Questions On Accounting Issues Analysis

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To: Chip and Charles Carroway, owner of CCL From: Rose Reddick, CGA Date: April 20th, 20X3 Subject: Accounting issues analysis CCL is a CCPC and follows ASPE. It is the second year that my firm auditing for CCL. It is CCL’s responsibility to correctly record accounting transaction and preparing financial reports. Manager should be unbiased to fairly present financial reports within GAAP. After careful analysis, I presented several accounting issues and related analysis as follow. Issue1: Stock option on tax implications Since CCL is a CCPC, there are special tax rules for the company. The stock option benefits are not taxable at date of purchase, but it is taxable when the shares are disposed. For employee …show more content…

Issue2: Financing option The debate is about whether to choose loan or equity. In terms of the loan option, CCL would be able to claim tax deductible for the interest payment. However, CCL currently has tight debt covenant. If loan option were chose, debt covenant might be violated and bank might not allow for the issuing new loan or might cancel the existing loan, or might establish unreasonable loan terms for CCL. Interest payment might also limit cash flow, which might impact R&D success of CCL, creates going concern issue. Regarding going public, CCL would be able to obtain a long-lasting and abundance capital resource without any fixed cash outflow happening. Current debt covenant would not be violated because no additional debts would be added on to the current debt position. However, CCL’s ownership would be diluted and control would be weakened because partial voting common shares of CCL will be given to shareholders. Large amount of expenditure regarding to going public would occur. In addition, CCL becomes a public company meaning it needs to report financial statement under IFRS, which would bring a lot of modifications regarding financial reporting and employee trainings because IFRS is more strict than ASPE and current accountant has no associated IFRS expertise in preparation of financial statement. Moreover, CCL would miss SBD deduction on first $500,000 of Active business income. Therefore, CCL would

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