Question:
Canadian Tire Corporation, Limited is composed of two main business operations that offer a range of retail goods and services, including general merchandise, apparel, sporting goods, petroleum, and financial services. Exhibit 9-4 contains Note 3 setting out the accounting policies applied for sales and warranty returns and customer loyalty programs and Note 21 detailing Canadian Tires provisions from the companys 2013 financial statements.
Required:
a. Using the information from Notes 3 and 21 in Exhibit 9-4, explain how Canadian Tire accounts for its sales and warranty returns provision, including the financial impacts on the companys 2013 financial statements.
b. The Canadian Tire money program is the companys most significant loyalty program. Using the information from Notes 3 and 21 in Exhibit 9-4, explain how the company accounts for its loyalty programs, including the financial impacts on the companys 2013 financial statements.
Transcribed Image Text:
EXCERPT FROM CANADIAN TIRE CORPORATION, LIMITED'S 2013 ANNUAL REPORT 3. Significant accounting policies Sales and warranty returns The provision for sales and warranty returns relates to the Company's obligation for defective goods in current store inventories and defective goods sold to customers that have yet to be returned, as well as after sales service for replace ment parts. Accruals for sales and warranty returns are estimated on the basis of historical returns and are recorded so as to alocate them to the same period the corresponding revenue is recognized. These accruals are reviewed regularly and updated to reflect managements best estimate; however, actual returns could vary from these estimates. Customer loyalty Provisions for the fair value of loyalty program redemptions are estimated on the basis of historical redemptions. The provisions are reviewed regularly and updated to reflect management's best estimate; however, actual redemptions could vary from these estimates. 21. Provisions The following table presents the changes to the Company's provisions: (C$ in millions) Sales and Warranty Site Restoration and Onerous Customer Retuns Decommissioning Contracts Loyaltyther Total S 111.3 Balance, beginning of year Charges, net of reversals Utilizations Unwinding of discount Change in discount rate $ 73.2 16.8 240.6 383.4 (8.8) (387.4) 2.0 (4.3) 71.2 18.0 234.3 196.1 $1.4 9.5 $38.2 S 34.6 $4.7 0.5 (2.0) 234.9 7.6 131.8 8.6 (236.7) (133.8) 0.6 (4.3) $32.4 9.4 S 23.0 1.4 Balance, end of year S 109.5 Current provisions Long-term provisionsS4.1 $3.2 3.0 S0.2 105.4 69.8 8.5