AFM 291 Journal Entry Reference · Every entry, one page

IFRS

ASPE

Debit (Dr)

Credit (Cr)

Your exam appendix gives the standards text (5-step model, B28–B30 warranty rules, IAS 37 / 3290 guidance) but not the journal entries, this sheet covers the entries you have to produce from understanding.

§ 01 Warranties: Assurance vs Service IFRS 15 · B28–B30

Assurance-type

Service-type

Nature

Covers only normal manufacturing defects

Extra service beyond defects (extended coverage, theft, etc.)

# of P.O.s

1, the product only

2, product + a separate service P.O.

Treatment

Warranty is not a P.O. → account under IAS 37 provision

Allocate price on SSP basis; defer the service portion

Revenue

Point in time (product)

Service portion recognized over time

⚖ The B29 / B30 test (judgement)

Separately purchasable? → it's a distinct service P.O. (B29). Not separately purchasable, and only assures the product meets spec? → IAS 37 provision (B30). Also weigh: does it provide service beyond normal defects, and is the coverage period much longer than normal?

Assurance-type WarrantyP4-28 illustration

① At sale: 100 tablets @ $500

AccountDrCr

Cash / AR50,000

Revenue: Tablets50,000

② Record provision, expected $25 / unit

AccountDrCr

Warranty Expense2,500

Warranty Provision2,500

③ When actual claims occur

AccountDrCr

Warranty Provision2,000

Cash / Parts / Labour2,000

Logic: at sale you have a present obligation but unknown future cost → estimate via expected value and match the expense to the revenue period. Actual claims reduce the provision; they don't set its initial size.

Service-type WarrantyP4-28 illustration

Allocate the $600 package on SSP:
Product + assurance = $480
Service warranty = $120

① At sale

AccountDrCr

Cash90,000

Revenue: Tablets72,000

Unearned Service Revenue18,000

② Recognize service over time, input method

AccountDrCr

Unearned Service Revenue7,200

Service Revenue7,200

Logic: the service warranty is a separate P.O., so part of the price is deferred as a contract liability (Unearned Service Revenue) and earned across the coverage period. The product portion is still recognized at the point of sale.

§ 02 Provisions & Contingent Liabilities IAS 37 · ASPE 3290

IFRS: Recognize a Provision if…all three

1. Present obligation from a past (obligating) event · 2. Outflow of resources is probable · 3. A reliable estimate of the amount can be made.

① Recognize the provision

AccountDrCr

Expense (Warranty / Legal / etc.)X

ProvisionX

② When the obligation is settled

AccountDrCr

ProvisionX

Cash / PayableX

Measurement: use the best estimate. For a large population of items, use expected value (probability-weighted); for a single obligation with a continuous range of outcomes, the midpoint is typically used.

IFRS Decision Matrixlikelihood × estimate

	Measurable	Not measurable (rare)
Probable	Recognize provision	Disclose
Possible	Disclose contingent liability	Disclose
Remote	No action	No action

Probable = more likely than not (> 50%) · Possible = less than probable, more than remote · Remote = slight chance.

Contingent assets (IFRS): virtually certain → recognize (no longer contingent); probable → disclose only; not probable → nothing. Gains are never recognized early.

IFRS vs ASPE: Contingencies / Lossesterminology & measurement

	IFRS (IAS 37)	ASPE (Section 3290)
Terminology	Probable · Possible · Remote	Likely · Not determinable · Unlikely
Recognition threshold	Probable (> 50%) + reliable estimate	Likely + reasonably estimable
Range of estimates	Best estimate, midpoint of a range	Use the minimum of the range
Contingent gains	Never recognized	Never accrued (disclose if likely)
Disclosure	Unless remote	Broader, more situations require disclosure

💡 Worked application: Canless Isotopes (P11-49)

Sued $10M, admits liability, estimates $5M–$6M, has $1M-deductible insurance.
IFRS: recognize a provision of $5.5M (midpoint best estimate); insurance is a separate contingent asset (don't net, recognize only if virtually certain, otherwise disclose).
ASPE: accrue $5M (minimum of the range); disclose the insurance and the range.

§ 03 Long-Term Construction Contracts IFRS 15 · over time

⚖ Why over time?: IFRS 15.35(b)

The entity's performance creates or enhances an asset that the customer controls as it is created. (The other two over-time gateways: the customer simultaneously receives & consumes the benefits; or the asset has no alternative use and the entity has an enforceable right to payment for work completed to date.) If none apply → recognize at a point in time.

