Intermediate Accounting
IFRS Edition
4th Edition
Published on 24. June 2020
Book
Paperback/Softback
1408 pages
978-1-119-60751-9 (ISBN)
Description
Essential knowledge of International Financial Reporting Standards for students of global accounting
This important work provides the tools global accounting students need to understand international financial reporting standards (IFRS) and how they are applied in practice. This text emphasizes fair value, proper accounting for financial instruments, and new developments in international accounting. By presenting IFRS in light of current accounting practice, this book helps students gain practical knowledge of the topic that they can apply as they advance into their global accounting careers.
With this revised and updated Fourth Edition, students will develop a firm conceptual understanding of IFRS, as well as the ability to integrate their learning through practical exercises. Throughout this text, Global Accounting Insights highlight the important differences that remain between IFRS and U.S. GAAP, discussing the ongoing joint convergence efforts to resolve them. Comprehensive, up-to-date, and accurate, Intermediate Accounting IFRS includes proven pedagogical tools designed to help students learn more effectively.
* Comprehensively covers the latest International Financial Reporting Standards and how they are applied in practice
* Takes a comparative approach to help students understand the differences between IFRS, U.S. GAAP, and other important standards
* Emphasizes practical application of knowledge with end-of-chapter Review and Practice sections
* Provides authoritative references and citations to ensure content reliability and provide opportunities for further study
* Includes access to video walkthroughs, interactive content, and digital resources to support student engagement and ensure positive learning outcomes
As IFRS gains broad acceptance around the world, students of global accounting will need to be intimately familiar with these standards, and prepared to keep up with the rapid changes in the international environment. Intermediate Accounting IFRS answers to these pressing needs, making it the clear choice for accounting courses at the intermediate level.
This important work provides the tools global accounting students need to understand international financial reporting standards (IFRS) and how they are applied in practice. This text emphasizes fair value, proper accounting for financial instruments, and new developments in international accounting. By presenting IFRS in light of current accounting practice, this book helps students gain practical knowledge of the topic that they can apply as they advance into their global accounting careers.
With this revised and updated Fourth Edition, students will develop a firm conceptual understanding of IFRS, as well as the ability to integrate their learning through practical exercises. Throughout this text, Global Accounting Insights highlight the important differences that remain between IFRS and U.S. GAAP, discussing the ongoing joint convergence efforts to resolve them. Comprehensive, up-to-date, and accurate, Intermediate Accounting IFRS includes proven pedagogical tools designed to help students learn more effectively.
* Comprehensively covers the latest International Financial Reporting Standards and how they are applied in practice
* Takes a comparative approach to help students understand the differences between IFRS, U.S. GAAP, and other important standards
* Emphasizes practical application of knowledge with end-of-chapter Review and Practice sections
* Provides authoritative references and citations to ensure content reliability and provide opportunities for further study
* Includes access to video walkthroughs, interactive content, and digital resources to support student engagement and ensure positive learning outcomes
As IFRS gains broad acceptance around the world, students of global accounting will need to be intimately familiar with these standards, and prepared to keep up with the rapid changes in the international environment. Intermediate Accounting IFRS answers to these pressing needs, making it the clear choice for accounting courses at the intermediate level.
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Donald E. Kieso | Jerry J. Weygandt | Terry D. Warfield
Intermediate Accounting - IFRS Edition
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09/2017
3rd Edition
Wiley
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Content
1 Financial Reporting and Accounting Standards 1-1
Continuing Evolution of International Financial Reporting 1-1
Global Markets 1-3
Financial Statements and Financial Reporting 1-4
Accounting and Capital Allocation 1-4
High-Quality Standards 1-5
Objective of Financial Reporting 1-6
General-Purpose Financial Statements 1-6
Equity Investors and Creditors 1-6
What Do the Numbers Mean? Don't Forget Management Stewardship 1-6
Entity Perspective 1-6
Decision-Usefulness 1-7
Standard-Setting Organizations 1-7
International Organization of Securities Commissions (IOSCO) 1-8
What Do the Numbers Mean? What About the Little Guy? 1-8
International Accounting Standards Board (IASB) 1-9
Hierarchy of IFRS 1-11
Financial Reporting Challenges 1-12
IFRS in a Political Environment 1-12
What Do the Numbers Mean? Fair Consequences? 1-13
The Expectations Gap 1-13
Significant Financial Reporting Issues 1-14
Ethics in the Environment of Financial Accounting 1-14
International Convergence 1-15
What Do the Numbers Mean? Can You Do That? 1-15
Conclusion 1-16
Global Accounting Insights 1-24
2 Conceptual Framework for Financial Reporting 2-1
What is It? 2-1
Conceptual Framework 2-3
Need for a Conceptual Framework 2-3
What Do the Numbers Mean? What's Your Principle? 2-4
Development of a Conceptual Framework 2-4
Overview of the Conceptual Framework 2-5
Basic Objective 2-5
Fundamental Concepts 2-6
Qualitative Characteristics of Accounting Information 2-6
What Do the Numbers Mean? Unfaithful--For 20 Years 2-10
What Do the Numbers Mean? Show Me the Earnings! 2-12
Basic Elements 2-12
Assumptions 2-13
Economic Entity Assumption 2-14
Going Concern Assumption 2-14
Monetary Unit Assumption 2-14
Periodicity Assumption 2-15
Accrual Basis of Accounting 2-15
Measurement, Recognition, and Disclosure Concepts 2-16
Basic Principles of Accounting 2-16
Cost Constraint 2-21
What Do the Numbers Mean? Let's Be Prudent 2-22
Summary of the Structure 2-23
Global Accounting Insights 2-39
3 The Accounting Information System 3-1
Working on the Chain Gang 3-2
Accounting Information System 3-2
Basic Terminology 3-3
Debits and Credits 3-4
The Accounting Equation 3-4
Financial Statements and Ownership Structure 3-6
The Accounting Cycle 3-8
Record and Summarize Basic Transactions 3-9
Journalizing 3-9
Posting 3-10
Chart of Accounts 3-11
The Recording Process Illustrated 3-11
Trial Balance 3-17
What Do the Numbers Mean? Change Management 3-18
Identify and Prepare Adjusting Entries 3-18
Types of Adjusting Entries 3-19
Adjusting Entries for Deferrals 3-19
Adjusting Entries for Accruals 3-24
Adjusted Trial Balance 3-29
Preparing Financial Statements 3-29
Closing 3-30
Post-Closing Trial Balance 3-33
Reversing Entries--An Optional Step 3-33
What Do the Numbers Mean? Hey, It's Complicated 3-34
The Accounting Cycle Summarized 3-34
Financial Statements for a Merchandising Company 3-34
Income Statement 3-35
Retained Earnings Statement 3-35
Statement of Financial Position 3-36
Closing Entries 3-37
Appendix 3A Cash-Basis Accounting versus Accrual-Basis Accounting 3-37
