Spin Master Corp. is a Toronto-based company that designs, markets, and sells entertainment products for children. Exhibit 8.27 is an extract from Spin Master’s consolidated financial statements for its year ended December 31, 2016.

EXHIBIT 8.27 Extract from Spin Master Corp. 2016 Consolidated Financial Statements (in thousands of US dollars)

Spin Master’s depreciation policies for its property and equipment state that: Depreciation is recognized so as to write off the cost or valuation of assets less their residual values over their useful lives, using the straight-line method or declining balance method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. The following are the estimated useful lives for the major classes of property, plant and equipment:
Land ..........................................................................................................    Not depreciated
Buildings ...................................................................................................    30 years
Moulds, dies and tools ...........................................................................    2 years
Off ice equipment ...................................................................................    3 years
Leasehold improvements Lesser of lease term or .............................    5 years
Computer hardware ...............................................................................    3 years
Machinery and equipment ....................................................................    30% declining balance

Required

a. Determine the average age percentage of Spin Master’s moulds, dies, and tools. Does this make sense given the company’s depreciation estimates for them?

b. Spin Master recorded depreciation on its computer hardware in the amount of $446 thousand for its 2016 fiscal year. Compare the estimated useful life for computer hardware used by Spin Master with that used by Dollarama (see Appendix A). Explain what might be the reason for the difference.

c. What is management saying about the expected useful life of its machinery and equipment, given the depreciation method used for them?

d. The net carrying amount of Spin Master’s property, plant, and equipment at December 31, 2015, was $16,096 thousand. If Spin Master’s sales revenue was $1,154,454 thousand for the 2016 fiscal year, determine the company’s fixed asset turnover ratio. Explain what you can tell about Spin Master based on the result of this ratio.

Transcribed Image Text:

Moulds, dies and tools Computer hardware Equipment Property Total Cost 15,401 8,415 December 31, 2016 Accumulated depreciation December 31, 2016 Net carrying amount Balance at December 31, 2016 9,453 129,153 95,884 (77,019) (7,500) (11,228) (6,410) (102,157) 3,043 18,865 4,173 26,996 915