DasAuto Inc is a leading auto retailer, and a leading distributor of automotive replacement parts and accessories in Canada. The company was founded in 1989 by Cory Carson and follows IFRS. DasAuto operates in 550 retail locations and each store carries an extensive product line for cars, vans and light trucks, including new and re-manufactured automotive hard parts, maintenance tools and accessories. The company is now under the leadership of Cory Junior Carson (CJ Carson). The companys common shares are held primarily by twenty-five extended family members.

This year, DasAuto obtained a $2,000,000 credit facility from LargeBank. At any point in time, DasAuto can withdraw from the account up to $2,000,000 and the company will be charged interest at that point. DasAuto has not yet withdrawn from the credit facility but to remain in good standing with the bank, the company must provide audited financial statements and the companys debt-to-equity ratio cannot be higher than 3:1. While the company has always diligently prepared financial statements, this is the first year the financial statements had to be audited due to bank requirements. Currently, total debt equals to $4,000,000 and total shareholders equity is equal to $2,000,000.

Management is considering using the available funds in the credit facility to purchase back the companys common shares. They have not yet made a decision on this.

You, CPA, are hired as the new controller and it is December 1, 2022. The companys year-end is November 30, 2022. Youve been tasked with ensuring that the financial statements are prepared in accordance with IFRS before the statements are passed onto the auditors for their audit work.

The market is extremely competitive and CJ believes the foundation of DasAutos success is culture which is defined by how employees take care of customers. Therefore, DasAuto provides both formal training programs and on-the-job-training programs. This also ensures that DasAuto keeps its employee turnover to a minimum and an average employee tenure is 10 years. While DasAuto employs full-time staff in its training department, the company often brings in external coaches and trainers to focus on customer service and team building training for more seasoned staff. Many employees have been working at DasAuto for more than 15 years and CJ believes bringing in new and fresh training courses is critical to improve operating efficiencies and customer satisfaction. Therefore, DasAuto capitalized on the financial statements all of the $500,000 spent on training in fiscal year 2022.

In December 2021, CJ decided that it was time to accelerate DasAutos efforts in achieving excellent customer service. DasAuto hired a 3^rd party company SoftwareExperts Inc (SE) to develop and implement a proprietary electronic catalog, called AutoMax. This electronic catalog provides parts information based on the year, make, and model. It enables sales associates to efficiently look up the parts that customers need, which allows sales associates to provide complete advice. AutoMaxs display screens would be placed on pods in stores to allow easy access.

When AutoMax was well into the development phase, SE executives told DasAuto that the company might need to file for bankruptcy and thus the project would not be completed. DasAuto found out that one of the executives of AutoMax withdrew all the cash from the companys accounts and flew from Canada to another country. Without the cash balance, SE was not able to continue its regular operations despite the fact the companys business model was sound and has been very successful. In fact, SE built similar software solutions successfully for numerous clients over the past 10 years. CJ made a decision to provide SE with cash injection to ensure that AutoMax would get successfully implemented and that SE would continue to operate. Thus, DasAuto purchased 18% of common shares for $1,000,000. At the time of the investment, DasAuto was one of SEs major clients. While SE offered a seat on the board to DasAuto, CJ politely declined saying: At the moment, I believe SE is on the right track and does not need my intervention. If things change, I reserve the right to take that offer. Since the investment was made, AutoMax was developed and implemented successfully. The development and implementation of AutoMax cost DasAuto $700,000 which is in line with the prices in the market for this type of projects. All of the costs incurred were capitalized on the financial statements.