Conversion from Cash Basis to Accrual Basis 3-39
Service Revenue Computation 3-39
Operating Expense Computation 3-40
Theoretical Weaknesses of the Cash Basis 3-41
Appendix 3B Using Reversing Entries 3-42
Illustration of Reversing Entries--Accruals 3-42
Illustration of Reversing Entries--Deferrals 3-43
Summary of Reversing Entries 3-44
Appendix 3C Using a Worksheet: The Accounting Cycle Revisited 3-44
Worksheet Columns 3-46
Trial Balance Columns 3-46
Adjustments Columns 3-46
Adjustments Entered on the Worksheet 3-46
Adjusted Trial Balance 3-47
Income Statement and Statement of Financial Position Columns 3-47
Preparing Financial Statements from a Worksheet 3-47
Global Accounting Insights 3-70
4 Income Statement and Related Information 4-1
Financial Statements Are Changing 4-2
Income Statement 4-3
Usefulness of the Income Statement 4-3
Limitations of the Income Statement 4-4
Quality of Earnings 4-4
What Do the Numbers Mean? Four: The Loneliest Number 4-5
Content and Format of the Income Statement 4-5
Elements of the Income Statement 4-5
Intermediate Components of the Income Statement 4-6
Condensed Income Statements 4-8
What Do the Numbers Mean? You May Need a Map 4-8
Reporting Various Income Items 4-9
Gross Profit 4-9
Income from Operations 4-9
Income Before Income Tax 4-12
Net Income 4-13
Earnings per Share 4-13
Discontinued Operations 4-14
Allocation to Non-Controlling Interest 4-16
Summary 4-17
What Do the Numbers Mean? Different Income Concepts 4-17
Accounting Changes and Errors 4-18
Changes in Accounting Principle 4-18
Changes in Accounting Estimates 4-19
Corrections of Errors 4-20
Summary 4-20
Related Equity Statements 4-21
Retained Earnings Statement 4-21
Comprehensive Income Statement 4-21
Statement of Changes in Equity 4-23
Global Accounting Insights 4-43
5 Statement of Financial Position and Statement of Cash Flows 5-1
Hey, It Doesn't Balance! 5-2
Statement of Financial Position 5-3
Usefulness of the Statement of Financial Position 5-3
Limitations of the Statement of Financial Position 5-4
Classification in the Statement of Financial Position 5-5
What Do the Numbers Mean? What Comes First? 5-6
What Do the Numbers Mean? Warning Signals 5-14
Preparation of the Statement of Financial Position 5-14
Statement of Cash Flows 5-16
Purpose of the Statement of Cash Flows 5-16
Content of the Statement of Cash Flows 5-16
What Do the Numbers Mean? Watch That Cash Flow 5-18
Preparation of the Statement of Cash Flows 5-18
Usefulness of the Statement of Cash Flows 5-21
Additional Information 5-24
Notes to the Financial Statements 5-24
Techniques of Disclosure 5-27
Other Guidelines 5-28
Evolving Issue Statement of Financial Position Reporting: Gross or Net? 5-29
Appendix 5A Ratio Analysis--A Reference 5-30
Using Ratios to Analyze Performance 5-30
Global Accounting Insights 5-56
6 Accounting and the Time Value of Money 6-1
How Do I Measure That? 6-2
Basic Time Value Concepts 6-3
Applications of Time Value Concepts 6-3
The Nature of Interest 6-4
Simple Interest 6-5
Compound Interest 6-5
What Do the Numbers Mean? A Pretty Good Start 6-6
Fundamental Variables 6-8
Single-Sum Problems 6-9
Future Value of a Single Sum 6-9
Present Value of a Single Sum 6-11
Solving for Other Unknowns in Single-Sum Problems 6-13
Annuities (Future Value) 6-14
Future Value of an Ordinary Annuity 6-14
Future Value of an Annuity Due 6-17
Examples of Future Value of Annuity Problems 6-18
Annuities (Present Value) 6-20
Present Value of an Ordinary Annuity 6-20
What Do the Numbers Mean? Up in Smoke 6-22
Present Value of an Annuity Due 6-22
Examples of Present Value of Annuity Problems 6-23
Other Time Value of Money Issues 6-25
Deferred Annuities 6-25
Valuation of Long-Term Bonds 6-27
Effective-Interest Method of Amortization of Bond Discount or Premium 6-28
Present Value Measurement 6-29
7 Cash and Receivables 7-1
Is Your Cash Trapped? 7-1
Cash 7-2
Reporting Cash 7-3
Summary of Cash-Related Items 7-5
Evolving Issue What Counts for Cash? 7-5
Receivables 7-6
Recognition of Accounts Receivable 7-7
Measurement of the Transaction Price 7-8
Variable Consideration 7-8
Valuation of Accounts Receivable 7-10
Direct Write-Off Method for Uncollectible Accounts 7-11
Allowance Method for Uncollectible Accounts 7-11
Notes Receivable 7-15
Recognition of Notes Receivable 7-15
Valuation of Notes Receivable 7-19
Other Issues Related to Receivables 7-19
Derecognition of Receivables 7-19
Presentation and Analysis 7-23
What Do the Numbers Mean? Securitizations--Good or Bad? 7-26
Appendix 7A Cash Controls 7-26
Using Bank Accounts 7-26
The Imprest Petty Cash System 7-27
Physical Protection of Cash Balances 7-28
Reconciliation of Bank Balances 7-29
Global Accounting Insights 7-56
8 Valuation of Inventories: A Cost-Basis Approach 8-1
It Should Be Easy, but It Isn't! 8-1
Inventory Issues 8-3
Classification 8-3
Inventory Cost Flow 8-4
Inventory Control 8-6
Determining Cost of Goods Sold 8-7
What Do the Numbers Mean? Staying Lean 8-7
Goods and Costs Included in Inventory 8-7
Goods Included in Inventory 8-7
What Do the Numbers Mean? A Retail Apocalypse! 8-10
Costs Included in Inventory 8-10
Which Cost Flow Assumption to Adopt? 8-12
Specific Identification 8-12
Average-Cost 8-13
First-In, First-Out (FIFO) 8-14
Inventory Valuation Methods--Summary Analysis 8-16
Effect of Inventory Errors 8-17
Ending Inventory Misstated 8-17
Purchases and Inventory Misstated 8-18
Appendix 8A LIFO Cost Flow Assumption 8-19
Last-In, First-Out (LIFO) 8-19
Inventory Valuation Methods--Summary Analysis 8-20
9 Inventories: Additional Valuation Issues 9-1
Not What It Seems to Be 9-2
Lower-of-Cost-or-Net Realizable Value (LCNRV) 9-3
Net Realizable Value 9-3
Illustration of LCNRV 9-4
Methods of Applying LCNRV 9-4
Recording Net Realizable Value Instead of Cost 9-5
Use of an Allowance 9-6
Recovery of Inventory Loss 9-6
Evaluation of the LCNRV Rule 9-7
Valuation Bases 9-7
Net Realizable Value 9-7
Relative Standalone Sales Value 9-10
Purchase Commitments--A Special Problem 9-11
The Gross Profit Method of Estimating Inventory 9-12
Computation of Gross Profit Percentage 9-13
Evaluation of Gross Profit Method 9-15
What Do the Numbers Mean? I'll Trade You 9-15
Retail Inventory Method 9-15
Retail-Method Concepts 9-16
Retail Inventory Method with Markups
and Markdowns--Conventional Method 9-17
Special Items Relating to Retail Method 9-19
Evaluation of Retail Inventory Method 9-20
Presentation and Analysis 9-20
Presentation of Inventories 9-21
Analysis of Inventories 9-22
Global Accounting Insights 9-42
10 Acquisition and Disposition of Property, Plant, and Equipment 10-1
Watch Your Spending 10-1
Property, Plant, and Equipment 10-2
Acquisition of Property, Plant, and Equipment 10-3
Cost of Land 10-4
Cost of Buildings 10-4
Cost of Equipment 10-5
Self-Constructed Assets 10-5
Borrowing Costs During Construction 10-6
Qualifying Assets 10-7
Capitalization Period 10-7
Amount to Capitalize 10-7
Disclosures 10-10
Valuation of Property, Plant, and Equipment 10-11
Cash Discounts 10-11
Deferred-Payment Contracts 10-11
Lump-Sum Purchases 10-12
Issuance of Shares 10-13
Exchanges of Non-Monetary Assets 10-13
Government Grants 10-16
Costs Subsequent to Acquisition 10-20
Additions 10-20
Improvements and Replacements 10-21
Rearrangement and Reorganization 10-21
Repairs 10-22
What Do the Numbers Mean? Disconnected 10-22
Summary of Costs Subsequent to Acquisition 10-23
Disposition of Property, Plant, and Equipment 10-23
Sale of Plant Assets 10-23
Involuntary Conversion 10-24
11 Depreciation, Impairments, and Depletion 11-1
Here Come the Write-Offs 11-2
Depreciation--A Method of Cost Allocation 11-3
