Downhill Ski Co. is experiencing financial difficulties. Earnings have been declining sharply over the past several years. The company has barely maintained profits over the last four years. In the current year, the company is expected to suffer a substantial loss for the first time in 10 years. A taxable loss will also be reported. The losses are expected to be significantly greater than the profits reported in the previous three years. Downhill Ski is a manufacturer specializing in downhill racing skis and boots. The company supplies the Canadian ski team but competition from larger manufacturers has forced Downhill Ski to keep its prices low when its expenses have been increasing. Also, the popularity of snowboarding has had a negative impact on sales. However, it has been found that many older adults who switch to snowboarding go back to skiing. North Johnston, the sales and marketing manager, left the company last year to join Rossignol, a large multinational company. Cathy Thomas, former ski champion, was hired earlier this year as the new sales and marketing manager. The owner of Downhill Ski, Wendy Hogarth, is not overly concerned with the loss for the current year and has the following comments to make: With the hiring of Cathy Thomas as sales and marketing manager we will develop relationships with the national ski team and work on improving sponsorship of events. This should increase our sales. Downhill Ski is developing a new type of ski that is not on the market yet. Some of the national ski team members tested the prototype of the ski and were thrilled with its performance. We are sure sales of the new ski will give us solid sales. We have already lined up buyers across Canada and the United States for this ski. Our financial forecast for next year is to make a profit. We have a new large piece of equipment acquired at the end of last year. This manufacturing equipment is more efficient and will save us money on maintenance and repairs. You have been hired by Wendy to provide accounting advice. She wants to know if she can recognize the loss this year as an asset on the statement of financial position. She would also like to know the impact on the financial statements of recognizing versus not recognizing the loss and if there are any tax-planning strategies the company should use in respect to recognition of the loss.

Instructions

Please prepare case report outlining both accounting/financial reporting issues.