As per the invoices submitted to DasAuto by SE, the breakdown of the costs incurred during the development and implementation is as follows:

Invoice description	Cost
Discussion with management and staff to determine required software capabilities (December 5 December 31, 2021)	$50,000
Preparation of final report outlining software capabilities and presentation to management (January 7 January 14, 2022)	$10,000
Software design and front-end development, discussions with management pertaining to the look and feel of the program (February 1 March 15, 2022)	$150,000
Development of software back-end infrastructure (March 15 August 31, 2022)	$450,000
First version presentation to management and revisions made after the presentation (September 5 September 7, 2022)	$20,000
Testing of the software (September 10 October 10, 2022)	$20,000

Given the implementation of AutoMax, DasAutos old computers had to be removed from all the stores given that they were no longer compatible with the new system and pods with new computers had to be installed. The old computers were being amortized over five years and they were purchased four years ago (in other words, only one year of amortization remained at the time of removal from all the stores). Management has no immediate plans to dispose of the computers as they want to make sure that implementation of AutoMax is indeed successful and there are no glitches. In addition, management is considering entering a new market in some developing countries and the computers would be installed in the new stores overseas.

While DasAuto has a wide range of inventory in stock, sometimes car enthusiasts would be looking for car parts for unique cars (such as limited collection vehicles, luxury cars etc). Since DasAuto likes to pride itself on excellent customer service, they would never turn a customer away. In this case, DasAuto provides a special service to the customer. A sales associate would note down the specifics of the car parts and provide the details to the office. At the office, a specifically designated sales manager would contact manufacturers directly to source the car part. Oftentimes, it requires a significant amount of work. Plus, the sales manager must work really fast in locating and having the part delivered to customer. Even though DasAuto is playing the role of a middleman in these transactions, DasAuto will not be able to return the part to the manufacturer once its sourced in case the customer takes their business elsewhere. DasAuto charges 30% margin on sales of such unique car parts. For instance, if a car part is $10,000, it would be sold for $13,000 to the customer. As per the accounting policies of DasAuto, $13,000 would be recognized in revenue upon sale to customer when the part is delivered to the customer.

Car parts are purchased by DasAuto all over the world. The following costs are normally incurred in inventory acquisition:

Taxes paid upon purchase and duties paid at the Canadian border

Fees paid to international and Canadian warehouses to store products due to delays in custom clearance or long wait times for cross-continental transportation

Commission fees based to international brokers, if required, to locate rare and unique car parts

Transportation costs

All of the costs are capitalized as part of inventory costing.

A combination of the pandemic and volatile economy increased DasAutos overall profitability over the last couple of years as people had more time to spend on fixing up their cars during the pandemic and were more likely to keep their old cars as opposed to buying new cars due to supply shortages. Therefore, DasAutos cash position has significantly improved. In anticipation of significant inflation, DasAuto management were very hesitant to keep a significant amount of money simply in the bank and thus, management decided to invest some funds in very liquid, yet profitable investments. Management considered investing in Tesla stock would meet those criteria. Unfortunately, the investment ended up being very volatile. The stock was purchased at $301 per share in March 2022 and it has since dropped to $210 at year end. CJ is furious and he is determined not to sell the stock until the stock price recovers and in fact, he wants to make at least 20% return on investment. Analysts are quite pessimistic about the future of the stock price. The stock has been recorded at cost of $301 per share. DasAuto currently holds 1,000 shares of the Tesla stock.

Another initiative that was implemented this year and gained a lot of traction with customers is the Loan-or-Own program. Customers can choose from over 50 commonly used tools and loan a tool that is necessary in their car repair. These tools are segregated from the rest of the inventory and are clearly labelled as Loan-or-Own tools. When the tool is loaned, customers are charged for full price of the tool. If the customer returns the tool within 72 hours, they will be refunded the full price and only a nominal rental fee will be charged. Management comments that since the beginning of the year, approximately 100,000 tools in total were loaned. Approximately 5,000 were not returned and thus deemed purchased and 95,000 were returned within 72 hours.

The company categorizes all of the tools that are part of the campaign as inventory that is tracked using the LIFO (last-in-last-out) method.

Required:

Assume the role of the new controller and prepare an analysis of the financial reporting issues for period ending November 30, 2022.