Apple & Sons Inc. Tim Apple is a proud member of the Apple family, which immigrated to Canada in the early 1900s. When Tim's great-grandfather John came to Canada, he had sufficient funds to purchase a farm on the outskirts of Ontario for $5,000 (a significant sum of money back then) and incorporated Apple&Sons (ASI). Back in the day, John used the land to grow apples and the farm is now one of the largest apple farms in Ontario. More recently, Tim and his sister, Glenda, inherited ASI and all of its land and properties and started running it together. Despite the fact that Tim and Glenda had a clear division of responsibilities, Tim was responsible for everything related to the back-office: accounting and operations and Glenda was responsible for managing staff, they still decided to run the farm together to be difficult. Therefore, after one full year of trying to run the farm together, the siblings decided that it would be best for Tim to purchase Glenda's share and continue running the farm on his own. ASI follows IFRS. ASI's year-end is December 31. Immediately after finalizing the purchase, Tim is planning to go to a local bank and obtain additional financing to continue growing the business. It is November 2020 and you've been hired by ASI. In the most recent year, a lot of properties on the farm went through significant renovations. A lot of the properties were in a bad condition. ASI spent $100,000 renovating all buildings. ASI also decided to attract families to the farm for apple picking and other fun family activities. To get everything constructed including a picnic area, children's playground, petting zoo facilities, ASI paid $15,000 for architectural designs, $5,000 to obtain the building permit, $50,000 construction materials and $30,000 in labour costs. Approximately $25,000 were paid in landscaping costs and $5,000 to make a dedicated piece of land suitable for a parking lot. Tim notes that he agreed to go ahead with all the renovation and construction costs above because Tim and Glenda prepared a budget that showed that the farm will be able to recuperate the costs of renovations and make a profit through the sale of admission tickets and sale of snacks. Unfortunately, attracting families has been difficult and the actual number of visitors so far has been only about 20% of the budgeted figures. In addition, Tim just heard that a family bought out a local farm and they also plan to open up the farm to the public to visit. In addition to families visiting ASI farms for a fun day of activities, ASI I welcomes requests for special guided group tours, such classes that visit from various Ontario schools, etc. Group tours must be booked at least one month in advance and must be prepaid in full (the fees are not refundable). ASI charges $100 per student for such a visit. The most popular months for the tours are in May and June, and ASI has already booked 10 groups for summer 2021. The guided tour includes a free lunch on the farm and a small take-away basket of apples and a t-shirt for mom or dad to take home that says "Our Next Fun Family Day at the Apple Farm in ___ weeks." The idea to entice parents to come back for a fun family day with their kids.

Case questions

After the meeting with Tim, you sit down and have to figure out the following information before making any suggestions to Tim:

1.Who is (are) the major user(s) of Apple and Son's financial statements and what are they looking for in the financial statements (i.e users' objectives)?

2.What are the reporting constraints?

3.What reporting objectives does Tim have? Could he be biased?

4.What is the most appropriate revenue recognition policy for the tour packages?

5.What is the most appropriate policy for asset capitalization on the new constructions and renovations?