Question

Reitmans (Canada) Limited is a leading Canadian retailer that operates more than 900 stores under the Reitmans, Smart Set, RW & Co., Thyme Maternity, Penningtons, and Addition Elle banners. The following information is an extract from Reitmans’ annual report for its fiscal year ended February 1, 2014.
Reitmans’ depreciation policies for its property and equipment state that:
Depreciation is recognized in net earnings on a straight-line basis over the estimated useful lives of each component on an item of property and equipment. Land is not depreciated. Leasehold improvements are depreciated over the lesser of the estimated useful life of the asset and the lease term. Assets not in service include expenditures incurred to-date for equipment not yet available for use. Depreciation of assets not in service begins when they are ready for their intended use
The estimated useful lives for the current and comparative periods are as follows:
Buildings.......... 10 to 50 years
Fixtures and equipment..... 3 to 20 years
Leasehold improvements.... 6.7 to 10 years
Intangible assets are comprised of software and acquired trademarks and their useful lives are assessed to be either finite or indefinite.
Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment. Reitmans’ trademarks were considered to have indefinite useful lives. During the year ended February 1, 2014, the full cost of $499 thousand of trademarks was subject to an impairment loss of $499 thousand.
Required:
a. Determine the average age percentage of Reitmans’ 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 Reitmans’ 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 Reitmans estimates that its fixtures and equipment will have useful lives between 3 and 20 years, determine the annual straight-line depreciation rate that Reitmans is using for its fixtures and equipment.
d. Explain, in your own words, why Reitmans does not begin depreciating assets until they are ready for their intended use.
e. Explain, in your own words, what Reitmans’ management is saying with respect to purchased software being capitalized as part of equipment costs. What would be the alternative treatment?
f. Explain, in your own words, what Reitmans’ management is saying about the company’s trademarks.
g. If Reitmans’ net carrying amount for property and equipment was $178,341 thousand for its year ended February 1, 2014, and $205,131 thousand for its year ended February 1, 2013, and its sales revenue was $960,397 thousand for fiscal year ended February 1, 2014, 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.


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  • CreatedJune 11, 2015
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