Create memo of the financial reporting issues for a firm using IFRS and

private but looking to go public

neral:Pretax earnings for the period ended April $30,$ Year $12,$ were $$1,375\mathrm{.}000.$ For the fiscal years Year Il and Year $10,$ RSI recorded prete earnings of $$435\mathrm{.}000$ and $$325,000,$ respectively.Marge Roman has received a valuation report valuing the company at $$12$ million. Shareholders' equity as at April $30,$ Year $12.$consisted of $100$ common shares at $$100$ and retained earnings of $$9159000.$New Software:The company has been using a standard general ledger software package originally installed in Year $6$ by a local computer consulting firm and upgraded annually.In January. Year $12,$ RSI hired BBC to oversee the implementation of a new third$-$party package. In March, Year $12,$ RSI began converting its financial reporting system. The new general ledger software was installed in parallel with the old software and went live on April $1,$ Year $12.$The new general ledger software has been used to generate RSI's financial results since April $1,$ Year $12.$ Starting July $1,$ Year $12,$ the old system will no longer be used in parallel.To date, RSI has been invoiced $$720,000$ by BBC$.$ These costs have all been capitalized in the April $30,$ Year $12,$ financial state.ments. The invoices show the following services and costs:Initial review and recommendations $$110\mathrm{.}000$Cost of new software $$150\mathrm{.}000$Implementation cost $$120\mathrm{.}000$Training work $$275,000$Monthly support fee $($April$)$ $$25,000$Other consulting fee $($to April $30)$ $$40\mathrm{.}000$In addition, as at April $30,$ Year $12,$ RSI also capitalized $$70,000$ related to the salaries of four employees who have worked on the accounting software project since January $1,$ Year $12.$ Because these individuals were pulled out of their regular jobs to handle the prob. lem, RSI had to hire two additional emplovees.The costs will be amortized beginning on July $1,$ Year $12,$ on a straight$-$line basis over three years. RSI intends to treat approximately $$135,000$ of the carrying amount for the old software as part of the cost of the new software by reallocating this balance.Revenues:During fiscal Year $11,$ total product revenue was $$18\mathrm{.}2$ million and maintenance contract revenue was $$5\mathrm{.}6$ million. For the period ended April, Year $12,$ product revenue was $$13\mathrm{.}2$ million and maintenance contract revenue was $$5\mathrm{.}2$ million.RSI recognizes product revenue when shipment and installation take place. It is RSI's standard practice to request a customer sign$-$off for any installation work. The installation crew normally gets sign$-$off on the day of installation. During interim work for fiscal Year $12,$ it was noted in the audit file that approximately $$640,000$ of revenue recognized in April, Year $12,$ related to work installed and invoiced in April, but customer sign$-$off was obtained only in early May. Such situations did not catch anyone's attention in previous years. RSI explained that it recently hired new service technicians who were unfamiliar with the policy of customer sign$-$off, and accordingly had to send technicians back to the client days after the installation was completed to get the sign$-$offs.Maintenance contract revenues relate to one$-$year agreements that RSI signs with customers wanting product support. During the year, the company changed its revenue recognition policy on maintenance contracts to recognize revenue based on estimated costs incurred on the contract. Revenue is recognized as follows: $25\%$ in each of the first two months of the contract and $5\%$ in each subse quent month. This allocation is based on a study done by RSI in Year $10,$ which showed that the costs incurred on the contracts aremostly incurred in the first two months, during which R$I sends out a technician to perform preventive maintenance. The preventive maintenance reduces the number of future service calls and, therefore, overall costs.ABM Business:As a result of RSI's strong relationship with its financial institution and Marge's desire to diversify RSI's product line, RSI began selling automated bank machines $($ABMs$)$ in fiscal Year $12.$ The machines are purchased from a large electronic equipment manufacturer responsible for ongoing maintenance of the ABMs. RSI sells the ABMs to restaurants, bars, and clubs at margins of $5\%.$ The sales revenue is included as product revenue.The standard ABM sales agreement states that for a three$-$year period from the date of sale, RSI receives $40\%$ of the transaction fee charged to customers using the machine in addition to the sales revenue. A further $40\%$ of the fee is payable to the financial institution for managing the cash in the machines, and the remaining $20\%$ is remitted to the machine owners. The transaction fee charged to customers using an ABM is normally $$1\mathrm{.}50$ and is set by the financial institution. RSI is not responsible for stocking the ABM with cash or emptying the cash machine. The financial institution performs all cash management duties and remits to RSI, at month$-$end, a statement showing money owed to RSI for its share of the transaction fee. A day later, the funds are deposited directly into RSI's main bank account.A total of $3\mathrm{.}230\mathrm{.}000$ ABM transactions were processed in Year $12$ for a total fee of $$4,845,000.$ RSI has booked transaction$-$fee revenue of $$4\mathrm{.}845\mathrm{.}000$ and an expense of $$2,907,000$ related to the fees, attributable to the financial institution and the machine owners.debentures:In $1$ January, Year $12,$ RSI needed long$-$term financing and issued to a third$-$party venture capitalist $$2,500,000$ of debentures maturing$110$ years, with interest at $7\mathrm{.}35\%.$ The debentures are included as long$-$term debt in the accounts. The debentures are convertible at the ption of the holder, at a rate of one voting common share for every $$5$ of debenture, if RSI issues shares to the public. If RSI does not sue shares to the public before June $30,$ Year $13,$ the debentures are repayable upon demand.Accounts Receivable:Review of the aging of accounts receivable at April $30,$ Year $12,$ showed an amount of $$835,000$ in the over$-120-$day category. According to RSI's collection department, the balance relates to payments withheld by one of RSI's largest customers. Mountain Bank. RSI had contracted to install security cameras at all of its branches. The work was performed in August, Year $11,$ a customer sign$-$off was received at each branch, and invoices were sent in early September. Mountain Bank refused to pay individual invoices. It wants to pay the total of all invoices in one payment.In October, Year $11,$ a few branches of Mountain Bank contacted their head office and requested that no payment be made to RSI until certain corrections were made to the angles at which the cameras were installed. Although not required to do so under its agreement with Mountain Bank, RSI fixed the problems, as Mountain Bank is one of its largest customers.On June $1.$ Year $12.$ $$450,000$ was received. Mountain Bank asserts that some work remains to be done at $5$ to $10$ sites and is withholding final payment until it is completely satisfied. All amounts related to the contract are recorded as revenues. Internal reports reveal that it takes a service person approximately one hour to fix the problems at each branch. No significant materials costs have been incurred for the follow$-$up visits.