(Reference: AICPA International Practices Task Force - November 4, 1999 meeting)
Canadian Flow Through Shares
Canadian GAAP vs. FASB Staff Model
Example
Assumptions
Company sells 10 flow through shares for $10
Fair value of a share on date of sale is $9
Company immediately spends cash on properties which are capitalized
Company has a valuation allowance on all of its loss carryforward
Tax rate is 40%
FASB Staff Model
| Entry 1 |
| Dr. Cash |
100 |
|
| |
Cr. Equity |
|
90 |
| |
Cr. Liability |
|
10 |
| Record issuance of shares at fair value and record liability for difference between fair value and amount paid |
| |
| Entry 2 |
| Dr. Properties |
100 |
|
| |
Cr. Cash |
|
100 |
| Spend money on properties |
| |
| Entry 3 |
| Dr. Liability |
10 |
|
| Dr. Def'd tax expense |
30 |
|
| |
Cr. Def'd tax liability |
|
40 |
| To record tax liability upon renouncement of tax benefits |
| |
| Entry 4 |
Dr. Deferred tax liability
(valuation allowance) |
40 |
|
| |
Cr. Deferred tax benefit |
|
40 |
| To record reversal of valuation allowance |
| |
| The net effect of the entries is to record properties at the amount spent and to record a tax income of $10. |
| |
| Canadian GAAP – Section 3465 of the CICA Handbook Revised |
| |
| Entry 1 |
| Dr. Cash |
100 |
|
| |
Cr. Equity |
|
100 |
| Record issuance of shares |
| |
| Entry 2 |
| Dr. Properties |
100 |
|
| |
Cr. Cash |
|
100 |
| Spend money on properties |
| |
| Entry 3 |
| Dr. Equity |
40 |
|
| |
Cr. Def'd tax liability |
|
40 |
| To record tax liability upon renouncement of tax benefits |
| |
| Entry 4 |
Dr. Def'd tax liability
(valuation allowance) |
40 |
|
| |
Cr. Equity |
|
40 |
| To record reversal of valuation allowance |
| |
| The net effect of the entries is to record properties at the amount spent and no effect on the income statement. |