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Bombadeer Co case.docx

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Ryerson University
PCS 181
Margaret Buckby

Bombadeer Co. To: the family owning Bombadeer Co. From: Advisor Subject: Changes to Company policies due to IPO With the decision to initiate IPO Bombadeer must accept IFRS for the Train division, the transition and policy changes as well as the recommendation of applying IFRS companywide. Key users and Objectives: Bombadeer owners (family) along with future shareholders are the primary users of the case analysis. From the case we know that the company wants to make an initial public offering and go public with regards to their train division. Going public would mean performance evaluation is the key objective of the company and for shareholders stewardship would exist. Whereas the company wants to show profitable and stable performance the stakeholders are interested in knowing reliable information to base their investing decisions upon. Lastly management of the company will ponder on the advisory meeting where Ester & Associates were encouraging BC to “dress up the statements” The key issue here is the transition to IFRS, with this change policies regarding Inventory, revenue recognition and depreciation. Furthermore the transition is to be made as soon as possible since the details of the IPO are already being planned. Constraints and Facts: BC must now follow IFRS and the following must be considered for: Issues: Revenue Recognition Under IFRS componentization must be implemented. As such different treatment of revenue recognition can be utilized for each decision. The Criterion for IFRS revenue recognition must be met, for the Train division. Since BC product are unique and are specifically designed for each customers*(assumption) and that BC has reliable estimates of revenue and cost associated it feasible to recognize Revenue early. It is important to note that within the Train division order cancellations are rare and collection will not pose any difficulty or uncertainty. BC should either recognize revenue as early as the order is placed or upon receiving the deposit of 25%. While the train division can recognize revenues early the Airplane division does not meet the IFRS criterion due to the default of payments by customers as well as cancelled orders. There is much uncertainty involved and it would be best to record revenue upon delivery or payment by customers. Depreciation Although BC is following the CRA directed rate for depreciation it would serve the company best if straight line amortization was implemented instead. This is a simple method and it would meet the suggestion of “dressing up” the statements since the change from CRA to straight line would result in higher net income assuming CRA had placed high rates. Cost of switching-it is worth it since for
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