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ADMS 3595 (19)
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York University
Administrative Studies
ADMS 3595

Chapter 13 Liabilities Definitions: -obligation -past transactions -yield benefit in future Characteristics: -present -unconditional obligation -enforceable obligation (transfer of asset at determinable date) Financial liabilities -contractual obligation -initially measured at fair value -subsequently measured at amortized cost (except held for trading i.e. derivatives at fair value) Non-financial liabilities -PE GAAP: no specific measurement -IFRS measured at best estimate at balance sheet date Current liabilities IFRS:-settled within normal operating cycle -primarily for trading -due 12 months from balance sheet date -no unconditional rights to defer settlement 12 months after balance sheet date PE GAAP: no specific definition Bank indebtedness and credit facilities- availability of funds and imposed restrictions requires note disclosure Accounts payable -amounts owed on open account -record when title has passed -recorded at amount payable Notes payable -interest bearing -zero interest bearing(discount represent interest expense at issue date, expense record over the life of the note) Short-term debt expected to be refinanced IFRS:-unless at balance sheet date has intent and a right to refinance with long-term debt PE GAAP:-if there is irrefutable evidence at time of issuing financial statement that debt has been or will be converted to long-term debt Dividends payable -cumulative preferred dividend not declared require note disclosure, not a liability -stock dividend transfer of equity from RE to contributed capital, not a liability Rents and royalties payable-contractual agreement conditional on revenue earned or quantity of products produced Non financial liabilities Asset retirement obligation PE GAAP:- recognized cost of legal obligation only -Accretion(interest) expense IFRS: -legal and constructive obligations -best estimate of discount future cots interest expense Product Guarantees and customer programs Expense approach:-measured at cost of meeting obligation, expense match against current revenue -warranty expense VS warranty liability Revenue approach- measured at value of service to be provided, recognized in revenue as earned -unearned warranty revenue VS warranty revenue -warranty contract expense VS AP IFRS: Fair value of award credit record as unearned revenue and recognized when exchanged for reward PE GAAP: no standard on loyalty program Premiums and rebates-expensed Contingency-uncertainty of loss or gain PE GAAP(contingent liability): -likely and amount can be reasonably estimated -disclosure if undeterminable or cannot reasonably estimate IFRS(provision):-probable and amounts are reliably measured -contingent liability is used for possible obligations that are not recognized -disclosure required unless likelihood is remote Financial guarantees PE GAAP:-follow rules for loss contingencies with additional disclosure requirement IFRS:-recognized at fair value Commitments -executory contracts -not liabilities -disclosure required for abnormal commitments or significant risks Current Ratio: Current Assets/ Current Liabilities Acid-Test Ratio: Cash + Marketable Securities + Net Receivables/Current Liabilities Days Payables Outstanding: Average Trade Accounts Payable/Average Daily Cost of Goods Sold Chapter 14 Bonds:-bond indenture is a promise to pay a sum of money and periodic interest Amortization of bond premium/discount PE GAAP: Straight line IFRS: Effective interest Fair market option PE GAAP:-allows for fair value option IFRS:-allows only if results in more relevant information Extinguishment of debts: -paid before maturity -gain or loss reported with other gains/losses Impairment -measured at estimated realizable value(discounted future cash flow) -measure at FV of attached securities or market price of loan if future cash flows not determinable -bad debt expense VS allowance for doubtful account Substantial modification of terms -old liability is derecognized -new liability is recognized -10% less than old debt or legally discharged under new creditor Defeasance -funds set aside (in a trust) to pay off principal and interest of debt -legal defeasance creditor cannot claim assets from original issuer -in-substance defeasance when creditor not aware of the trust arrangement (not derecognized) Presentation of long term debt -debt to be refinanced treat as current unless specific refinancing conditions met Debt to Total Assets: Total debt /Total assets Times Interest Earned: Income before income taxes and interest /Interest Expense Chapter 15 Share issue cost:-debit to share capital Reacquisition of shares -debit share capital with original issue or assigned value -difference allocate to contributed surplus and RE Rate of return on common shareholders’ equity: (Net income – Preferred dividends)/Average common shareholders’ equity Payout ratio: Cash Dividends/(Net income – Preferred dividends) Price earnings ratio: Market price per share/Earnings per share Book value per share: Common shareholders’ equity/Number of outstanding shares Reporting treasury shares: Comprehensive revaluation PE GAAP:-RE brought to zero(asset impairments, deficit VS assets) -debts and equity changes record(eliminate deficit, shares VS deficit) -remaining assets and liabilities revalued(restate assets, liabilities, VS shares) Chapter 16 Derivatives-financial instruments that create rights and obligations that transfer financial risk -value changes in response to underlying instrument -require little or no initial investment -settled in future -includes forward, future and option -eliminate credit, liquidity, and market risk -report at fair value PE GAAP(purchase commitment):-not derivatives due to difficulty to measure -recognized when goods received IFRS: -not derivative -recognized when goods received if: no net settlement feature or has net settlement feature but intends to take delivery Option Premium=intrinsic value(>=0, market price-exercise price )+ time value(option value-intrinsic value) Forward: two parties commit upfront to do something in the future Hybrid/combined instrument IFRS: residual method (debt valued first) PE GAAP: equity component value at zero or residual method (first value the easy to measure component) Convertible debts (cash, bonds payable, VS contribute surplus—conversion rights) Direct stock awards: non-monetary reciprocal transactional, recorded at fair value Compensation plan disclosure: accounting policy, description of the plans, number and value of options, description of assumption used to determine fair value, compensation cost in net income/contributed surplus, other Option pricing models: the Black-Scholes option pricing, and binomial tree option pricing -market price increase value -expected dividend has no effect -exercise price decrease value -volatility increase value -risk free interest rate increase value -expected life of option increase value Chapter 17 EPS= income available to common shareholders/weighted average number of common shares -must report as port of income statement except for privately held corporations Contingently issuable share: shares issued for minimal consideration once a certain condition has been met Simple EPS=(net income-preferred dividends)/weighted average number of shares outstanding If-converted method: assumed to occur at beginning, net income adjust for interest (after tax) and preferred dividend Treasury stock method: applies to written call options and equivalents, assumed proceeds are used to buy back common shares, dilution occurs when exercise price less than market price Reverse treasury stock method: applies to written put options and forward purchase contracts, dilution occurs when market price is less than exercise price EPS disclosure: value used in numerator and dominator to calculate basic and dilutive EPS, reconciliation of value used to calculate basic and dilutive EPS for income before discontinued opera
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