ASPE

Revenue recognition – Regular/Upfront fee

Issue:

Whether revenue can be recognized.

Handbook and analysis:

Per ASPE 3400.A45-A48, when an upfront fee is received, the fee should be
assessed as to whether there is any utility separate and independent to the
performance of the main transaction or whether the fee is a part of the
arrangement.

- List case facts. If fee is not separate, its recognition does not need to
be considered separately.

Per ASPE 3400.04-05, Revenue from sales and service transactions shall be
recognized when the requirements as to performance set out below are
satisfied:

(a) the seller of the goods has transferred to the buyer the significant risks
and rewards of ownership

- List case facts. Mention that Revenue can be recognized in advance of

delivery if certain arrangements exist, as per 3400.09 if applicable.

(b) reasonable assurance exists regarding the measurement of the

consideration that will be derived from the sale of goods

- List case facts.

(c) ultimate collection is reasonably assured.

- List case facts.

Recommendation:

Based on the analysis, revenue should be recognized (if all the criteria are
met). Revenue should not be recognized (if all the criteria are not met).
Revenue and AR should be reduced by same amount. Inventory should be
increased, and COGS should be reduced by the same amount. Upfront fee
should be recorded as deferred revenue as the recognition criteria have not
been satisfied.
Inventories – Definition

Issue:

Whether the item(s) should be recorded as inventory.

Handbook and analysis:

Per ASPE 3031.07, Inventories are assets:

(i) held for sale in the ordinary course of business;

- List case facts if applicable.

(ii) in the process of production for such sale; or

- List case facts if applicable.

(iii) in the form of materials or supplies to be consumed in the production

process or in the rendering of services.

- List case facts if applicable.

If the terms of the purchase were “FOB destination”, state that this means
ownership of the item(s) transferred to the entity when the items were
received on the specific date.

Recommendation:

Based on the analysis, if the definition of inventories is met and the

ownership has been transferred, an adjustment should be made to include
the item(s) in inventory and accrual should be made for its related payable.

PPE Repair – Capitalize or Expense

Issue:

Whether the repair should be capitalized or expensed.

Handbook and analysis:

Per ASPE 3061.14, The cost incurred to enhance the service potential of an
item of property, plant and equipment is a betterment. Service potential may
be enhanced when there is an increase in the previously assessed physical
output or service capacity, associated operating costs are lowered, the life or
useful life is extended, or the quality of output is improved. The cost incurred
in the maintenance of the service potential of an item of property, plant and
equipment is a repair, not a betterment. If a cost has the attributes of both a
repair and a betterment, the portion considered to be a betterment is
included in the cost of the asset.

- List case facts.

Recommendation:

Based on the analysis, if the criteria are met, the repair costs should be
included in the cost of the asset. Amortization expense should also be
recorded.

Bank Covenant (Debt-to-equity)

Purpose:

To calculate if entity is compliant with loan covenant

Calculation:

1. Calculate Debt to equity ratio without adjustments (Debt/Equity)

2. Add adjustments to debt and equity and include notes
3. Calculate Debt to equity ratio with adjustments

Conclusion:

State if entity remains compliant with loan covenant or not. State if entity
has enough cash to pay off loan or not if bank demands payment due to
entity not being compliant.

Long-lived asset impairment

Issue:

Whether the carrying value of the asset should be written down as a result of
the impairment indicators identified.

Handbook and analysis:

Per ASPE 3063.09, A long-lived asset shall be tested for recoverability

whenever events or changes in circumstances indicate that its carrying
amount may not be recoverable.

- List case facts

Per ASPE 3063.04-05, An impairment loss shall be recognized when the
carrying amount of a long-lived asset is not recoverable and exceeds its fair
value.

The carrying amount of a long-lived asset is not recoverable if the carrying

amount exceeds the sum of the undiscounted cash flows expected to result
from its use and eventual disposition. This assessment is based on the
carrying amount of the asset at the date it is tested for recoverability,
whether it is in use or under development.

- Calculate carrying amount and undiscounted cash flow, compare both

amounts. If carrying amount > undiscounted cash flows, carrying
amount is unrecoverable.
- Calculate impairment loss (Carrying amount – Fair value).

Recommendation:

Based on the analysis, if the carrying amount is not recoverable and exceeds
its fair value, an impairment loss should be recognized. The carrying value
will be adjusted by reduced by the impairment loss amount.

