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AFM391 Chapter Notes - Chapter 11: Deferred Income, Market Participant, Maximum Exposure

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lemonbeetle804
16 Dec 2018
School
University of Waterloo
Department
Accounting & Financial Management
Course
AFM391
Professor
Sasan Saiy

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Document Summary

Ias 37-10: a liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow of benefits. Liability: according to ifrs, an item is a liability if: it is a present obligation, it arose from a past event; and, it is expected to result in an outflow of economic benefits. Provision: a liability in which there is some uncertainty as to the time or amount of payment. Financial liability: a contractual obligation to deliver cash or oth er financial assets to another party. Non-financial liability: a liability that does not meet the definition of a financial liability. Typically an obligation to deliver goods or services (deferred revenue), or that is not contractual in natures (income ta x provision) . Current liabilities: obligations that are expected to be settled within one year of the balance sheet date or the business" normal operating cycle, whichever is longer.

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Related Questions

Zeta, Ltd., a company that prepares its financial statements in accordance with IFRS, has the following pending items at December 31, 2014.

The company is the defendant in a product liability lawsuit as a result of injuries incurred by purchasers of its products. Legal counsel has indicated that an unfavorable verdict in the amount of $650,000 is probable.

The company is involved in another lawsuit and their legal counsel believes it is reasonably possible that the lawsuit will result in a loss of $175,000.

The entity sells a product that is subject to a warranty. The estimated warranty liability is $150,000.

In its financial statements for the period ended December 31, 2014, how much will be reported either on the balance sheet or in the footnotes for contingencies and how much for provisions?

a. A contingency of $650,000 will be accrued, a contingency of $175,000 will be disclosed, and a provision of $150,000 will be accrued as a liability.

b. A contingency of $175,000 will be disclosed and provisions of $800,000 will be accrued as liabilities.

c. Contingencies of $825,000 will be accrued and a provision of $150,000 will be accrued as a liability.

d. Contingencies of $800,000 will be accrued and a provision of $175,000 will be disclosed.

Air France, a French company, prepares its financial statements according to IFRS. AF’s annual report for the year ended March 31, 2011, which includes financial statements and disclosure notes, provided with all new textbooks. This material also is provided in AF's "Registration Document 2010-11," dated June 15, 2011 and is available at www.airfranceklm.com

Required:

1 – Where in its March 31, 2011, balance sheet does AF report deferred taxes? How does this approach differ from the way deferred taxes are reported using U.S. GAAP? Using the Internet, determine how deferred taxes would be reported using IFRS at the time of your research. Explain why that approach might differ from the way AF reported deferred taxes at March 31, 2011.

2 – Here’s an excerpt from one AF’s notes to its financial statements:

Deferred taxes (in part)

The Group records deferred taxes using the balance sheet liability method, providing for any temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The tax rates used are those enacted or substantively enacted at the balance sheet date.

*Answer the following question:

Is this policy consistent with U.S GAAP? Explain.

3 - Here’s an excerpt from one AF’s notes to its financial statements:

Deferred taxes (in part)

Deferred tax assets related to temporary differences and carry forwards are recognized only to the extent it is probable that a future taxable profit will be available against which the asset can be utilized at the tax entity level.

*Answer the following question:

Is this policy consistent with U.S GAAP? Explain.

read the article, and then make your first post your thoughts/reactions/concerns on how much executives get paid, summary , what do you think?

Judge Shelley C. Chapman of the Federal Bankruptcy Court in Manhattan has issued an opinion that provides an important reminder for employees throughout the United States who participate in deferred-compensation plans. The opinion is from the long-running Lehman Brothers bankruptcy, but it applies to employees of all sorts of companies. In short, the tax benefits you get from a deferred-compensation plan are not “free,” and by deferring compensation, you are taking on the credit risk of your employer. In 1985, Shearson Lehman Brothers Inc. — which later became Lehman Brothers Inc., Lehman’s regulated broker-dealer — established the deferred-compensation plan. In the plan, each employee agreed that: the obligations of Shearson hereunder with respect to the payment of amounts credited to his deferred-compensation account are and shall be subordinate in right of payment and subject to the prior payment or provision for payment in full of all claims of all other present and future creditors of Shearson whose claims are not similarly subordinated. The wording not only gives us some insight to gender issues on Wall Street in the 1980s, but also drives home the point that the employer’s obligation to pay the deferred compensation is an unsecured obligation. In this case, a deeply subordinated one. These employees were no better than subordinated bondholders of Lehman Brothers. The employees had several novel arguments for why they should, at least, get out from under the subordination provision in the agreement, but the court rejected them all. The court also rejected the argument that Lehman’s alleged breach of the deferred-compensation agreement would remove the employees’ obligation to subordinate their claims. The court explained that unlike an ordinary contract dispute, the present case involved the simple question how to treat the employees’ claim in bankruptcy. In this case, the employees — in agreeing to the subordination provision — had agreed to be paid after all other general unsecured creditors had been paid in full. Judge Chapman acknowledged that seemed a bit unfair — in her words “expected compensation for years of dedicated service disappeared in an instant in September 2008.” Nevertheless, this was the basic trade-off that employees had made decades ago: better tax treatment, in exchange for more risk. The key question is whether the employees understood the nuances of bankruptcy law that were embedded in this trade-off.