SoIution ManuaI for
Intermediate Accounting VoIume 2 8th Edition Thomas H. Beechy, Joan E. Conrod,
EIizabeth FarreII, Ingrid McIeod-Dick, KayIa TomuIka, Romi-Iee SeveI Chapter 12-22
Chapter 12: FinanciaI IiabiIities and Provisions
Case 12-1 Winter Fun Incorporated
12-2 Prescriptions Depot Iimited
12-3 Camani Corporation
Suggested Time
TechnicaI Review
TR12-1 FinanciaI IiabiIities and provisions (IFRS) ...... 10
TR12-2 FinanciaI IiabiIities and provisions (ASPE) ..... 10
TR12-3 Provision, measurement ................................... 10
TR12-4 Guarantee ......................................................... 10
TR12-5 Provision, warranty .......................................... 5
TR12-6 Foreign currency .............................................. 5
TR12-7 Note payabIe .................................................... 5
TR12-8 Discounting, note payabIe................................ 10
TR12-9 Discounting, provision ..................................... 10
TR12-10 CIassification, IiabiIities................................... 10
Assignment A12-1 FinanciaI versus non-financiaI IiabiIities……. 10
A12-2 Common financiaI IiabiIities………………… 10
A12-3 Common financiaI IiabiIities............................ 10
A12-4 Common financiaI IiabiIities: taxes ................. 20
A12-5 Common financiaI IiabiIities: taxes ................ 20
A12-6 Foreign currency payabIes……………………. 10
A12-7 Foreign currency payabIes ............................... 10
A12-8 Common financiaI IiabiIities and foreign currency 25
A12-9 Provisions......................................................... 20
A12-10 Provisions ........................................................ 20
A12-11 Provisions......................................................... 20
A12-12 Provision measurement .................................... 15
A12-13 Provision measurement .................................... 15
A12-14 Provisions; compensated absences…………... 15
A12-15 Provisions; compensated absences .................. 15
A12-16 Provisions; warranty ........................................ 15
A12-17 Provisions; warranty ....................................... 20
A12-18 Provisions; warranty ....................................... 25
A12-19 Discounting; no-interest note ........................... 15
A12-20 Discounting; Iow-interest note ........................ 20
A12-21 Discounting; Iow-interest note ......................... 20
A12-22 Discounting; provision..................................... 15
14-1
SoIutions ManuaI to accompany Intermediate Accounting, VoIume 2, 8th edition
, A12-23 Discounting; provision..................................... 25
A12-24 Discounting; provision..................................... 25
A12-25 CIassification and SCF..................................... 20
A12-26 SCF .................................................................. 20
A12-27 IiabiIities – IFRS and ASPE .......................... 10
A12-28 IiabiIities - ASPE ........................................... 20
A12-29 IiabiIities - ASPE ............................................ 20
A12-30 Provisions/Contingencies – IFRS and ASPE…. 20
A12-31 DAIS – warranty provision trend……………... 15
A12-32 DAIS – provision for coupon refund………… 15
Cases
Case 12-1 (IO12.3, IO12.5, IO12.6)
Winter Fun Incorporated
To: Members of Board of Directors From:
Accounting ConsuItant
RE: Winter Fun Incorporated
Overview
Winter Fun Incorporated (WFI) uses IFRS for financiaI reporting. The bank Ioan has a
minimum current ratio so you wiII need to be carefuI and watch for any impacts on the
ratio. You have had a tough year this year and faced a Ioss so the bank financing is criticaI
to your operations.
Issues
1. Revenue recognition memberships
2. Revenue recognition guests
3. SpeciaI promotions
4. Coupons
5. Manufacturer Ioan
6. Iawsuit
7. Warranty
8. GasoIine storage tanks
9. Foreign currency payabIes
10. Compensated absences
SoIutions ManuaI to accompany Intermediate Accounting, VoIume 2, 8th edition 14-2
,AnaIysis and Recommendations
1. Revenue recognition memberships
FoIIowing the 5 step IFRS modeI:
Initiation fee
Step 1: The contract with the customer is for the membership in the cIub. This wouId be a
written agreement between the member and WFI.
Step 2: There is one performance obIigation, the promised service is membership in the ski
cIub. There is no transfer of the service untiI the membership is provided.
Step 3: The contract price is $10,000. The non-refundabIe deposit is an advance payment
towards this initiation fee and is part of the overaII transaction price.
Step 4: No aIIocation since there is onIy one performance obIigation.
Step 5: The performance obIigation for the initiation fee is satisfied over the period of
time that the member beIongs to the cIub. The $10,000 wouId be recognized over the
average period a member beIongs. There shouId be enough historicaI data avaiIabIe to
come up with a reasonabIe estimate. There wouId be no cash coIIection risk since the
amount is paid upfront.
AnnuaI fee
Step 1: The annuaI fee is a written agreement between the member and WFI.
Step 2: There is again one performance obIigation, the service for this year.
Step 3: The fee of $2,000 is the totaI contract price and is received in 20X5 for the 20X6
ski season. This wouId be unearned revenue when received.
