MODULE 1 EVALUATION - casb.com · MODULE 1 EVALUATION December 16, 2011 This evaluation contains: Simulation 1 (10 pages) 180 minutes Present value tables (1 page) Candidate Declaration

MODULE 1 EVALUATION

December 16, 2011

This evaluation contains:

Simulation 1 (10 pages) 180 minutes Present value tables (1 page)

Candidate Declaration and Statement of Confidentiality:

1. I understand that this examination is being presented on a non-disclosed basis.

2. I hereby attest that I will not divulge the nature and content of any question or answer to any

individual or entity.

3. I understand that failure to comply with this declaration and its assertions may result in

disciplinary actions.

Name (please print) Signature

Student number

DO NOT OPEN BOOKLET UNTIL TOLD TO DO SO

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Copyright 2011 – CA School of Business (CASB) – All rights reserved. All contents are restricted for authorized CASB candidates, contractors, and employees,

and are not to be released without the express written consent of CASB.

Simulation 1 (180 Minutes)

It is January 22, 2011. You, a first-year associate (Associate) at Kelver and Dell Chartered Accountants (K&D), are attending a Winnipeg Chamber of Commerce event with a firm partner, Dean Kelver. Judy Dunphy, business owner of EcoBath Ltd. (EcoBath), approaches you. Judy: Hi, Associate. I hoped to see you here, as I wanted to talk to you and Dean.

After he did my 2009 review engagement, my accountant, Bill Smart, CA, told me that he might retire. I believe that he has retired, because I recently received a call from another CA, offering to provide assurance and taxation services. This person started discussing historical financial results of EcoBath in detail, which made me quite uncomfortable.

I need a new CA firm to perform my company’s review engagement. My company manufactures bathroom fixtures from recycled material and our business is growing rapidly. We have facilities in Winnipeg and we ship to Ontario and the western provinces. Darryl, the company bookkeeper, does a good job, but lacks an accounting designation, so we rely on an outside accountant to clean up our books. Would your firm be interested?

Dean: We do work for many private companies and I am sure we can help you. I have

time next Tuesday afternoon, if you would like to come to our office. Please bring your December financial statements, even if they are drafts, as it will help us understand your business.

On Tuesday, you meet with Judy and Dean in your office. Judy: I have a few issues I want to cover. First, the bank has always asked for a

review engagement. Last year, Bill mentioned that an audit might be better, as it could result in a reduced interest rate on our loans. Bill explained that it had something to do with the additional work done on an audit, such as materiality and vouching, but I am not sure what that means. For the review, Bill asked a lot of questions—would an audit just involve more questions? I would like to do a review this year but, assuming the cost is about the same, wonder whether I should consider an audit in future. Also, we had a large balance of tax owing when we filed our corporate return last year. We had to use the company demand loan to pay the taxes, which made cash flow tight for a while. I would like to ensure that our 2010 corporate taxes are paid by the end of March 2011. Can you estimate how much we will owe?

Dean: There are definitely differences between audits and reviews, which might impact the bank’s decision. Materiality does play a role in both cases; to help clarify this for you, Associate will provide you with a discussion of both engagements. I see that you have draft financial statements from December 31, 2010 (Exhibit I). If these balances are final, we can use them to prepare a corporate tax estimate.

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Judy: Darryl mentioned that he needs help with a few accounting issues. I have a list

of his questions (Exhibit II), as well as the tax information you will need (Exhibit III).

Dean: In that case, Associate will prepare any adjusting journal entries that are

necessary, along with explanations, so you and Darryl can review and approve them.

Judy: Thanks. Another issue I am concerned about is employee use of computers.

We want to provide our employees with all the resources needed to perform their duties, but I have heard many businesses have problems with staff downloading pirated software, shopping online, and doing social networking during business hours. I would like to ensure our computer resources are used prudently and safely, so I brought some information about our procedures for you to evaluate (Exhibit IV).

Dean: Associate will address this for you. Is there anything else we can assist you

with? Judy: My division managers are constantly complaining about how we allocate

common costs to our departments. As this affects their bonuses, this has been an ongoing issue. Here is a memo about how we currently allocate common costs (Exhibit V). Perhaps you can suggest some alternatives. I also want to know whether we are pricing our bathtubs too low, so can you please determine our break-even selling price?

Also, my brother Harry, who is approaching sixty, needs some personal tax advice. Harry has never married and has no children, so he has never thought it important to have a will. To reduce his taxes, Harry now wants to gift some investment assets to my children. If he sends you his information, can you provide him with suggestions, including whether he should have a will?

