index...

AAastra Technologies Limited, 343, 347, 352,

370, 1094, 1095, 1251abandoned asset, 94accelerated amortization methods, 533accountability

private corporations, 5–8public corporations, 4–5

accountants and ethics, 11accounting

accrual accounting, 12disclosed basis of accounting (DBA),

6–7for exchange rate fluctuations, 788–790for finance leases, lessee, 1068for hedges, 918for long-term debt, 777professional judgement. See professional

judgementfor retirement, 833–835share-based payments, 906for stock splits, 849–850terminology changes, 60for treasury stock, 836–837

accounting carrying values, 964accounting changes

See also accounting policy changesAccounting Standards for Private

Enterprise (ASPE), 1271–1272comparability of statistical series, 1256decision process for applying, 1269fdisclosure requirements, 1262estimate changes, 1250–1253ethics, 1271leases, forthcoming changes, 1107–1112prior-period errors, 1265–1268prospective application, 1256, 1262–1265reporting, 1255–1256, 1270fretrospective application, 1256–1262retrospective application with full

restatement, 1255retrospective application with partial

restatement, 1255–1256statement of cash flows (SCF), 1269–1270summary, 1270fsummary of approaches, 1268–1269types of, 1250

accounting choices. See accounting policy choices

accounting concepts, 36–38accounting cycle

accounting information system (AIS), 660–661, 661–678

adjusted trial balance, 662f, 672financial statements preparation, 662f,

673–675identification of transactions or events,

661–662journalize and post adjusting journal

entries, 662f, 666–672journalize and post closing entries, 662f,

675–676journalize and post reversing journal

entries, 662f, 677–678journalize transactions and events,

662f, 663post from journal to ledger, 662f, 663–665

post-closing trial balance, 662f, 676reversing journal entries (RJEs), 677–678unadjusted trial balance, 662f, 665–666f

accounting estimatesaccounting policy changes, vs. change of,

1252amortization requirements, 535–536changes in, 153, 1250–1253depreciation requirements, 535–536disclosure, 1250–1251ethics and amortization, 558–559ethics and changes in, 1253, 1271ethics and compensation cost accruals,

909importance of, 57income smoothing, 16–17of input measures, 292–293inventory estimation methods, 419–424measurement uncertainty, 157multiple, 1251revenue, 289–290, 293, 306–307in statement of financial position (SFP),

140–141accounting fiction, 142accounting identity, 659accounting income, 82accounting information system (AIS)

accounting cycle. See accounting cycleaccounts, 659cash disbursements journal, 681–682cash receipts journal, 681–682defined, 660–661financial statements, 660general journal, 681purchases journal, 680–681recording transactions, 659–660sales journal, 679–680special journals, 679–683subsidiary ledgers, 678–679technology, impact of, 661worksheets, 684–686

accounting mismatch, 594, 918accounting policies, 152–155, 156

adopting new accounting policy, 1265financial statement analysis, 1303–1304

accounting policy changesSee also accounting changeschange in estimates, vs., 1252compulsory change, 152defined, 1253described, 152–155disclosure requirements, 1262mandatory change, 1253–1254new accounting policy, vs., 1265presentation, 1257prospective application, 1262–1265recording, 1257reporting, 1257reporting objectives, 1254retrospective application, 1256–1262voluntary change, 1253–1254

accounting policy choicesamortization, 533–537cash flow statements, 209depreciation, 533–537and ethics, 213expenditures, 472

factors, 534–535financial statement concepts, 36–38, 37fqualitative criteria, 43–47revenue recognition, 305–307and SFP amounts, 140statement of cash flows (SCF), 212–213structure of accounting policy choice,

36–38, 37faccounting policy convention approach,

543–544accounting standards

See also generally accepted accounting principles (GAAP); International Accounting Standards Board (IASB); International Financial Accounting Standards (IFAS)

authoritative source of, 2for Canadian private enterprises, 5–7for Canadian publicly accountable

enterprises, 4–5changes to, 152–155comparability issues, 7–8financial statement analysis, 1304international standards, 2–4, 1035leases, changes to, 1107–1112long-lived assets, 497fmultiple sets of, 7new, 156–157pension measurements, 1140projected unit credit method, 1140

Accounting Standards Board (AcSB), 2, 6, 21, 228, 856

Accounting Standards for Private Enterprise (ASPE), 6

accounting changes, 1271–1272accounts receivable, 371assets and liabilities, 62fbalance sheet, 136, 162biological assets, 310borrowing costs, 801as Canadian accounting standard, 1–2capital lease, 1098–1099capitalization, 801carrying value, 164cash, 371CPA Canada Handbook, Part II (ASPE), 2,

21, 162, 163, 979completed-contract method, 308–309component depreciation, 559comprehensive income, 107comprehensive tax allocation, 979, 1036constructive liabilities, 748contingent liabilities, 163, 748–749convertible debt, 922corporate income tax, 979cost method, 631deferred income tax, 979defined benefit plans, 1161–1164defined contribution plans, 1161–1164disclosure, 310, 427, 923, 1100disclosure notes, 84, 163–164dividends, 223–224earnings per share, 109, 1220equity, 163equity method, 631and ethical professional judgement, 38financial liabilities, 748–750

Index

INDEX IN-2

financial statements, 21, 61–62, 686foreign subsidiaries, 856forfeiture, 923format, 107hedges, 923held-for-sale assets, 108impairment, 1100impairment losses, 560income tax, 223initial direct costs, 1100interest, 223interest rate, 1099inventory, 427lease capitalization, 1099leases, 1099–1101leases of land and buildings, 1099lessees, 1099–1100lessor, 1100–1101liability method, 979line items, 108long-lived assets, 497flong-term liabilities, 801minimum depreciation, 559–560non-monetary transactions, 309–310notes receivable, 371onerous contracts, 427operating lease, 1098–1099passive investments, 630pension expense, 1161–1162pension plans, 1161–1164post-employment benefits, 1161–1164preferred shares, 922private enterprises, 21, 61–62, 107–109,

826proportionate consolidation, 631and qualitative characteristics, 61frelated party transactions, 164restructuring, 109revaluation accounting, 560–561revenue recognition, 308sale and leaseback, 1101segments, 163share retirement, 856share-based payments, 923shareholder loans, 922shareholders’ equity, 856statement of cash flows (SCF), 223–224,

228, 1388straight-line measurement of interest

expense/revenue, 366–367straight-line (SL) method, 371–372,

749–750, 801–802strategic investments, 630–631tax loss carryforwards, 1036taxes payable method, 979, 1036transaction recording, 686treasury stocks, 856writedowns, 427

accounting-based covenants, 775accounts

contra account, 670control account, 665, 678current accounts, 200doubtful accounts, 350–351nominal accounts, 659non-cash accounts, 204, 206permanent accounts, 659real accounts, 659subsidiary account, 665T-account, 213–220, 659–660ftemporary accounts, 659

accounts payable, 718–719accounts payable turnover, 1322accounts receivable


aging method, 353–355allowance for doubtful accounts, 350–351amortized cost category, 348average collection period of accounts

receivable, 1320cash discounts, 348–349cash flows from sales, 356–357classification of, 348credit card transactions, 356credit sales method, 353, 355debit card transactions, 356–357direct write-off of uncollectible accounts,

355–356and disclosure, 369–370foreign currency receivables, 368–369FVTPL category, 348, 356loans secured by, 357maturity value, 363notes receivable, 362–368reporting, 352sales returns and allowances, 349–350special purpose entities (SPEs), 361–362and statement of cash flows (SCF),

369–370statement of financial position (SFP), 143transfer of, 357–362valuation allowances, 348–352valuation of the allowance for doubtful

accounts, 353–355write-off and recovery, 351–352

accounts receivable aging schedule, 1321accounts receivable turnover ratio, 1321accounts/notes receivables, 344accrual accounting, 12accrual concept, 52accruals

adjusting journal entries (AJEs), 666–667defined, 52expenses, 668

accrued expenses, 668accrued interest, 603–604, 737–738, 739,

784–785accrued revenue, 669accumulated benefit method, 1139accumulated other comprehensive

income, 856acid-test ratio, 1330acquisition cost, 535, 593acquisition transactions, 486active market, 601actuarial cost methods

for accounting measurement, 1140accumulated benefit method, 1139defined, 1133defined benefit plans, 1138–1140level contribution method, 1139projected unit credit method, 1139sensitivity to assumptions, 1140

actuarial gains and losses, 1134, 1144–1145, 1149

actuarial revaluation, 1134actuary, 1133ad hoc approach, 213, 234adaptation of IFRS, 3additional contributed capital, 850–851additional markup, 422

additional markup cancellation, 422additional paid-in capital, 146additions, 468adjusted trial balance, 672adjusting comparative statements, 100–101adjusting events, 161adjusting journal entries (AJEs)

accruals, 666–667bad debt expense, 670classification of, 666–672cost of goods sold, 670–671deferrals, 666–667defined, 666depreciation expense, 669–670expedient recording method, 667income tax expense, 671–672journalizing and posting, 666–672periodic system, 670perpetual system, 670standard recording method, 667

adjustmentsbank reconciliation, 377–379equity method, 619foreign currency translation adjustment,

147–148stock splits, 849–850

adoption of IFRS, 3advances, 720agent, 267aggregation, 413aging method, 353–355aging schedule, 354fagricultural produce, 294–295AIG, 1088Air Canada, 1, 2, 81, 85, 86f, 89–90, 532,

1059, 1131AIS. See accounting information system

(AIS)AJE. See adjusting journal entries (AJEs)all-inclusive approach, 83allocation

of impairment loss, 548–550interperiod allocation, 12, 52interperiod tax allocation, 957–959partial allocation, 957

allocation of consideration, 285–286, 320allowance for bad debts, 361allowance for doubtful accounts, 350–351allowance for sales returns, 274AltaGas Ltd., 776, 798–800alternative accounting treatments,

357–358alternative classification, 1386–1387amortization

See also depreciation10% corridor method, 1148accounting policy choices, 533–537acquisition cost, 535amortization systems, 544asset retirement obligations, 544biological assets, 531bond amortization tables, 780–783bonds, 786Capital Cost Allowance (CCA), 564–566commercial mortgages, 774conceptual analysis of, 534conceptual basis of, 530–531debt amortization table, 1070–1071decommissioning costs, 544defined, 530depreciation. See depreciation

INDEXIN-3

amortization (continued)disclosure requirements, 552–557fdiscontinued operations, 98discount, of, 604effective-interest method, 363–366,

605–607f, 736estimates required, 535–536ethics, 558–559expense, 531factors influencing policy choice, 534–535final-year convention, 544finance leases, 1070–1071, 1075fractional-year amortization, 542–544full-first-year convention, 543–544generally accepted accounting principles

(GAAP), 669–670group depreciation, 544–545half-year convention, 543held-for-sale, 536held-for-sale capital assets, 531investment property, 531lease amortization table, 1070–1071, 1075,

1090–1091, 1110nature of, 530–532premium, 604recognition of amortization expense, 531residual value, 536sale and leaseback, 1082–1083spare parts, 537standby equipment, 537statement of cash flows (SCF), 558straight-line (SL) method, 537–539f,

605–607f, 749–750useful life, 535

amortization methodsaccelerated amortization methods, 533declining-balance (DB) method, 538f, 539fdecreasing charge, 533diminishing-balance (DB) method, 541double-declining balance (DDB), 541estimates, 541formulas, 538fproductive-output (PO) method, 538f,

539f, 540service-hours (SH) method, 538f, 539f,

540straight-line (SL) method, 537–539f,

605–607funits of production method, 540units of service, 540–541variable charge, 533

amortization period, 536amortization schedules, 539f, 1070–1071amortization table for finance leases,

1070–1071, 1075amortized cost (AC)

accounts receivable, 348classification, 344defined, 593portfolio, 593–594

amortized cost (AC) method for investments, 597–598, 603–609

analysis. See ratio analysisAndrew Peller, 295–296anti-dilutive elements, 1200appropriated retained earnings, 838appropriation, 147arbitrary allocation, 832Argentium Resources Inc., 830–831Armtec Infrastructure Inc., 101–102, 102f,

529, 552–557f, 953, 1009

ASPE. See Accounting Standards for Private Enterprise (ASPE)

assessment of cash flows, 12–13asset ceiling, 1137, 1144, 1145–1146asset disposals, 93–97, 93fasset retirement obligations, 544asset turnover, 1322asset-backed commercial paper (ABCP), 345assets

abandoned asset, 94Accounting Standards for Private

Enterprise (ASPE), 62facquisition of, and historical costs, 54agricultural produce, 294–298on balance sheet, 142biological assets, 137f, 144, 294–298, 310,

464, 487capital assets, 472–473contingent, 726contract asset, 317current, 94, 136, 137f, 142–143deferred income tax assets, 969–970defined, 50fand discontinued operations, 101disposals, 93–97, 93fdonated assets, 473–474economic life, 1066exploration and evaluation (E&E)

assets, 481financial assets, 137f, 143in financial statements, 48fixed assets, 144, 299–302goodwill, 52, 464, 483–486government assistance, 505–506held-for-sale, 94–95, 137fidle asset, 94intangible assets. See intangible assetsinvestment property, 464leased, 1080–1081liquidation of, 827long-lived asset. See long-lived assetsmonetary assets, 298net assets, 50f, 825noncurrent assets, 94, 143–144non-monetary assets, 298, 483offsetting, 145pension plan assets, 1137, 1145property, plant, and equipment, 464regional differences in, 137–138return on assets, 140return on total assets, 1315self-constructed assets, 469selling individual, 94statement of financial position (SFP), not

on, 141statement of financial position (SFP), on,

137f, 142–144tangible capital assets, 144

associates, 595–596Aston Hill Financial Inc., 626–627fauditor’s report, 1303authorization date, 778authorized share capital, 828Autonomy, 306available information, 351average collection period of accounts

receivable, 1320average cost, 436–437

Bbackdated, 305

backdating, 1206bad debt estimation, 353fbad debt expense, 670bad debts allowance, 361balance sheet, 21

