Sporon Corp. is a fast-growing Canadian private company involved in the manufacturing, distribution, and retail of specially designed yoga and leisure wear. Sporon has recently signed 10 leases for new retail locations and is looking to sign about 30 more over the next year as the company expands its retail outlets. All of these leases are for five years with a renewal option for five more years. All of the leases also have a contingent rent that is based on a percentage of the excess of annual sales in each location over a certain amount. The threshold and the percentage vary between locations. The contingent rent is payable annually on the anniversary date of the lease. The company has currently assessed these to be operating leases, as they have no conditions that meet the capitalization criteria under ASPE. All of the payments on these leases are expensed as incurred.

The company has also moved into a new state-of-the-art manufacturing and office facility designed specifically for its needs, and signed a 20-year lease with PPS Pension Inc., the owner. Because this building lease also does not meet any of the criteria for a capital lease under ASPE, Sporon accounts for this lease as an operating lease. As a result, it expenses both the monthly rental and the annual payment that it agreed on with PPS to cover property tax increases above the 2016 base property tax cost. The tax increase amount is determined by PPS and is payable by September 30 each year.

The small group of individuals who own the company are very interested in Sporon's annual financial statements because they expect, if all goes well, to take the company public in 2018. For this and other reasons, Sporon's chief financial officer, Louise Bren, has been debating whether or not to continue with ASPE or adopt IFRS for the 2017 fiscal year.

It is now early 2017, and Louise has been following the changes required in IFRS 16.

Instructions
(a) Explain to Louise Bren to what extent, if any, adjustmentsmay be needed to Sporon's financial statements for theleases described above, based on existing ASPE and international accounting standards (IFRS 16).
(b) Prepare a short report for the CFO that explains the conceptual basis for the IFRS 16 approach and that identifies how Sporon Corp.'s statement of financial position,statement of comprehensive income, and statement ofcash flows will likely differ under revised leasing standardsbased on this approach.
(c) Prepare a short, but informative, appendix to your reportin part (b) that addresses how applying such a revised standard might affect a financial analyst's basic ratio analysisof Sporon Corp.'s profitability (profit margin, return onassets, return on equity); risk (debt to equity, times interestearned); and solvency (operating cash flows to total debt).