Dean: That would be fine. Associate will review the allocation of common costs,

determine the break-even selling price of bathtubs for you, and analyze Harry’s information for him.

Judy leaves and you start reviewing the information she has brought you. Later that day, Dean comes by your desk and hands you the information from Harry Dunphy (Exhibit VI). Dean: Associate, I would also like you to determine the preliminary materiality

assessment, including consideration of the financial statement users. You should also analyze the financial statements, including ratios; please identify those accounts that you believe require further investigation, and explain why. As well, make a note of any other concerns you identify. I have confirmed with Bill that there are no issues with taking on this client, and I will review the prior year working papers later this week.

Required: Address the requests from Dean, Judy, and Harry. Ignore GST, PST, and HST.

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Exhibit I EcoBath Ltd.

Draft Financial Statements As at December 31

(Unaudited)

BALANCE SHEET 2010 2009 (Draft) (Reviewed)

ASSETS Cash $ 118,130 $ 13,880 Temporary investments (Note 1) - 12,995 Accounts receivable (Note 2) 665,750 693,970 Inventory (Note 2) 629,730 422,650 Prepaid expenses 123,630 72,650

1,537,240 1,216,145

Property, plant, and equipment 4,249,250 3,797,630 Accumulated amortization (1,775,694) (1,182,640)

4,010,796 3,831,135

LIABILITIES AND SHAREHOLDER’S EQUITY

Demand bank loan 50,000 80,000 Accounts payable and accruals 479,730 669,930 Bonus payable 75,000 75,000 Income taxes payable - 28,450 Current portion of long-term debt 75,000 50,000

679,730 903,380 Long-term debt 625,000 450,000

1,304,730 1,353,380

Share capital 100,000 100,000 Retained earnings 2,606,066 2,377,755

2,706,066 2,477,755

$ 4,010,796 $ 3,831,135

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Exhibit I (continued) EcoBath Ltd.

Draft Financial Statements For the year ended December 31

(Unaudited)

STATEMENT OF INCOME AND RETAINED EARNINGS

2010

(Draft) 2009

(Reviewed)

Sales $ 8,363,976 $ 7,754,910 Cost of sales (Note 3) 5,436,531 5,195,790

2,927,445 2,559,120 Advertising and promotion 158,330 169,320 Amortization 593,054 486,643 Bad debts (Note 4) 245,584 325,950 Commissions (Note 5) 41,820 38,775 Dues, fees, and subscriptions 198,770 183,620 Gain on sale of investment (6,144) - Insurance 35,600 32,400 Interest and bank charges 69,820 68,650 Management bonus (Note 6) 100,000 75,000 Office 294,060 126,590 Professional fees 45,550 38,750 Property taxes 16,500 15,900 Repairs and maintenance 216,550 179,650 Salaries and commissions (Note 5) 458,450 347,975 Telephone and utilities 89,870 85,110 Travel 119,320 126,350

2,677,134 2,300,683 Income before taxes 250,311 258,437 Income taxes 22,000 32,305

Net income 228,311 226,132 Retained earnings, opening 2,377,755 2,151,623

Retained earnings, closing $ 2,606,066 $ 2,377,755

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Exhibit I (continued) EcoBath Ltd.

Notes to the Draft Financial Statements For the year ended December 31

(Unaudited) Note 1

Temporary investments are carried at cost. The temporary investments were sold during 2010. Note 2

In 2008, the ending balance for accounts receivable was $697,440; ending balance for inventory was $418,550. Note 3

Cost of sales in 2010 included $15,000 paid to a regular customer as compensation for product quality issues on our part. We have not made this type of payment before; however, we know the product caused the customer some construction slowdowns, and we want to retain the customer’s business. We have also resolved the quality issue. Note 4

In 2010, bad debt expense was reduced by $28,000, on receipt of a debt settlement from a bankrupt former customer. The amount receivable from the customer had been written off to bad debts in 2009. Note 5

In 2010, salaries included one-time special bonuses of $7,500 to each of six salespeople, in recognition of the company’s sales growth that year. These bonuses will not continue in future years. The company also pays salesmen a commission of 0.5 percent of sales. Note 6

Depending on the annual results and the cash flow, Judy receives an annual management bonus, ranging from $50,000 to $75,000.

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Exhibit II EcoBath Ltd.

Financial Statement Issues (Prepared by Darryl, Bookkeeper)

1. During January 2010, one of our key bathtub production and moulding machines was shut

down for four weeks for a complete overhaul. The machine was seven years into its useful life of 10 years. The overhaul resulted in the useful life being extended another five years, for a total of fifteen years. The overhaul cost of $20,000 was included in repairs and maintenance expense. I have not recorded amortization on this machine yet. At December 31, 2009, the net book value was $100,000.