See also statement of financial position (SFP)

Accounting Standards for Private Enterprise (ASPE), 136, 162–163

cash flows, 204defined, 136

BAM Investments Corp., 889Bank Act, 4bank debit and credit memos, 381bank loans

long-term bank financing, 774–775short-term bank loans, 772–773

bank overdrafts, 200bank reconciliation

adjusting entries, 380–381balancing, 379–380credit memo, 381debit memo, 381defined, 346–347as internal control, 346–347purpose of, 377

bank reconciliation adjustments, 347, 377–379

bargain purchase option, 1065bargain renewal term, 1065barter, 298barter transactions, 298–299basic earnings per share

See also diluted earnings per share; earnings per share (EPS)

adjustments, 1192bonus shares, 1195calculation, 1191capital charge, 1192contingently issuable ordinary shares,

1194defined, 89, 1190disclosure, 1218–1219illustration, 1213–1217interpretation, 1190–1191mandatorily convertible shares, 1193multiple classes of common shares,

1196–1198net profit or loss available to ordinary

shareholders, 1191–1192ordinary shares, 1191senior shares, 1191stock dividends, 1195–1196stock splits, 1195–1196weighted average ordinary shares

(WAOS), 1192–1193basket purchase, 466basket sale, 831BCE Inc., 81, 153–155, 1085–1086fBell Canada Enterprises, 848–849Belo Sun Mining, 904betterment, 468bias, freedom from, 45big bath, 17–18bill-and-hold arrangements, 277–278billings on contract, 290, 291biological assets, 137f


amortization, 531defined, 294–295, 464

INDEX IN-4

depreciation, 531example, 295–298presentation, 487in statement of financial position (SFP), 144

blended payments, 367, 774Bombardier Inc., 4–5, 85, 87f–88f, 89–92,

138, 139f, 140, 150, 151f, 157–160, 827, 953, 970, 972–974, 1034–1035, 1249, 1252

bond date, 778bond indenture, 775bond sinking funds, 142bond valuation, 777–778bonds

accrued interest, 784–785amortization, 786amortization tables, 780–783bond date, 778book value, 780call option, 793call price, 793classification of, 777convertible bonds, 1208–1209, 1212–1213convertible debt, 891defeasance, 795–796defined, 775delayed issuance, 784face value, 778fair value, 777–778, 786foreign currency-denominated, 613–614if-converted method, 1201income bond, 886initial discount amortization, 785in-substance defeasance, 796–797interest expense, 785–786issuance, 784maturity date, 778nominal interest rate, 778open-market extinguishment, 795par value of, 778payable, example, 778–783payment dates different from statement

dates, 783–784redeemable bond, 793retractable bond, 793

bonus shares, 1195bonuses, 723book value, 299, 343book value method

commercial substance, 300–301defined, 298, 893

book value of the transferor, 164borrowing, 358, 360–361borrowing costs, 492f


capitalization of, 790–792defined, 791

borrowing opportunity rate (BOR), 1066nSee also incremental borrowing rate (IBR)

brand names, 144, 477fbreakage, 731Brookfield Asset Management Incorporated,

463, 502–503f, 591bundle of goods and/or services, 284, 320business combination, 1194buying earnings, 1194

CCAE Inc., 135, 265, 1251–1252call option, 793, 915

call price, 793, 888callable shares, 832Canada Business Corporations Act

(CBCA), 826Canada Labour Code, 733Canada Pension Plan (CPP), 722Canada Revenue Agency (CRA), 13, 309,

564, 886, 1073Canadian Business Corporations Act

(CBCA), 2, 826Canadian Institute of Chartered Accountants

(CICA), 2Canadian National Railway (CNR), 1059Canadian Tire Corporation Limited, 715,

717–718, 745–746Cangene Corporation, 199, 834–835capital assets

equity securities, in exchange for, 473financed with low-interest debt, 472–473

capital charge, 898, 1192Capital Cost Allowance (CCA), 13, 564–566,

955, 1015capital gain, 954capital lease

See also finance leasesAccounting Standards for Private

Enterprise (ASPE), 1099defined, 1099disclosure, 1100operating lease, vs., 1098–1099

capital maintenance, 42–43, 44fcapital transactions, 153–155capitalization


avoiding lease, 1087–1088of borrowing costs, 790–792, 801calculations, 791–792

capitalize, 213capitalized costs, 487captive leasing companies, 1088carrying value, 164, 530cash, 137f


classification of, 345collection and revenue recognition,

279–281defined, 142, 200delayed payment contracts, 283–284as financial asset, 344FVTPL category, 345internal control over, 346–347reporting, 347statement of cash flows (SCF), 1375T-account, 213–220

cash conversion cycle, 1330–1331cash disbursements journal, 681, 682fcash discounts, 348–349, 409cash dividends payable, 720cash equivalents, 137f

defined, 142, 200, 345, 592reporting, 347statement of cash flows (SCF), 628T-account, 213–220

cash flow from operating activities, 12cash flow per share, 12, 1219cash flows

analysis, 204assessment, 12–13capitalized costs, reporting, 487

classification of, 223–224discounted cash flows, 283examples of, 201fand policy choices, 212–213predictions, 12–13and realization, 53and recognition, 53separate disclosure items, 224–226to shareholders, 833speeding cash flows from sales, 356–357

cash receipts journal, 681–682, 682fcash redemption, 891cash-generating unit (CGU), 98, 546, 547,

548–549cash-settled payment, 905cash-settled plans

defined, 903forfeiture, 912–913stock appreciation rights (SARs), 911–912

cash-to-cash cycle, 359CCA. See Capital Cost Allowance (CCA)changes in accounting estimates

defined, 1250described, 153disclosure, 1250–1251disclosure example, 1251–1252ethics, 1253, 1271prospective application, 1250

changes in accounting policy. See accounting policy changes

changes in net assets, 266, 272changes in wealth, 82chartered banks, 4Chase Container Corporation, 436–439cheque register, 681cheques, 377–379chief financial officer (CFO), 11Chrysler Financial Canada, 1088CPA Canada Handbook, Part I (IFRS), 2, 21CPA Canada Handbook, Part II (ASPE), 2,

21, 162, 163, 979, 1099–1100Clarification of Acceptable Methods of

Depreciation and Amortization, 559classes of items, 47classes of shares, 826classification

accounts receivable, 348alternative classification of statement of

cash flows (SCF), 1386–1387assets and liabilities on SFP, 136–138cash, 345cash flows, 223–224compound instrument, 890–891computer software, 479convertible debt, 890–891corporate income tax, 970debt vs. equity, 887derecognition, 359–361equity vs. debt, 887factors, 887–888fair value through profit or loss

(FVTPL), 356finance leases, 1064–1067financial assets, 344of financial instruments, 886–892lessor, 1100long-term leases, 1108–1109mutual funds, 890other comprehensive income (OCI), 83of pension plans, 1132perpetual debt, 890

INDEXIN-5

classification (continued)redeemable shares, 890retractable preferred shares, 888–889statement of cash flows (SCF), 200,

223–224, 1375by substance, 886–887tax status of investment, 886–887

closing entries, 675–676Clublink Enterprises Limited, 854collateral security, 362, 719collectability, 319collection, 279–280commercial mortgages, 774commercial paper, 345commercial substance, 300–301commitments, 49common shares, 826, 1191common-size (vertical) analysis, 1307–1309,

1309–1311, 1314comparability, 45compensated-absence liabilities, 733–734compensating balance, 345compensation plans, 914–915completed-contract method, 308–309,

319completeness, 45complex financial instruments, and

statement of cash flows (SCF), 919compliance statement, 156component accounting, 465–466component depreciation accounting,

532–533f, 542, 559compound financial instruments, 885, 886,

890–891compound plans, 913–915comprehensive income

and ASPE, 107consolidated statements of, 88fdefined, 82–83net income, vs., 91

comprehensive tax allocation, 957–959, 979, 1036

computer software costs, 477f, 479–480Conceptual Framework, 106–107, 162Conceptual Framework for Financial

Reporting (IFRS), 10, 43conditional payments, 723confirmatory value, 44consideration, 54, 269consignee, 278consignment, 408consignment arrangements, 278–279consignor, 278consistency, 45consolidated balance sheet, 488f–489fconsolidated financial statements,

1332–1334consolidated income statement, 87f, 89consolidated method, 600consolidated statement of cash flows, 203fconsolidated statement of financial

position, 139fconsolidated statement of operations, 86fconsolidated statements of changes in equity,

148, 149f, 150, 151fconsolidated statements of comprehensive

income, 88fconsolidation, 362, 600, 623–624constant dollar capital maintenance, 42construction-in-progress inventory, 290constructive liability, 730

constructive obligation, 103–104, 105f, 474, 716

contingencies, 157Accounting Standards for Private

Enterprise (ASPE), 163–164defined, 158, 724disclosures for, 745and liabilities, 726

contingent, 278contingent assets, 726contingent lease payments, 1065contingent rent, 1066, 1087contingently issuable ordinary shares, 1194continuity assumption, 41continuum of asset disposals, 93fcontra account, 670contract asset, 317contract liability, 317contract-based approach, 268–269, 307, 317,

318–320contracts

compliance, 14–15customer loyalty programs, 286–287executory contract, 49franchise fees, 287long-term contracts, 288–291, 293–294,

321multiple goods and service contracts,

284–287onerous contract, 293

contracts in progress, 407contractual rate, 778contractual right, 344contributed capital, 146–147contributed surplus, 146contributory pension plan, 1132control, 271, 272, 273, 278, 595control account, 665, 678control blocks, 11convention, 542convergence of IFRS, 3convergence project, 20conversion cost, 410conversion of preferred shares, 827conversion of shares, 835convertible bonds, 1208–1209, 1212–1213convertible debt


accounting treatment of, 891book value method, 893capital charge, 898cash redemption, 891characteristics of, 891classification, 890–891conversion, 893conversion at investor’s option, 892–896conversion mandatory, 897–899debt principal, 899defined, 886diluted earnings per share, 1208–1210discount rate, 894earnings, impact on, 895fair value hierarchy, 894floating conversion price per share, 891,

895, 899forced conversion, 891incremental method, 894, 897initial recognition, 892–893interest obligation, 899measurement, 894–895, 897–898

repayment, 893–894share equity alternatives, 898–899

convertible senior securities, 1199copyrights, 144, 477f, 536fcorporate income tax

See also interperiod tax allocationAccounting Standards for Private

Enterprise (ASPE), 979approach to income tax questions,

962–969Capital Cost Allowance (CCA), 955capital gain, 954classification, 970deferred income tax, 963–969deferred income tax assets, 969–970deferred income tax liabilities, 969,

978–979disclosures, 971–975, 979discontinued operations, 971income tax expense, 974–975income tax payable, 962–963interperiod tax allocation. See interperiod

tax allocationintroduction, 953investment tax credit, 984–987netting, 970–971provision for income tax, 954shorter computational approach, 975–977statement of cash flows (SCF), 977statement of financial position elements,

969–971tax expense for the year, 969tax rates, 968–969, 973–974taxable income, 962–963taxes payable method, 957, 979

corporate reporting objectives, 534corporations

See also private companies; public companies

Board of Directors, 826dividends. See dividendsmulti-industry corporations, 1334share capital, 826shareholders’ equity, 826

corridor method, 1148cost deferrals, 275–277, 729–730cost flow methods, 435–439cost investments, 595cost method, 599, 609, 631cost model, 465, 482–483cost of goods sold, 670–671cost ratio, 421cost recovery method, 280–281, 288cost to complete, 292cost to date, 292cost-based inventory. See inventorycost/benefit effectiveness, 46–47cost-reduction approach, 984costs

acquisition cost, 535, 593average cost, 436–437capitalization of borrowing costs, 790–792capitalized costs, 487computer software costs, 477f, 479–480conversion cost, 410current service cost (CSC), 1141debt issuance costs, 786–787decommissioning costs, 544deferred, 275–277development costs, 478–479direct costs, 292, 410

INDEX IN-6

elements of, 469, 476environmental, 466executory costs, 1062, 1075–1076future costs, 103historical cost, 36, 141, 406fineligible costs, 479interest cost, 469, 471inventory costs, 408–410investment tax credit (ITC), 984–985laid-down cost, 408, 412overhead costs, 410, 469research costs, 478–479safety, 466share issue costs, 832site restoration costs, 474–475subsequent costs, 467website development costs, 477f

counter the risk, 917counterbalancing errors, 1267–1268coupon rate, 778coupons, 731covenants, 9, 15, 775–776CPP (Canada pension plan), 722CRA. See Canada Revenue Agency (CRA)credit balances, 348credit card transactions, 356credit facility, 772credit memo, 381credit sales method, 353, 355credit unions, 4critical estimates and decisions, 306–307critical event, 269

cash collection, 279–280at delivery, 271, 284

cross-sectional comparisons, 1306crown corporations, 4CSC. See current service cost (CSC)cumulative currency translation difference

(CCTD), 91, 148cumulative dividends, 827cumulative foreign currency translation

account, 852cumulative senior shares, 1192currency

foreign currency, 344, 345–346reporting, 4stable dollar, 42

current accounts, 200current assets

cash, 137f, 142classification of, 137defined, 94, 136in statement of financial position (SFP),

