PERO Lun1ber Limited is a private company. It operates in the forestry sector and owns timber lots. The company produces and sells specialty lumber to distributors and retailers. The company has a management bonus plan, which is based on net earnings and gross profits. In the past, the company has estimated decommissioning costs related to its sawmill facility and recorded them as a liability with an offsetting increase to the cost of the plane. Since the production period can be fairly long, including the curing and special treatments applied to the lumber, the company has had to borrow to finance this production process. However, historically, it has expensed this interest. Finally, the owners explained that they did have a purchase commitment to buy a minimum an10unt of specialty resins used to treat the lumber. This is a five-year contract at a fixed price. At the time, they were very excited about it, but now they are in the fourth year of the contract and realize that the company will not need the volumes that it committed to buy. They have now developed a new technique that is cheaper and uses a different solution to treat the wood. In fact, it looks as though the company will have to pay for items that will not be required. The owners are trying to decide whether or not to break the contract or remain with the contract and just pay for the items but not take delivery. The company has two years still remaining on this contract.
Instructions
PERO Lumber Limited has just hired you as its new controller. It is trying to decide whether to adopt IFRS or report under ASPE. Provide the owners with a report that details the impact of reporting under IFRS on the company's financial results and management bonus plan, giving consideration to the issues indicated above.