Factors Involved in the Depreciation Process 11-3
Methods of Depreciation 11-4
Other Depreciation Issues 11-8
Component Depreciation 11-8
Depreciation and Partial Periods 11-9
Depreciation and Replacement of Property, Plant, and Equipment 11-10
Revision of Depreciation Rates 11-10
What Do the Numbers Mean? Depreciation Choices 11-11
Impairments 11-12
Recognizing Impairments 11-12
Impairment Illustrations 11-13
Reversal of Impairment Loss 11-14
Cash-Generating Units 11-15
Impairment of Assets to Be Disposed Of 11-15
Depletion 11-16
Establishing a Depletion Base 11-17
Write-Off of Resource Cost 11-18
Estimating Recoverable Reserves 11-19
Liquidating Dividends 11-19
Presentation on the Financial Statements 11-20
Revaluations 11-21
Recognizing Revaluations 11-21
Revaluation Issues 11-22
What Do the Numbers Mean? To Revalue or Not 11-23
Presentation and Analysis 11-23
Presentation of Property, Plant, Equipment, and Mineral Resources 11-23
Analysis of Property, Plant, and Equipment 11-25
Appendix 11A Revaluation of Property, Plant, and Equipment 11-26
Revaluation of Land 11-27
Revaluation--2022: Valuation Increase 11-27
Revaluation--2023: Decrease below Historical Cost 11-27
Revaluation--2024: Recovery of Impairment Loss 11-28
Revaluation of Depreciable Assets 11-29
Revaluation--2022: Valuation Increase 11-29
Revaluation--2023: Decrease below Historical Cost 11-30
Revaluation--2024: Recovery of Impairment Loss 11-31
Global Accounting Insights 11-55
12 Intangible Assets 12-1
Is This Sustainable? 12-1
Intangible Asset Issues 12-2
Characteristics 12-2
Valuation 12-3
Amortization of Intangibles 12-4
Types of Intangible Assets 12-6
Marketing-Related Intangible Assets 12-6
Customer-Related Intangible Assets 12-6
Artistic-Related Intangible Assets 12-7
Contract-Related Intangible Assets 12-8
Technology-Related Intangible Assets 12-8
What Do the Numbers Mean? Patent Battles 12-9
What Do the Numbers Mean? Patents--Strategic Lifeblood 12-10
Goodwill 12-10
Recording Goodwill 12-11
Goodwill Write-Off 12-13
Bargain Purchase 12-13
Impairment and Presentation of Intangible Assets 12-13
Impairment of Limited-Life Intangibles 12-14
Reversal of Impairment Loss 12-14
Impairment of Indefinite-Life Intangibles Other Than Goodwill 12-15
Impairment of Goodwill 12-15
Presentation of Intangible Assets 12-17
Research and Development Costs 12-18
What Do the Numbers Mean? Global R&D Incentives 12-18
Identifying R&D Activities 12-19
Accounting for R&D Activities 12-20
Evolving Issue Recognition of R&D and Internally Generated Intangibles 12-21
Costs Similar to R&D Costs 12-21
What Do the Numbers Mean? Branded 12-22
Presentation of Research and Development Costs 12-23
Global Accounting Insights 12-42
13 Current Liabilities, Provisions, and Contingencies 13-1
Now You See It, Now You Don't 13-2
Current Liabilities 13-3
Accounts Payable 13-4
Notes Payable 13-4
Current Maturities of Long-Term Debt 13-6
Short-Term Obligations Expected to Be Refinanced 13-6
What Do the Numbers Mean? Going, Going, Gone 13-7
Dividends Payable 13-8
Customer Advances and Deposits 13-8
Unearned Revenues 13-8
What Do the Numbers Mean? SAP's Liabilities--Good or Bad? 13-9
Sales and Value-Added Taxes Payable 13-9
Income Taxes Payable 13-11
Employee-Related Liabilities 13-12
Provisions 13-15
Recognition of a Provision 13-15
Measurement of Provisions 13-17
Common Types of Provisions 13-17
What Do the Numbers Mean? Frequent Flyers 13-21
Evolving Issue Greenhouse Gases: Let's Be Standard-Setters 13-23
Disclosures Related to Provisions 13-26
Contingencies 13-27
Contingent Liabilities 13-27
Contingent Assets 13-28
Presentation and Analysis 13-29
Presentation of Current Liabilities 13-29
Analysis of Current Liabilities 13-30
14 Non-Current Liabilities 14-1
Going Long 14-1
Bonds Payable 14-3
Types of Bonds 14-3
Issuing Bonds 14-4
What Do the Numbers Mean? All About Bonds 14-4
Valuation and Accounting for Bonds Payable 14-4
What Do the Numbers Mean? How About a 100-Year Bond? 14-7
Effective-Interest Method 14-7
Long-Term Notes Payable 14-12
Notes Issued at Face Value 14-12
Notes Not Issued at Face Value 14-12
What Do the Numbers Mean? Negative Interest Rates--Is That Even Possible? 14-14
Special Notes Payable Situations 14-15
Mortgage Notes Payable 14-17
Extinguishment of Non-Current Liabilities 14-18
Extinguishment with Cash Before Maturity 14-18
Extinguishment by Exchanging Assets or
Securities 14-19
Extinguishment with Modification of Terms 14-20
Presentation and Analysis 14-22
Fair Value Option 14-22
Off-Balance-Sheet Financing 14-23
Evolving Issue Off-and-On Reporting 14-25
Presentation of Non-Current Liabilities 14-25
Analysis of Non-Current Liabilities 14-26
Global Accounting Insights 14-45
15 Equity 15-1
It's a Global Market 15-1
Corporate Capital 15-3
Corporate Form 15-3
What Do the Numbers Mean? A Class (B) Act 15-5
Components of Equity 15-5
Issuance of Shares 15-6
Preference Shares 15-9
Reacquisition of Shares 15-11
Purchase of Treasury Shares 15-12
Sale of Treasury Shares 15-14
Retiring Treasury Shares 15-15
What Do the Numbers Mean? Signals to Buy? 15-15
Dividend Policy 15-15
Financial Condition and Dividend Distributions 15-16
Types of Dividends 15-16
What Do the Numbers Mean? Dividends Up, Dividends Down 15-18
Share Dividends and Share Splits 15-20
Presentation and Analysis of Equity 15-22
Presentation of Equity 15-22
Analysis 15-24
Appendix 15A Dividend Preferences and Book Value per Share 15-26
Dividend Preferences 15-26
Book Value per Share 15-27
Global Accounting Insights 15-48
16 Dilutive Securities and Earnings per Share 16-1
Breaking the Options Habit 16-2
Dilutive Securities 16-3
Debt and Equity 16-3
Convertible Debt 16-3
Convertible Preference Shares 16-8
What Do the Numbers Mean? How Low Can You Go? 16-9
Share Warrants 16-9
Share Warrants Issued with Other Securities 16-10
Rights to Purchase Additional Shares 16-11
Share Compensation Plans 16-12
Measurement--Share Compensation 16-13
Recognition--Share Compensation 16-14
Restricted Shares 16-16
Employee Share-Purchase Plans 16-17
Disclosure of Compensation Plans 16-18
Debate over Share-Option Accounting 16-18
Basic Earnings per Share 16-20
Earnings per Share--Simple Capital Structure 16-20
Comprehensive Example 16-23
Diluted Earnings per Share 16-24
Diluted EPS--Convertible Securities 16-25
Diluted EPS--Options and Warrants 16-27
Contingently Issuable Shares 16-28
Antidilution Revisited 16-28
EPS Presentation and Disclosure 16-29
Summary of EPS Computation 16-30
Appendix 16A Accounting for Share-Appreciation Rights 16-31
SARS--Share-Based Equity Awards 16-32
SARS--Share-Based Liability Awards 16-32
Share-Appreciation Rights Example 16-33
Appendix 16B Comprehensive Earnings per Share Example 16-34
Diluted Earnings Per Share 16-35
Global Accounting Insights 16-59
17 Investments 17-1
Winners and Losers 17-1
Debt Investments 17-3
Classification and Measurement of Financial Assets 17-3
A Closer Look at Debt Investments 17-4
What Do the Numbers Mean? What is Fair Value? 17-12
Equity Investments 17-13
Holdings of Less Than 20% 17-14
What Do the Numbers Mean? The Fair Value Challenge 17-18
Holdings Between 20% and 50% 17-19
Holdings of More Than 50% 17-21
What Do the Numbers Mean? Who's in Control Here? 17-21 Summary of Reporting Treatment of Investments 17-21
Other Reporting Issues 17-22
Impairment of Value 17-22
What Do the Numbers Mean? Will We Be Ready the Next Time Around? 17-23
Recycling Adjustments 17-27
Transfers Between Categories 17-30
Evolving Issue Fair Value Controversy 17-31
Appendix 17A Accounting for Derivative Instruments 17-32
Defining Derivatives 17-32
