Case Question:

WESTARTISAN INC.

West Artisan Inc. (WAI), a private company, is home improvement items such as lighting fixtures,home decors and furniture and appliances. They sell their products to wholesales and direct to consumers. It focuses on purchasing and distributing environmentally-friendly sustainable products and has been a leader of providing environmentally friendly product and manufacturing practices.

WAI obtained a loan earlier in the year and the lender requires audited financial statements prepared under IFRS Standards for its December 31, 2023 year-end. WAI has not previously reported under IFRS Standards so its accounting staff are in the process of familiarizing themselves with the relevant CPA Canada Handbook sections to ensure compliance with the lending conditions. Their external auditor is addressing all of the transition issues so we do not need to worry about them. Instead, George Winters, the CFO of WAI has asked us to advise him on any accounting issues relating to the December 31, 2023 financial statements that would be of concernto the lender or the auditor. He is also looking for advice on any relevantcorporate income tax matters, including those that pertainto the accounting issues.

You, CPA, work at SPA Limited (SPA), a consulting firm that has provided services to WAI in the past. Angie Pankaj, one of the partners at SPA, met with George Winters, the CFO of WAI. She needs you to prepare a draft report to address George's expenses concerns.

APPENDIX I

NOTES FROM DISCUSSION WITH GEORGE WINTERS,WAl'S CHIEF FINANCIAL OFFICER REGARDINGTHE RESIDENTIAL DIVISION

HaloGlobe

It has been a great year for WAI. In addition to expanding our product offerings to retailers, we began producingour own line of energy-efficient pot lights, called "HaloGlobe", in June 2023. To ensure the HaloGlobe production went smoothly, WAI obtained a loan from a private lender in April 2023. Once the loan was in place, we spent two months perfectingthe productandproduction process.

To date, all of our HaloGlobe sales have been to our larger customers, who each agreedto take a specified volume of inventory. In November, we sent out all shipments and have received payment in full from each of those customers. Each retailer was charged the same amount for each unit, but has discretion over retail pricing and product display. The sales from those orders will determine the volume of their next order. Andrew Varga, the CEO, has a strong working relationship with several of the retail owners, so some of the contractual arrangements were executed verbally rather than in writing. Once the next order of inventoryis placed, a formal writtenagreement will be signed by each retailer.

Each retailer can return unsold items at any time up to and including March 31, 2024 because of the uncertainty of the HaloGlobe's market acceptance. No returns will be accepted after that date. As of today, there have been no returns so that must mean the productis being well-received. We have not received any complaints or negative feedback. Accordingly, the entire margin of $825,000 realized on these sales has been recognized in 2023. Any returns received before the end of the year will be recorded in 2023.

APPENDIX I (continued)

NOTES FROM DISCUSSION WITH GEORGE WINTERS,WAL'S CHIEF FINANCIAL OFFICERREGARDING THE RESIDENTIAL DIVISION

As this is the companys first production experience, I wanted toget your thoughts on the inventory costing. Recently,the company receiveda report from Terry Johnson(the Warehouse Supervisor), which details the significant costs incurred during production relating to the unsold HaloGlobe inventory.

Production costs - HaloGlobe	Costs Incurred
Direct labourand materials	$845,000
Administrative salaries	220,000
Storage for the finishedproduct	58,000
Manufacturing overhead - percentage allocation	101,000

The company have included all of those costs in our ending inventory balance, except the manufacturing overhead. We do not expect to produce too many more units of HaloGlobe this year so the balancewill not change much beforeour year-end.

Forklifts

Last month, we had some issues with our five UHaul20s, which are highly customized forklifts that are used exclusively for our kitchen appliances. Those machines are built with specialized forks that prevent damage to the appliances while in transit We paid a lot of money for them last year so it was disappointing that the forklifts were not operating as expected. As of November 8, 2023, we are no longer using any of the UHaul20s. The forklifts would still be very useful for many companies, but because of our high quality standards it did not make sense to keep using them and run the risk of damage to our inventory.

Andrew and Terry discussed their intention to sell the five UHaul20s during the most recent finance meeting and included it on WAI's list of key goals to be achieved before April 1, 2024. The expected cash flows of $750,000, after considering relevant selling costs were alsoincluded in the 2024 cash flow forecast that we recently developed and approved. After several weeks of calling potential buyers, two companies sent representatives to meet with Andrew and to inspect the machinery. Nothing has been confirmed but one of the companies called back yesterday and has arranged for its owner to meet with Andrewnext week to follow up on their discussions. We have not changed anything in our books for those UHaul20s other than ceasing to claim depreciation effective November 8, 2023.

APPENDIX II

NOTES FROM DISCUSSION WITH GEORGE WINTERS,WAI'S CHIEF FINANCIAL OFFICER REGARDINGTHE HOME SERVICE LINE

WAIs has launched a new home services line of business during fiscal 2023 that we anticipate will be extremelyprofitable in the long term. The premiseis that customerscan come into the store and purchase various home improvement items, and then, for a fee, we will install or assemble the items for them. This helps WAIs appealto both the do-it-yourself type and the less handy.

Home Services Overview

WAIs offers installation services on a number of products that it sells in its stores, including central vacuum cleaners, garage door openers, sheds, play centres,furniture, heaters, air conditioners, and appliances. WAIs sells these services to customers and collects the fee at the point of sale of the related items,but it does not directlyprovide the services. WAIs has enteredinto agreements with a number of independent contractors across Ontario who receive the information on the customer installation, directly from WAIs, and provide the installation services. These contractors are paid a standard rate of 85% of the installation price. The contractor typically performs the installation within four weeks of the customers purchase and is required to upload documentation to a system set up by WAIs to confirm that the installation has been completed. This documentation includes an electronic customersign-off that the installation was performed satisfactorily.

Home Shows

WAIs has participated in a number of home shows this year to market its new home services business. It invested $145,000 in semi-permanent displays to showcase the various products for which installation and assembly services are provided. WAIs expensed the cost of the displays. It also developed a software system to record the customer information, assign jobs to contractors, and keep track of the completion documentation. This software system, costing $267,000, was also expensed. WAIs expects that modification of the software system will be required before the end of the fiscal year to add additional functionality for the expansion of their service offerings to repair calls.

Website

WAI's IT staff has enhanced its company website,which was relaunched earlier this fiscalyear, to marketthe home servicesbusiness. Customers cannotpurchase products or services on the currentwebsite, but the IT staff is now building an e-commerce site that it expects to launch in April 2024. On the e-commerce site, customers will be able to purchase WAI's products, and they will be ableto purchase home services for those products that have that option. The project is currently on schedule.

Costs incurred to date on the sites are as follows, and have all been expensedby WAIs:

	Company site	E-commerce site
Marketing studies and planning meetings	$18,000	$18,000
Domain nameacquisition and hosting	2,000	1,000
Application development		95,000
Designing web pages	116,000	150,000

Digital photography of products	25,000	10,000
Content development (text for specific pages)	25,000	30,000
	186,000	304,000