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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy

Intermediate Accounting, Tenth Canadian Edition

CHAPTER 21

ACCOUNTING CHANGES AND ERRORANALYSIS

ASSIGNMENT CLASSIFICATION TABLE

TopicsBrief

Exercises Exercises Pro!e"s#ri$i%&

Assi&%"e%$s

1. ifferentiate !et"eenchange in #olicy, change inestimate and errors.

1, $, % 1, $, %, &, ' 1, $, %, &, ',(, )

1, $, %, &, (

$. Change in accounting#olicy.

& (, ), *, + 1, $, %, &, ',*

1, $, %, &, (

%. Correction of an error. %, ', ( 1, $, %, ', *,

1, 11, 1$, 1%,1&, 1', 1(

1, $, %, &, ',

(, ), +, 1,11, 1$, 1%

1,$,%,&,',(

&. Change in estimate. ), *, + %, ', +, 1%, 1),1*

$, %, &, ', (,)

1, $, %, &, (

'. Moti-ations for change. %, 1+ 1& 1,$,%,&,(

(. ifferences !et"een I/0and A0E.

( & &, ', *, 1& &,',)

). Correct errors and restatefinancial statements. ', (, 1 11, 1$, 1%, 1&,1', 1( ', (, ), 11,1$, 1% 1

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ASSIGNMENT CHARACTERISTICS TABLE

I$e" Descrip$io%Le'e! of Diffic(!$)

Ti"e*"i%($es+

E$121 Change in #olicy3long2term contracts. 0im#le 121' E$12$ etermine ty#e of change, method ofaccounting, #re#are 4ournal entries.

Moderate $2$'

E$12% Change in estimate, error correction. Moderate $2% E$12& Accounting for accounting changes. 0im#le $2$' E$12' Change in estimate and error5 financial

statements.Moderate $'2%

E$12( Accounting change3in-entory. Moderate $'2% E$12) Change in #olicy3measurement model for

in-estment #ro#erty.0im#le 1'2$

E$12* 6arious changes in #olicy3in-entory methods. Moderate $2%' E$12+ Accounting changes3de#reciation. Moderate 1'2$

E$121 Error correction entries. Moderate $2$'7E$1211 Error analysis and correcting entry. 0im#le 121'7E$121$ Error analysis5 correcting entries. Moderate $2$' E$121% Error and change in estimate3de#reciation. 0im#le 1'2$7E$121& Error analysis. Moderate $'2%7E$121' Error analysis. Moderate $'2%7E$121( Error analysis. Moderate 121' E$121) Accounting changes3amorti8ation. Moderate 1'2$ E$121* Change in estimate3de#reciation. Moderate 121' E$121+ olitical moti-ations for #olicies. 0im#le 121'$121 Error corrections and changes in #olicy. Moderate $'2%$12$ Change in estimate, #olicy, and error correction

"ith ta9 effect

Moderate %2%'

$12% Com#rehensi-e accounting change in estimateand error analysis #ro!lem.

Moderate %2%'

$12& Error analysis and changes in #olicy. Com#le9 &'2'$12' Effect of changes in #olicy, estimate and error,

financial statements and note disclosure.Com#le9 '2(

$12( Com#rehensi-e accounting change and erroranalysis #ro!lem, "ith statement of retainedearnings and notes.

Com#le9 &'2''

$12) Effect of changes in #olicy and estimate,financial statements.

Com#le9 '2(

$12* Change in #olicy :I; to a-erage cost<,income and retained earnings statement.

Com#le9 '2(

$12+ Error corrections. Moderate $'2%$121 Error analysis "ith ta9 effect. Moderate $2$'$1211 Error analysis and correcting entries. Com#le9 '2($121$ Error analysis and calculation of corrected net

income.Moderate %2&

$121% Error analysis and correcting entries. Com#le9 '2($121& Economic moti-es for selection of accounting Moderate $'2%

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#olicies and ethical considerations.

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SOLUTIONS TO BRIEF E,ERCISES

BRIEF E,ERCISE 21-1

1. T/e c/0%&e $o 0 $/ree-)e0r re"0i%i%& !ife for $/e p(rpose of co"p($i%& epreci0$io% o% pro(c$io% e(ip"e%$ is 0c/0%&e i% es$i"0$e (e $o 0 c/0%&e i% co%i$io%s.

2. T/is is 0% expe%se c!0ssific0$io% c/0%&e 0risi%& fro" 0c/0%&e i% $/e (se of $/e (i!i%& for 0 iffere%$ p(rpose.T/(s3 i$ is %o$ 0 c/0%&e i% pri%cip!e3 0 c/0%&e i% es$i"0$e3 or $/e correc$io% of 0% error.

4. T/e c/0%&e $o expe%si%& prepro(c$io% cos$s *5ri$i%& $/ecos$s off i% o%e )e0r 0s oppose $o se'er0! )e0rs+ is 0c/0%&e i% es$i"0$e (e $o 0 c/0%&e i% co%i$io%s. T/ec/0%&e i% es$i"0$e is $o $/e '0!(e (se i% $/e 0se i% $/e0!!oc0$io%. Prepro(c$io% cos$s 0re i%c!(e 0s p0r$ of e'e!op"e%$ cos$s 0% "0) e c0pi$0!i6e (%er IFRS 0s!o%& 0s cer$0i% cri$eri0 0re "e$ *IAS 47.89+.

BRIEF E,ERCISE 21-2

1. Bo$/ FIFO 0% 5ei&/$e 0'er0&e cos$ 0re 0ccep$0!e cos$for"(!0s (%er ASPE: $/(s3 $/is i$e" is 0 c/0%&e i%0cco(%$i%& pri%cip!e.

2. T/is o'ersi&/$ is 0 "is$0;e $/0$ s/o(! e correc$e. S(c/ 0correc$io% is co%siere 0 c/0%&e (e $o error.

4. Bo$/ $/e co"p!e$e-co%$r0c$ "e$/o 0% $/e perce%$0&e-of-

co"p!e$io% "e$/o 0re 0ccep$0!e 0!$er%0$i'es (%er ASPE.Ho5e'er3 $/e) 0re %o$ i%$erc/0%&e0!e. T/e co"p0%) "(s$c/oose $/e "e$/o $/0$ es$ re!0$es $/e re'e%(es reco&%i6e$o $/e 5or; perfor"e. I% &e%er0!3 $/e co"p!e$e co%$r0c$"e$/o is o%!) (se 5/ere perfor"0%ce co%sis$s of o%e 0c$ or $/e pro&ress $o50rs co"p!e$io% is %o$ "e0s(r0!e *4<==.17+.T/(s3 s(c/ 0 c/0%&e is 0 c/0%&e i% 0cco(%$i%& es$i"0$e .

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BRIEF E,ERCISE 21-4

Acc("(!0$e Depreci0$io% - Asse$ *>11?3=== @ >?3===+ <13===

Deferre T0x Li0i!i$).................................... 1234==Re$0i%e E0r%i%&s ><13=== , *1 @ 4=+..... 273?==

No$e $/0$ $/is is co%siere $o e 0 correc$io% of 0% 0cco(%$i%&error.

BRIEF E,ERCISE 21-<

I%'e%$or)............................................................... <483===I%co"e T0x P0)0!e....................................... 14=38==

Re$0i%e E0r%i%&s ><483=== , *1 @ 4=+... 4=<38==

Ass("es 0 perioic s)s$e" 0% $/0$ e%i%& i%'e%$or) of2=1< /0s %o$ )e$ ee% recore. If 0 perpe$(0! s)s$e" is0ss("e3 $/e 0(s$"e%$ is $o cos$ of &oos so!. T/is c0% eo%e ) firs$ 0(s$i%& $/e ope%i%& i%'e%$or) 0% $/e%$r0%sferri%& $/e i%'e%$or) 0(s$"e%$ $o cos$ of &oos so!.

No$e $o i%s$r(c$or CRA &e%er0!!) re(ires 0 co"p0%) $o (se $/es0"e i%'e%$or) cos$i%& "e$/o for $0x p(rposes 0s for fi%0%ci0!repor$i%& p(rposes. T/erefore3 Crosie 5o(! /0'e 0i$io%0!$0x p0)0!e o% $/e i%cre0se i%co"e repor$e r0$/er $/0% 0eferre $0x 0cco(%$. A!so3 $/e "ore re!e'0%$ i%for"0$io% fro"FIFO i%'e%$or) '0!(0$io% is /i&/!) e0$0!e3 0s o!er cos$s 0re(se i% $/e co"p($0$io% of cos$ of &oos so!.

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BRIEF E,ERCISE 21-8

E(ip"e%$............................................................. ?83===

Depreci0$io% Expe%se *>?83=== J 8+.................... 183===Acc("(!0$e Depreci0$io%.......................... <83===Deferre T0x Li0i!i$).................................... 1<3<==Re$0i%e E0r%i%&s........................................ 4=3==

>?83=== J 8 , 4 )e0rs K ><83=== *>?83=== @ >4=3===+ , 42 K >1<3<==*>?83=== @ >4=3===+ , *1 @ 42+ K >4=3==

Ass("es i%co"e 50s repor$e 0cc(r0$e!) for $0x p(rposes i%0!! )e0rs.

BRIEF E,ERCISE 21-

*0+BAER CORPORATION

S$0$e"e%$ of Re$0i%e E0r%i%&sDece"er 413 2=1<

Re$0i%e e0r%i%&s3 111<3 0s pre'io(s!) repor$e >23===3===

Correc$io% of epreci0$io% error3*%e$ of $0x of >1283===+ *4?83===+

Re$0i%e e0r%i%&s3 111<3 0s 0(s$e 13283===

A Ne$ i%co"e 9==3===

238283===

De(c$ Di'ie%s 28=3===

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Re$0i%e e0r%i%&s3 12411< >232?83===

*+ If B0;er 5ere $o fo!!o5 IFRS3 $/e error correc$io% 5o(! e0cco(%$e for i% $/e s0"e 50)3 excep$ $/0$ B0;er 5o(!/0'e $o prep0re 0 S$0$e"e%$ of C/0%&es i% S/0re/o!ersE(i$)3 0s re(ire (%er IFRS3 r0$/er $/0% 0 S$0$e"e%$ of Re$0i%e E0r%i%&s (%er ASPE.

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BRIEF E,ERCISE 21-?

No e%$r) is re(ire $o recor $/e c/0%&e i% es$i"0$e. InCICA

Handbook, Part II, Section 1506, a revision of depreciation policydue to changes in the expected pattern of benefits is identifiedas a change in estimate. Since the change was made at thebeginning of the year, the new accounting policy would beapplied to 2014 and prospective years.

BRIEF E,ERCISE 21-7

Depreci0$io% Expe%se.......................................... 193===

Acc("(!0$e Depreci0$io% @ E(ip"e%$.... 193===

C0rr)i%& 0"o(%$ K >=3=== @ 2 , *=3=== @ 173===+ ? K ><73===

Ne5 0%%(0! epreci0$io%

>193===2 @<

>1=3=== @><73===

BRIEF E,ERCISE 21-9

T/ere 5o(! e %o f(r$/er c/0%&e i% repor$e i%co"e 0% EPSfor 2=1< si%ce $/e 2=1< %e$ i%co"e /0s 0!re0) ee% c0!c(!0$e(si%& $/e %e5 epreci0$io% "e$/o. T/ere 5o(! e %o0(s$"e%$ $o ope%i%& re$0i%e e0r%i%&s for 0%) pre'io(s )e0r si%ce c/0%&es co%siere c/0%&es i% es$i"0$e 0re 0cco(%$efor prospec$i'e!). T/ere 5o(! 0!so e %o o(r%0! e%$r) $o 0(s$$/e 0cco(%$i%& recors for 0cc("(!0$e epreci0$io% (e $o $/e

c/0%&e i% "e$/o si%ce 0 c/0%&e fro" o%e epreci0$io% "e$/o$o 0%o$/er (e $o 0 c/0%&e i% $/e p0$$er% of co%s("p$io% isco%siere 0 c/0%&e i% es$i"0$e3 %o$ 0 c/0%&e i% 0cco(%$i%&po!ic) *IAS 7.42+.

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BRIEF E,ERCISE 21-1=

2=14 2=1<

0..c..e.

O'ers$0$eO'ers$0$eU%ers$0$eO'ers$0$eNo effec$

U%ers$0$eO'ers$0$eO'ers$0$eU%ers$0$eO'ers$0$e

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SOLUTIONS TO E,ERCISES

E,ERCISE 21-1 *1=-18 "i%($es+

*0+ T/e %e$ i%co"e $o e repor$e i% 2=1<3 5o(! e co"p($e0s fo!!o5s

I%co"e efore i%co"e $0x >?==3===I%co"e $0x

C(rre%$ *4= , ><7=3===+ >1<<3===Deferre 4= , *>?==3===@><7=3===+ 3=== 21=3===

Ne$ i%co"e ><9=3===

*+ Co%s$r(c$io% i% Process................................. 2==3===Deferre T0x Li0i!i$)............................... =3===Re$0i%e E0r%i%&s....................................

1<=3===

*>2==3=== , *1 @ 4=+ K >1<=3===+

*c+ A c(rre%$ r0$io of =.98 i%ic0$es $/0$ $/e co"p0%) /0s!o5er c(rre%$ 0sse$s $/0% c(rre%$ !i0i!i$ies 0s 0$ $/e e% of 2=1<. T/e e%$r) i% p0r$ *+ 5i!! res(!$ i% 0% i%cre0se i%c(rre%$ 0sse$s *5i$/ 0 ei$ $o co%s$r(c$io% i% process+3 0%0 propor$io%0$e!) s"0!!er i%cre0se i% c(rre%$ !i0i!i$ies *5i$/0 crei$ $o eferre $0x !i0i!i$)+. *No$e $/0$ (%er ASPE3 0eferre $0x 0sse$ or !i0i!i$) "(s$ e c!0ssifie 0s c(rre%$or %o%c(rre%$ 0se o% $/e c!0ssific0$io% of $/e 0sse$ or !i0i!i$) (%er!)i%& $/e $e"por0r) iffere%ce+. Af$er recori%& $/e e%$r) i% p0r$ *+3 $/e co"p0%)s c(rre%$ r0$io5i!! 0ppe0r /i&/er. T/e error correc$io% /0 %o i"p0c$ o%$/e co"p0%)s 0c$(0! !i(ii$) posi$io%3 )e$ $/e error

correc$io% 5i!! c0(se $/e co"p0%)s c(rre%$ r0$io $o 0ppe0r /i&/er. A crei$or s/o(! re'ie5 $/e %o$es $o $/e fi%0%ci0!s$0$e"e%$s escrii%& $/e error correc$io%3 0% %o$e $/eeffec$ of $/e correc$io% o% $/e co"p0%)s c(rre%$ r0$io. Acrei$or "0) 0!so %o$e $/0$ o$/er 0spec$s of $/e co"p0%)s!i(ii$) posi$io% "0) e 0%0!)6e for 0 "ore e$0i!e


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0ssess"e%$ of $/e co"p0%)s s/or$-$er" 0i!i$) $o p0) i$s"0$(ri%& o!i&0$io%s.


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E,ERCISE 21-2 *2=-28 "i%($es+

*0+ 1. C/0%&e i% es$i"0$e @ prospec$i'e!).2. C/0%&e i% es$i"0$e @ prospec$i'e!).4. Acco(%$i%& error correc$io% @ f(!! re$rospec$i'e

0pp!ic0$io%.<. C/0%&e i% 0cco(%$i%& po!ic) @ f(!! re$rospec$i'e

0pp!ic0$io%.

GAAP specifies $/0$ c/0%&es i% po!ic) s/o(! e0cco(%$e for re$rospec$i'e!) 5i$/ f(!! 0pp!ic0$io% $oprior perios. I% cer$0i% c0ses3 i$ "0) e i"pr0c$ic0!e

$o e$er"i%e es$i"0$es for prior perios3 i% p0r$ic(!0r if i$ is i"possi!e $o 0ssess circ("s$0%ces 0% co%i$io%si% prior )e0rs $/0$ %ee $o e ;%o5% i% orer $o e'e!op$/ose es$i"0$es. P0r$i0! re$rospec$i'e or prospec$i'e0pp!ic0$io% 5o(! $/e% /0'e $o e (se.

*+ E'e%$ 4E(ip"e%$........................................................ 1==3===Depreci0$io% Expe%se..................................... 2238==

Acc("(!0$e Depreci0$io% - E(ip"e%$*>2238== , 2+.......................................... <83===

................................................................Re$0i%e E0r%i%&s.................................... 8<328=

Deferre T0x Li0i!i$)............................... 24328=

*>1==3=== @ >1=3===+< K >2238== *>1==3=== @ >2238==+ , *1 @ 4=+ K >8<328= *>1==3=== @ >2238==+ , 4= K >24328=

No$e $o I%s$r(c$or T/e Deferre I%co"e T0x effec$ for $/ec(rre%$ )e0r is %o$ i%c!(e i% $/e 0o'e e%$r) 0s %o$e i%$/e (es$io%.


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E,ERCISE 21-2 *Co%$i%(e+

E'e%$ <

Re$0i%e E0r%i%&s........................................... ?3===I%co"e T0x P0)0!e......................................... 43===

I%'e%$or)................................................... 1=3===

C/0%&es for 2=11 0% 2=12 /0'e %o$ ee% i%c!(e si%cei%'e%$or) c/0%&es 0re co(%$er0!0%ci%& 0% $/eir i"p0c$o% ope%i%& 2=1< re$0i%e e0r%i%&s is %i!.

No$e $o I%s$r(c$or A!so %o$e $/0$ CRA &e%er0!!) re(ires 0co"p0%) $o (se $/e s0"e i%'e%$or) cos$i%& "e$/o for $0x 0s i$

(ses for fi%0%ci0! repor$i%& p(rposes. T/erefore3 $/e effec$ of $/ec/0%&e i% i%'e%$or) cos$i%& "e$/o 5i!! res(!$ i% 0 c(rre%$ $0x0"o(%$3 %o$ 0 eferre $0x 0sse$ or !i0i!i$).


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E,ERCISE 21-4 *2=-4= "i%($es+

*0+ P0$e%$ T/is is 0 c/0%&e i% es$i"0$e. T/e c/0%&e 5o(! e

0pp!ie $o $/e c(rre%$ )e0r 0% prospec$i'e!).

L0% 0% B(i!i%& T/is is 0 correc$io% of 0% error. T/e0(s$"e%$ 5o(! e 0pp!ie re$rospec$i'e!). T/is 5o(!i%c!(e res$0$i%& 0!! prior perio fi%0%ci0! s$0$e"e%$sprese%$e for co"p0riso%3 0(s$i%& $/e ope%i%& 0!0%ce of re$0i%e e0r%i%&s for $/e e0r!ies$ perio prese%$e3 0%pro'ii%& %o$e isc!os(re.

*+ A"or$i60$io% of P0$e%$

A"or$i60$io% Expe%se......................................... ?3===Acc("(!0$e A"or$i60$io%P0$e%$s......... ?3===

A"or$i60$io% recore i% 2=12 0% 2=14*><1=3=== @ >8=3===+ 1= )e0rs , 2 )e0rs K >?23===

A%%(0! 0"or$i60$io% i%corpor0$i%& $/is c/0%&e*><1=3=== @ >11=3=== @ >?23===+ 4 )e0rs *2=1< $o 2=1+

K >?3===

L0% 0% B(i!i%& @ error correc$io% e%$r)

B(i!i%&........................................................... 1=1328=L0%......................................................... 1=1328=

Depreci0$io% Expe%se................................... 43214Re$0i%e E0r%i%&s.......................................... 73=44

Acc("(!0$e Depreci0$io% - B(i!i%&s *>43214 , 4.8+

1132<

*>1=1328= @ >4?3===+ 2= )e0rs K >43214 )e0r


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*c+ C/0%&e i% Es$i"0$e *P0$e%$+ T/e %0$(re 0% 0"o(%$ of $/ec/0%&e s/o(! e isc!ose. A"or$i60$io% expe%se for $/ep0$e%$ /0s ee% i%cre0se ) ><=3=== for $/e c(rre%$ 0%f($(re )e0rs (e $o 0 c/0%&e i% es$i"0$e (sef(! !ife 0%resi(0! '0!(e.

Correc$io% of Error *L0% 0% B(i!i%&+

T/e isc!os(re s/o(! e%0!e (sers $o (%ers$0% $/e effec$sof $/e error o% $/e fi%0%ci0! s$0$e"e%$s. I$ s/o(! i%c!(e 0s$0$e"e%$ of $/e %0$(re of $/e error3 $/e 0"o(%$ of $/e

correc$io% for e0c/ prior perio prese%$e 0% $/e 0"o(%$re!0$e $o perios prior $o $/ose prese%$e3 0% 0 s$0$e"e%$$/0$ co"p0r0$i'e i%for"0$io% /0s ee% res$0$e. Depreci0$io%expe%se /0s ee% i%cre0se ) >43214 for o$/ 2=1< 0%2=14 *i%c!(e pre'io(s )e0rs if i%c!(e i% co"p0r0$i'es$0$e"e%$s+. T/is /0s ecre0se %e$ i%co"e ) >43214 for o$/ 2=1< 0% 2=14 0% e0r%i%&s per s/0re ) >,,, i% e0c/)e0r.

*+ If "0%0&e"e%$ e$er"i%es 0sse$s (sef(! !i'es 0% resi(0!

'0!(es 0s p0r$ of $/e )e0r e% process3 i$ is !i;e!) $/0$ $/eco%i$io%s !e0i%& $o $/ese c/0%&es 5o(! /0'e occ(rre(ri%& $/e )e0r. I% $/is c0se3 $/e c/0%&e i% es$i"0$e 5o(! e0pp!ie $o 2=1< &oi%& for50r. If "0%0&e"e%$ e$er"i%es$/0$ $/e f0c$ors !e0i%& $o $/e c/0%&e i% es$i"0$e occ(rre 0$or 0f$er )e0r e%3 $/e c/0%&es 5o(! e 0pp!ie $o 2=18 &oi%&for50r.

I% $/is exercise3 i$ 0ppe0rs $/0$ epreci0$io% 0% 0"or$i60$io%expe%se is recore o%ce 0 )e0r. Si%ce $/e co%$ro!!er (ses

$/e 0(s$"e%$ process $o re'ise $/e es$i"0$e of (sef(! !ife0% resi(0! '0!(e3 i$ 5o(! e 0ppropri0$e $o ref!ec$ $/ec/0%&e $o 2=1< &oi%& for50r.


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*e+ I"p0ir"e%$s of epreci0!e 0sse$s fre(e%$!) i%'o!'e 0re'isio% of es$i"0$es of (sef(! !ife 0% resi(0! '0!(e3 ($c/0%&es i% es$i"0$es o %o$ %ecess0ri!) co"e fro"i"p0ir"e%$s of 0sse$s. I"p0ir"e%$ $es$s for !i"i$e-!ifei%$0%&i!es 0re o%e 0$ $/e e% of e0c/ repor$i%& perio. T/eco%$ro!!er 5o(! %ee $o re'ie5 $/e p0$e%$ for i"p0ir"e%$30% if e'e%$s or c/0%&es i% circ("s$0%ces i%ic0$e $/0$ $/ec0rr)i%& 0"o(%$ of $/e p0$e%$ "0) %o$ e reco'ere3 $/eco%$ro!!er 5o(! %ee $o co"p0re $/e p0$e%$s c0rr)i%&0"o(%$ $o i$s reco'er0!e 0"o(%$ *$/e /i&/er of '0!(e i% (se

0% f0ir '0!(e !ess cos$s $o se!!+. If $/e reco'er0!e 0"o(%$ is!ess $/0% c0rr)i%& 0"o(%$ of $/e p0$e%$3 $/e i"p0ir"e%$ !oss5o(! e $/e excess of $/e p0$e%$s c0rr)i%& 0"o(%$ o'er i$sreco'er0!e 0"o(%$. I% $/is exercise $/ere is %o i%ic0$io%$/0$ $/e c/0%&es i% es$i"0$es 0re (e $o 0% i"p0ir"e%$.Co%se(e%$!)3 $/e c/0%&es 5o(! e 0cco(%$e for 0s 0c/0%&e i% es$i"0$e.


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E,ERCISE 21-< *2=-28 "i%($es+

*0+ 0% *+ Acco(%$i%& $re0$"e%$ (%er IFRS

*0+ *+Acco(%$i%&$re0$"e%$ T)pe of c/0%&e

1. P C/0%&e i% es$i"0$e2. R Acco(%$i%& error correc$io%4. P C/0%&e i% es$i"0$e<. NA C/0%&e i% po!ic)8. P No$ 0% 0cco(%$i%& c/0%&e @ se!ec$io% of

po!ic) for firs$ $i"e.. P C/0%&e i% es$i"0$e?. R Acco(%$i%& error correc$io%7. P C/0%&e i% es$i"0$e9. P C/0%&e i% es$i"0$e1=. R Acco(%$i%& error correc$io%

T/e 0cco(%$i%& $re0$"e%$ 5o(! e specifie i% $/e $r0%si$io%0!pro'isio%s of $/e %e5 so(rce of GAAP. If %o$ specifie3 $/e%0pp!) re$rospec$i'e!).

No$e $/0$ $/e o%!) $5o 0ppro0c/es $/0$ 0re per"i$$e for repor$i%& c/0%&es 0re re$rospec$i'e 0% prospec$i'e $re0$"e%$.#/e% %e5 or re'ise so(rces of pri"0r) GAAP 0re 0op$e3reco""e%0$io%s 0re (s(0!!) i%c!(e $/0$ specif) /o5 0%e%$i$) s/o(! /0%!e $/e $r0%si$io%. T/ese 0re c0!!e $r0%si$io%0!pro'isio%s.


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E,ERCISE 21-< *Co%$i%(e+

U%er IFRS3 0% ope%i%& s$0$e"e%$ of fi%0%ci0! posi$io% "(s$ e

pro'ie for $/e e0r!ies$ co"p0r0$i'e perio pro'ie 5/e%$/ere is 0 re$rospec$i'e c/0%&e.

*c+ Acco(%$i%& $re0$"e%$ (%er ASPE *if iffere%$ $/0% p0r$ *0+for IFRS+

For correc$io%s of errors3 ASPE 0ss("es $/0$ $/e i"p0c$ o%e0c/ specific prior perio is "e0s(r0!e. IFRS0c;%o5!e&es $/0$ $/e f(!! i"p0c$ "0) %o$ e e$er"i%0!e

T/ere 5o(! e %o iffere%ces $o $/e 0cco(%$i%& $re0$"e%$for $/e 0o'e %o$e i$e"s e$5ee% IFRS 0% ASPE3 /o5e'er so"e i$e"s /0'e speci0! co%sier0$io%s 5or$/ %o$i%&.

