Yummy Cakes Inc. (YCI) is a private company that makes baked goods. It began its operations in Toronto as a small neighbourhood bakery in 1996. By 2006, the company had 12 shops across the GTA. Sarah, the owner, is a fantastic baker and her secret recipes were gathering people all over the GTA to her shops. By 2015, she began manufacturing her baked goods for major grocery retailers across Canada. The retailers' demand for YCI's baked goods has been high since 2015. However, in 2018, the company had a huge loss due to a lawsuit. The lawsuit related to improperly packaged baked good, which led to mild food poisoning in some customers. YCI has since put controls in place to ensure this does not happen again. Unfortunately, this may have negatively affected the company's reputation to some extent. In 2019, the company was able to return to profits, although it was not as strong as that in 2017. The tax losses in 2018 were larger than the sum of taxable income in 2015, 2016, 2017 and 2019. The company currently uses the taxes payable method to account for taxes. It is now July 2019 and the company needs to prepare the financial statement for the year ended June 30, 2019. YCI's bookkeeper, Shawn, has already prepared the preliminary financial statements in accordance with ASPE. However, he needs help with a new transaction that occurred during the year. On June 30, 2019, the bakery entered into a lease for new ovens to replace the old warehouse ovens that became obsolete. You, CPA, have been engaged by Sarah as an accounting consultant to recommend the appropriate accounting policy. [Ignore any journal entries subsequent to the initial entry.] Information on the lease contract is provided in appendix A. Sarah is considering adopting the comprehensive allocation method for taxes. She is already aware of the need to recognize deferred taxes for any temporary differences. However, she is unsure of whether the presence of tax losses affects the accounting for taxes under the comprehensive allocation method. She would like you to advise her on whether and, if so, how the tax losses carried forward from 2018 should be accounted for under the comprehensive allocation method. In addition, she would like you to discuss the impact of the tax losses on the statement of comprehensive income and the statement of financial position under the scenario where the tax losses affect the financial statements, relative to the scenario where it does not affect the financial statements.

Appendix A - Oven lease At the commencement date of the lease, the ovens had a market value of $550,000, an economic life of ten years and unguaranteed residual value of $50,000 at the end of their useful lives. The lease agreement stipulates that the ovens will be leased over seven years with annual payments of $100,000 at the end of each year. The annual payments of $100,000 includes $10,000 of maintenance costs. The borrower's implicit rate for the lease is 6% and the YCI's incremental borrowing rate is 5%. No options (e.g., renewal, termination, bargain purchase) are provided under this agreement.