2. During the year, two of our salesmen travelled throughout the Western provinces, attending

eight trade shows for home builders. The cost of travel, display materials, and space rental in total was $16,970. Because she thinks we will benefit in sales over the next two years as a result of this road show, Judy had me record the cost as a prepaid expense. I am not sure whether we can do this. The trade shows generated some good publicity, so we are planning to participate in the trade shows again in 2011.

3. On the morning of December 31, we closed the plant and office to perform our annual

inventory count. Just as we were leaving for the day, we received a shipment of raw material costing $14,550. I recorded the inventory as a January transaction, because we had already completed our inventory count.

4. On December 30, 2010, we sent a delivery truck out with a shipment of sinks for a

wholesale customer. However, the truck had mechanical trouble, and returned to our warehouse later that morning with the merchandise still on board. The inventory had a cost of $13,475. The customer had already paid a 20 percent deposit on the $18,900 sales price in November, which I had recorded to deferred revenue at the time we received it. When the delivery was shipped, I reversed the deferred revenue and recorded sales revenue of $18,900. As the delivery went out first thing in the new year, I did not reverse the sale. This shipment was not included in the inventory count on December 31, as the inventory was in the truck, not the plant.

5. In November 2010, we let our marketing manager go, having decided to outsource all future

advertising campaigns. The manager is suing us for inadequate severance pay, because he believes he is entitled to most of his year-end bonus. Our lawyers have advised us that we are likely to have to pay $6,000 to settle the lawsuit.

6. In 2010, we paid $22,000 in tax instalments during the year, and recorded these payments

to tax expense.

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Exhibit III EcoBath Ltd.

Tax Information As at December 31, 2010

(Unaudited) 1. Additions during the 2010 year:

Manufacturing equipment $ 330,970

Computer hardware 75,540 Computer application software 45,110

2. UCC balances at January 1, 2010:

Class 1 $ 925,550 Class 8 135,250 Class 12 28,490 Class 29 542,400* Class 45 27,650 Class 52 Nil

* The only additions to class 29 were in 2009, at a cost of $723,200. 3. Interest and bank charges expense includes interest on insufficient tax instalments for the

2009 tax year, totalling $1,765. 4. We pay for Judy’s membership to the Auburn Golf Club. She uses it for entertaining

customers and suppliers. Our payments to Auburn during the year consisted of the following:

Annual dues – $7,200

Green fees – $3,820

Restaurant and beverage costs – $9,770 5. Other meals and entertainment costs during the year included the following:

Business lunches and dinners – $5,670

Tickets to sporting events – $1,500

Christmas party for all employees – $2,300 6. The company is subject to a federal tax rate of 38 percent before the 10 percent provincial

abatement, and a provincial tax rate of 2.5 percent on the least of taxable income, active business income, and the small business limit.

7. The lawsuit settlement amount is not deductible until paid. 8. The company has capital losses of $8,500 available for carryforward. 9. EcoBath has the entire small business deduction available.

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Exhibit IV EcoBath Ltd.

Current Computer Practices (Prepared by Judy Dunphy)

The company owns 28 desktop, eight laptop, and 12 palmtop, computers. All 48 computers are connected to a server located in Judy’s office. The server is backed up to a tape each Friday night, and the tape is taken home by the last staff person to leave Friday, who brings it back the following Friday morning. Each desktop has an Internet connection. Employees are asked to restrict any “surfing of the net” for personal purposes to their lunch hour. We do not have any restrictions on the sites that can be accessed, as we have found that employees have been able to get some great deals on business computer programs on auction sites. They download new programs they find, and test them to see if they would help our business. We purchased an antivirus program two years ago, so that will catch any viruses in the downloaded programs. I know that employees have also downloaded games; however, as they seem to only play over the lunch hour, I am not that concerned about those downloads. Our accounting staff members use spreadsheets for several tasks. I have concerns about the confidentiality of some of the information, so have asked that the spreadsheets be saved on their desktops rather than on the server. In order to monitor printing costs, all accounting printing, including payroll, goes to one printer in the common area. This usually works well, but the printer jammed one time, and when it was fixed, all the paystubs printed out and sat on the printer for at least an hour. Each user has to log in with his/her unique password, which is confidential. New employees are assigned their phone extension as their password, but are asked to change it within a week. The only time passwords are shared is for vacation coverage. Laptops do not have passwords, as they are signed out by sales people as needed. The customer quotes are maintained on the laptops, and are printed off for the accounting department.

