Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Creative Systems Co. (Creative) is a privately held corporation specializing in learning management systems solutions in the digital environment. Their proposed solutions, similar to Blackboard,

Creative Systems Co. ("Creative") is a privately held corporation specializing in learning management systems solutions in the digital environment. Their proposed solutions, similar to Blackboard, for example, are implemented in small post-secondary education institutions across Canada. The company has been operating from its headquarters in Vancouver since January 2, 2020. Creative financial statements are unaudited and prepared in accordance with ASPE. Revenue The selling price of Creative system solution is $40,000 per educational institution over a 4-year period. The price covers both, the access to a platform interface and the hardware (such as workstation, projector, and printer) at $30,000 and $10,000 respectively per client. Additionally, Creative also provides customized software solutions to cater to the specific educational issues. Such customization will be an additional cost for the post-secondary institutions. Creative prides itself in providing a one-stop system solution for their clients. As such, the company has partnered with Stellar Technologies Co. (Stellar) that provides the hardware to Creative' clients. Through this partnership, Stellar pays Creative a referral fee which is 10% of hardware cost for every sale. Since its inception, the company has recognized all its revenue at the time of sale upon receipt of a signed contract. From the date the contract is signed, Creative takes an average of three (3) months to establish functionality: from project implementation, hardware setup, to training. At the end of 4 years, there is an annual fee for the software license renewal which is $1,500 per each contract sold to the post secondary education institution. The amount is automatically and fully recorded at the time when the software license expires. Here are the annual historical revenues: Year 2020 $1,200,000 Year 2021 1,600,000 Year 2022 2,100,000 Year 2022 3,000,000

Your group represents the consultants/auditors for Avenir Co. Based on the information presented in the scenario, list the key issues. Note: The summary should be no more than one page. B. Project Report (95%) Following the summary of issues, you have identified in part A of this project, provide a comprehensive report outlining: What accounting policies have been violated for each transaction identified as problematic? Describe implications of the problematic transaction on the financial statements? From Avenir Co.'s perspective, the potential buyer, what potential issues you identify? Prepare the required calculations and journal entries that would convert the problematic transactions identifies in part A, from ASPE to IFRS compliance. What adjustments you would recommend to Creative, to ensure that the financial statement at year-end 2023 reflect a reliable, accurate information?

Step by Step Solution

3.49 Rating (162 Votes )

There are 3 Steps involved in it

Step: 1

Answer A Summary of Key Issues 1 Revenue Recognition Creative recognizes all revenue at the time of sale upon receipt of a signed contract even though it takes an average of three months to establish ... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Management Theory and Practice

Authors: Eugene Brigham, Michael Ehrhardt, Jerome Gessaroli, Richard Nason

2nd Canadian edition

176517308, 978-0176517304

More Books

Students also viewed these Accounting questions