The chief financial officer and acting chief executive officer of PixStream Incorporated, a high-tech video networking solutions company, was contemplating how going public in the next couple of years might affect his decisions and choices relating to the company's accounting practices for research and development expenditures. He needed to determine if he should continue expensing all research and development costs or if he should capitalize and amortize some or all of the costs over the period of time the company is expected to benefit from the research and development efforts. There were many practical business reasons for keeping development costs off the balance sheet, but he wanted to ensure that PixStream would get its proper valuation when the time came for the company to go public. He wanted to approach his analysis from a proper accounting perspective and from a practical business perspective, to make sure that all angles were covered. Once he has decided on his course of action, he must determine the ramifications of his decision and the actions that he will have to take as a result.
Several large Canadian public companies announced their intent to merge and use the pooling of interests method rather than the traditional purchase method. Pooling had been rarely used to account for business combinations in Canada. The case focus is on an analyst who wanted to ensure that she understood the differential impact of both methods so that she could more fully represent her clients' interests. She decided to use an analysis of the recent merger of TransCanada Pipelines and NOVA Corporation to help her better understand and evaluate the two alternative accounting methods and their impact on the financial statements.
After a turbulent year in the Canadian airline industry, Madelaine Mercier wants to reevaluate her investment in Air Canada and Canadian Airlines. She is wondering how she should reflect the extensive amount of leases used by the two companies in her analysis. She is unsure if she should make adjustments to the company's financial statements and is curious to know whether these adjustments would make a material difference in her analysis.