Concordia University

• ACCO 650

• QUESTION 1 (38 marks) (100 minutes) You, CPA, are the controller at Marvin Manufacturing, a private electronics corporation located in Montreal. On November 23, 2014, the company signed a $32 million contract with VeeaRail to supply a state of the art entertainment system in each of its 320 high-speed trains. The company is hoping for a similar contract from another railway, the Western Train Corporation in the future and is hopeful for opportunities that may present themselves with several interested airlines. Details of the contract are included in Exhibit I. Howard Hughs, Marvin’s President & Owner, would like to know how the entire VeeaRail contract will be reflected in the financial statements. Since this will be the start of significant growth for Marvin, and will require substantial financing, the company may decide to go public on the Toronto Stock Exchange in the next two years. Accordingly, he would like the most favourable results shown for the current year-end of December 31, 2014. He informs you, “I’ve just been approached by another manufacturer, who is willing to sub-contract the entire VeeaRail contract at a fixed guaranteed price of $75,000 per train. While I think that we can make a higher profit by manufacturing the product ourselves, would this deal not allow Marvin to recognize a profit of $8.0 million immediately?” He continues to say, “If we don’t take the sub-contract option, how will the contract be recorded in the financial statements? Are there other accounting options to fatten up our 2014 Net Income?” Since Marvin intends to go public in the near future, we would like to apply IFRS for the current year. You took it upon yourself to summarize all the assets held in PPE and Intangibles as well as other accounting issues as at December 31, 2014 in Exhibit II. Jim Fox and several other VP’s have a new bonus plan based on 5% of Net Income and are very interested in seeing the preliminary operating results as well as the bonus that they are going to get. It is now December 31, 2014 and an analysis report has been requested from you to address the issues raised by the Howard Hughs (President & Owner), and Jim Fox (VP-Finance).