*8+ IAS 24 re(ires $/0$ i%$eres$ e c0pi$0!i6e for (0!if)i%&0sse$s3 5/ere0s ASPE s$i!! per"i$s 0 c/oice e$5ee%c0pi$0!i60$io% 0% expe%si%&3 pro'ie $/0$ $/e co"p0%) isco%sis$e%$!) 0pp!)i%& $/e po!ic). Gi'e% $/0$ $/is is $/e firs$$i"e $/e) /0'e co%s$r(c$e 0 (i!i%& for $/eir o5%

p(rposes3 i$s %o$ 0 c/0%&e 0$ 0!!3 ($ r0$/er $/e se!ec$io% of 0 po!ic) for $/e firs$ $i"e.

*9+ U%er c(rre%$ IFRS *IAS 11 0% IAS 17+3 $/e perce%$0&eof co"p!e$io% "e$/o is $/e preferre "e$/o of 0cco(%$i%& for!o%&-$er" co%$r0c$s. If $/e o($co"e c0%%o$ e re!i0!) "e0s(re3reco'er0!e re'e%(es e(0! $o cos$s 0re reco&%i6e (%er IAS11 0% IAS 17 *so"e$i"es referre $o 0s $/e 6ero profi$ "e$/o+.No &ross profi$ is recore (%$i! $/e co%$r0c$ is co"p!e$e 0%$/e &ross profi$ c0% e re!i0!) "e0s(re. IFRS oes %o$ pro'ie

$/e c/oice of $/e co"p!e$e co%$r0c$ "e$/o. U%er ASPE3 $/eperce%$0&e of co"p!e$io% "e$/o is 0&0i% $/e preferre "e$/oof 0cco(%$i%& for !o%&-$er" co%$r0c$s. Ho5e'er3 $/e co"p!e$eco%$r0c$ "e$/o is 0!!o5e 0s 0 ef0(!$ "e$/o for !o%&-$er"co%$r0c$s (%er ASPE 5/ere $/e perce%$0&e co"p!e$e c0%%o$ e


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E,ERCISE 21-< *Co%$i%(e+

re!i0!) "e0s(re. U%er $/e co"p!e$e co%$r0c$ "e$/o3re'e%(e 5o(! o%!) e recore 5/e% $/e co%$r0c$ is co"p!e$e.

*+ U%er IFRS3 o%e of $/e fo!!o5i%& $5o si$(0$io%s is re(irefor 0 c/0%&e i% 0% 0cco(%$i%& po!ic) $o e 0ccep$0!e

1. T/e c/0%&e is required ) 0 pri"0r) so(rce of GAAP.2. A 'o!(%$0r) c/0%&e res(!$s i% $/e fi%0%ci0! s$0$e"e%$s

presenting reliable and more relevant information0o($ $/e effec$s of $/e $r0%s0c$io%s3 e'e%$s3 or co%i$io%s o% $/e e%$i$)s fi%0%ci0! posi$io%3 fi%0%ci0!

perfor"0%ce3 or c0s/ f!o5s.

ASPE pro'ies for f(r$/er si$(0$io%s 5/ere 0% 0cco(%$i%&po!ic) c/0%&e "0) e "0e 5i$/o($ /0'i%& $o "ee$ $/ere!i0!e 0% "ore re!e'0%$ cri$eri0 i% $/e seco% si$(0$io%0o'e. I$ 0!!o5s $/e fo!!o5i%& 'o!(%$0r) c/0%&es i% po!ic) $oe "0e

4. Be$5ee% or 0"o%& 0!$er%0$i'e ASPE "e$/os of 0cco(%$i%& 0% repor$i%& for i%'es$"e%$s i%

s(sii0r) co"p0%ies3 0% i% co"p0%ies 5/ere $/ei%'es$or /0s si&%ific0%$ i%f!(e%ce or oi%$ co%$ro!: for expe%i$(res (ri%& $/e e'e!op"e%$ p/0se o%i%$er%0!!) &e%er0$e i%$0%&i!e 0sse$s: for efi%ee%efi$ p!0%s: for 0cco(%$i%& for i%co"e $0xes: 0% for "e0s(ri%& $/e e(i$) co"po%e%$ of 0 fi%0%ci0!i%s$r("e%$ $/0$ /0s o$/ 0 !i0i!i$) 0% e(i$)co"po%e%$ 0$ 6ero.

T/ese f(r$/er si$(0$io%s 0!!o5e (%er ASPE 0s 0%

0ccep$0!e c/0%&e i% 0cco(%$i%& po!ic) re!0$e $os$0%0rs 5/ere 0cco(%$i%& po!ic) c/oices /0'e $o e"0e. T/ese c/0%&es 0re $re0$e 0s 'o!(%$0r)c/0%&es3 ($ $/e) o %o$ /0'e $o "ee$ $/e re!i0!e0% "ore re!e'0%$ /(r!e re(ire of o$/er 'o!(%$0r)c/0%&es. A!$/o(&/ %o$ specific0!!) s$0$e i% $/e 0c$(0!


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s$0%0r3 i$ is 0ss("e $/0$ o%ce $/0$ c/oice /0s ee%"0e3 $/e s0"e po!ic) is fo!!o5e co%sis$e%$!).


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E,ERCISE 21-8 *28-4= "i%($es+

*0+ C/0%&e fro" s("-of-$/e-)e0rs-i&i$s $o s$r0i&/$-!i%e

Cos$ of epreci0!e 0sse$s.................................. >9=3===Depreci0$io% i% 2=14 *>9=3=== , <1=+................. 43===C0rr)i%& 0"o(%$ 0$ Dece"er 413 2=14............. >8<3===

Depreci0$io% for 2=1< (si%& s$r0i&/$-!i%e epreci0$io%

C0rr)i%& 0"o(%$ 0$ Dece"er 413 2=14............. >8<3===Es$i"0$e (sef(! !ife............................................. 4 )e0rsDepreci0$io% for 2=1< *>8<3=== J 4+..................... >173===

HESSEY INC.S$0$e"e%$ of Re$0i%e E0r%i%&s

For $/e Ye0r E%e

2=1< 2=14Re$0i%e e0r%i%&s3 Q0%(0r) 13 (%0(s$e............>1283===Less Correc$io% of error for i%'e%$or)

o'ers$0$e"e%$............................................... *2=3===+Re$0i%e e0r%i%&s3 Q0%(0r) 13 0(s$e................1=83=== > ?23===A Ne$ i%co"e.................................................... 713=== 873===Less Di'ie%s...................................................... *4=3===+ *283===+Re$0i%e e0r%i%&s3 Dece"er 41...........................>183=== >1=83===

Correc$e %e$ i%co"eAs i%c!(e i% r0f$ s$0$e"e%$s....................>823=== >?73===I%'e%$or) correc$io%.........................................2=3=== *2=3===+Depreci0$io% (%er s(" of $/e )e0rs i&i$s...2?3===Depreci0$io% (%er s$r0i&/$ !i%e....................*173===+

Correc$e %e$ i%co"e............................................>713=== >873===

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No$e $o i%s$r(c$or

1. 2=14 Cos$ of s0!es 50s (%ers$0$e ) >2=3===: 2=1<cos$ of s0!es 50s o'ers$0$e ) >2=3===. As 0 res(!$3 %e$i%co"e for 2=14 is o'ers$0$e >2=3=== 0% %e$ i%co"efor 2=1< is (%ers$0$e >2=3=== 0s 0 res(!$ of $/ei%'e%$or) error.

2. 2=14 epreci0$io% expe%se is (%c/0%&e.

4. Ai$io%0! isc!os(res 5o(! e %ecessi$0$e 0si%ic0$e i% $/e c/0p$er.

*+ Mos$ !i;e!) 0cco(%$i%& $re0$"e%$ of c/0%&e i% epreci0$io%"e$/o (%er '0rio(s circ("s$0%ces

• If $/e c/0%&e is (e $o c/0%&e circ("s$0%ces3 for

ex0"p!e3 $/e $)pes of 0sse$s /0s c/0%&e 0% $/e (s0&e of $/e %e5 0sse$s is e$$er ref!ec$e ) s$r0i&/$-!i%eepreci0$io% or 0 c/0%&e p0$$er% of expec$e e%efi$s3$/e% $/e c/0%&e 5o(! e $re0$e prospec$i'e!).

• If $/e c/0%&e is (e $o 0 c/0%&e i% pri"0r) GAAP3 $/e$r0%si$io%0! pro'isio%s of $/e %e5 po!ic) 5i!! specif) $/e0ccep$0!e $re0$"e%$.

0olutions Manual $12$$ Cha#ter $1

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E,ERCISE 21- *28-4= "i%($es+

2=11*0+ Re$0i%e e0r%i%&s3 Q0%(0r) 13 0s repor$e........... >1=3===C("(!0$i'e effec$ of c/0%&e i% 0cco(%$i%&

pri%cip!e $o 5ei&/$e 0'er0&e cos$.................... *143===+Re$0i%e e0r%i%&s3 Q0%(0r) 13 0s 0(s$e........... >1<?3===

@ >73=== *2==9+ @ >83=== *2=1=+

2=1<*+ Re$0i%e e0r%i%&s3 Q0%(0r) 13 0s repor$e........... >89=3===

C("(!0$i'e effec$ of c/0%&e i% 0cco(%$i%& pri%cip!e $o 5ei&/$e 0'er0&e cos$.................... *183===+Re$0i%e e0r%i%&s3 Q0%(0r) 13 0s 0(s$e........... >8?83===

@ >73=== *2==9+ @ >83=== *2=1=+ @ >83=== *2=11+ >1=3=== *2=12+ @ >?3=== *2=14+

2=18*c+ Re$0i%e e0r%i%&s3 Q0%(0r) 13 0s repor$e........... >?7=3===

C("(!0$i'e effec$ of c/0%&e i% 0cco(%$i%&

pri%cip!e $o 5ei&/$e 0'er0&e cos$.................... *931==+Re$0i%e e0r%i%&s3 Q0%(0r) 13 0s 0(s$e........... >??=39==

@>183=== 0$ 12412=14 >839== *2=1<+

2=12 2=14 2=1<*+ Ne$ I%co"e.............................. >14=3=== >2943=== >41=39==

0olutions Manual $12$% Cha#ter $1

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E,ERCISE 21-? *18-2= "i%($es+

*0+ For $/e )e0rs e%e Dece"er 413 2=12 0% 2=143 $/e !0%

50s ori&i%0! "e0s(re 0% repor$e o% $/e s$0$e"e%$ of fi%0%ci0! posi$io% 0$ i$s cos$ of >13===3=== 5i$/ %o effec$srepor$e i% %e$ i%co"e *0s $/ere is %o epreci0$io% o%!0%+.

2=14 2=12STATEMENT OF FINANCIALPOSITION *p0r$i0!+L0%3 0$ cos$ >13===3=== >13===3===Re$0i%e e0r%i%&s3 e%i%& 0!0%ce 29=3=== 24=3===

INCOME STATEMENT *p0r$i0!+U%re0!i6e &0i% *!oss+ i% '0!(e ofL0% @ I%'es$"e%$ Proper$) >= >=

*+ T/e e%$r) re(ire Q0%(0r) 13 2=1< $o res$0$e ope%i%&Re$0i%e E0r%i%&s isI%'es$"e%$ Proper$) 8=3===

Re$0i%e E0r%i%&s 8=3===

T/e ope%i%& Re$0i%e E0r%i%&s i% 2=1< 5o(! /0'e $o ei%cre0se ) $/e %e$ 0"o(%$ of >8=3=== for $/e c/0%&e i%f0ir '0!(e of $/e i%'es$"e%$ proper$) (p $o Dece"er 4132=14 *e(0! $o $/e f0ir '0!(e /o!i%& !oss i% 2=12 of >2=3===0% $/e f0ir '0!(e /o!i%& &0i% i% 2=14 of >?=3===+.

T/is is 0 co%siere 0% 0ccep$0!e c/0%&e i% 0cco(%$i%&po!ic) si%ce c/0%&i%& $/e "e0s(re"e%$ "oe! 5i!! pro'ie

"ore re!e'0%$ i%for"0$io%. T/(s3 i$ is 0cco(%$e for re$ro0c$i'e!) 0s 0 c/0%&e i% 0cco(%$i%& po!ic).

0olutions Manual $12$& Cha#ter $1

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E,ERCISE 21-? *Co%$i%(e+

*c+ T/e pre'io(s fi%0%ci0! s$0$e"e%$s 5o(! e res$0$e 0s

fo!!o5s $o i%c!(e $/e c/0%&e i% f0ir '0!(e of $/ei%'es$"e%$ proper$) i% %e$ i%co"e 0% re!0$e prese%$0$io%o% $/e s$0$e"e%$ of fi%0%ci0! posi$io%

2=14 2=12*Res$0$e+ *Res$0$e+

STATEMENT OF FINANCIAL POSITION*p0r$i0!+L0%3 0$ f0ir '0!(e >13=8=3=== >97=3===

Re$0i%e e0r%i%&s3 e%i%& 0!0%ce 4<=3=== 21=3===

INCOME STATEMENT *p0r$i0!+U%re0!i6e &0i% *!oss+ i% '0!(e of L0% @I%'es$"e%$ Proper$) >?=3=== >*2=3===+

STATEMENT OF SHAREHOLDERSEUITY RETAINED EARNINGS *p0r$i0!+Ope%i%& re$0i%e e0r%i%&s3 0s ori&i%0!!)

s$0$e >29=3=== >24=3===A(s$e for 2=12 ec!i%e i% f0ir '0!(e *2=3===+ *2=3===+A(s$e for 2=14 i%cre0se i% f0ir '0!(e ?=3=== Ope%i%& re$0i%e e0r%i%&s3 0s res$0$efor c/0%&e i% 0cco(%$i%& po!ic) >4<=3=== >21=3===

0olutions Manual $12$' Cha#ter $1

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E,ERCISE 21-7 *2=-48 "i%($es+

*0+ I%'e%$or)............................................................. 73===

Re$0i%e E0r%i%&s........................................ 73===

2=11 >23=== *>23=== @ >2<3===+

2=12 83=== *>4=3=== @ >283===+

2=14 13=== *>273=== @ >2?3===+

>73===

Cos$ of Goos So! co(! e (se if $/e i%'e%$or) is 0!re0)0(s$e 0$ )e0r-e%.

I%for"0$io% s/o5% i% co"p0r0$i'e for" 0s fo!!o5s

2=1< 2=14 2=12 2=11

Ne$ i%co"e *No$e A+ >4<3=== >273=== >4=3=== >23===

No$e AI% 2=1<3 i%'e%$or) /0s ee% c0!c(!0$e (si%& $/e firs$-i%3 firs$-o($cos$ for"(!0 . I% prior )e0rs3 si%ce i%corpor0$io%3 i%'e%$or) /0ee% c0!c(!0$e (si%& $/e 5ei&/$e 0'er0&e cos$ for"(!0. T/e

%e5 "e$/o of i%'e%$or) cos$i%& 50s 0op$e $o pro'ie "orere!e'0%$ fi%0%ci0! s$0$e"e%$ i%for"0$io% 0% /0s ee% 0pp!iere$rospec$i'e!) $o i%'e%$or) '0!(0$io% of prior )e0rs. T/e i"p0c$of $/e c/0%&e is 0% i%cre0se *ecre0se+ i% i%'e%$or) of >,,,*i%cre0se *ecre0se+ i% 2=14 of >,,,+3 i%cre0se *ecre0se+ i%cos$ of &oos so! of >,,, *i%cre0se *ecre0se+ i% 2=14 of >,,,+3 i%cre0se i% %e$ i%co"e of ><3=== *i%cre0se i% 2=14 of >13===+3 0% i%cre0se of ope%i%& re$0i%e e0r%i%&s of >73===*i%cre0se of >?3=== i% 2=14+ 0% 0% i%cre0se i% e0r%i%&s per s/0re of >,,, *i%cre0se i% 2=14 of >,,,+.

0olutions Manual $12$( Cha#ter $1

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*+ I%'e%$or).............................................................193===Re$0i%e E0r%i%&s........................................ 193===

2=11

> 3=== *>23=== @ >2=3===+

2=12 93=== *>4=3=== @ >213===+

2=14 <3===

*>273=== @ >2<3===+

>193===

Cos$ of Goos So! co(! e (se if $/e i%'e%$or) is 0!re0)0(s$e 0$ )e0r-e%.

2=1< 2=14 2=12 2=11

Ne$ i%co"e >4<3=== >273=== >4=3=== >23===

No$e A

I% 2=1<3 i%'e%$or) /0s ee% c0!c(!0$e (si%& $/e firs$-i%3 firs$-o($cos$ for"(!0 . I% prior )e0rs3 si%ce i%corpor0$io%3 i%'e%$or) /0ee% c0!c(!0$e (si%& $/e !0s$-i%3 firs$-o($ cos$ for"(!0 . T/ec/0%&e is re(ire i% orer $o co"p!) 5i$/ CICA Handbook 3 P0r$II3 sec$io% 4=413 0% $/e %e5 s$0%0r /0s ee% 0pp!iere$rospec$i'e!). T/e i"p0c$ of $/e c/0%&e is 0% i%cre0se*ecre0se+ i% i%'e%$or) of >,,, *i%cre0se *ecre0se+ i% 2=14 of >,,,+3 i%cre0se *ecre0se+ i% cos$ of &oos so! of >,,,*i%cre0se *ecre0se+ i% 2=14 of >,,,+3 i%cre0se i% %e$ i%co"e of >73=== *i%cre0se i% 2=14 of ><3===+3 0% i%cre0se of ope%i%&re$0i%e e0r%i%&s of >193=== *i%cre0se of >183=== i% 2=14+ 0% 0%i%cre0se i% e0r%i%&s per s/0re of >,,, *i%cre0se i% 2=14 of >,,,+.

0olutions Manual $12$) Cha#ter $1

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E,ERCISE 21-9 *18-2= "i%($es+

*0+ Depreci0$io% $o 0$e o% $/e e(ip"e%$

Do(!e-ec!i%i%& epreci0$io%

2=11 *28 , ><83===+ >173===2=12 *28 , >2?93===+ 1113==2=14 *28 , >1?3<==+ 39=

>4<38=

Cos$ of e(ip"e%$................................ ><83===Depreci0$io% $o 0$e............................. 4<38=C0rr)i%& 0"o(%$ *Dec. 413 2=14+......... >1==3<<=

Depreci0$io% for 2=1< >*1==3<<= @ 183===+ J *8 @ 4+ K ><23?2=

Depreci0$io% Expe%se..................................... <23?2=Acc("(!0$e Depreci0$io%E(ip"e%$. <23?2=

*+ Depreci0$io% $o 0$e o% (i!i%&

>?7=3=== 4= )e0rs K >23=== per )e0r >23=== , 4 )e0rs K >?73=== epreci0$io% $o 0$e

Cos$ of (i!i%&.................................... >?7=3===Depreci0$io% $o 0$e............................. ?73===C0rr)i%& 0"o(%$ *Dec. 413 2=14+......... >?=23===

Depreci0$io% for 2=1< >?=23=== J *<= @ 4+ K >1739?4

Depreci0$io% Expe%se..................................... 1739?4Acc("(!0$e Depreci0$io%B(i!i%&s.... 1739?4

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E,ERCISE 21-1= *2=-28 "i%($es+

*0+

1. Acc("(!0$e Depreci0$io%M0c/i%er)........... 2238==Depreci0$io% Expe%se................................ ?38==Re$0i%e E0r%i%&s...................................... 183===

2=12-2=14 2=1<

Depreci0$io% $0;e%Depreci0$io% *correc$+

>18=3=== 1483===> 183===

>?83===

?38==> ?38==

><8=3=== , 1 , 2

2. S0!0ries 0% #0&es Expe%se............................ 43===Re$0i%e E0r%i%&s...................................... 43===

4. C(rre%$ T0x Expe%se.......................................... ?43===Re$0i%e E0r%i%&s...................................... ?43===

<. Goo5i!!..............................................................2=238==A"or$i60$io% Expe%se................................ <83===

Re$0i%e E0r%i%&s *><83=== , 4.8 )e0rs+.. 18?38==

I% 0i$io%3 $/e co"p0%) s/o(! $es$ &oo5i!! for i"p0ir"e%$.

8. No e%$r) %ecess0r).

. Re$0i%e E0r%i%&s.............................................. 7?3===Loss ............................................................ 7?3===

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E,ERCISE 21-1= *Co%$i%(e+

*+ 1. Error correc$io%

2. Error correc$io%4. Error correc$io%<. Error correc$io%8. C/0%&e i% 0cco(%$i%& po!ic). Error correc$io%

*c+1. Acc("(!0$e Depreci0$io%M0c/i%er)........... 2238==

Depreci0$io% Expe%se................................ ?38==

Re$0i%e E0r%i%&s...................................... 11328=Deferre T0x Li0i!i$)................................. 43?8=

2. S0!0ries 0% #0&es Expe%se............................ 43===Re$0i%e E0r%i%&s...................................... 2?3===I%co"e T0x P0)0!e................................... 93===

4. C(rre%$ T0x Expe%se.......................................... ?43===Re$0i%e E0r%i%&s...................................... ?43===

Si%ce $/e f(!! >?43=== 50s c/0r&e $o Re$0i%e E0r%i%&s3 $/es0"e 0"o(%$ is re'erse 5i$/o($ f0c$ori%& i% $/e i%co"e $0xeffec$.

<. Acc("(!0$e A"or$i60$io% @ Goo5i!!.............2=238==A"or$i60$io% Expe%se @ Goo5i!!............. <83===Re$0i%e E0r%i%&s..................................... 1173128Deferre T0x Li0i!i$)................................. 4934?8*><83=== , 4.8 )e0rs , *1 @ 28++

I% 0i$io%3 $/e co"p0%) s/o(! $es$ &oo5i!! for

i"p0ir"e%$.

8. No e%$r) %ecess0r).

. Re$0i%e E0r%i%&s.............................................. 8328=

I%co"e T0x P0)0!e........................................... 213?8=Loss ............................................................ 7?3===


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E,ERCISE 21-11 *1=-18 "i%($es+

1. S0!0ries 0% #0&es Expe%se.......................... <31==

S0!0ries 0% #0&es P0)0!e................... <31==

2. S0!0ries 0% #0&es Expe%se.......................... 293<==S0!0ries 0% #0&es P0)0!e................... 293<==

4. Prep0i I%s(r0%ce *>23?= , 1=12+................ 234==

I%s(r0%ce Expe%se.................................. 234==

<. S0!es Re'e%(e.................................................. 11=3===

>2341=3=== J *1.== .=8+ , 8 S0!es T0x P0)0!e.................................... 11=3===

S0!es T0x P0)0!e............................................ 1=134==S0!es T0x Expe%se................................... 1=134==

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E,ERCISE 21-12 *2=-28 "i%($es+

*0+ 1. S(pp!ies Expe%se *><31== @ >231==+........... 23===

S(pp!ies................................................. 23===

S0!0ries 0% #0&es Expe%se...................... 132==*>831== @ >439==+

S0!0ries 0% #0&es P0)0!e................ 132==

2. I%$eres$ I%co"e *>838== @ ><3?8=+................ ?8=I%$eres$ Recei'0!e............................... ?8=

4. I%s(r0%ce Expe%se....................................... 273===

*>943=== @ >83===+

Prep0i I%s(r0%ce................................. 273===

<. Re%$ Re'e%(e *><<3=== J 2+......................... 223===U%e0r%e Re%$ Re'e%(e...................... 223===

8. Depreci0$io% Expe%se.................................. <7318=*>8438== @ >8348=+

Acc("(!0$e Depreci0$io% - Asse$...... <7318=

. Re$0i%e E0r%i%&s........................................ 1438==Acc("(!0$e Depreci0$io% - Asse$......

1438==

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*+ 1. Re$0i%e E0r%i%&s........................................ 23===

S(pp!ies................................................. 23===

Re$0i%e E0r%i%&s........................................ 132==S0!0ries 0% #0&es P0)0!e................ 132==

2. Re$0i%e E0r%i%&s........................................ ?8=

I%$eres$ Recei'0!e............................... ?8=

4. Re$0i%e E0r%i%&s........................................ 273===Prep0i I%s(r0%ce................................. 273===

<. Re$0i%e E0r%i%&s........................................ 223===U%e0r%e Re%$ Re'e%(e...................... 223===

8. Re$0i%e E0r%i%&s........................................ <7318=Acc("(!0$e Depreci0$io%.................. <7318=

. S0"e 0s i% *0+.

*c+ I$e"s 1 $o < 0re 0(s$i%& e%$ries 0s p0r$ of $/e 0cco(%$i%&c)c!e. T/e si$(0$io%s prese%$e co(! /0'e occ(rre 0so'ersi&/$s ) $/e 0cco(%$i%& s$0ff i% $/e 0(s$"e%$process. T/e %or"0! 0(s$"e%$ process /o5e'er 5o(!%or"0!!) c0p$(re $/ese si$(0$io%s.

For s0!0ries 0% 50&es p0)0!e 0% i%$eres$ recei'0!e3 $/ef0c$ $/0$ $/e ope%i%& 0!0%ces 5ere %o$ c/0%&e3 oes %o$i"p!) 0% error. C0s/ receip$s of i%$eres$ 0% c0s/is(rse"e%$s for s0!0ries 0% 50&es 5ere pos$e $o $/e

i%co"e s$0$e"e%$3 r0$/er $/0% c!e0re fro" $/e ope%i%&0!0%ces. T/is "e0%s $/0$ i%$eres$ i%co"e 0% s0!0ries 0%50&es expe%se 0re c(rre%$!) o'ers$0$e. T/e ope%i%&0!0%ce %ees $o e c!ose $o I%$eres$ I%co"e S0!0ries 0%#0&es Expe%se3 0% $/e )e0r e% 0ccr(0! recore. T/isc0% e 0cco"p!is/e i% 0 co"po(% e%$r) ) 0(s$i%& $/eope%i%& 0!0%ce $o $/e re(ire e%i%& 0!0%ce.

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For i$e" <3 $/e co"p0%) is !i;e!) (si%& $/e 0!$er%0$i'e for"

of recori%& i$s (%e0r%e re%$ re'e%(e ) pos$i%& $/e f(!!0"o(%$ $o 0 re'e%(e 0cco(%$. T/erefore3 $/e 0(s$i%& e%$r)/0s $o re(ce $/e re'e%(e 0cco(%$ 0% pos$ $/ecorrespo%i%& 0"o(%$ $o $/e (%e0r%e re%$ re'e%(e0cco(%$. I$e"s 8 0% /o5e'er 0re 0cco(%$i%& errors.

