FinAcc1 - Chapter 4

when analyzing the quality of earnings, what 2 aspects are considered?

content and presentation

5 characteristics of high quality content

unbiased and objectively determined

reflect economic reality

reflect ongoing business activities

relate with cash flows from operations

based on strong business strategy and business model

2 characteristics for high quality presentation

transparent

understandable

earnings management

targeting certain earnings levels, then working backwards to determine what needs to be done to meet target

discontinued operations 2 options

how are they shown on fin stmts?

components of an enterprise that:

has been disposed of or

classified as held for sale

1. represent a major line of business or geographical area, or

2. subsidiary acquired for resale

shown on IS net of tax

stmt of cash flows

to be a component of an enterprise, what requirements needed?

operate as a separate unit with own assets, liabilities, and cash flows

6 criteria must be met to be classified as held for sale

• authorized plan to sell

• asset is available for immediate sale in current state

• actively finding buyer

• sale is probable within 1 year

• asset is reasonably priced and actively marketed

• changes to plan are unlikely

what measurements must a company disclose relating to discontinued operations?

stmt of ci: profit/loss from discontinued operations (net of tax)

gain/loss from remeasurement of assets held for sale (net of tax)

when an asset is held for sale, it is remeasured to:

lower of:

carrying value and

FV less any costs to sell (FVLCS)

if an asset is held for sale and does not meet the definition of discontinued operation, where is the loss included in stmts?

continuing operations

if an asset is held for sale and does meet the definition of discontinued operation, where is the loss included in stmts?

discontinued operations

when an asset is held for sale, what is the difference in balance sheet presentation between ASPE and IFRS?

ASPE: same OG classification as current or non-current

IFRS: current assets only

5 shortcomings of the stmt of income

items not measured reliably are not reported

numbers are affected by accounting methods used

measurement involves estimates

bias exists

gaap is not always optimal

expenses based on nature refers to what?

3 examples

type of expense

depreciation, purchases of materials, transport costs

expenses based on function refers to

2 examples

business function or activity

selling expenses, admin expenses

difference between aspe and ifrs for nature vs function

aspe: distinction is not needed

ifrs: must disclose