Understanding ASPE

Sections 3240, , 3251, and 3610, Capital Transactions Six questions for private owners: Share Capital, Equity and Capital Transactions A better working world begins with better questions. Asking better questions leads to better answers. To help preparers of financial statements with Canadian standards for private enterprises (ASPE) Sections 3240, Share Capital, 3251, Equity, and 3610, Capital Transactions, we’ve summarized key aspects of the Sections and offer relevant practical considerations for private mid-market through answering six commonly asked questions.

What’s a capital transaction and what types of • (b) Other changes in transactions are accounted for as such? • (c) Changes in contributed surplus As described in paragraph 3610.02, capital • (d) Changes in share capital Question 1 transactions include items such as: • (e) Changes in reserves • Changes in capital, including premiums, • (f) Other changes in equity discounts and expenses relating to the issue, redemption or cancellation of share capital How are share purchase loans receivable • Gains or losses: presented? • On purchase and resale by a of its own issued As noted in paragraph 3251.10, share purchase common shares; or Question 3 loans receivable shall be presented as deductions • On purchase and cancellation by a company of from ’ equity unless there is its own issued common shares substantial evidence that the borrower, not the • Contributions by owners or others enterprise, is at risk for any decline in the price of the shares and there is reasonable assurance that • Transfers to and from reserves the enterprise will collect the full amount of the • distributions (including loan in . ) • Taxes arising at the time of changes in With respect to accounting, what happens status or share capital transactions when a company acquires its own shares? Capital transactions shall be excluded from In accordance with paragraph 3240.07, when a Question the determination of net income and shown 4 company acquires its own shares, the shares shall separately in the statement to which they relate. be carried at cost and shown as a deduction from Paragraph 3856.22 determines whether a shareholders’ equity until cancelled or resold. transaction involving a financial instrument is a Acquired shares that have not yet been cancelled capital transaction. are considered to be issued capital for purposes of the disclosure requirements included below. What components of equity should be As noted in paragraph 3240.16, when a company separately presented? resells shares it has acquired, any excess of As described in paragraph 3251.05, an the proceeds over cost shall be credited to Question 2 enterprise should present separately the following contributed surplus; any deficiency shall be components of equity: charged to contributed surplus to the extent that a previous net excess from resale or cancellation (a) Retained earnings of shares of the same class is included therein, (b) Contributed surplus otherwise to retained earnings. (c) Share capital (d) Reserves (e) Non-controlling interests (f) Other components of equity In addition, as indicated in paragraph 3251.04, an entity should present separately changes in equity arising from each of the following: • (a) Net income, showing separately the total amounts attributable to owners of the parent and to non-controlling interests

2 | Understanding ASPE Sections 3240, Share Capital, 3251, Equity and 3610, Capital Transactions Question5 of share atthetransaction date. per-share amount insuchaccount for thatclass share capital account are based ontheaverage indicates thattheamounts to beallocated to the In both circumstances, paragraph 3240.14 (b) The difference, to contributed surplus (a) To share capital inanamount equalto the value, thecost shallbe allocated asfollows: such shares isbelow theirpar, stated orassigned own shares thatithasacquired, andthecost of company redeems its own shares, orcancels its Further, paragraph 3240.13notes thatwhena (d) Any excess, to retained earnings (c) Any excess, to contributed surplusinan Any excess,(b) to contributed surplusto theextent (a) To share capital, inanamount equalto the allocated asfollows: par, stated orassigned value, thecost shallbe of suchshares isequalto orgreater thantheir own shares thatithasacquired, andthecost company redeems its own shares, orcancels its Paragraph 3240.11indicates thatwhena shares accounted for? How istheredemption orcancellation of par, stated orassigned value of theshares above, inthesame class of shares from transactions, other thanthose in (b) ofportion contributed surplusthatarose amount equalto thepro rata share of the resale of shares of thesame class excess of proceeds over cost oncancellation or that contributed surpluswas created by anet par, stated orassigned value of theshares Understanding ASPE Sections 3240,Share Capital, 3251,Equity and3610, Capital Transactions |3 our Private Mid-Market practice [email protected]. To learn more aboutthese items orfor application guidance, please contact

Question6 (c) The numberof shares of each class resold since (b) The numberof shares of each class redeemed (a) The number of shares of each class issued since the periodshouldbemade, including: disclosure of thedetails of thetransactions during In addition,paragraph 3240.22indicates that (e) Arrears of dividendsfor cumulative preference (d) The numberof shares andtheamount received (c) The redemption price of redeemable shares (b) Dividendrates onpreference shares and (a) The numberof shares for each class, givinga share capital, including: Disclosure shouldbemadeof acompany’s issued capital are listed inparagraphs 3240.20–3240.22. The disclosure requirements withrespect to share respect to share capital? What are thedisclosure requirements with or indirectly for other considerations indirectly for services andshares resold directly shares resold for cash, shares resold directly or the value attributed thereto anddistinguishing the date of thelast , indicating attributed thereto; and nature of theconsideration given andthevalue the consideration was other thancash, the sheet andtheconsideration given and,when or acquired since thedate of thelast balance or indirectly for other considerations indirectly for services and shares issued directly shares issued for cash, shares issued directly or the value attributed thereto anddistinguishing the date of thelast balance sheet, indicating shares each class or receivable thatisattributable to capital for whether ornot they are cumulative brief description andthepar value, ifany EY | Assurance | Tax | Transactions | Advisory

About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. For more information about our organization, please visit ey.com/ca. © 2015 Ernst & Young LLP. All Rights Reserved. A member firm of Ernst & Young Global Limited. 1544650 ED 0000

This publication contains information in summary form, current as of the date of publication, and is intended for general guidance only. It should not be regarded as comprehensive or a substitute for professional advice. Before taking any particular course of action, contact Ernst & Young or another professional advisor to discuss these matters in the context of your particular circumstances. We accept no responsibility for any loss or damage occasioned by your reliance on information contained in this publication. ey.com/ca