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Exhibit V EcoBath Ltd.

Cost Allocation Policies

To: Associate From: Judy Dunphy I have listed below our current way of allocating the common costs of insurance, amortization, and property taxes. As their bonuses are based on their departmental income, the division managers are not happy with this allocation. Do you have any suggestions for a more equitable distribution of these costs? Please include explanations with your suggestions, as I will want to present them to my managers. We have four divisions: head office; sinks product division; toilets product division; and bathtubs product division. The common costs allocated to the four divisions are as follows:

Insurance – The company carries various types of insurance, including product liability ($8,000), business interruption and general liability ($15,600), and coverage on all tangible assets ($12,000). The insurance is allocated to the three product divisions, at 33 1/3 percent each.

Amortization – Amortization is allocated based on direct labour hours. Note that divisions with more machinery require less labour. Head office does not have direct labour hours, so amortization on head office assets is allocated to the three product divisions.

Property Taxes – Property taxes are allocated to all four divisions, at 25 percent each. Other information:

Divisions Head Office Sinks Toilets Bathtubs Total

Sales - $2,106,890 $2,682,086 $3,575,000 $8,363,976

Inventory - $112,320 $218,840 $298,570 $629,730

Net book value of related PPE

$83,690 $529,370 $735,471 $1,125,025 $2,473,556

Square footage 2,500 5,500 7,000 10,000 25,000

In 2010, we sold 2,860 bathtubs. We anticipate a five percent increase in unit sales in 2011. Without considering the common costs, our direct labour and materials costs for bathtubs in 2010 were $2,341,124, and indirect costs were $858,450. After all common costs have been reallocated, I need to know the break-even price for bathtubs for 2011.

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Exhibit VI Harry Dunphy

Personal Assets and Distribution Plan (Prepared by Harry Dunphy)

Here is the information on my assets. I think there may be some taxes on my assets after my death, so I would like to rearrange things now in order to reduce taxes in the future. Shares

I would like to gift the following shares in public companies to Judy’s three children equally:

1,200 shares of Publishers Co., with a cost of $10 per share and a fair market value of $15 per share. These shares pay quarterly dividends.

3,000 shares of Monitor Mate Ltd., with a cost of $5 per share and a fair market value of $7 per share. These shares have never paid dividends.

Artwork

I have two paintings and a vase. I would like to give one to each of the children now, so they can benefit from any increase in their value.

Item Cost Fair Market Value

Painting A (Daisies) $1,400 $2,000 Painting B (Cabin) $800 $1,500 Vase $1,350 $750

Term Deposit

I have a term deposit of $100,000, bearing interest at three percent per year, which I want to gift equally to Judy’s children, who are currently five, eight, and eleven. Because they have no other income, they will not have to pay tax on the interest income.