142–143current cost, 54current exchange rate, 344, 346, 368current income tax, 92current liabilities, 136, 743current ratio, 1330current service cost (CSC), 1141current tax liabilities, 137fcurrent-noncurrent presentation, 136customer lists, 477fcustomer loyalty programs, 286–287,

731–732cut-off errors, 417–418, 426

DDaimler Chrysler Financial Services Inc.,

1088damaged inventory, 415–416

date of sale, 280days in inventory, 1321days in payables, 1322death benefits, 1138debenture, 775debit card transactions, 356–357debit memo, 381debit-credit convention, 659debt

classification factors, 887–888convertible debt. See convertible debtdebt-to-equity continuum, 886modification of, 797perpetual debt, 886, 890substitution of, 797

debt amortization table, 1070–1071debt covenants, 775–776debt issuance costs, 786–787debt retirement

defeasance, 795–796derecognition, 792derecognition at maturity, 793derecognition prior to maturity, 793–794in-substance defeasance, 796–797recording, 794–795substitution or modification of debt, 797

debt service ratios, 1322, 1327debt transactions on cash flow statements,

211–212debt-to-equity continuum, 886debt-to-total assets, 1326debt-to-total capitalization, 1326declaration date, 839declassification as held-for-sale, 97declining balance, 140declining-balance (DB) method, 538f, 539fdecommissioning costs, 544decommissioning obligation, 474–475decomposition analysis, 1307defeasance, 795–796defensive-interval ratio, 1331–1332deferral method, 959–961deferrals

adjusting journal entries (AJEs), 666–667cost deferral, 275–277defined, 52expenses, 668revenue deferrals, 275–277, 668

deferral-type entries, 666–667deferred corporate income tax, 963–969, 978deferred expenses, 668deferred gross margin, 280deferred income tax

corporate income tax, 963–969leases, 1073loss year, 1012

deferred income tax liabilities, 969, 978–979deferred revenue, 668deferred tax liabilities, 137fdeferred taxes, 92–93deficit, 837defined benefit obligation, 1137defined benefit plans

10% corridor method, 1148Accounting Standards for Private

Enterprise (ASPE), 1161–1164actuarial cost methods, 1138–1140asset ceiling, 1137, 1144curtailment classification, 1141–1143defined, 1132demographic assumptions, 1138

disposition of accumulated OCI amounts, 1148

evaluation, 1148–1149example, 1142–1143expected vs. actual return, 1145final pay pension plans, 1136financial assumptions, 1138flat benefit pension plan, 1136introduction, 1136–1140net defined benefit pension liability

(asset), 1137net interest on the net defined benefit

pension liability (asset), 1143–1144netting, 1148–1149obligation, 1137pension holiday, 1137pension plan assets, 1137, 1145re-measurement of the net defined benefit

pension liability (asset), 1144–1146service cost element, 1141–1143settlement classification, 1141–1143statement of financial position (SFP),

1146–1148structure, 1137termination benefits, 1142termination classification, 1141–1143variables to be estimated, 1137–1138

defined contribution plansAccounting Standards for Private

Enterprise (ASPE), 1161–1164current service cost, 1135–1136defined, 1132delayed payment, 1135–1136prepaid amounts, 1136

degree of completion, 291delayed issuance, 784delayed payment contracts, 283–284delayed revenue recognition, 277depletion, 530deposits, 377, 720depreciable amount, 530depreciation

See also amortizationaccounting policy choices, 533–537asset retirement obligations, 544biological assets, 531Capital Cost Allowance (CCA), 564–566conceptual analysis of, 534conceptual basis of, 530–531decommissioning costs, 544defined, 530disclosure requirements, 552–557fequity method, 620estimates required, 535–536ethics, 558–559example, 552–557ffactors influencing policy choice,

534–535finance leases, 1076fractional-year amortization, 542–544generally accepted accounting principles

(GAAP), 669–670group depreciation, 544–545investment property, 531nature of, 530–532policy, 140recognition of amortization expense, 531spare parts, 537standby equipment, 537statement of cash flows (SCF), 558

depreciation expense, 669–670

INDEXIN-7

depreciation methodschanges, 1252declining-balance (DB) method,

538f, 539fdiminishing-balance (DB) method, 541productive-output (PO) method, 538f,

539f, 540service-hours (SH) method, 538f, 539f,

540straight-line (SL) method, 537–539f

depreciation period, 536depreciation schedules, 539fderecognition

See also recognitionclassification, 359–361debt retirement, 792defined, 357ethics, 359long-lived assets, 482–483at maturity, 793prior to maturity, 793–794tests to allow, 359–360

derecognized, 792derivative instruments, 899derivatives

accounting recognition, 916–917described, 899embedded derivative, 916forward contract, 915futures contract, 915–916hedges, 917–918nature of, 915–916options, 915stand-alone derivatives, 916

detachable contract, 901determinable amount of cash, 344development, 478different market and stated rates, 364–365diluted earnings per share

See also basic earnings per share; earnings per share (EPS)

actual conversions during the period, 1206–1210

adjustment for contingently issuable shares, 1200–1201

adjustment for dilutive options, 1200adjustment for dilutive senior securities,

1201anti-dilutive elements, 1200backdating, 1206calculation, 1200–1205calculation, example, 1203–1205cascade, 1205–1206contingently issuable ordinary shares,

1199converted debt, 1208–1210converted preferred shares, 1206–1208convertible bonds at issuer’s option, 1212convertible securities and options

extinguished during the year, 1211convertible securities and options issued

during the year, 1210convertible senior securities, 1199defined, 89, 1199dilutive elements, 1200dilutive senior securities, 1201dilutive vs. anti-dilutive, 1200disclosure, required, 1218–1219disclosure note, 1218–1219earnings dilution, 1199exercised options, 1210

flow chart of steps in calculating, 1203fforced conversion, 1211FVTPL liabilities, 1212if-converted method, 1201illustration, 1213–1217individual effect, 1201–1202interest expense, 1211interpretation, 1190–1191loss year, in, 1212public companies, reporting, 1189–1190reference point, 1211reporting, 1205share price measurement, 1212steps in calculating, 1202fstock option, 1199treasury stock method, 1200

diluted earnings per share cascade, 1205–1206

dilutive elements, 1200dilutive options, 1200dilutive senior securities, 1201diminishing-balance (DB) method, 541direct costs, 292, 410direct inventory reduction method, 414–415direct observation, 56direct presentation of operating activities,

208–209, 221–222, 307, 1384–1386direct write-off, 355–356direct-financing lease, 1096disclosed basis of accounting (DBA), 6–7disclosure

accounting estimates, changes in, 1250–1251

accounting policy changes, 1262and accounting policy presentation,

306–307Accounting Standards for Private

Enterprise (ASPE), 84, 310, 923, 979, 1100

accounts receivable, 369–370basic earnings per share, 1218–1219capital lease, 1100cash flows, 13, 223–224constructive obligation, 103–104, 105fcontingencies, 745corporate income tax, 971–975, 979critical estimates and decisions, 306–307diluted earnings per share, 1218–1219discontinued operations, 100earnings per share (EPS), 1218–1219economic dependence, 161fexample of, 101–102, 102f, 626–627fexpanded disclosure, 18finance lease, 1084–1085financial instruments, 625–627, 919–920for financial liabilities, 745impairment loss, 550information, 361intangible assets, 488International Financial Accounting

Standards (IFRS), 1251inventory, 424–425investment tax credit (ITC), 987investments, 625–629lessee, 1084–1085lessors, 1094long-term liabilities, 798–800loss carryforward, 1034operating lease, 1084, 1100other post-employment benefits,

1159–1160

pension plans, 1159–1160poison pill, 901previously unrecognized tax loss, 1034property, plant, and equipment, 488prospective application, 1263provisions, 745–746recognition vs., 49retrospective application, 1262revenue recognition, 306–307separate disclosure items, 224–226share capital, 854statement of cash flows (SCF), 919–920,

1384–1386strategic investments, 627tax losses, 1034unrecognized tax loss carryforwards, 1034

disclosure notes, 21accounting standards, 156–157Accounting Standards for Private

Enterprise (ASPE), 163–164additional detail, 157basic earnings per share, 1218–1219compliance statement, 156computer software, 480contingencies, 157, 158defined, 155diluted earnings per share, 1218–1219earnings per share, 1218–1219economic dependence, 160–161general classification of, 155–156goodwill, 490f, 492f–494fguarantees, 157, 158intangible assets, 492f–494flong-lived assets, 489f–495fmeasurement uncertainty, 157non-cash transaction, 211property, plant, and equipment,

489f–490f, 495frelated party transactions, 157, 160research and development costs,

491f–492frevaluation model, 568segment disclosures, 159–160subsequent events, 161–162underlying assumptions, 157

discontinued operations, 90amortization, 98and asset groups, 101defined, 98–99equity method, 619example, 99illustration of, 100–101reporting, 99–102statement of comprehensive income

(SCI), 99statement of financial position, 99–100

discount, 472, 604discount rate, 894, 1138discounted cash flows, 283discounting

defined, 717interperiod tax allocation, 961present value calculation, 735and provisions, 726

disposal groups, 97, 137fdistinct performance obligations, 320distressed markets, 603dividend reinvestment plan (DRIP), 844dividend revenue, 304–305dividends

cash dividends, 839–840

INDEX IN-8

classification of, 889complex/unequal dividend entitlements,

1197–1198cumulative dividends, 827cumulative on preferred shares, 840declaration date, 839declared, 1198disclosure of cash flows, 223–224dividend reinvestment plan (DRIP), 844ex-dividend date, 839liquidating dividends, 843liquidity test, 839multiple classes of common shares,

1196–1198nature of, 838–839participating dividends, 827participating on preferred shares, 840–842payment date, 839priority, 826–827property dividends, 842record date, 839recording, 889relevant dividend dates, 839scrip dividend, 843stock dividends, 843–847summary, 848unequal dividend entitlements, 1197

dividends in arrears, 827Domtar Paper (Canada) Inc., 849donated assets, 473–474donated capital, 850–851double-declining balance (DDB), 541double-entry system, 659doubtful accounts, 350–351downstream, 623

Eearly adoption, 1264early retirement, 1138earnings

See also incomebig bath, 17–18defined, 82income smoothing, 16maximization, 17minimization, 17revenue recognition, 306volatility, 599

earnings before income taxes (EBT), 90earnings before interest and taxes

(EBIT), 90earnings dilution, 1199earnings expectations, 57earnings per share (EPS)

Accounting Standards for Private Enterprise (ASPE), 109, 1220

basic earnings per share. See basic earnings per share

cash flow per share, 1219diluted earnings per share. See diluted

earnings per sharedisclosure, required, 1218–1219disclosure note, 1218–1219ethics, 1191, 1194figures, 1190illustration, 1213–1217interpretation, 1190–1191other per share amounts, 1219public companies, reporting, 1189–1190references in financial press, 1189restatement of, 1217

share capital, subsequent changes in, 1217–1218

share retirement, 832statement of comprehensive income

(SCI), 89earnings quality, 12earnings statement. See income statementearnings targets, 57–58earnings-based approach, 268, 269–271eBay Inc., 266–267EBIT (earnings before interest and taxes),

1311EBITDA (earnings before interest, tax,

depreciation, and amortization), 775, 1311

economic dependence, 160–161economic entity, 1332economic income, 82economic life, 1066economic service potential, 530economic value added (EVA), 268effect of escalation clause, 889effective interest rates, 735, 777effective-interest method, 363–366, 605–

607f, 736efficiency ratios

accounts payable turnover, 1322accounts receivable aging schedule, 1321accounts receivable turnover, 1319–1321accounts receivable turnover ratio, 1321asset turnover, 1322average collection period of accounts

receivable, 1320defined, 1319for Grocery Retailer Inc., 1324finventory turnover ratio, 1321–1322objective of, 1319summary of, 1323f

EI (employment insurance), 722elements, 47embedded derivative, 916embezzlement, 346employee benefits, 722employee disability, 1138employee payment option, and phantom

stock plans, 913employee share-based arrangements,

905–906employee stock options, 907–909employee turnover, 1138employment insurance (EI), 722enacted tax rate, 1023, 1027end-of-lease, 1108Enron, 154entity concept, 41entity-specific assumptions, 39, 40–43entry value, 55environment, and financial statement

analysis, 1303environmental costs, 466environmental obligations, 730EPS. See earnings per share (EPS)equity, 163, 887equity components of debt instruments, 146equity method


acquisition, 619adjustments, 619consolidation, 623–624defined, 600

discontinued operations, 619downstream, 623example, 619–622fair values, 620–621goodwill, 620–621goodwill impairment, 623illustrated, 618–619investment revenue, 621–622other comprehensive income (OCI), 619reclassification, 624–625subsequent depreciation, 620unrealized profit elimination, 623upstream profit, 623

equity-settled plans, 903, 907–910errors, 153, 154, 417–419, 1265–1268

See also prior-period errorsestimable returns, 349estimates. See accounting estimatesethical professional judgement, 38ethics

of accountants, 11amortization estimates, 558–559best estimates for compensation cost

accruals, 909buying earnings, 1194capital assets, 472capitalization policy, 487changes in accounting estimates, 1253,

1271changes in assumptions and estimates,

1271choice of accounting policy, 213consignment arrangements, 279constructive liability, 716depreciation estimates, 558–559derecognition, 359earnings manipulation, 1271earnings per share (EPS), 1194earnings per share (EPS) calculations,

