Prepare a report for the partner. IFRS is the appropriate accounting standards for Car-Tunes.

Car-Tunes Ltd. is a young company that recently completed its initial public offering. The company designs and develops leading edge car stereo equipment, including MP4 compatible decks, speakers, amplifiers, and subwoofers.

The company is investing heavily in research and development. In order to reduce strain on cash, the management team is compensated mostly through share-based compensation in the current year. In addition, the company has raised cash through the issuance of common shares in the open market, and by offering various complex financial instruments. Management believes that all cash should be diverted to- wards the research and development process in order for the company to become the leader in automotive stereo equipment.

In addition to the stock options, management receives a bonus of 5% of net income if diluted EPS is greater than $0.10. The bonus is the only cash compensation that management receives at this stage of the company's life cycle. Management is excited because this year's draft income statement (Exhibit I) shows diluted EPS in excess of $0.10, and therefore, a bonus will be paid.

Lebeau and Liang LLP has been the auditor of Car-Tunes since the company's inception. You are a senior accountant with the firm, and have been assigned the year-end audit for Car-Tunes. The partner has just met with the company's management, and discussed various accounting issues. She has asked you to prepare a report to be provided to the client that addresses all of the accounting issues, along with any other issues that you feel are important. The partner's notes from the meeting can be found in Exhibit II. In addition, the company's current and future tax expenses must be calculated. Tax-related details can be found in Exhibit III.

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"Car-Tunes Ltd.

Car-Tunes Ltd. is a young company that recently completed its inial public ofering. The company

designs and develops leading edge car stereo equipment, including MP4 compable decks, speakers,

ampliFers, and subwooers.

The company is invesng heavily in research and development. In order to reduce strain on cash, the

management team is compensated mostly through share-based compensaon in the current year. In ad-

dion, the company has raised cash through the issuance o common shares in the open market, and by

ofering various complex Fnancial instruments. Management believes that all cash should be diverted to-

wards the research and development process in order or the company to become the leader in

automove stereo equipment.

In addion to the stock opons, management receives a bonus o 5% o net income i diluted EPS is

greater than $0.10. The bonus is the only cash compensaon that management receives at this stage o

the company's lie cycle. Management is excited because this year's dra income statement (Exhibit I)

shows diluted EPS in excess o $0.10, and thereore, a bonus will be paid.

Lebeau and Liang LLP has been the auditor o Car-Tunes since the company's incepon. You are a senior

accountant with the Frm, and have been assigned the year-end audit or Car-Tunes. The partner has just

met with the company's management, and discussed various accounng issues. She has asked you to

prepare a report to be provided to the client that addresses all o the accounng issues, along with any

other issues that you eel are important. The partner's notes rom the meeng can be ound in Exhibit II.

In addion, the company's current and uture tax expenses must be calculated. Tax-related details can be

ound in Exhibit III.

Required

Prepare a report for the partner. IFRS is the appropriate accounTng

standards for Car-unes.

(Lento 106)

Lento, Camillo. Selected Intermediate Accounng Cases or 70-352 Accounng Theory II: 2015/2016.

Wiley Custom Select, 08/2015.

EXIHIBI I -DRAF INCOME SAEMEN

Car Tunes Ltd.

As at December 31, 2014