Maurice Ltd. is a private Canadian company. It has been preparing its financial statements in accordance with IFRS but is now considering a change to ASPE. For its Year 6 financial statements, Maurice reported the following in accordance with IFRS: Net income $3,700 Total debt $25,900 Current assets 14,300 Total shareholders’ equity 22,200 Current liabilities 11,400 You have identified the following three areas in which Maurice’s accounting policies have differences between IFRS and ASPE: Impairment losses Convertible bonds Income taxes
Maurice Ltd. is a private Canadian company. It has been preparing its financial statements in accordance with IFRS but is now considering a change to ASPE. For its Year 6 financial statements, Maurice reported the following in accordance with IFRS:
| Net income | $3,700 | Total debt | $25,900 |
| Current assets | 14,300 | Total shareholders’ equity | 22,200 |
| Current liabilities | 11,400 | ||
You have identified the following three areas in which Maurice’s accounting policies have differences between IFRS and ASPE:
Impairment losses
Convertible bonds
Income taxes
The controller at Maurice provides the following information with respect to each of these accounting differences and indicates that the Year 6 financial statements reflect the proper accounting for these items in accordance with IFRS:
Impairment Losses
Impairment tests were performed on the company’s equipment for Years 5 and 6 with the following results:
| December 31, Year 5 | December 31, Year 6 | ||
| Cost of equipment | $28,500 | $28,500 | |
| 5,700 | 6,840 | ||
| Carrying amount before impairment | 22,800 | 21,660 | |
| Undiscounted future |
20,200 | 18,700 | |
| Value in use | 19,600 | 18,800 | |
| Fair value | 18,400 | 18,900 | |
| Depreciation expense for year | 1,140 | 1,140 | |
At the end of Year 5, the equipment had an estimated remaining useful life of 20 years. There were no impairment losses prior to Year 5.
Convertible Bonds
Maurice issued bonds for proceeds of $20,000 on January 1, Year 5. The bonds are convertible into common shares at any time within the next five years. The bonds would have been worth only $18,400 if they did not have the conversion feature. The amortization of the discount on bonds was $62 in Year 5 and $63 in Year 6.
Income Taxes
Maurice’s income tax rate has been and is expected to continue at 40%. The financial statements reflect the future taxes payable method of accounting for income taxes and contain the following amounts:
| December 31, Year 5 | December 31, Year 6 | |
| Future income tax payable | $5,200 | $5,460 |
| Future income tax expense | 255 | 260 |
The CEO is concerned about the impact of converting Maurice’s financial statements from IFRS to ASPE on the following metrics:
Required:
(a) Calculate the three ratios first using IFRS and then ASPE. Prepare a schedule showing any adjustments to the numerator and denominator for these ratios. Ignore income taxes on the impairment losses and convertible bonds. (Round the final answers for all the ratios to two decimal places. Omit $ and % sign in your response.)
| IFRS | ASPE | |||||
| $ | $ | |||||
| Current ratio | = | = | ||||
| $ | $ | |||||
| $ | $ | |||||
| Debt to equity | = | = | ||||
| $ | $ | |||||
| $ | $ | |||||
| Return on total equity | = | % | = | % | ||
| $ | $ | |||||
(b) Determine whether Maurice’s liquidity, solvency, and profitability look better or worse under ASPE after considering the combined impact of the three areas of difference.
| Under ASPE | |
| Liquidity | (Click to select) Look better Look worse Remains the same |
| Solvency | (Click to select) Look better Look worse Remains the same |
| Profitability | (Click to select) Look better Look worse Remains the same |
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