1191embezzlement, 346errors, 154exclusion of actuarial gains and losses,

1149exercising professional judgement, 59–60future tax benefits, 1035held-for-sale classification, 95insider information, 833in-substance defeasance, 796internal control system, 346inventory accounting, 425–426lawsuits, 727lease reporting, 1098management representations, 594net realizable value (NRV), 415pension plans and best estimates, 1138relevancy of information, 1255retirement transactions, 794revenue recognition policy decision, 275,

278, 305–306users objectives vs. managers’

motivations, 19window dressing, 1098, 1255

evaluation costs, 477fevaluative decisions, 9events, 661–662, 663events approach, 82exact calculation approach, 542–543exception reporting, 14exchange gain or loss, 369, 724exchange of dissimilar goods or services, 299

INDEXIN-9

exchange of non-monetary assets, 483exchange of similar goods or services,

298–299exchange rates, 42, 368

fluctuations, 788–790foreign currency, 344, 345–346long-term debt, 788spot rate, 723, 788

exchange value, 164ex-dividend date, 839executory contracts, 49, 728executory costs, 1062, 1075–1076exercise date, 899exit value, 55expanded disclosure, 18expected value, 725expedient recording method, 667expense recognition, and matching, 52–53expenses

accrued expenses, 668bad debt expense, 670deferred expenses, 668defined, 49, 50f, 266gains and losses, vs., 266incidental expenses, 471income tax expense, 671–672, 954tax expense for the year, 969

exploration and evaluation (E&E) assets, 481Exposure Draft, 559external reporting of investments, 597fexternal users, 11external-user objectives

cash flow assessment and predictions, 12–13

contract compliance, 14–15income tax deferral, 13–14managers’ motivations, vs., 19performance evaluation, 15–16stewardship, 15

Exxon Mobile Corporation, 160

Fface value, 363, 778factoring, 357factors of production, 41fair market value cap, 302–303, 471–472fair value

biological assets, 294bonds, 777–778, 786defined, 55–57, 601, 899derivatives, 916in distressed markets, 603as financial asset, 344financial liabilities, 800fixed assets valuation, 299hierarchy for measuring, 601–602and impairment, 607–608sources of, 301unavailable, 286undeterminable, 602–603

fair value ceiling, 1066–1067fair value hierarchy, 894, 904fair value less costs of disposal, 546fair value less the cost to sell, 94fair value method

commercial substance, 300–301comparison, 617defined, 298, 599fixed assets, 301–302stock dividends, 845

fair value model, 465

fair-value-through-other-comprehensive-income (FVTOCI) investment

adjustment, 614defined, 594–595earnings volatility, 599example, 614impairment, 617reporting, 614–617

fair-value-through-profit-and-loss (FVTPL)accounts receivable, 348classification, 356defined, 594example, 610–614impairment, 613investment, 594, 599liability, 1212other issues, 613–614

faithful representation, 44–45, 47, 90FASB. See Financial Accounting Standards

Board (FASB)feedback value, 44fee-for-usage contract, 1060fiduciary enterprise, 4FIFO, 438final pay pension plans, 1136final-year convention, 544finance industry, 1088finance leases

See also leasesaccounting for, lessee, 1068amortization table, 1070–1071, 1075applying the lease guidelines, 1069–1070bargain purchase option, 1065bargain renewal term, 1065classification as, 1064–1067contingent lease payments, 1065contingent rent, 1066cost allocation, 1076–1077deferred income tax, 1073defined, 1061, 1064depreciating leased assets, 1071depreciation, 1076disclosure, 1084–1085disclosure note, 1085, 1086feconomic life, 1066executory costs, 1075–1076fair value cap, 1074–1075fair value ceiling, 1066–1067financial intermediary, 1067financial statements, 1072–1073guaranteed residual value, 1065guidelines, 1064–1065, 1069–1070illustration, basic, 1068–1069implicit lease interest rate, 1066,

1074–1075incremental borrowing rate (IBR), 1066informal guideline, 1067initial direct costs, 1065–1066interest calculation, 1070–1071interest expense, 1076–1077International Accounting Standards

Board (IASB), 1107journal entries, full set, 1078land and buildings, 1083–1084lease term, 1065, 1068, 1074lessee accounting, basic example,

1069–1074lessee accounting, modified example,

1074–1080liability balance calculation, 1080minimum net lease payments, 1065

net lease payments, 1065recording liability, lesee, 1072recording of, by lessee, 1078–1079recording of, by lessor, 1092fresidual value, 1077sale and leaseback, 1082–1083short-cut method of calculation, 1080statement of cash flows (SCF), 1073statement of comprehensive income

(SCI), 1073statement of financial position (SFP),

1072–1073unguaranteed residual value, 1065useful life, 1066

Financial Accounting Standards Board (FASB), 20, 38, 268

leases, 1098, 1107, 1111–1112post-employment benefits, 1161

financial assets, 137f, 143accounts/notes receivables as, 344cash as, 344classification, 344defined, 344fair value, 344foreign currency, 344, 345–346International Accounting Standards

Board (IASB), 922transaction value, 344

financial flexibility, 138financial instruments

See also investmentsclassification by substance, 886–887classification factors, 887–888classification of, 886–892compound financial instruments, 885, 886defined, 592, 716disclosure of, 625–627, 919–920early adoption, 1264fair values and classification of, 370hybrid financial instruments, 886long-term debt. See long-term debtprospective application, 1264under review, 371statement of cash flows (SCF), 919stock options, 899–901

financial intermediary, 1067financial lease, 1060, 1099financial liabilities, 137f

See also liabilitiescommon, 718–723defined, 716disclosure for, 745fair value, recording, 800other financial liabilities, 717

Financial Post, 11financial reporting

cash flow objectives, 12–13conflicting objectives, 18and contract compliance, 14–15evaluative decisions, 9general purpose, 10–11income tax reporting, vs., 13–14objectives of, 8–10, 10f, 21and performance evaluation, 16and stewardship, 15user objectives, 11–16

financial risk, 1326financial statement analysis

accounting policies, examination of, 1303–1304

accounting standards, 1304

INDEX IN-10

application of techniques, 1304auditor’s report, 1303common-size (vertical) analysis,

1307–1309, 1309–1311, 1314comparative information, 1306consolidated financial statements,

1332–1334data gathering, 1302–1304decision focus, 1302decomposition analysis, 1307environment, 1303horizontal analysis, 1311–1314information from notes, 1305fmulti-industry corporations, 1334other analytical techniques, 1335ratio analysis. See ratio analysisrecasting, 1304recasting, demonstration case, 1342–1351residual analysis, 1335restatement, demonstration case,

1342–1351restatement of, 1304result analysis and interpretation, 1305review engagement, 1303statistical multivariate ratio analysis, 1335time-series analysis, 1335trend analysis, 1311–1314vertical (common-size) analysis,

1307–1309, 1309–1311, 1314financial statements

and Accounting Standards for Private Enterprise (ASPE), 21

assets in, 48balance sheet. See balance sheetconcepts of, 36–38consolidated financial statements,

1332–1334defined, 660direct economic impacts, 9disclosure notes, 155–162elements of, 47–53, 50f, 61finance lease, 1072–1073general purpose, 36IFRS requirements, 19–21income statement. See income statementliabilities in, 48limitations of concepts, 36notes to financial statement, 1073off-balance-sheet financing, 1086preparation of, 673–675presentation. See presentation formatspurpose of, 8recognition, 49restated financial statements, 1342–1351statement of cash flows (SCF). See

statement of cash flows (SCF)statement of changes in equity (SCE). See

statement of changes in equity (SCE)statement of comprehensive income (SCI).

See statement of comprehensive income (SCI)

statement of financial position (SFP). See statement of financial position (SFP)

financing100% financing, 1086–1087equity financing. See shareholders’ equitylong-term, 773–777off-balance-sheet financing, 1086reporting example, 776short-term, 772–773sources of, 772–777

financing activities, 200, 1375finished goods, 410first-in, first-out (FIFO), 438fixed assets

defined, 144exchanges of, 299–302fair value method, 301–302

flat benefit pension plan, 1136flipping, 99flow-through approach, 984flow-through method, 957FOB destination, 408FOB shipping point, 407forced conversion, 891, 1211Ford Motor Company, 268foreign currency

and debt denomination, 788–790exchange rates, 344, 345–346, 788–790hedges, 788investments, 613payables, 723–724receivables, 368–369

foreign currency translationadjustment, 147–148defined, 5gains and losses, 852–853

foreign operations, 852–853foreign subsidiaries, 91, 856forfeit, 906forfeiture


cash-settled plans, 912–913employee stock options, 908–909

forgivable loan, 505forward contract, 915fractional share rights, 846–847fractional-year amortization, 542–544fractional-year depreciation, 542–544franchise fees, 287franchise rights, 477ffranchises, 144, 279, 536ffraud, 405, 426free on board (FOB), 407freedom from bias, 45freedom from material error, 45full periodic interest, 603full-first-year convention, 543–544fully diluted earnings per share, 1199fully participating shares, 841–842function within the enterprise, 85functional currency, 4, 853funding, 1138future benefit, 48future benefit accounting, 1034–1035

See also tax lossesfuture costs of restructuring, 103future income tax, 979future taxes, 92–93futures contract, 915–916FVTOCI. See fair-value-through-other-

comprehensive-income (FVTOCI) investment

FVTPL. See fair-value-through-profit-and-loss (FVTPL)

GGAAP. See generally accepted accounting

principles (GAAP)gains

defined, 48, 82, 266

exchange gain, 369holding gains, 599long-lived assets, 487realized holding gains, 599revenue and expenses, vs., 266unrealized holding gains, 599

general journal, 663, 664f, 681, 683fgeneral ledgers, 664–665general presentation format, 84–91general purpose financial reporting, 10–11general purpose financial statements, 36general revenue recognition principle, 268–271generally accepted accounting principles

(GAAP)amortization, 534, 564, 669–670choice of, 4deferral method, 959depreciation, 534, 564, 669–670inventory valuation, 412limitations of applying GAAP, 140market values, 141private companies, 6–7public corporations, 2, 4types of, 1304U.S. GAAP, 4, 5, 20

gift cards, 731going-concern assumption, 41goods

barter, 298exchange of dissimilar goods, 299exchange of similar goods, 298–299multiple goods and service contracts,

284–287purchased and in transit, 407purchased for resale, 408–409transfer at a single point in time, 271–281transfer over time, 282–283

goods and services tax (GST), 409goods purchased and in transit, 407goods purchased for resale, 408–409goodwill, 52

defined, 464, 483–484disclosure notes, 490f, 492f–494fequity method, 620–621example, 485–486form of acquisition, 486impairment, 550–551measurement of, 484negative goodwill, 486reversal of, 551useful life, 532

governance, EU approach, 41government assistance, 474, 505–506government business enterprises, 4government grants, and investment tax

credit (ITC), 987Grocery Retailer Inc., 1307–1313,

1319–1322, 1324gross basis, 267gross lease basis, 1091–1094gross lease basis leases, 1091–1093gross margin method, 419–421gross margin rate, 419gross method, 1093–1094, 1096gross revenue, 266–268group accounts, 544group asset, 550group depreciation, 544–545group purchase, 466GST (goods and services tax), 409guarantee of preferred shares, 827

INDEXIN-11

guaranteed investment certificates (GICs), 345

guaranteed residual value, 1065, 1090guarantees, 158, 719–720

Hhalf-year convention, 543harmonized sales tax (HST), 409

See also provincial sales tax (PST); sales taxes

hedgesaccounting for, 918accounting mismatch, 918Accounting Standards for Private

Enterprise (ASPE), 923criteria, 918defined, 788, 917example, 917International Accounting Standards

Board (IASB), 922held-for-sale, 536held-for-sale assets


declassification, 97defined, 94–95statement of financial position (SFP), 143two-step, 95–97

held-for-sale capital assets, 531held-to-maturity investments, 143Hewlett-Packard (HP), 306hidden entries, 219hierarchy of fair value, 55–57High Liner Foods Incorporated, 488–495highest and best use, 56high-low shares, 922high-quality earnings, 12historical cost, 36, 141, 406fhistorical cost convention, 54holding gains and losses, 599horizontal (trend) analysis, 1311–1314host contract, 916hostile takeover bid, 901HST, 409hybrid financial instruments, 886Hydro One Inc., 771

IIASB. See International Accounting

Standards Board (IASB)idle assets, 94idle cash, 592if-converted method, 1201IFRS. See International Financial

Accounting Standards (IFRS)IFRS Foundation, 2–3impairment, 368

defined, 530, 613and fair value, 607–608fair-value-through-other-comprehensive-

income (FVTOCI), 617lessor, 1100reversals, 608–609

impairment indicators, 547impairment loss

defined, 546disclosure, 550group of assets, 548–550individual asset, 548, 549measurement of, 547–548reversal of, 549, 550, 551

impairment testsdefined, 144, 546goodwill, 550–551of long-lived assets, 547–550

Imperial Oil Ltd., 160implicit lease interest rate, 1066impracticable, 1268imputed interest, 791incidental expenses, 471incidental revenues, 471income

accounting income, 82comprehensive income, 82–83defined, 48, 50f, 82–84economic income, 82maximization, 17net income, 82

income bond, 886income smoothing, 16–17income statement

consolidated income statement, 87f, 89discontinued operations, 98–102earnings per share (EPS), 89elements, 50ffinancial statements, 21

income statement formatalternative formats, 85–88general presentation format, 84–91multiple-step statement, 90single-step statement, 90

income taxCapital Cost Allowance (CCA), 13,

564–566cheating, 14disclosure of cash flows, 223–224expense, 671–672, 954personal, 721–722statement of cash flows (SCF), 1375

