Swot Analysis Of Accounting

Submitted By Zymxhhx
Words: 1939
Pages: 8

I. Accounting issues
My role is to help identify accounting issues, describe measurement and presentation differences between Canadian GAAP and IFRS, suggest additional audit procedures, SWOT analysis and draft a report clarifying R&M’s obligations and procedures involved.
Shareholders are the most important users of the financial statements and they want to evaluate the stewardship based on the financial statements. And they also prefer a higher net income.
Auditors are also important users since they base their audit planning on the financial statements and assess whether the figures in financial statements truthfully represented the financial position of the company.
Since the financial statements is of year 2009 and the company was still use the Canadian GAAP then, the accounting issues are analyzed in accordance with Canadian GAAP.
The shareholders would prefer a higher net income but the auditors would want to make sure that the figures truthfully and fairly represented the financial position of the company.
Issue #1 THC Stores—held for sale, subsequent costs and impairment
There three issues in this part, the first issue is that whether the three building can be classified as held for sale and the second is that whether the upgrade costs should be expensed or capitalized, and third issue is to discuss whether the buildings are impaired if we use cost model to measure the buildings.
For the first issue, under Canadian GAAP, all the criteria have to be met to be classified as held for sale.
- Management, having the authority to approve the action, commits to a plan to sell: this criterion is met because the THC management intends to sell the buildings for $1,250,000.
- It is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets: this criterion is not met since the buildings are leased out and they cannot be sold until the end of the lease contract.
- An active program to locate a buyer and other actions required to complete the sale plan have been initiated: this criterion is not met since there is no indication that THC has initiated such an program.
- The sale is probable, and is expected to qualify for recognition as a completed sale within one year: this criterion is not met because the lease contract is two years, from 2009 to 2011.
- It is being actively marketed for sale at a price that is reasonable in relation to its current fair value: this criterion is met because right now the fair value per building is 1,100,000, and the price they intends to sell in the future is $1,250,000.
- Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn: this criterion is met since there is no indication that the management will change their mind to not sell the buildings.
Recommendation: based on discussion above, the buildings should not be classified as held for sale in the period, so they should still included in the property account of THC’s balance sheet. Cost model should be used to measure the value of the three buildings, and componentization depreciation would be required.
Differences between Canadian GAAP and IFRS: under IFRS, the criteria of held for held are basically same. The buildings don’t meet all the criteria of held-for-sale, and instead they become investment properties because the buildings now are used for collect rent.
For the second issue, under Canadian GAAP, the costs incurred in the maintenance of the property should be expensed, while the costs considered being betterment is included in the cost of the property. Resurface the parking lots, replace the storefront windows and resurface the roofs are all betterment because they increased the life of some parts of the building. So the costs of these three activities should be capitalized in the cost of the buildings