Indigo Books & Music Inc., operating under Indigo, Chapters, Coles, The World's Biggest Bookstore, Smith Books, The
Question:
Instructions
(a) Identify all lease arrangements that are indicated in the company's financial statements, including the notes. Indicate any balances related to these leases that are reported on the income statement and statement of financial position.
(b) Calculate the following ratios for Indigo based on the 2012 published financial statements:
1. Debt to equity ratio
2. Capital asset turnover ratio
3. Total asset turnover ratio
4. Return on investment (net income to total assets)
(c) Assume that the company adopts the contract-based approach as set out in the IASB's 2010 Exposure Draft. Assuming an interest rate of 6%, estimate the impact of the adoption on the 2012 statements of financial position. Also, estimate the impact on the 2012 income statement. List any assumptions that you have made. To help with the analysis, below is the information on operating lease payments that were committed to as of March 31, 2012 (excerpts from note 13).
The Company's contractual obligations due over the next five fiscal years and thereafter are summarized below:
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The Company entered into capital lease agreements for certain equipment. The obligations under these capital leases is $2.2 million (2011 - $3.3 million), of which $1.1 million (2011 - $1.3 million) is included in the current portion of long-term debt. The remainder of the capital lease obligations have been included in the noncurrent portion of long-term debt.
(d) Using your estimate of the amount to capitalize for Indigo, recalculate the debt-to-equity and total asset turnover ratios in part (b) above. Compare the recalculated ratios with the original results and comment on the differences.
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... Asset Turnover
Asset turnover is sales divided by total assets. Important for comparison over time and to other companies of the same industry. This is a standard business ratio.
Step by Step Answer:
a As disclosed in Note 4 Summary of Significant Accounting Policies the company explains that it conducts all of its business from leased premises These leases have renewal terms over which the compan...View the full answer
Intermediate Accounting
ISBN: 978-1118300855
10th Canadian Edition Volume 2
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Nicola M. Young, Irene M. Wiecek, Bruce J. McConomy