Inventory Valuation

Issue:

Whether an adjustment to inventory value is required.

Handbook and analysis:

Per ASPE 3031.10, Inventories shall be measured at the lower of cost and net
realizable value.

- List case facts. Calculate cost and NRV.

Recommendation:

Based on the analysis, if criterion is not met, inventory will need to be

reduced by (Carrying amount – Lower of cost and NRV).

Bank Covenant (Current ratio)

Purpose:

To calculate if entity is compliant with loan covenant

Calculation:

1. Calculate Current ratio without adjustments (Current Assets/ Current

Liabilities)
2. Add adjustments to current assets and current liabilities and include
notes
3. Calculate Current ratio with adjustments

Conclusion:

State if entity remains compliant with loan covenant or not. State if entity
has enough cash to pay off loan or not if bank demands payment due to
entity not being compliant.

Property, plant, and equipment – Separate capitalized costs (Land &

Building)

Issue:

Whether the cost of the building and the cost of land should be separated
and is complete, and whether the cost of land should be depreciated as land
usually has an unlimited life.

Handbook and analysis:

Land:

As per ASPE 3061.03b, Cost is the amount of consideration given up to

acquire, construct, develop, or better an item of property, plant and
equipment and includes all costs directly attributable to the acquisition,
construction, development or betterment of the asset including installing it
at the location and in the condition necessary for its intended use. Cost
includes any asset retirement cost accounted for in accordance with ASSET
RETIREMENT OBLIGATIONS, Section 3110.

- List case facts. Use facts to calculate cost of land (Land + Demolition
costs + Land transfer tax = Subtotal + Legal costs prorated = Total)

Building:

As per ASPE 3061.08, The cost of an item of property, plant and equipment
includes direct construction or development costs (such as materials and
labour), and overhead costs directly attributable to the construction or
development activity.
 - List case facts. Use facts to calculate cost of building (Building
materials + Labour = Subtotal + Legal costs prorated = Total)

As per ASPE 3061.11, The cost of an item of property, plant and equipment
that is acquired, constructed, or developed over time includes carrying costs
directly attributable to the acquisition, construction, or development activity
(such as interest costs when the enterprise's accounting policy is to
capitalize interest costs.) For an item of rate-regulated property, plant and
equipment, the cost includes the directly attributable allowance for funds
used during construction allowed by the regulator.

- List case facts. Use case facts to calculate the additional cost of the
building (Insurance, property tax, utilities)
- Add calculations above to determine total cost of the building

Depreciation:

As per ASPE 3061.16, Amortization shall be recognized in a rational and

systematic manner appropriate to the nature of an item of property, plant
and equipment with a limited life and its use by the enterprise. The amount
of amortization that shall be charged to income is the greater of:

(a) the cost less salvage value over the life of the asset; and

(b) the cost less residual value over the useful life of the asset.

- List case facts. Use case facts to calculate depreciation ((Cost of

Building/ Useful life) x (Months used in year/12)

Recommendation:

Based on the analysis, the cost of land of $X and the cost of building of $X
should be separated. Depreciation should also be adjusted to $X on the
building only.

Revenue recognition – Separately identifiable components

Issue:

Whether these items should be recognized separately as their respective

revenue recognition criteria have been met.

Handbook and analysis:

As per ASPE 3400.11, The recognition criteria in this Section are usually
applied separately to each transaction. However, in certain circumstances, it
is necessary to apply the recognition criteria to the separately identifiable
components of a single transaction in order to reflect the substance of the
transaction. A single sales transaction may involve the delivery or
performance of multiple products, services, or rights to use assets, and
performance may occur at different points in time or over different periods of
time. In some cases, the arrangements include initial installation, initiation,
or activation services and involve consideration in the form of a fixed fee or a
fixed fee coupled with a continuing payment stream. For example, when the
selling price of a product includes an identifiable amount for subsequent
servicing, that amount is deferred and recognized as revenue over the period
during which the service is performed. Conversely, the recognition criteria
are applied to two or more transactions together when they are linked in
such a way that the commercial effect cannot be understood without
reference to the series of transactions as a whole. For example, an enterprise
may sell goods and, at the same time, enter into a separate agreement to
repurchase the goods at a later date, thus negating the substantive effect of
the transaction. In such a case, the two transactions are dealt with together.
(Paragraphs 3400.A8-.A12 provide related application guidance.)