Who Uses Derivatives, and Why? 17-33
Producers and Consumers 17-33
Speculators and Arbitrageurs 17-33
Basic Principles in Accounting for Derivatives 17-34
Derivative Financial Instrument (Speculation) 17-35
Differences between Traditional and Derivative Financial Instruments 17-37
Derivatives Used for Hedging 17-37
What Do the Numbers Mean? Risky Business 17-38
Fair Value Hedge 17-38
Cash Flow Hedge 17-40
Other Reporting Issues 17-42
Embedded Derivatives 17-42
Qualifying Hedge Criteria 17-43
Summary of Derivatives Accounting 17-44
Comprehensive Hedge Accounting Example 17-45
Fair Value Hedge 17-45
Financial Statement Presentation of an Interest Rate Swap 17-47
Controversy and Concluding Remarks 17-48
Appendix 17B Fair Value Disclosures 17-48
Disclosure of Fair Value Information: Financial Instruments 17-49
Disclosure of Fair Values: Impaired Assets or Liabilities 17-51
Conclusion 17-52
Global Accounting Insights 17-77
18 Revenue Recognition 18-1
It's Back 18-1
Fundamentals of Revenue Recognition 18-3
Background 18-3
Revenue Recognition Standard 18-4
Overview of the Five-Step Process--Airbus Example 18-4
Extended Example of the Five-Step Process: BEAN 18-5
The Five-Step Process Revisited 18-9
Identifying the Contract with Customers--Step 1 18-9
Identifying Separate Performance Obligations--Step 2 18-10
Determining the Transaction Price--Step 3 18-11
Allocating the Transaction Price to Separate Performance Obligations--Step 4 18-15
Recognizing Revenue When (or as) Each Performance Obligation is Satisfied--Step 5 18-17
Summary 18-18
Accounting for Revenue Recognition Issues 18-19
Sales Returns and Allowances 18-19
What Do the Numbers Mean? Boomerang Sales! 18-22
Repurchase Agreements 18-23
Bill-and-Hold Arrangements 18-24
Principal-Agent Relationships 18-24
Consignments 18-25
Warranties 18-26
Non-refundable Upfront Fees 18-28
Summary 18-29
Presentation and Disclosure 18-29
Presentation 18-29
Disclosure 18-33
Evolving Issue Converged, Converging or Diverging? 18-34
Appendix 18A Long-Term Construction Contracts 18-34
Revenue Recognition over Time 18-34
Percentage-of-Completion Method 18-35
Cost-Recovery (Zero-Profit) Method 18-40
Long-Term Contract Losses 18-42
Appendix 18B Revenue Recognition for Franchises 18-44
Franchise Accounting 18-45
Recognition of Franchise Rights Revenue over Time 18-47
19 Accounting for Income Taxes 19-1
Safe (Tax) Haven? 19-1
Fundamentals of Accounting for Income Taxes 19-3
Future Taxable Amounts and Deferred Taxes 19-5
What Do the Numbers Mean? "Real Liabilities" 19-8
Future Deductible Amounts and Deferred Taxes 19-8
What Do the Numbers Mean? "Real Assets" 19-11
Deferred Tax Asset (Non-Recognition) 19-11
Additional Issues 19-12
Income Statement Presentation 19-12
Specific Differences 19-13
Tax Rate Considerations 19-16
What Do the Numbers Mean? Global Tax Rates 19-17
Accounting for Net Operating Losses 19-18
Loss Carryforward 19-18
Loss Carryforward Example 19-19
Evolving Issue Uncertain Tax Positions 19-22
Financial Statement Presentation 19-22
Statement of Financial Position 19-22
Income Statement 19-23
Tax Reconciliation 19-25
What Do the Numbers Mean? The Tax Twist 19-26
Review of the Asset-Liability Method 19-27
Appendix 19A Comprehensive Example of Interperiod Tax Allocation 19-28
First Year--2021 19-28
Taxable Income and Income Taxes Payable--2021 19-29
Computing Deferred Income Taxes--End of 2021 19-29
Deferred Tax Expense (Benefit) and the Journal Entry to Record Income Taxes--2021 19-30
Financial Statement Presentation--2021 19-31
Second Year--2022 19-32
Taxable Income and Income Taxes Payable--2022 19-32
Computing Deferred Income Taxes--End of 2022 19-33
Deferred Tax Expense (Benefit) and the Journal Entry to Record Income Taxes--2022 19-33
Financial Statement Presentation--2022 19-34
Appendix 19B Accounting for Net Operating Loss Carrybacks 19-34
Loss Carryback 19-35
Loss Carryback Example 19-35
Loss Carryback with Carryforward 19-36
Global Accounting Insights 19-58
20 Accounting for Pensions and Postretirement Benefits 20-1
Pension Peril 20-2
Fundamentals of Pension Plan Accounting 20-3
Defined Contribution Plan 20-4
Defined Benefit Plan 20-4
What Do the Numbers Mean? Which Plan is Right for You? 20-5
The Role of Actuaries in Pension Accounting 20-6
Measures of the Liability 20-6
Reporting Changes in the Defined Benefit Obligation (Asset) 20-8
Plan Assets and Actual Return 20-10
Using a Pension Worksheet 20-11
2022 Entries and Worksheet 20-12
Funded Status 20-13
Past Service Cost 20-13
2023 Entries and Worksheet 20-14
Remeasurements 20-15
Asset Gains and Losses 20-16
Liability Gains and Losses 20-16
2024 Entries and Worksheet 20-16
What Do the Numbers Mean? Roller Coaster 20-19
Reporting Pension Plans in Financial Statements 20-19
Within the Financial Statements 20-20
Within the Notes to the Financial Statements 20-22
Other Postretirement Benefits 20-23
Concluding Observations 20-24
What Do the Numbers Mean? How's Your Volatility? 20-24
Global Accounting Insights 20-45
21 Accounting for Leases 21-1
Times Are A-Changing 21-1
The Leasing Environment 21-3
A Look at the Lessee 21-3
Advantages of Leasing--Lessees 21-4
A Look at the Lessor 21-4
Advantages of Leasing--Lessors 21-5
What Do the Numbers Mean? Residual Value Regret 21-6
Lessee Accounting 21-6
Measurement of the Lease Liability and Lease Asset 21-7
Subsequent Lessee Accounting 21-9
Summary of Lessee Accounting 21-17
What Do the Numbers Mean? Your Lease is Killing My Income 21-18
Lessor Accounting 21-18
Economics of Leasing 21-18
Classification of Leases by the Lessor 21-19
What Do the Numbers Mean? Not So Fast 21-21
Accounting Measurement and Presentation 21-21
Lessor Accounting for Operating Leases 21-26
Special Lease Accounting Problems 21-28
Other Lease Adjustments 21-28
Presentation, Disclosure, and Analysis 21-30
Evolving Issue Bring It On! 21-34
Appendix 21A Sale-Leasebacks 21-35
Accounting Issues in Sale-Leaseback Transactions 21-36
Sale Transaction 21-36
Financing Transaction (Failed Sale) 21-37
Sale-Leaseback Example 21-37
Appendix 21B Comprehensive Example 21-39
Lease Terms: Scenario 1 21-39
Lease Classification 21-40
Lessee/Lessor Accounting 21-40
Lease Terms: Scenario 2 21-42
Lease Classification 21-42
Lessee Accounting 21-43
Lessor Accounting--Operating Lease 21-44
Global Accounting Insights 21-69
22 Accounting Changes and Error Analysis 22-1
Needed: Valid Comparisons 22-2
Accounting Changes 22-3
Background 22-3
Changes in Accounting Policy 22-3
What Do the Numbers Mean? Comparison Challenges--Squared 22-5
Impracticability 22-14
Changes in Accounting Estimates 22-14
Prospective Reporting 22-15
What Do the Numbers Mean? A Change for the Better? 22-16
Disclosures 22-17
Accounting Errors 22-17
Example of Error Correction 22-18
What Do the Numbers Mean? Guard the Financial Statements! 22-20
Summary of Accounting Changes and Correction of Errors 22-21
What Do the Numbers Mean? What's Your Motivation? 22-22
Error Analysis 22-23
Statement of Financial Position Errors 22-23
Income Statement Errors 22-23
Statement of Financial Position and Income Statement Errors 22-24
Comprehensive Example: Numerous Errors 22-27
Preparation of Financial Statements with Error Corrections 22-30
Global Accounting Insights 22-54
23 Statement of Cash Flows 23-1
Show Me the Money! 23-1
The Statement of Cash Flows 23-2
Usefulness of the Statement of Cash Flows 23-3
Classification of Cash Flows 23-3
What Do the Numbers Mean? How's My Cash Flow? 23-5
Cash and Cash Equivalents 23-5
Format of the Statement of Cash Flows 23-6
Preparing the Statement of Cash Flows 23-6
Illustrations--Tax Consultants Inc. 23-7
