Question: McIntosh Corporation has decided that in preparing its 2011 financial

McIntosh Corporation has decided that, in preparing its 2011 financial statements under IFRS, two changes should be made from the methods used in prior years:
1. Depreciation. McIntosh has always used the CCA method for tax and financial reporting purposes (as a variant of the declining-balance method). Prior to 2011, the company’s only investors were members of the McIntosh family. Accordingly, the company did not have audited financial statements in the past, and it used CCA for financial reporting purposes as many private companies do that do not need their statements audited. The CCA method was more efficient in preparing financial information. During 2011, however, the company obtained financing through a share issuance. With the larger number of investors now using its financial statements, the company reviewed its depreciation method in preparation for an audit. Management has decided that the declining balance method would have been a more appropriate method for financial reporting, and the following schedule identifies the excess of CCA claimed in the past and expected for the current year over the declining balance amounts that should have been reported.
Depreciation is charged to cost of sales and to selling, general, and administrative expenses on the basis of 75% and 25%, respectively.
2. Bad debt expense. In the past, McIntosh recognized bad debt expense equal to 1.5% of net sales. After careful review, it has been decided that a rate of 1.75% is more appropriate for 2011. Bad debt expense is charged to selling, general, and administrative expenses. The following information is taken from preliminary financial statements, which were prepared before including the effects of the two changes.
Mcintosh Corporation
Condensed Balance Sheet
December 31, 2011
There have been no temporary differences between any book and tax items prior to the above changes except for those that involve the allowance for doubtful accounts. For tax purposes, bad debts are deductible only when they are written off. The tax rate is 45%.
(a) For each of the items that follow, calculate the amounts that would appear on the comparative (2011 and 2010) financial statements of McIntosh Corporation after adjustment for the two accounting changes. Show amounts for both 2011 and 2010, and prepare supporting schedules as necessary.
1. Accumulated depreciation
2. Future tax asset/liability
3. Selling, general, and administrative expenses
4. Current portion of income tax expense
5. Future portion of income tax expense
(b) Prepare the comparative financial statements that will be issued to shareholders for McIntosh’s year ended December 31, 2011.

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