Northwest Flights (NWF) is a regional airline that services most cities in the Northern Ontario, Canada. The company began in 2007 when three friends (Joe, Jack, and John) felt that Northern Ontario was an underserviced market. Joe, Jack and John each own one-third of all the issued common shares and exercise equal control over the company. After their start-up phase, management began to expand their services lines. Currently, NWF offers only short haul flights to and from Thunder Bay. However, NWF has planned an expansion of operations into the rest of Ontario as they received approval to fly into both Toronto’s Pearson Airport. NWF plans to offer their first flights into Toronto Ontario in early 2022.

In order to service the new routes into Ontario, NWF purchased a new airplane for $1,000,000. NWF obtained a 10-year mortgage from the Bank of Sydney in order to finance the acquisition of the plans. The terms and agreement of the mortgage can be found in Exhibit I.

Jack, who is responsible for the accounting functions of the company, has always prepared the financial statements for internal reporting purposes. The balance sheet, as at December 31, 2020, is included in Exhibit II.

As a result of the new bank loan, the financial statements must now be audited. As a result, NWF has hired Lebeau and Liang LLP (L&L), a Chartered Professional Accountant firm to complete the audit. You are the senior accountant at L&L, assigned to the audit.

You met with Jack as part of your auditing planning. Jack states “I understand that there is Part I (IFRS) and Part II (ASPE) GAAP in Canada. Currently, the bank has not disclosed which set of standards must be used to prepare the financial statements. Therefore, could you help me understand the significant differences between ASPE and IFRS, as they relate to our financial statements?” The notes from your meeting can be found in Exhibit III. It is now January 10, 2021. The partner has asked you to prepare a report addressing the client’s concerns, and to discuss the policy differences between ASPE and IFRS.

 

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Exhibit I- Mortgage Agreement with the Bank of Sydney Total Balance: $1,000,000 Term: 10 year amortization, blended annual payments due on December 31. Commencement Date: January 1, 2020 First Payment: Due December 31, 2020 Interest Rate: 8% fixed over the 10-year period Covenant: NWF shall maintain a debt-to-equity ratio that is no greater than 2:1. Collateral: Secured debt against the value of the aircrafts Compliance: Audited financial statements to be filed by January 31 of each year. Exhibit I- Mortgage Agreement with the Bank of Sydney Total Balance: $1,000,000 Term: 10 year amortization, blended annual payments due on December 31. Commencement Date: January 1, 2020 First Payment: Due December 31, 2020 Interest Rate: 8% fixed over the 10-year period Covenant: NWF shall maintain a debt-to-equity ratio that is no greater than 2:1. Collateral: Secured debt against the value of the aircrafts Compliance: Audited financial statements to be filed by January 31 of each year.

Answer rating: 100% (QA)

The key differences between Accounting Standards for Private Enterprises ASPE and International Financial Reporting Standards IFRS related to financial statement presentation with a focus on the class... View the full answer