Sources of Information for the Statement of Cash Flows 23-16
Net Cash Flow from Operating Activities--Direct Method 23-16
Evolving Issue Direct versus Indirect 23-21
Special Problems in Statement Preparation 23-22
Adjustments to Net Income 23-22
Accounts Receivable (Net) 23-25
Other Working Capital Changes 23-27
Net Losses 23-27
Disclosures 23-28
What Do the Numbers Mean? Better than ROA? 23-29
Use of a Worksheet 23-30
Preparation of the Worksheet 23-31
Analysis of Transactions 23-31
Preparation of Final Statement 23-38
Global Accounting Insights 23-65
24 Presentation and Disclosure in Financial Reporting 24-1
We Need Better, Not More 24-1
Full Disclosure Principle 24-3
Increase in Reporting Requirements 24-4
Differential Disclosure 24-5
Notes to the Financial Statements 24-5
What Do the Numbers Mean? Footnote Secrets 24-8
Disclosure Issues 24-8
Disclosure of Special Transactions or Events 24-8
Events after the Reporting Period (Subsequent Events) 24-10
Reporting for Diversified (Conglomerate) Companies 24-12
Interim Reports 24-17
Evolving Issue It's Faster But is It Better? 24-20
Auditor's and Management's Reports 24-21
Auditor's Report 24-21
What Do the Numbers Mean? Heart of the Matter 24-26
Management's Reports 24-26
Current Reporting Issues 24-31
Reporting on Financial Forecasts and Projections 24-31
What Do the Numbers Mean? Global Forecasts 24-32
Internet Financial Reporting 24-33
Fraudulent Financial Reporting 24-33
Criteria for Making Accounting and Reporting Choices 24-35
Evolving Issue Disclosure Overload? 24-36
Appendix 24A Basic Financial Statement Analysis 24-36
Perspective on Financial Statement Analysis 24-37
Ratio Analysis 24-37
Limitations of Ratio Analysis 24-39
Comparative Analysis 24-40
Percentage (Common-Size) Analysis 24-41
Appendix 24B First-Time Adoption of IFRS 24-42
General Guidelines 24-42
Relevant Dates 24-43
Implementation Steps 24-43
Opening IFRS Statement of Financial Position 24-43
Exemptions from Retrospective Treatment 24-45
Presentation and Disclosure 24-46
Summary 24-47
Global Accounting Insights 24-69
Appendix A Specimen Financial Statements: Marks and Spencer Group plc A-1
Appendix B Specimen Financial Statements: adidas AG B-1
Appendix C Specimen Financial Statements: Puma Group C-1
Company Index I-1
Subject Index I-3
Continuing Evolution of International Financial Reporting 1-1
Global Markets 1-3
Financial Statements and Financial Reporting 1-4
Accounting and Capital Allocation 1-4
High-Quality Standards 1-5
Objective of Financial Reporting 1-6
General-Purpose Financial Statements 1-6
Equity Investors and Creditors 1-6
What Do the Numbers Mean? Don't Forget Management Stewardship 1-6
Entity Perspective 1-6
Decision-Usefulness 1-7
Standard-Setting Organizations 1-7
International Organization of Securities Commissions (IOSCO) 1-8
What Do the Numbers Mean? What About the Little Guy? 1-8
International Accounting Standards Board (IASB) 1-9
Hierarchy of IFRS 1-11
Financial Reporting Challenges 1-12
IFRS in a Political Environment 1-12
What Do the Numbers Mean? Fair Consequences? 1-13
The Expectations Gap 1-13
Significant Financial Reporting Issues 1-14
Ethics in the Environment of Financial Accounting 1-14
International Convergence 1-15
What Do the Numbers Mean? Can You Do That? 1-15
Conclusion 1-16
Global Accounting Insights 1-24
2 Conceptual Framework for Financial Reporting 2-1
What is It? 2-1
Conceptual Framework 2-3
Need for a Conceptual Framework 2-3
What Do the Numbers Mean? What's Your Principle? 2-4
Development of a Conceptual Framework 2-4
Overview of the Conceptual Framework 2-5
Basic Objective 2-5
Fundamental Concepts 2-6
Qualitative Characteristics of Accounting Information 2-6
What Do the Numbers Mean? Unfaithful--For 20 Years 2-10
What Do the Numbers Mean? Show Me the Earnings! 2-12
Basic Elements 2-12
Assumptions 2-13
Economic Entity Assumption 2-14
Going Concern Assumption 2-14
Monetary Unit Assumption 2-14
Periodicity Assumption 2-15
Accrual Basis of Accounting 2-15
Measurement, Recognition, and Disclosure Concepts 2-16
Basic Principles of Accounting 2-16
Cost Constraint 2-21
What Do the Numbers Mean? Let's Be Prudent 2-22
Summary of the Structure 2-23
Global Accounting Insights 2-39
3 The Accounting Information System 3-1
Working on the Chain Gang 3-2
Accounting Information System 3-2
Basic Terminology 3-3
Debits and Credits 3-4
The Accounting Equation 3-4
Financial Statements and Ownership Structure 3-6
The Accounting Cycle 3-8
Record and Summarize Basic Transactions 3-9
Journalizing 3-9
Posting 3-10
Chart of Accounts 3-11
The Recording Process Illustrated 3-11
Trial Balance 3-17
What Do the Numbers Mean? Change Management 3-18
Identify and Prepare Adjusting Entries 3-18
Types of Adjusting Entries 3-19
Adjusting Entries for Deferrals 3-19
Adjusting Entries for Accruals 3-24
Adjusted Trial Balance 3-29
Preparing Financial Statements 3-29
Closing 3-30
Post-Closing Trial Balance 3-33
Reversing Entries--An Optional Step 3-33
What Do the Numbers Mean? Hey, It's Complicated 3-34
The Accounting Cycle Summarized 3-34
Financial Statements for a Merchandising Company 3-34
Income Statement 3-35
Retained Earnings Statement 3-35
Statement of Financial Position 3-36
Closing Entries 3-37
Appendix 3A Cash-Basis Accounting versus Accrual-Basis Accounting 3-37
Conversion from Cash Basis to Accrual Basis 3-39
Service Revenue Computation 3-39
Operating Expense Computation 3-40
Theoretical Weaknesses of the Cash Basis 3-41
Appendix 3B Using Reversing Entries 3-42
Illustration of Reversing Entries--Accruals 3-42
Illustration of Reversing Entries--Deferrals 3-43
Summary of Reversing Entries 3-44
Appendix 3C Using a Worksheet: The Accounting Cycle Revisited 3-44
Worksheet Columns 3-46
Trial Balance Columns 3-46
Adjustments Columns 3-46
Adjustments Entered on the Worksheet 3-46
Adjusted Trial Balance 3-47
Income Statement and Statement of Financial Position Columns 3-47
Preparing Financial Statements from a Worksheet 3-47
Global Accounting Insights 3-70
4 Income Statement and Related Information 4-1
Financial Statements Are Changing 4-2
Income Statement 4-3
Usefulness of the Income Statement 4-3
Limitations of the Income Statement 4-4
Quality of Earnings 4-4
What Do the Numbers Mean? Four: The Loneliest Number 4-5
Content and Format of the Income Statement 4-5
Elements of the Income Statement 4-5
Intermediate Components of the Income Statement 4-6
Condensed Income Statements 4-8
What Do the Numbers Mean? You May Need a Map 4-8
Reporting Various Income Items 4-9
Gross Profit 4-9
Income from Operations 4-9
Income Before Income Tax 4-12
Net Income 4-13
Earnings per Share 4-13
Discontinued Operations 4-14
Allocation to Non-Controlling Interest 4-16
Summary 4-17
What Do the Numbers Mean? Different Income Concepts 4-17
Accounting Changes and Errors 4-18
Changes in Accounting Principle 4-18
Changes in Accounting Estimates 4-19
Corrections of Errors 4-20
Summary 4-20
Related Equity Statements 4-21
Retained Earnings Statement 4-21
Comprehensive Income Statement 4-21
Statement of Changes in Equity 4-23
Global Accounting Insights 4-43
5 Statement of Financial Position and Statement of Cash Flows 5-1
Hey, It Doesn't Balance! 5-2
Statement of Financial Position 5-3
Usefulness of the Statement of Financial Position 5-3
Limitations of the Statement of Financial Position 5-4
Classification in the Statement of Financial Position 5-5
What Do the Numbers Mean? What Comes First? 5-6
What Do the Numbers Mean? Warning Signals 5-14
Preparation of the Statement of Financial Position 5-14
Statement of Cash Flows 5-16
Purpose of the Statement of Cash Flows 5-16
