To: Air Con Co.(ACC) VP, Finance

From: Susan Chu (CA, CMA, or CGA )

Overview
Company Backgrounds and constraint
From Jan.1,2011 private enterprises will have option to adopt one of two sets of standards，ASPE or IFRS. Since ACC is a private company, it is critical to make a right choice between these two standards. ASPE is usually applied for the small private company, because it requires less disclosure while being less complicate and less expensive than IFRS. However, ACC should choose IFRS to better fulfill its needs. ACC has never been audited before and shareholders want the financial statement to be prepared on the base of GAAP to avoid being asked of awkward questions and expensive auditing in the future years.
Therefore, ACC should disclose more information, which can be better done under IFRS.

Users and User Needs
ACC’s VP, finance
-Needs the memorandum to help identify and analyze alternative accounting treatments of following five issues.
-Ponder to provide proper presentation of some transactions and events

Bank
-interested in the how well ACC manage the finance
-consider all the financial issues from financial statements to decide whether or not to provide bank loans to ACC

Shareholders
-Interested in how well they manage the company

Accounting Issues

Issue 1: Identifying the costs incurred during the year into product costs and period costs.
Alternative 1: Grouping incurred costs by charging all direct manufacturing costs to inventory and all other expenses to expense in the year incurred.

Alternative 2 :Separate the other expenses (other than direct manufacturing cost) into product costs(inventory) and period costs.

Recommendation: Better choose alternative 2. ACC should separate the other expenses (other than direct manufacturing cost) into product costs and period cost. According to IFRS, product costs are