Income Tax Act, 13, 14, 564, 954, 961, 984, 1011, 1088

income tax allocation, 92income tax deferral, 13–14income tax expense, 671–672income tax minimization, 13income tax payable, 723income tax reporting vs. financial reporting,

13–14incorporated subsidiary, 1096incorrigible, 534incremental borrowing rate (IBR), 777, 1066incremental method, 832incremental method of valuation, 894indefinite life, 531–532indemnification, 158indirect observation, 56indirect presentation

cash reporting, 307of operating activities, 208–209separate disclosure items, 224–226statement of cash flows, 220–221f

individual effect, 1201–1202industrial design registrations, 477f, 536findustry norms, 534ineligible costs, 479inferred fair value, 601inflation, 42information

for bank reconciliation, 378fdisclosure of, 361

initial direct costs, 1065–1066, 1100initial lease term, 1062

Inmet Mining Company, 825input measures

estimation of, 292–293output measures, vs., 291–292

input methods, 282input tax credit, 409instalment sales method, 280in-substance defeasance, 796–797insurance premiums, 722intangible assets, 137f

defined, 144, 464disclosure, 488disclosure notes, 491f, 492f–494felements of cost, 476goodwill, 52, 464, 483–486legal life of certain, 536fproperty, plant, and equipment, 476–477fspecific, 478–481statement of financial position (SFP), 144,

487intangible capital assets, 531–532intellectual property, 279intercorporate investments, 592–596interest

accrued interest, 603–604, 737–738, 739disclosure of cash flows, 223–224imputed interest, 791market interest rate, 363measurement of interest expense, 778payment dates, 783–784stated interest rate, 363statement of cash flows (SCF), 223–224straight-line measurement, 366–367

interest cost, 469, 471interest expense

bonds, 785–786diluted earnings per share, 1211discounted amortization, 604effective-interest method, 363–366,

605–607f, 736finance leases, 1076–1077foreign currency debt denomination,

788–790premium amortization, 604straight-line (SL) method, 366–367,

749–750interest income, 82, 1375interest payment dates, 778interest rates


effective interest rates, 735incremental borrowing rate (IBR), 777,

1066long-term leases, 1087market interest rate, 363nominal interest rates, 735stated interest rate, 363

interest revenue, 304–305interest-bearing notes, 363, 719internal control

bank reconciliation, 346–347cash, 346

internal control system, 346internal rate of return (IRR), 1089internally developed intangibles, 477f, 478internally generated computer software,

479–480fInternational Accounting Standards (IAS)

disclosure of estimates, 1250–1251leases, 1099–1101

INDEX IN-12

International Accounting Standards Board (IASB)

accumulated other comprehensive income, 856

changes, forthcoming in lease accounting, 1107–1112

changes in accounting policy, 152–155, 162, 1253–1254

changes in revenue recognition, 265, 268, 307, 317–321

Conceptual Framework, 106–107, 162defined, 2–4, 20finance leases, 1099, 1107financial assets, 922financial elements definition, 748hedging, 922investment categories, 628–629leases, 1098–1099liability definition, 748operating leases, 1107post-employment benefits, 1161retirement of shares, 833sales-type leases, 1107statement of cash flows (SCF), 228

International Financial Accounting Standards (IFRS), 1, 36

changes in accounting policy, 152–155comparability issues, 7–8consolidated financial statements, 1332cost flow assumptions, 411–412described, 2–3disclosure of estimates, 1251financial assets, reporting, 343financial liabilities, 748–750financial statements required by, 19–21income definition, 82investment categories, 628–629legal and regulatory requirements, 4long-term liabilities, 801–802pension plans, 1148–1149post-employment benefits, 1161and professional judgement, 38statement of financial position (SFP)

usage, 136tax rates, 1023

International Forest Products Limited (Interfor), 11, 202, 203f, 210, 223, 224, 742–743, 1160

International Lease Financing Corporation (ILFC), 1088

interperiod allocation, 12, 52interperiod tax allocation

See also corporate income taxaccounting and taxable income,

differences, 954–956capitalized development costs, 955–956comprehensive tax allocation, 957–959,

979conceptual issues in, 957–962deferral method, 959–960defined, 92, 954discounting, 961extent of allocation, 957–959flow-through method, 957introduction, 954–956liability method, 960, 979measurement method, 959–961origination, 955partial allocation, 957permanent differences, 954–956reversal, 955

taxes payable method, 957, 979temporary differences, 955–956

in-the-money, 900, 1200In-Touch Survey Systems Limited, 109intraperiod tax allocation, 92, 979intrinsic value, 899inventory

aggregation, 413average cost, 436–437consignment arrangements, 279contracts in progress, 407cost elements, 408–410cost flow assumptions, 411–412cost flow methods, 435–439damaged inventory, 415–416decrease in, 424direct inventory reduction method,

414–415disclosures, 424–425errors, 417–419, 1267–1268estimation. See inventory estimation

methodsethical issues, 425–426finished goods, 410first-in, first-out (FIFO), 438increase in, 424inventory allowance method, 414–415inventory costs, 408–410items to include, 407–408last-in, first-out (LIFO), 438as line item on SFP, 137flower-of-cost-or-NRV valuation, 412–415market value, 406fnature of, 407net realizable value (NRV), 143, 290, 412obsolete inventory, 415–416periodic inventory system, 432–435, 665perpetual inventory system, 407,

432–435, 665policy issues, 407purchase commitments, losses on,

416–417raw materials, 408–409, 410reporting issues, 424–425repurchase agreements, 408shrinkage, 433specific identification, 435–436statement of cash flows (SCF), 424in statement of financial position

(SFP), 143supplies inventory, 411types of, 406fwork in progress, 407, 410writedowns, 413–415

inventory allowance method, 414–415inventory costs

elements of, 408–410goods purchased for resale, 408–409laid-down cost, 408manufactured goods, 410–411periodic inventory system, 411perpetual inventory system, 411raw materials, 408–409sales taxes, 409–410service contracts, 410supplies inventory, 411

inventory estimation methodsgross margin method, 419–421retail inventory method, 421–424

inventory turnover, 1319–1322inventory turnover ratio, 1321–1322

inventory valuation, 406invested capital, 150, 1314investing activities, 200, 213, 1375investment funds, 4investment property, 137f

amortization, 531defined, 144, 464depreciation, 531example, 502–503fpresentation, 487

investment tax credit (ITC)corporate income tax, 984–987cost-reduction approach, 984costs capitalized, 985current expenses, 984–985disclosure, 987flow-through approach, 984general nature of, 984government grants, 987recording, 985–986reporting, 986–987

investmentsSee also financial instrumentsaccounting for, 597–601accounting methods, summary of, 598faccounting mismatch, 594acquisition cost, 593active investment portfolio, 592amortized cost (AC), 593–594amortized cost (AC) method, 597–598,

603–609associates, 595–596bonds, 613–614classification criteria, 592–596consolidated method, 600cost investments, 595cost method, 599, 609current vs. long-term, 625disclosure, 625–629equity method, 600, 618–623external reporting, 597ffair value, 593, 601–603fair value method, 599fair-value-through-other-comprehensive-

income (FVTOCI), 594–595, 599, 614–617

fair-value-through-profit-and-loss (FVTPL), 594, 610–614

as financial asset, 143foreign currency, 613idle cash of, 592impairment, 607–609, 613joint arrangement, 596legal framework, 592long-term, 592objectives, 592passive investment, 592reclassification, 624–626recording vs. reporting, 600reported on the equity basis, 137fshare investment, 609, 613short-term investments, 143special funds, 143statement of financial position

(SFP), 144strategic alliances, 592strategic investments, 144, 592subsidiaries, 595in tangible capital assets, 144

investors, 773involuntary conversions, 482

INDEXIN-13

issuancedelayed, 784between interest dates, 784non-cash, 830–831of share capital, 828–832

issuance price, 605items to be shown on SFP, 136–138

Jjoint arrangement, 596joint operation (JO), 596joint venture (JV), 596, 600journal entry, 663, 1013journals

cash disbursements journal, 681, 682fcash receipts journal, 681–682, 682fdefined, 663general journal, 663, 664f, 681, 683fpurchases journal, 680–681sales journal, 679–680

judgement. See professional judgement

Kkey money, 1062f

Llaid-down cost, 408, 412land, 531, 544land and buildings


sale and leaseback, 1083–1084last-in, first-out (LIFO), 438lawsuits, 147, 158, 726–728, 739–740lease amortization table, 1070–1071,

1075, 1090lease arrangements, 141lease term, 1060, 1065, 1068f, 1074leasehold improvements, 477fleases

Accounting Standards for Private Enterprise (ASPE), 1099–1101

asset, initial cost, 1089capital lease, 1099capitalization, avoiding, 1087–1088changes, forthcoming, 1107–1112CPA Canada Handbook, Part II (ASPE),

1099contingent rent, 1087deferred income tax, 1073defined, 1060direct-financing lease, 1096disclosure, 1084–1085ethics, 1098executory costs, 1062finance leases. See finance leasesFinancial Accounting Standards Board

(FASB), 1098gross lease basis, 1091–1093inception date, 1062initial lease term, 1062internal rate of return (IRR), 1089–1090International Accounting Standards (IAS),

1099–1101key money, 1062fland and buildings, 1083–1084lease term, 1065, 1068, 1074leasing continuum, 1060–1061lessee. See lesseelessor. See lessorliability reassessment, 1111

long-term leases. See long-term leaseslooking forward, 1098–1099manufacturers and dealers, 1094–1097manufacturer’s lease, 1095memorandum of agreement, 1062modified example, 1074–1080net lease basis, 1090–1093operating leases. See operating leasespenalty for non-renewal, 1088personal property, 1060real property, 1060reporting, and ethics, 1098residual value, 1089, 1090sale and leaseback, 1080–1084sales-type lease, 1095, 1096short-term leases, 1107statement of cash flows (SCF), 1097substance over form, 1060tax shield, 1089third party, 1088

leasing continuum, 1060–1061ledgers, 664–665, 678–679legal capital, 839legal obligations, 716legal title, 1098lenders, 773Leslie Corporation, 56lessee

accounting, basic example, 1069–1074accounting, modified example, 1074–1080accounting for finance leases, 1068Accounting Standards for Private

Enterprise (ASPE), 1099–1100amortization table, 1070–1071, 1110defined, 1060depreciating leased assets, 1071disclosure, 1084–1085financial statements, 1072–1073guidelines, 1069–1070interest calculation, 1070–1071long-term leases, 1107–1111long-term leases, basic rule, 1107–1108net cash flows, 1089recording finance lease, 1078–1079recording liability, 1072short-term leases, 1107

lessoraccounting for, 1088–1097Accounting Standards for Private

Enterprise (ASPE), 1100–1101amortization table, 1090–1091captive leasing companies, 1088classification, 1100current-noncurrent distinction, 1091defined, 1060direct-financing lease, 1096disclosure for, 1094finance industry, 1088gross lease basis, 1091–1094gross method, 1093–1094, 1096impairment, 1100internal rate of return (IRR), 1089–1090long-term leases, 1111manufacturers and dealers, 1094–1097nature of, 1067net cash flows, 1089net lease basis, 1090–1093net lease receivable, 1090net method, recording, 1090–1091recording, finance lease, 1092frecording, initial, 1090

short-term leases, 1107level contribution method, 1139leverage, 1325leverage ratios, 1322, 1325–1326liabilities

See also financial liabilitiesAccounting Standards for Private

Enterprise (ASPE), 62fcategories of, 716–718classification of, 743–745, 887common financial liabilities, 718–723compensated-absence, 733–734contingent liabilities, 163–164contract liability, 317current liability, 136, 144–146, 743debt retirement, 792–797decommissioning liabilities, 474–475deferred income tax as, 978deferred income tax liabilities, 969, 979defined, 50f, 716discounting impact, 735–743financial liabilities. See financial liabilitiesin financial statements, 48foreign currency payables, 723–724IASB proposed definition, 748lease liability, reassessment, 1111long-term liabilities, 145, 743–744no-interest note payable, 735–737non-financial liabilities, 716, 724–735not on the SFP, 141note payable with different market and

stated rate, 738–739offsetting, 145perpetual debt, 890refund liability, 319regional differences in, 137–138reporting example, 717–718short-cut method of lease, 1080statement of cash flows (SCF), 747–748,

797–800liability dividend, 843liability method, 957, 960–961, 979licences, 144licensing arrangements, 279licensing fees, 279LIFO, 438limited lives, long-lived assets with, 546limited votes, and shares, 827line items to be shown on SFP, 136–138line of credit, 201liquidating dividends, 843liquidity

of assets and liabilities, 137defined, 140

liquidity ratiosacid-test ratio, 1330cash conversion cycle, 1330–1331current ratio, 1330defensive-interval ratio, 1331–1332defined, 1327for Grocery Retailer Inc., 1333fquick ratio, 1330summary of, 1332f

liquidity test, 839Live Entertainment, 154loan guarantees, 719–720loans

forgivable loan, 505line of credit, 201long-term loans, 143, 773–774, 788–790secured by accounts receivable, 357

INDEX IN-14

shareholder loans, 922short-term bank loans, 772–773

longitudinal comparisons, 1306long-lived assets, 52

accounting standards, 497fbiological assets, 137f, 294–298, 464defined, 546derecognition of, 482–483gains, 487goodwill, 52, 464, 483–486impairment, 546–551impairment tests of, 547–550intangible assets, 137f, 144, 464, 476–477finvestment property, 464losses, 487not depreciated or amortized, 531–532property, plant, and equipment, 464statement of cash flows (SCF), 486–487valuation of, 464–465

long-term bank financing, 774–775long-term contracts

bill-and-hold arrangements, 277–278completed-contract method, 321construction contracts, 282, 291f,