Content of the Statement of Cash Flows 5-16
What Do the Numbers Mean? Watch That Cash Flow 5-18
Preparation of the Statement of Cash Flows 5-18
Usefulness of the Statement of Cash Flows 5-21
Additional Information 5-24
Notes to the Financial Statements 5-24
Techniques of Disclosure 5-27
Other Guidelines 5-28
Evolving Issue Statement of Financial Position Reporting: Gross or Net? 5-29
Appendix 5A Ratio Analysis--A Reference 5-30
Using Ratios to Analyze Performance 5-30
Global Accounting Insights 5-56
6 Accounting and the Time Value of Money 6-1
How Do I Measure That? 6-2
Basic Time Value Concepts 6-3
Applications of Time Value Concepts 6-3
The Nature of Interest 6-4
Simple Interest 6-5
Compound Interest 6-5
What Do the Numbers Mean? A Pretty Good Start 6-6
Fundamental Variables 6-8
Single-Sum Problems 6-9
Future Value of a Single Sum 6-9
Present Value of a Single Sum 6-11
Solving for Other Unknowns in Single-Sum Problems 6-13
Annuities (Future Value) 6-14
Future Value of an Ordinary Annuity 6-14
Future Value of an Annuity Due 6-17
Examples of Future Value of Annuity Problems 6-18
Annuities (Present Value) 6-20
Present Value of an Ordinary Annuity 6-20
What Do the Numbers Mean? Up in Smoke 6-22
Present Value of an Annuity Due 6-22
Examples of Present Value of Annuity Problems 6-23
Other Time Value of Money Issues 6-25
Deferred Annuities 6-25
Valuation of Long-Term Bonds 6-27
Effective-Interest Method of Amortization of Bond Discount or Premium 6-28
Present Value Measurement 6-29
7 Cash and Receivables 7-1
Is Your Cash Trapped? 7-1
Cash 7-2
Reporting Cash 7-3
Summary of Cash-Related Items 7-5
Evolving Issue What Counts for Cash? 7-5
Receivables 7-6
Recognition of Accounts Receivable 7-7
Measurement of the Transaction Price 7-8
Variable Consideration 7-8
Valuation of Accounts Receivable 7-10
Direct Write-Off Method for Uncollectible Accounts 7-11
Allowance Method for Uncollectible Accounts 7-11
Notes Receivable 7-15
Recognition of Notes Receivable 7-15
Valuation of Notes Receivable 7-19
Other Issues Related to Receivables 7-19
Derecognition of Receivables 7-19
Presentation and Analysis 7-23
What Do the Numbers Mean? Securitizations--Good or Bad? 7-26
Appendix 7A Cash Controls 7-26
Using Bank Accounts 7-26
The Imprest Petty Cash System 7-27
Physical Protection of Cash Balances 7-28
Reconciliation of Bank Balances 7-29
Global Accounting Insights 7-56
8 Valuation of Inventories: A Cost-Basis Approach 8-1
It Should Be Easy, but It Isn't! 8-1
Inventory Issues 8-3
Classification 8-3
Inventory Cost Flow 8-4
Inventory Control 8-6
Determining Cost of Goods Sold 8-7
What Do the Numbers Mean? Staying Lean 8-7
Goods and Costs Included in Inventory 8-7
Goods Included in Inventory 8-7
What Do the Numbers Mean? A Retail Apocalypse! 8-10
Costs Included in Inventory 8-10
Which Cost Flow Assumption to Adopt? 8-12
Specific Identification 8-12
Average-Cost 8-13
First-In, First-Out (FIFO) 8-14
Inventory Valuation Methods--Summary Analysis 8-16
Effect of Inventory Errors 8-17
Ending Inventory Misstated 8-17
Purchases and Inventory Misstated 8-18
Appendix 8A LIFO Cost Flow Assumption 8-19
Last-In, First-Out (LIFO) 8-19
Inventory Valuation Methods--Summary Analysis 8-20
9 Inventories: Additional Valuation Issues 9-1
Not What It Seems to Be 9-2
Lower-of-Cost-or-Net Realizable Value (LCNRV) 9-3
Net Realizable Value 9-3
Illustration of LCNRV 9-4
Methods of Applying LCNRV 9-4
Recording Net Realizable Value Instead of Cost 9-5
Use of an Allowance 9-6
Recovery of Inventory Loss 9-6
Evaluation of the LCNRV Rule 9-7
Valuation Bases 9-7
Net Realizable Value 9-7
Relative Standalone Sales Value 9-10
Purchase Commitments--A Special Problem 9-11
The Gross Profit Method of Estimating Inventory 9-12
Computation of Gross Profit Percentage 9-13
Evaluation of Gross Profit Method 9-15
What Do the Numbers Mean? I'll Trade You 9-15
Retail Inventory Method 9-15
Retail-Method Concepts 9-16
Retail Inventory Method with Markups
and Markdowns--Conventional Method 9-17
Special Items Relating to Retail Method 9-19
Evaluation of Retail Inventory Method 9-20
Presentation and Analysis 9-20
Presentation of Inventories 9-21
Analysis of Inventories 9-22
Global Accounting Insights 9-42
10 Acquisition and Disposition of Property, Plant, and Equipment 10-1
Watch Your Spending 10-1
Property, Plant, and Equipment 10-2
Acquisition of Property, Plant, and Equipment 10-3
Cost of Land 10-4
Cost of Buildings 10-4
Cost of Equipment 10-5
Self-Constructed Assets 10-5
Borrowing Costs During Construction 10-6
Qualifying Assets 10-7
Capitalization Period 10-7
Amount to Capitalize 10-7
Disclosures 10-10
Valuation of Property, Plant, and Equipment 10-11
Cash Discounts 10-11
Deferred-Payment Contracts 10-11
Lump-Sum Purchases 10-12
Issuance of Shares 10-13
Exchanges of Non-Monetary Assets 10-13
Government Grants 10-16
Costs Subsequent to Acquisition 10-20
Additions 10-20
Improvements and Replacements 10-21
Rearrangement and Reorganization 10-21
Repairs 10-22
What Do the Numbers Mean? Disconnected 10-22
Summary of Costs Subsequent to Acquisition 10-23
Disposition of Property, Plant, and Equipment 10-23
Sale of Plant Assets 10-23
Involuntary Conversion 10-24
11 Depreciation, Impairments, and Depletion 11-1
Here Come the Write-Offs 11-2
Depreciation--A Method of Cost Allocation 11-3
Factors Involved in the Depreciation Process 11-3
Methods of Depreciation 11-4
Other Depreciation Issues 11-8
Component Depreciation 11-8
Depreciation and Partial Periods 11-9
Depreciation and Replacement of Property, Plant, and Equipment 11-10
Revision of Depreciation Rates 11-10
What Do the Numbers Mean? Depreciation Choices 11-11
Impairments 11-12
Recognizing Impairments 11-12
Impairment Illustrations 11-13
Reversal of Impairment Loss 11-14
Cash-Generating Units 11-15
Impairment of Assets to Be Disposed Of 11-15
Depletion 11-16
Establishing a Depletion Base 11-17
Write-Off of Resource Cost 11-18
Estimating Recoverable Reserves 11-19
Liquidating Dividends 11-19
Presentation on the Financial Statements 11-20
Revaluations 11-21
Recognizing Revaluations 11-21
Revaluation Issues 11-22
What Do the Numbers Mean? To Revalue or Not 11-23
Presentation and Analysis 11-23
Presentation of Property, Plant, Equipment, and Mineral Resources 11-23
Analysis of Property, Plant, and Equipment 11-25
Appendix 11A Revaluation of Property, Plant, and Equipment 11-26
Revaluation of Land 11-27
Revaluation--2022: Valuation Increase 11-27
Revaluation--2023: Decrease below Historical Cost 11-27
Revaluation--2024: Recovery of Impairment Loss 11-28
Revaluation of Depreciable Assets 11-29
Revaluation--2022: Valuation Increase 11-29
Revaluation--2023: Decrease below Historical Cost 11-30
Revaluation--2024: Recovery of Impairment Loss 11-31
Global Accounting Insights 11-55
12 Intangible Assets 12-1
Is This Sustainable? 12-1
Intangible Asset Issues 12-2
Characteristics 12-2
Valuation 12-3
Amortization of Intangibles 12-4
Types of Intangible Assets 12-6
Marketing-Related Intangible Assets 12-6
Customer-Related Intangible Assets 12-6
Artistic-Related Intangible Assets 12-7
Contract-Related Intangible Assets 12-8
Technology-Related Intangible Assets 12-8
What Do the Numbers Mean? Patent Battles 12-9
What Do the Numbers Mean? Patents--Strategic Lifeblood 12-10
Goodwill 12-10
Recording Goodwill 12-11
Goodwill Write-Off 12-13
Bargain Purchase 12-13
Impairment and Presentation of Intangible Assets 12-13
Impairment of Limited-Life Intangibles 12-14
Reversal of Impairment Loss 12-14
Impairment of Indefinite-Life Intangibles Other Than Goodwill 12-15
Impairment of Goodwill 12-15
Presentation of Intangible Assets 12-17
