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SIXTH EDITION
Thomas H. Beechy
Schulich School of Business
York University
Joan E.D. Conrod

Faculty of Management
Dalhousie University
Elizabeth J. Farrell
York University
Ingrid McLeod-Dick
York University
viii CONTENTS
Operating Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1061

Finance Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1064
Accounting for Finance Leases—Lessee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1068
Finance Lease Illustration—Basic Example. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1068
Lessee Accounting—Basic Example . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1069
Sale and Leaseback. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1080
Lessee Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1084
Long-Term Leases: Pros and Cons. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1085
Avoiding Lease Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1087
Lessor Accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1088
Leases in the Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1097
Accounting Standards for Private Enterprises. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1099
Lessees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1099
Lessors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1100
Summary of Key Points. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1101
Key Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1102
Review Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1103
APPENDIX: Forthcoming Changes in Lease Accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . 1107
Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1107
Short-Term Leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1107
Long-Term Leases—Lessee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1107
Other Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1111
Questions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1112
Cases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1113
Technical Review. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1119
Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1120
POST-EMPLOYMENT BENEFITS 1131

CHAPTER 19 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1131
Types of Pension Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1132
Pension Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1132
Defined Contribution Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1135
Defined Benefit Plans—Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1136
Defined Benefit Plan Pension Accounting—Three Elements . . . . . . . . . . . . . . . . . . . . . . . . 1141
Evaluation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1148
Spreadsheet Approach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1149
Other Post-Employment Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1156
Statement of Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1158
Disclosure Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1159
Key Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1166
Review Problem. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1166
Questions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1168
Cases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1169
CONTENTS ix

Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1173
EARNINGS PER SHARE 1189

EPS Figures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1190
Interpreting EPS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1190
Basic Earnings per Share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1191
Diluted Earnings per Share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1199
Complicating Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1210
Comprehensive Illustration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1213
Restatement of Earnings per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1217
Subsequent Changes in Share Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1217
Required Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1218
Other per Share Amounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1219
Key Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1221
Review Problem. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1222
Questions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1223
Cases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1225
Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1233
ACCOUNTING CHANGES 1249

Types of Accounting Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1250
Changes in Accounting Estimates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1250
Changes in Accounting Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1253
Reporting Accounting Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1255
Retrospective Application. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1256
Prospective Application. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1262
Correction of a Prior-Period Error . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1265
Summary of Approaches for Accounting Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1268
Statement of Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1269
Key Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1273
Review Problem. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1273
Questions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1275
Cases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1276
Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1285
x CONTENTS
FINANCIAL STATEMENT ANALYSIS 1301

Overview of Statement Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1302
Ratio Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1307
Other Analytical Techniques . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1335
Key Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1337
Review Problem. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1338
Appendix: Recasting Financial Statements—Demonstration Case. . . . . . . . . . . . . . . . . . . . 1342
Questions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1351
Cases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1352
Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1361
STATEMENT OF CASH FLOWS 1375

Comprehensive Illustration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1375
APPENDIX
Comprehensive SCF Example . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1378
Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1391
Compound Interest Tables and Formulae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TA-1
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IN-1
Preface
Welcome to the complex Canadian GAAP reporting environment! The vast majority of
Canadian public companies prepare financial statements that comply with International
Financial Reporting Standards (IFRS), as set by the International Accounting Standards
Board (IASB) and contained in the CPA Canada Handbook, Part I. In contrast, Canadian pri-
vate companies may choose to comply with either IFRS or Canadian Accounting Standards
for Private Enterprise (ASPE), as contained in the CPA Canada Handbook, Part II. These
two sets of GAAP are similar in many respects but quite different in other respects. This
duality presents a huge challenge to accountants, managers, and financial statement users.
Clearly, accounting standards are ever expanding, and change is the norm; you might find
the expanding universe of accounting knowledge to be intimidating. Intermediate account-
ing is the essential course for developing both the technical skills and the professional judge-
ment that you need to succeed. We believe that neither technical knowledge nor professional
judgement is sufficient on its own; it is the blend of the two that represents the value added
by a professional accountant.
So that is what Intermediate Accounting will do for you: provide complete, appropriate
technical knowledge while also developing your professional judgement. Both these ele-
ments are described in the broad range of topics in this text. We will clearly explain the
standards, identify patterns, explore the impact of alternatives on users and uses of financial
statements, and look forward to further changes that are on the horizon. Throughout this
text, we stress the importance of ethical standards—an accountant must learn to recognize
and respond appropriately in potentially challenging situations.
In selecting material to include in this book, we have assessed the realities of Canadian
business practice and the choices that are currently available. We have a distinctly Canadian
agenda, looking at the issues that matter in Canadian business. We are clear in our treat-
ment of the body of knowledge. Our coverage does not get bogged down in the (sometimes
twisted) past history of a given issue, nor does it speculate needlessly on what might or
might not happen in the future. Our emphasis is on preparing you to apply the standards
now in place, providing an overview of some expected changes, and moving to develop the
necessary judgemental skills to apply those standards wisely and effectively. These same
judgemental skills will serve you equally well even when standards change in the future, as
they undoubtedly will.
After you master the contents of Intermediate Accounting, you will be able to account for
the wide range of events and transactions found in this unique and challenging economic
environment. We are proud that this text is now in its sixth edition. Many thousands of
students have started their substantive study of the corporate reporting environment with
this text. In addition, many people have supported the evolution of this book over the last
20 years, and we are very grateful for their encouragement and continued goodwill. In par-
ticular, Tom, Joan, and Liz are very pleased to welcome Ingrid McLeod-Dick to the author
team for this edition; Ingrid is a great colleague who brings solid classroom experience and a
history of expertise in professional accounting education.
IFRS AND ASPE

A Canadian agenda means that we all must master international standards. Every chapter
is based first and foremost on IFRS. Differences between ASPE and IFRS are explained in
a separate section, to provide clarity regarding one set of standards as compared with the
other. Assignment material reflects both IFRS and ASPE so that applications reflect the dual
GAAP environment.
xii PREFACE
TECHNICAL KNOWLEDGE
Accountants have to be able to account for things! There is a base level of expertise that must
become part of every accountant’s body of knowledge: how to record a receivable, capitalize
a lease, account for a pension, or prepare a statement of cash flows. Some of the transactions
that we must account for are very complex, and the specific rules must be mastered. An
affinity for numbers is important.
PROFESSIONAL JUDGEMENT
Professional judgement, it is often said, is the hallmark of a profession. There are often
different ways to account for the same transaction. Professional accountants must become
expert at sizing up the circumstances and exercising judgement to determine the appropri-
ate accounting policy for those circumstances.
Once an accounting policy has been established, management almost always must make
accounting measurement estimates before the numbers can be recorded. Accounting esti-
mates require the exercise of professional judgement.
Professional judgement is not acquired overnight. It is nurtured and slowly grows over
a lifetime. In this book, we begin the development process by explicitly examining the
variables that companies consider when evaluating their options, and the criteria that
accountants use to make choices. Many opportunities to develop and improve judgement
are provided in the case material.
ACCURACY
The text has been extensively reviewed and proofread prior to publication. Chapter material
has been reviewed by professional accountants. All assignment materials have been solved
independently by multiple individual “assignment checkers” in addition to the authors. Nev-
ertheless, errors may remain, for which we accept full responsibility. If you find errors, please
email the authors at j.conrod@dal.ca, tbeechy@schulich.yorku.ca, efarrell@schulich.
yorku.ca, or ing.mcleod@sympatico.ca. Your help will be greatly appreciated.
TOPICAL REVIEW IDENTIFYING KEY CHANGES

