Solutions for Intermediate Accounting Volume 1, 8th Canadian Edition Beechy (All Chapters included)
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Complete Solutions Manual for Intermediate Accounting Volume 1, 8th Canadian Edition by Thomas H. Beechy, Joan E. Conrod, Elizabeth Farrell, Ingrid McLeod-Dick, Kayla Tomulka, Romi-Lee Sevel ; ISBN13: 9781260881233. (Full Chapters included Chapter 1 to 11)....Chapter 1: The Framework for Financial ...
There is a conflict of interest between the objectives of Elicia and Dabika due to the
buyout clause in the shareholder agreement. Elicia will have a motivation to decrease
shareholders’ equity since this will reduce the amount that she will be required to pay to
buy out Dabika. Dabika will be interested in increasing shareholders’ equity to increase
the amount she will receive. It must be clarified who I am working for since I may have a
conflict of interest since I know both parties.
It is important that all accounting policies are ‘fair’ to both sides. What is considered
‘fair’? From Dabika’s perspective, fair could be accounting policies consistent with prior
years. From Elicia’s perspective, fair could be if the economic events change the
accounting policy would change. Fair could be both sides split the difference where
Dabika and Elicia disagree on value. In the future it is important that the shareholders
agreement is more specific.
Due to the choices allowed within GAAP a policy could be selected that would be more
beneficial to one of the parties. It is assumed since this is a small private company that
they are using ASPE. There is no indication that neither Elicia or Dabika would be using
IFRS nor that the bank requires it.
Inventory
Elicia wants to write off the inventory value for the garden gnomes and statues and this
will decrease the amount of the payment to Dabika. According to ASPE, inventory would
be valued at the lower of cost and net realizable value. Even though this inventory has
been sitting in the gardening centre there is still a few being sold each year. This indicates
there is still some value associated with the inventory and therefore it should not be
written down to zero. It should be determined what the net realizable value of this
inventory is to determine the amount of the write off. If it is all written off and then sold
at a later date this would not be fair to Dabika since Elicia would get the benefit of a
reduced shareholders’ equity and thus a lower payment required to Dabika. The purchase
of this inventory would have been a decision made by both Dabika and Elicia so if the
inventory is unsellable they should both bear the impact of this decision.
Warranty
According to ASPE the accounting policy is appropriate and a warranty expense should
be included for the guarantee. The impact is that this would decrease shareholders’ equity
and the amount of the payment to Dabika. This is a new policy that did not exist until this
year. The estimate of 5% was only based on sales from the fall. Since it is a new policy
that was made by Elicia on her own it may be appropriate that the impact of this is
excluded from the calculation of shareholders’ equity. At a minimum the estimate should
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