Reference no: EM133306470

Question

Software Inc. (SI) is a private corporation formed in the 1990s. SI develops and sells software for many purposes; theft recovery, geomapping, data and device security, and IT asset management. To help motivate management, SI has a stock option plan. To help fund continued software development, SI has a bank loan with a major bank. The bank requires annual audited financial statements prepared using ASPE and has a financial covenant that stipulates a minimum current ratio. SI has an expected taxable loss of $10,000,000 in 20X9. For the last three years the company has had taxable profits of $2,000,000 in 20X6; $5,000,000 in 20X7, and $1,000,000 in 20X8. SI's taxable loss this year was due to intensive development of new software for security over personal data. SI anticipates sales of this product to be significant due to concerns over identity theft. You have recently been hired to develop new accounting policies for SI's 31 December year-end. You have been asked by the owners to discuss alternatives and provide recommendations on the appropriate accounting policies for events below that have occurred during 20X9. Where possible, you have been asked to quantify the impact of the accounting policies. SI is seriously considering.