For i$e"s 1 $o 83 si%ce $/e proper 0(s$"e%$s 0re pos$e $o$/e oo;s of 0cco(%$ i% $/e c(rre%$ )e0r3 %o isc!os(re is%ecess0r). T/e fi%0%ci0! s$0$e"e%$s 5i!! ref!ec$ $/e correc$0"o(%$s. U%er p0r$ *+ 5i$/ $/e oo;s c!ose3 if $/e

fi%0%ci0! s$0$e"e%$s 0re %o$ )e$ iss(e3 $/e 0(s$"e%$sco(! e f0c$ore i%$o $/e fi%0%ci0! s$0$e"e%$s 0s p0r$ of $/es$0$e"e%$ prep0r0$io% process. No speci0! prese%$0$io% or %o$e isc!os(re 5o(! e re(ire. If $/e fi%0%ci0!s$0$e"e%$s /0'e ee% iss(e3 $/e correc$io% 5o(! f!o5 i%$o$/e s(se(e%$ fi%0%ci0! s$0$e"e%$s 0% 5o(! e $re0$e0s correc$io%s of errors i% 0 prior perio. T/e ope%i%&re$0i%e e0r%i%&s 5o(! e 0(s$e 0% %o$e isc!os(re5o(! e re(ire e$0i!i%& $/e %0$(re of $/e errors 0% $/e

!i%e i$e"s i% $/e fi%0%ci0! s$0$e"e%$s 0ffec$e.

I$e" is 0% error i% 0 prior perio 0% 5o(! e $re0$e 0se$0i!e 0o'e.

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E,ERCISE 21-14 *18-2= "i%($es+

*0+

Dece"er 413 2=1<Re$0i%e E0r%i%&s................................................... 1483===

Acc("(!0$e Depreci0$io%M0c/i%er)........

1483===*To correc$ for $/e o"issio% of epreci0$io%

expe%se i% 2=12+

*>1348=3=== 1= )e0rs K >1483=== epreci0$io% per )e0r+

No ex$r0 e%$r) is %ecess0r) $o recor $/e c/0%&e fro" o%eepreci0$io% "e$/o $o 0%o$/er si%ce 0 c/0%&e fro" o%e

epreci0$io% "e$/o $o 0%o$/er is 0 c/0%&e i% es$i"0$e3 0%c/0%&es i% es$i"0$es 0re $re0$e prospec$i'e!).

T/e 0(s$i%& e%$r) $o e "0e for epreci0$io%3 0se o% 0prospec$i'e 0pp!ic0$io% of DDB is

Depreci0$io% Expe%se............................................. 2?=3===Acc("(!0$e Depreci0$io%M0c/i%er)....... . 2?=3===

DDB r0$e *1== J ? )e0rs re"0i%i%&+ , 2 K 27.8?1<>1348=3=== @ *4 , >1483===+ K >9<83===>9<83=== , .278?1< K >2?=3===

*+ Dece"er 413 2=1<

Re$0i%e E0r%i%&s................................................... 1=1328=

Deferre T0x Asse$ *>1483=== , 28+.................... 443?8=Acc("(!0$e Depreci0$io%M0c/i%er)........

1483===*To correc$ for $/e o"issio% of epreci0$io%

expe%se i% 2=12+

As 0o'e *see p0r$ 0+3 5i$/ $/e s0"e epreci0$io% e%$r).

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E,ERCISE 21-1< *28-4= "i%($es+

*0+ Effec$ of errors o% 2=1< %e$ i%co"e

>1=3?== (%ers$0$e"e%$

C0!c(!0$io%s @ Effec$ o% 2=1< %e$ i%co"eO'er

*(%er+s$0$e"e%$

O'ers$0$e"e%$ of 2=14 e%i%& i%'e%$or)*0% 2=1< e&i%%i%& i%'e%$or)+U%ers$0$e"e%$ of 2=1< e%i%& i%'e%$or)

Expe%si%& of i%s(r0%ce pre"i(" i% 2=14 *>3=== J 4+F0i!(re $o recor &0i% o% s0!e of f(!!)epreci0$e "0c/i%e i% 2=1<To$0! effec$ of errors o% %e$ i%co"e

*(%ers$0$e+

> *93==++

*731==++

223===

*183=== +

>*1=3?== ++

*+ Effec$ of errors o% 5or;i%& c0pi$0! ><831== (%ers$0$e"e%$

C0!c(!0$io%s @ Effec$ o% 5or;i%& c0pi$0!O'er

*(%er+s$0$e"e%$

U%ers$0$e"e%$ of 2=1< e%i%& i%'e%$or)Expe%si%& of i%s(r0%ce pre"i(" i% 2=14

*prep0i i%s(r0%ce+C0s/ fro" s0!e of f(!!) epreci0$e "0c/i%e

(%recoreTo$0! effec$ o% 5or;i%& c0pi$0! *(%ers$0$e+

>* *731==++

*223===+

*183===+>*<831==+

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E,ERCISE 21-1< *Co%$i%(e+

*c+ Effec$ of errors o% re$0i%e e0r%i%&s

><?3<== (%ers$0$e"e%$

C0!c(!0$io%s @ Effec$ o% re$0i%e e0r%i%&sO'er

*(%er+s$0$e"e%$

U%ers$0$e"e%$ of 2=1< e%i%& i%'e%$or)O'ers$0$e"e%$ of epreci0$io% expe%se i% 2=14

Expe%si%& of i%s(r0%ce pre"i(" 0pp!ic0!e $o 2=18 i% 2=14F0i!(re $o recor s0!e of f(!!) epreci0$e

"0c/i%e i% 2=1<To$0! effec$ o% re$0i%e e0r%i%&s*(%ers$0$e+

>* *731==++ *

*234==++

*223===+

*183===+

>*<?3<==+

*+ NEILSON TOOL CORPORATIONS$0$e"e%$ of Re$0i%e E0r%i%&s

For $/e Ye0rs 2=1< 0% 2=14

2=1< 2=14

*res$0$e+

Re$0i%e e0r%i%&s3 Q0%(0r) 130s pre'io(s!) repor$e

Less Effec$ of error i%i%'e%$or) i% pre'io(s )e0r

A Depreci0$io% error i%pre'io(s )e0r

A Error i% i%s(r0%ceRe$0i%e e0r%i%&s3 Q0%(0r) 13

0s res$0$eNe$ i%co"eDi'ie%sRe$0i%e e0r%i%&s3 Dece"er 41

>13=?3===

*93==+

234==

<<3===

13<43?== 4783?== *<83===+

>1397<3<==

>1328=3===

1328=3=== <873?== *83===+>13<43?==

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E,ERCISE 21-1< *Co%$i%(e+

Ne$ i%co"e for 2=1< K >4?83=== >1=3?== (%ers$0$e"e%$.

Ne$ i%co"e for 2=14 K ><223=== @ >93== >234== ><<3===

*e+ Correc$io% of error T/e fi%0%ci0! s$0$e"e%$s "(s$ eres$0$e for 0!! prior perios. Ope%i%& re$0i%e e0r%i%&s 0re0(s$e.

T/e re(ire isc!os(re i%c!(es 0 escrip$io% of $/e errors3$/e effec$ of $/e correc$io% of $/e errors o% $/e fi%0%ci0!

s$0$e"e%$s of $/e c(rre%$ 0% prior perios: 0% $/e f0c$ $/0$$/e fi%0%ci0! s$0$e"e%$s of prior perios $/0$ 5ere prese%$e0re res$0$e. More specific0!!)3 $/e 0"o(%$s of $/ecorrec$io%s $o e0c/ !i%e of $/e fi%0%ci0! s$0$e"e%$sprese%$e for co"p0r0$i'e p(rposes3 0s 5e!! 0s $/e 0"o(%$of $/e correc$io% "0e 0$ $/e e&i%%i%& of $/e e0r!ies$ prior perio 0re prese%$e.

Re$rospec$i'e res$0$e"e%$ e%/0%ces $/e co%sis$e%c) 0%"ore specific0!!)3 $/e co"p0r0i!i$) of $/e fi%0%ci0!

s$0$e"e%$s.

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E,ERCISE 21-18 *28-4= "i%($es+

2=14 2=1<

I%co"e efore $0xCorrec$io%s

S0!es erro%eo(s!) i%c!(e i% 2=14i%co"e

U%ers$0$e"e%$ of 2=14 e%i%&i%'e%$or)

A(s$"e%$ $o o% i%$eres$ expe%seRep0irs erro%eo(s!) c/0r&e $o $/e

E(ip"e%$ 0cco(%$

Depreci0$io% recore o% i"proper!)c0pi$0!i6e rep0irs *1=+

Correc$e i%co"e efore $0x

>1=13===

*4732==+

73<=

*13<8=+

*738==+

78=>234<=

>??3<==

4732==

*73<=+ *13882+

*93<==+

13?=8>9?3?14

Bo% i%$eres$ expe%se for 2=14 0% 2=1< 50s co"p($e 0sfo!!o5s

C0rr)i%&A"o(%$ of

Bo%sS$0$e

I%$eres$Effec$i'eI%$eres$

2=142=1<

>2483===

243<8=>183===

183===>13<8= 13882

>2483=== , ?

Differe%ce e$5ee% effec$i'e i%$eres$ 0$ ? 0% s$0$e i%$eres$*+

2=14 >13<8=

2=1< 13882

Erro%eo(s epreci0$io% $0;e% i% 2=1<o% 2=14 0i$io% **>738== - 78=+ x 1=++ > ?8o% 2=1< 0i$io% *>93<== J 1=+ 9<=

To$0! excess epreci0$io% 2=1< >13?=8

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*+ 1. Re$0i%e E0r%i%&s........................................ 4732==

S0!es Re'e%(e...................................... 4732==

2. Ass("i%& $/e i%correc$ ope%i%& i%'e%$or) is s$i!! i% $/eI%'e%$or) 0cco(%$

I%'e%$or) ...................................................... 73<=Re$0i%e E0r%i%&s................................ 73<=

If $/e I%'e%$or) 0cco(%$ /0s ee% 0(s$e (ri%& $/e2=1< )e0r 0s 0 res(!$ of i%$eri" i%'e%$or) co(%$s i%

orer $o prep0re i%$eri" fi%0%ci0! s$0$e"e%$s3 or $/ee%i%& i%'e%$or) /0s ee% co(%$e 0$ )e0r e% 0% 0%0(s$i%& e%$r) /0s 0!re0) ee% "0e $o reco&%i6ecos$ of &oos so!

Cos$ of Goos So! 73<=Re$0i%e E0r%i%&s .. 73<=

4. Re$0i%e E0r%i%&s........................................ 13<8=

Bo%s P0)0!e...................................... 13<8=For $/e 2=14 i%$eres$.

I%$eres$ Expe%se........................................... 13882Bo%s P0)0!e...................................... 13882

For $/e 2=1< i%$eres$.

<. Re$0i%e E0r%i%&s........................................ 738==E(ip"e%$............................................. 738==

Acc("(!0$e Depreci0$io% - E(ip"e%$.. .. 78=

Re$0i%e E0r%i%&s................................ 78=To 0(s$ $/e 2=14 error o% e(ip"e%$.

M0i%$e%0%ce 0% Rep0irs Expe%se............ 93<==E(ip"e%$............................................. 93<==


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Acc("(!0$e Depreci0$io% - E(ip"e%$... . 13?=8 Depreci0$io% Expe%se.......................... 13?=8To 0(s$ $/e 2=1< error o% e(ip"e%$.

*c+

(0!i$) of e0r%i%&s refers $o /o5 so!i $/e e0r%i%&s %("ers0re. Hi&/ (0!i$) e0r%i%&s %("ers 0re (%i0se3 ref!ec$i'e of $/e (%er!)i%& (si%ess f(%0"e%$0!s3 0% s(s$0i%0!e. Prior $o

$/e correc$io% of se'er0! errors i% repor$e %e$ i%co"e for 2=140% 2=1<3 M0rce! Corp. repor$e efore-$0x i%co"e of >1=13===0% >??3<== i% 2=14 0% 2=1< respec$i'e!). Af$er correc$io% of $/e errors3 M0rce! Corp.s correc$e i%co"e efore $0x 50s>234<= 0% >9?3?97 i% 2=14 0% 2=1< respec$i'e!). A% i%'es$or "0) 0ssess $/0$ M0rce! Corp. /0s !o5 (0!i$) e0r%i%&s ec0(se$/e co"p0%)s repor$e e0r%i%&s "0) e si&%ific0%$!) i0se0% /0'e 0 /i&/er "0r&i% of po$e%$i0! "iss$0$e"e%$. As 0 res(!$3$/e s/0res of M0rce! Corp. "0) e isco(%$e i% $/e c0pi$0!

"0r;e$s.

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E,ERCISE 21-1 *1=-18 "i%($es+

2=14 2=1<

I$e"O'er-

s$0$e"e%$U%er-

s$0$e"e%$No

Effec$O'er-

s$0$e"e%$U%er-

s$0$e"e%$No

Effec$

*1+ , ,

*2+ , ,

*4+ , ,

*<+ , ,

*8+ , ,

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E,ERCISE 21-1? *18-2= "i%($es+

*0+ C0!c(!0$io% of epreci0$io% for 2=1< o% $/e (i!i%&

Cos$ of (i!i%& >132==3===Less Depreci0$io% prior $o 2=1<2=1= *>132==3=== @ >=+ , .=8 >=3===2=11 *>132==3=== @ >=3===+ , .=8 8?3===2=12 *>132==3=== @ >11?3===+ , .=8 8<318=2=14 *>132==3=== @ >1?1318=+ , .=8 813<<2 2223892C0rr)i%& 0"o(%$3 Q0%(0r) 13 2=1< > 9??3<=7

Do(!e-ec!i%i%&-0!0%ce r0$e K *1 J <=+ , 2 K 8

Depreci0$io% expe%se for 2=1< >283?1 *>9??3<=7 @ >8=3===+ J 4 *K<= @ <+ )e0rs

Depreci0$io% Expe%se.................................... 283?1Acc("(!0$e Depreci0$io%B(i!i%&. .. 283?1

*+ C0!c(!0$io% of epreci0$io% for 2=1< o% $/e e(ip"e%$

Cos$ of e(ip"e%$ >14=3===

Less Acc("(!0$e epreci0$io% *>14=3=== @ >1=3===+ J 12 , < )e0rs <=3===C0rr)i%& 0"o(%$3 Q0%(0r) 13 2=1< > 9=3===

2014 Depreciation expense =$90,000–$5,000

(9–4) =

$85,000

5

= $17,000

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E,ERCISE 21-17 *1=-18 "i%($es+

*0+ T/e c/0%&e i% es$i"0$e 5o(! e 0pp!ie i% 2=1<. T/e

0"o(%$ of epreci0$io% expe%se for 2=1< 5o(! ec0!c(!0$e 0s 0 c/0%&e i% es$i"0$e.

I%co"e efore epreci0$io% 0% i%co"e $0x >4==3===Depreci0$io% expe%se 28=3===I%co"e efore i%co"e $0x 8=3===I%co"e $0x *4=+ 183===Ne$ i%co"e >483===

Cos$ of 0sse$s K >1283=== , 7 )e0rs K >13===3===

C0rr)i%& 0"o(%$ K >13===3=== @ *>1283=== , 2+ K >?8=3===Depreci0$io% expe%se K >?8=3=== , 2 K >28=3===

T/e re"0i%i%& (sef(! !ife is )e0rs *7 )e0rs !ess $/e 2)e0rs 0!re0) epreci0$e+.

*+3 *c+3 *+T/ere 5o(! e %o 0(s$"e%$ $o ope%i%& re$0i%e

e0r%i%&s for 0%) pre'io(s )e0r si%ce c/0%&es i% es$i"0$e 0re0cco(%$e for prospec$i'e!). T/ere 5o(! 0!so e %o o(r%0!

e%$r) $o 0(s$ $/e 0cco(%$i%& recors. T/e epreci0$io% for2=1< of >28=3=== 5o(! e recore.

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E,ERCISE 21-19 *1=-18 "i%($es+

1. Management incentive plans. I% "0%) !0r&e co"p0%ies3"0%0&e"e%$ re"(%er0$io% p0c;0&es pro'ie 0 s0!0r)3

c0s/ o%(ses 0se o% %e$ i%co"e or o$/er perfor"0%ce'0ri0!es3 0% s$oc; i%ce%$i'es 0se o% s/0re priceperfor"0%ce. Co""o% s/0res 0re offere $o "0%0&ers0se o% s/0re price perfor"0%ce $o $r) $o 0!i&% $/e !o%&-$er" i%$eres$s of $/e fir"s s/0re/o!ers 0% "0%0&ers.T/e c0s/ o%(s is of$e% 0se o% 0 perce%$0&e of i%co"eo%ce 0 $0r&e$ is re0c/e. I% so"e c0ses3 o%ce %e$ i%co"erises 0o'e 0 cer$0i% cei!i%&3 %o f(r$/er o%(s is p0i. T/ispr0c$ice pro'ies 0 &re0$ i%ce%$i'e $o ;eep i%co"e e$5ee%

$/e $0r&e$ 0% $/e cei!i%&. T/0$ is3 "0%0&ers of (%i$s 5i$/i%co"e 0o'e $/e cei!i%& 5o(! e "o$i'0$e $o pic;0cco(%$i%& po!icies $/0$ c0rr) for50r s(rp!(s e0r%i%&s$o $/e %ex$ perio.

2. Lending covenants. Lo%&-$er" !e%i%& co%$r0c$s of$e%i%c!(e co'e%0%$s $o pro$ec$ $/e !e%er fro" oser'0!e0c$io%s ) $/e orro5er $/0$ 0re 0&0i%s$ $/e !e%ersi%$eres$s3 s(c/ 0s 0i$io%0! orro5i%& or excessi'ei'ie% p0)"e%$s. Co'e%0%$s 0re of$e% 0se o% r0$ios

s(c/ 0s 5or;i%& c0pi$0!3 $i"es i%$eres$ e0r%e3 e$ $oe(i$)3 0% so o%. Vio!0$io% of 0 e$ co'e%0%$ p($s $/eorro5er i% ef0(!$ of $/e !o0% co%$r0c$: $/e !e%er c0%e"0% rep0)"e%$ or3 "ore co""o%!)3 re%e&o$i0$e $er"s0% co%i$io%s3 i%c!(i%& i%$eres$ r0$es. Fir"s 0ffec$e )$/ese co'e%0%$s $r) $o se!ec$ 0cco(%$i%& po!icies $/0$i"pro'e cri$ic0! r0$ios.

4. Political motivation. Is i$ possi!e $o repor$ $oo "(c/i%co"eW If 0 fir" is po!i$ic0!!) 'isi!e *(s(0!!) ec0(se of

si6e3 $/e %0$(re of $/e (si%ess3 or ec0(se of 0&o'er%"e%$-050re "o%opo!)+3 /i&/ !e'e!s of re$(r% 0repo$e%$i0!!) (%esir0!e. Hi&/ profi$s 0$$r0c$ 0$$e%$io% 0%"0) cre0$e e%o(&/ iss0$isf0c$io% 0% po!i$ic0! (%res$ $oc0(se $/e &o'er%"e%$ $o re&(!0$e so"e 0spec$ of $/e(si%ess or i%$er'e%e i% 0%o$/er f0s/io%. S(c/ fir"s 5o(!r0$/er "i%i"i6e repor$e 0cco(%$i%& i%co"e 0$ !e'e!s $/0$

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pro'ie *0re!)+ s0$isf0c$or) !e'e!s of re$(r% $o crei$ors0% i%'es$ors.

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<. Taxation. Re(c$io% of i%co"e $o !o5er $0x p0)"e%$s is 0%

o'io(s "o$i'0$io% for 0cco(%$i%& po!ic) c/oice.Re"e"er3 $/o(&/3 $/0$ $/ere 0re ex$e%si'e pro'isio%s i%$/e Income Tax Act re(iri%& $/e (se of cer$0i% 0cco(%$i%&"e$/os for $0x p(rposes3 re&0r!ess of $/e 0cco(%$i%&po!ic) c/oice "0e for ex$er%0! repor$i%&: $/(s3 fir"s "0)/0'e !i$$!e roo" $o "0%oe('re.

8. Contracts. Le&0! 0&ree"e%$s of$e% refer $o 0$0 *%("ers+i% *0(i$e or (%0(i$e+ fi%0%ci0! s$0$e"e%$s. For i%s$0%ce3 0% 0&ree"e%$ "0) specif) $/0$ %e$ i%co"e is $o

e 0!!oc0$e i% 0 '0rie$) of 50)s or $/0$ oo; '0!(e of e(i$) *or 0 "(!$ip!e $/ereof+ is $o e (se $o es$0!is/ 0()-o($ price 5/e% 0 p0r$%er re$ires or 0 %e5 p0r$%er 0"i$$e. I% $/ese circ("s$0%ces3 $/ere is co%sier0!eco%$r0c$(0! "o$i'0$io% $o "0%ip(!0$e i%co"e 0% oo;'0!(e. Ho5 c0% $/e co%$r0c$i%& p0r$ies "0;e s(re $/0$"0%ip(!0$io% oes %o$ !e0 $o i%0ppropri0$e '0!(0$io%WSpecif)i%& $/0$ GAAP "(s$ e fo!!o5e is 0 firs$ s$ep.Ho5e'er3 $/ere 0re 0re0s of 0cco(%$i%& po!ic) 5/ere GAAP0!!o5s for 0ccep$0!e 0!$er%0$i'e "e$/os.

No$e $o I%s$r(c$or N("ero(s o$/er f0c$ors "0) e 0ccep$0!e.S$(e%$ respo%ses 5i!! '0r): $/e oec$i'e is $o pro'o;e e0$eo% perso%0!3 po!i$ic0! 0% e$/ic0! "o$i'0$io%s for 0cco(%$i%&po!ic) c/oice 0% for s$(e%$s $o (%ers$0% $/0$ $/ere "0) e"o$i'0$ors o$/er $/0% f0ir prese%$0$io%.

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TIME AND PURPOSE OF PROBLEMS

ro!lem $121 :Time $'2% minutes<

ur#ose3to #ro-ide a #ro!lem that re=uires the student to> :1< #re#arecorrecting entries for t"o years? unrecorded sales commissions and three years?in-entory errors, and :$< #re#are entries for t"o different changes in accounting#olicy. The student is also re=uired to discuss alternati-e accounting treatmentsfor the changes.

ro!lem $12$

:Time %2%' minutes<

ur#ose3to #ro-ide a #ro!lem that re=uires the student to> :1< account for achange in estimate, :$< record a correction of an error, and :%< account for achange in accounting #olicy. The student is also re=uired to account for the ta9effect of the changes.

ro!lem $12% :Time %2%' minutes<

ur#ose3to #ro-ide a #ro!lem that re=uires the student to account for t"ochanges in estimate, record a correction of an error and account for a change incircumstances. The student is also re=uired to calculate corrected@ad4usted netincome amounts.

ro!lem $12& :Time &'2' minutes<

ur#ose3to de-elo# an understanding of the entries re=uired for changes inaccounting #olicies, changes in estimates and accounting errors. Thiscom#rehensi-e #ro!lem in-ol-es all ty#es of changes. The entries for !ookso#en and !ooks closed are re=uired. The student is also re=uired to discuss thety#e of change in-ol-ed and ho" it "ould !e accounted for.

ro!lem $12' :Time '2( minutes<

ur#ose3to de-elo# an understanding of the effect that errors, changes in#olicies and changes in estimates ha-e on the financial statements. The studentis re=uired to #re#are the 4ournal entries to record a change in accounting#rinci#le, a change in estimate and an error. The student must also #re#are

restated com#arati-e financial statements and note disclosure. This #ro!lem alsoincludes the ta9 effects for the three items. This is a com#rehensi-e and com#le9#ro!lem.

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TIME AND PURPOSE OF PROBLEMS *CONTINUED+

ro!lem $12( :Time &'2'' minutes<

ur#ose3to de-elo# an understanding of the 4ournal entries and the re#ortingthat are necessitated !y an accounting change or correction of an error. Thestudent is re=uired to #re#are the entries to reflect such changes or errors andrecalculate net income and earnings #er share for a t"o2year #eriod. The studentis also re=uired to #re#are com#arati-e statements of retained earnings for at"o2year #eriod and to #ro-ide note disclosure.

ro!lem $12)

:Time '2( minutes<

ur#ose3the student is re=uired to com#ute a list of items for the amounts"hich "ould a##ear on com#arati-e financial statements after ad4ustment for acorrection of an accounting error and a change in estimate. Com#arati-e re-isedfinancial statements must also !e #re#ared including the related income ta9im#lications.

ro!lem $12*

:Time '2( minutes<

ur#ose3The student is re=uired to #re#are a com#arati-e statement of incomeand retained earnings for the fi-e years assuming a change in #olicy in in-entorycosting "ith an indication of the effects on earnings #er share for the yearsin-ol-ed. The student must also #re#are a com#arati-e statement of retainedearnings for a t"o2year #eriod assuming full and #artial retros#ecti-e a##lication.The student is also re=uired to identify the com#arati-e statement of financial

#osition accounts affected !y the change in #olicy.

ro!lem $12+

:Time $'2% minutes<

ur#ose3to #ro-ide a #ro!lem that re=uires the student to analy8e ele-entransactions and to #re#are ad4usting or correcting entries for these transactions.

ro!lem $121

:Time $2$' minutes<

ur#ose3to hel# a student understand the effect of errors on income andretained earnings. The student must analy8e the effects of si9 errors on thecurrent year?s net income and on the ne9t year?s ending retained earnings

!alance. The ta9 effect of the errors must also !e considered.

ro!lem $1211 :Time '2( minutes<

ur#ose3to de-elo# an understanding of the effect that errors ha-e on thefinancial statements and the "ay to record their corrections. The student isre=uired to #re#are the 4ournal entries to correct the accounting records and to#re#are a com#arati-e schedule #ortraying the corrected net income for the t"o2

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year #eriod in-ol-ed "ith this error analysis and a schedule #ortraying thecorrected o#ening retained earnings.

TIME AND PURPOSE OF PROBLEMS *CONTINUED+

ro!lem $121$

:Time %2& minutes<

ur#ose3to de-elo# an understanding of the effect that errors ha-e on thefinancial statements. The student is re=uired to #re#are a schedule #ortraying thecorrected net income for the years in-ol-ed "ith this error analysis. The studentis also re=uired to #re#are the 4ournal entries to correct the errors and #re#are aschedule to sho" the corrected o#ening retained earnings !alances for the yearsin-ol-ed.

ro!lem $121%

:Time '2( minutes<

ur#ose3to de-elo# an understanding of the correcting entries and incomestatement ad4ustments that are re=uired for accounting errors. Thiscom#rehensi-e #ro!lem in-ol-es many different conce#ts such as consignmentsales, !onus com#utations, "arranty costs, and !ank funding reser-es. Thestudent is re=uired to #re#are the necessary 4ournal entries to correct theaccounting records and a schedule sho"ing the re-ised income !efore ta9es for each of the three years in-ol-ed.

ro!lem $121& :Time $'2% minutes<

ur#ose3to allo" the student to see the im#act of accounting changes on

income and to e9amine an ethical situation related to the moti-ation for change.


