Intermediate Accounting (Vol. 1), 4th Edition PDF by Kin Lo and George Fisher

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Intermediate Accounting (Vol. 1), Fourth Edition

By Kin Lo and George Fisher

Intermediate Accounting (Vol. 1)

Contents
Preface
Chapter 1 Fundamentals of Financial Accounting Theory 1
A. Uncertainty and Information Asymmetries 4

  1. Adverse selection example 5
  2. Moral hazard example 6
  3. Adverse selection and moral hazard defined 7
  4. Application of adverse selection and moral hazard to accounting 7
  5. Moral hazard in action: The financial crisis of 2008 8

B. Desirable Characteristics of Accounting Information and Trade-Offs 9
C. Economic Consequences of Accounting Choice and Earnings Management 10
D. Accounting and Securities Markets 11

  1. Accounting information in securities markets 11
  2. Using information from securities markets in accounting 14

E. Summary 14
F. Answers to Checkpoint Questions 15
G. Glossary 15
H. References 16
I. Problems 16
J. Mini-Cases 22

Chapter 2 Conceptual Frameworks for Financial Reporting 26

A. Conceptual Frameworks for Financial Accounting as Strategies to meet Market Demands for Information 28

  1. Sketch of a business plan for a carmaker 28
  2. Outline of a conceptual framework for financial reporting 29

B. Components of the Ifrs Conceptual Framework 30

  1. Users and their needs 30
  2. Objectives of financial reporting 31
  3. Qualitative characteristics 33
  4. Elements of financial statements 35
  5. Recognition 37
  6. Measurement 37
  7. Constraints 38
  8. Assumptions 38
  9. Example for illustrating the application of the IFRS Framework 40
  10. Financial information prepared on other bases 41

C. Other Conceptual Frameworks 41
D. Standard Setting: Internationally and in Canada 43

  1. Standards internationally 43
  2. Standards in Canada 43
  3. Organization and authority for setting accounting and auditing standards in Canada 44
  4. Globalization of standard setting 47

E. Standards in Transition 50
F. Appendix: Illustration of Capital Maintenance Concepts 50
G. Summary 53
H. Answers to Checkpoint Questions 53
I. Glossary 54
J. References 55
K. Problems 56
L. Mini-Cases 66

Chapter 3 Accrual Accounting 71

A. Demand for Periodic Reporting and the Need for Accrual Accounting 73
B. Accrual Versus Cash Accounting 76
C. Uncertainty and the Essential Role of Estimates in Accrual Accounting 78
D. Quality of Earnings and Earnings Management 79
E. Periodicity, Cut-Off, and Subsequent Events 81

  1. Periodicity 81
  2. Cut-off 81

F. Accounting Changes: Errors, Changes in Accounting Policy, and Changes in Estimates 83

  1. Correction of errors 83
  2. Changes in accounting policy 83
  3. Changes in accounting estimates 85
  4. Illustrative example for practice 85
  5. Summary 87

G. The Structure of Financial Reports and their Relationships 88

  1. Overview of financial statement presentation and interrelationships 88
  2. Balance sheet (statement of financial position) 91
  3. Statement of changes in equity 95
  4. Statement of comprehensive income 97
  5. Statement of cash flows 98
  6. Note disclosures 100
  7. Discontinued operations and other non-current assets held for sale 100
  8. Comparative figures 101
  9. Putting it all together: An illustrative example 102
  10. A practical illustration: Canadian Tire Corporation 102

H. Substantive Differences Between Relevant IFRS and Aspe 109
I. Appendix: Review of the Accounting Cycle 109

  1. Journalizing 111
  2. Posting 111
  3. Adjustments 113
  4. Preparing the financial statements 114
  5. Journalizing closing entries 114
  6. Posting of closing entries 115
  7. Summary 115

J. Summary 116
K. Answers to Checkpoint Questions 117
L. Glossary 117
M. For Further Reading 118
N. References 119
O. Problems 119
P. Mini-Cases 144

Chapter 4 Revenue Recognition 146

A. Range of Conceptual Alternatives for Revenue Recognition 148

B. An Overview of Revenue Recognition Criteria 149

C. Revenue Recognition Criteria: A More Detailed Look 151

  1. Identify the contract 151
  2. Identify the performance obligation 151
  3. Determine the transaction price 153
  4. Allocate the transaction price to performance obligations 155
  5. Recognize revenue in accordance with performance 156
  6. Examples of multiple performance obligations, allocation, and recognition: Franchise fees 157