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Years

Hence 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18%

1 0.95 0.94 0.93 0.93 0.92 0.91 0.90 0.89 0.88 0.88 0.87 0.86 0.85 0.85

2 0.91 0.89 0.87 0.86 0.84 0.83 0.81 0.80 0.78 0.77 0.76 0.74 0.73 0.72

3 0.86 0.84 0.82 0.79 0.77 0.75 0.73 0.71 0.69 0.67 0.66 0.64 0.62 0.61

4 0.82 0.79 0.76 0.74 0.71 0.68 0.66 0.64 0.61 0.59 0.57 0.55 0.53 0.52

5 0.78 0.75 0.71 0.68 0.65 0.62 0.59 0.57 0.54 0.52 0.50 0.48 0.46 0.44

6 0.75 0.70 0.67 0.63 0.60 0.56 0.53 0.51 0.48 0.46 0.43 0.41 0.39 0.37

7 0.71 0.67 0.62 0.58 0.55 0.51 0.48 0.45 0.43 0.40 0.38 0.35 0.33 0.31

8 0.68 0.63 0.58 0.54 0.50 0.47 0.43 0.40 0.38 0.35 0.33 0.31 0.28 0.27

9 0.64 0.59 0.54 0.50 0.46 0.42 0.39 0.36 0.33 0.31 0.28 0.26 0.24 0.23

10 0.61 0.56 0.51 0.46 0.42 0.39 0.35 0.32 0.29 0.27 0.25 0.23 0.21 0.19

11 0.58 0.53 0.48 0.43 0.39 0.35 0.32 0.29 0.26 0.24 0.21 0.20 0.18 0.16

12 0.56 0.50 0.44 0.40 0.36 0.32 0.29 0.26 0.23 0.21 0.19 0.17 0.15 0.14

13 0.53 0.47 0.41 0.37 0.33 0.29 0.26 0.23 0.20 0.18 0.16 0.15 0.13 0.12

14 0.51 0.44 0.39 0.34 0.30 0.26 0.23 0.20 0.18 0.16 0.14 0.13 0.11 0.10

15 0.48 0.42 0.36 0.32 0.27 0.24 0.21 0.18 0.16 0.14 0.12 0.11 0.09 0.08

16 0.46 0.39 0.34 0.29 0.25 0.22 0.19 0.16 0.14 0.12 0.11 0.09 0.08 0.07

17 0.44 0.37 0.32 0.27 0.23 0.20 0.17 0.15 0.13 0.11 0.09 0.08 0.07 0.06

18 0.42 0.35 0.30 0.25 0.21 0.18 0.15 0.13 0.11 0.09 0.08 0.07 0.06 0.05

19 0.40 0.33 0.28 0.23 0.19 0.16 0.14 0.12 0.10 0.08 0.07 0.06 0.05 0.04

20 0.38 0.31 0.26 0.21 0.18 0.15 0.12 0.10 0.09 0.07 0.06 0.05 0.04 0.04

No. of

Years

Rec'd 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18%

1 0.95 0.94 0.93 0.93 0.92 0.91 0.90 0.89 0.88 0.88 0.87 0.86 0.85 0.85

2 1.86 1.83 1.81 1.78 1.76 1.74 1.71 1.69 1.67 1.65 1.63 1.61 1.59 1.57

3 2.72 2.67 2.62 2.58 2.53 2.49 2.44 2.40 2.36 2.32 2.28 2.25 2.21 2.17

4 3.55 3.47 3.39 3.31 3.24 3.17 3.10 3.04 2.97 2.91 2.85 2.80 2.74 2.69

5 4.33 4.21 4.10 3.99 3.89 3.79 3.70 3.60 3.52 3.43 3.35 3.27 3.20 3.13

6 5.08 4.92 4.77 4.62 4.49 4.36 4.23 4.11 4.00 3.89 3.78 3.68 3.59 3.50

7 5.79 5.58 5.39 5.21 5.03 4.87 4.71 4.56 4.42 4.29 4.16 4.04 3.92 3.81

8 6.46 6.21 5.97 5.75 5.53 5.33 5.15 4.97 4.80 4.64 4.49 4.34 4.21 4.08

9 7.11 6.80 6.52 6.25 6.00 5.76 5.54 5.33 5.13 4.95 4.77 4.61 4.45 4.30

10 7.72 7.36 7.02 6.71 6.42 6.14 5.89 5.65 5.43 5.22 5.02 4.83 4.66 4.49

11 8.31 7.89 7.50 7.14 6.81 6.50 6.21 5.94 5.69 5.45 5.23 5.03 4.84 4.66

12 8.86 8.38 7.94 7.54 7.16 6.81 6.49 6.19 5.92 5.66 5.42 5.20 4.99 4.79

13 9.39 8.85 8.36 7.90 7.49 7.10 6.75 6.42 6.12 5.84 5.58 5.34 5.12 4.91

14 9.90 9.29 8.75 8.24 7.79 7.37 6.98 6.63 6.30 6.00 5.72 5.47 5.23 5.01

15 10.38 9.71 9.11 8.56 8.06 7.61 7.19 6.81 6.46 6.14 5.85 5.58 5.32 5.09

16 10.84 10.11 9.45 8.85 8.31 7.82 7.38 6.97 6.60 6.27 5.95 5.67 5.41 5.16

17 11.27 10.48 9.76 9.12 8.54 8.02 7.55 7.12 6.73 6.37 6.05 5.75 5.47 5.22

18 11.69 10.83 10.06 9.37 8.76 8.20 7.70 7.25 6.84 6.47 6.13 5.82 5.53 5.27

19 12.09 11.16 10.34 9.60 8.95 8.36 7.84 7.37 6.94 6.55 6.20 5.88 5.58 5.32

20 12.46 11.47 10.59 9.82 9.13 8.51 7.96 7.47 7.02 6.62 6.26 5.93 5.63 5.35

PRESENT VALUE OF $1 RECEIVED AT THE END OF THE YEAR

Table 1

Table 2

PRESENT VALUE OF AN ANNUITY OF $1 RECEIVED AT THE END OF EACH YEAR

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EVALUATION GUIDE

Issue #1 – Accounting adjustments are prepared for routine transactions, with some explanation.

