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The following is a company's selected financial information and cash flow. this company is a on-line gaming company and adopted IFRS standards.

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Chester Games Corporation (CGC) was incorporated in 2011 when Mark Smith, Alice Chu, and Sam MacDonald united their three existing companies in a business combination. CGC is involved in on-line gaming, and has a strategy to develop and maintain a stable of major games with staying power. CGC has had between eight and 12 games active at any time. CGC's games operate on-line and players are offered a free download of the game app. Playing is free. However, players can purchase ''virtual currency'' to buy ''virtual goods,'' which will enhance their game in some fashion. These in-app purchases are the source of CGC's revenue. Credit cards and PayPal© have been used to collect money for this virtual currency.

GC has obtained financing from venture capitalists, whose financing rate exceeds the 8 percent that CGC currently pays for medium-term financing with its other major lender, a financial institution. The venture capitalists also have an equity stake in the company, and have always viewed a public offering, or an amalgamation with another company enroute to an IPO, as an exit strategy that will allow them to profit on their investment. With poor operating results in fiscal year (FY) 2013, CGC's three major shareholders and the venture capitalists all anxiously await the FY 2013 financial statements. Revenue trends are critical, both in FY 2013, and going forward, in order to support the attractiveness of CGC as an IPO or amalgamation target. CGC has adopted IFRS, so that their financial statements provide a consistent base for this IPO or amalgamation.

It is now early October 2013, and the company is preparing its annual August 31 financial statements, which are prepared in accordance with IFRS and will, again, be audited. Selected financial information is included in Exhibit 1.

Fiscal year 2013 was disappointing for CGC, since revenue failed to meet expectations in the latter part of the year. The company failed to retain players in three of its major games, and two new games failed to ''take off.'' The result was continued operating losses. Management has embarked in cost-cutting, closing the two new games that did not meet expectations, and sacrificing plans for development of several future games, while preserving plans to develop two others.

Cash flow projections are modest, and uncertain. Given the speed of change in the on-line gaming industry, revenue-based cash-flow projections are only meaningful for a limited time period. Even at that, management is not ready to predict that one of their games will experience hoped-for viral growth. Cash flow projections are presented in Exhibit 2, based on current expectation

Of particular interest for FY 2014 is a math game to be made available free through schools, with a subscription-based advanced game marketed to parents for their children to continue to use at home. This will be the first venture into the education game market for CGC, but marketing data supports the need and industry trends in this segment are very positive. This will also be the first subscription-based game for CGC. Virtual currency is not used in this game and the subscription revenue for the advanced game is meant to support the advanced game and also make the free game viable. All of the deferred game costs at August 31, 2013 relate to the math game. This game will be heavily marketed in the upcoming weeks of October 2013, when the school year is in full swing.

Sale of Virtual Goods

The bulk of CGC's existing revenue is from the sale of virtual goods to players in games that CGC hosts on its servers. Most of this revenue was recognized immediately ''on cash receipt'' in fiscal year (FY) 2012. This policy is being revised in FY 2013 to conform to emerging industry norms.

Virtual goods are categorized as two types: consumables and durables. Consumable goods, like energy or life, are consumed by the player during a game. These goods last only a short period of time, often must be used immediately, and have no value to the player after being consumed. Durable goods, on the other hand, are accessible to a player over an extended period of time. An example of a durable good might be the purchase of an armored tank, which stays with the in-game character forever unless it is lost, destroyed, or abandoned.

The consumables and durables revenue streams are now (in FY 2013) being separated, game-by-game. Consumables revenue is recognized immediately. CGC's revenue from durables is to be recognized over the average life of the player. This policy is consistent with others in the industry.

Prior to FY 2013, CGC did not collect data that would accurately differentiate between revenue from consumable goods and revenue from durable goods. CGC recognized revenue up front, on cash receipt. The only exception to this was that the company did defer a nominal amount of revenue associated with sale of virtual durable goods in one of its newer games in FY 2012. This durables revenue was allocated over time, based on the estimated life of the player.

In FY 2013, data were compiled on the average life of a player for paying players in each of CGC's games. CGC considered recognizing the revenue from the durables over the length of time that the virtual durable goods would be used within the game, but these data could not easily be gathered.

The average life of a player can be difficult to estimate. Some play once, some play for years, and most fall into some middle ground. Upgrades and game modifications can affect character life, preferably extending playing life, but sometimes disenchanting players and, thus, ending the playing experience. CGC has established average life based on statistical data, game-by-game, gathered on monthly player character cohorts. These statistics track the ''churn rate'' of characters: the time between the first in-game payment and the time a character falls inactive. Players typically become inactive at a relatively consistent rate. For new games, statistics are used from other recently launched games with similar characteristics.

In FY 2014, CGC will migrate into an agreement with Facebook©, where the existing stable of games reside. Facebook Credits© will be the primary game payment method. Under the terms of the agreement, Facebook© sets the price that players pay for Facebook Credits© and collects the cash. CGC has the right to establish the price of virtual goods in Facebook Credits©. Seventy percent of the cash collected is remitted to CGC, and Facebook© retains the remaining 30 percent. There is debate within CGC as to whether the 2014 revenue should be recorded at the gross amount, or at the net amount. That is, if a player purchases virtual goods in exchange for $100 of Facebook Credit©, should CGC record $70 of net revenue, or $100 of gross revenue with a $30 financing expense recorded? Transactions through credit cards and PayPal© have been recorded as gross, although the financing expense averaged only about 3.5 percent of gross fees.

Selected financial information( in thousands of dollars )2013 ( draft )2012 / audited!REVENUE_ Consumables$525Revenue_durables$ 4 40REVENUE_ total$:965$1. 365Net 105.5($ 20.9)Current assets$400$450)Office and computer Equipment$ 246Deferred game COSTS$825$ 1, 200Goodwill$ 164$164Unearned/deferred revenue$120$ 20Other liabilities$ 290Shareholders' Equity$1. 346$ 1. 750 Projection2014201520152017Net cash flows - consumables$ 450Net cash flows - durables$375$ADDNet cash flows - game subscriptions$150$ 250$ 250$ 200Net cash flow_ total$875$1 130$10.30