It is mid-April, 2017 and you have recently started to work in the Accounting Department of Gavine Corp. (GC), a Canadian company with shares traded on the Toronto Stock Exchange. GC has a December 31 fiscal year end. You are working with a team of employees responsible for preparing the financial statements for the company’s first quarter ended March 31, 2017.
The Sales Manager and Chief Accountant meet with you and report that GC adopted a new sales policy effective January 1, 2017 that may affect a few large customers. The policy provides that customers that purchase 10,000 Kg. or more of a particular raw material during the 2017 calendar year are entitled to an $8/Kg. rebate for each kilogram purchased in the year, payable in January, 2018. One company that purchased a total of 10,200 Kg. in 2016 purchased 2,800 Kg. in the first quarter of 2017, and the customer expects it will be acquiring another 9,000 Kg. during the rest of the year.
The Sales Manager and Chief Accountant have asked you to prepare a report, including your recommendation on what effect, if any, this policy will have on the first quarter’s financial statements.
Required: Analyze this issue and prepare your report.
As the Controller of AllBut Corp. (ABC) left the February 15, 2017 meeting of the Executive Management Group of the company, she asked for a meeting with you that afternoon. ABC is a large private Canadian company that still applies ASPE in preparing its financial reports, and you are in process of just completing the annual financial statements for ABC’s fiscal year ended December 31, 2016. The Board of Directors of the company expect to approve the annual financial statements and authorize their release at its monthly meeting on February 22.
At your meeting that afternoon, the Controller provides you with information that was presented at the morning Executive Management meeting:
- The Task Force set up in October 2016 to study and report on the condition of ABC’s critical physical manufacturing assets reported that the existing equipment would be obsolete sooner than expected. They further reported that new technologically advanced equipment would be required to be in place within two years, requiring significant capital purchases.
- The company has followed a policy of amortizing the existing equipment over a 10-year life on a straight-line basis, and at December 31, 2016, the equipment’s net book value indicates a remaining life of four years.
- Because she is busy with other matters coming out of the Executive Management meeting, the Controller has asked you to research and report back fairly quickly on whether the results of the Task Force on the equipment will have any effect on the 2016 financial statements.
Required: Prepare the report for the Controller.