Research and Development Costs 12-18
What Do the Numbers Mean? Global R&D Incentives 12-18
Identifying R&D Activities 12-19
Accounting for R&D Activities 12-20
Evolving Issue Recognition of R&D and Internally Generated Intangibles 12-21
Costs Similar to R&D Costs 12-21
What Do the Numbers Mean? Branded 12-22
Presentation of Research and Development Costs 12-23
Global Accounting Insights 12-42
13 Current Liabilities, Provisions, and Contingencies 13-1
Now You See It, Now You Don't 13-2
Current Liabilities 13-3
Accounts Payable 13-4
Notes Payable 13-4
Current Maturities of Long-Term Debt 13-6
Short-Term Obligations Expected to Be Refinanced 13-6
What Do the Numbers Mean? Going, Going, Gone 13-7
Dividends Payable 13-8
Customer Advances and Deposits 13-8
Unearned Revenues 13-8
What Do the Numbers Mean? SAP's Liabilities--Good or Bad? 13-9
Sales and Value-Added Taxes Payable 13-9
Income Taxes Payable 13-11
Employee-Related Liabilities 13-12
Provisions 13-15
Recognition of a Provision 13-15
Measurement of Provisions 13-17
Common Types of Provisions 13-17
What Do the Numbers Mean? Frequent Flyers 13-21
Evolving Issue Greenhouse Gases: Let's Be Standard-Setters 13-23
Disclosures Related to Provisions 13-26
Contingencies 13-27
Contingent Liabilities 13-27
Contingent Assets 13-28
Presentation and Analysis 13-29
Presentation of Current Liabilities 13-29
Analysis of Current Liabilities 13-30
14 Non-Current Liabilities 14-1
Going Long 14-1
Bonds Payable 14-3
Types of Bonds 14-3
Issuing Bonds 14-4
What Do the Numbers Mean? All About Bonds 14-4
Valuation and Accounting for Bonds Payable 14-4
What Do the Numbers Mean? How About a 100-Year Bond? 14-7
Effective-Interest Method 14-7
Long-Term Notes Payable 14-12
Notes Issued at Face Value 14-12
Notes Not Issued at Face Value 14-12
What Do the Numbers Mean? Negative Interest Rates--Is That Even Possible? 14-14
Special Notes Payable Situations 14-15
Mortgage Notes Payable 14-17
Extinguishment of Non-Current Liabilities 14-18
Extinguishment with Cash Before Maturity 14-18
Extinguishment by Exchanging Assets or
Securities 14-19
Extinguishment with Modification of Terms 14-20
Presentation and Analysis 14-22
Fair Value Option 14-22
Off-Balance-Sheet Financing 14-23
Evolving Issue Off-and-On Reporting 14-25
Presentation of Non-Current Liabilities 14-25
Analysis of Non-Current Liabilities 14-26
Global Accounting Insights 14-45
15 Equity 15-1
It's a Global Market 15-1
Corporate Capital 15-3
Corporate Form 15-3
What Do the Numbers Mean? A Class (B) Act 15-5
Components of Equity 15-5
Issuance of Shares 15-6
Preference Shares 15-9
Reacquisition of Shares 15-11
Purchase of Treasury Shares 15-12
Sale of Treasury Shares 15-14
Retiring Treasury Shares 15-15
What Do the Numbers Mean? Signals to Buy? 15-15
Dividend Policy 15-15
Financial Condition and Dividend Distributions 15-16
Types of Dividends 15-16
What Do the Numbers Mean? Dividends Up, Dividends Down 15-18
Share Dividends and Share Splits 15-20
Presentation and Analysis of Equity 15-22
Presentation of Equity 15-22
Analysis 15-24
Appendix 15A Dividend Preferences and Book Value per Share 15-26
Dividend Preferences 15-26
Book Value per Share 15-27
Global Accounting Insights 15-48
16 Dilutive Securities and Earnings per Share 16-1
Breaking the Options Habit 16-2
Dilutive Securities 16-3
Debt and Equity 16-3
Convertible Debt 16-3
Convertible Preference Shares 16-8
What Do the Numbers Mean? How Low Can You Go? 16-9
Share Warrants 16-9
Share Warrants Issued with Other Securities 16-10
Rights to Purchase Additional Shares 16-11
Share Compensation Plans 16-12
Measurement--Share Compensation 16-13
Recognition--Share Compensation 16-14
Restricted Shares 16-16
Employee Share-Purchase Plans 16-17
Disclosure of Compensation Plans 16-18
Debate over Share-Option Accounting 16-18
Basic Earnings per Share 16-20
Earnings per Share--Simple Capital Structure 16-20
Comprehensive Example 16-23
Diluted Earnings per Share 16-24
Diluted EPS--Convertible Securities 16-25
Diluted EPS--Options and Warrants 16-27
Contingently Issuable Shares 16-28
Antidilution Revisited 16-28
EPS Presentation and Disclosure 16-29
Summary of EPS Computation 16-30
Appendix 16A Accounting for Share-Appreciation Rights 16-31
SARS--Share-Based Equity Awards 16-32
SARS--Share-Based Liability Awards 16-32
Share-Appreciation Rights Example 16-33
Appendix 16B Comprehensive Earnings per Share Example 16-34
Diluted Earnings Per Share 16-35
Global Accounting Insights 16-59
17 Investments 17-1
Winners and Losers 17-1
Debt Investments 17-3
Classification and Measurement of Financial Assets 17-3
A Closer Look at Debt Investments 17-4
What Do the Numbers Mean? What is Fair Value? 17-12
Equity Investments 17-13
Holdings of Less Than 20% 17-14
What Do the Numbers Mean? The Fair Value Challenge 17-18
Holdings Between 20% and 50% 17-19
Holdings of More Than 50% 17-21
What Do the Numbers Mean? Who's in Control Here? 17-21 Summary of Reporting Treatment of Investments 17-21
Other Reporting Issues 17-22
Impairment of Value 17-22
What Do the Numbers Mean? Will We Be Ready the Next Time Around? 17-23
Recycling Adjustments 17-27
Transfers Between Categories 17-30
Evolving Issue Fair Value Controversy 17-31
Appendix 17A Accounting for Derivative Instruments 17-32
Defining Derivatives 17-32
Who Uses Derivatives, and Why? 17-33
Producers and Consumers 17-33
Speculators and Arbitrageurs 17-33
Basic Principles in Accounting for Derivatives 17-34
Derivative Financial Instrument (Speculation) 17-35
Differences between Traditional and Derivative Financial Instruments 17-37
Derivatives Used for Hedging 17-37
What Do the Numbers Mean? Risky Business 17-38
Fair Value Hedge 17-38
Cash Flow Hedge 17-40
Other Reporting Issues 17-42
Embedded Derivatives 17-42
Qualifying Hedge Criteria 17-43
Summary of Derivatives Accounting 17-44
Comprehensive Hedge Accounting Example 17-45
Fair Value Hedge 17-45
Financial Statement Presentation of an Interest Rate Swap 17-47
Controversy and Concluding Remarks 17-48
Appendix 17B Fair Value Disclosures 17-48
Disclosure of Fair Value Information: Financial Instruments 17-49
Disclosure of Fair Values: Impaired Assets or Liabilities 17-51
Conclusion 17-52
Global Accounting Insights 17-77
18 Revenue Recognition 18-1
It's Back 18-1
Fundamentals of Revenue Recognition 18-3
Background 18-3
Revenue Recognition Standard 18-4
Overview of the Five-Step Process--Airbus Example 18-4
Extended Example of the Five-Step Process: BEAN 18-5
The Five-Step Process Revisited 18-9
Identifying the Contract with Customers--Step 1 18-9
Identifying Separate Performance Obligations--Step 2 18-10
Determining the Transaction Price--Step 3 18-11
Allocating the Transaction Price to Separate Performance Obligations--Step 4 18-15
Recognizing Revenue When (or as) Each Performance Obligation is Satisfied--Step 5 18-17
Summary 18-18
Accounting for Revenue Recognition Issues 18-19
Sales Returns and Allowances 18-19
What Do the Numbers Mean? Boomerang Sales! 18-22
Repurchase Agreements 18-23
Bill-and-Hold Arrangements 18-24
Principal-Agent Relationships 18-24
Consignments 18-25
Warranties 18-26
Non-refundable Upfront Fees 18-28
Summary 18-29
Presentation and Disclosure 18-29
Presentation 18-29
Disclosure 18-33
Evolving Issue Converged, Converging or Diverging? 18-34
Appendix 18A Long-Term Construction Contracts 18-34
Revenue Recognition over Time 18-34
Percentage-of-Completion Method 18-35
Cost-Recovery (Zero-Profit) Method 18-40
Long-Term Contract Losses 18-42
Appendix 18B Revenue Recognition for Franchises 18-44
Franchise Accounting 18-45
Recognition of Franchise Rights Revenue over Time 18-47