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SOLUTIONS TO PROBLEMS

PROBLEM 21-1

1. Re$0i%e E0r%i%&s >438== , *1 @ 28+........... 2328I%co"e T0x Recei'0e....................................... 7?8

S0!es Co""issio%s P0)0!e..................... 238==S0!es Co""issio%s Expe%se.................... 13===

2. Cos$ of Goos So! *>193=== >3?==+............ 283?==I%co"e T0x P0)0!e................................... <3?8=

Re$0i%e E0r%i%&s >193=== , *1 @ 28+. . 1<328=I%'e%$or)..................................................... 3?==

I%co"e O'ers$0$e*U%ers$0$e+

2=12 2=14 2=1<

Be&i%%i%&i%'e%$or)E%i%& i%'e%$or)

>*13===+>*13===+

>13===+ *193===> *43===

++

>193=== 3?==>283?==

4. Acc("(!0$e Depreci0$io%E(ip"e%$.......... <37==Depreci0$io% Expe%se................................ <37==

E(ip"e%$ cos$......................................... >1==3===Depreci0$io% efore 2=1<......................... *43===+C0rr)i%& 0"o(%$....................................... > <3===

Depreci0$io% $o e $0;e% *><3===7+....... > 73===

Depreci0$io% recore.............................. 1237==Differe%ce.................................................. > <37==

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PROBLEM 21-1 *Co%$i%(e+

<. T/is is 0 c/0%&e i% circ("s$0%ces 0s $/e co"p0%) co(!%$

re!i0!) "e0s(re $/e re'e%(e i% p0s$ )e0rs 0% %o5 i$ c0%.T/is 5o(! e 0cco(%$e for o% 0 prospec$i'e 0sis. For ex0"p!e3 if $/e $)pe of $/e co%$r0c$s $/0$ $/e co"p0%)(%er$0;es /0s c/0%&e3 $/ere) 0!!o5i%& $/e co"p0%) $oes$i"0$e $/e e&ree of co"p!e$io%3 $/is si$(0$io% co(! e$/e res(!$ of $r0%s0c$io% $/0$ iffers s(s$0%$i0!!) fro" $/ose$/0$ 5ere pre'io(s!) occ(rri%&. I% $/is c0se3 $/e %e50cco(%$i%& po!ic) *0pp!ic0!e $o $/e %e5 $)pe of co%$r0c$s+5o(! e 0pp!ie o% 0 prospec$i'e 0sis.

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PROBLEM 21-2

*0+ *1+Li$i&0$io% Expe%se..................................................... 283===

Li$i&0$io% Li0i!i$).............................................. 283===

*2+B0 De$ Expe%se..................................................... 183===

A!!o50%ce for Do($f(! Acco(%$s..................... 183=== *>2238== J 1.8+ , 1 K >183===

*4+L0%............................................................................ <=3===Acc("(!0$e Depreci0$io%E(ip"e%$................. 423===

Depreci0$io% Expe%se........................................ 73===

Re$0i%e E0r%i%&s.............................................. 2<3===E(ip"e%$........................................................... <=3===><=3=== J 8 K >73=== per )e0r:>73=== , < )e0rs K >423===

*<+T/ere 5o(! e %o 0(s$"e%$ $o ope%i%& re$0i%e e0r%i%&s for 0%) pre'io(s )e0r si%ce c/0%&es co%siere c/0%&es i%es$i"0$e 0re 0cco(%$e for prospec$i'e!). T/e oo;s 0re s$i!!ope% for 2=1<3 so $/e epreci0$io% expe%se for 2=1< 5i!! ere'ise for $/0$ )e0r o%!) $o $/e s$r0i&/$ !i%e "e$/o.

Acc("(!0$e Depreci0$io%B(i!i%&...................... 2?34=Depreci0$io% Expe%seB(i!i%&.................... 2?34=*>8?3?= @ >4=3<==+

C0rr)i%& 0"o(%$ of $/e (i!i%& 0$ Q0%(0r) 13 2=1<Cos$ !ess 0cc("(!0$e epreci0$io% $o Dec. 4114 K >1327=3=== - ><3=== - >=37== K >1318832==Re"0i%i%& (sef(! !ife fro" Q0%. 11< K 47 )e0rsCorrec$ Depreci0$io% Expe%se3 2=1< *s$r0i&/$-!i%e 0sis+ K >1318832== J 47 K >4=3<==

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*8+

Acc("(!0$e Depreci0$io%E(ip"e%$................. 83==Depreci0$io% Expe%seE(ip"e%$.................. 83==*>8<3=== @ ><3===+ J 8 K >1=3=== per )e0r *>8<3=== @ >1=3=== , 4 @ >23===+ J 8 K ><3<== *>1=3=== @ ><3<== K >83==+

*+No e%$r) re(ire. T/is is 0% error i% c!0ssific0$io%. No 0"o(%$sor i$e"s 0re "issi%& i% $/e fi%0%ci0! s$0$e"e%$s.

*+No$e $o I%s$r(c$or Correc$io%s $o Deferre I%co"e T0x 0re o%!)%ecess0r) 5/e% 0 prior perio 0(s$"e%$ is ei%& "0e 0%5/ere $/e i$e" i%'o!'es 0 $e"por0r) iffere%ce e$5ee%0cco(%$i%& 0% $0x0!e i%co"e. T/e e%$ries e!o5 0!so 0ss("e$/0$ $/e i%co"e $0x e%$r)*ies+ for 2=1< $0x0!e i%co"e 5i!! e"0e s(se(e%$!).

*1+Li$i&0$io% Expe%se..................................................... 283===

Li$i&0$io% Li0i!i$).............................................. 283===

*2+B0 De$ Expe%se..................................................... 183===

A!!o50%ce for Do($f(! Acco(%$s..................... 183===

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*4+

L0%............................................................................ <=3===Acc("(!0$e Depreci0$io%E(ip"e%$................. 423===

Deferre T0x Li0i!i$) *>2<3=== , 28+............. 3===Depreci0$io% Expe%se........................................ 73===

Re$0i%e E0r%i%&s >2<3=== , *1 @ 28+....... .. 173===E(ip"e%$........................................................... <=3===

*<+

Acc("(!0$e Depreci0$io%B(i!i%&...................... 2?34=Depreci0$io% Expe%seB(i!i%&...................... 2?34=*see p0r$ *0+ for c0!c(!0$io%+

*8+Acc("(!0$e Depreci0$io%E(ip"e%$................. 83==

Depreci0$io% Expe%seE(ip"e%$.................. 83==

*+No e%$r) re(ire. T/is is 0% error i% c!0ssific0$io%. No 0"o(%$sor i$e"s 0re "issi%& i% $/e fi%0%ci0! s$0$e"e%$s. For"0! e%$r)possi!e3 0s %o$e 0o'e.

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*c+ 1. T/is i$e" is 0% 0(s$"e%$ $o $/e c(rre%$ )e0r fi%0%ci0!

s$0$e"e%$s. I$ is %o$ 0% error i% 0 prior )e0rs fi%0%ci0!s$0$e"e%$s 0% oes %o$ re(ire re$rospec$i'e0(s$"e%$.

2. T/is is 0 c/0%&e i% es$i"0$e @ prospec$i'e $re0$"e%$.

4. T/is is 0% error i% 0 prior )e0r @ re$rospec$i'e $re0$"e%$.

<. T/is is 0 c/0%&e i% es$i"0$e @ prospec$i'e $re0$"e%$3 ($re(iri%& 0 c/0%&e i% $/e c(rre%$ )e0r 0s 0(s$"e%$s

/0'e 0!re0) ee% recore.

8. T/is is 0 c/0%&e i% es$i"0$e @ prospec$i'e $re0$"e%$3 ($re(iri%& 0 c/0%&e i% $/e c(rre%$ )e0r 0s 0(s$"e%$s/0'e 0!re0) ee% recore.

.T/is is 0 s$0$e"e%$ of fi%0%ci0! posi$io% c/0%&e i%c!0ssific0$io%. No o(r%0! e%$r) 0% %o 0(s$"e%$ $oope%i%& re$0i%e e0r%i%&s 0re re(ire. Ho5e'er3

co"p0r0$i'e fi%0%ci0! i%for"0$io% 5i!! %ee $o e res$0$e$o proper!) ref!ec$ $/e c/0%&e i% c!0ssific0$io%. A %o$ei%ic0$i%& $/e %0$(re of $/e 0(s$"e%$ 5o(! ei%c!(e.

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PROBLEM 21-4

*0+ 1. No e%$r) is %ecess0r). A c/0%&e i% es$i"0$e is0cco(%$e for prospec$i'e!) i% $/e c(rre%$ 0% f($(re)e0rs.

2. No e%$r) is %ecess0r) 0s !o%& 0s #i!so% i %o$reco&%i6e epreci0$io% expe%se of >8<3=== i% 2=1<. A$Q0%(0r) 13 2=1<3 $/e 0sse$s c0rr)i%& 0"o(%$ 50s>132==3=== @ *>1=73=== >12=3===+ K >9?23===. T/ecorrec$ 0"o(%$ of epreci0$io% for 2=1< is *>9?23=== @>12=3===+17 )e0rs K ><?3444. If >8<3=== /0s ee%

reco&%i6e3 $/e fo!!o5i%& e%$r) is %eee

Acc("(!0$e Depreci0$io%B(i!i%&.......3? Depreci0$io% Expe%se.................................. 3?

A c/0%&e i% es$i"0$e is 0cco(%$e for prospec$i'e!) i%$/e c(rre%$ 0% f($(re )e0rs. A re'isio% of epreci0$io%po!ic) (e $o c/0%&es i% $/e expec$e p0$$er% of e%efi$s is $re0$e 0s 0 c/0%&e i% es$i"0$e.

4. Acc("(!0$e Depreci0$io%M0c/i%er)....... ?3===

*>2=3=== @ >173===+ , 4X )e0rs

Re$0i%e E0r%i%&s................................... 83===Depreci0$io% Expe%se............................. 23===

>1=3=== J 7 K >2=3=== *>1=3=== @ >13===+ J 7 K >173===

<. A"or$i60$io% Expe%se *><38== 4+.................. 138==

Deferre De'e!op"e%$ Cos$s................. 138==

T/is is %o$ 0 c/0%&e i% po!ic). Si%ce $/e 0"o(%$s 5ere%o$ "0$eri0! i% pre'io(s )e0rs3 $/is is 0 %e5 po!ic)0pp!ie $o c/0%&e circ("s$0%ces.

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*+ C0!c(!0$io% of 2=1< epreci0$io% expe%se o% $/e

e(ip"e%$2=11 $o 2=14 epreci0$io% *>14=3=== @ >1=3===+ J 1=>123===

Cos$ of e(ip"e%$ >14=3===Acc("(!0$e epreci0$io% *>123=== , 4 )e0rs+ 43===C0rr)i%& 0"o(%$3 122=1< >9<3===

2=1< eprec. expe%se

3 –7

$6,000 –$94,000 K

4

$88,000 K >223===

Ai$io%0! epreci0$io% i% 2=1< >223=== @ >123=== K>1=3===

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*c+ #ILSON CORPORATION

Co"p0r0$i'e Ne$ I%co"e C0!c(!0$io%For $/e Ye0rs 2=1< 0% 2=14

2=1< 2=14

I%co"e efore epreci0$io% expe%se0% efore effec$s of c/0%&es

Depreci0$io% of e(ip"e%$ @ i$e" 1Depreci0$io% of (i!i%& @ i$e" 2Depreci0$io% of "0c/i%e @ i$e" 4De'e!op"e%$ cos$s @ i$e" <

Ne$ i%co"e

>==3===*223===

+*<?3444

+ *173===

+ *138==

+ >81131?

><2=3===*123===

+*1=73===

+*173===

+ >2723===

C0!c(!0$io% of 2=1< epreci0$io% expe%se o% $/eB(i!i%& @ i$e" 2

Cos$ of (i!i%& >132==3===Acc("(!0$e epreci0$io% *>12=3=== >1=73===+ 2273===C0rr)i%& 0"o(%$3 112=1< >9?23===

2=1< epreci0$io% expe%se

2 –20

$120,000 –$972,000 K

18

$852,000

K ><?3444

*+ (0!i$) of e0r%i%&s refers $o /o5 so!i $/e e0r%i%&s %("ers

0re. Hi&/ (0!i$) e0r%i%&s %("ers 0re (%i0se3 ref!ec$i'eof $/e (%er!)i%& (si%ess f(%0"e%$0!s3 0% s(s$0i%0!e.Prior $o $/e correc$io% of se'er0! errors i% repor$e %e$i%co"e for 2=14 0% 2=1<3 #i!so% repor$e efore-$0x i%co"eof ><2=3=== 0% >==3=== i% 2=14 0% 2=1< respec$i'e!). Af$er correc$io% of $/e errors3 #i!so%s correc$e i%co"e efore$0x 50s >2723=== 0% >81131? i% 2=14 0% 2=1< respec$i'e!).

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A% i%'es$or "0) 0ssess $/0$ #i!so% /0s !o5 (0!i$) e0r%i%&sec0(se $/e co"p0%)s repor$e e0r%i%&s "0) esi&%ific0%$!) i0se 0% /0'e 0 /i&/er "0r&i% of po$e%$i0!

"iss$0$e"e%$.


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PROBLEM 21-<

*0+ 0% *+*1+

Re$0i%e E0r%i%&s..................................................... 823===A!!o50%ce for Do($f(! Acco(%$s..................... <?3===Acco(%$s Recei'0!e......................................... 83===

T/is is 0 correc$io% of 0% error. T/e co"p0%) "(s$ 0pp!)re$rospec$i'e 0pp!ic0$io% i% orer $o correc$ $/e prese%$0$io% of recei'0!es 0% 0 e$ expe%se i% i$s co"p0r0$i'e fi%0%ci0!

s$0$e"e%$s.*2+

T/e co"p0%) is c/0%&i%& fro" 0 %o%-GAAP "e$/o $o 0 GAAP"e$/o3 0% $/is s/o(! e $re0$e 0s 0 correc$io% of 0% error *0re$rospec$i'e c/0%&e+. T/e fo!!o5i%& so!($io% $0;es $/e 'ie5 $/0$$/is is 0% 0cco(%$i%& error $/0$ is 0pp!ie $o $/e 2=12 0% 2=14)e0rs. As of Oc$oer 13 2=1<3 $/e co"p0%) s/o(! 0cco(%$ for $/e c/0%&e i% (sef(! !ife 0s 0 c/0%&e i% es$i"0$e--prospec$i'e!).

Acco(%$s %eei%& correc$io% 0s of Oc$oer 13 2=1<Acc("(!0$e Depreci0$io% 0% Re$0i%e E0r%i%&s3 represe%$i%&$/e iffere%ce i% epreci0$io% expe%se e$5ee% CCA 0% $/es$r0i&/$-!i%e "e$/o

Depreci0$io% $0;e% *CCA+ >483=== @ 2=3728 K >1<31?8Depreci0$io% *s$r0i&/$-!i%e+ >483=== J 1= , 2 K >

?3=== > ?31?8

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PROBLEM 21-< *Co%$i%(e+

T/e 2=1< 0cco(%$s /0'e $o e 0(s$e $/ro(&/ Re$0i%eE0r%i%&s ec0(se $/e oo;s for fisc0! 2=1< /0'e 0!so ee%c!ose.

Acco(%$s %eei%& correc$io% 0s of Sep$e"er 4=3 2=1<

Acc("(!0$e Depreci0$io% 0% Re$0i%e E0r%i%&s3 represe%$i%&$/e Depreci0$io% Expe%se *s$r0i&/$-!i%e "e$/o+ for $/e )e0re%i%& Sep$e"er 4=3 2=1< (si%& 0 re"0i%i%& *0% re'ise+(sef(! !ife of 8 )e0rs

Ne$ c0rr)i%& 0"o(%$ of 0sse$3 Oc$oer 13 2=1< %o5 K>483=== - >?3=== K >273===

Re'ise epreci0$io% r0$e K >273=== J 8 )e0rs K >83==)e0r

E%$r) %eee $o 0(s$ )e0rs e%e Sep$e"er 4=3 2=123 2=140% 2=1<

Acc("(!0$e Depreci0$io% - E(ip"e%$ 138?8Re$0i%e E0r%i%&s.............................................. 138?8

>?31?8 - >83== K >138?8

*4+Office E(ip"e%$....................................................... 43===

Re$0i%e E0r%i%&s.............................................. 43===

Re$0i%e E0r%i%&s..................................................... 13===Acc("(!0$e Depreci0$io%E(ip"e%$......

13===*>43=== 4+

T/is is 0 correc$io% of 0% error. Si%ce $/e error 0ffec$s o%!) 2=1<3%o re$rospec$i'e 0pp!ic0$io% is %ecess0r).

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*<+

S(pp!ies...................................................................... 138==Re$0i%e E0r%i%&s.............................................. 138==

T/is is 0 correc$io% of 0% error. Re$rospec$i'e 0pp!ic0$io% isre(ire for $/e 2=14 0!0%ce i% s(pp!ies. Si%ce $/is is 0co(%$er-0!0%ci%& error3 %o o(r%0! e%$r) is re(ire3 ($ $/eope%i%& 0!0%ce i% s(pp!ies of >13=== 5i!! %ee $o e 0(s$eo% $/e co"p0r0$i'e fi%0%ci0! s$0$e"e%$s.

*8+

FV-NI I%'es$"e%$s ..................................................... 43===U%re0!i6e G0i% or Loss.................................... 43===

T/is is $/e i%i$i0! c/oice of 0% 0cco(%$i%& po!ic) for 0 %e5 $)peof $r0%s0c$io%. I$ is %o$ 0% 0cco(%$i%& c/0%&e.

*c+ As 0 pri'0$e!) /e! e%$i$)3 M0&!i$e "0) c/oose $o fo!!o5ei$/er ASPE or IFRS. U%er IFRS3 M0&!i$e 5o(! /0'e $o0cco(%$ for $/e $r0i%& sec(ri$ies 0$ FV-NI @ $/e op$io% $o

0cco(%$ for $/e" 0$ FV-OCI is %o$ 0'0i!0!e for $r0i%&i%'es$"e%$s. U%er ASPE3 $/e $r0i%& i%'es$"e%$ "(s$ e0cco(%$e for (si%& $/e f0ir '0!(e $/ro(&/ %e$ i%co"e *FV-NI+ "oe!.

*+

*1+Re$0i%e E0r%i%&s.................................................... 4=3===B0 De$ Expe%se..................................................... 223===

A!!o50%ce for Do($f(! Acco(%$s..................... <?3===Acco(%$s Recei'0!e......................................... 83===

Be&i%%i%& 0!0%ce i% $/e 0!!o50%ce for o($f(! 0cco(%$s.

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*2+

If $5o e%$ries 0re "0e

Acc("(!0$e Depreci0$io% ?31?8Re$0i%e e0r%i%&s ?31?8

*>483=== @ >2=3728+ @ 2 , *>483===1=+

Depreci0$io% Expe%se 83==Acc("(!0$e Depreci0$io%

83==*>483=== @ >?3===+ 8

*4+Office E(ip"e%$....................................................... 43===

Office Expe%se................................................... 43===

Depreci0$io% Expe%se............................................... 13===Acc("(!0$e Depreci0$io%Office E(ip"e%$ 13===*>43=== 4+

*<+S(pp!ies...................................................................... 138==

S(pp!ies Expe%se.............................................. 8==Re$0i%e E0r%i%&s..............................................

13===

*8+FV-NI I%'es$"e%$s...................................................... 43===

U%re0!i6e G0i% or Loss.................................... 43===

0olutions Manual $12(& Cha#ter $1

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PROBLEM 21-8

*0+I$e" 1

E(ip"e%$.................................................................. 932==Deferre T0x Li0i!i$) *4= , >932==+...............

23?=Re$0i%e E0r%i%&s *?= , >932==+.................... 3<<=

Depreci0$io% Expe%se *>932== 8+............................ 137<=Re$0i%e E0r%i%&s *>137<= , ?=+........................... 13277Deferre T0x Li0i!i$) *>437= , 4=+....................... 131=<

Deferre T0x Be%efi$ *>137<= , 4=+................ 882

Acc("(!0$e Depreci0$io% - E(ip"e%$ ......... 437=*>137<= , 2 )e0rs+

I$e" 2Depreci0$io% Expe%se.............................................. 73===

Deferre De'e!op"e%$ Cos$s............................ 73===

Deferre T0x Li0i!i$) *>73=== , 4=+....................... 23<==Deferre T0x Be%efi$.......................................... 23<==

A !oss o% i"p0ir"e%$ 0cco(%$ co(! 0!so e ei$e.

I$e" 4Re$0i%e E0r%i%&s..................................................... 213===Deferre T0x Asse$ *>4=3=== , 4=+......................... 93===

S0!es Re'e%(e.................................................... 4=3===

Deferre T0x Expe%se *>4=3=== , 4=+.................... 93===Deferre T0x Asse$............................................. 93===

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(b) Hawthorne Corp.

S$0$e"e%$ of Fi%0%ci0! Posi$io%Dece"er 41

Asse$s 2=1< 2=14

*res$0$e+

C(rre%$ 0sse$s > 19234== > 1??3<== 4

Lo%&-$er" 0sse$s 419382= 1 41734= 2

> 811372= > <983?=

Li0i!i$ies E(i$)

C(rre%$ !i0i!i$ies > 11?3=== > 1443===

Lo%&-$er"

Li0i!i$ies 18328 < 18832=7 8

S/0re c0pi$0! 8=3=== 8=3===

Re$0i%e e0r%i%&s 1?938< ? 18?3882 7

> 811372= > <983?=

1 2 Lo%&-$er" 0sse$s 2=1< 2=14

Be&i%%i%& 0!0%ce 4223=== 4113===I$e" 1

A c0pi$0!i6e i%$eres$ o%e(ip"e%$ 932== 932==Less Acc("(!0$e epreci0$io%o%

c0pi$0!i6e i%$eres$ o% e(ip"e%$

*437=

+

*137<=

+I$e" 2 Deferre e'. cos$s *73===+

E%i%& 0!0%ce >419382= >41734=

4 C(rre%$ 0sse$s @ 2=14

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Be&i%%i%& 0!0%ce of >173<== >93=== *eferre $0x 0sse$re!0$e $o i$e" 4+ K >1??3<==. C!0ssifie 0s c(rre%$ si%ce i$ isre!0$e $o U%e0r%e Re'e%(e3 0 c(rre%$ !i0i!i$) 0cco(%$ of

H05$/or%e Corp.

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< 8 Lo%&-$er" !i0i!i$ies

2=1< 2=14Be&i%%i%& 0!0%ce>13===

>1843===

I$e" 1 Deferre $0x !i0i!i$)2=11 >23?= @ 131=< K >1382=1= >23?= @ 882 K >232=7

138232=7

I$e" 2 Deferre $0x !i0i!i$) re'ers0!o% c/0%&e i% es$i"0$e

*23<==

+

E%i%& 0!0%ce

>18328

>18832=7

C(rre%$ !i0i!i$ies @ 2=14

Be&i%%i%& 0!0%ce of >1=43=== >4=3=== *U%e0r%e re'e%(e o%eposi$ re!0$e $o i$e" 4+ K >1443===.

? 7 Re$0i%e e0r%i%&s 2=1< 2=14

Be&i%%i%& 0!0%ce

>17134==

>1?43<==

I$e" 1C/0%&e i% po!ic) %e$ of $0x

*>932== , 1 @ 4=+ 3<<= 3<<=Less A"or$i60$io% o% re'ise

cos$ ofe(ip"e%$ %e$ of $0x2=1< >137<= , 2 , 1 @ 4=2=14 >137<= , 1 @ 4=

*238?++ *13277+

I$e" 2 Deferre e'. cos$s %e$ of $0x*>73=== , 1 @ 4=+ *83==+I$e" 4 Re'ers0! of co%$r0c$ re'e%(e i%

2=12 %e$ of $0x *>4=3=== , 1 @ 4=+

*213===+E%i%& 0!0%ce

>1?938<>18?3882

0olutions Manual $12(* Cha#ter $1

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H05$/or%e Corp.

I%co"e S$0$e"e%$ Ye0r E%e Dece"er 41

2=1< 2=14

*res$0$e+

Re'e%(es > 8=83=== 1

><=3===

Expe%ses 47?37<= 2 4??37<= 4

11?31= 7231=

I%co"e $0x *4=+ 4831<7

<

2<3<7

8

Ne$ i%co"e > 723=12 > 8?3812

E0r%i%&s per s/0re >7.2= >8.?8

Di'ie%s ec!0re

per s/0re >.== >2.8=

1 Re'e%(es @ 2=1<

Be&i%%i%& 0!0%ce of ><?83=== >4=3=== *Re'e%(e o% !o%&-$er"co%$r0c$ i$e" 4+ K >8=83===.

2 4 Expe%ses 2=1< 2=14

Be&i%%i%& 0!0%ce>4?73===

>4?3===

I$e" 1 Depreci0$io% o% c0pi$0!i6ei%$eres$ 137<= 137<=

I$e" 2 Ai$io%0! epreci0$io% or !osso% eferre e'. cos$s

73===

E%i%& 0!0%ce>47?37<=

>4??37<=

0olutions Manual $12(+ Cha#ter $1

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< 8 C(rre%$ $0x expe%se

2=1< 2=14Be&i%%i%& 0!0%ce >2931== >2832==I$e" 1 Re'ers0! of $i"i%& iffere%ce

o% 0i$io%0! epreci0$io% expe%se *882

+

*882+

I$e" 2 Re'ers0! of $i"i%& iffere%ceo% eferre e'. cos$s *23<==

+

I$e" 4 Re'ers0! of $i"i%& iffere%ceo% !o%&-$er" co%$r0c$ re'e%(e

93===

E%i%& 0!0%ce >4831<7 >2<3<7

H05$/or%e Corp.

S$0$e"e%$ of Re$0i%e E0r%i%&s

Ye0r E%e Dece"er 41

2=1< 2=14

*res$0$e+

Re$0i%e e0r%i%&s3 Q0%(0r) 13

0s pre'io(s!) repor$e > 1?43<== > 1493== 1

A A(s$"e%$ for $/e

c("(!0$i'e effec$ o% prior

perios of $/e c/0%&e i%

0cco(%$i%& po!ic)3 %e$ of

i%co"e $0x of >232=7

*2=14 >23?=+ 83182 2 3<<= 4

Less Correc$io% of error o%re'e%(e3 %e$ of $0x of >93=== *213===+ < *213===+

Re$0i%e e0r%i%&s3 Q0%(0r) 13

0s res$0$e 18?3882 1283=<=

Ne$ i%co"e 723=12 8?3812

Less Di'ie%s ec!0re *=3=== + 8 *283===+


7/25/2019 sm ch (21).doc




Re$0i%e e0r%i%&s3 Dece"er 41 > 1?938< > 18?3882

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1 Ope%i%& 0!0%ce of re$0i%e e0r%i%&s @ 2=14

E%i%& 0!0%ce of >1?43<== @ >8737== *Ne$ i%co"e+ >283===*i'ie%s ec!0re+ K >1493==.

2 A(s$"e%$ (e $o c/0%&e i% po!ic) @ 2=1<

C0pi$0!i6e i%$eres$ %e$ of $0x of >932== , 1 @ 4= !ess0i$io%0! epreci0$io% expe%se for 2=14 of >137<= , 1 @ 4= K>83182.

4 A(s$"e%$ (e $o c/0%&e i% po!ic) @ 2=14

C0pi$0!i6e i%$eres$ of >932== , 1 @ 4= K >3<<= *%e$ of $0x+.

