Issue: An entity that follows IFRS entered into a 1-year contract on July 1 to print flyers and sell them

hem to a pizza chain. The

6 months later at their year end on Dec 31, they actually printed 72,000 flyers and the entity estimates the same nu
We need to consider the change of estimated quantities that will be ordered and the revenue the entity can recogn

Standard(s):
1) 15.50 states that "if the consideration promised in a contract includes a variable amount, an entity sh
Since the contract price per flyer decreases as the total annual quantity increases, the price is an am

2) 15.35 "An entity transfers control of a good or service over time and, therefore, satisfies a performan
(a) the customer simultaneously receives and consumes the benefits provided by the entity's perform
(b) the entity's performance creates or enhances an asset (for example, work in progress) that the cu
(c) the entity's performance does not create an asset with an alternative use to the entity (see parag
Criterion (a) is met because after the entity printed the flyers the customer ordered on Dec 31, it ha

3) 15.39 "For each performance obligation satisfied over time in accordance with paragraphs 35–37, an
The objective when measuring progress is to depict an entity's performance in transferring control o
The entity can recognize revenue over time within the one-year contract period as it continues to f

Conclusion:
The entity needs to update the estimated receivable amount (contract price) based on the change of estimate in vo
following year, the entity may use the Accrued Receivable account instead of the Accounts Receivable account. It c

Original estimate: 15,000 x 12 x 0.05 = 9,000 15,000 x 12 = 180,000 (150,001-200,000 ra

New Estimate: 144,000 x 0.06 = 8,640 72,000 x 2 = 144,000
Full Year 360

Based on the original estimate, the entity would have recorded the follow entry:
Dr. Accrued Receivable 9,000
Cr. Deferred Revenue 9,000

Adjusting entry on December 31:

Dr. Deferred Revenue 360

Cr. Accrued Receivable 360
Update the estimated receivable amount.

Dr. Deferred Revenue 4,320

Cr. Revenue 4,320
Recognize revenue for the first 6 months
(72,000 x 0.06)
 ll them to a pizza chain. The contract price per flyer decreases as quantity ordered increases. It was estimated they would print 15,000 flye
entity estimates the same number of flyers will be ordered for the remaining year. The customer will be billed at the end of the 1-yea
venue the entity can recognize for the current year ending December 31.

variable amount, an entity shall estimate the amount of consideration to which the entity will be entitled in exchange for transferring the p
increases, the price is an amount of variable consideration. The entity will need to change their estimate of the price for order as the es

refore, satisfies a performance obligation and recognises revenue over time, if one of the following criteria is met:
vided by the entity's performance as the entity performs (see paragraphs B3–B4);
work in progress) that the customer controls as the asset is created or enhanced (see paragraph B5); or
use to the entity (see paragraph 36) and the entity has an enforceable right to payment for performance completed to date (see paragrap
mer ordered on Dec 31, it has performed their printing duty and will be able to recognize revenue for the first 6 months. It can recognize

e with paragraphs 35–37, an entity shall recognise revenue over time by measuring the progress towards complete satisfaction of that per
nce in transferring control of goods or services promised to a customer (ie the satisfaction of an entity's performance obligation)."
t period as it continues to fufill the obligation of printing flyers. At December 31, the entity has 6 month left to fufill its performance ob

the change of estimate in volume of flyers. Since the customer will not be billed until the end of the contract in the
unts Receivable account. It can also recognize revenue on Dec 31 for the ordered flyers.

80,000 (150,001-200,000 range, $0.05/flyer)

(100,001-150,000 range, Price $0.06/flyer)
ed they would print 15,000 flyers for 12 months.
billed at the end of the 1-year contract.

exchange for transferring the promised goods or services to a customer."

of the price for order as the estimated volume of flyers changes.

mpleted to date (see paragraph 37)."

rst 6 months. It can recognize revenue over time within this 12-month contract period.

mplete satisfaction of that performance obligation.

ormance obligation)."
ft to fufill its performance obigation before it can recognize revenue for the remain 6 months after year end.
Issue: An entity subject to ASPE agreed to exchange a coveyor belt with a customer for a piece of equipment. Fair values o
We need to access whether this non-monetary transaction has commercial substance before we could determine h