Competencies: Performance Measurement and Reporting, Communication

Competency Not Achieved Marginal Competency Basic Competency Competency With Distinction

Some accounting adjustments are omitted or contain notable technical errors.

Some accounting entries are prepared accurately, and are explained reasonably for Darryl and Judy OR several entries are accurately prepared and labelled.

Most accounting entries are prepared accurately, and are explained to Darryl and Judy at an appropriate level.

In addition to Basic Competency, all entries and explanations are prepared in good depth and at an appropriate level for Darryl and Judy.

Associated elements:

1. Repairs to the production and moulding machine are appropriately capitalized. (Performance Measurement and Reporting)

2. The response explains why the repairs should be capitalized. (Performance Measurement and Reporting)

3. Amortization of the production and moulding machine is recognized over an appropriate period. (Performance Measurement and Reporting)

4. Travel expenses are correctly reversed from prepaid expenses. (Performance Measurement and Reporting)

5. The response explains why the travel expenses have to be recognized in the current period. (Performance Measurement and Reporting)

6. The raw material inventory received on December 31 is correctly set up and the payable is accrued. (Performance Measurement and Reporting)

7. The reason for accruing the raw material inventory is provided. (Performance Measurement and Reporting)

8. The settlement for the marketing manager’s lawsuit is correctly accrued. (Performance Measurement and Reporting)

9. The response explains why the settlement has to be accrued. (Performance Measurement and Reporting)

10. The revenue related to the undelivered sink order is correctly reversed and set up as deferred revenue. (Performance Measurement and Reporting)

11. The cost of sales related to the sink order is correctly reversed. (Performance Measurement and Reporting)

12. The response explains why the invoice related to the undelivered sinks has to be reversed. (Performance Measurement and Reporting)

13. The tax provision is accrued. (Performance Measurement and Reporting)

14. Journal entry explanations are at an appropriate level for Darryl and Judy. (Communication – Audience)

Issue #2 – Taxes payable and CCA are determined for Ecobath.

Competencies: Taxation, Critical Thinking


The calculation of taxes payable is omitted, or there are several errors and/or omissions.

Taxable income, including CCA, is calculated with some minor errors and/or omissions.

Taxes payable, including taxable income and CCA, is determined with very few minor errors and/or omissions.

Taxes payable, including taxable income and CCA, is precisely determined.


1. The calculation of taxable income is based on adjusted net income. (Critical Thinking)

2. Amortization is appropriately added back. (Taxation)

3. Interest and penalties are appropriately added back. (Taxation)

4. 50% of meals & entertainment are appropriately added back. (Taxation)

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5. Golf dues and fees are appropriately added back. (Taxation)

6. CCA is reasonably calculated for most classes. (Taxation)

7. CCA is reasonably calculated for Class 29. (Taxation)

8. CCA is precisely calculated for Class 52. (Taxation)

9. The non-taxable half of the capital gain is deducted. (Taxation)

10. A reasonable attempt is made to deduct the net capital loss carry-forward from the taxable capital gain. (Taxation)

11. The base amount of taxes payable and the federal tax abatement are correctly calculated. (Taxation)

12. The correct method is used to calculate provincial taxes. (Taxation)

13. Tax installments paid are deducted in determining taxes payable. (Taxation)

14. The severance is added back in determining taxable income. (Taxation)

Issue #3 – Information technology control deficiencies are evaluated.

Competency: Assurance


Few control deficiencies are identified.

Some control deficiencies are identified and, while some recommendations are provided, they are not always practical for Ecobath.

Several control deficiencies are discussed and practical recommendations are provided for some of them.

Many control deficiencies and practical recommendations for improvement are discussed.


1. A concern with back-up processes is discussed. (Assurance)

2. A recommendation is made to rectify the concern with back-up processes. (Assurance)

3. A second concern with back-up processes is discussed. (Assurance)

4. A second recommendation is made to rectify the concern with back-up processes. (Assurance)

5. A concern with the environment of the server location is discussed. (Assurance)

6. A recommendation is made to rectify the concern with environment of the server location. (Assurance)

7. A concern with how programs are acquired is discussed. (Assurance)

8. A recommendation is made to improve the purchase of programs. (Assurance)

9. A concern with the anti-virus processes is discussed. (Assurance)

10. A recommendation is made to rectify the concern with anti-virus processes. (Assurance)

11. A concern with password protocols is discussed. (Assurance)

12. A recommendation is made to rectify the concern with password protocols. (Assurance)

13. A second concern with password protocols is discussed. (Assurance)

14. A recommendation is made to rectify the concern with password protocols. (Assurance)

15. A concern with internet usage is discussed. (Assurance)

16. A recommendation is made to rectify the concern with internet usage. (Assurance)

17. A concern with maintenance of spreadsheets or quote data on individual hard drives is discussed. (Assurance)

18. A recommendation is made to rectify the concern with maintenance of spreadsheets or quote data on individual hard drives. (Assurance)