- List case facts. Use case facts to calculate the purchase price
allocation. (Divide each items stand alone price by the total stand
alone price then multiply them by the purchase price)

As per ASPE 3400.04-05, Revenue from sales and service transactions shall
be recognized when the requirements as to performance set out below are
satisfied:

(a) the seller of the goods has transferred to the buyer the significant
risks and rewards of ownership
- List case facts. Performance will be achieved once the service of good
has bee transferred. Calculate how much can be recognized for each
obligation for each component.
(b) reasonable assurance exists regarding the measurement of the
consideration that will be derived from the sale of goods, and the
extent to which goods may be returned.
- List case facts.
(c) ultimate collection is reasonably assured.
- List case facts.

Recommendation:
Based on the analysis, revenue for each item should be identified when
performance has been achieved. List the amounts calculated above.

Liability – Discount (Coupon)

Issue:

Whether a liability is present at the year end.

Handbook and analysis:

As per ASPE 1000.29, Liabilities have three essential characteristics:

(a) they embody a duty or responsibility to others that entails settlement

by future transfer or use of assets, provision of services or other yielding of
economic benefits, at a specified or determinable date, on occurrence of a
specified event, or on demand;

- List case facts. Use case facts to calculate liability (Retail price x Coupon
rate = Coupon price – COGS = Liability)

(b) the duty or responsibility obligates the entity leaving it little or no

discretion to avoid it; and

- List case facts.

(c) the transaction or event obligating the entity has already occurred.

- List case facts.

Recommendation:

Based on the analysis. A liability of $X (Coupons x Usage rate x Liability

above) should be recognized.

Financial Instruments – Long-term liabilities

Issue:

Whether the long-term liabilities are recorded appropriately.

Handbook and analysis:

Initial measurement:
As per ASPE 3856.07, Except as specified in paragraph 3856.09A, when a
financial asset is originated or acquired or a financial liability is issued or
assumed in an arm's length transaction, an enterprise shall measure it at its
fair value adjusted by, in the case of a financial asset or financial liability that
will not be measured subsequently at fair value, financing fees and
transaction costs that are directly attributable to its origination, acquisition,
issuance or assumption. (Paragraphs 3856.A8 and 3856.A9-.A13 provide
related application guidance.)

- List case facts. Use case facts to calculate initial measurement

(PV(bond rate – market rate, payment periods, -interest expense, -bond
face value, 0))

Subsequent measurement:

As per ASPE 3856.11, Except for those financial instruments for which
paragraphs 3856.14-.14A or 3856.15A apply, at each reporting date, an
enterprise shall subsequently measure a financial instrument based on how
it initially measured the instrument. If the enterprise initially measured the
financial instrument at:

(a) fair value, it shall subsequently measure the instrument as follows:

(i) investments in equity instruments that are quoted in an active market

and derivative contracts at fair value in accordance with paragraph 3856.12;

(ii) financial assets and financial liabilities at fair value, if the enterprise
elects that fair value measurement shall apply in accordance with
paragraphs 3856.13 or 3856.13A;

(iii)investments in equity instruments not quoted in an active market, when

originated or acquired in an arm's length transaction, at cost less any
reduction for impairment;

(iv)all other financial assets at amortized cost; and

(v) financial liabilities at amortized cost; or

(b) cost, it shall subsequently measure the instrument using the cost
method less any reduction for impairment.

- List case facts. Use case facts to determine if it is a financial liability. If a

financial liability, amortized cost would be used. At each interest payment
date, the long-term liability payable account will be amortized using either
the effective interest method or the straight-line method.
As per ASPE 3856.13, Except for a financial instrument to which paragraph
3856.09A applies, an enterprise may elect to subsequently measure any
financial asset originated or acquired or financial liability issued or assumed
in an arm's length transaction, at fair value by designating that fair value
measurement shall apply:

(a) when the asset or liability is first recognized in accordance with this
Section; or

(b) for an investment in an equity instrument that was previously

measured at fair value in accordance with paragraph 3856.12(a), when the
instrument ceases to be quoted in an active market.

Any designation in accordance with this paragraph is irrevocable.

- List case facts (However, given that these bonds were a private
issuance, recording at fair value would be very challenging. It is not
possible at this time to quantify how this treatment would impact the
above entries without knowing the fair value of the bonds on the
interest payments dates.)

Recommendation:

Based on the analysis, the bonds should be recorded using the effective
interest method or the straight-line method.