Chapter 1
The book starts by exploring the multiple accounting frameworks in use in Canada for pub-
lic companies and private companies—IFRS or U.S. standards for public companies, IFRS
or ASPE or DBA for private companies. The chapter then explores the issue of international
comparability and the difference between nations in their acceptance of IFRS—whether a
nation adopts, adapts, or harmonizes with IFRS. While companies in different countries
may use IFRS, the financial reports still imbed significant differences that arise from differ-
ences in nations’ economic, business, and sometimes even religious practices.
After establishing the multiple GAAP frameworks, our attention turns to the basis of
application of any framework. Before we can make judgements on choosing accounting pol-
icies and making accounting estimates, we must understand the many possible (and often
conflicting) objectives underlying a company’s financial reporting. Thus, the second major
theme of the first chapter is how the many different factors and influences shape a company’s
financial reporting. This is fundamental material that supports professional judgement.
Chapter 1 has been extensively revised and rewritten for this edition, with new exhibits to
further clarify the material.
Chapter 2
Chapter 2 has been completely rewritten in this edition. The primary focus is on the account-
ing choice process, emphasizing underlying assumptions, qualitative characteristics, and
PREFACE xiii
measurement methods. Having set the basic reporting framework in Chapter 1, Chapter 2
further develops the theme of professional judgement. This chapter explains the basic assump-
tions underlying financial reporting and then moves on to develop the qualitative character-
istics that must be considered when developing professional approaches to accounting issues.
Ethical issues are strongly emphasized in this chapter, as they are throughout the book.
After discussing the broad recognition issues for revenue and expense, the chapter then sets
out the elements of financial reporting. The increased incidence of fair value measurement
within IFRS requires that the traditional distinction between “revenue” and “gains” be mod-
ified, which is clarified both by discussion and by a revised exhibit.
By the end of Chapter 2, all of the factors and elements underlying the exercise of profes-
sional judgement have been laid out and clarified. These factors and elements underlie the
professional judgements that students must make as they move through the text, particu-
larly in the case material at the end of each chapter.
Chapter 3
Chapter 3 discusses the nature of income and the difference between the economic and
accounting concepts of income. The statement of comprehensive income is explained, and
a new section emphasizes the distinction between operating income and comprehensive
income. The general presentation approach is explained, along with format variations that
are accepted in practice.
In the previous edition, it was necessary to use non-Canadian examples in this chapter
and the next. This was due to a lack of Canadian examples that illustrate the application of
IFRS because Canadian companies had not yet switched to IFRS. In this edition, all financial
statement examples in Chapters 3 and 4 (as well as the following chapters) are of Canadian
companies.
Chapter 3 contains the book’s primary discussion of asset disposals, discontinued opera-
tions, and restructuring. Discontinued operations is just one part of a broader issue of asset
disposals. We have introduced asset disposals in this chapter to provide a clearer context for
understanding discontinued operations. We discuss and provide examples of all forms of asset
disposals, including abandonment, sales of individual assets, sale of asset groups, and discon-
tinued operations. Because asset disposals are often connected with restructurings, we also
present the criteria and reporting requirements for restructuring plans as well as the require-
ments for reporting constructive obligations that frequently accompany restructurings.
The chapter ends with a discussion of ASPE and the ways in which the reporting require-
ments for private enterprises using ASPE differ from enterprises reporting under IFRS.
Chapter 4
This chapter begins with a general discussion of the purpose and limitations of the statement
of financial position. This discussion includes an explanation of the different ways in which
the assets, liabilities, and shareholders’ equity can be presented, depending on the individual
regional practice.
Specific individual items on the statement are then discussed. IFRS requires certain items
to be reported on the face of the statement but does not prescribe a specific format. In this
edition, we have introduced rates-of-return analysis at this early stage in the book.
The next section discusses and illustrates the statement of changes in equity. We illustrate
that the statement of changes in equity (SCE) includes not only the “normal” shareholder
accounts (e.g., share equity and retained earnings) but also each of the various components
of other comprehensive income.
In the fourth section, we have expanded the overview of accounting changes, including
changes in estimate, changes in accounting policy, and error correction. Accounting changes
are pervasive, and this section prepares students to understand accounting changes as they
move through the specific topics that comprise the rest of the book. A full discussion of
accounting changes is reserved for the end of the book, Chapter 21 (in Volume Two).
The final section is a discussion of disclosure notes. This section reflects the current
disclosure requirements of IFRS, including related party transactions, segment reporting,
xiv PREFACE
contingencies, and guarantees. In this edition, we have expanded our discussion of segment
reporting and provided a numerical illustration.
Chapter 5
The statement of cash flows (SCF) is dealt with in sequence, as a primary financial state-
ment. The chapter deals with the mechanics of statement preparation, using both a format-
free approach and the T-account method. The journal-entry-based worksheet approach is
included in an appendix. Coverage is linked to the reporting example of International Forest
Products, to emphasize IFRS presentation issues and judgemental presentation choices.
Presentation of investment revenue cash flow, interest, and dividends paid is discussed and
illustrated in a separate section later in the chapter. Statement of cash flows (SCF) issues are
reviewed in every subsequent chapter of the text. And, new in this edition, there is a com-
prehensive SCF review at the end of Volume Two.
Chapter 6
Revenue is one of the most judgemental areas of accounting policy choice in the GAAP
world. For the sixth edition of the book, we have more specifically outlined the five criteria
required for revenue recognition. A consistent approach is used to apply these criteria to
determine the appropriate revenue recognition for various types of transactions. Specifi-
cally, the chapter provides examples of revenue transactions, including sales with rights of
return or warranty agreements, bill and hold arrangements, consignments, and licensing
fees. Transactions involving multiple deliverables are explained, with examples of loyalty
point programs and franchisee fees provided. Biological assets and agricultural produce are
also discussed in the chapter.
In accounting for long-term contacts, we illustrate only the percentage-of-completion
method, as this is the only method normally acceptable under IFRS. The completed-contract
method is illustrated in the ASPE section at the end of the chapter. This separation helps
students to better understand the difference between IFRS and ASPE as applied to long-term
contracts. Barter transactions and exchanges of similar and dissimilar goods or services
are important but challenging aspects of accounting. The chapter puts these transactions
into a broader context and illustrates, based on IFRS, just how each of the various types of
non-monetary exchanges should be measured and reported. Also new to this edition is the
discussion of non-monetary transactions under ASPE.
New for the sixth edition is an Appendix that explains the details of the new standard on
revenue recognition (effective for annual reporting periods beginning on or after 1 January
2017) and how it will be applied. There is also a supplemental chapter on Connect that goes
into further detail, applying the new revenue recognition criteria to various types of revenue
transactions. This supplement also includes some end-of-chapter questions related to this
new standard.
Chapter 7
This chapter now deals with two important financial instruments: cash and receivables. Cov-
erage of payables has been shifted to Volume Two. Classification and valuation decisions are
central to the coverage of cash and receivables. Important topics, such as foreign currency
translation (a must, in this age of globalization) and the IFRS rules governing the transfer of
receivables, are incorporated. Material on bank reconciliations is in an appendix, and cov-
erage of present- and future-value calculations is available online on Connect, as is a more
extensive set of compound interest tables.
Chapter 8
This chapter conforms to the IFRS approach applying lower of cost or market valuation
methods wherein the IFRS defines “market” as net realizable value. Also, we explain the
process for writing inventory backup if NRV recovers before the inventory is sold. The
PREFACE xv
allowance method of accounting for inventory writedowns is fully illustrated—the allow-

ance method is the only feasible method when the LCNRV test is applied on a group basis.
Inventory valuation always raises the possibility of unethical behaviour. Therefore, the
chapter includes discussion of the ethical issues surrounding inventory valuation and
accounting.
Introductory accounting texts deal with inventory systems and the cost flow assumptions,
and thus we present that more basic material in the Appendix, available for student review,
if needed.
Chapters 9 and 10
Accounting for capital assets and intangible assets is challenging in the IFRS context. There
are three possible models to consider depending on the type of asset: the fair value model,
the revaluation model, and the cost model. Also, component accounting and depreciation
add complexities to the accounting for capital assets. Impairment testing and reversals will
create more volatility on the income statement using IFRS. These chapters systematically
look at acquisition, amortization, impairment, and disposal considering both the IFRS stan-
dards and ASPE. The appendices cover the complexities related to investment property,
government assistance, capital cost allowance, and the revaluation model.
Chapter 11
This chapter reflects coverage of IFRS 9, effective in 2015 but available for early adoption
as a response from standard setters to the upheaval in financial markets. Accounting for
amortized cost, fair value through profit and loss, fair value through other comprehensive
income, cost, significant influence, and control investments is covered. Both policy and
numeric issues are thoroughly explored. The chapter includes a number of helpful diagrams
and figures to help clarify the roadmap through this complex territory. ASPE alternatives are
very different in this area, and the choices are documented and described.
Volume One Appendix—Fundamentals:

The Accounting Information Processing System
The Appendix reviews the accounting cycle from the original transaction to the journals,
trial balance, and preparation of financial statements. Examples of adjusting journal entries
are discussed as well as subsidiary ledgers and worksheet applications. Extensive examples
are used to illustrate the accounting cycle.
Chapters 12 and 13
New in this edition, there are two chapters on liabilities to start Volume Two. Chapter 12
deals with operating payables, as well as notes payable and provisions. The chapter includes
some examples of liability measurement that require discounting. We hope that this shorter
chapter is a more appropriate way to start off a new term! This chapter fully reflects IFRS and
ASPE standards in the area, and has complete case and problem material.
Chapter 13 delves into long-term debt, using bonds as an example. The chapter relies
on discounted cash flow models for liability measurement, accompanied by the effective-
interest method of amortization. Straight-line amortization is illustrated in the ASPE sec-
tion. Various valuation and measurement complexities are covered, including the effect of
upfront fees and derecognition scenarios. This chapter includes a section on the capitaliza-
tion of borrowing costs.
Chapter 14
This chapter deals with straightforward shareholders’ equity issues. Multicolumn presen-
tation of the shareholders’ equity statement, consistent with International Accounting
Standard 1 (IAS 1), is completely incorporated. Classification and presentation of amounts
in accumulated other comprehensive income, (e.g., from fair-value-through-other-
xvi PREFACE
comprehensive-income [FVTOCI] investments, and certain foreign currency gains/losses)

is included, and is supported by assignment material. Summary charts have been incorpo-
rated, where appropriate.
Chapter 15
One major topic in this chapter is classification: debt versus equity, compound financial
instruments, and the like. Classification is based on the substance of a financial instrument
rather than its legal form. A major section covers the IFRS approach to share-based pay-
ments, emphasizing the estimates needed for measurement and forfeitures. Basic patterns
for option accounting are established. Finally, the material on derivative instruments is
included in this chapter. While many of the complexities of derivatives are appropriately left
to advanced accounting courses, this introduction is vital. We think that the material is clear
and understandable, at an appropriate level for Intermediate courses.
Chapters 16 and 17
Accounting for income tax remains two separate chapters, to acknowledge that many
instructors prefer to spend two blocks of time on this most challenging area. The Chapter 16
material establishes a three-step process for typical situations. The focus of Chapter 17
remains accounting for the tax effect of losses—carrybacks and carryforwards. This is dif-
ficult material for students, but the Chapter 17 problems incorporate the prior-chapter
material and allow solid reinforcement of the steps associated with tax accounting. The
ASPE section explains the taxes payable or flow-through method that is available for private
enterprises.
Chapter 18
The major change to this chapter is the introduction of IASB’s new approach for lease
accounting. The proposal requires all leases lasting longer than 12 months to be capitalized.
At the time of writing this textbook, the proposed changes were still in Exposure Draft form
and no effective implementation date had yet been specified. Although there is no doubt that
a new standard will be issued, corporations will need at least three years to implement the
change. A new standard cannot become effective before 2017. We present this new approach
as an Appendix rather than in the main body of the text as the current standards will remain
effective in the interim.
Chapter 19
Pensions and other post-retirement benefits are highly complex arrangements, with corre-
spondingly complex accounting treatment. This chapter has been completely revamped to
reflect up-to-date standards for defined benefit pension plans, both from IFRS and ASPE.
We are pleased that the revised rules are easier to understand, but more importantly, the new
standards result in better reflection of the economic position of such plans. The worksheet
structure used is helpful to organize the material. This chapter also includes an example of
accounting for other post-retirement benefits and appropriate coverage of defined contribu-
tion plans, since the latter are gaining in popularity.
Chapter 20
Earnings per share material includes an explanation of basic and diluted earnings per share
(EPS). IFRS terminology is used throughout. The procedural steps associated with organiz-
ing a complex EPS question are emphasized to provide more comfort and support in this
complicated area. There are a variety of useful summary figures and tables.
Chapter 21
Accounting policy changes and error corrections require restatement of one or more prior
years’ financial statements. Restatement is surely an important topic, given the number of
fraud-based restatements reported in the public press in recent years. Also, the ongoing
PREFACE xvii
changes in accounting standards means that companies must often restate their accounts.
This chapter deals with the theory and mechanics related to such restatement, reflecting
current IFRS standards.
Chapter 22
The text concludes with a review of financial statement analysis and emphasizes the impor-
tance of accounting policy choice and disclosure in the analysis of published financial state-
ments. New in the sixth edition is an in-depth discussion related to the type of information
to gather specifically to assist with the analysis. Each of the ratios described in the chapter
are calculated for the same sample company, and the results are analyzed, taking into con-
sideration the entity’s business and industry. There is an extensive case illustration, showing
restatements, which demonstrates the importance of accounting policy choice.
Volume Two Appendix—Statement of Cash Flows