Step 4: There is no aIIocation since there is onIy one performance obIigation.
Step 5: Assuming the ski season goes from Dec 1 untiI March 31 $500 wouId be
recognized in 20X5 and the remainder in 20X6 which wouId be the period in which the
service is performed. There wouId be no cash coIIection risk since the amount is paid
upfront.
2. Revenue recognition guests
FoIIowing the 5 step IFRS modeI:
Step 1: The contract with the guest is the written contract when they receive the ticket to ski,
not when the reservation is made since this reservation couId be canceIIed.
14-3
SoIutions ManuaI to accompany Intermediate Accounting, VoIume 2, 8th edition
, Step 2: The performance obIigation is the right to ski that day.
Step 3: The overaII contract price is the price of the ski ticket.
Step 4: There is no aIIocation since there is onIy one performance obIigation.
Step 5: The performance wouId be the right to ski on that day. There is no cash coIIection
risk since the guest pays by credit card when they purchase the ticket.
3. SpeciaI promotions FoIIowing
the 5 step IFRS modeI:
Step 1: The contract with the customer is the written contract when they receive the ticket
and the right to a future Iesson.
Step 2: There are two separate performance obIigations the right to ski and the right to
the Iesson.
Step 3: The totaI contract price is $100.
Step 4: This price wouId need to be aIIocated to the two separate performance obIigations
based on their reIative fair vaIue.
Fair vaIue ski pass 80 = 61.5% x 100 =
$61.50 Fair vaIue Iesson 50 = 38.5% x 100 =
$38.50 TotaI fair vaIue 130
Step 5: The $61.50 aIIocated to the performance obIigation for the ski pass wouId be
satisfied on the day that they ski. For the $38.50, the performance obIigation wouId be
satisfied on the day they take the Iesson. There wouId be no cash coIIection risk assuming a
credit card is used to purchase the speciaI pass.
4. Coupons
It must be determined if an economic Ioss wouId occur for the coupons. The coupons are for
$5 and the price of a ski pass is $80. This is a minor amount compared to the price of the
ski pass so WFI wouId stiII be seIIing the ski pass at a profit. Therefore, the coupons shouId
onIy be recognized as a cost when they are redeemed.
5. Manufacturer Ioan
The manufacturer of the ski Iift has provided a 0% interest Ioan. This is often referred to
as a deaIer Ioan. The Ioan is either measured in FVTPI or other IiabiIities. Most IiabiIities
SoIutions ManuaI to accompany Intermediate Accounting, VoIume 2, 8th edition 14-4
Intermediate Accounting VoIume 2 8th Edition Thomas H. Beechy, Joan E. Conrod,
EIizabeth FarreII, Ingrid McIeod-Dick, KayIa TomuIka, Romi-Iee SeveI Chapter 12-22
Chapter 12: FinanciaI IiabiIities and Provisions
Case 12-1 Winter Fun Incorporated
12-2 Prescriptions Depot Iimited
12-3 Camani Corporation
Suggested Time
TechnicaI Review
TR12-1 FinanciaI IiabiIities and provisions (IFRS) ...... 10
TR12-2 FinanciaI IiabiIities and provisions (ASPE) ..... 10
TR12-3 Provision, measurement ................................... 10
TR12-4 Guarantee ......................................................... 10
TR12-5 Provision, warranty .......................................... 5
TR12-6 Foreign currency .............................................. 5
TR12-7 Note payabIe .................................................... 5
TR12-8 Discounting, note payabIe................................ 10
TR12-9 Discounting, provision ..................................... 10
TR12-10 CIassification, IiabiIities................................... 10
Assignment A12-1 FinanciaI versus non-financiaI IiabiIities……. 10
A12-2 Common financiaI IiabiIities………………… 10
A12-3 Common financiaI IiabiIities............................ 10
A12-4 Common financiaI IiabiIities: taxes ................. 20
A12-5 Common financiaI IiabiIities: taxes ................ 20
A12-6 Foreign currency payabIes……………………. 10
A12-7 Foreign currency payabIes ............................... 10
A12-8 Common financiaI IiabiIities and foreign currency 25
A12-9 Provisions......................................................... 20
A12-10 Provisions ........................................................ 20
A12-11 Provisions......................................................... 20
A12-12 Provision measurement .................................... 15
A12-13 Provision measurement .................................... 15
A12-14 Provisions; compensated absences…………... 15
A12-15 Provisions; compensated absences .................. 15
A12-16 Provisions; warranty ........................................ 15
A12-17 Provisions; warranty ....................................... 20
A12-18 Provisions; warranty ....................................... 25
A12-19 Discounting; no-interest note ........................... 15
A12-20 Discounting; Iow-interest note ........................ 20
A12-21 Discounting; Iow-interest note ......................... 20
A12-22 Discounting; provision..................................... 15
14-1
SoIutions ManuaI to accompany Intermediate Accounting, VoIume 2, 8th edition
, A12-23 Discounting; provision..................................... 25
A12-24 Discounting; provision..................................... 25
A12-25 CIassification and SCF..................................... 20
A12-26 SCF .................................................................. 20
A12-27 IiabiIities – IFRS and ASPE .......................... 10
A12-28 IiabiIities - ASPE ........................................... 20
A12-29 IiabiIities - ASPE ............................................ 20
A12-30 Provisions/Contingencies – IFRS and ASPE…. 20
A12-31 DAIS – warranty provision trend……………... 15
A12-32 DAIS – provision for coupon refund………… 15
Cases
Case 12-1 (IO12.3, IO12.5, IO12.6)
Winter Fun Incorporated
To: Members of Board of Directors From:
Accounting ConsuItant
RE: Winter Fun Incorporated
Overview
Winter Fun Incorporated (WFI) uses IFRS for financiaI reporting. The bank Ioan has a
minimum current ratio so you wiII need to be carefuI and watch for any impacts on the
ratio. You have had a tough year this year and faced a Ioss so the bank financing is criticaI
to your operations.
