can’t be made, and the extent of any exposure beyond the amount accrued.
Asset Retirement Obligations –
AROs
Contingencies–ASPE
Non-Financial and Current Liabilities
Loss can be reasonably estimated?
Recognize the obligation associated with the retirement of a long-lived asset in the period the obligation is incurred. Under IFRS, recognize costs of both legal and constructive obligations; under ASPE, legal obligations only. Discount the future costs of the obligation to determine the present amount required. Debit the capital asset for the present value of the ARO and credit a liability in the same amount. Amortize the ARO cost to expense over the related asset’s useful life and accrue interest on the liability each period.
Under IFRS, as the ARO and costs increase due to further damage to the site from production activities, increase the obligation and add the incremental costs caused by production to inventory as production overhead costs. For ASPE, add these additional costs to both the ARO and the capital asset account, adjusting the future depreciation amounts.
Contingencies and Uncertain
Commitments
Under IFRS, provisions are required for situations like lawsuits if the amount can be reliably measured and if a confirming future event is “more likely than not” to occur. Use expected values to measure the liability.
Disclose the financial effect of the uncertain amounts, the uncertainties related to the outflows, and whether any reimbursement is possible.
Under ASPE, accrue a contingent loss only if it is
“likely” a future confirming event will occur and the loss amount can be reasonably estimated. If there is a range of possible loss amounts and no particular amount is better than another, accrue the bottom of the range. If one amount is a better estimate than the others, accrue that amount. Disclose the nature of the contingency, estimated amount of the contingent loss or that an estimate
Probability
Yes
No
Likely
Accrue. Report exposure to loss in excess of amount accrued in Notes to Financial
Statements*
Report in Notes to Financial
Statements*
Not likely
Disclosure not required Disclosure not required Not determinable Report in Notes to Financial
Statements*
Report in Notes to Financial
Statements*
*Disclose the nature of the contingency and either an estimate of the amount or the fact that an estimate cannot be made. Note that IFRS requirements are similar, but use the term "probable" which is a lower threshold than "likely" as used in ASPE.
CHAPTER 14
Long-Term
Financial Liabilities
Bonds
Bond Valuation ϭ Present Value of Interest Payments ϩ
Present Value of Principal Payment
Interest payments are based on stated rate and face value of principal.
Present value calculations are based on the market rate of interest, for example:
Bond Discount and Premium
Amortization Calculation
Effective Interest Method
Interest Expense
Carrying value of debt at beginning of period
ϫ
Interest Paid
Effective
interest rate ؊
Face amount of debt
ϫ
Straight Line Method
Divide total discount/premium by the period to maturity and amortize equally for each interest payment.
Journal entry to record each interest payment for Bond
Payable:
DR
DR
Interest Expense
Bond Payable
CR
Bond Payable
CR
Cash
(if bond issued at a premium)
(if bond issued at a discount)
Stated interest rate
؍
Note Disclosure for LongTerm Debt
Nature of the liability
Maturity dates
Interest rates
Call provisions
Conversion privileges
Net carrying amount of bonds redeemed ϭ Face Value –
Unamortized