SCF topics have been explained in each chapter of the text, and students have had assign-
ment material to reinforce each topic. However, some prefer to end the course with a
comprehensive review of SCF topics, as review and reinforcement. This Appendix gathers
material that will support this approach. The appendix is based on a T-account analysis, and
has an appropriate range of assignment material.
ACKNOWLEDGEMENTS
Our initial draft of this text was reviewed by several colleagues with expertise in IFRS. Our
manuscript benefitted significantly from the comments and suggestions from Judy Cumby,
FCA, Ingrid McLeod-Dick, FCPA, FCA, and Marisa Morriello, CPA, CA. Many other
reviewers had contributed valuable comments on the previous edition, which informed our
decisions about coverage and approach for the sixth edition.
We are grateful to the team members who exhaustively checked the assignment material
and the solutions, including Mike Lutes, CA; Andrew Bonner, CA; Borden Rhodes; James
Rockwood; Chantelle Loucks; Alex Kogan, CPA, CA; Winnie Siu; Alex Fisher, CPA, CA;
Marisa Morriello, CPA, CA; Marcella Augustina, CPA, CA; Susan Cohlmeyer, FCA; and
Cara Chesney, CA. The residual errors are our responsibility, but these expert individuals
have significantly improved our accuracy. A special thanks to Judy Cumby, FCA, Laura
Cumming, CA, and Tammy Crowell, CA.
We appreciate the permissions granted by the following organizations to use their prob-
lem and case material:
• The Canadian Institute of Chartered Accountants
• The Certified General Accountants’ Association of Canada
• The Ontario Institute of Chartered Accountants
• The Atlantic School of Chartered Accountancy
• The American Institute of Certified Public Accountants
We are grateful to the people at McGraw-Hill Ryerson who guided this manuscript
through the development process. We appreciate the strong support of Keara Emmett, our
Product Manager; Lindsay MacDonald and Chris Cullen, our Product Developers; and the
production team, led by Margaret Henderson and including Jessica Barnoski and Tammy
Mavroudi, who have all contributed in significant ways to this final product. And, of course,
Karen Rolfe, copy editor, and Rohini Herbert, proofreader, have become welcome and active
partners in this enterprise.
On a personal level, we would like to thank our friends and family members for their
support and encouragement throughout the lengthy process of bringing this book to fru-
ition, especially, in Toronto—Brian McBurney; in Halifax—Andrew, Yen, Meredith, and
Daniel Conrod; in Richmond Hill—Ed Farrell, Catherine, Michael, and Megan Farrell; and
in Collingwood—Michael Dick and Kenneth Dick.
Pedagogical Walkthrough
SECOND PASS
CHAPTER 6
Introduction
Each chapter has an introduction that explains the
Revenue Recognition objectives of the chapter in narrative form.
INTRODUCTION
Quebec-based CAE Inc. is the world’s dominant manufacturer of flight simulators. Sim-
ulators are built for CAE’s clients under long-term contracts that encompass design,
engineering, and manufacturing. In addition, contracts may involve the provision
SECOND PASS
of spare parts, maintenance, flight schools and other training services. Clearly, CAE’s
revenue-generating activities are numerous andCHAPTER 6 Revenue
complex. When should thisRecognition
revenue be 271
recorded in earnings?
Revenue recognition is probably the most difficult single issue in accounting, largely
because modern business activities can be very complex. Economic activity takes many
months or many years to complete. In complex and long-term earnings processes, it is
not at all obvious just when revenue should be recognized in earnings. As well, many
“sales” actually involve the delivery of more than one product and/or service. How should
the revenue for each component be measured and when should the revenue for each
component be recognized?
This chapter will examine the nature of the earnings process and the various points at
which revenue could be recognized, depending on the nature of the revenue-earning pro-
Concept Review
cess. The chapter also deals with measuring the amount of revenue attached to separate
activities within the same contract.
All of the issues in revenue recognition have a direct impact on profit or loss mea-
CONCEPT REVIEW surement—a relatively small change in revenue recognition can have a major impact on
earnings. Therefore, there are many ethical implications associated with the choice of Throughout each chapter concept review questions
1. How is a gain different from apolicies.
revenue recognition revenue?
This is an area where judgement plays a major role.
To enhance comparability and reliability across all types of revenue transactions,
are included. Students can stop and think through
2. List the five criteria thatstandard
mustsetters
be satisfi ed before revenue from revenue
the sale recog-of
accounting
goods can be recognized.
have attempted to standardize and narrow
nition choices by providing more explicit guidance. After many years of review and con-
the answers to these basic questions, covering the
sultation, the IASB has revised the standard for revenue
3. What measurement issues might arise in determining the amount of revenue recognition, effective for
reporting periods beginning on or after 1 January 2017. Due to the long implementation
annual
previously explained material. This helps compre-
to be recognized?
date, this chapter discusses revenue recognition under the standards that are currently in
place and effective until the end of 2016. The new standard is explained in the Appendix
hension and focus! Answers to these questions can
to this chapter. There is a more detailed supplement based on the new standard, along
with examples, on Connect.
be found online on Connect.
Figures and Tables

EXHIBIT 36
Where appropriate, chapter material is summarized
DETERMINING IF A CONSTRUCTIVE OBLIGATION EXISTS in figures and tables to establish the patterns and
START
help reinforce material.
No
Is there a detailed plan identifying the
necessary elements as set out in IAS 37(¶72)?
Yes
Will the plan start as soon as possible and No

be completed in a time frame that makes
significant changes to the plan unlikely?
Yes
Yes
Has the
SECOND entity started dismantling the
PASS
plant prior to the year-end?
Ethical Issues
CHAPTER 3 Statements of Income and Comprehensive Income 95
No
Many chapters discuss accounting issues that raise
Yes
Has the entity started selling assets
ethical concerns. These concerns are highlighted in
Dr. Cash
prior to the year-end?
75
the chapter. Where ethical issues are particularly
Cr. Unearned revenue (liability account) No 75 problematic, we have included a separate “Ethical
Has there been a public announcement of the Issues” section to help students focus on the ethical
Yes
main features of the plan prior to the year-end,
in sufficient detail and in such a way as to aspects of policy choice.
ETHICAL ISSUES give rise to valid expectations in other parties
(such as customers, suppliers, and employees)
Ethics assignment material has also been incor-
that theforentity
The reason for the conditions will carryanout
reclassifying theas
asset plan?
held-for-sale is to prevent porated into the case material. Essentially, when an
managers from reclassifying assets as “current” for a short period and then reversing
that decision later. For example, a company may Nohave a lending covenant that requires accountant makes a recommendation on a conten-
a minimum current ratio. If these restrictions were not in place, an unethical manager
Yes Is there any other evidence to suggest
could temporarily reclassify a noncurrent asset to current, that that it is held-for-
claiming tious choice of accounting policy, ethics are tested.
sale, just to meet thethe entityratio
current hasrequirement,
started to implement
prior to the
the plan it back to noncur-
and then reclassify
year-end?
rent after the reporting date had passed. Clearly, there is an ethical issue involved in
Students exercise true-to-life ethical judgement when
the “held-for-sale” classification.
No
they have to make a tough judgement call and rec-
A constructive Has the entity No constructive
ommend an accounting policy that is “good” for one
obligation to
restructure has
announced the main
features of the plan to
obligation to
restructure has
group but “bad” for another. These ethical overtones
arisen. A provision
Yes
those affected by it
No
arisen. No are highlighted in the case solutions to help instruc-
is required. before the year-end so as provision can
to give rise to a valid be made. tors draw them out in discussion and evaluation.
expectation that it will
by carried out?
Source: Deloitte Development LLC, © 2010.