D. Other Related Issues 158

  1. Expense recognition 158
  2. Contract costs 159
  3. Warranties 159
  4. Onerous contracts 160

E. Specific Revenue Recognition Situations 160

  1. Consignment sales 160
  2. Installment sales 161
  3. Bill-and-hold arrangements 162

F. Accounting for Long-Term Contracts 162

  1. Revenue recognition for cost-plus contracts 163
  2. Revenue recognition for fixed-price contracts: Application of changes in estimates 163
  3. Revenue recognition for fixed-price contracts: The cost-to-cost approach 165
  4. Accounting cycle for long-term contracts 167
  5. Onerous contracts 169
  6. Revenue recognition when outcome of a contract is uncertain: Cost recovery method 171
  7. Alternative in ASPE: Completed contract method 171

G. Risk of Earnings Overstatement in Long-Term Contracts 172

  1. Intentional overstatement: Earnings management 172
  2. Unintentional overstatement: The winner’s curse 173

H. Presentation and Disclosure 174

  1. General presentation and disclosure requirements 174
  2. Presentation and disclosure for long-term contracts 174

I. Substantive Differences Between Ifrs and Aspe 174
J. Summary 175
K. Answers to Checkpoint Questions 176
L. Glossary 176
M. References 177
N. Problems 177
O. Mini-Cases 196

Chapter 5 Cash and Receivables 202

A. Cash and Cash Equivalents 204

  1. Inclusions in cash and cash equivalents 204
  2. Exclusions from cash and cash equivalents 204
  3. Cash held in foreign currencies 205
  4. Negative balances 206
  5. Implications for the cash flow statement 206

B. Bank Reconciliations 206
C. Cash Management, Internal Controls, and Fraud Prevention 208

  1. Segregation of duties 208
  2. Monitoring by staff and customers 209
  3. Implications for internal controls of other areas 209

D. Overview of Accounting for Non-Cash Assets 211

  1. Initial recognition and measurement: Asset or expense? 211
  2. Asset valuation on the balance sheet 212
  3. Derecognition: Removal of an asset from the balance sheet 212

E. Trade Receivables: Initial Classification, Recognition, and Measurement 212
F. Subsequent Measurement of Trade Receivables: Accounting for Bad Debts 214

  1. Percentage of sales method (income statement approach) 215
  2. Aging of accounts method (balance sheet approach) 216

G. Derecognition of Receivables: Collection, Write-Offs, and Disposals 217

  1. Collection 217
  2. Write-offs 218
  3. Transfer of receivables (factoring) 218
  4. Transfer of receivables (securitization) 221

H. Comprehensive Illustration of Initial Recognition, Subsequent Measurement, and Derecognition of Accounts Receivable 222
I. Non-Trade Receivables 224
J. Accounting for Restructured Loans (from the Lender’s Perspective) 225
K. Potential Earnings Management Using Receivables 226

  1. Revenue recognition policy 226
  2. Change in credit policy without change in allowance 226
  3. Channel stuffing 226
  4. Change in the calculation of net realizable value 226
  5. Sale of receivables 227

L. Practical Illustration: Canadian Tire Corporation, Limited 227
M. Summary 229
N. Answers to Checkpoint Questions 229
O. Glossary 230
P. For Further Reading 231
Q. References 231
R. Problems 231
S. Mini-Cases 246

Chapter 6 Inventories 250

A. Information Systems for Inventory Control 252

  1. Perpetual system 252
  2. Periodic system 252
  3. Comparison and illustration 252

B. Initial Recognition and Measurement 254

  1. Purchased goods 254
  2. Manufactured goods 255
  3. Manufactured goods with abnormal production levels 256

C. Subsequent Measurement and Derecognition: Cost Allocation Between the Balance Sheet and Income Statement 257

  1. Specific identification 258
  2. Cost flow assumptions 258
  3. Retail inventory method 262

D. Subsequent Measurement: Interaction of Cost Flow Assumptions and Information Systems for Inventory Control 265
E. Subsequent Measurement: Avoiding Overvaluation of Inventories 267

  1. Meaning of “market” 267
  2. Unit of evaluation 268

F. Accounting for Inventory Errors 269
G. Presentation and Disclosure 271
H. A Practical Illustration: Canadian Tire Corporation, Limited 271
I. Potential Earnings Management Using Inventories 272

  1. Overproduction 272
  2. Including non-production costs in inventory 272
  3. Not identifying impaired or discounted items 272

J. Summary 273
K. Answers to Checkpoint Questions 273
L. Glossary 274
M. References 275
N. Appendix: Usage of Last-In, First-Out (Lifo) in The United States 275

  1. Balance sheet effect and the LIFO reserve 275
  2. Income effect and LIFO liquidation 275
  3. Distortion of turnover ratio 276