< Correc$io% of error @ 2=1< 0% 2=14

Co%$r0c$ re'e%(e of >4=3=== , 1 @ 4= K >213===.

8 Di'ie%s ec!0re @ 2=1< 0% 2=14

2=1< Di'ie%s per s/0re >.== , 1=3=== s/0res K >=3===

2=14> Di'ie%s per s/0re >2.8= , 1=3=== s/0res K >283===*c+

No$e A @ C/0%&e i% Acco(%$i%& Pri%cip!e o% C0pi$0!i60$io% ofI%$eres$I% 2=1<3 $/e co"p0%) /0s c/0%&e i$s 0cco(%$i%& pri%cip!ere&0ri%& $/e c0pi$0!i60$io% of i%$eres$. I%$eres$ o% se!f-co%s$r(c$e 0sse$s 5i!! e c0pi$0!i6e 0s p0r$ of $/e cos$ of $/ese0sse$s. T/is c/0%&e 50s o%e $o pro'ie "ore re!e'0%$

prese%$0$io% of $/e co"p0%)s fi%0%ci0! i%for"0$io% 0% $o eco%sis$e%$ 5i$/ o$/er co"p0%ies i% $/e repor$i%& e%$i$) o% 0co%so!i0$e 0sis. T/e c/0%&e /0s ee% 0pp!iere$rospec$i'e!) 5i$/ res$0$e"e%$ of co"p0r0$i'e i%for"0$io% $o2=123 5/e% i%$eres$ 50s i%c(rre. T/e effec$ of $/is c/0%&e o%i%co"e of prior perios 50s $o i%cre0se 2=14 epreci0$io%

0olutions Manual $12)$ Cha#ter $1

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expe%se ) >137<= 0% ecre0se %e$ i%co"e of 2=14 ) >13277.E0r%i%&s per s/0re for 2=14 /0s 0!so ecre0se ) >=.14.

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No$e B @ Error i% Re'e%(e Reco&%i$io% of Prior Perios

T/e co"p0%) reco&%i6e 0s re'e%(e 0 o5%-p0)"e%$ recei'ei% 2=12 prior $o co"p!e$io% of $/e re!0$e co%$r0c$. T/is co%$r0c$50s co"p!e$e i% 2=1<. T/ere 50s %o i"p0c$ o% 2=14 i%co"es$0$e"e%$ i$e"s. T/is error /0s ee% correc$e 0% $/eco"p0r0$i'e 0!0%ce s/ee$ 0% s$0$e"e%$ of re$0i%e e0r%i%&si%for"0$io% /0s ee% res$0$e $o effec$ $/e correc$io% of $/iserror. T/ere 0re %o c(rre%$ $0x i"p!ic0$io%s $o $/is error.

*+

1. U%er IFRS3 IAS 24 re(ires c0pi$0!i60$io% of orro5i%&cos$s. Pri'0$e e%$i$ies $/0$ c/oose $o 0pp!) ASPE /0'e $/ec/oice of ei$/er c0pi$0!i6i%& or expe%si%& $/e i%$eres$ cos$sfor re!e'0%$ PPE 0sse$s. T/(s3 (%er IFRS3 if H05$/or%epre'io(s!) expe%se $/e i%$eres$ cos$s 0% %o5 ecies $oc0pi$0!i6e $/e i%$eres$ cos$s3 r0$/er $/0% ei%& 0 c/0%&e i%po!ic)3 $/e c/0%&e $o 0 &e%er0!!) 0ccep$e 0cco(%$i%&"e$/o is co%siere $/e correc$io% of 0% error 0%re$rospec$i'e 0pp!ic0$io% 5i$/ res$0$e"e%$ 5o(! e 0pp!ie*si"i!0r $o $/e 0cco(%$i%& $re0$"e%$ of 0 c/0%&e i%

0cco(%$i%& po!ic)+ $o $/e ex$e%$ pr0c$ic0!e $o o so.

2. No iffere%ce i% 0cco(%$i%& $re0$"e%$ e$5ee% IFRS 0%ASPE. U%er IFRS 0ss("i%& $/e c0pi$0!i60$io% cri$eri0 0re"e$3 e'e!op"e%$ cos$s "(s$ e c0pi$0!i6e *5/ic/ $/e)5ere i% $/is c0se+.

4. No iffere%ce i% 0cco(%$i%& $re0$"e%$ e$5ee% IFRS 0%ASPE.

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PROBLEM 21-

*0+ 1. Depreciation Expense.................................108,108Accumulated Depreciation—Building

108,108

Computations:Cost of Asset A........................................ $540,000Less: Depreciation prior to 2014............ 162,000*Carrying amount, January 1, 2014......... $378,000

*($540,000 ÷ 10) X 3

The DDB rate is calculated as 100% ÷ 7 X 2 = 28.6%Depreciation for 2014: $378,000 X 28.6% = $108,108* ro(%e

2. Depreci0$io% Expe%se.................................. 2837==Acc("(!0$e Depreci0$io%M0c/i%er) 2837==

C0!c(!0$io%sOri&i%0! cos$ >17=3===Acc("(!0$e epreci0$io% *111<+

>123=== , < <73===

C0rr)i%& 0"o(%$ *111<+ 1423===

Es$i"0$e resi(0! '0!(e 43===

Re"0i%i%& epreci0!e 0se 1293===

Re"0i%i%& (sef(! !ife*9 )e0rs< )e0rs $0;e%+

J 8

Depreci0$io% expe%se2=1< > 2837==

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PROBLEM 21- *Co%$i%(e+

4. E(ip"e%$.....................................................1=3===

Acc("(!0$e Depreci0$io%E(ip"e%$<3===

*< , >13===+

Re$0i%e E0r%i%&s...................................93===

Depreci0$io% Expe%se.................................. 13===Acc("(!0$e Depreci0$io%E(ip"e%$

13===

*+ Res$0$e %e$ i%co"e 0% e0r%i%&s per s/0re

Ne$ i%co"e

E0r%i%&s per co""o% s/0re

2=1<

>1983=92

>1.98

2=14

>48<3===

>4.8<

C0!c(!0$io%sI%co"e efore epreci0$io% expe%se*2=1<+

><==3===

Depreci0$io% for 2=1<Asse$ A >1=731=7

Asse$ B 2837==

Asse$ C 13===

O$/er Asse$s 883=== *2=<39=7+

I%co"e 0f$er epreci0$io% expe%se >1983=92

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I%co"e efore c/0%&e i% epreci0$io% 0% errorcorrec$io% *2=14+ >4?=3===

Error correc$io%Depreci0$io% Asse$ C *13===

+ I%co"e 0f$er error correc$io% >48<3===

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*c+ MADRASA INC.

Co"p0r0$i'e S$0$e"e%$ of Re$0i%e E0r%i%&sFor $/e Ye0rs E%i%& Dece"er 41

2=1< 2=14*res$0$e+

B0!0%ce3 Q0%(0r) 130s pre'io(s!) repor$e

P!(s A(s$"e%$ (e $o error i%recori%& Asse$ C *%e$ of $0x+*No$e B+

B0!0%ce3 Q0%(0r) 13 0s res$0$eA Ne$ i%co"eB0!0%ce3 Dece"er 41

>8?=3===

93=== 3===

1983=92>713=92

>2==3===

1123=== 4123===

48<3===>3===

*Amount expensed incorrectly in 2010................... $160,000 Depreciation to be taken to January 1, 2013 ($16,000 X 3)....................................................... 48,000 Prior period adjustment for income....................... $112,000

Ope%i%& 0!0%ce of >2==3=== (%0(s$e i%co"e for2=14 of >4?=3===.

*+No$e A @ C/0%&e i% Depreci0$io% Me$/oI% 2=1<3 $/e co"p0%) /0s c/0%&e i$s epreci0$io% "e$/o for cer$0i% c0pi$0! 0sse$s fro" $/e s$r0i&/$-!i%e 0sis $o $/e o(!e-ec!i%i%& 0sis3 (e $o 0 c/0%&e i% $/e p0$$er% of e%efi$srecei'e fro" $/e 0sse$s. T/e c/0%&e /0s ee% 0pp!ieprospec$i'e!).

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No$e B @ Error i% Depreci0$io% Expe%se of Prior Perios

T/e co"p0%) expe%se 0 c0pi$0! 0sse$ p(rc/0se i% 2=1=.Depreci0$io% 50s %o$ recore for 2=1= 0% s(se(e%$ perios.T/is error /0s ee% correc$e 0% $/e co"p0r0$i'e i%for"0$io%/0s ee% res$0$e $o effec$ $/e correc$io% of $/is error.Depreci0$io% expe%se of >13=== /0s ee% recore for e0c/ of 2=14 0% 2=1<. Ne$ i%co"e 0% e0r%i%&s per s/0re /0'eecre0se ) >13=== 0% >=.1 respec$i'e!) for e0c/ of $/e)e0rs prese%$e.

*e+C/0%&es i% po!ic)3 c/0%&es i% es$i"0$es 0% correc$io%s of

errors 5i!! %o$ /0'e 0%) i"p0c$ o% c(rre%$ perio c0s/ f!o5s 0%5i!! %o$ c/0%&e $/e $o$0!s for 0%) of $/e $/ree sec$io%s of $/ec(rre%$ perio s$0$e"e%$ of c0s/ f!o5s or $/e %e$ i%cre0se or ecre0se i% c0s/ 0% c0s/ e(i'0!e%$s. If $/e s$0$e"e%$ isprep0re o% 0% i%irec$ 0sis3 $/e c/0%&es 5i!! e ref!ec$e i%$/e %e$ i%co"e fi&(re 0% i% $/e epreci0$io% expe%se. Si%ce $/ec/0%&e 0ffec$s o$/ %e$ i%co"e 0% epreci0$io% expe%se3 $/e0(s$"e%$ $o e$er"i%e c0s/ f!o5 fro" oper0$io%s 5i!! offse$

$/e expe%se3 0% $/e s0"e $o$0! c0s/ fro" oper0$i%& 0c$i'i$ies5i!! e 0c/ie'e. T/e c/0%&es 5i!! %o$ /0'e 0%) i"p0c$ o% 0c(rre%$ perio s$0$e"e%$ of c0s/ f!o5s prep0re o% $/e irec$0sis.

Ho5e'er3 $/ere 5i!! e 0 c/0%&e i% $/e c0s/ f!o5 s$0$e"e%$ i% $/e)e0r of $/e error for $/e si$(0$io% escrie i% p0r$ 4. #/i!e $/ere5i!! e %o %e$ c/0%&e i% $/e 0"o(%$ of c0s/ for 2=1=3 $/eexpe%i$(re 50s ori&i%0!!) reco&%i6e 0s 0% expe%se3 0%

$/erefore 0s 0% oper0$i%& o($f!o5 i% 2=1=3 5/ere0s $/e correc$ec0s/ f!o5 s$0$e"e%$ for 2=1= 5i!! i%ic0$e $/0$ $/e >1=3=== 50s0% i%'es$i%& o($f!o5.

T/e c/0%&e i% es$i"0$e is 0pp!ie o% 0 prospec$i'e 0sis o%!)0% 5i!! %o$ 0ffec$ $/e s$0$e"e%$ of c0s/ f!o5s for prior perios.

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PROBLEM 21-?

*0+

1.T/is c/0%&e is co%siere $/e correc$io% of 0% error @ fro"0 %o%-GAAP "e$/o $o 0 GAAP "e$/o.Acc("(!0$e epreci0$io% 0$

Dece"er 413 2=14 >213<?<398=0!0%ce efore c/0%&e *(si%& CCA+ *>2239<3===+!ess excess of CCA o'er s$r0i&/$-!i%e epreci0$io%for fi%0%ci0! s$0$e"e%$ p(rposes *>13483===

>1=3=8=+Dece"er 413 2=1< >223173===

0!0%ce efore c/0%&e *(si%& CCA+ *>243?13===+

!ess excess of CCA o'er s$r0i&/$-!i%e epreci0$io%for fi%0%ci0! s$0$e"e%$ p(rposes *>138?83===+

2. Deferre $0x !i0i!i$) *!o%&-$er"+ 0$Dece"er 413 2=14 ><<13418

$0x effec$ *4=+ of excess of CCA o'er s$r0i&/$-!i%e

epreci0$io% for fi%0%ci0! s$0$e"e%$ p(rposes*>13483=== >1=3=8=+Dece"er 413 2=1< ><?238==

$0x effec$ *4=+ of excess of CCA o'er s$r0i&/$-!i%e

epreci0$io% for fi%0%ci0! s$0$e"e%$ p(rposes*>138?83===+


7/25/2019 sm ch (21).doc




PROBLEM 21-? *Co%$i%(e+

4. Se!!i%&3 &e%er0!3 0% 0"i%is$r0$i'e expe%ses for $/e )e0r

e%eDece"er 413 2=14 >17347<3<7?0!0%ce efore c/0%&e *(si%& CCA+

*>173<113===+ !ess 28 of excess of CCA o'er s$r0i&/$-!i%e epreci0$io% for fi%0%ci0! s$0$e"e%$p(rposes for 2=14 *.28 , >1=3=8= K >23814+

Dece"er 413 2=1< >193?1834120!0%ce efore c/0%&e *(si%& CCA+ *>1938<=3===+

!ess 28 of excess of CCA epreci0$io% o'er s$r0i&/$-!i%e epreci0$io% for fi%0%ci0! s$0$e"e%$

p(rposes for 2=1< *.28 , >1=4398= K >283977+ p!(si%cre0se i% 0 e$ expe%se for 2=1< *.==28 ,>7=382=3=== K >2=134==+

<. C(rre%$ por$io% of i%co"e $0x expe%se for $/e )e0re%e

Dece"er 413 2=14 >139=37==Dece"er 413 2=1< >13<?138==

To$0! i%co"e $0x of >13<7=38== !ess eferre $0x

expe%se of >93=== *ecre0se i% Deferre T0x Asse$fro" 2=14 $o 2=1< >24<3=== @ >2283===+ K>13<?138==

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8. Deferre por$io% of $0x expe%se *e%efi$+ for $/e )e0r

e%eDece"er 413 2=14 >413718$0x r0$e *4=+ $i"es excess of CCA o'er s$r0i&/$-!i%eepreci0$io% for fi%0%ci0! s$0$e"e%$ p(rposes for2=14 *>1=3=8=+

Dece"er 413 2=1< *>2=32=8+ *e%efi$+0!0%ce efore c/0%&e *(si%& CCA+ of >93=== p!(s

$0x r0$e *4=+ $i"es excess of CCA o'er s$r0i&/$-!i%eepreci0$io% for fi%0%ci0! s$0$e"e%$ p(rposes for 2=1< *>1=4398=+ !ess 4= $i"es i%cre0se i% 0

e$s expe%se for 2=1< *>2=134==+

*+ SHARMA CORPORATIONCo%e%se S$0$e"e%$ of Fi%0%ci0! Posi$io%

As 0$ Dece"er 412=1< 2=14

Res$0$e

see %o$e ,,

Asse$s

C(rre%$ 0sse$s >2731473?==

0

>2932823===P!0%$ 0sse$s3 0$ cos$ <83?923=== <439?<3===Less Acc("(!0$e

epreci0$io% 223173=== 213<?<398=O$/er !o%&-$er" 0sse$s 1<3993=== 1<3<1<3===

>3?<=3?== >3183=8=

Li0i!i$ies 0% S/0re/o!ers E(i$)C(rre%$ !i0i!i$ies >21312<3=== >2438=3===Lo%&-$er" e$ 1834<1311= c 1<34=<3418 e

S/0re c0pi$0! 1132=3=== 1132=3===Re$0i%e e0r%i%&s 17388389= 1389=3?48 f

>3?<=3?== >3183=8=

0. C(rre%$ 0sse$s @ 2=1< 0!0%ce efore c/0%&e *(si%& CCA+>2734<=3=== !ess 0i$io%0! 0!!o50%ce for o($f(!0cco(%$s3 >2=134== K >2731473?==

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. O$/er !o%&-$er" 0sse$s @ 2=1< 0!0%ce efore c/0%&e>1832213=== !ess eferre $0x 0sse$ 0!0%ce efore c/0%&e3>2283=== K >1<3993===

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c. Lo%&-$er" e$ @ 2=1< 0!0%ce efore c/0%&e *(si%& CCA+>18318<3=== p!(s eferre $0x !i0i!i$)3 ><?238== !esseferre $0x 0sse$ 0!0%ce efore c/0%&e3 >2283=== !ess0i$io%0! eferre $0x 0sse$3 >=349= K >1834<1311=

. Re$0i%e e0r%i%&s @ 2=1< 0!0%ce efore c/0%&e>1?39<3=== p!(s re(c$io% i% 0cc("(!0$e epreci0$io%2=1< 0% pre'io(s )e0rs3 %e$ of $0x3 >138?83=== , *1 @ 4=+K >131=238== !ess 0i$io%0! 0!!o50%ce for o($f(!0cco(%$s3 %e$ of $0x *>2=134== , ?=+ K >1<=391= K>17388389=

e. Lo%&-$er" e$ @ 2=14 0!0%ce efore c/0%&e *(si%& CCA+>1<3=9?3=== p!(s eferre $0x !i0i!i$)3 ><<13418 !ess

eferre $0x 0sse$ 0!0%ce efore c/0%&e3 >24<3=== K>1<34=<3418

f. Re$0i%e e0r%i%&s @ 2=14 0!0%ce efore c/0%&e *(si%&CCA+ >183813=== p!(s re(c$io% i% 0cc("(!0$eepreci0$io% for 2=14 0% pre'io(s )e0rs3 %e$ of $0x3*>13483=== >1=3=8=+ , *1 @ 4=+ K >13=293?48 K>1389=3?48

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SHARMA CORPORATION

I%co"e S$0$e"e%$For $/e Ye0rs E%e Dece"er 412=1< 2=14

Res$0$e

see %o$e ,,

Ne$ s0!es >7=382=3=== >?7392=3===Cos$ of &oos so! 8<3?93=47 0 82399<3<4

283?8=392 283928384?Se!!i%&3 &e%er0! 0%

0"i%is$r0$i'e expe%ses 193?183412 c 17347<3<7?

3=4838= ?38<13=8=O$/er i%co"e *expe%se+3 %e$ *131973===+ *13=?93===+I%co"e efore i%co"e $0x <374?38= 3<23=8=I%co"e $0x

C(rre%$ 13<?138== 139=37==Deferre *e%efi$+ *2=32=8+ 413718

13<813298 13947318Ne$ i%co"e >43473488 ><38243<48

0. Cos$ of &oos so! @ 2=1< 0!0%ce efore c/0%&e *(si%&CCA+ >8<37<?3=== !ess 0i$io%0! epreci0$io% (si%&correc$ c0!c(!0$io%s3 >1=4398= , ?8 K >8<3?93=47

. Cos$ of &oos so! @ 2=14 0!0%ce efore c/0%&e *(si%&CCA+ >843=?<3=== !ess 0i$io%0! epreci0$io% (si%&correc$ c0!c(!0$io%s3 >1=3=8= , ?8 K >82399<3<4

c. Se!!i%&3 &e%er0! 0% 0"i%. @ 2=1< 0!0%ce efore c/0%&e*(si%& CCA+ >1938<=3=== !ess 0i$io%0! epreci0$io% (si%&correc$ c0!c(!0$io%s3 >1=4398= , 28 p!(s 0i$io%0! 0e$s expe%se3 >2=134== K >193?183412

. Se!!i%&3 &e%er0! 0% 0"i%. @ 2=14 0!0%ce efore c/0%&e*(si%& CCA+ >173<113=== !ess 0i$io%0! epreci0$io% (si%&correc$ epreci0$io% c0!c(!0$io%s3 >1=3=8= , 28 K>17347<3<7?

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SHARMA CORPORATION

S$0$e"e%$ of Re$0i%e E0r%i%&sFor $/e Ye0rs E%e Dece"er 412=1< 2=14

Res$0$e

see %o$e ,,

Ope%i%& 0!0%ce3 0spre'io(s!) repor$e >183813=== >11311137== 0

P!(s A(s$"e%$ for $/ec("(!0$i'e effec$ o% priorperios of $/e error

correc$io%3 %e$ of$0x of ><<13418 *2=14 @><=938==+ 13=293?48 98838==

Ope%i%& 0!0%ce3 0s res$0$e 1389=3?48 123=?34==Ne$ i%co"e 43473488 <38243<48Less Di'ie%s *1342138==+

E%i%& 0!0%ce >17388389= >1389=3?48

0. Be&i%%i%& B0!0%ce @ 2=14 E%i%& 0!0%ce of >1389=3?48

*fro" 0(s$e s$0$e"e%$ of fi%0%ci0! posi$io%+ !ess0(s$e %e$ i%co"e of ><38243<48 !ess re(c$io% i%0cc("(!0$e epreci0$io% for )e0rs prior $o 2=143 %e$ of $0x3 >13483=== , *1 @ 4=+ K >98838== K >11311137==

. Di'ie%s @ 2=1< e&i%%i%& 0!0%ce of re$0i%e e0r%i%&sfor 2=1< efore c/0%&e >183813=== p!(s (%0(s$e %e$i%co"e for 2=1< >43<8<38== !ess e%i%& 0!0%ce of re$0i%ee0r%i%&s for 2=1< (si%& i%correc$ CCA epreci0$io%c0!c(!0$io% >1?39<3=== K >1342138==

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian

Edition

PROBLEM 21-7

*0+ IMMEL INSTRUMENT CORPORATIONS$0$e"e%$ of I%co"e 0% Re$0i%e E0r%i%&s

For $/e Ye0rs E%e M0) 41

2=1= 2=11 2=12 2=14 2=1<

S0!es%e$Cos$ of &oos so!

Be&i%%i%& i%'e%$or)P(rc/0sesE%i%& i%'e%$or)

To$0!Gross profi$A"i%is$r0$i'e expe%sesI%co"e efore $0xI%co"e $0x *4=+Ne$ i%co"eRe$0i%e e0r%i%&s@ e&i%%i%&

As ori&i%0!!) repor$eA(s$"e%$ *See

%o$e 0% sc/e(!e+

As res$0$eRe$0i%e e0r%i%&s @ e%i%&

E0r%i%&s per s/0re *1== s/0res+

>1439<

98= 143=== *1312< 12372 13147

?== <47 141 4=?

132=

*48 131?1> 13<?7

> 4.=?

+

+

>1838=

1312< 1439== *13=91 143944 138?4

?4 71= 2<4 8?

13<1

1? 13<?7> 23=<8

> 8.?

+

>13?4

13=91 183=== *132?= 1<3721 13782

742 13=2=

4= ?1<

13971

< 23=<8> 23?89

> ?.1<

+

>173221

132?= 1839== *13<7= 1839= 23841

9=? 132<

<7? 1314?

238=

1=9 23?89> 4379

> 11.4?

+

>173797

13<7= 1?31== *1399 13771 23=1?

979 13=27

4=7 ?2=

43?28

1?1 4379> <31

> ?.2=

+

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7/25/2019 sm ch (21).doc



Edition

0olutions Manual $12** Cha#ter $1

7/25/2019 sm ch (21).doc





No$e $o i%s$r(c$or

T/e 0(s$"e%$s 0re si"p!) $/e c("(!0$i'e iffere%ce i%i%co"e e$5ee% $/e $5o i%'e%$or) "e$/os3 %e$ of $0x. For ex0"p!e3 $/e %e&0$i'e >48 i% 2=1= ref!ec$s $/e iffere%ce i%e%i%& i%'e%$ories i% 2==9 *>13=== @ >98=+ $i"es $/e 0f$er-$0xr0$e of 1 - 4= K ?=. I% 2=113 $/e iffere%ce i% i%co"e of >82e$5ee% $/e $5o "e$/os i% 2=1= is 0e $o $/e %e&0$i'e >48 $o0rri'e 0$ 0 >1? 0(s$"e%$ $o $/e e&i%%i%& 0!0%ce of re$0i%ee0r%i%&s i% 2=11.

I% 2=1<3 $/e Co"p0%) c/0%&e i$s "e$/o of prici%& i%'e%$or)fro" $/e firs$-i%3 firs$-o($ *FIFO+ $o $/e 0'er0&e cos$ "e$/o i%orer $o "ore f0ir!) prese%$ $/e fi%0%ci0! oper0$io%s of $/eco"p0%). T/e fi%0%ci0! s$0$e"e%$s for prior )e0rs /0'e ee%res$0$e $o re$rospec$i'e!) ref!ec$ $/is c/0%&e3 res(!$i%& i% $/efo!!o5i%& effec$s o% %e$ i%co"e 0% re!0$e per s/0re 0"o(%$s

I%cre0se i%

2=1= 2=11 2=12 2=14 2=1<

Ne$ i%co"eE0r%i%&s per s/0re

> 82>=.82

> <?>=.<?

> <8>=.<8

> 2>=.2

> 1>=.1

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Edition

PROBLEM 21-7 *Co%$i%(e+Sc/e(!e of I%co"e Reco%ci!i0$io%

0% Re$0i%e E0r%i%&s A(s$"e%$s2=1=@2=1<

2==9 2=1= 2=11 2=12 2=14 2=1<

Be&i%%i%& I%'e%$or) FIFOA'er0&e Cos$Differe%ceT0x Effec$ *4=+Effec$ o% I%co"e

E%i%& I%'e%$or) FIFOA'er0&e Cos$Differe%ceT0x Effec$ *4=+Effec$ o% I%co"e

Ne$ Effec$ o% I%co"e

C("(!0$i'e Effec$ o%

Be&i%%i%& Re$0i%e

E0r%i%&s

>13=== 98= 8= 18

> *48

> *48

+

+

>13=== 98= 8= 18

> 48

>131==

1312< *2<

?.2=>1.7=

> 81.7=

> 1.7=

+

>131==.== 1312<.==

*2<.== ?.2=

> *1.7=

>13===.==

13=91.== *91.== 2?.4=

> 4.?=

> <.9=

> 4.?=

+

+

+ZZ

Z

Z

>13===.== 13=91.==

*91.== 2?.4=

> *4.?=

>13118.==

132?=.== *188.==

<.8=> 1=7.8=

> <<.7=

> 1=7.8=

+Z+Z

+ZZ

Z

>13118.== 132?=.== *188.==

<.8=> *1=7.8=

>1324?.==

13<7=.== *2<4.==

?2.9=> 1?=.1=

> 1.=

> 1?=.1=

+Z+Z

+ZZ

Z

>1324?.== 13<7=.== *2<4.==

?2.9=> *1?=.1

>1349.==

1399.== *44=.==

99.==> 241.==

> =.9=

> 241.==

+Z+

+

Z

L0r&er *s"0!!er+ e&i%%i%& i%'e%$or) /0s %e&0$i'e *posi$i'e+ effec$ o% %e$ i%co"e.

L0r&er *s"0!!er+ e%i%& i%'e%$or) /0s posi$i'e *%e&0$i'e+ effec$ o% %e$ i%co"e.

