Recognition Criteria of Liability and Determining Revenue

Question 1:Restructuring is an action taken by a company to significantly modify the financial and operational aspects of the company. A restructuring can comprise numerous costly activities, including termination or relocation of a business, a change in management structure and lay-offs. 
IFRS (IAS 37.72 specifically) require companies to recognize restructuring provisions (i.e., liability) and restructuring costs (i.e., expense) before the restructuring actually occurs, when “a detailed formal plan is adopted and has started being implemented, or announced to those affected”. 
Requirements: 
Using the conceptual framework, discuss 
a) What are the definition of liability and the recognition criteria of liability?
b) Based on your discussion of part a), why does IAS 37.72 require a provision (i.e., liability) to be recognized when a company plans to close their business locations (i.e., before the actual closure) and only when “a detailed formal plan is adopted and has started being implemented, or announced to those affected”? 
c) What is the impact of recording restructuring provisions on the company’s income statement and balance sheet? 
Question 2: 
After the launch of uPhone 8, Pear Inc. decides to provide some incentives to promote the sale of uPhone 7 inventories. Pear started a deal as follows: The customer pays $900, which is the market price for a stand-alone uPhone 7, and gets free uTunes download for three months. The market price for one-month uTunes download is $75. The deal was a success. Pear sold 1,000 uPhone 7 bundles on December 1st, 2019. Required: Determine the amount of revenue that Pear Inc. should record on December 1st and December 31st, 2019 respectively, from this bundle sale. Show steps for partial marks.
Question 3:Enron made a deal in 1992 to supply Sithe Energies, a New York utility, with 195 million cubic feet of gas per day for 20 years for its new plant in upstate New York. The estimated value of the contract was $3.5 to $4 billion.  Therefore, in 1992, Enron recorded about $3.5 billion in revenue and profits on its income statement based on the proceeds from a 20-year contract. In other words, Enron recognized revenue all at once on this kind of long-term sales contracts. Enron went bankrupt nine years later.  Thus, over half of the revenue booked in 1992 from the Sithe Energies sales contract was never earned.Required: 1) Discuss why the above-mentioned Enron’s revenue recognition practice violated the accounting standards. You should form your discussion based on the revenue recognition criteria— which criteria are violated and why do you think they are violated.2) Discuss the incentives of Enron’s management team to record revenue this way. You should form your discussion based on what we have learned about earnings management—what’s the impact of this accounting practice on Enron’s financial statement and why do you think Enron’s management would do it.
Question 4:Read information about the following Google bond:https://markets.businessinsider.com/bonds/google_incdl-notes_201414-24-bond-2024-us38259pad42Required:1. What are the terms of this bond?• Face value• Issuance date• Issuance price ($) • Maturity date • Coupon interest rate • Current market interest rate (i.e., yield) • Coupon interest payment date(s) 2. Describe what happens between Google and its bondholders on the following dates: • 02/25/2014• 08/25/2014• 02/25/20243.  Ignore the issuance price given and assume that the bond was issued at par (i.e., issuance price = 100) and that Google issued 1,000 bonds in total. Assume Google has a December fiscal year end. Provide journal entries for Google on the following dates:• 02/25/2014• 08/25/2014• 12/31/2014• 02/25/2015
Question 5:You can choose to do ONE of the following questions on PPE asset:(You can use the Excel templates)1. If Quick Company used Double Declining Balance (DDB) depreciation method instead of straight-line, calculate the following:a) Depreciation expense each yearb) Accumulated depreciation each yearc) Net book value each yeard) Impairment loss (if any) at the end of year 4e) Comparing the impairment loss in d) with the impairment loss we calculated in class under the straight-line method, discuss the implication. 2. As a result of the decline in crude oil price environment, Mooncor Energy Inc. performed impairment tests on its Oil Sands segment as at December 31, 2015.  The long-term assets of the CGU has a net book value of $2.2 billion. The company based its cash flow projections on WTI oil price. Fair value 1,700 M Expected cash flow 2016 400 MCosts to sell    100 M Expected cash flow 2017 500 M Expected cash flow 2018 700 M Expected cash flow 2019 800 M Risk-adjusted cost of capital 12%Based on the above estimates, Mooncor recorded an impairment loss of $440 million (see class notes for calculation). Required:1. How much more impairment loss would Mooncor need to record if they had used a 1% higher discount rate? 2. What would be the impact of this change on Mooncor’s financial statements? 3. Based on your answers to 1 and 2, discuss the implication.