Intermediate Accounting Volume 2, Seventh Canadian Edition Solution Manual

Name: Intermediate Accounting Volume 2, Seventh Canadian Edition Solution Manual
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Intermediate Accounting Volume 2, Seventh Canadian Edition Solution Manual gives you access to textbook solutions that make learning easier and more efficient.

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Chapter 12: Financial Liabilities and Provisions
Case 12-1 Ski Incorporated
12-2 Prescriptions Depot Limited
12-3 Camani Corporation
Suggested Time
Technical Review
TR12-1 Financial liabilities and provisions (IFRS) ...... 10
TR12-2 Financial liabilities 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 payable .................................................... 5
TR12-8 Discounting, note payable................................ 10
TR12-9 Discounting, provision ..................................... 10
TR12-10 Classification liabilities.................................... 10
Assignment A12-1 Common financial liabilities ............................ 10
A12-2 Common financial liabilities: taxes ................. 20
A12-3 Common financial liabilities: taxes ................ 20
A12-4 Foreign currency payables (*W) ...................... 10
A12-5 Common financial liabilities and foreign currency 25
A12-6 Provisions......................................................... 20
A12-7 Provisions (*W) ............................................... 20
A12-8 Provisions......................................................... 20
A12-9 Provision measurement .................................... 15
A12-10 Provision measurement .................................... 15
A12-11 Provisions; compensated absences .................. 15
A12-12 Provisions; warranty ........................................ 15
A12-13 Provisions; warranty ....................................... 20
A12-14 Provisions; warranty ....................................... 25
A12-15 Discounting; no-interest note ........................... 15
A12-16 Discounting; low-interest note (*W) ............... 20
A12-17 Discounting; low-interest note ......................... 20
A12-18 Discounting; provision ..................................... 15
A12-19 Discounting; provision ..................................... 25
A12-20 Discounting; provision ..................................... 25
A12-21 Classification and SCF..................................... 20
A12-22 SCF .................................................................. 20
A12-23 Liabilities - ASPE ........................................... 10
A12-24 Liabilities - ASPE (*W) ................................... 20
A12-25 Liabilities - ASPE ............................................ 20

Cases
Case 12-1
Ski Incorporated
To: Members of Board of Directors
From: Accounting Advisor
Overview
Ski Incorporated (SI) is a public company therefore you are using IFRS. The bank loan
has a minimum current ratio so you will need to be careful and watch for any impacts on
the ratio. You have had a tough year this year with a taxable loss so the bank financing is
critical to your operations. Management will be concerned with their bonus based on net
income but this will not be a concern this year with the taxable loss since there will not be
any bonus.
Issues
1. Taxable loss
2. Revenue recognition memberships
3. Revenue recognition guests
4. Special promotions
5. Coupons
6. Dealer Loan
7. Lawsuit
8. Lease
9. Gasoline storage tanks
Analysis and Recommendations
1. Taxable loss
SI had a taxable loss of $400,000 in 20X5. Since this is the first ever taxable loss the loss
would be carried back for up to three years to recover past taxes paid at the tax rates in
those years. Usually you would want to go back three years first so that if you incur
another loss next year you can still go back to the other two years if there is taxable
income remaining. This will result in an income tax receivable which will increase
current assets and have a positive impact on your current ratio.
2. Revenue recognition memberships
The contract with the customer is for the membership in the club. This would be a written
agreement between the member and SI. There is one performance obligation, the
promised service is membership in the ski club. There is no transfer of the service until

the membership is provided. The contract price is $10,000. The non-refundable deposit is
an advance payment towards this initiation fee and is part of the overall transaction price.
The performance obligation for the initiation fee is satisfied over the period of time that
the member belongs to the club. The $10,000 would be recognized over the average
period a member belongs. There should be enough historical data available to come up
with a reasonable estimate. There would be no cash collection risk since the amount is
paid upfront.
The annual fee is a written agreement between the member and SI. There is again one
performance obligation the service for this year. The fee of $2,000 is the total contract
price and is received in 20X5 for the 20X6 ski season. This would be unearned revenue
when received. Assuming the ski season goes from Dec 1 until March 31 $500 would be
recognized in 20X5 and the remainder in 20X6 which would be the period in which the
service is performed. There would be no cash collection risk since the amount is paid
upfront.
3. Revenue recognition guests
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 could be cancelled. The performance
obligation is the right to ski that day. The overall contract price is the price of the ski
ticket. The performance would be the right to ski on that day. There is no cash collection
risk since the guest pays by credit card when they purchase the ticket.
4. Special promotions
The contract with the customer is the written contract when they receive the ticket and
the right to a future lesson. There are two separate performance obligations the right to
ski and the right to the lesson. The total contract price is $100. This price would need to
be allocated to the two separate performance obligations based on their relative fair value.
Fair value ski pass 80 = 61.5% x 100 = $61.50
Fair value lesson 50 = 38.5% x 100 = $38.50
Total fair value 130
The $61.50 for the ski pass the performance obligation would be satisfied on the day that
they ski. For the $38.50 the performance obligation would be satisfied on the day they
take the lesson. There would be no cash collection risk assuming a credit card is used to
purchase the special pass.
5. Coupons
It must be determined if an economic loss would 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 SI would still be selling the ski pass at a profit. Therefore, the coupons
should only be recognized as a cost when they are redeemed.

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