Chapter 1
Recognition and Measurement
12
AP-2A (
1
)
You incorporated a small apparel company together with your best friend. You each invested
$20,000 in the start-up with no external funding. Six months into the enterprise, you both
quit your day jobs and are busy working for the new company. The business is immensely
successful and generated in excess of $1,000,000 in revenue at the six month mark. Your
uncle, an investment banker, believes that it’s the perfect time for you to offer the company’s
shares to the public and become multimillionaires overnight. You and your partner would
rather not surrender a stake of your company to the public through initial offering, and would
like to develop the company internally, retaining full control and staying away from external
investors and the public market.
As the first year anniversary of your corporation approaches, you need to decide what
reporting framework you will be using. What would be the best choice for you under these
circumstances, ASPE or IFRS?
AP-3A (
2
)
For each scenario, indicate which qualitative characteristic from the list was not followed.
•
Comparability
•
Understandability
•
Completeness
•
Neutrality
•
Timeliness
•
Verifiability
Required
a) The management of Vickers Inc., which incurred substantial net loss in fiscal 2016, decides
to change its expense policy to a much more aggressive one. It recognizes many of the
prepaid expenses this fiscal year to have less expense to record during the next fiscal year,
and increase the chances of showing positive net income in 2017.