19. A concern with printing confidential information is discussed. (Assurance)

20. A recommendation is made to rectify the concern with printing of confidential information. (Assurance)

Issue #4 – Activity-based costing suggestions are provided and a break-even analysis is prepared.

Competencies: Management Decision-Making, Communication, Critical Thinking


Activity-based costing A reasonable activity-based A reasonable activity-based In addition to Basic

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suggestions and break-even analyses are not addressed or the analyses contain significant errors and omissions.

costing analysis, OR a reasonable break-even analysis, is provided.

costing analysis, AND a reasonable break-even analysis, is provided and communicated at an appropriate level for Judy.

Competency, both analyses and related discussions are well integrated and in very good depth.


1. The response identifies and explains activity-based costing. (Management Decision-Making)

2. The recommended allocation base for general liability insurance is based on an appropriate activity. (Management Decision-Making)

3. The recommended allocation base for tangible asset insurance is based on an appropriate activity. (Management Decision-Making)

4. The recommended allocation base for product liability insurance is based on an appropriate activity. (Management Decision-Making)

5. The recommended allocation base for amortization is based on an appropriate activity. (Management Decision-Making)

6. The recommended allocation base for property taxes is based on an appropriate activity. (Management Decision-Making)

7. Allocations are calculated for the common costs. (Management Decision-Making)

8. The explanation of activity-based costing/allocations is at an appropriate level for Judy. (Communication – Audience)

9. An appropriate method is used to calculate break-even price. (Management Decision-Making)

10. Cost allocations to the bathtub division are consistent with the recommended allocation method. (Critical Thinking)

11. The break-even calculation is based on adjusted account balances. (Management Decision-Making)

12. The results of the break-even analysis are discussed. (Critical Thinking)

13. Explanation of the break-even analysis is at an appropriate level for Judy. (Communication – Audience)

Issue #5 – Tax planning, and the implications of gifting assets, is discussed for Harry Dunphy.

Competencies: Taxation, Communication


The response does not address the issue of a will and/or the implications of transferring Harry’s assets to the children in sufficient depth.

The tax implications of gifting the assets are discussed and either the benefit of having a will is discussed OR the implications of gifting the assets are quantified. The analysis may contain minor errors.

The benefits of having a will and the tax implications of gifting the assets are discussed in reasonable depth, or are discussed and quantified in some depth. The communication is at an appropriate level for Harry.

In addition to Basic Competency, the consequences of not having a will, the value of an executor, and the listed personal property rules are explained in good depth for Harry.


1. The tax consequence of gifting shares to the children is explained. (Taxation)

2. The tax consequence of dividend income related to the shares is explained. (Taxation)

3. The tax consequence of gifting artwork is explained. (Taxation)

4. The listed personal property $1,000 minimum rule for proceeds and cost is explained. (Taxation)

5. The tax consequence of changing the name on the term deposit is explained. (Taxation)

6. The taxable gain on gifting the shares is quantified. (Taxation)

7. The taxable gain on the gifting of artwork is determined. (Taxation)

8. The implication of dying without a will is explained. (Taxation)

9. The response explains the importance and role of an executor. (Taxation)

10. The implication of the deemed disposal of all assets at the time of death is explained. (Taxation)

11. The language and level of detail are at an appropriate level for Harry/Judy. (Communication – Audience)

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Issue #6 – Assurance issues, including materiality, ethics, and review versus audit engagements are analyzed.

Competencies: Assurance, Critical Thinking, Communication


The prior CA, potential ethical issues, and the review versus audit analysis are omitted and/or the discussion contains notable errors.

Two of materiality, ethics, and review versus audit are addressed in some depth.

At least two of materiality, ethics, and review versus audit are addressed in good depth OR materiality is addressed in good depth and the other issues are addressed in some depth. The communication is in a professional tone.

All of materiality, ethics, and review versus audit are addressed in good depth and communicated in a professional tone.


