Baths R Us$,$ a private company based in Toronto, is the city's largest manufacturer and vendor of bathtubs, showers, and sinks$.$ The company sells products direct to consumers, and also sells wholesale to other retailers.

Baths R Us is owned by Bob Bresher, who runs the operations side of the business. His brother, Thomas Bresher, manages all of the accounting functions. Bob performed market research and determined that the next step for Baths R Us is to expand sales to Quebec. Baths R Us has slowly reduced its debt load over the years, but still relies on creditors and bankers to finance its operations. Baths R Us went to the bank to obtain additional financing to expand to Quebec. The bank agreed to provide $$1\mathrm{.}5$ million in financing at face value, at a rate of $9\%,$ interest payable annually. The bank indicated that audited financial statements would be required this year, and Baths R Us would need to maintain a debt to equity ratio of $1$:$1,$ where debt is defined as all liabilities.

Brayden LLP is a local audit firm engaged to perform the December $31,2023$ year$-$end audit to satisfy the bank requirements. You are the senior accountant assigned to this audit engagement. It is January $2024,$ and Thomas Bresher has asked that the work be performed as soon as possible. You meet with Bob and Thomas and note the following transactions that occurred during the year.

$1.$ During $2023,$ Baths R Us sold $100$ warranties for $$5,000$ each on its bathtubs. The warranty period is five years. Historically, the warranties have resulted in a cost of approximately $$500$ each per year. Baths R Us uses the cash basis to recognize the warranty expense and revenue. During $2020,$ no warranty costs were incurred.

$2.$ Baths R Us bought inventory on January $1,2023.$ The purchase was financed through an interest$-$free vendor take$-$back loan, with a promise to repay $$200,000$ in two years. Thomas recorded the loan on the balance sheet at $$200,000.$ As at December $31,2023,$ the inventory's net realizable value was $$100,000.$

$3.$ On June $30,2023,$ an employee launched a wrongful dismissal suit against Baths R Us for $$150,000.$ Baths R Us's lawyers have indicated that they expect a payment of $$100,000$ to $$120,000,$ but the lawsuit is still in court proceedings. Thomas didn't recognize any amount for this because he believes that Baths R Us will be able to successfully defend the suit.

Baths R Us $\text{'}$s balance sheet shows that the company has $$1\mathrm{.}3$ million in debt and $$2\mathrm{.}4$ million in equity.

Instructions:

Provide a report to your manager on the accounting issues. Be sure to identify the issue, analyze the criteria using case facts, provide a recommendation and discuss the impact. Note where there are differences between ASPE and IFRS.