The 5-Phase Entry Sequenceapply each period

① Incur costs

AccountDrCr

Construction in Progress (CIP)X

Cash / APX

② Bill the client

AccountDrCr

Accounts ReceivableX

Billings on CIPX

③ Receive payment

AccountDrCr

CashX

Accounts ReceivableX

④ Recognize revenue (period-end)

AccountDrCr

Cost of SalesX

CIP (gross profit plug)X

RevenueX

⑤ Completion, close out

AccountDrCr

Billings on CIPX

Construction in ProgressX

Input Method & Presentationcumulative basis

% Complete = cumulative costs to date ÷ latest estimated total costs
Revenue to date = % complete × contract price
Current-year revenue = revenue to date − prior years

Worked Phase ④, applying 20X1 schedule figures

AccountDrCr

Cost of Sales6,500,000

CIP (gross profit)722,222

Revenue7,222,222

Cost of Sales = period costs; the CIP debit = period gross profit; Revenue = % × price for the period. (Cost is the $7,222,222 − $722,222 plug from the 20X1 row.)

📐 Contract asset vs liability

Net position = CIP − Billings. Positive → Contract Asset (current asset). Negative → Contract Liability (current liability). CIP carries both accumulated costs and recognized gross profit, so net CIP = revenue recognized to date.

Kennedy Construction: Input Method Summary$40M contract · ties to $2.4M final profit

Year	% Complete	Revenue (yr)	Gross Profit (yr)	Cum. CIP	Cum. Billings	Net Position
20X1	18.06%	7,222,222	722,222	7,222,222	7,200,000	+22,222 Asset
20X2	67.21%	19,663,024	1,563,024	26,885,246	27,200,000	−314,754 Liab.
20X3	100%	13,114,754	114,754	40,000,000	40,000,000	0

Gross profit totals 722,222 + 1,563,024 + 114,754 = $2,400,000 (reduced from the original $4M estimate by cost overruns). ASPE: same mechanics under the percentage-of-completion method; use the completed-contract method only for a single act or when progress can't be reasonably estimated (recognize everything at completion).

§ 04 Onerous Contracts / Expected Losses IFRS & ASPE 3400

The Rulerecognize loss now

When unavoidable costs of completing the contract exceed the economic benefits (total estimated costs > contract revenue), recognize the entire expected loss immediately, regardless of % complete or whether work has started. Set up a Provision for Expected Losses.

The Entryillustration

Recognize the full expected loss

AccountDrCr

Expected Loss (Expense)697,122

Provision for Expected Losses697,122

The $697,122 is an illustrative figure, it is a separate scenario, not the profitable Kennedy contract above. Recompute it for your specific problem.

§ 05 Which Entry?: One-Glance Triggers

Warranty, can't buy separately

1 P.O. → Dr Warranty Expense / Cr Warranty Provision

Warranty sold separately

2 P.O.s → allocate SSP; Cr Unearned Service Revenue, earn over time

Probable + estimable obligation

Provision → Dr Expense / Cr Provision; settle vs the provision

Possible (not probable)

No entry → disclose contingent liability only

Customer controls asset as built

Over time → run the 5-phase CIP / Billings sequence

Total cost > contract revenue

Onerous → Dr Expected Loss / Cr Provision in full, now

▶ Active recall: name the entry (cover the answers)

A product sold with a 2-year warranty that customers cannot buy separately. What entry, if any, relates to the warranty at sale? → Dr Warranty Expense / Cr Warranty Provision (best-estimate amount); the product revenue is recognized in full.
You're told a lawsuit loss is "possible but not probable," estimable at $2M. Entry? → No journal entry. Disclose a contingent liability.
Period-end on an over-time contract: which account absorbs the period's gross profit, and is it debited or credited? → CIP, debited (alongside Dr Cost of Sales, Cr Revenue).
Cumulative CIP $26.9M vs cumulative Billings $27.2M. Asset or liability, and how much? → Contract liability of ~$314,754 (Billings exceed CIP).
IFRS range $5M–$6M with no better estimate within it, what amount do you provide, and how does ASPE differ? → IFRS $5.5M (midpoint); ASPE $5M (minimum of the range).

✅ Verification Pass check before relying

Item	Status	Action
Warranty example unit counts	❓ Inconsistent	The assurance illustration uses 100 units / $50,000; the service illustration implies 150 units / $90,000. They're presented as one P4-28 but use different quantities, confirm the exact facts and numbers against your problem set.
Onerous loss = $697,122	⛔ Illustrative only	Does not tie to the profitable Kennedy schedule; it's a separate scenario. Recompute for the specific contract you're given.
Kennedy schedule figures	✅ Internally consistent	I verified each year ties out and the gross profit sums to $2.4M. Still confirm against your solution, since the inputs are problem-specific.
Range rules: IFRS midpoint / ASPE minimum	❓ From your reference	Your exam appendix states measurement loosely ("reliable / reasonable estimate") and doesn't restate the midpoint-vs-minimum convention. Confirm these against your lecture notes.
"Expected value" vs "most likely"	❓ Keep contexts separate	IFRS 15 uses expected value vs most-likely to estimate variable consideration (transaction price). IAS 37 uses best estimate (expected value / midpoint) to measure a provision. Don't mix the two.
All journal entry structures	✅ From your materials	Figures are reproduced as given.