Bayberry Corporation performs year-end planning in November each year before its fiscal year ends in December. The

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Bayberry Corporation performs year-end planning in November each year before its fiscal year ends in December. The preliminary estimated net income following IFRS is $4.2 million. The CFO, Rita Warren, meets with the company president, Jim Bayberry, to review the projected numbers. The corporation has never used robotic equipment before, and Warren assumed an accelerated method because of the rapidly changing technology in robotic equipment. The company normally uses straight-line depreciation for production equipment. The investment securities held at year end were purchased during 2014, and are accounted for using the fair value through other comprehensive income (FV-OCI) model.
Bayberry explains to Warren that it is important for the corporation to show a $7-million income before tax because he receives a $1-million bonus if the income before tax and bonus reaches $8 million. He also cautions that the company does not want to pay more than $2.5 million in income tax to the government. Warren presents the following projected information.
Bayberry Corporation performs year-end planning in November each year before

Instructions
(a) What can Warren do within IFRS to accommodate the president's wishes to achieve $7 million of income before tax and bonus? Present the revised income statement based on your decision.
(b) Are the actions ethical? Who are the stakeholders in this decision, and what effect does Bayberry's actions have on their interests?
(c) Are there any cash flow implications of the choices made to achieve the president's wishes?
(d) Assume instead that Bayberry Corporation follows ASPE instead of IFRS. Briefly comment on the changes, if any, to the accounting treatment of the items discussed above.

Stakeholders
A person, group or organization that has interest or concern in an organization. Stakeholders can affect or be affected by the organization's actions, objectives and policies. Some examples of key stakeholders are creditors, directors, employees,...
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Intermediate Accounting

ISBN: 978-1118300855

10th Canadian Edition Volume 2

Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Nicola M. Young, Irene M. Wiecek, Bruce J. McConomy

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