Z T/e $0x effec$s 0re ro(%e (p $o $/e %ex$ 5/o!e o!!0r i% $/e pro!e". T/erefore3 $/e %e$effec$s o% i%co"e 0% re$0i%e e0r%i%&s 0re effec$i'e!) ro(%e o5% $o $/e %ex$ 5/o!e


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o!!0r.

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*+

IMMEL INSTRUMENT CORPORATIONS$0$e"e%$ of Re$0i%e E0r%i%&s

For $/e Ye0rs E%e M0) 412=1< 2=14

*res$0$e+2=12

*res$0$e+Re$0i%e e0r%i%&s3

Apri! 13 0s pre'io(s!) s$0$e >43?28 >238= >13971

A(s$"e%$ for $/ec("(!0$i'e

effec$ o% priorperios (e $oc/0%&e i% i%'e%$or) cos$i%& "e$/ofro" FIFO $o

0'er0&e cos$

>2<4 >188 >91

Less 0pp!ic0!e $0x

*4=+ ?2 1?1 < 1=9 2? <

Re$0i%e e0r%i%&s3

Apri! 13 0s res$0$e 4379 23?89 23=<8

Ne$ i%co"e ?2= 1314? ?1<

Re$0i%e e0r%i%&s3

M0) 41 ><31 >4379 >23?89

*c+2=1< 2=14 2=12

I%'e%$or)FIFO 0sis >1349 >1324? >13118A'er0&e cos$ 0sis 1399 13<7= 132?=C/0%&e3 i%cr. *ecr.+ > 44= > 2<4 > 188

I%co"e T0x P0)0!e >141 >?2 ><

Re$0i%e e0r%i%&sFIFO 0sis ><347< >43?28 >238=A'er0&e cos$ 0sis <31 4379 23?89C/0%&e3 i%cr. *ecr.+ > 241 > 1?1 > 1=9

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No$e $o i%s$r(c$or CRA &e%er0!!) re(ires 0 co"p0%) $o (se $/e

s0"e i%'e%$or) cos$i%& "e$/o for $0x p(rposes 0s for fi%0%ci0!repor$i%& p(rposes. T/erefore3 i""e! 5o(! /0'e 0i$io%0!$0x p0)0!e o% $/e i%cre0se i%co"e repor$e r0$/er $/0% 0eferre $0x 0cco(%$.

*+

Re$rospec$i'e!) res$0$i%& $/e fi%0%ci0! s$0$e"e%$s of 0 prior )e0r re(ires i%for"0$io% $/0$ "0)3 i% "0%) c0ses3 e i"pr0c$ic0!e$o o$0i%3 e'e% $/o(&/ $/e c("(!0$i'e effec$ c0% e e$er"i%e.

For p0r$i0! re$rospec$i'e 0pp!ic0$io%3 if $/e effec$ of 0 c/0%&e i%po!ic) c0% e e$er"i%e for so"e of $/e prior perios3 $/ec/0%&e i% po!ic) is 0pp!ie re$rospec$i'e!) 5i$/ res$0$e"e%$ $o$/e c0rr)i%& 0"o(%$s of 0sse$s3 !i0i!i$ies3 0% 0ffec$eco"po%e%$s of e(i$) 0$ $/e e&i%%i%& of $/e e0r!ies$ perio for 5/ic/ res$0$e"e%$ is possi!e *18=.18 0% 7. 28 0% .2+. T/isco(! e o%!) $/e c(rre%$ )e0r. A% 0(s$"e%$ is "0e $o $/eope%i%& 0!0%ces of $/e e(i$) co"po%e%$s for $/0$ e0r!ies$

perio3 si"i!0r $o $/e 0(s$"e%$s i% $/e f(!! res$0$e"e%$.

No$e $/0$ i$ is %o$ 0ppropri0$e $o 0pp!) /i%si&/$ i% e'e!opi%&"e0s(re"e%$s $/0$ %ee $o e (se. Me0s(re"e%$s "(s$ e0se o% co%i$io%s $/0$ exis$e 0% 5ere ;%o5% i% $/e prior perio.

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If $/e co"p0%) 5ere 0!!o5e $o 0pp!)i%& p0r$i0! re$rospec$i'e

0pp!ic0$io%3 $/e s$0$e"e%$ of re$0i%e e0r%i%&s 5o(! eprese%$e 0s fo!!o5s

IMMEL INSTRUMENT CORPORATIONS$0$e"e%$ of Re$0i%e E0r%i%&s

For $/e Ye0rs E%e M0) 412=1< 2=14

*%o$ res$0$e+Re$0i%e e0r%i%&s3 Apri! 13 0s

pre'io(s!) s$0$e >43?28 >238=

A(s$"e%$ for $/e c("(!0$i'eeffec$ o% prior perios (e$o c/0%&e i% i%'e%$or)cos$i%& "e$/o fro"FIFO $o 0'er0&e cos$ >2<4

Less 0pp!ic0!e $0x *4=+ ?2 1?1 =Re$0i%e e0r%i%&s3 Apri! 13 0s

res$0$e 4379 238=Ne$ i%co"e ?2= 13=?8

Re$0i%e e0r%i%&s3 M0) 41 ><31 >43?28

A!so %o$e IFRS re(ires $/0$ 0 s$0$e"e%$ of c/0%&es i%s/0re/o!ers e(i$) e prep0re 0% $/0$ 0% ope%i%& s$0$e"e%$of fi%0%ci0! posi$io% "(s$ e pro'ie for $/e e0r!ies$co"p0r0$i'e perio pro'ie 5/e% $/ere is 0 re$rospec$i'ec/0%&e. O% $/e o$/er /0%3 ASPE 0!!o5s for ei$/er 0 s$0$e"e%$of re$0i%e e0r%i%&s or 0 s$0$e"e%$ of c/0%&es i% e(i$)3 0%$/ere is %o re(ire"e%$ i% $/e s$0%0rs $o pro'ie 0% ope%i%&s$0$e"e%$ of fi%0%ci0! posi$io% for $/e e0r!ies$ co"p0r0$i'e

perio 5/e% $/ere is 0 re$rospec$i'e c/0%&e.

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PROBLEM 21-9

*1+

I%'e%$or)..................................................................... 23===Re$0i%e E0r%i%&s.............................................. 23===

*2+No e%$r)3 0s e%i%& i%'e%$or) /0s %o$ )e$ ee% recore.Ho5e'er3 $/e co(%$ 0"o(%$ s/o(! e 0(s$e *re(ce )>183<==+ efore "0;i%& $/e e%$r) $o recor )e0r-e% i%'e%$or).T/is is 0% ex0"p!e of 0 correc$io% $/0$ co(! e fo(% 5/e%c/ec;i%& $/e c($-off proce(res i% co%%ec$io% 5i$/ $/e co(%$.

*4+C0s/............................................................................ 3?==

Acco(%$s Recei'0!e......................................... 3?==

*<+Depreci0$io% Expe%se............................................... <3==

Acc("(!0$e Depreci0$io%Tr(c;s.................

<3==

*8+Acc("(!0$e Depreci0$io%E(ip"e%$................. 283===

E(ip"e%$........................................................... 2134==G0i% o% S0!e of E(ip"e%$................................ 43?==

*+Li$i&0$io% Expe%se.....................................................<8=3===

Li$i&0$io% Li0i!i$).............................................. <8=3===

*?+Depreci0$io% Expe%se............................................... 83128

E(ip"e%$.................................................................. <13===M0i%$e%0%ce 0% Rep0irs Expe%se..................

<13===Acc("(!0$e Depreci0$io%E(ip"e%$..........

83128

*7+

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U%re0!i6e G0i% or Loss............................................ 123===FV-NI I%'es$"e%$s.........................................

123===

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*9+

S0!0ries 0% #0&es P0)0!e *>13=== @ >1=3==+. . . 83<== S0!0ries 0% #0&es Expe%se............................ 83<==

*1=+I%s(r0%ce Expe%se *>173=== J 4+.............................. 3===Prep0i I%s(r0%ce *>173=== J 4 , 1.8+...................... 93===

Re$0i%e E0r%i%&s.............................................. 183===

*11+A"or$i60$io% Expe%se *>43=== J 12+....................... 43===Re$0i%e E0r%i%&s..................................................... 43===

Acc("(!0$e A"or$i60$io%Tr0e"0r;s........ 3===

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PROBLEM 21-1=

Ne$ I%co"efor 2=14

Re$0i%e E0r%i%&s12411<

I$e" U%ers$0$e O'ers$0$e U%ers$0$e O'ers$0$e

1.2.4.<.8.

.

>1<31==>113714

=>443===

=

>123==

= =

>173=== =

>213===

=

=> 73<47

=>443===

=

=

= =

> 93=== =

>1=38==

=

Exp!0%0$io%s

1. T/e %e$ i%co"e 5o(! e (%ers$0$e i% 2=14 ec0(sei%$eres$ i%co"e is (%ers$0$e. T/e %e$ i%co"e 5o(! eo'ers$0$e i% 2=1< ec0(se i%$eres$ i%co"e is o'ers$0$e.T/e errors3 /o5e'er3 5o(! co(%$er0!0%ce *50s/+ so $/0$$/e B0!0%ce S/ee$ *Re$0i%e E0r%i%&s+ 5o(! e correc$ 0$$/e e% of 2=1<. T/e 0"o(%$ of (%ers$0$e"e%$ i% 2=145o(! e >1737== , *1 @ 28+ K >1<31==.

2. T/e epreci0$io% expe%se i% 2=14 s/o(! e >2328= for $/is"0c/i%e. Si%ce $/e "0c/i%e 50s o(&/$ o% Q(!) 13 2=143o%!) o%e-/0!f of 0 )e0r s/o(! e $0;e% i% 2=14 *>173===< ,12 K >2328=+. T/e co"p0%) expe%se >173=== i%s$e0 of >2328= so %e$ i%co"e is (%ers$0$e ) >183?8= , *1 @ 28+K >113714 i% 2=14. A% 0i$io%0! ><38== of epreci0$io%expe%se s/o(! /0'e ee% $0;e% i% 2=1<. A$ $/e e% of 2=1<3

re$0i%e e0r%i%&s 5o(! e (%ers$0$e ) >11328= *>183?8= @ ><38==+ %e$ of $0xes of 28 K >73<47.

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PROBLEM 21-1= *Co%$i%(e+

4. GAAP re(ires $/0$ 0!! rese0rc/ cos$s s/o(! e expe%se

5/e% i%c(rre. Ne$ i%co"e i% 2=14 is o'ers$0$e >2<3===*>43=== rese0rc/ cos$s c0pi$0!i6e !ess >123=== 0"or$i6e+, *1 @ 28+ K >173===. B) $/e e% of 2=1<3 o%!) >123=== of $/e rese0rc/ cos$s 5o(! re"0i% 0s 0% 0sse$. T/erefore3re$0i%e e0r%i%&s 5o(! e o'ers$0$e ) >123=== *>43===rese0rc/ cos$s @ >2<3=== 0"or$i6e+ , *1 @ 28+ K >93===.

<. T/e sec(ri$) eposi$ s/o(! e 0 !o%&-$er" 0sse$3 s(c/ 0sref(%0!e eposi$s. T/e >93=== of !0s$ "o%$/s re%$ is 0!so0% 0sse$3 s(c/ 0s prep0i re%$. T/e %e$ i%co"e of 2=1= is

(%ers$0$e ) ><<3=== *>483=== >93===+ , *1 @ 28+ K>443=== ec0(se $/ese 0"o(%$s 5ere expe%se. Re$0i%ee0r%i%&s 5i!! co%$i%(e $o e (%ers$0$e ) >443=== (%$i! $/e!0s$ )e0r of $/e !e0se. T/e sec(ri$) eposi$ 5i!! $/e% eref(%e3 0% $/e !0s$ "o%$/s re%$ s/o(! e expe%se.

8. >1<3=== or o%e-$/ir of ><23=== s/o(! e repor$e 0si%co"e e0c/ )e0r. I% 2=143 ><23=== 50s repor$e 0s i%co"e5/e% o%!) >1<3=== s/o(! /0'e ee% repor$e. Bec0(se

>273=== $oo "(c/ 50s repor$e3 $/e %e$ i%co"e of 2=14 iso'ers$0$e ) >273=== , *1 @ 28+ K >213===. A$ $/e e% of 2=1<3 >273=== s/o(! /0'e ee% repor$e 0s i%co"e3 sore$0i%e e0r%i%&s is s$i!! o'ers$0$e ) >1<3=== *><23=== @>273===+ , *1 @ 28+ K >1=38==.

. T/e e%i%& i%'e%$or) 5o(! e (%ers$0$e si%ce $/e"erc/0%ise 50s o"i$$e. Bec0(se e%i%& i%'e%$or) 0%%e$ i%co"e /0'e 0 irec$ re!0$io%s/ip3 %e$ i%co"e i% 2=145o(! e (%ers$0$e ) >137== , *1 @ 28+ K >123==. T/e

e%i%& i%'e%$or) of 2=14 eco"es $/e e&i%%i%& i%'e%$or)of 2=1<. If e&i%%i%& i%'e%$or) of 2=1< is (%ers$0$e3 $/e%%e$ i%co"e of 2=1< is o'ers$0$e *i%'erse re!0$io%s/ip+. T/eo"issio% i% i%'e%$or) o'er $/e $5o-)e0r perio 5i!!co(%$er0!0%ce3 0% re$0i%e e0r%i%&s 0$ $/e e% of 2=1<5i!! e correc$.


7/25/2019 sm ch (21).doc




PROBLEM 21-11

*0+ ESTERMAN CORPORATIONA(s$i%& Qo(r%0! E%$ries

Dece"er 413 2=1<

1. A!!o50%ce for Do($f(! Acco(%$s............. 83===A"i%is$r0$i'e Expe%ses................... 83===

To ref!ec$ re(c$io% i% !oss experie%ce r0$e.

>13===3=== , *2 @ 1X+

2. U%re0!i6e G0i% or Loss............................. 143===FV-NI I%'es$"e%$s............................ 143===

To re(ce $r0i%& sec(ri$ies $o f0ir '0!(e.>?73=== @ >83===

4. Re$0i%e E0r%i%&s...................................... 739==

Cos$ of Goos So!.................................... <3?==I%'e%$or).............................................. 143==

To 0(s$ for o'ers$0$e"e%$s i% ope%i%& 0% c!osi%&I%'e%$ories.

<. E(ip"e%$................................................... 4=3===Oper0$i%& Expe%ses................................... 238==

*>4=3=== @ >83=== J 1=+

Re$0i%e E0r%i%&s.............................. 2?38==

*>4=3=== @ >238==+

Acc("(!0$e Depreci0$io%E(ip"e%$

........................................ 83===


7/25/2019 sm ch (21).doc




To correc$ pos$i%& of e(ip"e%$ p(rc/0se0s expe%se i% 2=14.>238== , 2


7/25/2019 sm ch (21).doc





Acc("(!0$e Depreci0$io%E(ip"e%$. . 1?38==

E(ip"e%$........................................... 1<3?==G0i% o% S0!e of E(ip"e%$................ 237==To correc$ $/e ispos0! of e(ip"e%$.

8. Prep0i Expe%ses....................................... 2348=Oper0$i%& Expe%ses *><3?== J <+.............. 131?8

Re$0i%e E0r%i%&s.............................. 43828*><3?== @ >131?8+

To 0(s$ for %o%reco&%i$io% of prep0i expe%sei% 2=14.

. No e%$r) is re(ire. T/e i$e"s 5i!! e proper!)rec!0ssifie 0s p0r$ of $/e fi%0%ci0! s$0$e"e%$prep0r0$io%.

*+ ESTERMAN CORPORATIONCo"p($0$io% of Correc$e Ne$ I%co"e

For $/e Ye0rs E%e Dece"er 413 2=1< 0% 2=14

2=1< 2=14

Repor$e i%co"eC/0%&e i% 0cco(%$s recei'0!e !oss

experie%ce r0$e fro" 2 $o 1XLoss o% FV-NI i%'es$"e%$sE%i%& i%'e%$ories o'ers$0$e

Dece"er 413 2=14

Dece"er 413 2=1<Mispos$i%& of e(ip"e%$ p(rc/0se

Decre0se i% oper0$i%& expe%ses2=14 I%cre0se i% oper0$i%& expe%ses2=1<Mispos$i%& of procees of e(ip"e%$ so!Reco&%i$io% of prep0i i%s(r0%ce

Correc$e %e$ i%co"e

>22=3===

83===*143===

739==

*143==

*238== 237==

*131?8>2=3<28

+

+

+

+

>1983===

*739==

2?38==

43828>21?3128

+


7/25/2019 sm ch (21).doc





*c+ ESTERMAN CORPORATIONC0!c(!0$io% of Correc$e Re$0i%e E0r%i%&sA$ Q0%(0r) 13 2=1<

2=14

Re$0i%e e0r%i%&s3 Q0%(0r) 13C/0%&e i% 0cco(%$s recei'0!e !oss experie%ce r0$e fro" 2 $o 1XLoss o% FV-NI i%'es$"e%$s

E%i%& i%'e%$ories o'ers$0$e

Dece"er 413 2=14Mispos$i%& of e(ip"e%$ p(rc/0se

Decre0se i% oper0$i%& expe%ses2=14Reco&%i$io% of prep0i i%s(r0%ceRe$0i%e e0r%i%&s3 Q0%(0r) 13 res$0$e

>2<?3===

*739==

2?38==

43828>293128

+


7/25/2019 sm ch (21).doc




PROBLEM 21-12

*0+ 2=14 2=1<

Ne$ i%co"e3 0s repor$eRe%$ recei'e i% 2=143 e0r%e i% 2=1<#0&es %o$ 0ccr(e3 124112#0&es %o$ 0ccr(e3 124114#0&es %o$ 0ccr(e3 12411<I%'e%$or) of s(pp!ies3 124112I%'e%$or) of s(pp!ies3 124114I%'e%$or) of s(pp!ies3 12411<Correc$e %e$ i%co"e

>293===

*134== 131== *138==

*134== ?<=

===3===

>23?<=

+

+

+

>4?3===

134==

138== *9<=

*?<=

13<2=

>4938<=

+

+

*+1. Re$0i%e E0r%i%&s.............................................. 134==

Re%$ Re'e%(e.............................................. 134==

2. S0!0ries 0% #0&es Expe%se............................ 9<=S0!0ries 0% #0&es P0)0!e..................... 9<=

Re$0i%e E0r%i%&s.............................................. 138==S0!0ries 0% #0&es Expe%se.................... 138==

4. S(pp!ies.............................................................. 13<2=S(pp!ies Expe%se....................................... 13<2=

S(pp!ies Expe%se.............................................. ?<=Re$0i%e E0r%i%&s...................................... ?<=


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*c+2=14 2=1<

Re$0i%e e0r%i%&s3 Q0%. 1 0s repor$eRe%$ recei'e i% 2=143 e0r%e i% 2=1<#0&es %o$ 0ccr(e3 124112#0&es %o$ 0ccr(e3 124114#0&es %o$ 0ccr(e3 12411<I%'e%$or) of s(pp!ies3 124112I%'e%$or) of s(pp!ies3 124114I%'e%$or) of s(pp!ies3 12411<

Re$0i%e e0r%i%&s3 Q0%. 1 0s res$0$eNe$ i%co"e *fro" p0r$ *0++Re$0i%e e0r%i%&s3 Dec. 41

>983===

*131==

134==

===3===

>9832== 23?<=

>12139<=

+

>12<3===

*134==

*138==

?<=

>12139<= 4938<=

>113<7=

+

+

*+ For 2=143 repor$e %e$ i%co"e of >293=== i'ie ) $o$0!%e$ s0!es re'e%(e of >132==3=== res(!$s i% profi$ "0r&i% of 2.<3 0% correc$e %e$ i%co"e of >23?<= i'ie ) $o$0!%e$ s0!es re'e%(e of >132==3=== res(!$s i% profi$ "0r&i% of 2.2. For 2=1<3 repor$e %e$ i%co"e of >4?3=== i'ie )$o$0! %e$ s0!es re'e%(e of >131==3=== res(!$s i% profi$ "0r&i%of 4.<3 0% correc$e %e$ i%co"e of >4938<= i'ie )$o$0! %e$ s0!es re'e%(e of >131==3=== res(!$s i% profi$ "0r&i%of 4.. A% i%'es$or 5/o 0%0!)6e i$c/e%ers profi$0i!i$)0se o% repor$e %e$ i%co"e "0) /0'e %o$e 0 c/0%&e i%profi$ "0r&i% fro" 2.< $o 4.< i% 2=14 0% 2=1<3 5/ere0s$/e 0c$(0! c/0%&e i% profi$ "0r&i% *0se o% correc$e %e$i%co"e+ 50s fro" 2.2 $o 4. i% 2=14 0% 2=1<3 si&%0!!i%&s$ro%&er i"pro'e"e%$ i% profi$0i!i$) $/0% ori&i%0!!)

repor$e. T/e i%'es$or "0) 0!so %o$e $/0$ errors i% %e$i%co"e of$e% 0ffec$ "(!$ip!e perios3 0% $/0$ o$/er "e0s(res of $/e co"p0%)s profi$0i!i$) "0) 0!so e0%0!)6e for 0 "ore e$0i!e 0ssess"e%$ of $/e co"p0%)s0i!i$) $o &e%er0$e profi$ i% $/e f($(re.


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PROBLEM 21-13

INTE CORPORATIONSc/e(!e of Re'ise I%co"e Before I%co"e T0x

For $/e Ye0rs E%e M0rc/ 413 2=123 2=143 0% 2=1<

CALCULATIONS SUMMARYI%cre0ses *Decre0ses+ i% I%co"e

2=12 2=14 2=1< 2=12 2=14 2=1<1. I%co"e efore $0x3 0s repor$e2. E!i"i%0$io% of profi$ o% co%si&%"e%$s

Bi!!e 0$ 14= of cos$

Cos$Profi$ error

4. To correc$ C.O.D. s0!e<. A(s$"e%$ of 50rr0%$) expe%se

S0!es per oo;sCorrec$io% for co%si&%"e%$sCorrec$io% for C.O.D. s0!eCorrec$e s0!esNor"0! 50rr0%$) expe%se3

o%e-/0!f of 1

Less cos$s c/0r&e $o expe%seAi$io%0! expe%se

. B0 e$ 0(s$"e%$sNor"0! 0 e$ expe%se3

o%e-(0r$er 1 of s0!es

Less pre'io(s 5ri$e-offsAi$io%0! expe%se

?. A(s$"e%$ for co%$r0c$ fi%0%ci%&7. A(s$"e%$ for co""issio%s

8. A(s$"e%$ for o%(s3 o%e-/0!f of 1of i%co"e efore $0x 0% o%(s

Re'ise i%co"e efore i%co"e $0x

> 38==

J 14=

83===> 138==

>9<=3=== *38======3=

>94438==

> <37

?=> 439=7

> 2344<

?8=> 1387<

+

> 138==

>13=1=3=== 38== 31==

>13=223==

> 83114

13?=> 43<<4

> 2388?

1342=> 1324?

> 8389=

J 14= <34==

> 1329=

>13?983=== *8389=

*31==>13?74341=

> 7391?

4378=> 83=?

> <3<87

4378=> =7

++

>?13==

*138==

*439=7

*1387< 43=== *13<==32=7

*441 >837??

+

+

+

+

+

>1113<==

138== 31==

*43<<4

*1324? 439==

==117372=

*89<>117322

+

+

+

>1=4387=

*1329=*31==

*83=?

*=7 831== *42=983298

*<?>9<3719

++

+

+

+

+

*$1,400 – $800 **$800 – $1,120

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PROBLEM 21-14 *Co%$i%(e+*+ INTE CORPORATION

Qo(r%0! E%$ries

M0rc/ 413 2=1<

S0!es Re'e%(e.................................................... 8389=I%'e%$or) o% Co%si&%"e%$................................ <34==

Cos$ of Goos So!.................................... <34==Acco(%$s Recei'0!e................................. 8389=

To 0(s$ for co%si&%"e%$s $re0$e 0s s0!es3 4411<

S0!es Re'e%(e.................................................... 31==

Re$0i%e E0r%i%&s...................................... 31==To 0(s$ for C.O.D. s0!es %o$ recore3 44114

#0rr0%$) Expe%se.............................................. 83=?Re$0i%e E0r%i%&s *>439=7 >43<<4+................ ?3481

#0rr0%$) Li0i!i$)........................................ 123<17To se$ (p 0!!o50%ce for 50rr0%$) expe%se

Re$0i%e E0r%i%&s *>441 >89<+...................... 928

S0!0ries 0% #0&es Expe%se............................ <?

S0!0ries 0% #0&es P0)0!e..................... 13<=1To se$ (p 0ccr(e o%(s p0)0!e $o "0%0&er

Re$0i%e E0r%i%&s *>1387< >1324?+................ 23721B0 De$ Expe%se.............................................. =7

A!!o50%ce for Do($f(! Acco(%$s............. 43<29To se$ (p 0!!o50%ce for (%co!!ec$i!e 0cco(%$s

C0s/ */e! ) 0%;+........................................... 123===

Fi%0%ce Expe%se........................................ 831==Re$0i%e E0r%i%&s *>43=== >439==+......... 39==To recor fi%0%ce c/0r&e reser'e /e! ) 0%;

Co""issio% Expe%se........................................ 42=

Re$0i%e E0r%i%&s *>13<== @ >==+................... 7==

Co""issio% P0)0!e................................. 1312=


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To adjust for accrued commissions


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PROBLEM 21-1<

*0+ BAYBERRY CORPORATIONProec$e I%co"e S$0$e"e%$

For $/e Ye0r E%e Dece"er 413 2=1< S0!es >293===3===Cos$ of &oos so! >1<3===3===Depreci0$io% 13==3===

0

Oper0$i%& expe%ses 3<==3=== 223===3===I%co"e efore i%co"e $0x ?3===3===

G0i% o% FV-NI i%'es$"e%$s 13===3===

I%co"e efore $0x 0% o%(s 73===3===Presie%$s o%(s 13===3===I%co"e efore i%co"e $0x ?3===3===Pro'isio% for i%co"e $0x

C(rre%$ > 137==3===Deferre 4==3===

c 231==3===

Ne$ I%co"e > <39==3===

Co%i$io%s "e$

1. I%co"e efore o%(s 0% $0x [ >?3===3===.2. P0)0!e for i%co"e $0xes oes %o$ excee >238==3===.

0Depreci0$io% for $/e c(rre%$ )e0r i% $/e i%i$i0! proec$es$0$e"e%$s i%c!(es >==3=== for $/e o! e(ip"e%$ 0%>23===3=== for $/e roo$ic e(ip"e%$. If $/e roo$ic e(ip"e%$is c/0%&e $o s$r0i&/$-!i%e3 i$s epreci0$io% is o%!) >13===3===

0% $/e $o$0! is >13==3===.

