Question: Aston Corporation performs year end planning in November each year before

Aston Corporation performs year-end planning in November each year before its fiscal year ends in December. The preliminary estimated net income following IFRS is $3 million. The CFO, Rita Warren, meets with the company president, Jim Aston, to review the projected numbers. She presents the following projected information.
The corporation has never used robotic equipment before, and Warren assumed an accelerated method because of the rapidly changing technology in robotic equipment. The company normally uses straight-line depreciation for production equipment. The investment securities held at year end were purchased during 2011, and are accounted for using the fair value through other comprehensive income (FV-OCI) model.
Aston explains to Warren that it is important for the corporation to show a $7-million net income before taxes because Aston receives a $1-million bonus if the income before taxes and bonus reaches $7 million. He also cautions that he will not pay more than $3 million in income taxes to the government.
(a) What can Warren do within IFRS to accommodate the president’s wishes to achieve $7 million of income before taxes and bonus? Present the revised income statement based on your decision.
(b) Are the actions ethical? Who are the stakeholders in this decision, and what effect does Aston’s actions have on their interests?
(c) Are there any cash flow implications of the choices made to achieve the president’s wishes?
(d) Assume instead that Aston Corporation follows ASPE instead of IFRS. Briefly comment on the changes, if any, to the accounting treatment of the items discussed above.

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  • CreatedAugust 23, 2015
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