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Sweet Taste Inc ( STI ) is a private corporation that manufactures and distributes cool taste juice products. It is now late October 2 0
Sweet Taste Inc STI is a private corporation that manufactures and distributes cool taste juice products. It is now late October and you, CPA, have just completed a meeting with Adam Kwan, the founder of the company. Your firm, A&F Accounting Services, is providing advisory services for STI on financial reporting matters. To support ongoing growth and capital needs, STI hopes to attract private equity investments in the upcoming fiscal year, and Adam knows these potential shareholders will be highly interested in STIs profitability. He would therefore like your analysis and recommendations on accounting issues that will affect STIs financial statements of fiscal year CTI prepares its financial statements under accounting standards for private enterprises ASPE and has a September year end. Cool Drink Jets A few years ago, STI invested in an initiative called Cool Drink Jets. STI purchased used vans and outfitted them for juice making, so that mobile juice bars could attend community events, concerts, and parks during the warm weather months. As at September the vans have a total net book value of $ and a remaining useful life of five years. STI had expected the Cool Drink Jets to contribute positively to net income. However, this has not been the case. The Cool Drink Jets together barely sell enough juice to cover operating costs. Adam is disappointed that the Cool Drink Jets are not doing well, especially because capital costs to start up the project were significant. Operating cash flows for each of the next five years are estimated to be $ The appropriate discount rate for determining the value of the vans is The vans could be sold immediately for $ or at the end of five years for $ Manufacturing Facilities In November STI decided to expand its facility to accommodate the new aseptically packaged product line. The cost to expand and modify the plant was $ million. The costs were all capitalized to the cost of the plant and included the following: interest on the financing required machinery necessary for the aseptic packaging process $ for the licence for the new food product line The licence for the new food product line is issued annually by federal health inspectors for compliance with food safety regulations. The current licence expires in New Product Line To meet changing customer demands, STI developed a new process to develop a healthconscious product line during fiscal The new product is a soy cultured frozen dessert for the vegetarian market. A recent study has indicated that this segment of the market is growing and there has been increase in demand for vegan and vegetarian options in recent years. STI has carefully tracked the costs incurred to modify recipes and develop the new product line. The total cost was $ and STI would like to capitalize the costs. This included test marketing to ensure the taste would meet STIs quality standards. STI hopes to introduce the new product in In addition to provide advisory on the accounting issues, Adam would also like you to discuss the financial reporting framework options that STI could follow. One of Adams friends suggested STI to prepare financial statements under International Financial Reporting Standards IFRS Adam told you that he did not understand all the factors that should be considered when choosing an accounting framework. Instructions Assume the role of the CPA and provide advisory services based on Adams request you use the case analysis framework covered in the course, refer to the Discussion Section for reference if needed IDENTIFY THE ISSUES AND GIVE A DETAILED ANALYSIS, RECOMMENDATIONS AND IMPLEMENTATION.
Sweet Taste Inc STI is a private corporation that manufactures and distributes cool taste juice products. It is now late October and you, CPA, have just completed a meeting with Adam Kwan, the founder of the company. Your firm, A&F Accounting Services, is providing advisory services for STI on financial reporting matters.
To support ongoing growth and capital needs, STI hopes to attract private equity investments in the upcoming fiscal year, and Adam knows these potential shareholders will be highly interested in STIs profitability. He would therefore like your analysis and recommendations on accounting issues that will affect STIs financial statements of fiscal year CTI prepares its financial statements under accounting standards for private enterprises ASPE and has a September year end.
Cool Drink Jets
A few years ago, STI invested in an initiative called Cool Drink Jets. STI purchased used vans and outfitted them for juice making, so that mobile juice bars could attend community events, concerts, and parks during the warm weather months. As at September the vans have a total net book value of $ and a remaining useful life of five years. STI had expected the Cool Drink Jets to contribute positively to net income. However, this has not been the case. The Cool Drink Jets together barely sell enough juice to cover operating costs. Adam is disappointed that the Cool Drink Jets are not doing well, especially because capital costs to start up the project were significant. Operating cash flows for each of the next five years are estimated to be $ The appropriate discount rate for determining the value of the vans is The vans could be sold immediately for $ or at the end of five years for $
Manufacturing Facilities
In November STI decided to expand its facility to accommodate the new aseptically packaged product line. The cost to expand and modify the plant was $ million. The costs were all capitalized to the cost of the plant and included the following:
interest on the financing required
machinery necessary for the aseptic packaging process
$ for the licence for the new food product line
The licence for the new food product line is issued annually by federal health inspectors for compliance with food safety regulations. The current licence expires in
New Product Line
To meet changing customer demands, STI developed a new process to develop a healthconscious product line during fiscal The new product is a soy cultured frozen dessert for the vegetarian market. A recent study has indicated that this segment of the market is growing and there has been increase in demand for vegan and vegetarian options in recent years.
STI has carefully tracked the costs incurred to modify recipes and develop the new product line. The total cost was $ and STI would like to capitalize the costs. This included test marketing to ensure the taste would meet STIs quality standards. STI hopes to introduce the new product in
In addition to provide advisory on the accounting issues, Adam would also like you to discuss the financial reporting framework options that STI could follow. One of Adams friends suggested STI to prepare financial statements under International Financial Reporting Standards IFRS Adam told you that he did not understand all the factors that should be considered when choosing an accounting framework.
Instructions
Assume the role of the CPA and provide advisory services based on Adams request you use the case analysis framework covered in the course, refer to the Discussion Section for reference if needed IDENTIFY THE ISSUES AND GIVE A DETAILED ANALYSIS, RECOMMENDATIONS AND IMPLEMENTATION.
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