Technical Review - Solutions Manual to accompany Intermediate Acco...

© 2017 McGraw-Hill Education Ltd. All rights reserved.Solutions Manual to accompany Intermediate Accounting, Volume 2, 7 th edition 12-1

Chapter 12: Financial Liabilities and Provisions

Case 12-1 Ski Incorporated 12-2 Prescriptions Depot Limited 12-3 Camani Corporation Suggested Time Technical Review TR12-1 Financial liabilities and provisions (IFRS) ...... 10 TR12-2 Financial liabilities and provisions (ASPE) ..... 10 TR12-3 Provision, measurement ................................... 10 TR12-4 Guarantee ......................................................... 10 TR12-5 Provision, warranty .......................................... 5 TR12-6 Foreign currency .............................................. 5 TR12-7 Note payable .................................................... 5 TR12-8 Discounting, note payable ................................ 10 TR12-9 Discounting, provision ..................................... 10 TR12-10 Classification liabilities .................................... 10 Assignment A12-1 Common financial liabilities ............................ 10

A12-2 Common financial liabilities: taxes ................. 20

A12-3 Common financial liabilities: taxes ................ 20

A12-4 Foreign currency payables (*W) ...................... 10 A12-5 Common financial liabilities and foreign currency 25 A12-6 Provisions ......................................................... 20 A12-7 Provisions (*W) ............................................... 20 A12-8 Provisions ......................................................... 20 A12-9 Provision measurement .................................... 15 A12-10 Provision measurement .................................... 15 A12-11 Provisions; compensated absences .................. 15 A12-12 Provisions; warranty ........................................ 15 A12-13 Provisions; warranty ....................................... 20 A12-14 Provisions; warranty ....................................... 25 A12-15 Discounting; no-interest note ........................... 15 A12-16 Discounting; low-interest note (*W) ............... 20 A12-17 Discounting; low-interest note ......................... 20 A12-18 Discounting; provision ..................................... 15 A12-19 Discounting; provision ..................................... 25 A12-20 Discounting; provision ..................................... 25 A12-21 Classification and SCF ..................................... 20

A12-22 SCF .................................................................. 20

Intermediate Accounting Volume 2 Canadian 7th Edition Beechy Solutions Manual Visit TestBankDeal.com to get complete for all chapters

© 2017 McGraw-Hill Education Ltd. All rights reserved.12-2 Solutions Manual to accompany Intermediate Accounting, Volume 2, 7 th edition A12-23 Liabilities - ASPE ........................................... 10 A12-24 Liabilities - ASPE (*W) ................................... 20 A12-25 Liabilities - ASPE ............................................ 20 *W The solution to this assignment is on the text website, Connect.The solution is marked WEB.

© 2017 McGraw-Hill Education Ltd. All rights reserved.Solutions Manual to accompany Intermediate Accounting, Volume 2, 7 th edition 12-3 Cases Case 12-1 Ski Incorporated

To: Members of Board of Directors

From: Accounting Advisor

Overview Ski Incorporated (SI) is a public company therefore you are using IFRS. The bank loan has a minimum current ratio so you will need to be careful and watch for any impacts on the ratio. You have had a tough year this year with a taxable loss so the bank financing is critical to your operations. Management will be concerned with their bonus based on net income but this will not be a concern this year with the taxable loss since there will not be any bonus.Issues 1.Taxable loss 2.Revenue recognition memberships 3.Revenue recognition guests 4.Special promotions 5.Coupons 6.Dealer Loan 7.Lawsuit 8.Lease 9.Gasoline storage tanks Analysis and Recommendations 1.Taxable loss SI had a taxable loss of $400,000 in 20X5. Since this is the first ever taxable loss the loss would be carried back for up to three years to recover past taxes paid at the tax rates in those years. Usually you would want to go back three years first so that if you incur another loss next year you can still go back to the other two years if there is taxable income remaining. This will result in an income tax receivable which will increase current assets and have a positive impact on your current ratio.

2.Revenue recognition memberships

© 2017 McGraw-Hill Education Ltd. All rights reserved.12-4 Solutions Manual to accompany Intermediate Accounting, Volume 2, 7 th edition The contract with the customer is for the membership in the club. This would be a written agreement between the member and SI. There is one performance obligation, the promised service is membership in the ski club. There is no transfer of the service until the membership is provided. The contract price is $10,000. The non-refundable deposit is an advance payment towards this initiation fee and is part of the overall transaction price.The performance obligation for the initiation fee is satisfied over the period of time that the member belongs to the club. The $10,000 would be recognized over the average period a member belongs. There should be enough historical data available to come up with a reasonable estimate. There would be no cash collection risk since the amount is paid upfront.The annual fee is a written agreement between the member and SI. There is again one performance obligation the service for this year. The fee of $2,000 is the total contract price and is received in 20X5 for the 20X6 ski season. This would be unearned revenue when received. Assuming the ski season goes from Dec 1 until March 31 $500 would be recognized in 20X5 and the remainder in 20X6 which would be the period in which the service is performed. There would be no cash collection risk since the amount is paid upfront.

3.Revenue recognition guests The contract with the guest is the written contract when they receive the ticket to ski not when the reservation is made since this reservation could be cancelled. The performance obligation is the right to ski that day. The overall contract price is the price of the ski ticket. The performance would be the right to ski on that day. There is no cash collection risk since the guest pays by credit card when they purchase the ticket.

4.Special promotions The contract with the customer is the written contract when they receive the ticket and the right to a future lesson. There are two separate performance obligations the right to ski and the right to the lesson. The total contract price is $100. This price would need to be allocated to the two separate performance obligations based on their relative fair value.Fair value ski pass 80 = 61.5% x 100 = $61.50 Fair value lesson 50 = 38.5% x 100 = $38.50 Total fair value 130 The $61.50 for the ski pass the performance obligation would be satisfied on the day that they ski. For the $38.50 the performance obligation would be satisfied on the day they take the lesson. There would be no cash collection risk assuming a credit card is used to purchase the special pass.

5.Coupons