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[ACTG 3110] - Final Exam Guide - Everything you need to know! (129 pages long)

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School
York University
Department
Accounting
Course
ACTG 3110
Professor
Elizabeth Farrell

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Document Summary

Statement of financial position/balance sheet: a summary statement of the assets and liabilities of an organization at a single point in time. Ifrs prescribes a minimum of 18 line items on the sfp. Assuming they exist in the company and are material. Ifrs permits 2 methods of classifying assets and liabilities on sfp: In order of liquidity, either decreasing or increasing. Ifrs requires an sfp for the beginning and end of each fiscal period being used for comparing financial performance. Liquidity: evidence of a firms ability to pay short-term debts from its current assets and to meet obligations. Affects dividend payments (equity investors), employees, creditors etc. Help determine firms credit rating and share price. Amount shown on sfp, are results of firms reporting policies. Few values on sfp are current values and are not intended for valuation purposes. Certain assets and liabilities simply don"t appear on sfp: for element to be recognized it must:

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Related Questions

Case 10-1

Swisscom AG, the principal provider of telecommunications inSwitzerland, prepares consolidated financial statements inaccordance with IFRS. Until 2007, Swisscom also reconciled its netincome and stockholders’ equity to US GAAP. Swisscom consolidatedfinancial statements from a recent annual report are presented intheir original format in Column 1 of the following worksheet. Note27, Differences between IFRS and GAAP, which includes Swisscom’s USGAAP reconciliation, also is provided.

Required

Use the information in Note 27 to restate Swisscom’sconsolidated financial statements in accordance with US GAAP. Beginby constructing debit/credit entries for each reconciliation item,and then post these entries to columns 2 and 3 in the worksheetsprovided.

Calculate each of the following ratios under both IFRS and GAAPand determine the percentage differences between them, using IFRSratios as the base:

Net income/net revenue

Operating income/net revenues

Operating income/total assets

Net income/shareholders’ equity

Operating income/total shareholders’ equity

Current assets/current liabilities

Total liabilities/total shareholders’ equity

Which of these ratios is most (least) affected by the accountingstandards used?

Worksheet for theRestatement of Swisscom's Financial Statements from IFRS to USGAAP
Reconciling Adjustment
IFRS DR CR US GAAP
Consolidated Statement of Operations
Net revenue 9,842
Capitalized cost and changes ininventory 277
Total 10,119
Goods and services purchased 1,666
Personnel expenses 2,584
Other operating expenses 2,090
Depreciation and amortization 1,739
Restructuring charges 1,726
Total operating expenses 9,805
Operating income 314
Interest expense (428)
Financial income 25
Income(loss) before incometaxes and equity in net loss of affiliated companies (89)
Income tax expense 1
Income(loss) before equity innet loss of affiliated companies (90)
Equity in net loss of affiliatedcompanies (325)
Net income(loss) (415)
Consolidated Retained EarningsStatement
Retained earnings, 1/1 (151)
Net loss (415)
Profit distribution declared (1,282)
Conversion of loan payable to equity 3,200
Retained earnings, 12/31 1,352
Assets
Current assets
Cash and equivalents 256
Securities available for sale 51
Trade accounts receivable 2,052
Inventories 169
Other current assets 34
Total current assets 2,562
Noncurrent assets
Property, plant and equipment 11,453
Investments 1,238
Other noncurrent assets 220
Total noncurrent assets 12,911
Total assets 15,473
Current liabilities
Short-term debt 1,178
Trade accounts payable 889
Accrued pension cost 789
Other current liabilities 2,213
Total current liabilities 5,069
Long-term liabilities
Long-term debt 6,200
Finance lease obligation 439
Accrued pension cost 1,488
Accrued liabilities 709
Other long-term liabilities 338
Total long-term liabilities 9,174
Total liabilities 14,243
Shareholders' equity
Retained earnings 1,352
Unrealized market valueadjustment on securities available for sale 39
Cumulative translation adjustment (161)
Total shareholders' equity 1,230
Total liabilities and shareholders'equity 15,473

27. Differences between IFRS and GAAP

The consolidated financial statements of Swisscom have beenprepared in accordance with IFRS, which differ in certain respectsfrom GAAP in the US. Application of US GAAP would have affected thebalance sheet and net income (loss) to the extent described below.A description of the material differences between IFRS and GAAP asthey relate to Swisscom are discussed in further detail below.

Reconciliation of net income (loss) from IFRS toGAAP

The following schedule illustrates the significant adjustmentsto reconcile net income (loss) in accordance with US GAAP to theamounts determined under IFRS, for the current year ended December31.

(CHF in millions)
Net income (loss) according toIFRS (415)
US GAAP adjustments:
Capitalization of interest cost 8
Restructuring charges 205
Depreciation expense -5
Capitalization of software 182
Restructuring charges byaffiliates 50
Net income according to GAAP 25

Reconciliation of shareholders’ equity from IFRS toGAAP

The following is a reconciliation of the significant adjustmentsnecessary to reconcile shareholders’ equity in accordance with USGAAP to the amounts determined under IFRS as at December 31 of thecurrent year.