19 Accounting for Income Taxes 19-1
Safe (Tax) Haven? 19-1
Fundamentals of Accounting for Income Taxes 19-3
Future Taxable Amounts and Deferred Taxes 19-5
What Do the Numbers Mean? "Real Liabilities" 19-8
Future Deductible Amounts and Deferred Taxes 19-8
What Do the Numbers Mean? "Real Assets" 19-11
Deferred Tax Asset (Non-Recognition) 19-11
Additional Issues 19-12
Income Statement Presentation 19-12
Specific Differences 19-13
Tax Rate Considerations 19-16
What Do the Numbers Mean? Global Tax Rates 19-17
Accounting for Net Operating Losses 19-18
Loss Carryforward 19-18
Loss Carryforward Example 19-19
Evolving Issue Uncertain Tax Positions 19-22
Financial Statement Presentation 19-22
Statement of Financial Position 19-22
Income Statement 19-23
Tax Reconciliation 19-25
What Do the Numbers Mean? The Tax Twist 19-26
Review of the Asset-Liability Method 19-27
Appendix 19A Comprehensive Example of Interperiod Tax Allocation 19-28
First Year--2021 19-28
Taxable Income and Income Taxes Payable--2021 19-29
Computing Deferred Income Taxes--End of 2021 19-29
Deferred Tax Expense (Benefit) and the Journal Entry to Record Income Taxes--2021 19-30
Financial Statement Presentation--2021 19-31
Second Year--2022 19-32
Taxable Income and Income Taxes Payable--2022 19-32
Computing Deferred Income Taxes--End of 2022 19-33
Deferred Tax Expense (Benefit) and the Journal Entry to Record Income Taxes--2022 19-33
Financial Statement Presentation--2022 19-34
Appendix 19B Accounting for Net Operating Loss Carrybacks 19-34
Loss Carryback 19-35
Loss Carryback Example 19-35
Loss Carryback with Carryforward 19-36
Global Accounting Insights 19-58
20 Accounting for Pensions and Postretirement Benefits 20-1
Pension Peril 20-2
Fundamentals of Pension Plan Accounting 20-3
Defined Contribution Plan 20-4
Defined Benefit Plan 20-4
What Do the Numbers Mean? Which Plan is Right for You? 20-5
The Role of Actuaries in Pension Accounting 20-6
Measures of the Liability 20-6
Reporting Changes in the Defined Benefit Obligation (Asset) 20-8
Plan Assets and Actual Return 20-10
Using a Pension Worksheet 20-11
2022 Entries and Worksheet 20-12
Funded Status 20-13
Past Service Cost 20-13
2023 Entries and Worksheet 20-14
Remeasurements 20-15
Asset Gains and Losses 20-16
Liability Gains and Losses 20-16
2024 Entries and Worksheet 20-16
What Do the Numbers Mean? Roller Coaster 20-19
Reporting Pension Plans in Financial Statements 20-19
Within the Financial Statements 20-20
Within the Notes to the Financial Statements 20-22
Other Postretirement Benefits 20-23
Concluding Observations 20-24
What Do the Numbers Mean? How's Your Volatility? 20-24
Global Accounting Insights 20-45
21 Accounting for Leases 21-1
Times Are A-Changing 21-1
The Leasing Environment 21-3
A Look at the Lessee 21-3
Advantages of Leasing--Lessees 21-4
A Look at the Lessor 21-4
Advantages of Leasing--Lessors 21-5
What Do the Numbers Mean? Residual Value Regret 21-6
Lessee Accounting 21-6
Measurement of the Lease Liability and Lease Asset 21-7
Subsequent Lessee Accounting 21-9
Summary of Lessee Accounting 21-17
What Do the Numbers Mean? Your Lease is Killing My Income 21-18
Lessor Accounting 21-18
Economics of Leasing 21-18
Classification of Leases by the Lessor 21-19
What Do the Numbers Mean? Not So Fast 21-21
Accounting Measurement and Presentation 21-21
Lessor Accounting for Operating Leases 21-26
Special Lease Accounting Problems 21-28
Other Lease Adjustments 21-28
Presentation, Disclosure, and Analysis 21-30
Evolving Issue Bring It On! 21-34
Appendix 21A Sale-Leasebacks 21-35
Accounting Issues in Sale-Leaseback Transactions 21-36
Sale Transaction 21-36
Financing Transaction (Failed Sale) 21-37
Sale-Leaseback Example 21-37
Appendix 21B Comprehensive Example 21-39
Lease Terms: Scenario 1 21-39
Lease Classification 21-40
Lessee/Lessor Accounting 21-40
Lease Terms: Scenario 2 21-42
Lease Classification 21-42
Lessee Accounting 21-43
Lessor Accounting--Operating Lease 21-44
Global Accounting Insights 21-69
22 Accounting Changes and Error Analysis 22-1
Needed: Valid Comparisons 22-2
Accounting Changes 22-3
Background 22-3
Changes in Accounting Policy 22-3
What Do the Numbers Mean? Comparison Challenges--Squared 22-5
Impracticability 22-14
Changes in Accounting Estimates 22-14
Prospective Reporting 22-15
What Do the Numbers Mean? A Change for the Better? 22-16
Disclosures 22-17
Accounting Errors 22-17
Example of Error Correction 22-18
What Do the Numbers Mean? Guard the Financial Statements! 22-20
Summary of Accounting Changes and Correction of Errors 22-21
What Do the Numbers Mean? What's Your Motivation? 22-22
Error Analysis 22-23
Statement of Financial Position Errors 22-23
Income Statement Errors 22-23
Statement of Financial Position and Income Statement Errors 22-24
Comprehensive Example: Numerous Errors 22-27
Preparation of Financial Statements with Error Corrections 22-30
Global Accounting Insights 22-54
23 Statement of Cash Flows 23-1
Show Me the Money! 23-1
The Statement of Cash Flows 23-2
Usefulness of the Statement of Cash Flows 23-3
Classification of Cash Flows 23-3
What Do the Numbers Mean? How's My Cash Flow? 23-5
Cash and Cash Equivalents 23-5
Format of the Statement of Cash Flows 23-6
Preparing the Statement of Cash Flows 23-6
Illustrations--Tax Consultants Inc. 23-7
Sources of Information for the Statement of Cash Flows 23-16
Net Cash Flow from Operating Activities--Direct Method 23-16
Evolving Issue Direct versus Indirect 23-21
Special Problems in Statement Preparation 23-22
Adjustments to Net Income 23-22
Accounts Receivable (Net) 23-25
Other Working Capital Changes 23-27
Net Losses 23-27
Disclosures 23-28
What Do the Numbers Mean? Better than ROA? 23-29
Use of a Worksheet 23-30
Preparation of the Worksheet 23-31
Analysis of Transactions 23-31
Preparation of Final Statement 23-38
Global Accounting Insights 23-65
24 Presentation and Disclosure in Financial Reporting 24-1
We Need Better, Not More 24-1
Full Disclosure Principle 24-3
Increase in Reporting Requirements 24-4
Differential Disclosure 24-5
Notes to the Financial Statements 24-5
What Do the Numbers Mean? Footnote Secrets 24-8
Disclosure Issues 24-8
Disclosure of Special Transactions or Events 24-8
Events after the Reporting Period (Subsequent Events) 24-10
Reporting for Diversified (Conglomerate) Companies 24-12
Interim Reports 24-17
Evolving Issue It's Faster But is It Better? 24-20
Auditor's and Management's Reports 24-21
Auditor's Report 24-21
What Do the Numbers Mean? Heart of the Matter 24-26
Management's Reports 24-26
Current Reporting Issues 24-31
Reporting on Financial Forecasts and Projections 24-31
What Do the Numbers Mean? Global Forecasts 24-32
Internet Financial Reporting 24-33
Fraudulent Financial Reporting 24-33
Criteria for Making Accounting and Reporting Choices 24-35
Evolving Issue Disclosure Overload? 24-36
Appendix 24A Basic Financial Statement Analysis 24-36
Perspective on Financial Statement Analysis 24-37
Ratio Analysis 24-37
Limitations of Ratio Analysis 24-39
Comparative Analysis 24-40
Percentage (Common-Size) Analysis 24-41
Appendix 24B First-Time Adoption of IFRS 24-42
General Guidelines 24-42
Relevant Dates 24-43
Implementation Steps 24-43
Opening IFRS Statement of Financial Position 24-43
Exemptions from Retrospective Treatment 24-45
Presentation and Disclosure 24-46
Summary 24-47
Global Accounting Insights 24-69
Appendix A Specimen Financial Statements: Marks and Spencer Group plc A-1
Appendix B Specimen Financial Statements: adidas AG B-1
Appendix C Specimen Financial Statements: Puma Group C-1
Company Index I-1
Subject Index I-3