One controversial accounting issue is accounting for research costs. IFRS require research costs to be expensed as incurred. Some people argue that research is a legitimate asset and expensing it results in an understatement of assets and income, violates matching, making companies that invest heavily in research appear less successful than they actually are.
Chortitz Ltd. (Chortitz) is a large and successful software development company.
You have been provided with Chortitz's summarized balance sheets for 2014 through 2017 and income statements for 2015 through 2017. Chortitz expensed (and expended) $15,812,000 for research in 2014 and $13,224,000 in 2013.

Required:
a. Recalculate Chortitz's net income in 2015, 2016, and 2017, assuming research is capitalized and amortized over three years. Also calculate total assets and shareholders' equity, assuming research is capitalized and amortized. What amount would be reported on the balance sheet for research in this case? (Assume that one-third of the amount ex pended on research is expensed each year, including the year of the expenditure, and that the accounting for research and development has no effect on income taxes.)
b. Calculate Chortitz's profit margin ratio, interest coverage ratio, earnings per share, debt-to-equity ratio, ROA, and ROE for 2015, 2016, and 2017 using the information as presented in the company's financial statements. Calculate the same ratios, assuming that Chortitz capitalizes and amortizes its research costs over three years.
c. Evaluate the performance and solvency of Chortitz under the "expense" and "capitalize" scenarios. What are the implications of the differences between the two scenarios? Do you think there is merit in the criticisms some people have expressed about the current IFRS treatment of research costs? Explainfully.

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Chortitz Ltd. Summarized Balance Sheet Information As of June 30, (000s) Current assets Total assets Current liabilities Non-current liabilities Shareholders' equity 2017 S 95,906 210,432 64,308 23,100 123,024 2016 $103,126 190,872 66,440 18,480 105,952 2015 82,204 170,094 44,466 12,376 113,252 2014 $ 69,630 141,178 37,138 8,662 95,378 Chortitz Ltd Income Statements For the Years Ended June 30, (000s) 2017 2016 2015 Revenues $ 243,704 S 186,360 152,686 Cost of revenues: License and networking Customer support Service 4,430 9.456 37,950 51,836 180,222 34,524 9,698 12,592 41,192 63,482 3,002 5,200 24,510 32,712 119,974 Total cost of revenues Operating expenses: 18,766 60,128 9,770 8,450 97,114 22,860 996 21,864 3,990 S 17,072 S 7,300 17,874 29,276 70,832 32,722 9,172 142,002 (7,478) 1,530 (9,008) 11708) Research and development 40,114 84,674 21,766 10,356 156,910 23,312 2,010 21,302 4,230 Sales and marketing General and administrative Depreciation Total operating expenses Income (loss) from operations Interest expense Income before income taxes Provision for (recovery of) income taxes Net income for the year Weighted average number of common shares outstanding during the year 0,064,184 44,698,536 41,828,730