Standard(s):
1) ASPE 3831.11 " A non-monetary transaction has commercial substance when the entity's futur
(a)     the configuration of the future cash flows of the asset received differs significantly from t
(b)     the entity-specific value of the asset received differs from the entity-specific value of the
The equipment the entity received is expected to continuously generate future cash flows w
they are sold. Since the future cash flows would change significantly, this non-monetary tran

2) ASPE 3400.05   "In a transaction involving the sale of goods, performance shall be regarded as
(a)     the seller of the goods has transferred to the buyer the significant risks and rewards of ow
(b)     reasonable assurance exists regarding the measurement of the consideration that will be
Risk and ownership of the conveyor belt have been transferred to the customer while risk an
received can be measured as the fair value $340,000.

3) ASPE 3831.16    "An entity shall recognize any gain or loss resulting from a non-monetary trans
The entity needs to record the gain or loss resulting from this exchange of assets.

Conclusion:
This non-monetary transaction has commercial substance. The entity shall record the fair value

Journal entry to be made at year-end:

Equipment 340,000
Gain on exchange of asset 140,000
Inventory 200,000
To remove inventory(conveyor belt) from the book, set up the equipment received at its fair value, and record the b
iece of equipment. Fair values of both the convery belt and the equipment are available.
e before we could determine how to record the asset given up and the asset received.

bstance when the entity's future cash flows are expected to change significantly as a result of the transaction. The entity's future cash flow
eived differs significantly from the configuration of the cash flows of the asset given up (see paragraph  3831.12); or
the entity-specific value of the asset given up, and the difference is significant relative to the fair value of the assets exchanged."
y generate future cash flows within its useful life whereas the conveyor belts are inventory items which can only generate cash flows on
cantly, this non-monetary transacrion had commecial substance.

formance shall be regarded as having been achieved when the following conditions have been fulfilled:
gnificant risks and rewards of ownership, in that all significant acts have been completed and the seller retains no continuing managerial in
of the consideration that will be derived from the sale of goods, and the extent to which goods may be returned."
d to the customer while risk and ownership of the equipment have been transferred to the entity. The fair value of the equipment

ting from a non-monetary transaction in net income for the period, except as specified in INVESTMENTS, Section  3051, and INTERESTS IN J
exchange of assets.

entity shall record the fair value of the equipment received.

at its fair value, and record the balancing gain.

n. The entity's future cash flows are expected to change significantly when:

e assets exchanged."
n only generate cash flows once once

ns no continuing managerial involvement in, or effective control of, the goods transferred to a degree usually associated with ownership; a

value of the equipment

tion  3051, and INTERESTS IN JOINT ARRANGEMENTS, Section 3056."

y associated with ownership; and
Issue: An entity that follows IFRS signed a contract with a hospital to provide hospital employees a
The entity charged 4 equal payments within the contract period with the first payment due
The fees are non-refundable and the entity recognized the total contract price as revenue fo
can be recognized as revenue in the year ending March 31,2019.

Standard(s): 1) IFRS 15.Appendix B49 "To identify performance obligations in such contracts, an entity sh
 relates to an activity that the entity is required to undertake at or near contract inception to
Instead, the upfront fee is an advance payment for future goods or services and, therefore,
The gym access fees are non-refundable, non-cancellable, and not dependent on the usage
provided for the period.

2) IFRS 15.35 "An entity transfers control of a good or service over time and, therefore, satisfies
(a) the customer simultaneously receives and consumes the benefits provided by the entity's
(b) the entity's performance creates or enhances an asset (for example, work in progress) tha
(c) the entity's performance does not create an asset with an alternative use to the entity (se
Criterion (a) is met because the customers (ie. Hospital employees) have access to the gym
providing gym access from January 1,2019 to December 31,2019.

3) IFRS 15.44 "An entity shall recognise revenue for a performance obligation satisfied over tim
The entity is able to measure its progress reasonably. It can recognize $12,600 ($126,000 co

Conclusion: The revenue from providing gym access was overstated for the year ending March 31,2019. The entity
as it only fufilled three months of performance obligation.