O. Problems 277
P. Mini-Cases 297

Chapter 7 Financial Assets 303

A. Introduction 304
B. Overview of Financial Asset Classification 306
C. Strategic Equity Investments 307

  1. Subsidiaries 307
  2. Joint operations 309
  3. Joint ventures 310
  4. Associates 311

D. Non-Strategic Investments 313

  1. Fair value through profit or loss (FVPL) 314
  2. Fair value through other comprehensive income (FVOCI) 316
  3. Amortized cost 316
  4. Exception for equity investments with an irrevocable election 316
  5. Reclassifications from one category to another 318
  6. Example: A debt investment to illustrate the differences among FVPL, FVOCI, and amortized cost 319

E. Amortization of Debt Investments 322

  1. The effective interest method 322
  2. Using amortized cost in the accounting for financial assets 325

F. Impairment of Investments in Debt 328
G. Substantive Differences Between Relevant Ifrs and Aspe 328
H. Summary 329
I. Answers to Checkpoint Questions 330
J. Glossary 330
K. References 331
L. Problems 331
M. Mini-Cases 346

Chapter 8 Property, Plant, and Equipment 348

A. Initial Recognition and Measurement 350

  1. What should an enterprise capitalize? 350
  2. How should enterprises categorize costs capitalized into property, plant, and equipment? 358

B. Subsequent Measurement 360

  1. Basis of measurement: Historical cost versus current value 360
  2. Impairment 361
  3. Depreciation under the historical cost basis 361

C. Derecognition 367
D. Non-Monetary Transactions 370

  1. Classification of non-monetary exchanges 370
  2. Recognition of non-monetary exchanges 371

E. Potential Earnings Management Using Property, Plant, and Equipment 372

  1. Including operating expenses in PPE 372
  2. Interest capitalization 372
  3. Depreciation parameters 373
  4. Opportunistic disposals of PPE 373

F. Presentation and Disclosure of Property, Plant, and Equipment 373
G. Substantive Differences Between Ifrs and Aspe 375
H. Summary 376
I. Answers to Checkpoint Questions 376
J. Glossary 377
K. References 378
L. Problems 378
M. Mini-Cases 399

Chapter 9 Intangible Assets, Goodwill, Mineral Resources, and Government Grants 407

A. Intangible Assets—Initial Recognition and Measurement 409

  1. What qualifies as an intangible asset? 409
  2. What amounts should an enterprise capitalize as intangible assets? 411

B. Intangible Assets—Subsequent Measurement 415

  1. Intangible assets with indefinite useful lives 415
  2. Intangible assets with finite useful lives 415

C. Intangible Assets—Derecognition 416

D. Goodwill 416

E. Presentation and Disclosure 417

F. Mineral Resources 419

  1. Three phases in mineral activities: Exploration, development, and extraction 419
  1. Full cost alternative under ASPE 420
  2. Other aspects of accounting for mineral exploration costs 422
  3. Example to illustrate the accounting for mineral resources 422

G. Government Grants 423

  1. How should enterprises recognize government grants—as equity capital or income? 423
  2. When should enterprises recognize government grants? 424
  3. How should enterprises present government grants? 425
  4. Repayment of government grants 427

H. Potential Earnings Management 428

  1. Capitalization of development costs 428
  2. Estimated useful lives of intangible assets 429
  3. Determination of exploration success or failure 429

I. Substantive Differences Between Ifrs and Aspe 429
J. Summary 429
K. Answers to Checkpoint Questions 430
L. Glossary 431
M. References 431
N. Problems 432
O. Mini-Cases 448

Chapter 10 Applications of Fair Value to Non-Current Assets 457

A. Revaluation Model of Measuring Carrying Values Subsequentto Initial Acquisition 459

  1. Adjusting asset values for revaluation 460
  2. Accounting for the effect of revaluation on equity 462
  3. Adjusting depreciation in periods subsequent to revaluation 463

B. Impairment 464

  1. Preliminary steps: What to test for impairment 465
  2. Impairment test 467
  3. Recognition of impairment 470
  4. Differences between impairment and revaluation 474
  5. Impairment standards in ASPE 475
  6. Economic roles of impairments 475

C. Investment Property 477

  1. Definition of investment property and scope of IAS 40 477
  2. Subsequent measurement 477
  3. Transfers into and out of investment property 480

D. Agriculture 483

  1. Definition of agricultural activity and scope of IAS 41 483
  2. Accounting for biological assets and agricultural produce 483

E. Non-Current Assets Held for Sale and Discontinued Operations 487
F. A Practical Illustration: Canadian Tire Corporation 489
G. Substantive Differences Between Ifrs and Aspe 491
H. Summary 491
I. Answers to Checkpoint Questions 493
J. Glossary 493
K. References 494
L. Problems 495
M. Mini-Cases 511

Appendix A        Statement of Cash Flows A1

Appendix B        Time Value of Money and Simple Valuation Techniques B1

Appendix C        Case Solving and Comprehensive Cases C2

Appendix D        Canadian Tire Corporation 2016 Consolidated Financial

Statements D2

Glossary G2

Index I2

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