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On January 1, 20X4, Build-All Inc. was incorporated and began operations. The construction company is owned by Padma Vipat, Thor Hammond and John Goldsmith. It has offices in Halifax, Moncton and Charlottetown.



Build-All’s accountant, Cynthia Solnickova, is preparing the company’s financial statements in accordance with IFRS as the shareholders hope to take the company public at a later date. You are a CPA and a consultant to Build-All. Cynthia has always used ASPE in the past, so she has requested your assistance in preparing the year-end statements in advance of the company’s first audit. Cynthia has provided you with a trial balance and some information on select transactions.


Build-All Inc.

Trial balance

For the year ended December 31, 20X4

Account            DR         CR
Cash                  750,000
Accounts receivable1,875,000
Allowance for doubtful accounts                   30,000
Construction in progress15,000,000
Investments (at cost)1,650,000
Prepaid expense1,232,000
Accounts payable                 2,625,000
Accrued liabilities3,534,000
Billings on construction in progress15,000,000
Bonds payable30,000,000
Note payable9,825,000
Ordinary shares63,000,000
Administrative expense3,655,000
Bad debt expense30,000
Cost of goods sold99,600,000
Insurance expense2,850,000
Interest expense4,174,000
Lease expense2,000,000
Wage and benefit expense15,648,000
Total       267,264,000267,264,000




Other information

  1. Build-All’s income tax rate is 25%, and this is not expected to change in the foreseeable future.




  1. On January 1, 20X4, $30 million of eight-year, 4% convertible bonds were issued at par, when similar non-convertible bonds were yielding 5%. Interest is payable semi-annually on June 30 and December 31. At the bondholders’ option, each $1,000 bond may be exchanged for 40 ordinary shares. At the issue date, Cynthia credited bonds payable for the net proceeds of $30 million; during the year she debited interest expense for the amount of interest paid.




  1. On January 1, 20X4, Build-All issued 10 million ordinary shares at $5.60 per share. On August 1, 20X4, Build-All sold an additional 1 million shares for $7 each to Saranjit Toor.



  1. On April 1, 20X4, the note payable was issued. The loan is repayable annually at $982,500 plus interest at 6% per annum, first due on April 1, 20X5. Cynthia erroneously expensed a full year’s interest on the note. Build-All calculates interest expense based on the number of months outstanding, rather than the number of days.




  1. On December 31, 20X4, Build-All purchased 100% of Joy Corporation for $1,650,000 cash. The book and fair market values of Joy at the acquisition date follow


December 31, 20X4Book valueFair market value
Accounts receivable*$  400,000$385,000
Inventory*   900,000$940,000
Accounts Payable$  200,000$200,000
Ordinary shares   300,000 
Retained earnings   800,000 

*In early 20X5, the net receivables were collected and inventory sold.




  1. Padma provided Cynthia with the estimated bad debt expense after superficially analyzing the outstanding receivables. Saranjit, who has extensive industry experience, suggested that a rate of 2.5% of the outstanding receivables would be a more appropriate allowance.




  1. On May 1, 20X4, Build-All paid $1,232,000 for a two-year general insurance policy effective the date purchased. Prepaid expenses was debited for the premium.




  1. On June 1, 20X4, Build-All leased some heavy-duty machinery. The lease term is six years with annual payments of $2 million first due on June 1, 20X4. At the end of the lease term, title to the machinery will transfer to the company. The machinery has a useful life of eight years with an estimated salvage value of $60,000. Build-All knows that the implicit rate in the lease is 5% per annum. Note that for tax purposes, there is no distinction between an operating lease and a finance lease. Lease payments are expensed and no CCA is taken on the leased asset.




  1. Build-All’s depreciable assets consist of buildings, owned equipment and leased equipment. The buildings and owned equipment were acquired on January 1, 20X4. Build-All depreciates all assets on a straight-line basis. The expected useful life of the buildings is thirty years and the owned equipment is six years. The expected salvage value of all owned assets is nil. Depreciation has not yet been recorded for the year. For tax purposes, buildings are Class 1 assets (CCA rate 4%) and all equipment is Class 8 (CCA rate 20%).



10.Administrative expenses include $50,000 in meals and entertainment and $32,000 for memberships at Seymour Golf and Country Club, where the shareholders entertain clients.


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11.Cynthia inadvertently did not make any tax instalment payments during the year.



12.The company’s owners asked Cynthia to use the revaluation model to account for its land. The fair value of the land at December 31, 20X4, as determined by appraisal was:


CityCostMarket value


Cynthia has not yet made any revaluation adjustments. For income tax computation purposes, Build-All assumes that 50% of the gains and loss are a permanent difference.



13.During the year, Build-All built an apartment building under a $15 million fixed contract. Cynthia has not yet included construction-related interest costs to cost of goods sold. She is also unsure about how to deal with the remaining construction-in-progress asset. Pertinent details follow

  • The building was completed on December 31, 20X4.
  • The balance in the associated construction-in-progress account includes an estimated 15% gross profit margin, excluding interest costs.

  • The construction-in-progress asset is a qualifying asset under IFRS.
  • Build-All recorded all interest expense directly to the statement of comprehensive income. Qualifying interest should have been capitalized.

  • Related costs were incurred equally during the year; the weighted-average interest cost was 5.5%.
  • The client was invoiced a total of $15 million during 20X4; there is $500,000 outstanding at year-end, which has been included in the accounts receivable balance reported on the trial balance.

  • The total contract revenue of $15 million was recognized as income and is included in the sales reported on the trial balance. All related expenses other than the interest costs have been properly accounted for.




  1. Assist Cynthia by preparing any journal entries necessary to properly adjust for the events listed above. Add additional accounts as necessary. Properly format journal entries, including an explanation about why the adjustment is required. Provide supporting computations as appropriate.




  1. Prepare financial statements in proper form for Build-All for the year ended December 31, 20X4, including a statement of comprehensive income, a non-consolidated statement of financial position and a statement of changes in equity. Do not prepare a statement of cash flows.




  1. Calculate both the basic and diluted earnings per share for Build-All.




  1. Provide Cynthia with a list of all notes required for the financial statements, but do not prepare draft notes. Refer to the CPA Canada Handbook – Accounting for guidance, and document which Handbook section provides the necessary details for drafting the required notes.




  1. With regards to the acquisition of Joy Corporation:
  2. a) Prepare an acquisition differential allocation schedule and determine the amount of the purchase price allocated to goodwill pertaining to the acquisition of Joy.

  4. b) Complete an acquisition differential and impairment schedule for 20X4 and 20X5.
  5. c) Compute and list the consolidated balances as at December 31, 20X4, of all asset, liability and equity accounts that differ from those set out in Build-All’s non-consolidated statement of financial position prepared in requirement 2. Do not prepare a consolidated statement of financial position.



Note: Journal entries and financial statements are to be rounded to the nearest dollar.


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