Accounting Case 2

1056 WordsJan 28, 20155 Pages
maximum length of your response is 3 pages. If necessary an additional two page appendix can be added for items such as illustrations, journal entries, financial statement items or IFRS or ASPE Standards extracts. The appendix should not contain discussion or analysis. [That is, the overall limit is three pages + a two page appendix, if needed, for a total of 5 pages (single spaced, minimum 12 font)]. For the most part, the background needed to complete the cases is readily available in the text, the CPA Canada Handbook, IFRS or in companies’ annual reports. The SEDAR web site is an excellent source of annual reports and the notes on accounting practices in these reports provide valuable background material on industry practices. In…show more content…
See Exhibit II. Required Prepare the draft report to ICE. [Page 2] EXHIBIT I – ICE DETAILS » The equipment in question is an A24ISOK – Type II Beverage Bottling Machine capable of bottling 100 cases of lemonade per minute. The fair value of this machine is $1 million. » The machine is expected to have a useful life of 10 years after which it could be sold for $50,000. » Technological obsolescence is a factor in this type of machine as manufacturers are always making them better, stronger and faster. » Note: You may assume that the purchase or receipt of the equipment, the debt or lease payment, and so on all take place on January 1, 2014. Acquisition Arrangement #1 » ICE could finance the purchase of the machine by issuing bonds » $1,000 bonds would be issued totalling $1 million, for 10 years and a stated interest rate of 8% » The current market value for similar bonds is 6% » Interest would be paid semi-annually with the bonds being issued January 1, 2015 Acquisition Arrangement #2 » ICE could purchase the asset for $1 million and obtain a secured loan from its bank » The terms of the loan calls for principal payments each year beginning January 1, 2015, of $100,000 » The interest is to be paid annually each January first and is fixed at 9% » ICE is required to maintain a specified debt to equity ratio or the loan will become immediately payable Acquisition Arrangement #3 » ICE could issue common shares or preferred
Open Document