SOLUTION MANUAL
Modern Advanced Accounting In Canada,
10th Edition By Darrell Herauf, Chima Mbagwu,
Chapters 1 - 12, Complete
,
, Chapter 1
Conceptual & Case Analysis
Frameworks for Financial Reporting
A brief description of the major points covered in each case and problem. CASES
Case 1-1
In this case, students are introduced to the difference in accounting for R&D costs between IFRS and
ASPE and asked to provide arguments to support the different standards.
Case 1-2 (adapted from a case prepared by Peter Secord, Saint Mary’s University)
In this real life case, students are asked to discuss the merits of historical costs vs. replacement costs. Actual
note disclosure from a company’s financial statements is provided as background material.
Case 1-3 (adapted from a case prepared by Peter Secord, Saint Mary’s University)
A Canadian company has just acquired a non-controlling interest in a U.S. public company. It must decide
whether to use IFRS or U.S. GAAP for the U.S. subsidiary. Financial statement information is provided under
IFRS and U.S. GAAP. The reasons for some of the differences in numbers must be explained and an opinion
provided as to which method best reflects economic reality.
Case 1-4
This case is adapted from a CPA Canada case. A private company is planning to go public. Analysis and
recommendations are required for accounting issues related to purchase and installation of new
information system, revenue recognition, convertible debentures and doubtful accounts receivable.
Case 1-5
This case is adapted from a CPA Canada case. A private company is planning to transition from ASPE to
IFRS. Analysis and recommendations are required for accounting issues related to convertible debentures,
unusual item, revenue recognition, contingency and impairment.
PROBLEMS
, Problem 1-1 (40 min.)
A single asset is acquired. Students are asked to prepare and compare financial statement numbers during
the life of the asset using both a historical cost and a current value model.
Problem 1-2 (40 min.)
Details of a European company that reports using IFRS are given along with specific details relating to
certain account balances. Students are asked to show how these balances should be reported under 1)
ASPE and 2) IFRS using the facts provided. Students are also asked to reconcile Net Income and
Shareholders` Equity from IFRS to ASPE.
Problem 1-3 (50 min.)
A private company plans to convert to IFRS go public within 5 years. It wants to know the impact on
net income and shareholders’ equity if it converts from ASPE to IFRS for impaired loans, interest costs,
actuarial gains, compound financial instrument and income taxes.
Problem 1-4 (50 min.)
While taking the role of a financial analyst, the student uses vertical and horizontal analysis and ratios to
analyse and interpret the profitability, solvency and liquidity of a private company.
Problem 1-5 (25 min.)
A private company plans to convert to IFRS. It wants to know the impact on three key ratios if it converts
from ASPE to IFRS for impaired loans, capitalization of interest and actuarial gains/losses.
Problem 1-6 (50 min.)
A private company plans to convert from ASPE to IFRS and wants to know the impact on three key ratios if
it converts from ASPE to IFRS for impairment losses, convertible bonds and income taxes.
SOLUTIONS TO REVIEW QUESTIONS
1. There are times when external users may want financial reports that do not follow GAAP. For
example, users may need financial statements using non-GAAP accounting policies required for
legislative or regulatory purposes, or for contract compliance. A prospective lender may want to
receive a balance sheet with assets reported at fair value rather than historical cost. Accountants have
the skills and abilities to provide financial information in a variety of formats or using a variety of
accounting policies. When the financial statements use non-GAAP accounting policies, the accounting
policies must be disclosed in the notes to the financial statements. The accountant’s report would make
reference to these accounting policies.
Modern Advanced Accounting In Canada,
10th Edition By Darrell Herauf, Chima Mbagwu,
Chapters 1 - 12, Complete
,
, Chapter 1
Conceptual & Case Analysis
Frameworks for Financial Reporting
A brief description of the major points covered in each case and problem. CASES
Case 1-1
In this case, students are introduced to the difference in accounting for R&D costs between IFRS and
ASPE and asked to provide arguments to support the different standards.
Case 1-2 (adapted from a case prepared by Peter Secord, Saint Mary’s University)
In this real life case, students are asked to discuss the merits of historical costs vs. replacement costs. Actual
note disclosure from a company’s financial statements is provided as background material.
Case 1-3 (adapted from a case prepared by Peter Secord, Saint Mary’s University)
A Canadian company has just acquired a non-controlling interest in a U.S. public company. It must decide
whether to use IFRS or U.S. GAAP for the U.S. subsidiary. Financial statement information is provided under
IFRS and U.S. GAAP. The reasons for some of the differences in numbers must be explained and an opinion
provided as to which method best reflects economic reality.
Case 1-4
This case is adapted from a CPA Canada case. A private company is planning to go public. Analysis and
recommendations are required for accounting issues related to purchase and installation of new
information system, revenue recognition, convertible debentures and doubtful accounts receivable.
Case 1-5
This case is adapted from a CPA Canada case. A private company is planning to transition from ASPE to
IFRS. Analysis and recommendations are required for accounting issues related to convertible debentures,
unusual item, revenue recognition, contingency and impairment.
PROBLEMS
, Problem 1-1 (40 min.)
A single asset is acquired. Students are asked to prepare and compare financial statement numbers during
the life of the asset using both a historical cost and a current value model.
Problem 1-2 (40 min.)
Details of a European company that reports using IFRS are given along with specific details relating to
certain account balances. Students are asked to show how these balances should be reported under 1)
ASPE and 2) IFRS using the facts provided. Students are also asked to reconcile Net Income and
Shareholders` Equity from IFRS to ASPE.
Problem 1-3 (50 min.)
A private company plans to convert to IFRS go public within 5 years. It wants to know the impact on
net income and shareholders’ equity if it converts from ASPE to IFRS for impaired loans, interest costs,
actuarial gains, compound financial instrument and income taxes.
Problem 1-4 (50 min.)
While taking the role of a financial analyst, the student uses vertical and horizontal analysis and ratios to
analyse and interpret the profitability, solvency and liquidity of a private company.
Problem 1-5 (25 min.)
A private company plans to convert to IFRS. It wants to know the impact on three key ratios if it converts
from ASPE to IFRS for impaired loans, capitalization of interest and actuarial gains/losses.
Problem 1-6 (50 min.)
A private company plans to convert from ASPE to IFRS and wants to know the impact on three key ratios if
it converts from ASPE to IFRS for impairment losses, convertible bonds and income taxes.
SOLUTIONS TO REVIEW QUESTIONS
1. There are times when external users may want financial reports that do not follow GAAP. For
example, users may need financial statements using non-GAAP accounting policies required for
legislative or regulatory purposes, or for contract compliance. A prospective lender may want to
receive a balance sheet with assets reported at fair value rather than historical cost. Accountants have
the skills and abilities to provide financial information in a variety of formats or using a variety of
accounting policies. When the financial statements use non-GAAP accounting policies, the accounting
policies must be disclosed in the notes to the financial statements. The accountant’s report would make
reference to these accounting policies.
