Arole Inc (AI) was established in 2015 by Kara Dell when she decided to open up a new-age spa resort. The resort was a perfect escape in British Columbia for a busy female looking to wind down and get away from the hustle of a busy city. To make her dream come true, Kara had to buy a field which offered sufficient property size to build the resort of her dreams. She spent a total of $1.5 million to purchase the land, and a further $12 million to build the resort and related facilities. The property boasts several unique features: a resort, spa, yoga studio, gym, boutique, tennis courts, restaurants, and a lavender field. About 50% of the revenue are generated in the summer months, and the rest are generated throughout the rest of the year. She funded the purchase with a significant inheritance and a personal loan. The company's year- end is August 31. Things were looking good for Kara and AI in the beginning of fiscal year 2020 which runs from September 1, 2019 to August 31, 2020. Al has always been very popular and profitable, and Kara was able to build a healthy cash balance in the company's accounts. In fact, when Kara's cousin Jacob asked Kara to invest in his glass blowing business in October 2019, Kara immediately agreed because she was looking to increase the variety of activities her guests can enjoy. Jacob owned a glass blowing factory, Jacob's Glass, and unfortunately the factory started running out of money due to poor financial management. Kara saw its potential and decided to purchase 18% of the outstanding shares of Jacob's Glass. This investment allowed Jacob to keep his factory open. Kara would like Jacob to offer workshops for Al's guests to attend. She also offered to sell Jacob's glass work at AI to boost the shop's revenue. Jacob was open to both ideas. Between July 1, 2019 to November 30, 2019, AI spent $200,000 on upgrading hotel facilities to increase accessibility, which included installation of ramps, new elevators, and accessible bathrooms in guest rooms. In the summer of 2019, a lot of tourists from afar visited the lavender field. While hotel and auxiliary income increased significantly, the lavender field was significantly damaged due to heavy traffic. The company harvested the lavender flowers in early August for use in its beauty products that are sold in the hotel boutique. Lavender products have an average shelf-life of one year. After the harvest, AI had to replant a significant amount of new lavender plants due to the damage sustained during the season. Total cost of the new plants amounted to $100,000. AI spent $10,000 winterizing the field annually. Business was normal until March 2020 and businesses were forced to closedown due to the pandemic and the second half of the year turned out to be very challenging for Kara and AI. AI had to obtain a business loan for the first time in May 2020. The credit union lent AI a 3-year $1,000,000 loan because the company has substantial capital assets. However, Al has never prepared financial statements properly, the credit union requested audited financial statements for the year ending August 31, 2020 and established strict covenants. If AI breaches the covenants, the loan becomes payable immediately. The credit union reserves the right to call the loan back if the financial results are significantly below the expected results for fiscal year 2019'. Kara has asked the local accounting firm Simon & Paul LLP to help her with the preparation of the financial statements. AI will be following ASPE because Kara would like to keep reporting cost low. Kara's bookkeeper uses an off-the-shelf accounting software to keep track of all transactions. Currently, all capital assets, including land, hotel, lavender field, tennis court etc, are lumped together in a single account called Capital Assets and no depreciation has been taken before. All expenditures incurred throughout the years related to renovation, landscaping, repair, maintenance or upgrades of equipment are expensed as incurred. Kara usually hires a local tax accountant to file AI's tax returns who prepares the financial statements just for tax filing purposes. The loan obtained from the credit union ended up not being sufficient to keep Arole afloat. Kara reached out to her Uncle Ben to see whether he'd be willing to help but he was very hesitant as he is also an owner of a yoga chain and was affected by the pandemic. After long negotiations, June 2020 Kara convinced Uncle Ben to buy all the excess lavender related inventory from the resort boutique and glassware bought from Jacob's factory for $100,000 (cost of $85,000). The uncle has really no use for these inventories and said if Kara has the money, she can buy back the inventories for $100,000 later. Meanwhile, Kara has to pay $1,000 storage cost. Kara thinks that she can probably buy back the inventories by Fall 2020 if the economy reopens. Kara feels relieved because she can now show the credit union $15,000 as gross profit on this sale. Kara was always thinking ahead and considered how she would be able to keep the business afloat if the poor economic conditions persisted. In June 2020, she closed a deal with a golf company. In the deal, the golf company would purchase the lavender field, but instead of paying AI cash, the golf company issued $3 million worth of common shares to AI, based on the most recent valuation of the company's net worth. The golf company is privately owned by a real estate guru in Canada. In recent years, a lot of farms in B.C. have been sold to real estate developers and a plot similar to AI was sold prior to the pandemic for $2.5 million dollars. Al hoped that by selling the land to a golf company, the land will be developed into a golf course and therefore brings in more business to the resort. Today is July 7, 2020. You are a senior accountant at Simon and Paul LLP and the manager has asked you to draft a report of the financial reporting issues in the preparation of AI's financial statements for year ending August 31, 2020. The manager urged you to identify the most relevant ASPE criteria when discussing the accounting issues and list alternatives where reasonable. She would like to hear your view on these issues given the bank will be relying on the statements to review the loan annually