(CHF in millions)
Shareholders' equity accordingto IFRS 1230
US GAAP adjustments:
Capitalization of interest cost 54
Restructuring charges 205
Depreciation expense -5
Capitalization of software 475
Restructuring charges byaffiliates 50
Shareholders' equity accordingto GAAP 2009

Capitalization of interest cost

Swisscom expenses all interest costs as incurred. US GAAPrequires interest costs incurred during the construction ofproperty, plant and equipment to be capitalized. Under US GAAP,Swisscom would have capitalized CHF 13 million and amortized CHF 5million for the current year.

Restructuring charges

During the current year, Swisscom recognized under IFRSrestructuring charges totaling CHF 1726 million. The followingschedule illustrates adjustments necessary to reconcile thesecharges to amounts determined under US GAAP.

Restructuringcharges in accordance with IFRS
Personnel restructuringcharges 1326
Write-down of long-livedassets 316
Misc. restructuring charges 84
Total in accordance with IFRS 1726
Adjustments to restructuringcharges to accord with GAAP (205)
Restructuring charges inaccordance with GAAP 1521

Reconciliation of restructuring charges
Restructuring chargesaccording to US GAAP consist of the following:
Personnel restructuringcharges 1228
Write-down of long-livedassets 209
Misc. restructuring charges 84
Restructuring charges inaccordance with GAAP 1521

Depreciation expense

Due to the difference in carrying value of long-lived assetsafter write-downs describe in (b), there is a difference in theamount of depreciation expense taken under IFRS and GAAP. Anadjustment is made for the current year to record an additional CHF5 million of depreciation under US GAAP.

Capitalization of software

Swisscom has expensed software costs as incurred. For US GAAPpurposes, external consultant costs incurred I the development ofsoftware for internal use has been capitalized. These costs arebeing amortized over a 3 year period. The capitalization ofsoftware costs accords with common practice in the UStelecommunications industry.

Swisscom has capitalized, as disclosed in the reconciliation ofnet income (loss) and shareholders’ equity to US GAAP, CHF 220million and amortized CHF 37 million in the previous year andcapitalized CHF 370 million and amortized CHF 188 million in thecurrent year.

Restructuring charges of affiliates

During the current year, Swisscom’s share of personnel and otherrestructuring charges recorded by affiliates amounted to CHF 50million. These restructuring charges do not meet all therecognition criteria contained in EITF 94-3 and therefore cannot beexpensed in the current year, under US GAAP.

Listed below are several terms and phrases associated with current liabilities. Mach each List A to B

List A

1, Cash, current investments, and A/R all divided by current liabilities.

2, Payment is probable and can be reasonably estimated.

3, Gift cards

4, Long-term debt maturing within one year

5, Social Security and Medicare

6, Interest expense is recorded in the period interest is incurred rather than in the period interest is paid.

7, payment is reasonably possible and can be reasonably estimated.

8, Incurred on a notes payable.

9, Unsecured notes sold in minimum denominations of $25,000 with up to 270 days.

10, Classifying liabilities as either current or long-term helps inverstors and creditors assets this.

List B

a, Recoding a contingentliability

b, disclosure of a contingent liability

c, Interest expense

d, FICA

e, Commercial paper

f, The riskiness of a business's obligations

g, Current portion of Long-term debt

h, Unearned revenue

i, Acid=test ratio

j, Accual Accounting


P4 - 1 3
Positioning of items within cash flow statement—IFRS vs. U.S. GAAP (LO 4-9)


Lend Corp. has a primary business model of borrowing funds at low interest rates and lending
them out at higher interest rates. The balances in Lend Corporation’s balance sheet accounts at
December 31, 2017 are as follows:

Assets Liabilities
cash 300,000 40,000
land 300,000 800,000
building 800,000
Accum depr: Building 160,000 Owner's Equity
A/R 20,000 Retained Earnings 320,000
Notes Rec 900,000 Contributed capital 1,000,000

During 2018, Lend Corp. has the following transactions:
∙ Received $45,000 in cash interest on notes receivable.
∙ Paid $16,000 of cash interest on notes payable.
∙ Collected $10,000 cash from accounts receivable.
∙ Paid $40,000 cash to reduce accounts payable.
∙ Owes $3,000 at the end of the year to administrative employees for work performed.
∙ Building depreciation is an additional $20,000.

Required:
1. Compute Lend Corp’s 2018 net income.
2. Show Lend Corp’s 12/31/2018 balance sheet.
3. Report Lend Corp’s 12/31/2018 statement of cash flows using the indirect method under
U.S. GAAP.
4. Report Lend Corp’s 12/31/2018 statement of cash flows using the indirect method under IFRS.
Record cash flows from interest received in the cash flows from investing section. Record cash
flows from interest paid in the cash flows from financing section.
5. Compare your net cash flows from operations computed from requirement 3 vs. require- ment 4.
Which do you think better reflects Lend Corp’s fundamental operating cash flows?