Adjusting entry:

March 31,2019 Dr. Revenue 94,500

(75% x $126,000)
Cr. Deferred Revenue 94,500

June 30, 2019 Dr. Deferred Revenue 31,500

(25% x $126,000)
Cr. Revenue 31,500

September 30, 2019 Dr. Deferred Revenue 31,500

(25% x $126,000)
Cr. Revenue 31,500

December 31, 2019 Dr. Deferred Revenue 31,500

(25% x $126,000)
Cr. Revenue 31,500
ide hospital employees access to their fitness centre for the period of January to Dececember, 2019.
h the first payment due on the signing date, January 1,2019 and the last payment due on September 30,2019.
ntract price as revenue for the year ending March 31,2019. We need to assess whether the full contract price

h contracts, an entity shall assess whether the fee relates to the transfer of a promised good or service. In many cases, even though a non
near contract inception to fulfil the contract, that activity does not result in the transfer of a promised good or service to the customer (see
services and, therefore, would be recognised as revenue when those future goods or services are provided."
dependent on the usage of the gym by the employees. However, the entity can only recognize revenue to the extent that the gym serv

e and, therefore, satisfies a performance obligation and recognises revenue over time, if one of the following criteria is met:
s provided by the entity's performance as the entity performs (see paragraphs B3–B4);
ple, work in progress) that the customer controls as the asset is created or enhanced (see paragraph B5); or
ative use to the entity (see paragraph 36) and the entity has an enforceable right to payment for performance completed to date (see para
have access to the gym provided by the entity within the contract period. The entity can recognize revenue over time as it fufills the ob

igation satisfied over time only if the entity can reasonably measure its progress towards complete satisfaction of the performance obligati
ize $12,600 ($126,000 contract price/12 months) monthly starting from January 1,2019. By March 31,2019, it has fufilled three months

arch 31,2019. The entity can only recognize 25% (3/12) of the contract price $126,000 as revenue
ny cases, even though a non-refundable upfront fee
ervice to the customer (see paragraph  25).

e extent that the gym service has been

riteria is met:

completed to date (see paragraph 37)."

over time as it fufills the obligation of

of the performance obligation."

has fufilled three months of performance obligation.
Issue: An entity that follows IFRS offers 60-day return policy. In the last two months, sales returns were never adj
We need to determine whether sales return should be accounted for and if yes, how.

Standard(s):
1) IFRS 15.50 "If the consideration promised in a contract includes a variable amount, an enti
in exchange for transferring the promised goods or services to a customer."
Merchandise sales return is an example of variable consideration. Therefore, the entity s

2) IFRS 15.55 "An entity shall recognise a refund liability if the entity receives consideration fr
consideration received (or receivable) for which the entity does not expect to be entitled (
contract liability) shall be updated at the end of each reporting period for changes in circum
The 3% historical percentage of sales return is what the entity does not expect to be enti

3) IFRS 15.53 mentions that "an entity shall estimate an amount of variable consideration by
(a) expected value— the expected value is the sum of probability-weighted amounts in a r
(b) most likely amount— the most likely amount is the single most likely amount in a range
This entity shall use the expected value of merchandise sales return (ie. 3% of total sales

Conclusion:

Sales with a right of return is an example of variable consideration and adjustments should be made to acc
When sales returns are made, we need to adjust the balances of refund liability, inventory and return asse

Existing entries on the book:

Cash 8,000,000
Sales revenue 8,000,000

COGS 2,800,000
Inventory 2,800,000

Adjusting entry:

To record refund liability and adjust sales revenue:

Dr. Sales revenue 240,000
Cr. Refund Liability 240,000
($8,000,000 x 3%)

To record the return right and adjust cost of sales:

Dr. Return asset 84,000

($8,000,000 x 35% x 3%)
Cr. Cost of Sales 84,000

To record the returns:

Dr. Refund Liabiity 230,000
Cr. Cash 230,000
Dr. Inventory 80,500
Cr. Return Asset 80,500
($230,000 x 35%)
 , sales returns were never adjusted.

des a variable amount, an entity shall estimate the amount of consideration to which the entity will be entitled
o a customer."
ration. Therefore, the entity shoud estimate the amount of sales return and record it as a liability.