Financial Instruments

Asset Financial Initial Subsequent Journal entries

instrument measurement measurement (ASPE)
or not? (ASPE) (ASPE)
(ASPE)
Note As per ASPE As per ASPE As per ASPE Initial
receivab 3856.05i, A 3856.A8, When 3856.11, Except measurement:
le financial part of the for those Dr. Gain on sale of
instrument consideration financial item (FV –
is a given or instruments for Recorded value)
contract received in a which paragraphs Cr. Note
that creates transaction to 3856.14-.14A or receivable
a financial acquire or issue 3856.15A apply, To adjust note
asset for a financial at each reporting receivable to the
one instrument in an date, an fair value at the
enterprise arm's length enterprise shall time it was issued.
and a transaction is for subsequently
financial something other measure a Subsequent
liability or than the financial measurement:
equity financial instrument based Dr. Note
instrument instrument, its on how it initially receivable (Rate x
of another fair value is measured the FV)
enterprise. estimated using instrument. If the Cr. Interest
-A note a valuation enterprise revenue
receivable technique. The initially measured To record interest
meets the fair value of a the financial revenue on notes
definition of financial instrument at: (a) receivable at the
a financial instrument with fair value, it shall end of year 1.
instrument. a non-market subsequently
rate of interest measure the
is not equal to instrument as
the cash follows: (i)
consideration. It investments in
can be equity
estimated as the instruments that
present value of are quoted in an
all future cash active market
receipts and derivative
discounted contracts at fair
using the value in
prevailing accordance with
market rates of paragraph
interest for a 3856.12; (ii)
similar financial assets
instrument and financial
(similar as to liabilities at fair
currency, term, value, if the
type of interest enterprise elects
rate, or other that fair value
factors) with a measurement
similar credit shall apply in
rating. Any accordance with
difference paragraphs
between the fair 3856.13 or
value of a 3856.13A;
financial asset (iii)investments
or a financial in equity
liability and the instruments not
cash quoted in an
consideration is active market,
recognized when originated
immediately in or acquired in an
net income arm's length
unless it transaction, at
qualifies for cost less any
recognition as reduction for
some other type impairment;
of asset or (iv)all other
liability. For financial assets
example, when at amortized
an enterprise cost; and (v)
receives an financial liabilities
interest-free at amortized
loan from a cost; or (b)
government cost, it shall
agency, in the subsequently
absence of measure the
evidence to the instrument using
contrary, the the cost method
difference less any
between the fair reduction for
value of the loan impairment. - List
and the cash case facts. Use
received is case facts to
accounted for as determine if it is
a government a financial
grant (see liability. If a
GOVERNMENT financial liability,
ASSISTANCE, amortized cost
Section 3800). would be used. At
Similarly, when each interest
an enterprise payment date,
extends an the long-term
interest-free liability payable
loan to an account will be
employee, in the amortized using
absence of either the
evidence to the effective interest
contrary, the method or the
difference straight-line
between the fair method.
value of the loan -List case facts.
and the cash Notes receivable
paid to the should be
employee is measured at
accounted for as amortized cost.
employee
compensation.
- List case facts.
 Use case facts
to calculate
initial
measurement
(PV(bond rate –
market rate,
payment
periods, -
interest
expense, -bond
face value, 0)).
Use entities
interest rate.
Warrant As per ASPE Not applicable. Not applicable. Not applicable.
y 3856.05i, A
financial
instrument
is a
contract
that creates
a financial
asset for
one
enterprise
and a
financial
liability or
equity
instrument
of another
enterprise.
-A
warranty
does not
meet the
definition of
a financial
instrument
as there
isn’t a
contractual
right to
receive
cash or
another
financial
 asset from
another
entity.
Securitie As per ASPE As per ASPE As per ASPE Dr. Fair value
s 3856.05i, A 3856.07, Except 3856.12, An adjustment (profit
financial as specified in enterprise shall and loss)
instrument paragraph subsequently Cr. Investment –
is a 3856.09A, when measure the Pacific – FVPL
contract a financial asset following To adjust the
that creates is originated or financial Pacific shares to
a financial acquired or a instruments at fair market value.
asset for financial liability fair value without
one is issued or any adjustment
enterprise assumed in an for transaction
and a arm's length costs it may incur
financial transaction, an on sale or other
liability or enterprise shall disposal:
equity measure it at its
instrument fair value (a)
of another adjusted by, in investments in
enterprise. the case of a equity
- Securities financial asset instruments that
meet the or financial are quoted in an
definition of liability that will active market
a financial not be (see paragraphs
instrument measured 3856.A9-.A11);
as it is an subsequently at and
equity fair value,
instrument financing fees (b) derivative
of another and transaction contracts other
enterprise. costs that are than:
directly
attributable to (i) derivatives
its origination, that are
acquisition, designated in a
issuance or qualifying
assumption. hedging
(Paragraphs relationship in
3856.A8 and accordance with
3856.A9-.A13 paragraphs
provide related 3856.30-.36 or
application FOREIGN
guidance.) - List CURRENCY
case facts. Use TRANSLATION,
case facts to paragraph
calculate initial 1651.39; and
 measurement
(PV(bond rate – (ii) derivatives
market rate, that are linked to,
payment and must be
periods, - settled by
interest delivery of,
expense, -bond equity
face value, 0)) instruments of
another
enterprise whose
fair value cannot
be readily
determined.