PREFACE xix
Accounting Standards for

Private Enterprises
ACCOUNTING STANDARDS FOR PRIVATE ENTERPRISES
At the end of each chapter, there is a section that
SECOND PASS
162 CHAPTER 4 Comprehensive
Statements of Financial Income
Position and Changes in Equity; Disclosure Notes expands on essential items to understand for
There is no SCI in Canadian ASPE; only an income statement should be provided. The
concept of other comprehensive income does not exist in ASPE. Instead:
Accounting Standards for Private Enterprise (ASPE)
• Issuance
• Net income
of debtaftor
er equity
taxes isinstruments that changed
transferred directly the income
from the commonstatement
shares, ortopotential
retained in Canada. These sections include numeric exam-
common shares, outstanding; andof changes in retained earnings, if a separate statement
earnings
Announcing
(or via
• is prepared);or
the statement
commencing a restructuring. ples, where appropriate. The ASPE sections provide
These•events
Unrealized
will affforeign
ect the fiexchange translationingains
nancial statements or losses year
the following related to is,
(that a foreign subsid-
in the year that students and instructors with a detailed, but easy-to-
iary (aoccur).
they actually component
When of OCI underevents
nonadjusting IFRS) are
areknown
reported as athe
before separate
issuance component of
of the most
shareholders’
recent year’s statements,equity;
theyandshould be communicated to the financial statement readers as use guide to these important standards.
part of•the
Anyreporting
other nonearnings
exercise. items that affect shareholders’ equity are reported in share-
holders’ equity, as appropriate.
Under ASPE, consolidated financial statements are not required. The statements of a pri-
CONCEPT
vate REVIEW
enterprise are not issued to the public, and users are presumed to be knowledgeable.
If a user wants consolidated statements, he or she can request them (or insist on them, in
1. In general, what functions
the case of a major provider are served
of capital, byan
such as disclosure notes?
institutional investor).
2. Why might financial statement users want to see segmented information?
Format
What companies are required to disclose segmented information?
3. • ASPE
Defi ne adoes not specify
related a format other than the obvious fact that it should begin with
party transaction.
“revenue” and end with “net income.” There is no requirement for basing the expense
4. What is measurement
disclosure uncertainty?
on “functional” versus “nature of expense” approach as required by IFRS.
5. • ASPE the
Explain requires just one
difference subtotal
between in theand
adjusting statement, and that
nonadjusting is for “income
subsequent events. or
loss before discontinued operations.”
FOURTH PASS Other subtotals are permitted, but none is
required. CHAPTER 3 Statements of Income and Comprehensive Income
• As with IFRS, discontinued operations are reported separately after earnings from
continuing operations, net of income tax.
109
Looking Forward
Looking Forward
Thus, the default
In November position
2012, the for ASPE
IASB began is ainto
looking single-step statement
a wide range to derive
of issues earnings from
on presentation, dis- Standards are constantly evolving and changing! To
continuing
Restructuring
closure operations, followed
and measurement. Among theby aissues
line for
ondiscontinued operationsFramework
the IASB’s Conceptual net of income tax.
agenda
Otherwise,
areASPE subject
a re-examination to the line
of cally defi
does not specifi item
dealnitionsrequirements below,
of elements, However,
with restructuring. items
definitions can be listed
theofgeneral
liabilities, in whatever
recognition
concepts under-
help keep abreast of forthcoming probable changes,
arrangement the company chooses.
principles, measurement principles, the distincion between equity and liability instruments,
lying the recognition of constructive obligations still would apply for private enterprises.
and measurements other than cost and fair value. In coming years, the Board is likely to at the end of each chapter we provide a discussion
issue new guidance
Earnings on theFOURTH
per Share format and
This is a long-term project. We are
presentation of items on the SFP.
PASS
not likely to see a resolution of these many issues for
of key anticipated changes in IFRS and/or ASPE
standards.
Earnings CHAPTER 3 Statements of Income and Comprehensive Income 109
quite a while.per share amounts are not required. Indeed, EPS is not even mentioned in
ASPE. The reason is that private companies are very closely held, often by just one person
or one family, and there is no widespread share ownership or fluctuating number of out-
standing shares as in a public company. Dilution of earnings is not an issue.
Restructuring
ASPE does not specifically deal with restructuring. However, the general concepts under-
ACCOUNTING
lying the recognition of STANDARDS FORstill
constructive obligations PRIVATE
would applyENTERPRISES
for private enterprises. Relevant Standards
Earnings per Share
Balance Sheet
Earnings per share amounts
RELEVANT STANDARDS
arethe
nottitle
required. Indeed,
At the end of each chapter, we provide a compre-
Canadian ASPE continues to use “balance sheet,”EPS
but isuse
notofeven
that mentioned
title is not in
ASPE.
required.
or one
Th
CPA Canadae reason
“Statement
family, and
isofthat
Handbook,
there
private
Part
financial
is no
companies
I (IFRS):
position”
widespread
are veryanclosely
remains held, oft
acceptable en by justtitle.
alternative one person
The hensive list of the IASB and ASPE standards that are
• the same as for IFRS. CICA Handbook, PartofII,
share ownership or fluctuating number out-
general format
IAS
standing
1521,
of the balance
1, Presentation
shares as ina alist
contains of
sheet is Statements
of Financial
public company.
items that Dilution
should be of earnings presented.
“separately is not an issue.
• IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors
section ” Some of these relevant to the material in that chapter. We have not
items •usually
IAS 37,will appear on
Provisions, the face ofLiabilities
Contingent the balanceandsheet, but some
Contingent may be disclosed in
Assets
the notes. The only items in the list that do not specifically appear in IFRS are:
quoted the standards directly in chapter material,
• IFRS 5, Non-current Assets Held-for-sale and Discontinued Operations
• Prepaid expenses;
Canada Handbook, Part II (ASPE):
and we have not provided paragraph references to
•CPA
Obligations under capital leases;
either the IASB publications or CPA Canada Hand-
• Sectionbenefi
• Accrued 1520, Income Statement
t liability; and
RELEVANT STANDARDS
• Section
• Asset 3475, Disposal of Long-lived Assets and Discontinued Operations
retirement obligations. book. This omission is intentional—the two sources
CPA Canada Handbook, Part I (IFRS):
However, disclosure of these items is implicitly contained in the specific standards that
• IAS 1, Presentation of Financial Statements
deal with those topics.
are harmonized but may use different words. Also,
• IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors the IASB makes “annual improvements” that change
• IAS 37, Provisions, Contingent Liabilities and Contingent Assets
SUMMARY OF KEY
• IFRS 5, Non-current AssetsPOINTS
Held-for-sale and Discontinued Operations the wording of some standards. Our focus is on the
Public companies
1. Canada
CPA Handbook, PartmustIIreport comprehensive income, which has two components:
(ASPE): application of standards, not the technicalities of
• Section
(1) profit or loss
1520, (i.e.,Statement
Income net income), and (2) other comprehensive income. OCI generally
includes value changes that have been recognized in the SFP but are excluded from
• Section 3475, Disposal of Long-lived Assets and Discontinued Operations
periodic earnings, either temporarily or permanently.
the wording.
2. Comprehensive income can be presented either in one continuous statement, or in
two consecutive statements with net income as the final line of the profit or loss state-
ment (i.e., income statement) and also as the first line of the SCI, which must follow Summary of Key Points
immediately on the same page.
SUMMARY OF KEY POINTS
3. Companies can report expenses in the profit and loss section either by nature of A summary of key points concludes each chapter.
Public companies
1. expense or by function.
(1) profit orare
disclosures
mustUnder
loss(1)(i.e.,
reporteither
net income),
depreciation
comprehensive
andand
presentation income, which
approach,
(2) other comprehensive
amortization
twohas
expense and (2)
two components:
compulsory
income.
the costOCI
expense
generally
of employee
This provides a list of the key ideas and reinforces
includes
benefits. value changes that have been recognized
periodic earnings, either temporarily or permanently.
in the SFP but are excluded from
the chapter material.
4. Both IFRS and ASPE require a subtotal for net earnings from continuing operations
Comprehensive
2. (net of income tax).income canencourages
IFRS be presented either intoone
companies continuous
provide statement,
information, or in
headings,
two consecutive
and other subtotalsstatements
that willwith
helpnet
theincome
financialas statement
the final line of the
reader profit or loss
understand the state-
com-
ment (i.e.,
pany’s income
financial statement) and also as the first line of the SCI, which must follow
performance.
immediately on the same page.
5. Income taxes must be allocated over two dimensions: intraperiod, which is within the
3. Companies can report
financial statements of a expenses
reporting in the profi
period, and tinterperiod,
and loss section either bythe
which allocates nature
incomeof
expense or by
tax burden function.
to the current Under either years.
and future presentation approach, two compulsory expense
disclosures are (1) depreciation and amortization expense and (2) the cost of employee
benefits.
4. Both IFRS and ASPE require a subtotal for net earnings from continuing operations
(net of income tax). IFRS encourages companies to provide information, headings,
and other subtotals that will help the financial statement reader understand the com-
pany’s financial performance.
5. Income taxes must be allocated over two dimensions: intraperiod, which is within the
financial statements of a reporting period, and interperiod, which allocates the income
tax burden to the current and future years.
income tax effects, as a separate component of income, positioned after income from
continuing operations.
11. Companies often restructure their operations to match their operations with the mar-
ket and remain efficient and effective. When management establishes a formal restruc-
xx PREFACE
turing plan and takes action to put it into effect, it may be appropriate for the company
to establish a provision for restructuring cost. The provision is based on the obliga-
tions that the company undertakes in conjunction with the restructuring, such as for
employee severance pay and related costs.
FIRST PASS
116 CHAPTER 3 Statements of Income and Comprehensive Income Key Terms
KEY TERMS
Each chapter concludes with a list of key terms used
abandoned
QUESTIONS asset
accounting income
idle asset
income and explained in the chapter.
basic
Q3-1 EPSWhat is the difference between economic interperiod
income andtax accounting
allocation income?
cash-generating
Q3-2 How does unit
comprehensive income differintraperiod tax allocation
from net income?
comprehensive income multiple-step statement
Q3-3 Whyobligation
constructive might the term “income” mean diff erent things? interest (NCI)
noncontrolling
diluted
Q3-4 EPS Under IFRS, what are the two alternative provision
presentation formats for the profit or loss
discontinued operation
section of the SCI? recoverable amount
disposal group restructuring
Q3-5 What is noncontrolling interest (NCI)? How does it arise? plan
economic income single-step statement
Q3-6
fair valueWhat totals
less the costortosubtotals
sell does IFRS require in arriving
statement at net incomeincome
of comprehensive on the (SCI)
income
flipping statement? unusual items
held-for-sale
Q3-7 What is the objective of providing subtotals weighted average
within number
the income of shares
statement?
Q3-8 What are unusual items? How might they be reported on the income statement?
Q3-9 Define earnings per share (EPS). Why is it required as an integral part of the income
statement? FIRST PASS
CHAPTER 3 Statements of Income and Comprehensive Income 111
Q3-10 What is the difference between basic EPS and fully diluted EPS?
Q3-11 What is the difference between intraperiod and interperiod income tax allocation?
Explain how intraperiod tax allocation affects the statement of income and compre-
Review Problem
REVIEW
hensivePROBLEM 31
income.
Q3-12 What is the difference between the accounting treatments of an abandoned noncur-
From Chapter 3 onward, we provide at least one self-
The following information is taken from the adjusted trial balance of Killian Corporation at
rent asset as compared to an idle noncurrent asset?
31 December 20X5, the end of Killian’s fiscal year: study review problem, with the solution. This pro-
Q3-13 What are the two primary conditions that must be satisfied for a noncurrent asset to
Account
be reclassified as a held-for-sale current asset? Amount vides an opportunity to practise the primary aspects
What
Q3-14Sales is a disposal group? What types of assets and liabilities may be included
revenue $1,000,000 in a of that chapter’s content.
disposal
Service group?
revenue 200,000
Q3-15Interest revenue
If an asset 30,000
disposal group is reclassified as held-for-sale, what is its measurement
Gain on sale of capital asset
basis? 100,000
Cost of goods sold1 630,000
Whengeneral,
Q3-16Selling, can a disposal group be reported
and administrative as 2discontinued operation rather than
expense 170,000sim-
ply as expense
Interest an asset held-for-sale? 20,000
A company
Q3-17Loss on sale ofhas a segment
long-term that it decides to sell, effective 1 September, after10,000
investment incur-
ring
Loss operating
from lossesdamage
earthquake of $45,000 to date in the fiscal year. The segment,200,000
with net
assets
Loss of $310,000,
on sale of assets was sold for $240,000
of discontinued on 1segment
business November, after incurring60,000
further
operating
Loss losses of discontinued
on operations $30,000. Assume a tax segment
business rate of 25%. What amounts would 10,000 be
disclosed in the income statement?
1 Consists of depreciation of $30,000, employee wages and benefits of $40,000, and
What isofthe
Q3-18$580,000 definition of
merchandise a restructuring
purchases plan? increase in inventory.
less $20,000
Definedepreciation
Q3-19Includes
2
a constructive
of obligation?
$35,000 and When does wages
employee such an obligation
and benefits ofarise?
$90,000.
Q3-20 How can estimation errors arise when accounting for asset disposals such as dis-
Other information:
posal groups and discontinued operations?
a. The income tax rate is 30% on all items.
b. There were 100,000 common shares outstanding throughout the year. No preferred
shares are outstanding.
c. Assume that the capital cost allowance deductible for tax purposes is equal to the depre-
Cases
CASE 31 expense shown on the income statement.
ciation
Required:
More than 60 cases are included in Intermediate
Prepare
DELUCA in good form:
SOLUTIONS INC. Accounting, and there is at least one new case in every
1. A single-step SCI by nature of expense.
Deluca Solutions SCI
2. A single-step Inc. is
byan Ontario-based
function within manufacturer.
the enterprise.The company is listed on the TSX,
chapter in the sixth edition. The cases portray realis-
but the family of founder David Deluca retains control through multiple-voting shares.
3. A multiple-step SCI by function within the enterprise. tic situations, usually with multiple financial report-
ing implications. Students must put themselves into
SECOND PASS the situation and grapple with the facts to arrive at
177
the most appropriate accounting policies for the cir-
CHAPTER 4 Statements of Financial Position and Changes in Equity; Disclosure Notes
cumstances. A blend of professional judgement and

technical skills is needed to respond to a case. Case
coverage is not limited to “one chapter” bites but
often integrates material learned to date. For those
trying to build a base of professionalism, the use of
cases consistently over the term is highly recom-
TECHNICAL REVIEW
mended. Cases can be assigned for class debriefing,
TR4-1 Financial Statement Classification: The first list below shows the financial
statements normally included in a company’s annual financial statements. The second list
class presentations, or written assignments.
shows some amounts that often appear in those financial statements.
A. SFP
B. Statement of comprehensive income—profit and loss section
C. Statement of comprehensive income—other comprehensive income section
D. Statement of cash flows
Technical Review
E. Statement of changes in shareholders’ equity
B, D, E 1. Net income In this edition, we have added Technical Review
exercises at the end of each chapter, preceding the
2. Retained earnings (opening)
3. Translation gain/loss on foreign subsidiaries
somewhat more demanding assignment material.

