Bob the Builder acquires a right to operate a gold mine for 5 years in Northern Ontario on April 1, Year 6 by paying $400,000 and issuing a $600000, four-year, non-interest-bearing note. According to the terms of the note, Bob has to pay four $150000 installments at the anniversary of the note, starting April 1, Year 7. At the end of 5th year, Bob is legally required to restore the site and Bob expects to pay $100,000. Since Bob built Bob the Builder-themed playground at the gas station site, the town in Northern Ontario is very excited to have a similar playground in their town. Although not required, Bob knows people expect to have the playground. To Bob’s best estimate, Bob expects to spend $25,000, once the site is restored (To make our lives easier, let’s assume that $25,000 will be spent at the end of 5th year). Out of $100,000 above, the 40 percent is attributable to the acquisition and the rest is attributable to the production of mine. Bob uses straight-line depreciation method and does not adopt any convention for partial-year depreciation. Bob’s fiscal year ends on December 31. Please assume that Bob uses 5% effective interest rate for the above transaction.

(1) Assuming that [1] Bob prepares his financial statements based on IFRS and [2] Bob does not have any other liabilities other than the those from the above transaction, what would be the total interest expense for Year 6? 

(2) Assuming that [1] Bob prepares his financial statements based on ASPEand [2] Bob does not have any other liabilities other than the those from the above transaction, what would be the total interest expense for Year 6?

Answer rating: 100% (QA)

To prepare the financial statements a company will look at the adjusted trial balance for account information From this information the company will begin constructing each of the statements beginning ... View the full answer