Carroway Clothing Essay

Re Current accounting issues, employment benefits and financing excerptions. Thank you for the opportunity to reference the current accounting issues, employment benefits and financing options facing Carroway Clothing check (CCL)1. SR& ED and Development costs treatmentIn reviewing the pecuniary statements it appears that the exploitation costs and SR&ED treatment may non piss been recorded appropriately. The SR&ED are tax dimension to be used towards rateable income and should non have been recorded as government grants. Since CCL may not have bringed them in the initial age, it trick use SR&ED tax credits against nonexempt income in the future. It is necessary to identify all SR$ERD activities for proper arrangement practices so that the credits generated by the SR&ED can be used against future income.The $975,000 development costs can be expensed or bang-upized depending on if the following criteria are metThe project is technically feasibleCCL intends of murder the projectCCL has the ability to use or sell the product at that place is probability of future economic benefit pull up stakes be generated availability of adequate technical and monetary recoursesCCL has the ability to measure reliably the expenditures attri furthere to it.Since the Walton Work Wear line is in the product stage, its accumulated development costs should be capitalized. The Carroway Cool Top has not started it commercial production which would grant the development costs not to be amortized yet. Also amuse costs on loans to generate financing for the R&D activates of a product can be capitalized rather than expensed. The capitalization of interest would allow CCL to reduce taxable income in the future when it is more profitable.I would urge on that CCL make the above changes immediately so that the financail statements are not incorrect. These changes would dish up CCL reduce its future taxable income when it may be more profitable.2. leeway for Doubtful Accounts.CCL currently has no allowance for bad debts. Even though CCL does not have issue with uncollectible, having an allowance account leave alone fork over CCL with the ability to write off debts such as the disputed shipment. Without universe able to write off the shipment, will leave the Accounts Receivables overstated, which in hug drug leads to misstated pecuniary statements. Having an AFDA would allow CCL to record the sale but besides realise that they do not expect payment from the client. Leaving this account on the accounts receivable would be misleading to CCLs stakeholders as it would lead them to call up that CCL is expecting to receive the cash in the near future. IF in the future, the dispute is resolved and the payment is received, CCL can recover the bad debt at that time.I would press that CCL create a policy regarding Accounts Receivables immediately. The mode for determining the bad debt issue forth should be determined by CCL management. Methods such a percentage of gross revenue or a percentage of Account Receivables can be used. Whichever method is chosen, it should be consistent from year to year and the amount should be reasonable.3. broad Term Debt or Initial Public offering.CCL is currently looking at an initial public offering ( initial public offering) and long term debt as ii options to help finance the new research and development (R&D) of new products. The believe loan can bring home the bacond financial stability but will have the interest repaid over a longer time is higher and would be tax deductible. Banks may exact financial statements that are audited. CCL will need to be able to prove that it can repay the loan as well as the interest. It may also be required to defend a debt to equity ratio that may prevent it from taking value of other opportunities in the future.An initial public offering offering has the electric potential to increase capital which would improve financial rations such as the d ebt to equity. The increased cash extend will help CCL pay it current payables and reduce debt by negotiating wagerer interest rates in the future. The disadvantage to an IPO would be the potential to lose control over the company and having to be more responsible to other investors. The IPO would also require the financial statement and note of hand disclosure to conform to more stringent requirements, which increase the cost of producing the financial statements. Financial statements will need to follow IFRS and securities regulators generally require 3 years of annual audited financials. It should also be noted that there is a significant cost to offering an IPO and it can be effortful to evaluate the livestock harm of the shares.I would recommend that CCL train the IPO as a viable on to its financing issue as it will be more beneficial in the long term. The change from ASPE to IFRS will be a short term challenge but can be overcome with appropriate professional assistanc e. I would extremely recommend that CCL seek the opinion and assistance of a professional who deals with IPOs.4. Employee Stock Options.CCL is considering providing employees stock options as a way to reward its employees. As a CCPC, CCL will have no tax consequence for the employees receiving the stock options until they dispose of the shares. The amount taxed as employment income in the year of government is the difference between the option price and the FMV of the shares at the time of the option was exercised. The employee may be able to claim a deduction from taxable income equal to half this amount if the shares were worth less than the exercise price when the option was issued or the employee hold the shares for at least two years before selling the shares.There are many alternatives to rewarding employees anyways cash bonuses and stock options. Options can range from published recognition to product such as shirts that the company makes. Time off with pay can also work tomotivate employees for hard work.I would recommend that CCL consider alternatives such as free products and time off as these will be less costly to provide than the stock options. Doing an employee survey would provide feedback to the rewards that the employees would value most.5. Legal issuesCCL is currently facing a pending effort regarding a chemical leak and the non-compliance with environmental regulations. When both of the following conditions are met the amount of the contingent loss must be accrued. Disclosure will be need if the following conditions are met The likely hood that the verdict will be against CCLA reasonable estimate of the amount o f the lawsuit can be do.The lawsuit may also lead customers and the public to believe that CCL acted negligently. This will reflect poorly on CCL and may lead to decreased sales and a damaged characterIf there is no accrual, there should be disclosure in the financial notes, stating the nature of the contingency, estimate of t he amount or that an estimate cannot be made and exposure to loss in excess of the amount accrued. If CCL does not disclose, it would be misleading to the financial statement user.I would recommend that CCL consult with their statutory advisors immediately to determine the likelihood of a lawsuit and the potential liabilities. Also, CCL should be prepared to address the negative publicity that the lawsuit may create.Should you require further clarification on any matters, please do not hesitate to contact me.