Question:
Homburg Invest Inc. is an international real estate investment and development company headquartered in Halifax, Nova Scotia. For the year ended December 31, 2008, Homburg prepared two sets of financial statements-one in accordance with Canadian
GAAP in place at that time (similar to ASPE), the other in accordance with IFRS.
Excerpts from Homburg Invest Inc.'s Canadian ASPE-based
financial statements and IFRS-based
financial statements appear below and on the following pages.
ASPE-Based
Financial Statements:
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Notice that the presentation of the financial statements differs somewhat, as well as some of the recorded balances. These differences arise because ASPE and IFRS rules measure certain transactions differently. However, the focus of this question is the impact on ratios of using a different set of accounting rules. Investors need to understand that if two companies in the same industry are being compared, their results could be very different depending upon whether IFRS or ASPE is used in the preparation of the financial information.
Required
1. Compute the following ratios for 2008 based on Homburg's financial statements prepared in accordance with ASPE. For the purpose of this exercise, assume that "cash" and "receivables and other assets" are current assets, and that "accounts payable and other liabilities," "construction financing," and "liabilities of discontinued operations" are current liabilities. Include both "interest on long-term debt" and "interest and financing costs" in your computations for part d.
a. Current ratio
b. Acid-test ratio
c. Debt ratio
d. Rate of return on total assets
2. Compute the same ratios as in question 1 for 2008 based on Homburg's IFRS financial statements.
Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
GAAP
Generally Accepted Accounting Principles (GAAP) is the accounting standard adopted by the U.S. Securities and Exchange Commission (SEC). While the SEC previously stated that it intends to move from U.S. GAAP to the International Financial Reporting Standards (IFRS), the...
Transcribed Image Text:
HOMBURG INVEST INC Consolidated Balance Sheet $ amounts in thousands) December 31 2008 December 31 2007 Assets Investment properties Development properties Long term investments Intangible assets Goodwill Restricted cash Cash Receivables and other Currency guarantee receivable $3,310,317 360,562 40,086 110,067 $2,939,960 293,955 39,562 100,619 33,036 27,704 17,927 78,845 25,969 16,359 138,397 28,165 $4,029,922 $3,531,608 HOMBURG INVEST INC Consolidated Balance Sheet $ amounts in thousands) December 31, 2008 December 31, 2007 Liabilities Long term debt Accounts payable and other $2,952,124 $2,094,122 liabilities 268,796 102,433 129,097 15,429 579,373 66,393 110,578 12,234 Construction financing Future income taxes Intangible liabilities Liabilities of discontinued operations 28,903 28,903 Derivative instrument liability 3,516,209 513,713 $4,029,922 2,891,603 640,005 $3,531,608 Shareholders' equity HOMBURG INVEST INC. Consolidated Statement of Earnings (Loss) For the Year Ended December 31 $ amounts in thousands 2008 S309,579 191,260 2,992 2007 $207,331 229,139 Property revenue Sale of properties developed for resale Dividend income and distributions Gain on fair value increase in investments Other income Foreign exchange gain Gain on derivative instrument Gain on sale of assests 938 3,857 18,305 1,849 Property operating expenses Cost of sale of properties developed for resale Interest on long-term debt Interest and financing costs 443 506,123 84,421 142,841 154,899 11,916 147,677 106,818 13,053 39,278 11,051 5,288 23,956 General and administrative Stock-based compensation Foreign exchange loss Loss on derivative instruments 19,656 18,542 Loss on fair value decrease in investments 23,133 605,987 (99,864) (3,781) (96,083) 368,338 97,597 Earnings (loss) before income taxes Total income taxes (recovery) Net earnings (loss) from continuing operations Net loss from discontinued Net earnings (loss) 81,327 operations HOMBURG INVEST INC. Consolidated Balance Sheet S amounts in thousands) December 31 December 31 Assets Non-current assets $3,549,744 224,285 28,165 $3,304,880 Currency guarantee receivable 40,086 25,969 3,868,249 39,562 27,704 Restricted cash Current assets 16,359 17,927 developed for resale Receivables and other 194,638 65,390 26,694 Total assets $4,144,636 $3,817,479 Equity and Liabilities Total equity Non-current liabilities Long-term debt S 606,768 $ 886,271 2,901,348 19,427 143,930 29,727 1,910,668 Deferred tax liabilities Other liabilities 2,084,829 561,122 28,903 Current liabilities 255,585 Accounts payable and other Income taxes pavable operations Construction financing Current portion of long-term debt 28,903 102,433 50,776 183,454 Total liabilities Total equity and liabilities $ 4,144,636 $3,817,479 HOMBURG INVEST INC. Consolidated Income Statement For the Year Ended December 31 S amounts in thousands) Sales of properties developed for resale Cost ot sale ot properties developed for resale Net adjustment to fair value of investment properties Net adjustment to fair value of derivative financial 18,305 Income (loss) before income taxes Net income (loss) from continuing operations Net loss from discontinued operations
