The past few years have seen numerous changes in Canadian accounting standards, such as for investments, asset retirement obligations, and stock options, particularly for companies that have changed to IFRS or ASPE from pre-changeover Canadian GAAP. For the following scenarios, assume that IFRS has been adopted.
Instructions
For each accounting situation listed below, identify any related cash flows, and explain how the statement of cash flows is affected for companies with this type of transaction.
(a) Investments of securities purchased for trading held by a company are classified as fair value through net income.
The investments do not meet the definition of cash equivalents, but are used to earn a return on excess cash until the cash is needed for operations. Small amounts of gains and losses on disposal, interest and dividends received, and changes in their fair values are reported in income.
(b) A company holds equity investments that are classified as fair value through OCI (without recycling). One security was disposed of at a gain during the year and the others have fair values that are higher than they were at the previous year end. Dividends have been received and reported in income.
(c) An investment in another company's bonds is recorded at amortized cost. The investment was acquired at a premium because the bond pays a higher rate of interest than the market rate.
(d) A company began development activities for a new mine site. As a result, it incurred an obligation related to the mine's eventual retirement, reporting it as an asset retirement obligation and as a portion of the mine's cost on its statement of financial position. The following year, the obligation was increased due to expanded mine activity as well as the accretion of the amount that was recognized in the preceding year representing interest.
(e) Stock options with a two-year vesting period were issued to the top executive team at the beginning of the current fiscal period. The fair value of the stock options was determined using the Black-Scholes formula.
(f) Stock options that were granted three years ago were exercised in the current year when the fair value of the company's shares was at an all-time high. The option or strike price was approximately half of the market share price when the options were exercised.