ntity receives consideration from a customer and expects to refund some or all of that consideration to the customer. A refund liability is
oes not expect to be entitled (ie amounts not included in the transaction price). The refund liability (and corresponding change in the trans
ng period for changes in circumstances. To account for a refund liability relating to a sale with a right of return, an entity shall apply the gu
tity does not expect to be entitled and is the refund liablity the entity needs to record. It should be excluded from the total sales revenue

t of variable consideration by using either of the following methods, depending on which method the entity expects to better predict the a
bility-weighted amounts in a range of possible consideration amounts.
most likely amount in a range of possible consideration amounts (ie the single most likely outcome of the contract)."
es return (ie. 3% of total sales).

ments should be made to account for the sales returns. At the time of sale, the entity should recognize a refund liability and a return asse
lity, inventory and return asset.
ustomer. A refund liability is measured at the amount of
sponding change in the transaction price and, therefore, the
n, an entity shall apply the guidance in paragraphs B20–B27."
from the total sales revenue entitled.

expects to better predict the amount of consideration to which it will be entitled:

nd liability and a return asset.

PART I

Issue: A private corporation subject to ASPE received a grant from the government on July 1,2017 right afte their J
of the grant will become repayable immediately. The entity recorded the full amount received as Grant Rev

Standard(s):
1) ASPE 3800.27 "The appropriate portion of the estimated total of government a
that the enterprise has complied and will continue to comply with all the condi
The grant has been received in July 2017. However, the entity has not met the
January 1,2018 to December 31,2020.The entity can only recognize revenue f

2) ASPE 3800.20 "When government assistance relates to expenses of future acco

5/6 of the grant received should be recorded as deferred revenue and recogn

Conclusion:
It's not appropriate to record the full amount of the grant as grant revenue. Adjusting entry needs to be ma

Adjusting entry:

Dr. Grant Revenue 625,000

Cr. Deferred Grant Revenue 625,000

750,000 - 750,000/6

PART II

Issue: The entity failed to meet the conditions of the grant on June 30, 2019. We need to look at the consequence

Standard(s):
3) ASPE 3800.28  "Even though there is a basic presumption inherent in most gov
required to repay the assistance in whole or in part. When circumstances arise
(a)     When the cost of fixed assets was reduced by the original receipt of the a
(b)     When the original receipt of government assistance relating to fixed asse
amortization shall be based on the resulting balance.
(c)     When the original receipt of government assistance was related to expen
repayment. Future amortization shall be based on the resulting balance when t
(d)     When the original receipt of government assistance was applied to reduc
The entity failed to meet the conditions and will need to pay back the grant. T

Conclusion: The entity will need to pay back the full grant of $75,000 due to the failure of m
and Deferred Grant Revenue will be recorded as a loss.
Adjusting entry:

Dr. Deferred Grant Revenue 625,000

Dr. Loss on grant 125,000
Cr. Grant Payable 750,000
ent on July 1,2017 right afte their June 30 year end. They have to meet the conditions of the grant. Otherwise, the full amount
ull amount received as Grant Revenue in July 2017 and we need to determine if the grant revenue for year 2017 was overstated.

e estimated total of government assistance to be received shall be accrued in the accounts, provided there is reasonable assurance
tinue to comply with all the conditions."
wever, the entity has not met the conditions of the grant in 2017 because they have to keep three full-time employees and prove the re
ntity can only recognize revenue for the period of January 1,2018 to June 30,2018 and the appropriate portion of the grant (half year/th

relates to expenses of future accounting periods, the appropriate amounts shall be deferred and amortized to income as related expenses
d as deferred revenue and recognized as revenue over time as they continue to incur payroll expense and keep the employees until Dece

e. Adjusting entry needs to be made in 2018 to make sure they only recognized revenue for the period of January 1,2018 to June 30,2018.

need to look at the consequence and determine whether this affects the change of government assistance.

presumption inherent in most government assistance programs that the assistance will not be repaid, the programs may stipulate conditio
n part. When circumstances arise that indicate that repayment will be required, an economic event has occurred that shall be accounted f
ed by the original receipt of the assistance, the cost of the assets shall be increased by the applicable repayment. The effect on depreciati
nt assistance relating to fixed assets was treated as a deferred credit, the unamortized balance of the deferred credit shall be adjusted by t

t assistance was related to expenses of future periods and was treated as a deferred credit, the unamortized balance of the deferred cred
d on the resulting balance when the deferred credit has not been eliminated. Any excess of repayment over the unamortized balance sha
nt assistance was applied to reduce expenses or increase revenues, any repayment thereof shall be reflected in the current income statem
will need to pay back the grant. This liability will need to be accounted for in the same period and the deferred credit will be reduced.

