INTERMEDIATE ACCOUNTING: RAPID REVIEW
Kieso, Weygandt, Warfield, Young, Wiecek, McConomy
Tenth Canadian Edition, Volume 2: Chapters 13 – 23
can’t be made, and the extent of any exposure beyond the amount accrued.
Asset Retirement Obligations –
Non-Financial and Current Liabilities
Loss can be reasonably estimated?
Recognize the obligation associated with the retirement of a long-lived asset in the period the obligation is incurred. Under IFRS, recognize costs of both legal and constructive obligations; under ASPE, legal obligations only. Discount the future costs of the obligation to determine the present amount required. Debit the capital asset for the present value of the ARO and credit a liability in the same amount. Amortize the ARO cost to expense over the related asset’s useful life and accrue interest on the liability each period.
Under IFRS, as the ARO and costs increase due to further damage to the site from production activities, increase the obligation and add the incremental costs caused by production to inventory as production overhead costs. For ASPE, add these additional costs to both the ARO and the capital asset account, adjusting the future depreciation amounts.
Contingencies and Uncertain
Under IFRS, provisions are required for situations like lawsuits if the amount can be reliably measured and if a confirming future event is “more likely than not” to occur. Use expected values to measure the liability.
Disclose the financial effect of the uncertain amounts, the uncertainties related to the outflows, and whether any reimbursement is possible.
Under ASPE, accrue a contingent loss only if it is
“likely” a future confirming event will occur and the loss amount can be reasonably estimated. If there is a range of possible loss amounts and no particular amount is better than another, accrue the bottom of the range. If one amount is a better estimate than the others, accrue that amount. Disclose the nature of the contingency, estimated amount of the contingent loss or that an estimate
Accrue. Report exposure to loss in excess of amount accrued in Notes to Financial
Report in Notes to Financial
Disclosure not required Disclosure not required Not determinable Report in Notes to Financial
Report in Notes to Financial
*Disclose the nature of the contingency and either an estimate of the amount or the fact that an estimate cannot be made. Note that IFRS requirements are similar, but use the term "probable" which is a lower threshold than "likely" as used in ASPE.
Bond Valuation ϭ Present Value of Interest Payments ϩ
Present Value of Principal Payment
Interest payments are based on stated rate and face value of principal.
Present value calculations are based on the market rate of interest, for example:
Bond issued at
2013 John Wiley & Sons Canada, Ltd.
Kieso 10th Ed._RAPID REVIEW 2_3rd pass_April 25, 2013 13-04-25 7:17 AM Page 2
Bond Discount and Premium
Effective Interest Method
Carrying value of debt at beginning of period
interest rate ؊
Face amount of debt
Straight Line Method
Divide total discount/premium by the period to maturity and amortize equally for each interest payment.
Journal entry to record each interest payment for Bond
(if bond issued at a premium)
(if bond issued at a discount)
Stated interest rate
Note Disclosure for LongTerm Debt
Nature of the liability
Net carrying amount of bonds redeemed ϭ Face Value –