4. Provision for restructuring costs
5. Cumulative translation gain or loss
6. Dividends declared, unpaid at year-end
7. Appropriation for factory reorganization These technical exercises are directive, brief, and
8. Loss on discontinued operation
9. Non-controlling interest in subsidiaries quantitative and encourage students to ensure they
10. Investment property held-for-sale
11.
12.
Cumulative effect of change in accounting policy
Proceeds from issuance of common shares
understand the chapter’s basic quantitative aspects.
13.
14.
Unrealized gains/losses on hedge derivatives
Deferred pension cost
We have provided five such exercises in each chapter
Required: (except in the introductory chapters; these are more
Use the letters given in the first list to indicate the financial statement on which each item in
the second list will appear. Some letters may be used more than once or not at all. The first conceptual than numerical in nature, and technical
item is completed for you as an example.
TR4-2 Return ratios: Oleander Corporation had total assets of $1,200,000 on 31 Decem-
review is not the focus.)
ber 20X3. At 31 December 20X4, total assets had increased to $1,400,000. Oleander’s state-
ment of changes in equity disclosed the following amounts at the beginning and end of 20X4:
31 December 20X4 31 December 20X3
Class A shares $345,000 $285,000
Class B shares 41,000 41,000
Contributed surplus 7,500 6,000
Translation reserve (OCI) (15,000) (17,000)
PREFACE xxi
Assignment Material
There is an extensive range of assignment material at the end of each chapter. The assign-
ments provide the opportunity to “learn by doing.”
The technical review questions and many of the assignments are available online on Connect;
the Connect logo identifies these questions. The Connect problems allow web-based itera-
tions of the problem for assessment, immediate feedback, and extra practice.
 Stars accompany each assignment to indicate length, with one star indicating a shorter
assignment and three stars indicating a longer assignment.
To help students practise on their own, we have selected a few assignments from each chap-
ter and put their solutions online. These selected assignments are highlighted by the icon in
the margin.
Excel® templates for selected assignments provide an introduction to basic spreadsheet

applications. These assignments are identified with the icon in the margin and are available
online.
Integrative Problems
From time to time, we include integrative problems that formally deal with accounting top-
ics covered in five or six chapters. These problems are a great pretest review!
SUPPLEMENTS
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practise important skills at their own pace and on their own schedule. With Connect, stu-
dents also get 24/7 online access to an eBook—an online edition of the text—to aid them in
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engages with SmartBook, the reading experience continuously adapts by highlighting con-
tent based on what each student knows and does not know. This ensures that he or she is
focused on the content needed to close specific knowledge gaps, while it simultaneously
promotes long-term learning.
xxii PREFACE
INSTRUCTOR RESOURCES
Instructor Resources
• Instructor’s Manual
• Instructor’s Solutions Manual
• Computerized Test Bank
• Microsoft® PowerPoint® Lecture Slides
SUPERIOR LEARNING SOLUTIONS AND SUPPORT

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CHAPTER 12
Financial Liabilities
and Provisions
INTRODUCTION
What is a liability? The answer might seem rather obvious: an amount owed from one
entity to another. In fact, many liability situations, especially those related to financial
liabilities, are straightforward from an accounting perspective. However, when liabilities
are estimated or uncertain, they can present accounting challenges. For instance:
• Does a liability exist if there is no legal liability but the company has announced a
particular commitment or plan of action?
• How is a liability measured if the obligation is for services, not a set amount of
money?
• How can a liability be measured if the amount of cash to be paid is based on future
events?
Liability financing is an integral part of the capital structure of many companies. For
example, Canadian Tire Corporation Limited is a Canadian company that offers a range of
general merchandise and also apparel, sporting goods, petroleum, and financial services
to consumers. The company reported total assets of $13.2 billion in 2012. Of this amount,
$4.8 billion, or 36%, was financed through shareholders’ equity, with the balance, $8.4
billion, or 64%, provided by debt in various forms. A sizable portion of the debt represents
deposits from the financial services segment ($2.4 billion, or 18% of total assets) and
trade payables represent 12% of assets ($1.6 billion). There are also long-term loans of
$2.3 billion, or 17% of total assets.
This chapter reviews common liabilities, including both financial liabilities and provi-
sions. Financial statement classification and disclosure are reviewed. Long-term debt is
covered in Chapter 13. Chapter 14 deals with accounting for share equity. Then, in Chap-
ter 15, coverage returns to debt arrangements, those that have some attributes of debt
and some attributes of equity. Innovative financial markets have introduced significant
complexities into the accounting world!
716 CHAPTER 12 Financial Liabilities and Provisions
LIABILITY DEFINITION AND CATEGORIES

