Type:
Solution Manual
Resource:
Advanced Financial Accounting
Edition:
7th Edition
Author(s):
Thomas H. Beechy V. Umashanker Trivedi Kenneth E. MacAulay
INSTRUCTOR’S SOLUTIONS MANUAL to accompany
Advanced Financial Accounting Seventh Edition
Thomas H. Beechy Schulich School of Business, York University V. Umshanker Trivedi Schulich School of Business, York University Kenneth E. MacAulay Gerald Schwartz School of Business and Information Systems, St. Francis Xavier University
Contents Chapter 1: Setting the Stage 1 Chapter 2: Intercorporate Equity Investments: An Introduction 25 Chapter 3: Business Combinations 83 Chapter 4: Wholly Owned Subsidiaries: Reporting Subsequent to Acquisition 139 Chapter 5: Consolidation of Non-Wholly Owned Subsidiaries 212 Chapter 6: Subsequent-Year Consolidations: General Approach 290 Chapter 7: Segment and Interim Reporting 375 Chapter 8: Foreign Currency Transactions and Hedges 389 Chapter 9: Reporting Foreign Operations 436 Chapter 10: Financial Reporting for Not-for-Profit Organizations 483 Chapter 11: Public Sector Financial Reporting 529
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CHAPTER 1
Setting the Stage Chapter 1 is intended to set the stage for the application of accounting standards in differing contexts and the exercise of professional judgement. Throughout this text, the need for professional accountants to apply professional judgement in most areas of financial reporting is emphasized, especially in the crucial area of estimates. The choice of accounting policies is highly constrained in most of the subject areas of Advanced Financial Accounting, but applying the mandated accounting policies still leaves a lot of room for estimates, such as assigning fair values to assets acquired in a business combination. The allocation of the purchase price can have a substantial impact on the reported consolidated financial results. There are three major topics covered in this chapter: (1) the general approach in Canada to accounting standards for the four different types of economic entities; (2) the comparability of financial statements when prepared in different countries; and (3) accounting standards for private enterprise. The use of a disclosed basis of accounting (DBA) as an alternative to GAAP-based presentation is also presented. Two additional topics that appeared in the sixth edition of Advanced Financial Accounting have been moved to the Instructor Resource Manual, in case instructors wish to use this material as background material for their own teaching or for providing to the students: • A more detailed explanation of financial reporting objectives, in case students have not already become fully acquainted with using the different (and usually conflicting) users and preparer reporting objectives in approaching accounting judgements. • A description of the background of the IASB and development of international standards, including the formal structure of the IASB and its different bodies. Students will obtain practice in exercising their professional judgement through case analysis. There are several cases at the end of each chapter. These cases highlight the existence of alternative accounting policies and raise the question as to what criteria should be used to make a choice. Students need to consider the importance of financial reporting objectives in arriving at decisions, as well as the specific facts and constraints presented in the case situation. The extent of will vary from university to university and program to program. For students who lack familiarity with situation-specific objectives, this chapter will contain new material and may require substantial study. For these students, a thorough coverage of the cases at the end of this chapter is strongly recommended. The Chapter 1 cases should not be assigned all at once, but they probably should all be covered over the course of the first few weeks of the course, in order to give the students practice at ..
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Chapter 1 – Setting the Stage application. Other students may be quite experienced at case analyses that emphasize financial reporting objectives. For these students, this chapter will constitute a review and an update for the introduction of IFRS in Canada. For case-experienced students, coverage of one or two cases may be sufficient to reinforce prior learning. Most chapters have at least one multi-competency case. In this chapter, the multicompetency cases are Case 1-2, Smith & Stewart, and Case 1-4, W&K Gardens. These two cases have much different scenarios, as Smith & Smith is a partnership while W&K Gardens is a private enterprise. These multi-competency cases have been introduced in response to the multi-competency evaluation systems that are now being used in the profession. When assigning these cases you will need to decide if you want to assign part of the required only, such as by instructing students to ignore certain issues or some aspects of the case (for example, auditing issues or tax issues). Whether the students are experienced or new to this material, Chapter 1 should not be skipped. It is important material to which reference is made throughout the text.
SUMMARY OF ASSIGNMENT MATERIAL Case 1-1: Capricorn Carpet Corporation In this case, the company is a publicly-held Canadian corporation that is a newlyacquired subsidiary of an overseas parent. The two types of owners lead to conflicting reporting objectives that must be resolved. The case focuses on the acceptability of parent-directed changes in accounting policies for the Canadian subsidiary. Case 1-2: Smith and Stewart This is a multi-competency case that requires students to consider the appropriateness of using a disclosed basis of accounting (DBA) for a partnership. The case has some unique valuation issues that must be addressed using market values as a DBA. This case includes assurance issues. Case 1-3: Renaud Development Corporation Private companies often have quite specific reporting objectives, objectives that are tied both to the needs of the individual shareholders and to accounting-based measurements that are often specified in the shareholders’ agreement. This case requires the student to discern the reporting objectives of a private company, including the use of share book value to set the selling price of shares. A “dump” of standard reporting objectives will not work in this case. Two different lines of business are described in the case, each requiring accounting policy recommendations. Case 1-4: W&K Gardens This is a multi-competency case that includes business advice, accounting policy advice, and advice on how to structure the new entity. The students must consider the objectives
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