292f, 306losses on, 293–294percentage-of-completion method,

288–291, 321service contracts, 282

long-term debtaccounting for, 777bonds, 775debentures payable, 775debt covenants, 775–776foreign currency, 788–790measurement of interest expense, 778other sources of, 775statement of cash flows (SCF), 797–800

long-term financing, 773–774long-term leases

100% financing, 1086–1087basic rule, 1107–1108classification, 1108–1109end-of-lease, 1108income tax benefit transfer, 1085lessee, 1107–1111lessor accounting for, 1111off-balance-sheet financing, 1086protection against interest rate changes,

1087protection against obsolescence, 1087single lease expense (SLE) approach,

1109–1110long-term liabilities


defined, 145, 743–744disclosures for, 798–800International Financial Accounting

Standards (IFRS), 801–802long-term loans, 143

bank financing, 774–775defined, 773–774exchange rate fluctuations, 788–790

long-term receivables, 143loss carryback

defined, 1010example, 1010–1012

loss carryforwardCapital Cost Allowance (CCA), 1015comparison of recording methods, 1017f

defined, 1010disclosure, 1034evidence of probability, 1015future realization is improbable, 1018future realization is judged probable,

1016–1017illustration, basic, 1024–1026illustration, extended, 1026–1033improbable recovery becoming probable,

1020–1021“more likely than not” principle,

1014–1015partial recognition, 1018, 1021–1022previously unrecognized tax loss, 1034probable full recovery, 1020realization becomes probable, 1026realization is not probable, 1024–1025realization of probability is greater than

50%, 1030–1033realization of probability is less than or

equal 50%, 1028–1030reassessment in subsequent years, 1016recognition assumption on net income,

impact of, 1019–1020recognition scenarios, examples,

1016–1019reduction of capital cost allowance, 1015reduction of previously recognized

benefit, 1022reporting objectives, 1033tax benefits of, 1010tax rates, 1023unrecognized tax loss carryforwards, 1034valuation allowance, 1020–1023write-off of expired carryforward benefits,

1022–1023losses

defined, 49, 50f, 266exchange loss, 369holding gains and losses, 599impairment loss, 548–550long-lived assets, 487on long-term contracts, 293–294purchase commitments, 416–417realized holding losses, 599revenue and expenses, vs., 266tax benefits of, 1010unrealized holding losses, 599

lower-of-cost-or-NRV valuation, 412–415low-quality earnings, 12loyalty programs. See customer loyalty

programslump-sum purchase, 466

MMagna International Inc., 161, 1218–1219maintenance, 467–468, 732maintenance tests, 15, 775major inspections, 468major segment, 98nmaker, 363management representations, 594Management’s Discussion and Analysis

(MD&A), 141mandatorily convertible shares, 1193mandatory change, 1253–1254manufactured goods, 410–411manufacturer’s lease, 1095Maple Leaf Foods Incorporated, 463margin, 916margin of safety, 1325

markdown, 422markdown cancellation, 422market interest rate, 363, 719market risk, 1334market value, 141, 406fmarkups, 422matching, 52–53material weaknesses, 418materiality, 46, 472maturity date, 744, 778maturity value, 363maximization of net income, 17MD&A (Management’s Discussion and

Analysis), 141measurability, 49measurement

agricultural produce, 295biological assets, 295of consideration, 283–284defined, 53of goodwill, 484of impairment loss, 547–548not possible, 293percentage-of-completion method,

291–293private enterprises, 62of property, plant, and equipment,

469–475remeasurement, 475straight-line measurement of interest

expense/revenue, 366–367measurement methods

current cost, 54defined, 36fair value, 55–57historical cost convention, 54interperiod tax allocation, 959–961present value, 55progress over time, 282–283realizable value, 55settlement value, 55

measurement uncertainty, 157measurement variability, and professional

judgement, 58memo entry

stock dividends, 845stock splits, 849

Mercedes-Benz Credit Canada, 1088merger, 1194minimization of earnings, 17minimum compliance, 18minimum net lease payments, 1065minority interest, 89n, 148modification of debt, 797monetary accrued liabilities, 720monetary assets, 298monetary items, 344money market funds, 345money market instruments, 345mortality rates, 1138mortgages, 774most advantageous market, 56most likely outcome, 725moving average, 436multi-industry corporations, 1334multiperiod recognition, 282

See also percentage-of-completion method

multiple classes of common shares, 1196–1198

multiple deliverable contracts, 286–287

INDEXIN-15

multiple deliverables, 271, 284–285, 320multiple goods and service contracts,

284–287, 320multiple votes, and shares, 827multiple-step statement, 90music licenses, 279mutual funds, 4, 890

Nnature of expense, 85nature of the lessor, 1067NCI. See non-controlling interest (NCI)negative goodwill, 486negative leverage, 1325Nestlé Group, 727–728net asset principle of revenue/expense

recognition, 52, 53, 272, 273fnet assets, 50f, 825net basis, 267net book value, 530, 670net cash flows

lessee, 1089lessor, 1089

net defined benefit pension liability (asset)asset ceiling, 1145–1146defined, 1137expected vs. actual return, 1145net interest, 1141, 1143–1144re-measurement, 1141, 1144–1146statement of financial position (SFP),

1146–1148net income

and cash flow from operations, 212comprehensive income, vs., 91defined, 82unrealized holding gains or losses, 599

net lease basis leases, 1090–1091net lease payments, 1065net lease receivable, 1090net method, 1090–1091net of related tax, 92net off, 358net realizable value (NRV), 143, 290,

412–415net revenue, 266–268net status, 1148netting, 145, 970–971, 1148–1149neutrality, 45New Flyer Industries Inc., 81, 425no-interest note payable, 735–737nominal accounts, 659nominal dollars, 42nominal interest rates, 735nonadjusting events, 161–162non-cash accounts, 204, 206non-cash consideration, 284non-cash issuance of share capital, 830–831non-cash transactions, 210–211, 1375non-contributory pension plan, 1132non-controlling interest (NCI)

defined, 89, 148, 600as line item, 137fin subsidiaries, 148–151

non-cumulative senior shares, 1191noncurrent assets

defined, 94held-for-sale two-step, 95–97statement of financial position (SFP),

143–144noncurrent presentation, 136non-financial liabilities, 716, 724–735

non-interest-bearing notes, 363, 719non-monetary assets, 298, 303–304non-monetary transactions


barter transactions, 298–299defined, 298, 483valuation alternatives, 298

non-notification basis, 357nonreciprocal transfers, 473, 661nonrefundable upfront fees, 283nontrade receivables, 348no-par shares, 828normal capacity, 411normal course issuer bid, 832, 833Nortel Networks Corp., 35, 58, 154not distinct, 320not profitable, 293note references, 138notes payable

classification of, 744as common financial liability, 719discount, 472valuation, 362

notes receivableAccounting Standards for Private

Enterprise (ASPE), 371blended payments, 367collateral security, 362defined, 348different market and stated rates, 364–365effective interest method, 363–366face value, 363impairment, 368interest-bearing notes, 363market interest rate, 363maturity value, 363non-interest-bearing notes, 363stated interest rate, 363straight-line measurement method,

366–367straight-line method, 371–372terminology, 363transfer of, 368valuation, 362

notes to financial statements. See disclosure notes

notification basis, 357NRV, 143, 290, 412–415

Oobjective and reliable evidence, 285objectives of financial reporting, 8–11, 10f,

60–61objectivity, 60obligating event, 716obsolescence, 531, 1087obsolete inventory, 415–416OCI. See other comprehensive income

(OCI)off-balance-sheet financing, 1086offset method, 832, 918offsetting, 145, 210, 1375100% financing, 1086–1087onerous contracts, 293, 416, 427, 728Ontario Securities Commission (OSC), 4operating activities

See also statement of cash flows (SCF)defined, 200direct presentation of, 208–209, 221–222,

1384–1386

indirect presentation of, 208–209summary of adjustments in, 227–228

operating cycle, 136operating expenses, 90operating leases

accounting for lessee, 1061, 1063faccounting for lessor, 1061–1062, 1063fAccounting Standards for Private

Enterprise (ASPE), 1098–1099capital lease, vs., 1098capital leases, vs., 1098–1099classification, 1060contingent rent, 1084defined, 1060–1061, 1064disclosure, 1084, 1100executory costs, 1062initial lease term, 1062International Accounting Standards

Board (IASB), 1107sale and leaseback, 1083uneven payments, 1062–1063

operating line of credit, 772operating margin, 1319operating revenues, 90operating risk, 1326operating segment, 159option pricing models, 900, 904, 909options

bargain purchase option, 1065call option, 793, 915derivatives, 915dilutive options, 1200option pricing models, 900, 904, 909put option, 915stock. See stock options

Ordeal Ltd., 56orderly transaction, 55ordinary shares, 1191ordinary stock dividends, 846original sales price, 422other comprehensive income (OCI)

as category of comprehensive income, 83defined, 50f, 595described, 88f, 90–91disposition of accumulated OCI amounts,

1148equity method, 619items of, 147–148net defined benefit pension liability

(asset), 1141, 1148other financial liabilities, 717other post-employment benefits (OPEBs)

accounting spreadsheet, 1157Accounting Standards for Private

Enterprise (ASPE), 1161–1164defined, 1156disclosure, 1159–1160Financial Accounting Standards Board

(FASB), 1161International Accounting Standards

Board (IASB), 1161International Financial Accounting

Standards (IFRS), 1161statement of cash flows (SCF), 1158–1159

output measures vs. input measures, 291–292

output methods, 282outstanding share capital, 828overdrafts, 201, 345overhead costs, 410, 469owners’ equity, 48, 50f

INDEX IN-16

PPaladin Energy Ltd., 890par value of bonds, 778par value shares, 146, 827parent company, 142, 595parent company preferences, 534Parmalat, 405partial allocation, 957partial cash transactions, 211partial statement of cash flows, 222fpartially participating shares, 841–842participating dividends, 827passive investment, 592, 630past service cost (PSC), 1141past transaction, 48patents, 144, 477f, 536fpay-as-you-go, 1156payee, 363payment date, 839payroll deductions, 722payroll taxes, 721–722Pengrowth Energy Company, 844pension accounting spreadsheet

first year data, 1149–1151second year data, 1151–1153summary, 1154–1155third year data, 1153–1154

pension expense, 1161–1162pension funds, 4pension holiday, 1137pension plan curtailment, 1134pension plan settlement, 1134pension plans

10% corridor method, 1148Accounting Standards for Private

Enterprise (ASPE), 1161–1164accumulated benefit method, 1139actuarial cost methods, 1133, 1139–1140actuarial gains and losses, 1134classification of, 1132contributory pension plan, 1132current service cost (CSC), 1141curtailment, 1134, 1141–1143death benefits, 1138defined benefit plan. See defined benefit

plansdefined contribution plans, 1135–1136disclosure, 1159–1160discount rate, 1138disposition of accumulated OCI

amounts, 1148ethics, 1138example, 1142funding, 1138–1139future salary increases, 1138International Financial Accounting

Standards (IFRS), 1148–1149level contribution method, 1139net status, 1148netting, 1148–1149noncontributory pension plan, 1132other post-employment benefits (OPEBs),

1156–1157past service cost (PSC), 1141projected unit credit method, 1139registered, 1133service cost, 1141settlement, 1134, 1141–1143spreadsheet approach, 1149–1155statement of cash flows (SCF),

1158–1159

statement of financial position (SFP), 1148–1149

survivor benefits, 1138termination benefits, 1142terms, 1132–1134trustee, 1133types of, 1132vesting, 1133

percentage-of-completion method, 282, 291f, 294f

performance evaluation, 15–16performance guarantee, 158performance obligation, 269periodic inventory system, 411, 432–435,

665periodic system, adjusting journal entries

(AJEs), 670peripheral events, 266peripheral transactions, 266permanent accounts, 659, 660fpermanent differences, 954–956, 966–967perpetual debt, 886, 890perpetual inventory system, 407, 411,

432–435, 665perpetual system, adjusting journal entries

(AJEs), 670personal income taxes, 721–722personal property, 1060Petro-Canada, 56phantom stock plans, 905, 913–915Philip Services, 154physical capital maintenance, 42Pinetree Capital Limited, 895–896, 902–903poison pill, 901Porter Airlines Inc., 1post-closing trial balance, 676post-employment benefits


Financial Accounting Standards Board (FASB), 1161

International Accounting Standards Board (IASB), 1161

International Financial Accounting Standards (IFRS), 1161, 1251

introduction, 1131posting, 663–664Power Corporation of Canada, 841precision, 150prediction of cash flows, 12predictive value, 44preferred shares


assets upon liquidation, 827characteristics of, 826–827conversion, 827converted preferred shares, 1206–1208cumulative dividends, 827cumulative dividends on, 840defined, 826–827dividend priority, 826–827effect of escalation clause, 889guarantee, 827if-converted method, 1201participating dividends, 827participating dividends on, 840–842redemption at a premium, 889reporting example, 889restricted shares, 827retractable preferred shares, 888–889

special shares, 827term preferred shares, 888voting rights, 826

premium, 604, 827, 889preparer motivations

earnings management, 16–18expanded disclosure, 18minimum compliance, 18users objectives, vs., 19

preparers, 11prepayments, 143present right, 48present value, 55, 735presentation

accounting policy changes, 1257goodwill, 487investment property, 487property, plant, and equipment, 487

presentation currency, 4, 21presentation formats

current-noncurrent presentation, 136gains and losses, 266general, 84–91by liquidity, 137long-term contracts construction

contracts, 291f, 292forder of, 137regional differences in, 137–138revenue, 306–307

principal, 268principal market, 56principal payments, 774principal value, 778prior-period errors

corrections, 153, 1266–1267counterbalancing errors, 1267–1268defined, 1265–1266events not reportable as errors, 1266impracticable, 1268

private companiesSee also private enterprisesaccountability, 5–8defined, 826generally accepted accounting principles

