet current lia!ilities. Its sound 0orking caital osition is

reflected in its acid'test and current ratio. Its acid'test ratio also indicates that thecomany has a high roortion of li?uid current assets. o0e%er, its li?uidity has!een fluctuating for the last $ years. The 0orking caital and the current ratiohad increased in #1, !ut had !een at lo0er le%els for #11, #- and #+comared to #1 and #.

;)< In%entory turno%er C:2U

A%erage in%entory

#119 $.- times D*,-1*.+

;D1,)).* R D-1<F#

U from note (( of financial statements.

The in%entory and recei%a!les tend to !e a large roortion of the current assetsused 0hen assessing li?uidity using 0orking caital and the current ratio.Calculating the turno%er of in%entory ro%ides information a!out the ?uality of thiscurrent asset.

The in%entory turno%er ro%ides information a!out the salea!ility of the in%entoryand the num!er of days it takes to sell. A turno%er of $.- times reresents ana%erage of *# days that the in%entory is held !efore !eing sold. The comany

sells many different tyes of in%entory items, and the turno%er figure calculated isan a%erage for all in%entories. Calculating the amount o%er se%eral years andcomaring it to other comanies in the same industry 0ould ro%ide moremeaningful information. When making these comarisons, one must !e carefulthat the numerator in the ratio calculation is consistent 0ith that used a!o%e.

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RA ,-6 CANADIAN TIRE CORPORATION LIMITED1 (Co"!i"&e*)(b) (Co"!i"&e*)

In the case of recei%a!les, the comany has se%eral tyes of recei%a!lesincluding credit card ;MasterCard< recei%a!les and loans from dealers ;see otes

11 and 1#<. Most of these recei%a!les do not arise from sales in Canadian Tireretail outlets, since the credit card can !e used 0ith %arious merchants. Theloans from associates do not relate to sales. As a result, a meaningful accountsrecei%a!le turno%er ratio cannot !e calculated. o0e%er, the large amount of cash that 0ill !e collected from these recei%a!les and loans aids in ayingcurrent lia!ilities and increases 0orking caital and current ratios.

;c< Current ortion of long'term de!t9 ;all num!ers in D millions<

This amount reresents the ortion of long'term de!t that is aya!le from currentassets in the coming year. The amount 0ould include only the rincial ortion of

the long'term de!t and 0ould not include interest aya!le during the comingyear. In this case, the current ortion amount of D#+.- million includes amountsrelating to finance lease o!ligations ;#(.* million< and romissory notes ;).(million<.

If the comanyBs long'term de!t does not increase, the current ortion of long'term de!t 0ill !e D*$$. in the #1# !alance sheet. This amount consists of D*of senior notes due in #1(, D().- of su!ordinated notes aya!le, D#.+ of finance lease o!ligations and D.# of romissory notes due 0ithin one year. Thisinformation is disclosed in note #* to the financial statements. The concern is thesenior note coming due re?uiring a total ayment of D* million. Will thecomany ha%e the cash to ay this amount or 0ill it try to refinance this de!tJ If the de!t is refinanced, at 0hat rate and terms 0ill the comany ha%e to ayJThis 0ill ha%e imlications for the comany in future years.

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;d< Commitments and Contingencies9

ote )1 discloses guarantees and commitments relating to the minimum annual

lease ayments for e?uiment and roerty under oerating leases. The noteoutlines guarantees that the comany has for certain franchisees and ealers of art2ource and mentions indemnification regarding !usiness and roertydisositions, indemnification of lenders and agents under credit facilities, andother indemnification commitments.

Contingent lia!ilities are re?uired to !e recorded in the financial statements 0henthe criteria for accrual are met. If the criteria are not met, note disclosure isre?uired. In the case of the guarantees and letters of credit related contingencies,the comanyBs management has determined that the otential loss 0ould !eminimal and thus has not recogni>ed a lia!ility in the financial statements.

