You are the controller for Diamond Corp. Diamond is private Canadian company who is planning on going public in the future. You have been asked to identify the impact on the companys current ratios, return on equity and debt/equity ratios assuming Diamond had been using ASPE in preparation of its financial statements

Net income $1,080,000

Current Assets $5,200,000

Current Liabilities $3,900,000

Total debt $8,700,000

Total shareholders Equity $6,300,000

Under further investigation you have determined that there are differences in financial reporting under IFRS for the following items:

Income tax

Impaired loans

Interest capitalization

Income Tax

Diamond has a tax rate of 30%. Diamond has been using the Taxes Payable method under ASPE. Under IFRS the deferred tax method would be used. If Diamond had used the deferred tax the deferred tax balance at the start of the year would be $219,000. During the current year deferred tax expense would be $39,000.

Impaired Loans Receivable

A long-standing customer is in financial difficulty and wants to restructure the loan with Diamond. The current loan amount is $310,000. Under the new terms the customer will not make a low fixed payment and interest will be reduced to 4%, the current market rate. The present value of the loans revised terms using the original rate of interest is $229,000. The present value using the new market rate of interest is $251,000. The appropriate adjustment has been made on ASPEs financial statements.

Interest Capitalization

Diamond is building a new warehouse. Under ASPE Diamond expensed $33,000 of interest incurred on debt related to the warehouse.

Instructions

Calculate the three ratios first using ASPE and then using IFRS. Complete the table below showing any adjustments to the numerator and denominator for the ratios. Be sure to show your work for partial marks.