(GAAP), 6–7public companies, vs., 826

private enterprisesand Accounting Standards for Private

Enterprise (ASPE), 6, 21, 61–62, 107–109, 826

defined, 5disclosed basis of accounting (DBA), 6–7financial statement elements, 61–62IFRS, using, 5–6measurement, 62objectives and qualitative characteristics,

60–61private placements, 5–6

private placements, 5–6privately owned banks, 4probability, 49, 1015product financing arrangements, 279product recall, 277productive capacity capital maintenance, 42productive-output (PO) method, 538f,

539f, 540professional judgement

company acting as agent, 268company acting as principal, 268defined, 38dividends classification, 224

INDEXIN-17

professional judgement (continued)and ethics, 59–60and expense recognition, 53finance leases, 1065impairment writedowns, 551interest classification, 224and International Financial Accounting

Standards (IFRS), 38and measurement variability, 58and problem of earnings targets, 57–58and reserves, 58–60substance over form, 1060

profit elimination, unrealized, 623profit or loss section, 84–85profitability on sales ratios, 1314profitability ratios

components of, 1318–1319defined, 1314evaluation of, 1317for Grocery Retailer Inc., 1320operating margin, 1319return on common share equity, 1315return on long-term capital, 1316–1317return on total assets, 1315summary of, 1318ftotal capitalization, 1315total comprehensive income, 1317–1318types of, 1315–1317

progress billings, 289prohibited internally developed intangibles,

478projected unit credit method, 1139, 1140property, plant, and equipment, 137f

additions, 468basket purchase, 466betterment, 468capitalization norms, 469–472common capitalization practices, 470fcomponent accounting, 465–466costs, safety or environmental, 466defined, 464disclosure, 488disclosure notes, 489f–490f, 495felements of cost, 469, 476general criteria, 465government assistance, 474, 505–506intangible assets, 476–477fmaintenance, 467–468major inspections, 468measurement of, 469–475ordinary repairs, 467–468presentation, 487recognition of, 465–468repairs, 467–468replacement of major part, 468spare parts, 466statement of financial position (SFP), 144subsequent costs, 467

property dividends, 842property taxes, 722–723proportional method, 466, 831, 902proportional relationship, 1314proportionate consolidation, 631proprietary assumption, 40–41prospective application

comparative illustration, 1263, 1264fdefined, 1250described, 1262disclosures, 1263early adoption, 1264financial instruments, 1264

guidelines, 1263use of prospective application, 1263

prospective treatment, 153provincial sales tax (PST), 409

See also harmonized sales tax (HST); sales taxes

provision for income tax, 954provisions

and Accounting Standards for Private Enterprise (ASPE), 164

classification of, 744–745compensated-absence liabilities, 733–734contingent assets, 726coupons, 731defined, 104, 716disclosure for, 745–746environmental obligations, 730estimate change, 740–742examples of, 726–734, 742–743executory contracts, 728gift cards, 731lawsuits, 726–728, 739–740loyalty programs, 731–732maintenance, 732measurement of, 725–726non-financial liabilities, 724–735onerous contracts, 728prohibited practices, 726repairs, 732reporting example, 727–728and restoration, 730for restructuring, 729returns, 730–731sales returns, 730–731self-insurance, 732–733on SFP, 137fsummary, 734warranty, 729–780

PSC. See past service cost (PSC)PST, 409public companies, 141, 159

accountability, 4–5defined, 826diluted earnings per share, reporting,

1189–1190earnings per share (EPS), reporting,

1189–1190generally accepted accounting principles

(GAAP), 2, 4private companies, vs., 826

public enterprise, 4publicly accountable enterprise (PAE), 4–5publishing rights, 477fpurchase at premium, 606–607purchase commitments, losses on, 416–417purchases journal, 680–681purchasing power, 42purchasing power parity, 42purpose-bought subsidiaries, 99put option, 915

Qqualifying assets, 790–791qualitative criteria

and Accounting Standards for Private Enterprise (ASPE), 61f

defined, 36enhancing qualities, 44f, 45–46fundamental qualities, 44–45, 44fpervasive constraints, 44f, 46–47and private enterprises, 60–61

trade-offs, 47quality of earnings, 212Quebec Securities Commission, 2quick ratio, 1330

Rrates of return, 140ratio, 1327ratio analysis

common-size (vertical) analysis, 1307–1309, 1309–1311, 1314

conclusion, 1334–1335consolidated statements, 1332–1334decomposition analysis, 1307defined, 1314efficiency ratios, 1319–1322horizontal analysis, 1311–1314limitations to, 1306–1307liquidity ratios, 1327–1332multi-industry corporations, 1334profitability ratios, 1314–1319proportional relationship, 1314solvency ratios, 1322–1327trend analysis, 1311–1314vertical (common-size) analysis,

1307–1309, 1309–1311, 1314raw materials, 408–409, 410real accounts, 659real property, 1060realizable value, 55realization

and cash flows, 53defined, 51recognition, vs., 51–52

realized holding gains or losses, 599recasting financial statements, 1342–1351receivables

See also accounts receivable; notes receivable

foreign currency receivables, 368–369long-term receivables, 143nontrade receivables, 348uncollectible receivables, 350

reciprocal transfers, 661reclassification, 91, 624–626recognition

See also derecognitionamortization expense, 531and cash flows, 53commitments, 49criteria, 51fdefined, 49derivatives, 916–917disclosure, vs., 49internally developed intangibles, 478net defined benefit pension liability

(asset), 1146–1148realization, vs., 51–52revenue. See revenue recognitionstock dividends, 845–846

reconciliation, 201, 219reconciliation method, 224–226record date, 839recording

accounting policy changes, 1257investment tax credit (ITC), 985–986reporting investments, vs., 600stock options, 900–901

recording method, 600recording transactions, 659–660recourse, 357

INDEX IN-18

recoverable amount, 94, 546recycled, 147, 1144recycling, 91redeemable bonds, 793redeemable shares, 832, 886, 890refund liability, 319regional differences in presentation, 137–138registered pension plans, 1133related party transactions, 157, 160, 164relative fair value method, 285–286, 320relevance, 44, 47, 282, 293, 309reliability, 45, 47remeasurement, 475, 1144–1145repairs, 467–468, 732replacement of major parts, 468, 483reportable segment, 159reporting

accounting changes, 1255–1256accounting policy changes, 1257accounts receivable, 352comparability of statistical series, 1256currency, 4–5investment tax credit (ITC), 986–987perpetual debt, 890preferred shares, 889prospective application, 1256retrospective application with full

restatement, 1255retrospective application with partial

restatement, 1255–1256reporting method, 600reporting periods, 486repurchase agreements, 408research, 478research and development (R&D) costs,

478–479, 491f–492freserves

defined, 58–60, 147–148, 851example, 851–852sources of, 852

residual analysis, 1335residual interest, 825residual value, 530, 536, 1077, 1089residual value method, 285, 286, 320resource exploration, 477frestated financial statements, 1342–1351restatement, 1255restoration, and provisions, 730restricted actions, 775–776restricted covenants, 775–776restricted retained earnings, 838restricted share units, 905restricted shares, 11, 827restrictions (reserves), 147restructuring, 104–106, 106f, 109

provisions for, 729restructuring plan, 103retail inventory method, 421–424retained earnings, 146–147

appropriations, 838restrictions, 838shareholders’ equity, 837–838

retained earnings method, 832retainer, 283retirement of assets, 544retirement of shares

accounting for, 833–835conversion, 835reasons for, 832–833

retractable bonds, 793retractable preferred shares, 888–889

retractable shares, 832retrospective application

accounting policy changes, 1256–1262defined, 1255disclosure, 1262financial statement presentation, 1257with full restatement, 1255illustration, 1257–1258with partial restatement, 1255–1256recording, 1257, 1259reporting, 1257, 1259–1262

retrospective restatement, 1255return on assets, 140return on common share equity, 1315return on equity (ROE), 1317return on investment (ROI), 140, 150return on investment profitability ratios,

1314return on long-term capital, 1316–1317return on sales ratios, 1314return on total assets, 1315return rates, 140returnable deposits, 720returns on sales

not predictable, 274–275predictable, 272–274and provisions, 730–731

revaluation accounting, 560–561revaluation approach, 144revaluation model, 465, 567–569frevaluation surplus, 560–561, 567–569frevenue

accrued revenue, 669deferrals, 275–277deferred revenue, 668defined, 48, 82, 266dividend revenue, 304–305estimation of, 289–290, 293franchise fees, 287gains, vs., 266gross revenue, 266–268interest revenue, 304–305losses, vs., 266net assets, impact on, 52, 53, 272, 273fnet revenue, 266–268over time, 282–283short-term service revenue, 272statement of cash flows (SCF), 307unearned revenue, 271, 307

Revenue from Contracts with Customers (IASB), 307, 317

revenue recognition2017 revenue recognition standard,

317–321Accounting Standards for Private

Enterprise (ASPE), 308agricultural produce, 294–298bill-and-hold arrangements, 277–278biological assets, 294–298at cash collection, 279–281consignment arrangements, 278–279contract-based approach, 268–269,

318–320cost recovery method, 280–281, 288current standard, 268delayed, 277delayed payment contracts, 283–284at delivery, 271–272earnings-based approach, 268earnings-based requirements, 269–271economic value added (EVA), 268

and ethics, 275, 278, 305–306instalment sales method, 280International Accounting Standards

Board (IASB), changes in, 265, 268, 317–321

licensing fees, 279long-term contracts, 288–298measuring progress over time, 282–283multiple deliverable contracts, 286–287multiple goods and service contracts,

284–287non-cash consideration, 284non-monetary transactions, 298–304policy, choice, 305–307process, 266, 267fquantity of revenue, 271revised standard, 268–269for sale of goods, 269, 270ffor sale of services, 269–271sale with a right of return, 272–275transfer of goods at a single point in time,

271–281transfer of goods over time, 282–283transfer of services over time, 282–283transfer services at a single point in time,

271–281revenue recognition process, 268reversal of impairment loss, 549–551reverse split, 849reversing journal entries (RJEs), 677–678review engagement, 1303rewards, 269, 271, 276, 278, 284, 360right to recovery asset, 319risk

assessment, 1334market risk, 1334operating risk, 1326of ownership, 360and reward, 269, 271, 276, 278, 284

risk profile, 138RONA Inc., 885

Ssafety costs, 466sale and leaseback


changes, forthcoming, 1111defined, 1080–1081finance lease, 1082–1083land and buildings, 1083–1084operating lease, 1083recording a, 1081–1083

sale of goods, revenue recognition for, 269, 270f

sale/derecognition, 357–359, 360sales

original sales price, 422returns not predictable, 274–275returns predictable, 272–274revenue, 304with right of return, 319with service agreement, 275–277, 319with warranty, 275–277, 319

sales journal, 679–680sales returns and allowances, 349–350sales returns and refunds, 730–731sales taxes, 409–410, 721

See also harmonized sales tax (HST); provincial sales tax (PST)

sales-type leases, 1095, 1096, 1107

INDEXIN-19

SARs. See stock appreciation rights (SARs)savings institutions, 4SCF. See statement of cash flows (SCF)SCI. See statement of comprehensive income

(SCI)scrip dividends, 843Securities Exchange Commission (SEC), 4securitization, 357segment disclosures, 159–160, 163segment reporting, 98, 1334self-constructed assets, 469self-correcting errors, 418–419self-insurance, 732–733senior shares, 1191separate and distinct, 318separate legal entity, 1332–1333separate-entity assumption, 39–40separately identifiable, 285service agreements, 275–277, 319service contracts, 410service cost, 1141service-hours (SH) method, 538f, 539f, 540services

barter, 298exchange of dissimilar services, 299exchange of similar services, 298–299multiple goods and service contracts,

284–287short-term service revenue, 272transfer at a single point in time, 271–281transfer over time, 282–283

settlement value, 55SFP. See statement of financial position (SFP)share capital

See also sharesarbitrary allocation, 832authorization of, 828authorized share capital, 828basket sale of, 831–832classes of shares, 826and corporations, 826default on subscriptions, 830defined, 146disclosures, 854dividends. See dividendsearnings per share, 1217–1218issuance of, 828–832non-cash issuance, 830–831no-par shares, 828outstanding share capital, 828preferred shares, 826–827premium, issued at, 827–828retirement of, 832–835, 856share issue costs, 832shares issued for cash, 829special terms and conditions, 827stock splits, 848–850subscribed shares, 829terms related to, 828treasury stock, 835–837voting rights, 826–827

share conversion, 827share investment, 609, 613share issue costs, 832share-based payments

accounting patterns, 906Accounting Standards for Private

Enterprise (ASPE), 923defined, 903to employees, 905to nonemployees, 903–904

summary of characteristics, 906shareholder loans, 922shareholders’ agreements, 15, 826shareholders’ equity

See also sharesAccounting Standards for Private

Enterprise (ASPE), 856and corporations, 826dividends, 838–848donated capital, 850–851reserves, 851–853retained earnings, 837–838share capital, 826

