Comfort Meals (CM) is a not-for-profit organisation that prepares and distributes meals for homeless people in Adelaide. David Cunningham, who is a member of CPA Australia, is the Chief Financial Officer for CM. On the 28^th July, 2019, CMs Chief Executive Officer (CEO) successfully negotiated a loan for $1.8 million dollars (4% per annum interest) to fund the construction of new kitchen facilities. The new facilities will be completed and ready for use in November 2020.

David is now preparing the CM annual financial statements for the year ended 30^th June, 2020. The relevant accounting standards require that the interest costs associated with such a loan should be capitalised (that is, treated as an asset, part of the cost of the new facilities). The CEO has just spoken to David regarding the accounting treatment for the loan and its interest costs. In particular, he has asked David to ensure that the interest costs on the loan are all expensed in the current accounting period. The reason for the request is that CM is about to approach the government for a new round of operating grant funding. This funding is essential to ensure that CM can continue its operations in the coming year because CM is dependent on government financial support for its day-to-day activities. Our financial operating surplus must be as low as possible for this year, he states. The CEO goes on to say, Preferably we should be showing a loss so that we can maximise the amount of grant funding we receive from the government. Remember, without our services, the homeless of Adelaide would be left to starve. Its all up to you to show the right figures!

Required:

Using the DECIDE model, explain how David should respond to this situation. You should ensure that your analysis of the case is supported by reference to the Fundamental Ethical Principles and the values of the fundamental principles of the accounting profession as specified in APES 110. Three (3) courses of action should be identified and evaluated.