Delta lvning Inc. is a private owned company located in New Brunswick. It owns and operates a mine in Eastern Canada. The company was incorporated on January 2. 2023. and has a December 31 year end. The owners have chosen to report under IFRS. Most of their capital came from a single bond issue due January 2. 2033. (10-year. S200 million face value. 6% coupon. issued to yield 8%) on which interest is paid semi- annually. and through shares issued to the owners (S40 million}. A 2% note payable for 540 million to a bank was also issued in 2023, due in May 2025. Retained earnings was S 15 million as at December 31. 2023. and no dividends were paid in 2023. You have recently joined ABC Accounting rm in Toronto. As requested by the owner of Delta. the partner of the rm has asked you to review some of the accounting issues at Delta. Peter Scott. the controller at Delta is concerned about the loan covenants for one of the debt issue and he is wondering whether the nancial results for the 2024 scal year will fall short of their requirements. The details of this covenant is listed below: \"Starting from the scal year ended December 31. 2024. the following loan covenants need to be met: 0 The long-term deht-toequity ratio must not exceed 4:1. 0 Times interest earned must exceed 2 times.\" The draft 2024 earnings show an improvement from last year. Net income after tax was $16 million with S4 million of dividends having been declared and paid. In reviewing the nancial statements. you found the following items shown in the 2024 nancial statements which could be a concern : 1. Peter mentions that. to simplify matters. he accounted for the bond interest using the straight 6% rate on the $200 million principal amount in 2024. The nancial statements for 2023 were audited by your rm and the bond accounting to the end of that year was in accordance with IFRS. EN The mine has a 30-year life starting in 2023. It was expected then that site restoration would cost 875 million and a separate property. plant. and equipment account for this ARO (asset retirement obligation) was set up. A 6% discount rate was used to value the related ARC). At the beginning of 2024. an external geo-technical evaluation showed that the eventual cost will be 590 million. Peter recorded the same amounts for 2024 as for 2023 for interest on the ARC) and depreciation, and otherwise did not update any accounting for the ARC) in 2024 nor did he include the impact if any from the ARC) revaluation. In December 2024. Delta obtained an extension on S20 million of the 7% note payable to the bank with a new maturity date in 2026. A contractual arrangement was also made with one of the shareholders to purchase an additional $20 million in shares in April 2025. with the funds being used to pay the remaining S20 million of the 7% bank note in May 2025. 4. Starting in February 2024. Delta offered customers the option of buying a prepaid card for gasoline. The cards are loaded with \"gasoline dollars\" and offer a discount to encourage their popularity and to \"lock in\" future sales. For $100. a customer can obtain $115 in gas 'om one of Delta's gasoline stations. Peter mentions that he has considered the cash received on sale of the cards as unearned revenue. and then has recognized the revenue as the cards were used to purchase gasoline. The notes made by the audit partner in your 2024 audit le state the proper accounting would be: \"When a card is sold. a liability for S] 15 is recognized: then when the card is used. the retail value of gasoline is credited to revenue. The $15 discount is included in promotion expense.\" 5. Up to December 31. 2024. cards with a retail value { exchangeable for gasoline) of $12 million have been issued and gasoline with a retail value of $6.5 million has been paid for using the cards. It is expected that the remaining amount will be redeemed equally over the next two years to the end of December 2026. Required: Draft a report to respond to Peter Scott's concerns