Dollarama Inc. is Canada’s largest dollar store operator. The following information is an extract from Dollarama’s consolidated financial statements for the year ended February 2, 2014:
Dollarama’s depreciation policies for its property and equipment state that:
Property and equipment are carried at cost and depreciated on a straight-line basis over the estimated useful lives of the assets as follows:
Store and warehouse equipment ..... 8 to 10 years
Vehicles ................... 5 years
Leasehold improvements ......... Lease term
Computer equipment .............. 5 years
Estimates of useful lives, residual values and methods of depreciation are reviewed annually. Any changes are accounted for prospectively as a change in accounting estimate. If the expected residual value of an asset is equal to or greater than its carrying value, depreciation on that asset is ceased. Depreciation is resumed when the expected residual value falls below the asset’s carrying value. Gains and losses on disposal of an item of property and equipment are determined by comparing the proceeds from disposal with the carrying amount of the item and are recognized directly in the consolidated statement of comprehensive income.
a. Determine the average age percentage of Dollarama’s property and equipment. Compare this with the ratio determined for Danier in the chapter and identify which company would be able to go longer without replacing its assets based on this ratio.
b. Determine the average age (in years) of Dollarama’s leasehold improvements. Compare this with the ratio determined for Danier in the chapter and identify which company’s leased stores are newer.
c. Given that Dollarama estimates that its store and warehouse equipment will have useful lives between 8 and 10 years, determine the annual straight-line depreciation rate that Dollarama is using for its store and warehouse equipment.
d. Explain, in your own words, how Dollarama treats changes in the estimated useful lives, residual values, and methods of depreciation for its property and equipment.
e. Explain, in your own words, why Dollarama stops depreciating assets when their expected residual value is equal to or greater than their carrying amounts.
f. If Dollarama’s net carrying amount for property and equipment was $250,612 thousand at its 2014 year end and $197,494 thousand at its 2013 year end and its sales revenue was $2,064,676 thousand for the 2014 fiscal year, determine the company’s fixed asset turnover ratio. Compare this with the ratio determined for
Danier in the chapter and comment on which company did a better job of using its long-term assets to generate revenues.

  • CreatedJune 11, 2015
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