According to the conceptual framework, a liability is defined as a present obligation of the
entity arising from past events, the settlement of which is expected to result in an outflow of
economic benefits. Settlement could be accomplished through future transfer or use of assets,
provision of services, or other yielding of economic benefits. These characteristics can be sim-
plified for practical purposes by remembering that a liability:
• Is an expected future sacrifice of assets or services;
• Constitutes a present obligation; and
• Is the result of a past transaction or event.
Note that there are three time elements in the definition: a future sacrifice, a present obli-
gation, and a past event. All three elements are necessary for a liability to be recognized. It
is not possible to create a liability from an anticipated future event, such as expected future
operating losses. There must be some past transaction that is identifiable as an obligating
event, which is an event that creates an obligation where there is no other realistic alterna-
tive but to settle the obligation.
Constructive Obligations Some liabilities are legal obligations, or liabilities that arise
from contract or legislation. Most liabilities are legal obligations, including trade payables
and borrowings. Other liabilities are constructive obligations, where a liability exists
because there is a pattern of past practice or established policy. A company can create a
constructive obligation if it makes a public statement that the company will accept certain
responsibilities because the statement creates a valid expectation that the company will honour
those responsibilities. Others rely on this representation. Thus, a liability can be created when
a company reacts to moral or ethical factors.
ETHICAL ISSUES
A company has announced a voluntary product recall that will take several months
to complete. Customers have been offered a replacement product or repair on the
original unit. The recall was prompted by the company’s code of ethics to support its
product integrity and customer base. The recall is voluntary in that the defect is not
covered by warranty, and no legislation exists to force the company to act. In this case,
clear communication to another party establishes the obligation. A constructive liabil-
ity exists and the anticipated costs of the recall must be accrued.
Categories of Liabilities
Accounting for liabilities depends on whether the liability fits into one of two categories:
• Financial liabilities; or
• Nonfinancial liabilities.
A financial liability is a financial instrument. A financial liability is a contract that gives
rise to a financial liability of one party and a financial asset of another party. That is, one
party has an account payable and the other party has an account receivable. Another exam-
ple is a loan payable and a loan receivable. The two elements are mirror images of each other.
A non-financial liability can be defined by what it is not—any liability that is not a finan-
cial liability is a nonfinancial liability. A non-financial liability has no offsetting financial
asset on the books of another party. Provisions, or liabilities that have uncertainty sur-
rounding timing or amount, are a major category of non-financial liabilities.
Examples of non-financial liabilities include:
• Revenue received in the current period but not yet earned (i.e., unearned revenue); or
CHAPTER 12 Financial Liabilities and Provisions 717
• Cash outflows that are expected to arise in the future but that are related to transac-
tions, decisions, or events of the current period (e.g., a decommissioning obligation).
Categories of Financial Liabilities Financial liabilities themselves fall into two categories.
Classification determines the subsequent measurement of the financial liability. Specifically,
the alternatives can be summarized as follows:
Summarized Classification
Classification Criteria Initial Valuation Subsequent Valuation
1. “Other” Most financial liabilities; Fair value, which is Cost
financial all those except those in the transaction value (Amortized cost)
liabilities category 2, below and establishes the
cost of the financial
instrument
ADD
Transaction costs,
if any
2. Fair value May be FVTPL if: Fair value, which is Fair value; gains and
through a. The liability will be sold the transaction value losses in earnings
profit or loss in the short term; or and establishes the
(FVTPL) b. Designated FVTPL by cost of the financial
management to avoid instrument
an accounting mismatch
(related/hedged
financial instruments
are FVTPL)
Most liabilities fall in the other financial liabilities category. The FVTPL liability category is
meant primarily for liabilities that will be sold/transferred in the short term. In other cir-
cumstances, management may designate liabilities as FVTPL. This might be appropriate, for
example, if various hedging strategies were in place and management wished to have both
hedged asset and liability in the same category for valuation purposes.
Measurement of Other Financial Liabilities Other financial liabilities are initially mea-
sured as the fair value of the consideration received plus transaction costs and then carried
at this value (which is cost), or amortized cost, over their lives. That is, the initial fair value
is (generally) the stated amount of the transaction, or the transaction price.1 For example, a
company receives an invoice for the fair value of goods shipped by a supplier; the goods are
the consideration, and their invoice price is the fair value of the liability.
Discounting Liabilities of all categories must be valued at the present value of cash flows—
commonly called discounting—where the time value of money is material. The discount
rate chosen must reflect the current market interest rate, specific to the risk level of the
liability. Note, however, that if the amount and timing of cash flows is highly uncertain, then
discounting is not possible and undiscounted amounts are recorded. When liabilities are
discounted, interest expense on the discounted liability is recorded as time passes. Discount-
ing will be illustrated later in the chapter.
Reporting Example Included in its significant accounting policy disclosure, Canadian Tire
reports information about the valuation of financial liabilities. These liabilities are valued at
1
The stated amount of the transaction might not be fair value if the transaction is a related party transaction.
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preserving the old village intact. Eventually there will have to be a
ring-road round all old cities, like Oxford, which stand at the
intersection of important highways, or the concentration of traffic at
the centre will become unmanageable.
We have hardly grown accustomed yet to the great new arterial
roads, though several are already in use. They seem to me to
represent one of our highest achievements in civil engineering as
they sweep majestically through cuttings and over embankments
with an uninterrupted width of a hundred feet or more. In some ways
they are the biggest thing we have in England, out of scale with our
doll’s-house villages and landscapes, and out of character with our
little winding lanes. It will be years before the trees that line them
turn them into magnificent avenues, but by that time we shall have
learned to accept them and even to admire them. Presumably we
shall see an end of telegraph-poles soon, and that will be all to the
good. But there are other things that engineers might bear in mind.
The great road that runs south-west from Birmingham to the Lickey
Hills, a noble highway in width, is disfigured by tramway poles and
wires. Is that necessary in 1927? Surely the petrol-engine, which has
done much to spoil the country, can atone for some of its crimes
here by taking the place of electrically driven vehicles?
In Birmingham, as in the narrow streets of Ipswich, and—still worse
—in the beautiful Wharfedale valley, is to be seen a more frightful
abortion, the “trackless tram.” There has been a proposal to extend
this hideous system in Wharfedale on a broad highway cutting
across some fine country. Surely motor-buses could serve every
purpose that the lumbering trackless tram fulfils.
The new arterial roads start with a clean sheet: it is to be hoped that
it will remain clean. Recently the Minister of Transport addressed a
circular to local authorities, reminding them that, under the powers
conferred on them by the Advertisement Regulation Act of 1907,
they could take action in respect of unsightly advertisements along
the great new arteries, and urging them to do so. One distinct
advantage of modern road-construction is that the dust nuisance has
practically ceased to exist. Another innovation that has recently
appeared is a small black and white “lighthouse” at every important
crossing. The Ministry of Transport might institute a competition for
designs for these useful but not always beautiful accessories.
The question of road-development is inextricably bound up with the
larger question of town-planning, on which I have touched already in
another connection. Before approaching the vital matter of
controlling the design of individual buildings, we must consider this
wider aspect. The fact is that town-planning enthusiasts are
disappointed with the progress made since the passing of the 1909
Act. We had hoped for more far-reaching results. The nation as a
whole has failed to realise the importance of this question or the
great responsibility that legislation has put upon all local authorities.
Whether from the point of view of appearance, of health, or of mere
business, town-planning is the only national method of providing for
the future.
It is futile to write letters to The Times about lost opportunities:
common-sense would have saved the situation in nearly every case,
for town-planning is idealised common-sense. People who have
bought a house in a half-developed suburb wake up one morning to
find a shop rising on the opposite side of their road. They pack up
their furniture and flit to another half-built district a mile further out;
and then it happens again. So they keep on moving, at considerable
expense to themselves. They lose all interest in local affairs, indeed
they never stay long enough to acquire such an interest, and nobody
gains by their journeys except the removal contractor. But in a town-
planned district an area is set apart for dwelling-houses, another for
shops, another for factories. The position of each area is determined
by local conditions, by the “lie of the land,” by the prevailing wind,
and by the situation of railways and roads. There is a place for
everything, and everything is in its place. This branch of town-
planning is called “zoning.” Sites are reserved for municipal
buildings, for schools, churches, cinemas and all the other
requirements of our complex life. Roads are planned wide where
heavy traffic is anticipated, narrow elsewhere. Thus in a properly
planned area there is no need for large sums to be paid out of the
rates for compensation when a road has to be made or widened,
because the land for the road has been earmarked in advance. A
man who erects a shop in a new street runs no risk of having made
an error of judgment in selecting his site: he knows that this will be
the main shopping street and no other. Thus town-planning is good
business, but like many other movements for reform its inception
was due to far-sighted dreamers. However, it has not yet caught hold
of the popular imagination, and, in the recent case of the East Kent
coalfield, where, if ever, there was a crying need for its adoption, the
imaginative enterprise of some leading Men of Kent seems to have
started the movement which made it possible. This last example
shows admirably how town-planning may be utilised to save the
countryside. In one sense East Kent could not be saved: coal had
been found there, and was too valuable to be neglected, for, after all,
we cannot afford to throw away any of our natural resources at the
present time. Yet it was unthinkable that this lovely district, the cradle
of our race and the playground of half London, should be allowed to
become a second Black Country. So everything that can be done will
be done to preserve Canterbury and Sandwich and other priceless
relics of antiquity, to save trees, to prevent the blackening of the
fields by smoke and the disfigurement of the landscape by tall
chimneys, above all to avoid any repetition of those squalid black
villages that have driven miners to desperation in other colliery
districts. This is one of the ways in which town-planning can serve
the nation.
The development of a modern town is inevitably centrifugal; it
spreads and sprawls outwards along the main roads into the country
unless that tendency be checked. Every mile that it grows outwards
means a few minutes’ extra time for travelling to and from work,
congestion increases at the centre, and the country—as a place for
recreation—is driven further and further away. A feeling that this
system is essentially wrong has resulted in some well-meant efforts
to create “Satellite Towns,” of which Letchworth and Welwyn are
examples. They are satellites to London in the sense that London is
within hail for emergencies: thus Harley Street is a useful resort in
some cases, while the sanctuary of the British Museum Reading
Room satisfies bookworms, and Oxford Street contents the other
sex. But the main object of the promoters was to remove industries
and workers bodily into the country, so that labour might be carried
on in pleasant surroundings, never more than a few minutes’ walk
from green fields. The intention is to limit the ultimate population of
these towns to 30,000-50,000. When that figure is reached, another
centre will be started. So far, neither town has grown very rapidly,
and industry has been slow to move out, in spite of the heavy cost of
carrying on business in London. But the “Satellite Town,” a
praiseworthy attempt to secure the amenities of the old country town
for modern workers, is a factor to be reckoned with in the future. The
new L.C.C. town at Becontree in Essex is being properly laid out on
rational town-planning lines, but is to be purely residential, for people
working in London, so does not constitute a “Satellite Town.” A
remarkably successful scheme for providing something better than
the ordinary haphazard suburb, which normally deteriorates with the
certainty of clockwork, is to be seen in the Hampstead Garden
Suburb. This will never deteriorate appreciably, because its residents
are guaranteed against any interference with their amenities. It is laid
out scientifically, not merely exploited on short-sighted commercial
methods.
But though so much can be done by means of town-planning, that
new power has not yet been utilised to any appreciable extent in
regard to controlling the actual design of buildings. The high level of
design achieved at Hampstead and Welwyn is due to private control
exercised by a Company, but Ruislip, Bath, and—quite recently—
Edinburgh, have adopted the clause in the Town-Planning Act which
allows an authority to prescribe the “character” of buildings, and thus
to veto any design which, in their opinion, is likely to conflict with the
amenities of the place.
There was, as we all know, a great development of municipal
housing after the War. It was encouraged, subsidised, and even
controlled to some extent by the State, which still continues its work
in that direction, though in a greatly modified form. The houses
erected under these auspices have been subjected to a great deal of
criticism, much of it both ignorant and ill-natured. Let us recall the
circumstances. A vast number of dwellings had to be provided in a
great hurry for men who had every claim on the nation’s gratitude.
Through no fault of their own they were homeless. For a variety of
reasons these houses were very expensive, even allowing for the
general rise in prices. There was a wave of idealism in the air, and
the authorities had taken opinions from every reliable source as to
the type of house required: these were to be “homes for heroes,”
with a bath h. and c. A book of designs was prepared in Whitehall for
the guidance of local authorities and their architects. These designs
met with general approval among competent critics, but with some
derision from the general public, who greeted the “homes for heroes”
as “rabbit-hutches” or “boxes.” That was because they were devoid
of trimmings and built in small groups instead of in long rows. There
are housing-schemes good and bad, but most people who
understand architecture and who are prepared to wait a few years,
till hedges and trees have given these simple buildings their proper
setting, consider that the new houses generally represent an
advance on anything done hitherto. Simplicity in building is, within
limits, a virtue, especially in the country.
The design of these houses was entrusted to architects to an extent
never approached previously; sometimes they were the work of
private practitioners, sometimes of young architects employed under
the direction of the local surveyor, sometimes by the local surveyor
or engineer himself. The degree of ability in design possessed by
these several functionaries is naturally reflected in their products. In
that queer book Antic Hay, Mr. Aldous Huxley makes an eccentric
architect, “Gumbril Senior,” voice his views on the design of artisan
houses: “I’m in luck to have got the job, of course, but really, that a
civilised man should have to do jobs like that. It’s too much. In the
old days these creatures built their own hovels, and very nice and
suitable they were too. The architects busied themselves with
architecture—which is the expression of human dignity and
greatness, which is man’s protest, not his miserable acquiescence.”
But Gumbril Senior was a visionary, and most architects feel that
they can do much to save England in her present plight. The trouble
is that they are allowed to do so little.
It is equally possible to expect a reasonably high standard of design
in the other buildings erected under a local authority: its schools,
libraries, and so on. Nor ought one to find unworthy architecture
produced by any Government Department, whether it be a post-
office, a telephone-exchange, a military barracks, or a coastguard
station on a lonely cliff. There was a time when every post-office and
police-station bore the marks of red-tape, but of late there has been
a noteworthy change for the better. Again and again one sees with
