Hi , I need a rewrite of an accounting case answer about 3 pages. The case answer and the case are in the attach files! Thank you

2. Impaired assets Topsail intends to replace a major piece of machinery when a new machine/technology comes out on the market next year. The old machinery on Topsail's books might be impaired, since Topsail intends to cease using the asset in the next several months and its expected proceeds are $20,000 lower than net book value. On the other hand, the value in use (future cash flows from revenue streams) of the machine may not be much lower than before. If new technology is not tested and produced on time, the machine may well be usable for some time to come. Overall, as long as the plans to replace the machine are likely to proceed, the evidence seems stronger that an impairment write-down should be recorded. This amount should be recognized as a loss in the current period because the carrying amount of the machine is not recoverable and exceeds its fair value. The asset must be recorded at the expected net realizable value of $10,000. Recognition of this loss will decrease earnings and equity, worsening the debt-to-equity covenant. 3. Preferred Shares Preferred shares are legally equity and are usually reported in shareholders' equity. However, if shares have the characteristics of a liability, they must be reported as debt. The Topsail preferred shares must be repaid, with dividends in arrears, if any, in two years' time. Any contract that involves a required cash outflow for the company meets the definition of a liability. The liability is long-term this year, and likely a current liability next year. Related dividends are classified as an expense and reduce earnings. This would worsen the debt-to-equity ratio in two ways: first, it would increase debt, and second, it would decrease earnings by the dividend amount. Dave plans to avoid the preferred dividend until maturity, and Doug has agreed to this. The dividend on the preferred shares must be declared and recorded each year, though, because no dividend can be declared on the common shares unless this is done. Dave wishes to declare common dividends as advised by his tax planner. If the dividends are accrued but not paid on Topsail's books, liabilities will again increase. Doug believes that he can defer tax on his dividend income by delaying payment; he should seek professional tax advice before implementing this plan. The accounting outcome outlined above seems highly undesirable. Topsail would prefer to improve, not worsen, their debt-to-equity ratio. Dave should consider ways to deal with this situation prior to the end of the fiscal year. First, he could consider re-negotiating the terms of the shares. Even though the legal contract exists, Doug, as an employee, may be willing to accept some legal wording that will avoid the need to classify the shares as a liability. Second, Dave could contact his lender and request that the debt-to-equity ratio be redefined to exclude the preferred shares or simply increased. Note that the preferred shares DO have to be repaid, so if the credit union is trying to capture the extent of cash obligations, there is no particular reason to exclude the preferred shares. Under ASPE, certain preferred shares issued as part of tax planning arrangements, that are mandatorily redeemable, can continue to be classified in equity. It does not seem that these shares would qualify for the exemption. 3. Investment in Abel Electricity Ltd. Topsail may have significant influence in Abel with a 25% ownership. Significant influence seems likely, given the 25% ownership and regular intercompany transactions. However, the operation of the Abel Board of Directors should be investigated before this conclusion is finalized. If there is significant influence, Topsail could report this investment using the equity method or the cost method under ASPE. Under the cost method, the investment would initially be recorded at its cost of $120,000. Dividends declared would be recorded as revenue, and there were none in this year. Under the equity method, the investment would initially be recorded at cost. Topsail would record a proportionate amount of Abel's income in earnings with an equal amount increasing the Abel investment account. Since Abel has positive income this year, this equity pick-up would improve income and equity by $50,000 (subject to certain adjustments, to be investigated). This would improve the ratio subject to the loan covenant. Any dividends declared by Abel would decrease the investment account and be recorded as a receivable when declared. Since there were no dividends this year, the overall impact on the investment account is an increase of (approximately) $50,000. Use of the equity method for this (significant influence) investment is recommended because it presently appears to have a more positive impact on the debt-to-equity ratio. (Note, though, that in a future year, if Abel were to incur losses, the pick up of the loss would worsen the debt-to-equity ratio.) 4. Non-monetary related party transaction Topsail has received electrical services from Abel as part of a swap of services for a used van. This is a non-monetary transaction and must be recorded at fair value. The value of the goods and services received is ascertainable from a knowledgeable person in the industry. This estimate should be compared to the value of the used van, obtainable through current black book values. IFRS requires that fair value be set according to the services received, electrical contracting work done. ASPE looks at both values and uses the one that is more verifiable. As ASPE evolves, this may be a grey area of valuation, but if the swap was equitable, the two values should be very close and valuation at fair value should be easily achieved. The fair value should be used to value the transaction, with the van and its related accumulated amortization removed from assets and an increase to work-inprogress established for electrical work fair value. Any difference would be reflected as a gain or loss on disposition of the van. If there is a gain, then income and the debtto-equity ratio will be improved. If a loss, then the ratio will worsen because of the impact on earnings. This transaction is a related party transaction and must be disclosed in the notes to Topsail's financial statements. Other dealings with Abel are also related party transactions, and also qualify for disclosure. The valuation of the services rendered should be investigated; if the price was less than fair value, as Topsail implies, then disclosure would be needed. 5. Advertising The advertising and marketing campaign has been recorded as an intangible asset. Expenditures relating to advertising and promotional activities must be expensed when incurred; there is no severable asset that would justify treatment as an intangible asset. The impact of this is again to reduce income and worsen the debt-toequity ratio. 6. Lawsuit The lawsuit put forth by Bob Swaine appears to have no merit as supported by the opinion of Topsail's lawyer that the case will be thrown out of court. Accordingly, neither accrual nor disclosure of the lawsuit is warranted. Topsail may include disclosure if they wish. Summary The overall direction of these policy choices is to worsen the debt-to-equity ratio in most cases. Topsail should prepare draft financial statements to assess whether or not they will be in violation of the covenan. If there are difficulties with the covenant, then the preferred share agreement should be re-assessed, and the credit union terms should be explored to see if re-negotiation is possible. In addition, it may be possible to arrange payment from Skyline, and firm up delivery dates, which will allow revenue recognition in the current fiscal year. These activities should take place before the end of the fiscal year.