Changes in fair
value shall be
recognized in net
income in the
period incurred.
-List case facts.
Securities should
be measured at
fair value
because they are
investments
quoted in an
active market.

Property, Plant, and Equipment - Capitalize or expense

Issue:

Handbook and analysis:

Recommendation:

IFRS
Financial Instruments

Asset Financial Initial Subsequent Journal entries

instrume measurement measurement (IFRS)
nt or not? (IFRS) (IFRS)
(IFRS)
Note As per As per IFRS As per IFRS Initial
receivab IAS 9.5.1.1, Except for 9.4.1.2, A measurement:
le 32.11, A trade receivables financial asset Dr. Gain on sale of
financial within the scope of shall be measured item (FV –
instrume paragraph 5.1.3, at amortised cost Recorded value)
nt is any at initial if both of the Cr. Note
contract recognition, an following receivable
that entity shall conditions are To adjust note
gives rise measure a met: receivable to the
to a financial asset or fair value at the
financial financial liability at (a) the financial time it was
asset of its fair value plus asset is held issued.
one or minus, in the within a business
entity case of a financial model whose Subsequent
and a asset or financial objective is to measurement:
financial liability not at fair hold financial Dr. Note
liability or value through assets in order to receivable (Rate x
equity profit or loss, collect FV)
instrume transaction costs contractual cash Cr. Interest
nt of that are directly flows and revenue
another attributable to the To record interest
entity. acquisition or (b) the revenue on notes
- A note issue of the contractual terms receivable at the
receivabl financial asset or of the financial end of year 1.
e meets financial liability. asset give rise on
the - List case facts. specified dates to
definition Use case facts to cash flows that
of a calculate initial are solely
financial measurement payments of
instrume (PV(bond rate – principal and
nt. market rate, interest on the
payment periods, - principal amount
interest expense, - outstanding.
bond face value, -List case facts.
0)). Use entities Notes receivable
interest rate. should be
measured at
amortized cost.
Warrant As per Not applicable. Not applicable. Not applicable.
y IAS
 32.11, A
financial
instrume
nt is any
contract
that
gives rise
to a
financial
asset of
one
entity
and a
financial
liability or
equity
instrume
nt of
another
entity.
-A
warranty
does not
meet the
definition
of a
financial
instrume
nt as
there
isn’t a
contractu
al right to
receive
cash or
another
financial
asset
from
another
entity.
Securitie As per As per IFRS As per IFRS Dr. Fair value
s IAS 9.4.1.4, A financial 9.4.1.4, However adjustment (profit
32.11, A asset shall be an entity may and loss)
financial measured at fair make an Cr. Investment –
instrume value through irrevocable Pacific – FVPL
nt is any profit or loss election at initial To adjust the
contract unless it is recognition for Pacific shares to
that measured at particular fair market value.
gives rise amortised cost in investments in
to a accordance with equity
financial paragraph 4.1.2 or instruments that
asset of at fair value would otherwise
one through other be measured at
entity comprehensive fair value through
and a income in profit or loss to
financial accordance with present
liability or paragraph 4.1.2A subsequent
equity -List case facts. changes in fair
instrume value in other
nt of comprehensive
another income (see
entity. paragraphs 5.7.5–
- 5.7.6).
Securities
meet the Option to
definition designate a
of a financial asset at
financial fair value through
instrume profit or loss
nt as it is -List case facts.
an equity
instrume
nt of
another
enterpris
e.