consistent with their objectives, must fairly disclose the financial results of WAL, and must enable all users to monitor their investment. As noted, the company uses Canadian Accounting Standards for Private Enterprise (“ASPE”). Some flexibility may exist in the choice of accounting policies. New policies can be selected to reflect the changing business. Overall, the accounting policies recommended must balance management’s objective of maximizing its bonus and the shareholders’ and creditors’ need to predict future cash flows using financial statements they can rely on. Golf course relocation costs We must decide whether the golf-course relocation costs should be capitalized as part of the golf course lands or whether they should be expensed for accounting purposes. Generally, the decision depends on whether the expenditure represents an improvement to the course or a repair to the current property. The argument that the relocation cost improves the course and potentially increases the future revenue that WAL could earn suggests that the amount should be capitalized. On the other hand, one could argue that the cost does not increase the value of the course itself or the potential for increased revenues in the future. Another argument might be that the golf course relocation costs are actually costs of getting the road into its intended state and therefore that these costs should be capitalized as part of the road costs. The relocation costs are arguably directly attributable to the cost of the road. I recommend that the golf course relocation costs be capitalized as part of the road costs for accounting purposes. Management maximizes its bonus, and the other users of the financial statements will be able to predict future cash flows. Ride relocation Again, we must decide whether the costs should be capitalized or expensed for accounting purposes. Does the expenditure represent an improvement to the rides and increase their useful life and future benefits, or is the amount strictly a moving cost or repair-type expenditure? In order to capitalize this amount, the cost would have to improve the useful life of the rides or increase the amount of future income that can be earned from the rides. This does not seem to be the case, even though the relocation is expected to improve the overall profitability of WAL. These costs do not improve the rides or lengthen their useful life. Therefore, the amount should be expensed in the current period. It is difficult to argue that the useful life of the rides has been increased. As well, this treatment allows for better predictability of cash flows given that the amount was incurred in the current period. Amusement park acquisition
b. Advance customer payment (current unearned revenue) $ 72,000 — c. 3-year instalment notes receivable (within normal operating cycle) $300,000 — d. Pension asset — $330,000 e. 2-year bank loan (no implicit interest, thus no discounting is necessary) — $600,000 f. Credit arrangement over 4 years (assumes equal payments; should be discounted) $ 60,000 $ 180,000 g. Short-term bond investment (reported at market value) $ 58,000 — h. Share investment not available for sale (long-term investment; carried at cost) — $140,000 Assignment 4-3 1. C (given) 2. G 3. G 4. C 5. K 6. A 7. C 8. A 9. B (investment property) 10. F (disclose nature of loan in note) 11. K 12. E 13. A (separate line item) 14. E 15. K 16. K 17. A 18. –A 19. A 20. F (could be G, if payment is delayed or it’s zero-interest debt. Assignment 4-4 1. F 2. F 3. G 4. A 5. D 6. H 7. E or C 8. J 9. G 10. J 11. X 12. –A (contra account) 13. X 14. A 15. F 16. E