2imilarly, 0ith resect to the legal roceedings, the note in the financialstatements of Canadian Tire states the GComany !elie%es that each suchroceeding constitutes a routine legal matter incidental to the !usinessconducted !y the Comany and that the ultimate disosition of the roceedings0ill not ha%e a material ad%erse effect on its consolidated earnings, cash flo0s,or financial osition.H Although this note does not contain detailed informationdescri!ing each of the contingencies or the amount of otential lia!ilities, it doesindicate that the total aggregate e&osure to the Comany relating to t0o classaction suits against the Comany 0as aro&imately D#).) million at the end of the #11 fiscal year.

;e< /nder ote $ 7 Caital Management , the comany has t0o key co%enants tomaintain9

• et tangi!le asset co%erage 0hich is calculated as9Total assets 7 intangi!le assets 7 current lia!ilities;e&cluding current ortion of long term de!t< 7 emloyee !enefitsaya!le" di%ided !y Total long term de!t ;including current ortion<

• The comany is also restricted on the amount of di%idends andreurchases of shares that can !e made.

• The comany 0as in comliance 0ith !oth of these co%enants.

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RA,- LUFT$ANSA

;a< The current lia!ilities for 4ufthansa are made u of the follo0ing amounts9

;in millions E/6< #11 #11 #1 #1

V Q of total V Q of totalther ro%isions 1 .) -.3orro0ings *1* *.( -$+ -.+Tr.*e p.'.bles ."* o!0erfi"."ci.l li.bili!ies

),##+ )(.# ),1-( )#.+

Li.bili!ies from &"&se*fli#0! *oc&me"!s

#,($- #).1 #,(- #).(

A*%."ce* p.'me"!srecei%e*5 *eferre* i"come."* o!0er "o"-fi"."ci.lli.bili!ies

-(- -.* 1,** 1.-

eri%ati%e financialinstruments

(+ .) 1( 1.

Effecti%e income ta&o!ligations

+1 .+ #(+ #.)

4ia!ilities related to assetsheld for sale

+1* +.( ' '

Total -,+( ,#+1

As can !e seen from the ta!le, the trade aya!les ."* o!0er fi"."ci.lli.bili!ies, and lia!ilities for unused flights reresent the largest roortion of thecurrent lia!ilities. The year o%er year comarisons on the ercentages indicate

that these ercentages are fairly consistent from #1 to #11.

;!< The notes ro%ide further disclosure of the tyes of o!ligations included in theaccounts as indicated !elo0.

O!0er pro%isio"s ;note (< includes9 o!ligations under artial retirementcontracts, other staff costs, onerous contracts, en%ironmental restoration, legalroceedings, restructuringFse%erance costs, fi&ed rice customer maintenancecontracts, maintenance on oerating lease aircraft, 0arranties, and other ro%isions.

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RA,- LUFT$ANSA (Co"!i"&e*)

Trade aya!les and other financial lia!ilities ;note )(< includes9 trade aya!lesand other lia!ilities to affiliated comanies, trade aya!les to other e?uityin%estments and trade aya!les to third arties, lia!ilities to !anks, other financial

lia!ilities to affiliated comanies and other financial lia!ilities.

Ad%anced ayments recei%ed, deferred income and other non'financial lia!ilities;note ))< includes9 ad%ance ayments recei%ed ;E/6 (# million<, net de!it!alance of ad%ance ayments recei%ed and recei%a!le for unfinished contracts;E/6 1$ million<, deferred income ;E/6 (#- million< and other non'financiallia!ilities ;E/6 )# million<.

4ia!ilities from unused flight documents, as outlined in note #, are flights thatha%e !een sold, !ut not yet used. These couons or tickets 0ill !e recogni>ed astraffic re%enue 0hen used. Couons that ha%e not !een used !y the year end;and are unlikely to !e used in future<, are recogni>ed as re%enue, !ased onre%ious yearsB statistical data.

;c< er ote (, the other staff costs relate to emloyee !enefit rogramsincluding9 staff 8u!ilee !onuses, %aria!le ayment otions and o!ligations fromother rograms that are not detailed.

The en%ironmental restoration o!ligations are estimated !ased on sur%eyorBsreorts and the clean'u is assumed to !e fully comleted 0ithin 1 years.

ote )) ro%ides more accruals related to emloyee !enefits as follo0s9

• utstanding holiday allo0ance and o%ertime E/6 #1+ million

• The current ortion of fair %alue o!ligations under share !asedremuneration rograms E/6 million.