1. In determining materiality, accounting adjustments are considered. (Assurance)

2. In determining materiality, one or more normalizing items are adjusted for. (Assurance)

3. Discussion is provided regarding whether an item should be normalized. (Assurance)

4. In determining materiality, the analysis of normalizing items is in good depth. (Assurance)

5. Materiality is determined in accordance with CAS 320. (Assurance)

6. The materiality assessment includes a qualitative discussion of key financial statement users. (Assurance)

7. A conclusion is reached as to the materiality level. (Critical Thinking)

8. The need to contact the prior CA is addressed. (Critical Thinking)

9. The response identifies the prior accountant’s possible breach of the Rules of Professional Conduct regarding confidentiality. (Assurance)

10. The response includes a discussion of possible action to take to address the potential ethical issue. (Critical Thinking)

11. The discussion of potential ethical issues is professional in tone. (Communication – Tone)

12. The response explains that materiality is calculated for both review and audit engagements. (Assurance)

13. The response explains the difference in the levels of assurance in a review versus an audit. (Assurance)

14. The response explains the difference in the procedures performed in an audit versus a review. (Assurance)

15. The response explains the difference in cost of a review versus an audit. (Assurance)

16. The discussion of review versus audit uses terms and language appropriate for Judy. (Communication – Audience)

Issue #7 – Financial statement analysis is performed and interpreted in the context of a review engagement.

Competencies: Assurance, Critical Thinking, Communication


Several technical weaknesses are noted in the ratio and variance analysis OR one or more ratios and/or several variances were not analyzed.

Some key ratios are reasonably calculated and interpreted, and some significant fluctuations in account balances are noted. There is some limited discussion of the impact on the engagement.

Key ratios and several fluctuations in account balances are analyzed in good depth, including the impact on the engagement. The communication is at an appropriate level for Dean.

In addition to Basic Competency, many account variances are identified. The reasons for recommending further investigation are clearly explained and at an appropriate level.


1. The gross margin calculation method is technically correct. (Assurance)

2. The accounts receivable calculation method is technically correct. (Assurance)

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3. The inventory turnover calculation method is technically correct. (Assurance)

4. The results of the gross margin calculation are reasonably interpreted and the potential for overstated sales or understated COS is identified. (Critical Thinking)

5. The results of the accounts receivable turnover calculation are reasonably interpreted and the potential for understated accounts receivable or understated sales is identified. (Critical Thinking)

6. The results of the inventory turnover calculation are reasonably interpreted and the potential for understated COS or overstated inventory is identified. (Critical Thinking)

7. The variance in advertising expense is identified and appropriately interpreted. (Assurance)

8. The variance in prepaid expense is identified and appropriately interpreted. (Assurance)

9. The variance in the demand loan is identified and appropriately interpreted. (Assurance)

10. The decrease in accounts payable is identified and appropriately interpreted. (Assurance)

11. The variance in amortization is identified and appropriately interpreted. (Assurance)

12. The variance in bad debt expense is identified and appropriately interpreted. (Assurance)

13. The variance in interest expense is identified and appropriately interpreted, with recognition of the relationship between interest and the long-term debt balance. (Assurance)

14. The variance in office expenses is identified and appropriately interpreted. (Assurance)

15. The variance in professional fees is identified and appropriately interpreted. (Assurance)

16. The variance in salaries is identified and appropriately interpreted. (Assurance)

17. The communication is appropriate for Dean, a CA. (Communication – Audience)

Issue #8 – The response demonstrates basic professional communication skills.

Competency: Communication


The response is difficult to understand due to errors, poor formatting, and/or lack of organization OR the overall tone is inappropriate or unacceptable.

The response is generally easy to understand; however, some sections are confusing or contain errors that interfere with understandability OR the tone is too casual or familiar.

The response is easy to follow and understand and is logically organized; while some errors are present, they do not interfere with readability. The response conveys confidence.

The response is exceptionally clear and concise and very well organized, with formatting that enhances readability. The tone of the response is extremely professional, conveying confidence, objectivity, and integrity.


1. The response is sufficiently readable in terms of spelling, grammar, punctuation, and acronyms/abbreviations. (Communication – Spelling, Grammar, Punctuation, and Word Usage)

2. The response is logically organized and uses appropriate sentences and paragraphs. (Communication – Sentences, Paragraphs, and Organization)

3. The response is formatted well. (Communication – Formatting)

4. The calculations are formatted well. (Communication – Formatting)

5. The response is generally professional in tone. (Communication – Tone)

Documents

MODULE 1 EVALUATION - casb.com · MODULE 1 EVALUATION December 16, 2011 This evaluation contains: Simulation 1 (10 pages) 180 minutes Present value tables (1 page) Candidate Declaration