of $75,000 due to the failure of meeting conditions. It will also remove the deferred grant credit from their book. The difference between
e, the full amount
2017 was overstated.

s reasonable assurance

e employees and prove the research to be valuable for the period of

tion of the grant (half year/three years) can be recorded as revenue.

to income as related expenses are incurred."

eep the employees until December 31,2020.

nuary 1,2018 to June 30,2018.

ograms may stipulate conditions under which an enterprise may be

urred that shall be accounted for prospectively.
ment. The effect on depreciation shall be accounted for prospectively.
ed credit shall be adjusted by the applicable repayment. Future

d balance of the deferred credit shall be adjusted by the applicable

the unamortized balance shall be reflected in the current income statement.
in the current income statement."
erred credit will be reduced.

book. The difference between Grant Payable

Issue: Justified Legal Services Inc. (JLS), subject to ASPE, signed a four-year lease agreement with Xerox to lease a prin
JLS estimates that it's only going to worth $20,000 at the end of lease. JLS has classified this as an operating leas

Standard(s):

1) ASPE 3065.06     "From the point of view of a lessee, a lease normally transfers substantially all of the benefits a
"(a)     There is reasonable assurance that the lessee will obtain ownership of the leased property by the end of
ownership being transferred to the lessee by the end of the lease term or when the lease provides for a bargain
There is no transfer of ownership as the CFO of JLS states that they have the intention of trading in the old ma

"(b)     The lease term is of such a duration that the lessee will receive substantially all of the economic benefits
economic life of the leased property in terms of years, the lessee is normally expected to receive substantially a
percent or more) of the economic life of the leased property. This is due to the fact that new equipment, reflec
Lease term/Useful life of asset = 4/6 = 67% < 75%. Thus, this condition is not met either.

(c)     The lessor is assured of recovering the investment in the leased property and of earning a return on the in
minimum lease payments, excluding any portion thereof relating to executory costs, is equal to substantially all
rate used by the lessee is the lower of the lessee's rate for incremental borrowing and the interest rate implicit
The Recovery of Investment test is that PV of lease payments should be at least 90% of the FV of the asset. In

2) ASPE 3065.06 "The asset value and the amount of the obligation, recorded at the beginning of the lease term, a
to executory costs included in the minimum lease payments are estimated if not known to the lessee. The inter
result, to use the interest rate implicit in the lease as the discount rate when it is higher than the lessee's rate fo
obtained by using the lessee's rate for incremental borrowing as the discount rate. Therefore, the discount rate
incremental borrowing and the interest rate implicit in the lease, if practicable to determine. Notwithstanding t
In calculating the PV of the asset, the lower of rate implicit in the lease and the incremental borrowing rate o
Annual Lease Payment:
Lessor: [BGN] N=48, PV= -250,000, FV = 50,000, PMT=4,922
I=0.5% x 12 = 6% <7% 6% should be used

3) ASPE 3065.06 "An obligation under a capital lease is similar to a loan. Lease payments shall be allocated to a red
computing the present value of the minimum lease payments applied to the remaining balance of the obligatio
Following are the journal entries that should have been recorded for this capital lease:

January 1,2019 Asset under Capital Lease

January 31,2019 Interest expense

(245,078 x 0.5%)
Lease obligation

Depreciation

(250,000-50,000)/48
 February 28,2019 Interest expense
(245,078-3,697) x 0.5%
Lease obligation

Depreciation

March 31,2019 Interest expense

(245,078-3,697-3,715) x 0.5%
Lease obligation

Depreciation

Conclusion: This lease agreement should have been treated as a capital lease instead of an operating lease. The guaranteed
waive the difference of residual value when they sign a new lease. Adjusting entries need to be made on March

March 31 Adjusting Entry:

