Question

RONA Inc. is a major Canadian retailer of hardware, building supplies, and home renovation products. The company’s headquarters are in Boucherville, Quebec, and approximately 25,000 employees work in the network of 530 corporate, franchise, and affiliate stores across Canada. Exhibit 4-17A presents an extract from the company’s consolidated statements of income and statements of other comprehensive income. Exhibit 4-17B presents supplemental note disclosure related to the consolidated statement of income, while Exhibit 4-17C presents note disclosure related to the company’s revenue recognition policies.
Exhibit 4-17B EXCERPT FROM RONA INC.’S 2013 ANNUAL REPORTE
5. Supplemental information on consolidated statement of income
5.1 Earnings before interest, taxes, depreciation, amortization, impairment of non-financial assets, restructuring costs and other charges
EXHIBIT 4-17C EXCERPT FROM RONA INC.’S 2013 ANNUAL REPORT
(c) Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns, rebates and trade and quantity discounts. The Corporation recognizes revenue at the time of sale in stores or upon delivery of the merchandise, when the sale is accepted by the customer and when collection is reasonably assured. Revenue also includes various services provided by the Corporation, such as product installation and delivery. Revenue from the rendering of services is measured at the fair value of the consideration received or receivable. The Corporation recognizes revenue when the commercial obligations have been fulflled, the services have been accepted by the customer and collection is reasonably assured.
Revenue also includes royalties received from franchised stores. Royalties are measured as a percentage of revenue and are recognized as earned and when collection is reasonably assured. Interest income relating to trade and other receivables and loans and advances are reported on an accrual basis using the effective interest method.
Required:
a. RONA’s consolidated statements of income present revenue information followed immediately by earnings information. The statement does not contain any information on the company’s expenses for the period. Financial statement users can obtain this information in note 5.1 to the financial statements. Comment on your perspective of this approach, including identifying any advantages and disadvantages with it.
b. Calculate RONA’s gross profit percentage for 2013 and 2012. Has it improved?
c. Does RONA present its expenses by function or by nature? Does this approach require a higher level of management judgement when preparing the statement?
d. Explain RONA’s revenue recognition policies in your own words.


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  • CreatedJune 11, 2015
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