;d< ote ( also ro%ides the reconciliation of the other ro%isions !et0een theoening and closing !alances ;although it does not slit !et0een GcurrentH andGlong'termH ortions<. 3elo0 is the reconciliation of the oening and closing!alance9

E/6 millionsening !alance 7 ecem!er (1, #1 1,$#)

E&change rate differences 1#/tili>ation '*1(e0 or added ro%isions *Interest )16e%ersals ')6eclassificationsFtransfers '1#Closing !alance 7 ecem!er (1, #11 1,(-*

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RA,- LUFT$ANSA (Co"!i"&e*)

;e< Currently, as e&lained in ote #, the accumulated unused miles areaccounted for !ased on I56IC 1( Customer 4oyalty rogrammes using thedeferred re%enue method. Amounts are !ased on estimates of the e&tent they

are likely to !e used for flights !y airlines in the 4ufthansa grou. 4ufthansameasures these miles at fair %alue ;rather than cost< under the deferred re%enuemethod. 5air %alue is !ased on the amount that the air miles could !e sold for searately ;for miles related to the comanyBs o0n flights<, and !ased on therice er mile to !e aid to the artners ;for oints collected relating to thirdarties<. Miles accumulated on the comanyBs o0n flights are included indeferred re%enue, and oints collected from third arties are sho0n under other non'financial lia!ilities. There 0ere a total of #1 !illion of Gmiles to !e measuredas of ecem!er (1, #11H. These resulted in deferred re%enue of E/6 -+million and non'financial lia!ilities of E/6 *# million.

;f< As e&lained in ote )$, the comany has contingent lia!ilities that includeguarantees, !ills of e&change and che?ue guarantees totalling E/6+)" 0arrantycontracts of E/6 -++ million and ro%isions of collateral for third arties totallingE/6 ($ million. As discussed in ote #, related ro%isions are only recognised if an o!ligation e&ists and is likely to lead to a cash outflo0 that can !e relia!lyestimated.

;g< Current !orro0ings, totalling E/6 *1* million, relate to the lia!ilities o0ed tothe !anks for E/6 #$ million and leasing lia!ilities and other loans for E/6(#)million. The remainder of current !orro0ings relate to !onds ;E/6 + million<.2ee ote ) for details.

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RA,-< RESEARC$ TOPIC

Sample SolutionToic9 4ia!ility accruals on interim financial statements

International accounting rinciles use the aroach that an enterrise shouldaly the same accounting olicies in its interim financial statements as arealied in its annual financial statements. Therefore, an enterrise shouldaly the same criteria for recogni>ing and measuring a lia!ility accrual at theend of an interim eriod as it does at the end of its fiscal year. This meanslia!ilities are recogni>ed 0hen an enterrise has a resent o!ligation as aresult of a ast e%ent. It is ro!a!le that an outflo0 of economic !enefits 0ill!e re?uired to settle that o!ligation and a relia!le estimate of the o!ligationcan !e made.

5or e&amle, if a year'end !onus is a legal o!ligation, or ast ractice makesthe !onus a constructi%e o!ligation for 0hich the enterrise has no realisticalternati%e !ut to make the ayments and a relia!le estimate of the amount of the o!ligation can !e made, the !onus is accrued for interim reortinguroses.

2ince this tye of !onus is usually !ased on a contract and is short'term innature, it is recorded in the accounting records and reorted in financialstatements at the amount of cash that is aya!le in the future.

The accounting standard that can !e alied to this toic is International Accounting Standard 3, GInterim 5inancial 6eortingH.

IA2 () mentions recogni>ing and measuring losses that re?uire accountingestimates ;e.g. in%entory 0rite'do0ns or restructurings<. It states that if theestimate changes in a su!se?uent interim eriod of that financial year, theoriginal estimate is changed in the su!se?uent interim eriod either !yaccrual of an additional amount of loss or !y re%ersal of the re%iouslyrecogni>ed amount.


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