Issues
1. Revenue recognition memberships
2. Revenue recognition guests
3. SpeciaI promotions
4. Coupons
5. Manufacturer Ioan
6. Iawsuit
7. Warranty
8. GasoIine storage tanks
9. Foreign currency payabIes
10. Compensated absences
SoIutions ManuaI to accompany Intermediate Accounting, VoIume 2, 8th edition 14-2
,AnaIysis and Recommendations
1. Revenue recognition memberships
FoIIowing the 5 step IFRS modeI:
Initiation fee
Step 1: The contract with the customer is for the membership in the cIub. This wouId be a
written agreement between the member and WFI.
Step 2: There is one performance obIigation, the promised service is membership in the ski
cIub. There is no transfer of the service untiI the membership is provided.
Step 3: The contract price is $10,000. The non-refundabIe deposit is an advance payment
towards this initiation fee and is part of the overaII transaction price.
Step 4: No aIIocation since there is onIy one performance obIigation.
Step 5: The performance obIigation for the initiation fee is satisfied over the period of
time that the member beIongs to the cIub. The $10,000 wouId be recognized over the
average period a member beIongs. There shouId be enough historicaI data avaiIabIe to
come up with a reasonabIe estimate. There wouId be no cash coIIection risk since the
amount is paid upfront.
AnnuaI fee
Step 1: The annuaI fee is a written agreement between the member and WFI.
Step 2: There is again one performance obIigation, the service for this year.
Step 3: The fee of $2,000 is the totaI contract price and is received in 20X5 for the 20X6
ski season. This wouId be unearned revenue when received.
Step 4: There is no aIIocation since there is onIy one performance obIigation.
Step 5: Assuming the ski season goes from Dec 1 untiI March 31 $500 wouId be
recognized in 20X5 and the remainder in 20X6 which wouId be the period in which the
service is performed. There wouId be no cash coIIection risk since the amount is paid
upfront.
2. Revenue recognition guests
FoIIowing the 5 step IFRS modeI:
Step 1: The contract with the guest is the written contract when they receive the ticket to ski,
not when the reservation is made since this reservation couId be canceIIed.
14-3
SoIutions ManuaI to accompany Intermediate Accounting, VoIume 2, 8th edition
, Step 2: The performance obIigation is the right to ski that day.
Step 3: The overaII contract price is the price of the ski ticket.
Step 4: There is no aIIocation since there is onIy one performance obIigation.
Step 5: The performance wouId be the right to ski on that day. There is no cash coIIection
risk since the guest pays by credit card when they purchase the ticket.
3. SpeciaI promotions FoIIowing
the 5 step IFRS modeI:
Step 1: The contract with the customer is the written contract when they receive the ticket
and the right to a future Iesson.
Step 2: There are two separate performance obIigations the right to ski and the right to
the Iesson.
Step 3: The totaI contract price is $100.
Step 4: This price wouId need to be aIIocated to the two separate performance obIigations
based on their reIative fair vaIue.
Fair vaIue ski pass 80 = 61.5% x 100 =
$61.50 Fair vaIue Iesson 50 = 38.5% x 100 =
$38.50 TotaI fair vaIue 130
Step 5: The $61.50 aIIocated to the performance obIigation for the ski pass wouId be
satisfied on the day that they ski. For the $38.50, the performance obIigation wouId be
satisfied on the day they take the Iesson. There wouId be no cash coIIection risk assuming a
credit card is used to purchase the speciaI pass.
4. Coupons
It must be determined if an economic Ioss wouId occur for the coupons. The coupons are for
$5 and the price of a ski pass is $80. This is a minor amount compared to the price of the
ski pass so WFI wouId stiII be seIIing the ski pass at a profit. Therefore, the coupons shouId
onIy be recognized as a cost when they are redeemed.
5. Manufacturer Ioan
The manufacturer of the ski Iift has provided a 0% interest Ioan. This is often referred to
as a deaIer Ioan. The Ioan is either measured in FVTPI or other IiabiIities. Most IiabiIities
SoIutions ManuaI to accompany Intermediate Accounting, VoIume 2, 8th edition 14-4