See also share capitalsources of, 145–146statement of cash flows (SCF), 854–855statement of changes in equity (SCE),

853–854stock splits, 848–850treasury stock, 835–837

shareholders of record, 839shares, 11, 146

See also share capital; shareholders’ equitybonus shares, 1195callable, 832classes of, 826common, 826contingently issuable ordinary shares,

1194conversion of, 835floating conversion price per share,

891, 895high-low shares, 922issued for cash, 829mandatorily convertible shares, 1193multiple classes of common shares,

1196–1198no-par, 828ordinary shares, 1191par value, 827partially vs. fully participating, 841–842preferred, 826–827, 840–842, 922redeemable, 832restricted, 827retractable, 832, 888–889senior shares, 1191share-based payments, 903–906special, 827subscribed, 829weighted average ordinary shares

(WAOS), 1192–1193shelf registration, 836Shoppers Drug Mart Corp., 732, 920–921short-term bank loans, 772–773short-term financing, 772–773short-term investments, 143short-term leases, 1107short-term service revenue, 272shrinkage, 433significant deficiencies, 418significant influence, 595single lease expense (SLE) approach,

1109–1110single-step statement, 90single-transaction method, 836–837site restoration costs, 474–475small and medium-sized enterprises

(SME), 5Softchoice Corporation, 148, 149fsoftware, 144, 279software product development, 479–480f

solvency ratiosdebt service ratios, 1322, 1327defined, 1322for Grocery Retailer Inc., 1329fleverage ratios, 1322, 1325–1326summary of, 1328ftimes-debt-service-earned ratio, 1327times-interest-earned ratio, 1327

sources of reserves, 852spare parts, 466, 537special funds, 143special journals

accounting information system (AIS), 679–683

cash disbursements journal, 681, 682fcash receipts journal, 681–682, 682fdefined, 663general journal, 681, 683fpurchases journal, 680–681sales journal, 679–680

special purpose entities (SPEs), 359, 361, 362, 1098

special purpose statements, 142special shares, 827special stock dividends, 846specific identification, 435–436specific intangible assets, 478–481spot rate, 723, 788spreadsheet approach to pension accounting,

1149–1155spreadsheet method, 234–236

See also T-account methodspreadsheet procedures, 234–236stable currency assumption, 41–42stable dollar, 42stand-alone derivatives, 916stand-alone value, 285standard recording method, 667standards. See accounting standardsstandby equipment, 537Stantec Inc., 910stated interest rate, 363, 719stated value method, 845stated value shares, 146statement of cash flows (SCF), 20, 21

See also operating activitiesaccounting changes, 1269–1270accounting policy choices, 212–213Accounting Standards for Private

Enterprise (ASPE), 223–224, 228, 1388

and accounts receivable, 369–370alternative classification, 1386–1387amortization, 558cash, 200, 1375cash equivalents, 628cash paid for interest, 1375classification, 200, 223–224, 1375complex financial instruments, 919comprehensive illustration, 1375–1389corporate income tax, 977defined, 200depreciation, 558direct presentation, 208–209, 221–222,

1384–1386disclosure, 919–920, 1384–1386dividends, 223–224, 1375evaluation, 211example, comprehensive, 1378–1384example of, 202, 203f, 204–208, 206ffinance lease, 1073

INDEX IN-20

financing activities, 1375income tax, 223–224, 1375indirect presentation, 208–209, 220–221finterest, 223–224, 1375interpretation issues, 212–213interpretation of, 202inventory costs, 424investing activities, 1375leases, 1097liabilities, 747–748long-lived assets, 486–487long-term debt, 797–800non-cash transactions, 210–211, 1375note disclosure, 211objectives of the, 200offsetting transactions, 210, 1375operating activities, 1375, 1384–1386organization, 200other post-employment benefits (OPEBs),

1158–1159partial cash transactions, 211pensions, 1158–1159preparation of, 204reporting example, 920–921revenue reported, 307shareholders’ equity, 854–855summary of major points, 1375–1377supplementary disclosure, 1375T-account method, 213–216T-account procedures, 216–220two-step indirect presentation, 210, 221fworksheet, 234f–235f

statement of changes in equity (SCE), 20additional paid-in capital, 146appropriation, 147contributed surplus, 146defined, 145equity components of debt instruments,

146example, 155f, 205f, 215f, 673f–674par value shares, 146reserves, 147retained earnings, 146–147share capital, 146shareholders’ equity, 853–854stated value shares, 146

statement of changes in retained earnings, 21statement of comprehensive income (SCI)

abbreviations, 87Conceptual Framework, 106–107defined, 83discontinued operations reporting, 99earnings per share (EPS), 89elements of, 48–49, 50fexample of, 205f, 214f–215f, 673ffinance lease, 1073financial statement under IFRS, 19, 20, 21revenue recognition, 317, 318frevenue recognition process, 267f

statement of financial position (SFP)See also balance sheetaccounting estimates in, 140–141Accounting Standards for Private

Enterprise (ASPE), 136accounts receivable, 143allowances, reporting, 352assets, 142balance sheet use in ASPE, 136biological assets, 144, 487cash, 142cash equivalents, 142

classification, 136–138consolidated statement, example, 139fcurrent assets, 142–143current liabilities, 136current-noncurrent presentation, 136deferred income tax assets, 969–970deferred income tax liabilities, 969defined, 136discontinued operations reporting,

99–100elements of, 48, 50fexample of, 205f, 214f, 674ffinance lease, 1072–1073financial statement component, 19goodwill, 487held-for-sale assets, 143historical cost-based, 141intangible assets, 144International Financial Accounting

Standards (IFRS), 136inventory, 143investment property, 144, 487items to be reported on, 136, 137fliabilities, 144–145limitations of, 140–142liquidity, 137net defined benefit pension liability

(asset), 1146–1148noncurrent assets, 143–144note references, 138offsetting assets and liabilities, 145pension plans, 1148–1149prepayments, 143presentation, 136–138property, plant, and equipment,

144, 487purpose of, 138–140revenue recognition, 306, 317revenue recognition process, 267fshort-term investments, 143strategic investments, 144trade receivables, 143

statistical multivariate ratio analysis, 1335stewardship, 15stewardship reporting, 15stock appreciation rights (SARs), 905,

911–912stock dividends

accounting issues, 844–845basic earnings per share, 1195–1196defined, 1195described, 843–844fair value method, 845fractional share rights, 846–847memo entry, 845ordinary stock dividends, 846reasons for, 844recognition, timing, 845–846special stock dividends, 846stated value method, 845timing of recognition, 845–846

stock option plans, 905stock options

defined, 899–900, 1199employee stock options, 907–909forfeiture, 908–909in-the-money, 900poison pill, 901recording, 900–901reporting example, 910stock rights, 899

stock warrants, 901unrecognized, 901

stock rights, 899See also stock options

stock splitsaccounting for, 849–850adjustments, 849–850basic earnings per share, 1195–1196defined, 848–849, 1195implementation, 850memo entry, 849post-year-end split, 1195–1196reverse split, 849

stock subscriptions, 829stock warrants, 901stock-keeping unit, 680straight-line balance, 140straight-line measurement of interest

expense/revenue, 366–367straight-line (SL) method

Accounting Standards for Private Enterprise (ASPE), 371–372, 749–750, 801–802

amortization, 605–607fdefined, 537–539f, 749–750

strategic alliances, 592strategic investments, 144, 592, 627,

630–631subscribed share capital, 829subscribed shares, 829subscription lists, 144subsequent events, 161–162, 163, 1217subsidiaries

consolidation, 141–142control, 142foreign, 91investment, 595non-controlling interest (NCI), in,

148–151purpose-bought, 99related party transactions, 160translation gain/loss on foreign

subsidiaries, 147–148subsidiary account, 665subsidiary company, 595subsidiary ledgers, 664–665, 678–679substance over form, 44, 886, 1060substantially enacted tax rate, 1023substitution of debt, 797successful efforts method, 481summary of adjustments in operating

activities, 227–228supplies inventory, 411survivor benefits, 1138sustainable business enterprise, 41

TT-account, 659–660fT-account analysis, 217fT-account method, 213–216

See also spreadsheet methodT-account procedures, 216–220tangible capital assets, 144tax allocation. See interperiod tax allocationtax basis, 953tax benefit, 1010tax carrying values, 964tax credit, 984tax deferral vs. tax evasion, 14tax depreciation, 955tax evasion vs. tax deferral, 14

INDEXIN-21

tax lossesAccounting Standards for Private

Enterprise (ASPE), 1036benefits of, 1010defined, 1010disclosure, 1034ethics, 1035future benefit accounting, 1034–1035international standards, 1035introduction, 1009loss carryback, 1010–1012loss carryforward, 1010, 1014–1020permanent differences in loss year,

1012–1014tax benefits, vs., 1010tax rates, 1023temporary differences in loss year,

1012–1014valuation allowance, 1020–1023

tax minimization, 13, 14tax planning, 1013tax rates

accountant’s vs. analyst’s concepts of, 974–975

corporate income tax, 968–969, 973–974

deferral method, 960–961liability method, 960–961, 979loss carryforward, 1023substantially enacted tax rate, 1023

tax shield, 1089taxable income

corporate income tax, 962–963interperiod tax allocation, 954–956loss calculation, 1012

tax-book conformity, 14taxes

goods and services tax (GST), 409harmonized sales tax (HST), 409payroll taxes, 721–722property taxes, 722–723provincial sales tax (PST), 409sales taxes, 721

taxes payable method, 957, 979, 1036T-bills, 345TD Bank, 885technology, impact of, 661temporary accounts, 659, 660ftemporary differences

See also interperiod tax allocationdefined, 955, 956sources of, 966, 972

term loans, 774term of commercial mortgages, 774–775term preferred shares, 888termination benefits, 1142terminology changes, 6010% corridor method, 1148tests and derecognition, 359–360Tim Hortons, 1189timeliness, 46, 293, 309time-period assumption, 39times-debt-service-earned ratio, 1327time-series analysis, 1335times-interest-earned ratio, 1327title transfer, 408Toronto Stock Exchange (TSX), 1, 2, 4total capitalization, 1315total debt-to-equity ratio, 1325, 1326

trade accounts payable, 718–719trade accounts receivable, 348trade and other payables, 137f, 144trade and other receivables, 137ftrade credit, 772trade names, 477ftrade receivables, 143trademarks, 144, 279, 477f, 536ftrade-offs, 47transaction value, 344transactions, 661–662, 663, 686transactions approach, 82transfer, 343transfer value, 625transferee, 358transferor, 358, 359transfers

of accounts receivable, 357–362nonreciprocal transfers, 473, 661notes receivable, 368reciprocal transfers, 661risks and rewards, 360

translation gain/loss, 147–148treasury bills (T-bills), 345treasury stock method, 1200treasury stocks

accounting for, 836–837Accounting Standards for Private

Enterprise (ASPE), 856defined, 835

trend analysis, 1311–1314for Grocery Retailer Inc., 1312f–1313f

trend (horizontal) analysis, 1311–1314Truck Finance Canada, 1088trued up, 906trustee, 1133turnover ratios, 1319

See also efficiency ratiostwo-step indirect presentation, 210, 221fTyco, 154

Uunadjusted trial balance, 665–666funcollectible receivables, 350under water, 900underlying assumptions

capital maintenance, 42–43, 44fcontinuity assumption, 41defined, 36, 38–39entity-specific assumptions, 39, 40–43financial statements, 157proprietary assumption, 40–41separate-entity assumption, 39–40stable currency assumption, 41–42time-period assumption, 39unit-of-measure assumption, 40

understandability, 46unearned revenue, 271, 307unguaranteed residual value, 1065, 1090uniformity, 46union dues, 722unit-of-measure assumption, 40units of production method, 540units of service, 540–542universal assumptions, 39–40unobservable values, 56unrealized holding gains or losses, 599unrealized profit elimination, 623unremitted earnings, 600

unusual items, 90unwinding, 737upstream profit, 623U.S. GAAP, 4, 5, 20useful life, 535, 1066users. See external-user objectives

Vvaluation, 362, 904valuation allowance method, 1023valuation allowances

accounts receivable, 348–352defined, 1020example, 1020–1022valuation allowance method, 1023write-off of expired carryforward

benefits, 1022–1023valuation alternatives, 298, 300valuation of the allowance for doubtful

accounts, 353–355value added, 41value added tax (VAT), 409value changes, 83 cdvalue in use, 546variable interest entities, 1098verifiability, 36, 46, 282, 293, 309vertical (common-size) analysis, 1307–1309,

1309–1311, 1314vesting, 906, 1133virtual certainty, 730volatility, 599voluntary changes, 1253–1254voting rights

common shares, 826limited or nonexistent, 826, 827preferred shares, 826–827

Wwarranties

as constructive liability, 730cost deferral method, 729–730sale with a warranty or service agreement,

275–277, 319warrants, 901–903website development costs, 477f, 480–481weighted average number of shares, 89weighted average ordinary shares (WAOS),

1192–1193weighted average system, 436Westcast Industries Inc., 104, 106fWestJet Airlines, 1301window dressing, 1098, 1255work in process, 407work in progress inventory, 407, 410working capital loans, 772worksheets

accounting information system (AIS), 684–686

defined, 684illustration, 684–686

writedowns, 99, 412, 413–415, 426, 427write-off and recovery, 351–352write-off of expired carryforward benefits,

1022–1023write-offs, 355–356, 1022–1023

Yyear-end, 369, 724yield, 735, 777

index...

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