B) (r&i%& $/e o0r of irec$ors $o c/0%&e $/e c!0ssific0$io%of Sec(ri$ies A 0% D $o sec(ri$ies recore (si%& $/e f0ir-'0!(e $/ro(&/ %e$ i%co"e *FV-NI+ "oe!3 i%co"e is i%cre0se) 0 >13===3=== reco&%i$io% of 0 /o!i%& &0i%.


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cT/e /o!i%& &0i% o% $/e sec(ri$ies is %o$ c(rre%$!) $0x0!e 0s i$is %o$ re0!i6e.


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PROBLEM 21-1< *Co%$i%(e+

*+ S$(e%$s 0%s5ers 5i!! '0r).

C/0%&i%& $/e firs$-)e0r e!ec$io% of epreci0$io% 0c; $o $/es$r0i&/$-!i%e "e$/o is (%e$/ic0! if $/is "e$/o oes %o$pro'ie $/e "os$ re!e'0%$ i%for"0$io% for $/e (sers of fi%0%ci0! s$0$e"e%$s. GAAP re(ires co"p0%) "0%0&e"e%$$o se!ec$ $/e epreci0$io% "e$/o $/0$ es$ represe%$s $/ep0$$er% i% 5/ic/ $/e e%$i$) recei'es $/e 0sse$s e%efi$s.Si%ce $/is is $/e firs$ $i"e $/e co"p0%) /0s (se roo$ice(ip"e%$3 i$ "0) e iffic(!$ for corpor0$e officers $oc/0!!e%&e $/e c/oice of epreci0$io% po!ic) ec0(se of !0c;

of ;%o5!e&e 0o($ $/e p0$$er% of (se of $/e 0sse$s.

T/e c/0%&e 5o(! %o$ e (%e$/ic0! epe%i%& o% $/er0$io%0!e (se ) $/e corpor0$e ecisio% "0;ers. I$ co(!o%!) e (s$ifie o% $/e 0sis $/0$ 0!! pro(c$io% e(ip"e%$3i%c!(i%& $/e %e5 roo$ic e(ip"e%$3 pro'ies e(0!e%efi$s o'er $i"e.

Co%sieri%& $/e i""ei0$e %ees for c0s/ of >13===3=== for

$/e presie%$s o%(s 0% >137==3=== for i%co"e $0xes3$/ere "0) e 0 %ee $o se!! so"e of $/e sec(ri$ies.T/erefore3 $/e $r0%sfer of >43===3=== of i%'es$"e%$sec(ri$ies *FV-OCI+ $o sec(ri$ies 0cco(%$e 0s FV-NI "0)0!so e 0ppropri0$e. No$e $/0$ (%er IFRS3 %orec!0ssific0$io%s 0re per"i$$e e$5ee% $/ese c0$e&oriesexcep$ o% $/e r0re occ0sio% $/0$ $/ere is 0 c/0%&e i% $/ee%$i$)s (si%ess "oe! *U%er ASPE3 $/e f0ir '0!(e op$io%esi&%0$io% is irre'oc0!e: o$/er5ise $/e iss(e is %o$0resse+.


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I$ is %0i'e $o e!ie'e $/0$ corpor0$e officers o %o p!0%%i%&for )e0r-e% *or i%$eri"+ fi%0%ci0! s$0$e"e%$s. T/e s!ipper)

s!ope 0rises 5i$/ "0%ip(!0$io% of fi%0%ci0! s$0$e"e%$s. T/erec!0ssific0$io% of $/e se!ec$e sec(ri$ies c!e0r!)"0%ip(!0$es $/e i%co"e $o $/e e%efi$ of $/e presie%$. T/erec!0ssific0$io% of $/e sec(ri$ies is %o$ 5i$/i% GAAP&(ie!i%es. GAAP c!e0r!) s$0$es $/0$ $r0%sfers i% or o($ of $/e $r0i%& c!0ssific0$io% s/o(! %o$ e o%e. Si%ce $/ei%'es$"e%$s 5ere p(rc/0se (ri%& $/e )e0r3 "0%0&e"e%$co(! 0r&(e $/0$ $/e c!0ssific0$io% 50s %o$ specifie (%$i!)e0r e%. T/e e$/ics of $/is ecisio% 0re (es$io%0!e. A%)0(i$or 5o(! 0($o"0$ic0!!) ri%& $/is $r0%s0c$io% $o $/e0$$e%$io% of $/e o0r of irec$ors.

So"e s$0;e/o!ers 0% $/eir i%$eres$s 0re

S$0;e/o!er I%$eres$s

Presie%$ Perso%0! &0i% of >13===3=== o%(s.

CFO P!0ce i% e$/ic0! i!e""0 e$5ee% $/e i%$eres$sof $/e presie%$ 0% $/e corpor0$io%.

Bo0r ofDirec$ors

M0) e s(ec$ $o $/e "0%ip(!0$io%s of $/e CEOfor /is perso%0! &0i%.

S/0re/o!ers I%cre0se i%co"e fro" /i&/er *p0per+ i%co"e"0) i%cre0se e"0% for i'ie%s. Lo5er i%-co"e fro" o%(s "0) ecre0se c0s/ 0'0i!0!efor i'ie%s.

E"p!o)ees Presie%$ $0;es 0pproxi"0$e!) 2= of %e$

i%co"e for /i"se!f. T/is co(! /0'e ee% (se$o s$0r$ 0 pe%sio% p!0% for 0!! of $/e e"p!o)ees.

Crei$ors T/e i%cre0se i%co"e represe%$s 0 1?i%f!0$io% of $/e eco%o"ic i%co"e of $/ecorpor0$io%. T/is "0) !e0 $o (%re!i0!e0ssess"e%$s 0s $o crei$5or$/i%ess.


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I% isc(ssi%& $/e "eri$s of $/ese ecisio%s3 $/e i"p0c$ of $/ec/0%&es o% $/e e%efi$s of $/e (sers o% 0 !o%&-$er" 0sis%ee $o e co%siere.

*c+ T/ere (s(0!!) 0re %o c0s/ f!o5 i"p!ic0$io%s $o c/0%&es i%po!ic). I% $/is c0se /o5e'er3 $/e c/0%&e i% po!ic) $ri&&ers 0o%(s $o $/e presie%$. If $/is o%(s is p0i o($ efore )e0r-e% $/e c/0%&e i% po!icies 5o(! &e%er0$e 0 c0s/ o($f!o5 of >13===3===.

*+ If $/e co"p0%) 5ere $o fo!!o5 ASPE i%s$e0 of IFRS3 $/e o%!)iffere%ce 5o(! e $/0$ $/e i%'es$"e%$ sec(ri$ies 5o(! %o$e per"i$$e $o e c!0ssifie 0s FV-OCI3 si%ce $/ere is %o$ 0%FV-OCI op$io% (%er ASPE. As 0 res(!$3 "0%0&e"e%$ 5o(!%o$ e 0!e $o c/err)-pic; $/e i%'es$"e%$s 5i$/ /o!i%&&0i%s for $/e i%$e%$io% $o rec!0ssif) $/e" 0s sec(ri$ies *FV-NI+i% orer $o /0'e $/e /o!i%& &0i%s 0ppe0r i% %e$ i%co"e 5/i!e$/e /o!i%& !osses 0ppe0r i% o$/er co"pre/e%si'e i%co"e3i%s$e0 0!! /o!i%& &0i%s 0% !osses 5o(! e re(ire $o eprese%$e i% %e$ i%co"e (%er ASPE.

A!! o$/er i$e"s 5o(! e $re0$e si"i!0r!) (%er o$/ IFRS0% ASPE.


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CASES

No$e See $/e C0se Pri"er o% $/e S$(e%$ 5esi$e3 0s 5e!! 0s$/e S(""0r) of $/e C0se Pri"er i% $/e fro%$ of $/e $ex$. No$e$/0$ $/e firs$ fe5 c/0p$ers i% 'o!("e 1 !0) $/e fo(%0$io% for fi%0%ci0! repor$i%& ecisio% "0;i%&.

CA 21-1 USHER CORPORATION

;-er-ie"

2 C is a #u!lic com#any and therefore I/0 is a constraint.2 As auditor you "ould "ant to ensure that changes "ere made only to#ro-ide rele-ant and more relia!le statements or to refine #rior estimates:assuming more information is no" a-aila!le<.

2 You "ould "ant to ensure that there "as no intent to manage@mani#ulatethe num!ers.

2 Client infers that earnings ma9imi8ation is a goal3this ho"e-er is notacce#ta!le since accounting should !e neutral.

2 sers, including shareholders and creditors, "ould "ant to ha-e high=uality earnings3not earnings #ro##ed u# !y accounting !ias.

Analysis and recommendations

2 Accounting estimates are a "ay of dealing "ith measurement uncertainty.2 It is -ery difficult to estimate the residual -alues of assets !ut auditors

must attem#t to #ro-ide the !est estimate and must !ack it u# "ithe-idence.

2 Ba-ing said this, remem!er these are 4ust estimates and estimateschange.

2 or each re#orting #eriod, management must re-isit all estimates andrefine them.

2 This ha##ens on a #ros#ecti-e !asis.

2 The auditor must ensure that the changes are due to ne" and !etter information !eing #ro-ided@gathered and not due to attem#t to mani#ulateearnings.

2 The auditor must look for and management must #ro-ide su##ortingdocumentation for the changes.

2 The auditor must re-ie" the information :and !e ske#tical<.


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IC 21-1 TEMPLE LIMITED

Memo

The com#any is e9#anding and assets are recorded at historical cost,"hich does not reflect their current -alue. 0ince it is a #u!lic com#any "ithshares trading on the T0, I/0 is re=uired. nder I/0, the com#anymay use cost or fair -alue to measure its #ro#erties. The com#any islooking for a loan, yet its de!t to e=uity ratio is already high at '>13theconcern is that the asset -alue does not reflect current -alues and also thenegati-e im#act of this and the ne" loan on the de!t to e=uity ratio.

In-estors and creditors :Dendall ank< "ould a##reciate statements thatreflect more current -alues and risk :reflect the hidden -alue<. This "illallo" them to make more informed decisions. If fair -alue is used tomeasure the assets and the statements are audited, the !ank "ill !e a!leto rely on the -alues. se of fair -alue is the most trans#arent and rele-antand gains@losses "ill !e !ooked through income sho"ing ho" thecom#any is #erforming in terms of its in-estments in the #ro#erties.

Although not a reason for s"itching to fair -alue, the im#act of s"itching isthat the de!t to e=uity ratio "ill !e lo"er.


2 sing fair -alues to -alue real estate assets is acce#ta!le under I/0. It#ro-ides greater trans#arency and more rele-ant information as the

significant ca#ital assets :in-estment #ro#erty< "ould !e #resented muchcloser to the cash flo"s the #ro#erty is e9#ected to generate.

2 Fains and losses are !ooked through income. This statement of #erformance, therefore, "ill #ro-ide !etter information as changes in thefair -alue of the in-estment #ro#erty is "hat management "orks to"ardand on "hich its #erformance is #ro!a!ly com#ensated.

2 IA0 * indicates that a -oluntary change in accounting #olicy should only!e made if the resulting information is relia!le and more rele-ant. IA0 &.1indicates that this could not !e su!stantiated for a mo-e from fair -alue tothe cost !asis, so a reader might assume that the re-erse3from cost tofair -alue3could !e 4ustified on these grounds.

2 Although tem#le is re=uired, at a minimum, to disclose the fair -alue of itsin-estment #ro#erty in the notes to the financial statements, actuallychanging to measurement of the fair -alue attri!ute is #referred and isrelati-ely lo" cost due to the fact the fair -alues are already determined.This "ould #ro-ide more reasona!le in#uts into the de!t@e=uity ratio. The!ank is then !etter a!le to make its decision on the a!ility of Tem#le tohandle additional de!t.


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IC 21-2 SUNLIGHT EUIPMENT MANUFACTURER

;-er-ie"

• There may !e a re#orting !ias since ne" manager may o#t to makenum!ers look !etter to earn her !onus :GI is a key num!er since !onus is!ased on this<. A !ias may also e9ist since Agneta "ill "ant to #ay her sales staff a !onus, "hich is !ased on sales. The slo"do"n in theeconomy may also #ut #ressure on the financial statements3 thecom#any may "ant to make the num!ers look !etter.

• Although it is a #ri-ate com#any, the com#any has the choice to #re#arethe statements according to I/0 or A0E. They ha-e elected to useI/0.

• sers of the financial statements "ill "ant trans#arency to assess ho" thecom#any is faring in the economic do"nturn and also to assess ho"

Agneta is #erforming.

• As auditor you must !e a"are of these #ressures on financial re#orting.



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IC 21-2 (Continued)

Issue> /e-enue recognition

ue to the aggressi-e sales #olicy, sales are u# $H, ho"e-er, this figure might!e inflated.

/ecogni8e re-enues efer recognition- $H cash do"n #ayment "ill

hel# ensure collecti!ility. Gotealso that only customers "ithe9cellent credit history ha-e!een allo"ed to #urchase underthe ne" #olicy.

- Degal title to the s has#assed.

-ersuasi-e e-idence of anarrangement since legal title has#assed.

- ;nly $H cash do"n and inmany cases :if customers?orders dou!le< J no do"n#ayment. Therefore collecti!ilityan issue. Customers may ha-eordered dou!le 4ust to a-oid thedo"n #ayment !ut may not !ea!le to sell.

-Measura!ility is also an issuesince the customer does notha-e to #ay until he resells to athird #arty3 is this real sale orlike consignment Economicsu!stance o-er legal form. 0EMstill has the risks and re"ards ofo"nershi# thus if theconsignment is not sold !y thecustomer, the in-entory re-ertsto them.

-ossession remains "ith 0EM Js stored on #remises3ha-e not e-en shi##ed them3!ill and hold arrangement3 may!e e-idence that risks andre"ards rest "ith 0EM.

/ecommendation> efer recognition J more conser-ati-e.


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IC 21-2 (Continued)

Issue> Ge" in-entory system

The com#any has #urchased a ne" in-entory tracking system ho"e-er it isincom#lete and therefore does it ha-e -alue

Ca#itali8e E9#ense- The ne" system has@"ill ha-e

future !enefit since it "ill hel#track in-entory. In the #ast, thishas !een a source of lost #rofits.

- 0EM o"ns the ne" system and"ill !e a!le to use it once it iscom#lete.

- Agneta is confident that he "ill!e a!le to find another soft"arecom#any to com#lete.

- The soft"are com#any 0D hasgone !ankru#t and thereforemay not !e a!le to finish thesoft"are J thus there is no future!enefit and this is a sunk cost.

- Without the #ro4ect !eingcom#leted, 0EM has no accessto #otential future !enefits.

- Care should !e taken since Agneta may not "ant to admitfailure, since it "ill also affect his!onus and the #erce#tion a!outho" she is #erforming in termsof turning the com#any around.

- resentation of loss on Income0tatement J discuss.

/ecommendation> E9#ense since significant uncertainty as to future !enefit.

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IC 21-2 *Co%$i%(e+

Issue> onus

Accrue !onus for Agneta and salesstaff

o not accrue

- The #ayment for Agneta is likelyas she has a re#utation as aturnaround s#ecialist and has#ut ne" #olicies in #lace to turnthe com#any around> ne" sales#olicies@remuneration and ne"in-entory tracking system.

- It is measura!le since it isdefined J all the com#any has to

do is achie-e the com!ined t"oyear #rofit of L',, J has!een #rofita!le in the #ast.

- More conser-ati-e to accrue.

- Currently !reake-en situation3may not achie-e #rofita!ility3future uncertain.

- A##ears to ha-e created income!y o-erly aggressi-e sales#olicies and changes inaccounting #olicies. Gote thatthe soft"are ac=uisition is alarge loss.

-This is a condition in-ol-inguncertainty that "ill only !eresol-ed "hen the com#any hitsthe $ year #rofit target.

/ecommendation> o not accrue due to o-erstated net income J "hich should!e restated.

Issue> Accounting #olicy change- Must !e ske#tical. 0EM may ha-e changed 4ust to make net Income

higher.- ust !ecause com#etitors use straight2line, it does not 4ustify 0EM

changing its accounting #olicy. The accounting #olicy can only change if results are relia!le and more rele-ant information is gi-en@#ro-ided.

- The fact that the machinery is most #roducti-e "hen ne" "ould su##ortthe dou!le declining !alance method.

- 0traight line "ould !e ar!itrary and un4ustifia!le.

Conclusion> should not change

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TIME AG /;0E ; W/ITIGF A00IFGMEGT0

WA $121 :Time $2% minutes<

ur#ose3this case descri!es se-eral #ro#osed accounting changes for "hichthe student is re=uired to identify "hether the change in-ol-es an accounting#olicy, accounting estimate, or correction of an error. The com#any in this=uestion follo"s I/0. A re-ised statement of changes in e=uity is also re=uiredalong "ith a discussion of the note disclosure.

WA $12$ :Time $J% minutes<

ur#ose3to #ro-ide the student "ith an understanding of the a##lication andre#orting re=uirements of CICA Handbook art II 0ection 1'(. This casedescri!es se-eral accounting changes. The student must identify the ty#e of change in-ol-ed and indicate "hether the restatement of #rior years? com#arati-efinancial statements is re=uired. The com#any in this =uestion follo"s only A0E.

WA $12% :Time $J% minutes<

ur#ose3to #ro-ide the student "ith an understanding of ho" changes inaccounting can !e reflected in the accounting records for a com#any follo"ingI/0. This case in-ol-es se-eral situations for "hich the student is re=uired toindicate the a##ro#riate accounting treatment. The student must also identify anyethical issues and suggest a##ro#riate action.

WA $12& :Time %J& minutes<ur#ose3to hel# a student identify the ty#e of change and e9#lain theaccounting treatment re=uired. or each of se-en changes descri!ed, thestudent e9#lains "hich ty#e of accounting change is occurring. Where insufficientinformation is #ro-ided, the student must identify the additional informationre=uired and state ho" the res#onse is affected. I/0 and A0E differences arere=uired to !e discussed for each of the situations.

WA $12' :Time $J% minutes<

ur#ose3to #ro-ide the student "ith an o##ortunity to e9#lain "hy international

standards and Canadian FAA for #ri-ate enter#rises ha-e different a##roachesfor the correction of an error. The student is encouraged to use the conce#tualframe"ork.

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TIME AG /;0E ; W/ITIGF A00IFGMEGT0:Continued<

WA $12( :Time $'J%' minutes<

ur#ose3to #ro-ide the student "ith an o##ortunity to understand different ty#esof accounting changes. The student is re=uired to e9#lain the differences usingsimilar cases and descri!e the disclosure re=uirements for each case.

WA $12) :Time 1'J$ minutes<

ur#ose3to #ro-ide the student "ith an o##ortunity to understand thedifferences !et"een A0E and I/0 and the conce#tual reasons for anydifferences.

WA $12* :Time $J% minutes<

ur#ose3to #ro-ide the student "ith an o##ortunity to discuss the moti-ationsfor changing to I/0 and comment on the -alidity of the changeo-er. Thestudent must also identify the #otential im#act the I/0 ado#tion "ill ha-e onfinancial analysis focusing on the im#act on key ratio analysis.

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SOLUTIONS TO #RITING ASSIGNMENTS

#A 21-1

:a< and :!<1. ncollecti!le accounts recei-a!le. This is a change in accounting

estimate. /estatement of #rior #eriods is not re=uired.

$. This is a change in an accounting estimate. /estatement of o#eningretained earnings is not re=uired.

%. This is a ne" method for a ne" class of assets. Go change isin-ol-ed.

&. Ado#tion of the re-aluation method is a -oluntary change in anaccounting #olicy, as re=uired !y IA0 1( for #ro#erty, #lant ande=ui#ment. IA0 * #aragra#h 1) indicates that the initial a##lication of the re-aluation model is dealt "ithin IA0 1(, not IA0 *. As a result,IA0 1( allo"s #ros#ecti-e treatment since it "ould !e difficult to go!ack and determine fair -alues at #re-ious dates. Conse=uently, for this s#ecific change, the entity can a##ly this change #ros#ecti-elyand retros#ecti-e a##lication is not re=uired. Bo"e-er, the com#any"ould still !e re=uired to disclose "hy it !elie-es that the re-aluationmethod is relia!le and more rele-ant than the cost model. Thischange in #olicy is a##lied #ros#ecti-ely. Therefore, there "ould !e arestatement of the o#ening !alances at anuary 1, $1&. The entryre=uired at anuary 1, $1&, "ould !e the follo"ing>

Dand :L+, J L)',<.......................................... $',eferred Ta9 Dia!ility :L$', %H<.............. )',/e-aluation 0ur#lus :;CI<.................................... 1)',

'. As this is a correction of an error, the change must !e a##liedretros#ecti-ely. As this is a change to other com#rehensi-e income for $1%, a restatement of the A;CI in e=uity is re=uired, not retainedearnings. The 4ournal entry "ould !e as follo"s>

eferred Ta9 Dia!ility :L$, %H<........................ (, Accumulated ;ther Com#rehensi-e Income..................1&,

62;CI In-estments.............................................. $,

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WA 21-1 (Continued)

:c< The statement of changes in e=uity for $1& "ould !e the follo"ing>

All in C$s Sharecapital

Retainedearnings

Investmentsat FV

through OCI

Revalua-tionSurplus

Total

Balance - January1, 2013 $1,000,000 $2,500,000 $650,000 $4,150,000

ComprehensiveIncome – as

restated 910,000 335,000 * 1,245,000

Balance –December 31,2013 as restated 1,000,000 3,410,000 985,000 5,395,000

Balance –January 1, 2014as restated 1,000,000 3,410,000 985,000 5,395,000

Comprehensiveincome 2014 1,350,000 150,000 175,000 1,675,000

BalanceDecember 31,2014. 1,000,000 4,760,000 1,135,000 175,000 7,070,000

7 Com#rehensi-e income for $1% is restated for the o-erstatement in thein-estment> L&)', J L1&, N L%%',

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WA 21-1 (Continued)

:d< or the error correction for item ', the com#any needs to re#ort the im#actof this change on $1%?s com#rehensi-e income and restate the o#ening

!alances of $1& for the in-estment, the deferred ta9es and the ;CI ine=uity. isclosures should !e made that ena!le users of the financialstatements to understand the effects of any changes on the financialstatements so that the statements remain com#ara!le to those of other years and of other entities.

or item 1, "hich is a change in estimate, disclosure is re=uired if it ismaterial for the current #eriod and may im#act the future #eriods. In thiscase, it might !e argued that the amount is material and re=uires disclosureof the amount and its im#act on the current earnings. The nature and theamount of the change should !e disclosed.

or item $, the change in an estimate im#acts !oth the current and thefuture earnings and therefore the nature and amount of the change on thecurrent year needs to !e disclosed. If the future im#act can !e estimatedthen this should also !e disclosed, other"ise a statement that this isim#ractica!le. The accounting #olicy note "ould also #ro-ide the straight2line method of disclosure.

or item %, this is a ne" transaction so the accounting #olicy is !einga##lied on this transaction for the first time. The only disclosure re=uired isin the accounting #olicy notes.

or item &, the note disclosure for this change in the #olicy "ould state thatit is !eing a##lied #ros#ecti-ely, so there is no im#act on #rior years, andthe changes are made to the o#ening !alances at anuary 1, $1&. Thecom#any "ould also ha-e to e9#lain "hy it !elie-es that the re-aluationmethod is relia!le and more rele-ant than the cost model. There "ill also !ea note in the accounting #olicies descri!ing the re-aluation accounting#olicy. inally, the note on the land re=uires disclosure of the effecti-e dateof the re-aluation, "hether an inde#endent -aluator "as used, the methodsand assum#tions used to determine the fair -alue and the le-el a##lied inthe fair -alue hierarchy, the carrying amount of the land that "ould ha-e!een recogni8ed under the cost model, and the re-aluation sur#lus and

changes to it during the year.

or item ', the error correction, the com#any must disclose the nature andamount of the error and its im#act on the current and #rior #eriods?earnings.

inally, under I/0, a re-ised o#ening !alance sheet "ould normally !ere=uired for the earliest com#arati-e #eriod. Bo"e-er, since the changes

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WA 21-1 (Continued)

only affect $1%, this "ould already !e #ro-ided as the com#arati-einformation for $1&.

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WA 21-2

ItemChange

Ty#e of Change

/estatementof rior Years

1. This a##ears to !e a -oluntary change in anaccounting #olicy "hich is allo"ed under A0E.The com#any has ado#ted the ta9es #aya!lemethod. There is no 4ustification that is re=uiredthat this re#resents more rele-ant information. .

Yes

$. An accounting change in-ol-ing a change in anaccounting estimate.

Go

%. This may re#resent a change in an accounting#olicy or a change in an estimate. If it is achange in the accounting #olicy to e9#ense allde-elo#ment costs from no" on, then under

A0E, there is no re=uirement to disclose "hythe change "as made or "hy it is more rele-ant.ut retros#ecti-e a##lication "ould !e re=uiredand #rior year?s statements ad4usted.

Bo"e-er, it may !e that the conditions for these#articular de-elo#ment costs ha-e changed.This then means that the estimated future!enefits arising from these ca#itali8edde-elo#ment costs ha-e changed :declined<.This "ould then !e a change in an estimate anddisclosure "ould !e re=uired if material.

Got all situations are clear cut and studentsshould !e a"are that alternati-e ans"ers may!e 4ustified.

Yes

Go

&. Treated as a change in classification. Dike an

error correction, #re-ious com#arati-estatements "ould also ha-e to !e restated.

Yes

'. An error correction. Yes

(. This is a change in estimate from a change inthe #attern of !enefits.

Go

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WA 21-2 (Continued)

Item

Change Ty#e of Change

/estatementof rior

Years). nder A0E, the com#any has a choice to

re#ort su!sidiaries as consolidated, or usingeither the e=uity method or the cost method.This is a -oluntary change in an accounting#olicy and re=uires retros#ecti-e a##lication.Bo"e-er, the standard does not re=uire thecom#any to 4ustify that the change is morerele-ant.

Yes

*. Got a change in accounting #olicy. 0im#ly, achange in ta9 accounting5 done #ros#ecti-ely.

Go

+. This change should not ha-e any im#act on thefinancial statements. The cost of goods soldand the ending in-entory should !e the sameregardless of "hether the #eriodic or #er#etualmethod "as used.

n@a

1. A change in accounting #rinci#le that resultsfrom a##lying the transitional #ro-isions of a#rimary source of FAA.

Yes@Go7

7 The treatment "ould !e s#ecified in the transitional #ro-isions of the ne"accounting #ronouncement.


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#A 21-4

Me"or0%(" $o Ali /einers, Controller Fro" Accountant

S(ec$ Accounting treatment of -arious issues at Duftsa Cor#.

Bere are my recommendations on the -arious issues you ha-e !rought to myattention. If you ha-e further =uestions or "ish to discuss these issues, #lease donot hesitate to contact me.

