Question

Maple Leaf Foods Inc. produces value-added meat, meal, and bakery products for customers across North America, the United Kingdom, and Japan. Exhibit 4-18A presents the company’s consolidated statements of earnings for the years ended December 31, 2013 and 2012. Exhibit 4-18B is an extract from the notes to the company’s financial statements presenting its revenue recognition policies.
EXHIBIT 4-18B EXCERPT FROM MAPLE LEAF FOODS INC.’S 2013 ANNUAL REPORT
(r) Revenue Recognition
The majority of the Company’s revenue is derived from the sale of product to retail and foodservice customers, as well as the sale of rendering products and by-products to industrial and agricultural customers. The Company recognizes revenue from product sales at the fair value of the consideration received or receivable, net of estimated returns, and an estimate of sales incentives provided to customers. Revenue is recognized when the customer takes ownership of the product, title has transferred, all the risks and rewards of ownership have transferred to the customer, recovery of the consideration is probable, the Company has satisfied its performance obligations under the arrangement, and has no ongoing involvement with the sold product. The value of sales incentives provided to customers are estimated using historical trends and are recognized at the time of sale as a reduction of revenue. Sales incentives include rebate and promotional programs provided to the Company’s customers. These rebates are based on achievement of specified volume or growth in volume levels and other agreed promotional activities. In subsequent periods, the Company monitors the performance of customers against agreed upon obligations related to sales incentive programs and makes any adjustments to both revenue and sales incentive accruals as required.
Except for fresh bread, the Company generally does not accept returns of spoiled products from customers. For product that may not be returned, the Company, in certain cases, provides customers with allowances to cover any damage or spoilage, and such allowances are deducted from sales at the time of revenue recognition. In the case of fresh bread, customer returns are deducted from revenue.
Required:
a. Calculate Maple Leaf’s gross profit percentage for 2013 and 2012. Has it improved?
b. Does Maple Leaf present its expenses by function or by nature? Does this approach require a higher level of management judgement when preparing the statement?
c. Explain Maple Leaf’s revenue recognition policies in your own words.


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  • CreatedJune 11, 2015
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