Slowmo Ltd. is a private company that currently prepares its consolidated financial statements in accordance with ASPE. On December 31, Year 3, its Net Income was $400,000 and its Total Shareholder Equity was 2,500,000.

But since it has plans to go public in the next 2-3 years, it is considering changing to IFRS for the current year.

You have identified the following areas in which Slowmo’s accounting principles differ between ASPE and IFRS:

1. IAS-36 - Slowmo Ltd. acquired equipment at the beginning of Year-2 at a cost of $200,000. The Equipment has a 5 year estimated life with no expected residual value and is depreciated on a straight-line basis. On December 31, Year 2, Slowmo Ltd. compiles the following information on the Equipment:

Expected future cash flows from use of Equipment : $170,000

Present value of expected future cash flows from use of equipment : $135,000

Net Realizable Value or Fair Value : $140,000

2. Slowmo Ltd. incurred research and development costs of $250,000 in Year-2. 30% of these costs were related to development activities that met the criteria for capitalization as an intangible asset. The newly developed product was brought to market in July-Year 3 and is expected to generate sales revenue for 10 years. (IAS 38)

3. Slowmo Ltd. arranged for a loan of $50,000 to finance the construction of a production facility. $25,000 was borrowed on March 1, Year 3 and another $25,000 borrowed on November 1, Year-3. The loan was repayable over 5 years with an interest rate of 10%, with the first payment due on September 30, Year-4. The facility is nearly complete at the end of Year-3. No interest has been accrued on the loan at the end of Year-3.

4. Slowmo Ltd. acquired equipment at the beginning of Year-1 at a cost of $20,000. The equipment has no residual value, a useful life of 5 years and is amortized on a straight-line basis. On January 1, Year-3, the equipment was appraised and determined to have a fair value of $10,000. The estimated useful life and residual value of the equipment did not change. (Under IFRS-IAS 16, the company would adopt the revaluation option to periodically revalue the equipment at fair value subsequent to acquisition)

5. Slowmo Ltd. instituted a defined benefit pension plan in Year-1. The first actuarial evaluation, which was done as at June 30, Year 3, indicated an actuarial gain of $14,500. The expected average service life of the employee workforce is 15 years at the time of actuarial evaluation. The actuarial gain has not yet been recognized in the financial statements prepared according to ASPE.

Required:

Wherever accounting choices exist, under ASPE Slowmo choses policies to minimize Net Income and Shareholder’s Equity. Under IFRS, Slowmo chooses policies to maximize Shareholder Equity:

1. Determine the amounts that Slowmo will report for each of the above items on its financial statements at December 31, Year-3 both under ASPE and IFRS. Include a description of accounting standards and (if) choices available under both standards to argue your decision.

2. Prepare a schedule to reconcile Net Income and Shareholders’ Equity from ASPE to IFRS.