pleasure a village post-office or telephone-exchange which
harmonises perfectly with the old village street. No longer are the
designs stereotyped; local tradition and local colouring are
considered. As time passes we may hope to witness the
disappearance of the hideous sheds and huts that survive to remind
us of the War, now so long ended.
Apart from national and municipal architecture, the design of which
must be assumed to be in competent hands, there is a great deal of
building carried out by large corporate bodies who have it in their
power to insist on good design, and above all on design which
accords with local surroundings. Among these are railway
companies, banks, “multiple” shops, and brewery companies. Among
many of these various undertakings there seems to be positively an
architectural renaissance at work, and real imagination is being
displayed at last. The Underground Railways in and round London
are employing clever artists to design their stations and notices and
posters, some of the other railways are providing really attractive
houses for their employees, and both public-houses and banks in the
country-towns are slowly beginning to take on the colour of their
environment. There are two other types of commercial undertaking
which might well follow this excellent example: the cinema
companies and the garage proprietors. Between them they continue
to furnish us with a plentiful stock of eyesores all over the country,
mainly because they are striving to attract notice and because they
always forget to take their hats off to the village street. If the Council
for the Preservation of Rural England can do anything to teach them
better manners they will effect a real service to England.
Occasionally one sees an attractive petrol-station: a few pounds
spent in prizes would produce a crop of good designs from
architects. One hesitates to offer any advice to the builders of
churches of any kind, but here again one asks no more than decent
respect for the spirit of old England.
The toughest nut to crack in all this matter of design is, however, the
question of the shop and the dwelling-house, under which head I
include, as a matter of courtesy, the bungalow. An Englishman’s
house is his castle, and he resents any interference with the rights of
the subject. Is it reasonable to impose on him any restriction as to
the outward appearance of his home, in regard to its design, its
colour, or the materials of which it is composed? It is true that he has
to submit to local building by-laws which prescribe the thicknesses of
walls, size of timbers, precautions to be taken against fire, and many
matters concerned with health. Often he has to place his house a
specified distance back from the road, behind what is called a
“building-line.” But the local authority is not empowered to interfere in
any matter of æsthetics, unless it adopts the Town-Planning Act and
enforces the clause, already mentioned, relating to the “character” of
buildings.
But such “interference” is not unknown in the case of leasehold
property. Many owners of large estates insert clauses in leases
prescribing the materials to be used in building, the size of house to
be erected, perhaps the tints to be used in painting, and almost
always insist that painting is to be done every so many years. They
may also require that no garages, sheds, or other excrescences are
to be added to the building without the permission of their surveyor. It
is quite reasonable to suggest that these restrictions might be
increased to achieve the purpose we have in mind. Thus the
frequent instances that we see of a row of stucco dwellings being
distempered different colours, and thereby destroying the effect of a
balanced architectural scheme, might be avoided. The present ruling
autocrat in Italy has recently introduced a measure to deal with this
very point, and tenants of houses in a street have to distemper their
external walls the same colour at the same time. Much of the
“restless” appearance of modern streets and terraces is due to a
neglect of this obvious procedure. A concerted appeal to large
owners of property to safeguard the amenities of their estates by
further action on various lines might lead to great improvement, and
something might even be done in the same direction by restrictive
covenants in conveyances of freehold land.
Much has been said lately about the necessity for the control of the
speculative builder who continues to provide most of the smaller
houses and bungalows and shops in this country, and this is the
most difficult problem of all. Such control must obviously have the
sanction of the law to be effective, and therefore must be ultimately
vested in the local authorities, for it is impossible to imagine that
Whitehall is to be held responsible for the approval of every plan in
the country. As I have already pointed out, the rural districts present
the most urgent case for our attention, and here control is most
difficult of all. In a great city like Manchester or Leeds a local Fine Art
Committee might be formed of people competent enough and
disinterested enough to exercise this very delicate function in a
statesmanlike way, without fear or favour. Edinburgh, Bath and
Oxford have already led the way: towns like Cambridge, Coventry,
and Canterbury would be well advised to follow suit. Birmingham has
an Advisory Art Committee without statutory powers.
But imagine the Rural District Council of Nether Footlesby dealing
with a design by Sir Felix Lutfield, r.a., for a large country-house in
their area, for it must be remembered that control of design would
apply to houses great and small, designed by architects great and
small as well as by people who were not architects. These worthy
men might reject his plans because they disliked the appearance of
the chimneys; or Councillor Trapp, a plumber by calling, might have
a grievance against Sir Felix owing to an unfortunate difference of
opinion arising from a previous association in building. It is evident
that such a position is unthinkable. Nor would the situation be
materially improved if the two auctioneer-architects practising in
Nether Footlesby, the retired art-mistress living in the village, and the
Vicar of the parish, were entrusted with this responsible task. It
needs little imagination to realise that a small advisory committee of
this calibre would be nearly as dangerous and quite as futile as the
Rural District Council itself. Even if control were administered on a
county basis, there are small counties in England where it would be
difficult to enlist a committee of men whose decisions would be
readily accepted by the bigwigs of the architectural profession. It
seems to me that a very carefully drafted scheme of control might be
organised for most of the large cities and perhaps half the counties
of England, though even then the situation would bristle with
difficulties, but for the more scattered districts—where at least an
equal number of mistakes is being made—the problem seems
insoluble. The London Society and the Birmingham Civic Society are
the sort of bodies that might be trusted to frame a scheme, but even
they would experience many setbacks before they obtained statutory
powers. Much good work in the direction of controlling unwise
development in France has been done by the local Syndicats
d’initiative, bodies which exist to preserve the amenities of each town
or district. A study of the methods used in France, and of measures
adopted recently in Italy, would doubtless be helpful in our own case.
Failing control of this kind, it has been suggested that the builder
must be “brought to his senses,” in the diplomatic words of a writer in
The Times of January 7th, 1927. But, so long as the builder
continues to sell his houses without any difficulty and at a
considerable profit, he may not see any reason for admitting that he
is deficient in sense. Who, for instance, is to be empowered to stop
him decorating his gables with a ludicrous parody of half-timbering,
made of inch boards which warp in the sun? The small builder
obtains many of his designs from printed books or from weekly
journals, and the following authentic extract from a recent publication
shows how it is done:
“Having a plot of land 80-ft. frontage by 120-ft., I should be
pleased if some reader would submit a plan and elevation-
sketch of a detached house, something attractive, dainty,
and very arresting.”
The words I have italicised explain some of our present troubles. The
desire of the builder and of his client, for the “very arresting” house
causes many of the incongruous additions to our landscape.
Something might be done, as the President of the R.I.B.A. has
suggested, to supply the builder with stock designs of good
character, adapted to the needs of each locality; for, as I have noted
before, the use of copybooks in the eighteenth century produced
houses which if sometimes dull were at least dignified and often
charming. But a process of very slow conversion will be necessary
before we can hope to rid the public of this desire for “very arresting”
buildings.
In the control of design would have to be included restrictions on
colour and material so far as is reasonable, but it is quite
impracticable nowadays to insist that a man building a house in a
Yorkshire dale must employ the traditional stone walls and stone
slates: it is doubtful if anybody will ever legally prevent him using the
pink asbestos-cement tiles that clash so violently with the dull tones
of the landscape. Similarly, it is idle to expect that a modern factory
building should be erected to harmonise perfectly with rural
surroundings: one can only ask that its designer may bear in mind
the spirit of the place, and treat it as tenderly as circumstances
permit. But we may reasonably press for further action in the
abatement of factory smoke and domestic smoke, for that nuisance
spreads forty or fifty miles away from industrial areas, and cities like
Leicester—where smoke is hardly visible—are few and far between.
The Coal Smoke Abatement Society has long worked towards this
end, and its arguments are familiar to most people. Its supporters
are convinced that smoky chimneys are wasteful as well as
unhealthy and unpleasant. But it seems certain that we can eliminate
a large part of our coal-smoke by utilising electric power far more
extensively than we now do, by harnessing our rivers and by utilising
all the waste water-power that is running from reservoirs to towns in
aqueducts and pipes.
It has been suggested lately that much of the ugliness of colliery
districts might be mitigated by judicious planting of trees on pit-
banks. But smoke is one factor that prevents this, for it blackens and
stunts all vegetation. Then the recent coal-strike showed that in any
such emergency gleaners would soon be at work on the banks,
grubbing for coal among the tree-roots. Lastly, even if trees did grow
in such inhospitable soil, there is some doubt whether they would be
tenderly treated by those for whose benefit they were planted.
It has been pointed out, earlier in this chapter, that Acts of
Parliament have already empowered local authorities to remove
unsightly hoardings and advertisements of all kinds, so that it only
remains now for public opinion to press them to proceed in this
admirable work. The author of Nuntius, in this series of essays,
prophesies that advertising will not become more aggressive, adding
that a sign which spoils a beautiful landscape is a very ineffective
advertisement and hence that the “few existing” (sic) will soon
disappear. Let us hope so. But one hesitates to accept his earlier
statement that, if there were no hoardings on empty sites, these
would become rubbish dumps. At all events, the recent action of the
petrol combines in removing their hideous advertisements nearly all
over the countryside represents a great victory for public opinion. On
the whole, advertising is becoming more artistic, possibly more
restrained. But house-agents continue to be terrible sinners in this
respect. Close to my home is an avenue, still miraculously
preserving its beauty, though surely doomed. But at the end of it is a
group of seven enormous hoardings erected cheek-by-jowl by rival
agents and completely spoiling a fine vista. I cannot see that any
hardships would be inflicted on those Philistine touts if all agents’
boards were restricted to a maximum size of 2 square feet. Those
who wished could still read them, others need not. There are many
little details of design in village streets—the inn-signs, the lettering of
street-names, the lamp-standards—capable of improvement on
simple lines. In this connection one may mention the work of the
Rural Industries Bureau which, among its other activities in
encouraging the rustic craftsman, has endeavoured to find
employment for the village blacksmith on simple wrought-iron
accessories in common use and has prepared a selection of designs
for his guidance.
Some day a genius may show us how to make wireless masts less
unsightly, or perhaps we may be able to discard them altogether as
science advances. But this innovation has not greatly spoiled our
villages, nor does it seem probable that air travel will much affect the
appearance of the countryside: a few more aerodromes perhaps,
and on them, it is to be hoped, a more attractive type of building. The
air lighthouse or beacon will spring up here and there; another
subject for the ambitious young architect in competition.
But though it is now evident that a very great deal may be done for
the preservation of rural England by the exercise of legislative
powers which local authorities already possess, and by pressure on
corporate bodies and private landowners of the best type, the
ultimate success of the new crusade will depend on its ability to
influence public opinion. Two kinds of opinion are involved, that of
the country dwellers themselves, and that of the urban invaders of
the countryside. Probably most young people now employed in
remote villages and on farms would give their skin to get away from
what they regard as the monotony of rural life, and one must
sympathise with that view. The introduction of wireless and cinemas
will make their existence less irksome, and the phenomenal increase
of motor-bus facilities allows them to travel cheaply and frequently to
the nearest town, with its shops and bright streets. But none of these
things will teach them to prize the country, rather the reverse, for
many of the films they see show them uglification at its worst—in the
ricketty shacks of Western America. It might be possible to teach
them to admire their own heritage by occasional lectures at the
village institutes on town-planning and architecture; not the
architecture of great cathedrals and of foreign buildings like the
Parthenon, but the simple homely architecture of the village church,
the village barn, and the village cottage. A competent lecturer
accustomed to such an audience, avoiding like the plague all
sentimental talk about the glory of country life, might explain the
beauty of old bridges and mills, the simple skill of old craftsmen, in
such a way that his hearers would be less anxious to substitute
suburban vulgarities for everything that their rude forefathers of the
hamlet had made. Recently there was organised, in my own village,
an exhibition of drawings, engravings, maps, old documents, etc.,
illustrating the history and development of the district. It was visited
by a large number of people, including many children, and
undoubtedly it aroused much interest in things that had hitherto
passed unnoticed.
The urban motorist, whether he travels in a Rolls-Royce or a
charabanc, often provides an equally difficult problem. He may be a
superior person of great wealth, who avoids the hackneyed resorts
of trippers because he objects to the sight of beer-bottles and paper
bags on the heather, but, as a humorous artist recently reminded us,
he probably goes to a more secluded common and instructs his
chauffeur to leave the champagne bottles and disembowelled
lobsters under a gorse-bush there, for he has the soul and breeding
of the tripper, and litter does not offend him. The beach X—— in
Romney Marsh, already mentioned, was littered from end to end with
newspapers, cigarette packets, and confectioners’ debris, when last I
saw it.
Untidiness, ugliness, lack of respect for history and beauty, an
insane craze for speed in getting from one futile pursuit to another,
blatant advertisement, sordid commercialism—these are some of the
things we have borrowed from American life to vulgarise our own.
But when Americans come over to England, the thing that impresses
them most—far more than anything we can do in our towns—is the
harmony and peace of the English village and the English
countryside. They feel in their bones that there we “have them beat.”
It is simply heart-breaking, to those of us who know how future
uglification may be avoided and how much of the blundering of the
past may be remedied, to see the process of deterioration steadily
continuing. With more of brains and less of greed, more of public
spirit and less of vested interests, rural England may yet be saved.
SOME ADDRESSES
The Council for the Preservation of Rural England,
33, Bloomsbury Square, W.C. 1.
The Garden Cities and Town Planning Association,
3, Gray’s Inn Place, W.C. 1.
The Society for the Protection of Ancient Buildings,
20, Buckingham Street, W.C. 2.
The Commons and Footpaths Preservation Society,
7, Buckingham Palace Gardens, S.W. 1.
The Coal Smoke Abatement Society,
The National Trust for Places of Historic Interest or
Natural Beauty,
The Scapa Society for the Prevention of Disfigurement in
Town and Country,
The Rural Industries Intelligence Bureau,
20, Eccleston Street, S.W. 1.
TO-DAY AND
TO-MORROW
Each, pott 8vo, boards, 2/6 net
THIS series of books, by some of the most distinguished
English thinkers, scientists, philosophers, doctors, critics,
and artists, was at once recognized as a noteworthy
event. Written from various points of view, one book
frequently opposing the argument of another, they provide
the reader with a stimulating survey of the most modern
thought in many departments of life. Several volumes are
devoted to the future trend of Civilization, conceived as a
whole; while others deal with particular provinces. It is
interesting to see in these neat little volumes, issued at a
low price, the revival of a form of literature, the Pamphlet,
which has been in disuse for many years.
Published by
KEGAN PAUL, TRENCH, TRUBNER & CO., LTD.
Broadway House: 68-74 Carter Lane, London, E.C. 4.
FROM THE REVIEWS