Asset under Capital Lease 250,000
Lease Obligation
Cash

Interest expense 3,621

(1,225+1,207+1188)
Lease obligation 11,145
(3,67+3,715+3,734)
Rental expense - Operating Lease

Depreciation 12,500
Accumulated Depreciation
(250,000-50,000)/48x3
ed a four-year lease agreement with Xerox to lease a printing/copying machine. The machine has a guaranteed residual value of $50,000, h
he end of lease. JLS has classified this as an operating lease. We need to assess if this is an operating lease or a capital lease and if adjustm

lease normally transfers substantially all of the benefits and risks of ownership to the lessee when, at the inception of the lease, one or mo
ill obtain ownership of the leased property by the end of the lease term. Reasonable assurance that the lessee will obtain ownership of th
of the lease term or when the lease provides for a bargain purchase option."
ates that they have the intention of trading in the old machine meaning it will be returned to the lessor. This condition is not met.

see will receive substantially all of the economic benefits expected to be derived from the use of the leased property over its life span. Alth
the lessee is normally expected to receive substantially all of the economic benefits to be derived from the leased property when the leas
operty. This is due to the fact that new equipment, reflecting later technology and in prime condition, may be assumed to be more efficien
us, this condition is not met either.

t in the leased property and of earning a return on the investment as a result of the lease agreement. This condition exists if the present v
of relating to executory costs, is equal to substantially all (usually 90 percent or more) of the fair value of the leased property, at the incep
for incremental borrowing and the interest rate implicit in the lease, if known.
ayments should be at least 90% of the FV of the asset. In this scenario, PV (MLP)/FV = 250,000/250,000=100%. This condition is met and

obligation, recorded at the beginning of the lease term, are the present value of the minimum lease payments, excluding the portion ther
ments are estimated if not known to the lessee. The interest rate implicit in the lease is affected by the residual value of the leased proper
he discount rate when it is higher than the lessee's rate for incremental borrowing would produce an amount that is less representative of
rowing as the discount rate. Therefore, the discount rate used by the lessee in determining the present value of minimum lease payments
the lease, if practicable to determine. Notwithstanding the foregoing, the maximum value recorded for the asset and obligation may not
mplicit in the lease and the incremental borrowing rate of the lessor should be used.

milar to a loan. Lease payments shall be allocated to a reduction of the obligation, interest expense and any related executory costs. The in
yments applied to the remaining balance of the obligation."
en recorded for this capital lease:

250,000
Lease Obligation 245,078
Cash 4,922

1,225

3,697
Cash 4,922

4,167
Accumulated Depreciation 4,167
 1,207

3,715
Cash 4,922

4,167
Accumulated Depreciation 4,167

1,188

3,734
Cash 4,922

4,167
Accumulated Depreciation 4,167

apital lease instead of an operating lease. The guaranteed residual value is used as the Future Value in calculating the interest rate implicat
a new lease. Adjusting entries need to be made on March 31 to reclassify this into a capital lease.

245,078
4,922

14,766

12,500
 ine has a guaranteed residual value of $50,000, however,
operating lease or a capital lease and if adjustments need to be made.

ee when, at the inception of the lease, one or more of the following conditions are present:"
rance that the lessee will obtain ownership of the leased property is present when the terms of the lease result in

ed to the lessor. This condition is not met.

use of the leased property over its life span. Although the lease term may not be equal to the
derived from the leased property when the lease term is equal to a major portion (usually 75
e condition, may be assumed to be more efficient than old equipment that has been subject to obsolescence and wear."

agreement. This condition exists if the present value, at the beginning of the lease term, of the
the fair value of the leased property, at the inception of the lease. In determining the present value, the discount

50,000/250,000=100%. This condition is met and this lease must be classified as a Captial Lease.

mum lease payments, excluding the portion thereof relating to executory costs. The amount relating
ffected by the residual value of the leased property in which the lessee usually has no interest. As a
produce an amount that is less representative of the value of the asset to the lessee than would be
ng the present value of minimum lease payments shall be the lower of the lessee's rate for
e recorded for the asset and obligation may not exceed the leased asset's fair value.

t expense and any related executory costs. The interest expense is calculated using the discount rate used in
ure Value in calculating the interest rate implicate in the lease even though Xerox will probably
ce and wear."