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COMMERCE 3AB3 Lecture Notes - Lecture 1: Deferral, Financial Statement, Income StatementExam


Department
Commerce
Course Code
COMMERCE 3AB3
Professor
Min Hao
Study Guide
Final

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EXERCISE 12.1
a. 3, 10, 15, 16, 17, 19, 201, 23, 252, 263
b. 1. Long-term investments on the statement of financial
position.
2. Biological asset on the statement of financial position.
4. Current asset (prepaid rent) on the statement of financial
position.
5. Property, plant, and equipment on the statement of financial
position.
6. Research and development expense on the income
statement.
7. Expensed on the income statement.
8. Operating losses on the income statement.
9. Expensed on the income statement
11. Not recorded; any costs incurred related to creating
goodwill internally must be expensed.
12.
1 Research and development expense on the income
statement.
13. Goodwill should be shown as a separate line item on the
statement of financial position.
14. Research and development expense on the income
statement.
18. Research and development expense on the income
statement.
21. Long-term investments, or other assets, on the statement of
financial position.
22. Expensed on the income statement.
24. Expensed on the income statement.

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EXERCISE 12.1 (CONTINUED)
b. (continued)
1 Capitalized as development costs only if they meet all six
development phase criteria for capitalization. See further discussion
under part c.
2 Intangible asset to the extent a lump sum was paid in advance to
secure the contract since it is identifiable, separable (as based on a
contractual period), lacks physical substance, and is nonmonetary.
The intangible asset is then amortized as the services are provided.
Note that if monies were paid under the contract over the contract
period, they would be recognized as normal advertising and
promotion costs, which are expensed as period costs.
3 Treatment of borrowing costs differs between IFRS and ASPE. See
further discussion under part c.
c. There are differences with respect to capitalization of borrowing
costs and capitalization of research and development costs:
Under IFRS, borrowing costs that are directly attributable to the
acquisition, construction, or development of qualifying intangible
assets are capitalized, once the six development phase criteria
are met. Under ASPE, interest costs directly attributable to the
acquisition, construction, or development of an intangible asset
may be capitalized or expensed depending on the entity’s
accounting policy, once the six development phase capitalization
criteria are met.
Under ASPE, costs associated with development of internally
generated intangible assets that meet the six criteria in the
development stage, may be capitalized or expensed, depending
on the entity’s accounting policy. There is no accounting policy
choice under IFRS (under IFRS, costs associated with the
development of internally generated intangible assets are
capitalized when the six criteria in the development stage are
met).
LO 2,5,10 BT: K Difficulty: M Time: 20 min. AACSB: None CPA: cpa-t001 CM: Reporting

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EXERCISE 12.2
a.
The following items would be classified as intangible assets:
Cable Television Franchises
Film Contract Rights
Music Copyrights
Customer Lists Acquired in a Business Combination
Covenants Not to Compete
Brand Names
In-Process R&D Acquired in a Business Combination1
An intangible for customer lists usually results from a company
purchasing a list from another party.
A covenant not to compete may arise when a company pays another
company a fee to ensure that the company does not compete in a given
area.
Other items:
Cash, accounts receivable, notes receivable due within one year from
statement of financial position date, and prepaid expenses would be
classified as current assets.
Property, plant, and equipment, and land would be classified as non-
current assets in the tangible property, plant, and equipment section.
Leasehold improvements are generally shown in the tangible property,
plant, and equipment section, although some accountants classify
them as intangible assets. The rationale for intangible asset treatment
is that the improvements revert to the lessor at the end of the lease and
therefore are more of a right than a tangible asset.
Investments in affiliated companies would be classified as part of the
investments section on the statement of financial position.
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