Times Literary Supplement: “An entertaining series.”
Spectator: “Scintillating monographs.”
Observer: “There seems no reason why the brilliant To-day
and To-morrow Series should come to an end for a
century of to-morrows. At first it seemed impossible for the
publishers to keep up the sport through a dozen volumes,
but the series already runs to more than two score. A
remarkable series....”
Nation: “We are able to peer into the future by means of that
brilliant series [which] will constitute a precious document
upon the present time.”—T. S. Eliot.
Manchester Dispatch: “The more one reads of these
pamphlets, the more avid becomes the appetite. We hope
the list is endless.”
Irish Statesman: “Full of lively controversy.”
Daily Herald: “This series has given us many monographs of
brilliance and discernment.... The stylistic excellences of
this provocative series.”
Field: “We have long desired to express the deep admiration
felt by every thinking scholar and worker at the present
day for this series. We must pay tribute to the high
standard of thought and expression they maintain. As
small gift-books, austerely yet prettily produced, they
remain unequalled of their kind. We can give but the
briefest suggestions of their value to the student, the
politician, and the voter....”
Japan Chronicle: “While cheap prophecy is a futile thing,
wisdom consists largely in looking forward to
consequences. It is this that makes these books of
considerable interest.”
New York World: “Holds the palm in the speculative and
interpretative thought of the age.”
VOLUMES READY
Daedalus, or Science and the Future. By J. B. S. Haldane,
Reader in Biochemistry, University of Cambridge. Seventh
impression.
“A fascinating and daring little book.”—Westminster
Gazette. “The essay is brilliant, sparkling with wit and
bristling with challenges.”—British Medical Journal.
“Predicts the most startling changes.”—Morning Post.
Callinicus, a Defence of Chemical Warfare. By J. B. S.
Haldane. Second impression.
“Mr. Haldane’s brilliant study.”—Times Leading Article.
“A book to be read by every intelligent adult.”—
Spectator. “This brilliant little monograph.”—Daily News.
Icarus, or the Future of Science. By Bertrand Russell,
f.r.s. Fourth impression.
“Utter pessimism.”—Observer. “Mr. Russell refuses to
believe that the progress of Science must be a boon to
mankind.”—Morning Post. “A stimulating book, that
leaves one not at all discouraged.”—Daily Herald.
What I Believe. By Bertrand Russell, f.r.s. Third
impression.
“One of the most brilliant and thought-stimulating little
books I have read—a better book even than Icarus.”—
Nation. “Simply and brilliantly written.”—Nature. “In
stabbing sentences he punctures the bubble of cruelty,
envy, narrowness, and ill-will which those in authority
call their morals.”—New Leader.
Tantalus, or the Future of Man. By F. C. S. Schiller, D.Sc.,
Fellow of Corpus Christi College, Oxford. Second
impression.
“They are all (Daedalus, Icarus, and Tantalus) brilliantly
clever, and they supplement or correct one another.”—
Dean Inge, in Morning Post. “Immensely valuable and
infinitely readable.”—Daily News. “The book of the
week.”—Spectator.
Cassandra, or the Future of the British Empire. By F. C. S.
Schiller, D.Sc.
“We commend it to the complacent of all parties.”—
Saturday Review. “The book is small, but very, very
weighty; brilliantly written, it ought to be read by all
shades of politicians and students of politics.”—
Yorkshire Post. “Yet another addition to that bright
constellation of pamphlets.”—Spectator.
Quo Vadimus? Glimpses of the Future. By E. E. Fournier
d’Albe, D.Sc., author of “Selenium, the Moon Element,”
etc.
“A wonderful vision of the future. A book that will be
talked about.”—Daily Graphic. “A remarkable
contribution to a remarkable series.”—Manchester
Dispatch. “Interesting and singularly plausible.”—Daily
Telegraph.
Thrasymachus, the Future of Morals. By C. E. M. Joad,
author of “The Babbitt Warren,” etc. Second impression.
“His provocative book.”—Graphic. “Written in a style of
deliberate brilliance.”—Times Literary Supplement. “As
outspoken and unequivocal, a contribution as could well
be imagined. Even those readers who dissent will be
forced to recognize the admirable clarity with which he
states his case. A book that will startle.”—Daily
Chronicle.
Lysistrata, or Woman’s Future and Future Woman. By
Anthony M. Ludovici, author of “A Defence of
Aristocracy,” etc. Second Impression.
“A stimulating book. Volumes would be needed to deal,
in the fullness his work provokes, with all the problems
raised.”—Sunday Times. “Pro-feminine, but anti-
feministic.”—Scotsman. “Full of brilliant common-
sense.”—Observer.
Hypatia, or Woman and Knowledge. By Mrs. Bertrand
Russell. With a frontispiece. Third impression.
An answer to Lysistrata. “A passionate vindication of the
rights of women.”—Manchester Guardian. “Says a
number of things that sensible women have been
wanting publicly said for a long time.”—Daily Herald.
Hephaestus, the Soul of the Machine. By E. E. Fournier
d’Albe, D.Sc.
“A worthy contribution to this interesting series. A
delightful and thought-provoking essay.”—Birmingham
Post. “There is a special pleasure in meeting with a
book like Hephaestus. The author has the merit of really
understanding what he is talking about.”—Engineering.
“An exceedingly clever defence of machinery.”—
Architects’ Journal.
The Passing of the Phantoms: a Study of Evolutionary
Psychology and Morals. By C. J. Patten, Professor of
Anatomy, Sheffield University. With 4 Plates.
“Readers of Daedalus, Icarus and Tantalus, will be
grateful for an excellent presentation of yet another
point of view.”—Yorkshire Post. “This bright and bracing
little book.”—Literary Guide. “Interesting and original.”—
Medical Times.
The Mongol in our Midst: a Study of Man and his Three
Faces. By F. G. Crookshank, m.d., f.r.c.p. With 28
Plates. Second Edition, revised.
“A brilliant piece of speculative induction.”—Saturday
Review. “An extremely interesting and suggestive book,
which will reward careful reading.”—Sunday Times.
“The pictures carry fearful conviction.”—Daily Herald.
The Conquest of Cancer. By H. W. S. Wright, m.s., f.r.c.s.
Introduction by F. G. Crookshank, m.d.
“Eminently suitable for general reading. The problem is
fairly and lucidly presented. One merit of Mr. Wright’s
plan is that he tells people what, in his judgment, they
can best do, here and now.”—From the Introduction.
Pygmalion, or the Doctor of the Future. By R. McNair
Wilson, m.b.
“Dr. Wilson has added a brilliant essay to this series.”—
Times Literary Supplement. “This is a very little book,
but there is much wisdom in it.”—Evening Standard. “No
doctor worth his salt would venture to say that Dr.
Wilson was wrong.”—Daily Herald.
Prometheus, or Biology and the Advancement of Man. By H.
S. Jennings, Professor of Zoology, Johns Hopkins
University.
“This volume is one of the most remarkable that has yet
appeared in this series. Certainly the information it
contains will be new to most educated laymen. It is
essentially a discussion of ... heredity and environment,
and it clearly establishes the fact that the current use of
these terms has no scientific justification.”—Times
Literary Supplement. “An exceedingly brilliant book.”—
New Leader.
Narcissus: an Anatomy of Clothes. By Gerald Heard. With
19 illustrations.
“A most suggestive book.”—Nation. “Irresistible.
Reading it is like a switchback journey. Starting from
prehistoric times we rocket down the ages.”—Daily
News. “Interesting, provocative, and entertaining.”—
Queen.
Thamyris, or Is There a Future for Poetry? By R. C.
Trevelyan.
“Learned, sensible, and very well-written.”—Affable
Hawk, in New Statesman. “Very suggestive.”—J. C.
Squire, in Observer. “A very charming piece of work, I
agree with all, or at any rate, almost all its
conclusions.”—J. St. Loe Strachey, in Spectator.
Proteus, or the Future of Intelligence. By Vernon Lee, author
of “Satan the Waster,” etc.
“We should like to follow the author’s suggestions as to
the effect of intelligence on the future of Ethics,
Aesthetics, and Manners. Her book is profoundly
stimulating and should be read by everyone.”—Outlook.

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Operating Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1061

POST-EMPLOYMENT BENEFITS 1131

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ACCOUNTING CHANGES 1249

FINANCIAL STATEMENT ANALYSIS 1301

STATEMENT OF CASH FLOWS 1375

Compound Interest Tables and Formulae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TA-1

IFRS AND ASPE

TOPICAL REVIEW IDENTIFYING KEY CHANGES

allowance method of accounting for inventory writedowns is fully illustrated—the allow-

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somewhat more demanding assignment material.

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