Indigo Books & Music Inc. is Canada€™s largest book, gift, and specialty toy retailer. The company operates more than 200 stores under the Coles, Indigo, Indigospirit, SmithBooks, and The Book Company banners. The company also has a 50% interest in the Calendar Club of Canada Limited Partnership, which operates mall-based stores and seasonal kiosks. The financial information in Exhibit 7-23 is from the company€™s 2014 annual report.

Required:
a. Calculate Indigo€™s inventory turnover ratio and the days to sell inventory ratio for 2014 and 2013. Comment on the results.
b. Given the result of your analysis in part (a), would you expect Indigo to have significant payables to the publishing and distribution companies it purchases its inventory from? Was this the case?
c. Explain Indigo€™s inventory valuation polices in your own words. Specifically, explain what Indigo includes in inventory cost, what cost formula(s) the company uses, and how it values its inventory on the statement of financial position.

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EKHIBIT 7-23A INDIGO BOOKS & MUSIC INC.'S 2014 CONSOLIDATED BALANCE SHEETS As at March 30, 2013 As at Apri 1,2012 As at March 29, 2014 restated (notes 4 and 22) restated (notes 4 and 22) thousands of Canadian doliars) ASSETS Cash and cash equivalents (note 6) Accounts receivable Inventories note 7) Prepaid expenses Total current assets Property, plant and equipment (note 8) Intangible assets (note 9) Equity investment (note 20) Deferred tax assets (note 10) Total assets LIABILITIES AND EQUITY $210,562 7,126 216,533 4,153 438,374 58,903 22,164 $157,578 $206,718 218,979 5,184 229,199 58,478 21,587 452,419 66,928 22,810 48,731 569,140 48,633 591,751 512,588 150,177 47,169 2,188 13,733 173,416 42,711 Accounts payable and accrued liabilities (note 19) Unredeemed gift card liability (note 19) Provisions (note 11) Deferred revenue Income taxes payable Cuent portion of long-term debt (notes 12 and 18) Total current liabilities 138,428 928 11,234 1,060 228,718 197,827 214,031 As at March 30, 2013 restated (notes 4 and 22) 4,004 As at April 1, 2012 restated (notes 4 and 22) As at March 29, 2014 (thousands of Canadian dollars) accrued liabilities (note 19) 5,800 164 Long-term provisions (note 11) Long-term debt (notes 12 and 18) Total liabilities 705 200,914 218,818 236,119 Share capital (note 13) Contributed surplus (note 14) Retained earnings Total equity Total liabilities and equity 203,805 8,128 138,389 350,322 $569,140 203,812 203,373 145,220 355,632 S591,751 99,042 $512,588 EXHIBIT 7-23B EXCERPT FROM NOTES TO INDIGO BOOKS & MUSIC INC.'S 2014 FINANCIAL STATEMENTS Inventories The future realization of the carrying amount of inventory is affected by future sales demand, inventory levels, and product quality. At each balance sheet date, the Company reviews its on-hand inventory and uses historical trends and current inventory mix to determine a reserve for the impact of future markdowns which will take the net realizable value of inventory on-hand below cost. Inventory valuation also incorporates a write-down to reflect future losses on the disposition of obsolete merchandise. The Company reduces inventory for estimated shrinkage that has occurred between physical inventory counts and the end of the fiscal year based on historical experience as a percentage of sales. In addition, the Company records a vendor settlement accrual to cover any disputes between the Gompany and its vendors. The Company estimates this reserve based on historical experience of settlements with its vendors. EXCERPT FROM NOTES TO INDIGO BOOKS & MUSIC INC.'S 2014 FINANCIAL STATEMENTS Inventories Inventories are valued at the lower of cost, determined on a moving average cost basis, and market, being net realiz able value. Costs include all direct and reasonable expenditures that are incured in bringing inventories to their present location and condition. Net realizable value is the estimated selling price in the ordinary course of business. When the Company permanenty reduces the retail price of an item and the markdown incumed brings the retail price below the cost of the item, there is a corresponding reduction in inventory recognized in the period. Vendor rebates are recorded as a reduction in the price of the products, and comesponding inventories are recorded net of vendor rebates. EXHIBIT 7-23D EXCERPT FROM NOTES TO INDIGO BOOKS & MUSIC INC.'S 2014 FINANCIAL STATEMENTS 7. Inventories The cost of inventories racognized as an expense was $495.1 million in fiscal 2014 (2013 $499.5 million. Inventories consist of the landed cost of goods sold and exclude online shipping costs, inventory shrink and damage reserve, and all vendor support programs. The amount of inventory write-downs as a result of net realizable value lower than cost was $8.6 million in fiscal 2014 (2013 $3.9 million), and there were no reversals of inventory write-downs that were recognized in fiscal 2014 (2013 i). The amount of inventory with net realizable value equal to cost was S1.8 million as at March 29, 2014 (March 30, 2013 S1.4 million; April 1, 2012 S1.7 million)