Question

1 Approved Answer

Posted on Jun 28, 2024

You are reviewing selected liability and equity accounts of the draft Statement of Financial Position (SFP) for BC Co., an IFRS reporting company, as at

You are reviewing selected liability and equity accounts of the draft Statement of Financial Position (SFP) for BC Co., an IFRS reporting company, as at December 31 2021. These have been prepared by an inexperienced, not yet professionally qualified but well intentioned, junior accountant.

Notations are identified with each account [] with explanations and additional information.

After reviewing the accounts you express some concern to the Controller, Tony Nguyen, CPA. He asks you to re-draft and prepare a properly classified excerpted Statement of Financial Position based on the information available.

Required: Prepare a restated, properly classified Liabilities and Shareholders' Equity section in good form with conventional terminology (section provided at end of question). Space is provided after each notation, as indicated, for your analysis and basis of revised account descriptions. Adjusting, originating or restated initial journal entries are not required but may assist in the process of determining corrected amounts to properly classify and report. No Retained earnings or Accumulated Other Comprehensive Income is provided or expected in your answer.

BC Co.

Statement of Financial Position (excerpted accounts); marked as DRAFT

As at December 31, 2021

Current Liabilities

Amount to fix up the environment [1]................................................$250,000

Employee vacation payable [2]...........................................................1,478,000

Trade accounts payable [3]...................................................................2,750,000

Estimated warranty liability [5]............................................................40,000

Term loan, current, [6]........................................................................... 100,000

Dividends payable [12].............................................................................. 165,000

Unearned subscription income [10]....................................................... 300,000

Non-Current Liabilities

Regulatory liabilities [4]........................................................................... 980,000

Term loan, non-current, [6]................................................................... 600,000

Bonds payable, October, 2031 [7]......................................................8,000,000

Convertible bonds [8]..............................................................................5,450,000

Estimated litigation liability [9].............................................................200,000

Liability for compensation [11]..............................................................120,000

Shareholders' Equity

Preferred shares, $1.50; cumulative entitlement quarterly

issued and outstanding, 110,000 shares.........................................$4,675,000

Common shares, unlimited authorized, 915,000 shares issued

and outstanding..................................................................................$32,940,000

Notations and your analysis:

[1] The total amount required to restore the environmental standards in compliance with BC Government code in 20 years is $5,000,000. The amount reported in the draft SFP was determined by an annual accrual of $250,000; ($5,000,000/20) with operations starting at the beginning of 2021. Your inquiries reveal that the $5,000,000 is valid based on current technologies, that BC Co. applies 3% on long term discount analysis overall and that 20% of the future restoration liability applies to future restoration of the initial asset acquisition. The remaining 80% of the future restoration liability is caused by the even and annual environmental degradation through normal operations.