1. This situation is an ado#tion of a ne" accounting #olicy. In #re-ious years,the loyalty #oints a"ard #rogram "as immaterial. Go" ho"e-er, the itemhas !ecome material and the com#any is going to a##ly the a##ro#riateaccounting #olicy to defer loyalty #oints a"ards at the time of the sale.Conse=uently, the accounting #olicy can !e a##lied #ros#ecti-ely starting

anuary 1, $1&. Gote disclosure is a##ro#riate to descri!e this ne" #olicyand its im#act on the current and future #eriods, if #ractica!le to estimate.

$. In this situation, the com#any is changing its #olicies to use com#onents for de#reciation and the re-aluation model. Duftsa has determined that it "asnot #ractica!le to determine the im#act of de#reciation on com#onents on#rior years since the information "as not a-aila!le, so the #olicy changecannot !e a##lied retros#ecti-ely. Additionally, the re-aluation model may!e im#lemented #ros#ecti-ely e-en though it is also a change in #olicy.IA0 * #aragra#h 1) indicates that the initial a##lication of the re-aluation

model is dealt "ithin IA0 1(, not IA0 *. As a result, IA0 1( allo"s#ros#ecti-e treatment since it "ould !e difficult to go !ack and determinefair -alues at #re-ious dates. The note disclosure "ould state "hy thecom#any !elie-es that these #olicies #ro-ide relia!le and more rele-antinformation. The com#any "ould also !e re=uired to note the im#act on theo#ening !alances as the com#any ado#ts the re-aluation method for theassets at anuary 1, $1& J that is the changes to the assets, deferredta9es and the re-aluation sur#lus. inally, the com#any should alsodisclose the im#act on the de#reciation and ta9es for the current #eriod"ith the ado#tion of these t"o ne" #olicies.

%. This situation is considered a correction of an error. The general rule is thatcareful estimates that later #ro-e to !e incorrect should !e consideredchanges in estimates. Where the estimate "as o!-iously com#utedincorrectly !ecause of lack of e9#ertise or in !ad faith, the ad4ustmentshould !e considered an error. Changes due to error should em#loy theretros#ecti-e a##roach !y>

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a. /estating, -ia a #rior #eriod ad4ustment, the !eginning !alance of retained earnings for the statements of the current #eriod.

WA 21-3 (Continued)

!. Correcting all #rior #eriod statements #resented in com#arati-efinancial statements. The amount of the error related to #eriods #rior to the earliest year?s statement #resented for com#arati-e #ur#osesshould !eincluded as an ad4ustment to the !eginning !alance of retained earnings of that earliest year?s statement. In addition, ano#ening !alance sheet must !e #resented for the earliest com#arati-e#eriod.

There are ethical issues in-ol-ed in this situation. These in-ol-e thehonesty and integrity of /osentiel?s financial re#orting #ractices -ersus thecor#oration?s and the di-ision controller?s #rofit moti-es. nderstating

in-entory o!solescence "ould o-erstate the di-ision?s net income. 0uch a#ractice distorts /osentiel?s o#erating results and misleads users of thefinancial statements. This #ractice is unethical and must !e re#orted toDuftsa?s oard of irectors. In addition, the result of these #ractices is thate9cess !onuses may ha-e !een #aid to the di-isional controller, at thee9#ense of other di-isional controllers "hose results "ould not ha-e lookedfa-oura!le in com#arison.

&. Go ad4ustment is necessary3a change in accounting #olicy is notconsidered to ha-e ha##ened if a ne" #olicy is ado#ted in recognition of e-ents that ha-e occurred for the first time.

'. This situation is considered a change in estimate !ecause ne" e-ents ha-eoccurred "hich call for a change in estimate. The accounting change ismade #ros#ecti-ely. Gote disclosure "ould descri!e the im#act of thechange on the current earnings, and any im#act that is #ractica!le toestimate for the future.

(. E-en though this situation looks like a change in estimate, the facts of thecase indicate that the estimates "ere not re-ised !ased on !etter information, !ut rather re-ised incorrectly due to !ad faith !y the di-isionalmanager. This situation is considered a correction of an error. The

accounting treatment "ould !e the same as discussed in %.

There are ethical issues in-ol-ed in this situation as "ell that relate to thehonesty and integrity of sher?s financial re#orting #ractices and thedi-isional manager?s #rofit moti-es. 0hortening the life of assets from 1 to( years may !e e-idence that de#reciation e9#enses during the first fi-eyears "ere understated. 0uch a #ractice distorts sher?s o#erating resultsand misleads users of sher?s :and ultimately DuftsaOs< financial

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statements. If this #ractice is intentional, it is unethical. In addition, theresult of these #ractices is that e9cess !onuses may ha-e !een #aid to the

#A 21-4 *Co%$i%(e+

di-isional manager. This situation should !e re#orted to the highest le-elsof management "ithin Duftsa :the oard of irectors<.

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#A 21-<

1. The change to a units2of2#roduction method from straight2line is a change inan estimate. As a change in estimate, the #olicy is a##lied #ros#ecti-ely, !ut

the com#any "ould re=uire disclosure on the im#act on the current andfuture earnings. $. The change to e9#ensing de-elo#ment costs is achange in estimate due to a change in conditions in the case of I/0. Inthis case, the conditions ha-e changed and the future estimated !enefit for these costs is no" =uestiona!le. This is a #ros#ecti-e change.Bo"e-er, it could also !e seen as a change in #olicy under A0E, if thecom#any "ill continue to e9#ense de-elo#ment costs, "hich is a choice thatis allo"ed. If this is the case, then the change in #olicy must !e a##liedretros#ecti-ely. Bo"e-er, the com#any does not need to #ro-ide 4ustificationas to "hether or not this is a more rele-ant treatment for re#orting#ur#oses.

%. This o-ersight is a mistake that should !e corrected. 0uch a correction isconsidered a correction of an error of a #rior #eriod. /etros#ecti-ea##lication is re=uired under !oth I/0 and A0E, along "ith the nature of the error and its im#act on the current and #rior #eriods. nder I/0, ano#ening !alance sheet is re=uired for the earliest com#arati-e #eriod#resented.

&. This change is not one of the three ty#es mentioned. Geither the method of accounting for certain recei-a!les nor the method of accounting for incometa9es :inter2#eriod allocation< "as changed. The only change is for ta9

re#orting #ur#oses.

'. In this case, no reason is #ro-ided for the change. If the nature of the change is to #ro-ide more rele-ant information, then this "ould !etreated as a -oluntary change in accounting #olicy. The change "ould !ea##lied retroacti-ely to restate com#arati-e information as if the a-eragecost method had !een used for all #rior #eriods. Bo"e-er, if the reason for the change is due to changed circumstances, for e9am#le the ty#e andcom#osition of in-entory items has materially changed, the change "ould!e treated as the a##lication of FAA to a ne" situation and "ould !eaccounted for on a #ros#ecti-e !asis. The change may also !e due to a

change in estimate in that the in-entory flo" #attern is different from "hat"as #re-iously estimated. This situation "ould !e treated as a change inestimate and "ould !e accounted for on a #ros#ecti-e !asis. The

4ustification for the change "ill determine the a##ro#riate accountingtreatment in this case. 0imilar treatment "ould !e re=uired under I/0 and

A0E.

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#A 21-8

(a) A0E re=uires the correction of an error to !e accounted for using full

retros#ecti-e restatement, and it does not #ermit the use of #artial

retros#ecti-e or #ros#ecti-e restatement. The result is the correction of

amounts that "ere re#orted in the financial statements of #rior #eriods to

"hat the amounts "ould ha-e !een if the error had ne-er occurred. In other

"ords, the cumulati-e effect of the change on the financial statements at the

!eginning of the #eriod is calculated and an ad4ustment is made to the

financial statements. In addition, all #rior years? financial statements that are

affected are restated It is !elie-ed that an accounting error, !y its definition

and nature, can !e traced to a s#ecific #rior year.

This standard su##orts the #osition that only !y restating #rior #eriods can

accounting changes lead to com#ara!le information. If this a##roach is not

used, the years !efore the change "ill contain errors and the current and

follo"ing years "ill #resent financial statements "ithout errors. In addition,

#artial retros#ecti-e restatement to the carrying amounts at the !eginning of

the earliest #eriod :this could e-en !e the current year< for "hich

restatement is #ossi!le "ould result in Pcatch2u#Q ad4ustments, such as the

ad4ustment of the o#ening !alance of retained earnings for error correction

that may not !e clear enough for the financial statements users tounderstand. As consistency is considered essential in #ro-iding meaningful

trend data and other financial relationshi#s that are necessary to e-aluate a

!usiness, #artial retros#ecti-e or e-en #ros#ecti-e restatement could cause

confusion for the users and a loss of confidence !y in-estors.

:!< International Accounting 0tandard :IA0< *, on the other hand, indicates thatif full retros#ecti-e restatement is not #ractica!le, then an entity is #ermittedto restate information for the earliest #eriod for "hich it is #ractica!le./egarding ho" to 4udge R#ractica!ility?, IA0 * states that hindsight should not

!e used "hen correcting amounts for a #rior #eriod, either in makingassum#tions a!out "hat management?s intentions "ould ha-e !een in a#rior #eriod or estimating the amounts recogni8ed, measured, or disclosed ina #rior #eriod.

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WA 21-5 (Continued)

It s#ecifically re=uires that, "hen an enter#rise retros#ecti-ely a##lies a ne"

accounting #olicy or corrects a #rior #eriod error, it should distinguishinformation that

1. #ro-ides e-idence of circumstances that e9isted on the date:s< at "hich

the transaction, other e-ent, or condition occurred5 and

2."ould ha-e !een a-aila!le "hen the financial statements for that #rior

#eriod "ere authori8ed for issue from other information.

When retros#ecti-e restatement "ould re=uire making a significantestimate for "hich it is im#ossi!le to distinguish these t"o ty#es of

information, it is im#ractica!le to correct the #rior #eriod error retros#ecti-ely.

When an enter#rise !ecomes a"are of its accounting error !ut the correctionis im#ractica!le, the !est thing it can do to achie-e the o!4ecti-e of financialstatements3communicating information that is useful to users3"ould !e to#ro-ide #artial retros#ecti-e or #ros#ecti-e treatment if it is im#ractica!le todetermine the full im#act of the error correction on #rior #eriods. Also, thisa##roach can !e su##orted "hen an entity may find that data from s#ecific#rior #eriods may only !e a-aila!le at too high a cost.

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#A 21-

The first case, the incorrect calculation of the current #ortion of long2term de!t, is

related to an error correction. nder I/0, the com#any must use the full

retros#ecti-e method to correct errors !y 1< restating the com#arati-e amounts

for the #rior #eriod:s< #resented in "hich the error occurred and $< restating the

o#ening !alances of assets, lia!ilities, and e=uity for the earliest #eriod

#resented if the error took #lace !efore that #eriod. In the year of the correction,

the com#any should disclose

1. the nature of the error.

$. the amount of the correction to !asic and fully diluted earnings #er

share and to each line item on the financial statements #resented for

com#arati-e #ur#oses.

%. the amount of the correction made at the !eginning of the earliest #rior #eriod #resented.

The second case is also considered to !e an error correction. rior #eriod errors

are omissions or misstatements and are caused !y the misuse of, or failure to

use, relia!le information that e9isted and could reasona!ly ha-e !een found and

used in the #re#aration and #resentation of those financial statements. The

accounting standard re=uires that the o#erating cycle !e used, if it is more than

one year. Assuming that the com#any?s Po#erating cycleQ has al"ays !een

a##ro9imately 1* months :i.e., no recent e-ent occurred to cause a change in the

cycle<, using one year to classify current and non2current assets is failure to use

relia!le information to #re#are financial statements. What ste#s to take and "hat

disclosures to make are the same as in the first case.

In the third case, although it a##ears that the com#any changed its accounting

#olicy regarding o#erating cycle5 it is not a change in accounting #olicy. This is

!ecause a different #olicy is a##lied to transactions, e-ents, or conditions that

differ in su!stance from those that "ere #re-iously occurring. In other "ords,

using one year to classify assets and lia!ilities "as a##ro#riate "hen the

com#any?s !usiness in-ol-ed short2term contracts. Go", the circumstancesha-ing changed due to the im#lementation of the com#any?s strategic #lan, the

a-erage life of the com#any?s contracts has no" gro"n to a!out t"o years. Thus,

the ne" #olicy, using its Po#erating cycleQ for classification, is a##ro#riate for the

changed circumstances. The com#any should disclose the nature of the ne"

#olicy so that the readers understand "hat ne" circumstances caused the

change in classification and "hat im#act it "ould ha-e on financial statements.

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WA 21-7

There are only a fe" differences !et"een I/0 and A0E "ith res#ect tore#orting errors, and changes in #olicies and estimates. rimarily, A0E follo"s

historical #ractice in Canada. Fi-en that generally the #rimary users of #ri-ate

enter#rise financial statements are creditors "ho ha-e access to management5

the disclosure has also !een sim#lified.

These differences are highlighted !elo">

a< The hierarchy of accounting #olicies to follo" "hen there is no standard is

-ery similar.!< A0E has choices in a num!er of s#ecifically identified accounting #olicies

"here a change in #olicy can !e made "ithout 4ustification as to "hy it is

more rele-ant. E9am#les of these standards include income ta9es,defined !enefit #ension #lans, consolidation of su!sidiaries and

de-elo#ment costs. A0E has these choices to kee# the re#orting and

measurement of these items more sim#le, so #re#arers may choose the

sim#ler method if they "ant, e-en if it results in relia!le !ut less rele-ant

information.c< A0E re=uires that errors !e corrected using only retros#ecti-e

restatement. The reason for this is to follo" historical #ractice in Canada.

I/0 allo"s #artial retros#ecti-e restatement or #ros#ecti-e treatment

"hen the information is im#ractica!le to determine.

d< A0E does not re=uire an additional o#ening !alance sheet for theearliest #eriod restated "hen a##lying retros#ecti-e treatment. This

disclosure is not re=uired in order to kee# the notes to a minimum and

reduce the #re#arer?s time.e< A0E does not re=uire disclosure on issued standards not yet effecti-e.

This "ill sim#lify the disclosure for the #rimary users, "ho are the

creditors.

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WA 21-8

The con-ersion to I/0 "ill result in many !enefits to !oth com#anies and usersof the financial statements. The most o!-ious !enefit from a##lying I/0 is an

increase in consistency and com#ara!ility across industry grou#s. u!lic

com#anies in o-er 1 countries are using I/0. Thus, ado#ting international

accounting standard allo"s for more com#ara!le and consistent financial

statements recogni8ed glo!ally. In addition, I/0 ado#tion "ill allo" com#anies

"ith foreign o#erations to ha-e internal consistency in re#orting standards.

Although the !enefits of I/0 ado#tion are su!stantial, the effects of the

increased em#hasis on fair -alue accounting may lead to some com#ara!ility

issues :e.g. income #ro#erties, !iological assets, re-aluation method<. Freater use of fair -alue accounting may ha-e three #ossi!le effects on financial

statements. irst, !alance sheet figures are ad4usted to fair -alue. 0econd, some

unreali8ed gains and losses are directly recogni8ed in the income statement.

Third, other unreali8ed gains and losses !y#ass the income statement and are

recogni8ed directly in ;CI.

Therefore, there "ill !e se-eral ratios that !ecome affected !y fair -alue

accounting> li=uidity and le-erage ratios, as a result of !alance sheet -ariations5

#rofita!ility and co-erage ratios, as a result of !alance sheet -ariations and

recognition of unreali8ed gains@losses. air -alue ad4ustments introduce -olatility

in accounting figures as unreali8ed gains and losses are recogni8ed !efore the

reali8ation of a transaction "ith e9ternal #arties. Although these ratios "ill !e

relati-ely sta!le for the ma4ority of com#anies under !oth accounting standards,

the increased em#hasis of fair -alue accounting of I/0 leads to higher ranges

o-erall for these ratios and thus a greater susce#ti!ility to misleading financial

results.


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RESEARCH AND FINANCIAL ANALYSIS

RA21-1 SHOPPERS DRUG MART

:a< :i< Gote % outlines the com#any?s ado#tion of I/0. The com#any has

a##lied I/0 retros#ecti-ely from anuary %, $1, for the o#ening !alance

sheet. The first financial statements issued under I/0 "ere for the year ended

ecem!er %1, $11. At the date of transition, anuary %, $1$, some elections

allo"ed under I/01 "ere a##lied.

:ii< The elections a##lied "ere as follo"s>

• usiness com!inations J the standard I/0 % related to !usiness

com!inations has !een #ros#ecti-ely a##lied, effecti-e anuary 1,

$*. 0ho##ers elected to a##ly I/0 % #ros#ecti-ely to !usiness

com!inations occurring on or after anuary %, $1.

• 0hare !ased #ayments J 0ho##ers decided to a##ly the e9em#tion that

allo"ed them not to ha-e to a##ly I/0 $ to share !ased a"ards

granted and -ested #rior to anuary %, $1.

• eemed Cost J 0ho##ers elected not to use fair -alue as the deemed

cost of #ro#erty and e=ui#ment or intangi!les on ado#tion of I/0.

• Deases J 0ho##ers a##lied I/IC & to determine "hether an

arrangement contains a lease on a retros#ecti-e !asis, instead of !ased on facts at the date of transition.

• Em#loyee enefits J 0ho##ers elected to recogni8e all unrecogni8ed

gains and losses on em#loyee #ension and !enefit #lans at anuary %,

$1 into retained earnings.

• orro"ing costs J The com#any has decided to a##ly the transitional

guidance in IA0 $% on !orro"ing costs from ecem!er %, $).

:iii< As indicated in note %:!<reconciliation ta!les, the com#any?s assets and

lia!ilities at anuary %, $1, anuary 1, $11 and re-enue and e9#enses

for the year ended anuary 1, $11, ha-e !een im#acted as follo"s>

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RA 21-1 (Continued)

I% $/o(s0%s of

>USs

Q0%(0r) 43

2=1=B0!0%ces

Q0%(0r) 13 2=11

B0!0%ces

Ye0r e%e

Q0%(0r) 13 2=11profi$ or !oss

:i< /e-enue J due

to Doyalty Card

rogram

1',&'% increase

in accounts

#aya!le and

accrued

lia!ilities

1+,)%' increase in

accounts #aya!le and

accrued lia!ilities

1*%,%'% reduction

in re-enue5

1)+,)1 increase

in cost of goods

sold

:ii< 0ale2lease!ack

transactions

),%%( decrease

in other long2

term lia!ilities

1*,$&$ decrease in

other long2term

lia!ilities

1,+( increase

in o#erating

e9#enses

:iii< /ent e9#ense

during the fi9turing

#eriod

&*,1($

reduction in

#ro#erty and

e=ui#ment5

1,%*$ decrease

in other long2

term lia!ilities

&+,)$( reduction in

#ro#erty and

e=ui#ment5

$,+&( increase in

o#erating

e9#enses

:i-< inancing

Dease classification

'1,$&) increase

in SE5

1,$() increasein accounts

#aya!le and

accrued

lia!ilities5

'%,$(* increase

in other long2

term lia!ilities

'*,)&1 increase in

SE5

1,'* increase inaccounts #aya!le and

accrued lia!ilities5

(1,)+ increase in

other long2term

lia!ilities

&,'+) increase in

financing

e9#enses5 %,+()decrease in

o#erating

e9#enses

:-< Im#airment of

store assets

$1,%*&

reduction in

SE

$*,'(1 reduction in

SE

),1)) increase in

o#erating

e9#enses

:-i< Em#loyee

enefits

',&+ reduction

in other long2

term lia!ilities

1,&** increase in

other long2term

lia!ilities, &,$1)

decrease in other

assets, *,1'

increase in ;CI

'+ increase in

o#erating

e9#enses5 *,1'

increase in

actuarial losses

through ;CI

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RA 21-1 (Continued)

:-ii< usiness

Com!inations

$,)) increase

in Food"ill5

1,%() decrease

in #re#aid

e9#enses, +&

decrease in

accounts

recei-a!le5 %*&

increase in

accounts

#aya!le and

accruedlia!ilities

%* decrease in

Food"ill

%* increase in

o#erating

e9#enses

:!< or standards issued, !ut not yet effecti-e, 0ho##ers listed these in Gote %

:-<, noting the standard num!er and title and its effecti-e date. The

com#any disclosed that it did not early ado#t any these standards.

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RA21-2 CANADIAN TIRE CORPORATION3 LIMITED

:a< As indicated on the Consolidated 0tatement of Changes in 0hareholders?E=uity, the com#any had transitioned to International inancial /e#orting

0tandards :I/0< for the fiscal year !eginning anuary 1, $11. These changes

resulted in transitional ad4ustments of a##ro9imately L(1.*M to 0hareholders?

e=uity for $11 and L&&.*M for $1. Also there "ere transitional ad4ustments to

$11 /e-enue in the amount of L+.&M.

All of these changes are discussed in Gote 1 and &&.

:!< Gote 1 discusses the changes in accounting #olicies as #art of disclosure

on significant accounting #olicies. All of these changes related to changes in the

standards for the ado#tion of I/0. There "ere no -oluntary changes, changesin estimates, or errors noted. The follo"ing changes "ere discussed>

• Consolidations J There is no conce#t of =ualifying s#ecial #ur#ose entities

or -aria!le interest entities under I/0, rather consolidation occurs "hen

the Com#any dis#lays control. As a result, the Com#any has recogni8ed

additional assets and lia!ilities on the $11 and $1 !alance sheets.

This also resulted in the recognition of additional re-enue along "ith

finance :interest< costs.

• 0ecuriti8ations J nder IA0 %+, -ersus the old AcF 1$, financial assets

are only to !e derecogni8ed after meeting s#ecific criteria. The Com#any?s

securiti8ation transactions "ith FCCT no longer meet this de2recognition

criteria and are therefore consolidated into the financial statements.

• orro"ing Costs 2 The Com#any has historically chosen to ca#itali8e

!orro"ing costs on ma4or real estate #ro4ects only. #on ado#tion of I/0,

the Com#any has ca#itali8ed !orro"ing costs only on those real estate

#ro4ects that meet the =ualifying asset criteria under IA0 $%.

• ro#erty lant S E=ui#ment and In-estment ro#erty J nder IA0 1( S

&, there is the choice to measure SE and in-estment #ro#erty using

the cost model or the re-aluation model. The com#any has elected to use

the cost model, and re2com#onenti8ed certain items resulting in a lo"er

net !ook -alue of fi9ed assets.

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RA21-2 *CONTINUED+• Deases J nder the I/0 standard IA0 1), there are no s#ecific

=uantitati-e guidelines in determining the nature of lease arrangements.

As a result, #re-iously recogni8ed o#erating leases "ere deemed financeleases under I/0, resulting in an increase in assets and lia!ilities in the

o#ening I/0 !alance sheet.

• 0hare2!ased #ayments J With the transition to I/0, all stock2!ased

a"ards must no" !e recorded at fair -alue. The im#act of this accounting

change resulted in increases to total lia!ilities as "ell as decreases to

e=uity for the Com#any.

• Em#loyee enefits J nder IA0 1+, gains and losses related to the

re-aluation of defined !enefit o!ligations can no" !e recorded usingeither a 1 #er cent corridor a##roach or !e immediately recogni8ed in

other com#rehensi-e income. The Com#any?s election to record the gains

and losses immediately resulted in an increase to lia!ilities and a

decrease to e=uity.

:c< In Gote 1, Canadian Tire also discloses future accounting changes as

follo"s>

• inancial instruments J The issuance of I/0 + occurred in Go-em!er of

$+ and "ill re#lace IA0 %+. This standard "ill !ecome effecti-e for annual #eriods !eginning on or after anuary 1, $1'. Canadian Tire is

assessing the #otential im#act of this standard.

• air -alue measurement 2 In May $11, the IA0 issued I/0 1% "hich is

a com#rehensi-e standard for fair -alue measurement and disclosure

re=uirements for use across all I/0 standards. I/0 1% is effecti-e for

annual #eriods !eginning on or after anuary 1, $1%. The Com#any is

assessing the #otential im#act of these amendments.

• ost2em#loyment !enefits 2 In une $11, the IA0 amended IA0 1+ J

Em#loyment enefits, "hich a##lies to efined enefit lans. This

amendment is not e9#ected to ha-e any significant im#act as CanadianTire already immediately records any actuarial gains and losses in ;CI.

• ;ther com#rehensi-e income #resentation J The amended IA0 1 re=uires

com#anies to grou# together items "ithin ;CI that may !e reclassified to

net income. The amendments are effecti-e for annual #eriods !eginning

on or after uly 1, $1$. Canadian Tire is assessing the #otential im#act of

these amendments.

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RA 21-4

Ans"ers "ill de#end on the ne"ly released standards.

RA 21-< RESEARCH CASE LOBLA# COMPANIESINC

a< Gote %1 of the financial statements outlines the com#any?s ado#tion of

I/0. The com#any has a##lied I/0 retros#ecti-ely from anuary %,

$1, e9ce#t for e9em#tions allo"ed under I/01.

!< The follo"ing ma4or decreases "ere made to shareholders? e=uity as of

anuary 1, $11 as a result of the transition to I/0.

• Em#loyee enefits J ecrease of L%)M J nder I/0,

com#anies? are to recogni8e actuarial gains and losses in the

#eriod in "hich they arise "here they "ere #re-iously deferred

under #re2changeo-er FAA. This ad4ustment amends for the #ast

gains@losses "hich should ha-e !een recogni8ed.

• orro"ing Costs J ecrease of L$1(M J The Com#any has elected

to a##ly IA0 $% #ros#ecti-ely from the transition date, and as such

as derecogni8ed the carrying amounts of ca#itali8ed interest under

#re2changeo-er FAA for =ualifying assets commencing #rior to

the transition date, resulting in the reduction of shareholders? e=uity.

• Im#airment of Assets J ecrease of L1&(M J 0ince I/0 re=uires

assets !e tested for im#airment at the cash generating unit le-el,

the com#any has !egun testing im#airment at the indi-idual retail

location le-el as o##osed to grou#ings of definite life stores

de#endent on each other. The result is recognition of im#airmentlosses from #rior #eriods for assets other than good"ill.

• inancial Instruments J ecrease of L%)&M J This reduction is a

result of no longer consolidating certain inde#endent franchisees,

discontinuance of hedge accounting for items not =ualifying under

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I/0 as "ell as recognition of credit card recei-a!les and short

term de!t #re-iously derecogni8ed under #rechangeo-er FAA.

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RA 21-4 (Continued)

c< The total im#act of the changes to the shareholders? e=uity as a result of

the transition to I/0 "as a decrease of L1,$))M. 0hareholders? e=uity isthe com#onent of many financial ratios "hich "ould reflect the sta!ility of

a com#any. 0uch ratios include e!t to E=uity, De-erage, and /eturn on

E=uity. The ta!le !elo" summari8es the im#act this change on

0hareholdersO e=uity had on these ratios as of anuary 1, $11.

CGAAP IFRS

0hareholders? E=uity L(,** L',(%

Total e!t &,(&( (,(%'

Total Assets 1',+1+ 1(,*&1

Get Earnings (*1 ()'

e!t to E=uity .(*>1 1.1*>1

De-erage $.%1 %.1

/;E +.+H 1$.'H

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