lowmo Ltd$.$ is a private company that currently prepares its consolidated Sfinancial statements in accordance with ASPE. But since it has plans to go public in the next $2-3$ years, it is considering changing to IFRS for the current year. On December $31,$ Year $3,$ Slowmo$$s preliminary financial statements reflected a Net Income of $$500,000$ and a Total Shareholders$$ Equity of $2,500,000.$ Where applicable, the company has a $40\%$ tax rate.

Slowmo has engaged you to reconcile the net income and shareholders$$ equity from ASPE to IFRS. You have identified the following areas in which IFRS differs from ASPE:

$1)$ IAS$-36-$ Slowmo Ltd$.$ acquired equipment at the beginning of Year$-2$ at a cost of $$200,000.$ The Equipment has a $5-$year estimated life with no expected residual value and is depreciated on a straight$-$line basis. On December $31,$ Year $3,$ Slowmo Ltd$.$ compiles the following information on the Equipment:

Expected future cash flows from use of Equipment : $$130,000$

Present value of expected future cash flows from use of equipment : $$110,000$

Net Realizable Value or Fair Value : $$105,000$

$2)$ Slowmo Ltd$.$ incurred research and development costs of $$180,000$ in January, Year$-3.30\%$ of these costs were related to development activities that met the criteria for capitalization as an intangible asset. These costs have not yet been recognized in the preliminary financial statements. The newly developed product was b rought to market in July$-$Year $3$ and is expected to generate sales revenue for $10$ years.

$3)$ Slowmo Ltd$.$ arranged for a loan of $$50,000$ to finance the construction of a production facility. $$25,000$ was borrowed on April $1,$ Year $3$ and another $$25,000$ borrowed on November $1,$ Year$-3.$ The loan was repayable over $5$ years with an interest rate of $10\%,$ with the first payment due on September $30,$ Year$-4.$ The facility is nearly complete at the end of Year$-3.$ No interest has been accrued on the loan at the end of Year$-3.$

$4)$ Slowmo Ltd$.$ acquired equipment at the beginning of Year$-1$ at a cost of $$85,000.$ The equipment has a residual value of $$5,000$ no residual value, a useful life of $5$ years and is amortized on a straight$-$line basis. On January $1,$ Year$-3,$ the equipment was appraised and determined to have a fair value of $75,000($net of accumulated depreciation$).$ The estimated useful life and residual value of the equipment did not change. $($IAS$-16)$

$5)$ Slowmo Ltd$.$ instituted a defined benefit pension plan in Year$-1.$ The first actuarial evaluation, which was done on June $30,$ Year $3,$ indicated an actuarial gain of $$14,500.$ The expected average service life of the employee workforce is $20$ years at the time of actuarial evaluation. The actuarial gain has not yet been recognized in the financial statements prepared according to ASPE.

$6)$ Slowmo$$s income tax rate has been and is expected to continue at $40\%.$ Assume that any adjustments to accounting income for the above items are fully deductible or taxable for tax purposes. The preliminary financial statements reflect the tax payable method of accounting for income taxes. If the future income tax method were adopted, future tax liabilities should be set up as $ $180,000$ at the end of year $2$ and $$210,000$ at the end of year $3.$

Required:

Wherever accounting choices exist, choose policies that minimize return on total Shareholder$$s Equity under ASPE and maximize return on total Shareholders$$ Equity under IFRS.

a$)$ Follow the $3-$step method to determine the amounts that Slowmo will report for each of the above items on its financial statements on December $31,$ Year$-3,$ both under ASPE and IFRS. Include a description of accounting standards, $($if$)$ choices available and final decision.

a$)$ Prepare a schedule to show the net impact of each of these items on the Net Income and Shareholders$$ Equity of Slowmo, under both ASPE and IFRS, on December $31,$ Year$-3,$ using beginning$/$opening balances of the preliminary financial statementsSlowmo Ltd$.$ is a private company that currently prepares its consolidated financial statements in accordance with ASPE. But since it has plans to go public in the next $2-3$ years, it is considering changing to IFRS for the current year. On December $31,$ Year $3,$ Slowmo$$s preliminary financial statements reflected a Net Income of $$500,000$ and a Total Shareholders$$ Equity of $2,500,000.$ Where applicable, the company has a $40\%$ tax rate.

Slowmo has engaged you to reconcile the net income and shareholders$$ equity from ASPE to IFRS. You have identified the following areas in which IFRS differs from ASPE:

$1)$ IAS$-36-$ Slowmo Ltd$.$ acquired equipment at the beginning of Year$-2$ at a cost of $$200,000.$ The Equipment has a $5-$year estimated life with no expected residual value and is depreciated on a straight$-$line basis. On December $31,$ Year $3,$ Slowmo Ltd$.$ compiles the following information on the Equipment:

Expected future cash flows from use of Equipment : $$130,000$

Present value of expected future cash flows from use of equipment : $$110,000$

Net Realizable Value or Fair Value : $$105,000$

$2)$ Slowmo Ltd$.$ incurred research and development costs of $$180,000$ in January, Year$-3.30\%$ of these costs were related to development activities that met the criteria for capitalization as an intangible asset. These costs have not yet been recognized in the preliminary financial statements. The newly developed product was b rought to market in July$-$Year $3$ and is expected to generate sales revenue for $10$ years.

$3)$ Slowmo Ltd$.$ arranged for a loan of $$50,000$ to finance the construction of a production facility. $$25,000$ was borrowed on April $1,$ Year $3$ and another $$25,000$ borrowed on November $1,$ Year$-3.$ The loan was repayable over $5$ years with an interest rate of $10\%,$ with the first payment due on September $30,$ Year$-4.$ The facility is nearly complete at the end of Year$-3.$ No interest has been accrued on the loan at the end of Year$-3.$

$4)$ Slowmo Ltd$.$ acquired equipment at the beginning of Year$-1$ at a cost of $$85,000.$ The equipment has a residual value of $$5,000$ no residual value, a useful life of $5$ years and is amortized on a straight$-$line basis. On January $1,$ Year$-3,$ the equipment was appraised and determined to have a fair value of $75,000($net of accumulated depreciation$).$ The estimated useful life and residual value of the equipment did not change. $($IAS$-16)$

$5)$ Slowmo Ltd$.$ instituted a defined benefit pension plan in Year$-1.$ The first actuarial evaluation, which was done on June $30,$ Year $3,$ indicated an actuarial gain of $$14,500.$ The expected average service life of the employee workforce is $20$ years at the time of actuarial evaluation. The actuarial gain has not yet been recognized in the financial statements prepared according to ASPE.

$6)$ Slowmo$$s income tax rate has been and is expected to continue at $40\%.$ Assume that any adjustments to accounting income for the above items are fully deductible or taxable for tax purposes. The preliminary financial statements reflect the tax payable method of accounting for income taxes. If the future income tax method were adopted, future tax liabilities should be set up as $ $180,000$ at the end of year $2$ and $$210,000$ at the end of year $3.$

Required:

Wherever accounting choices exist, choose policies that minimize return on total Shareholder$$s Equity under ASPE and maximize return on total Shareholders$$ Equity under IFRS.

a$)$ Follow the $3-$step method to determine the amounts that Slowmo will report for each of the above items on its financial statements on December $31,$ Year$-3,$ both under ASPE and IFRS. Include a description of accounting standards, $($if$)$ choices available and final decision.

a$)$ Prepare a schedule to show the net impact of each of these items on the Net Income and Shareholders$$ Equity of Slowmo, under both ASPE and IFRS, on December $31,$ Year$-3,$ using beginning$/$opening balances of the preliminary financial statements