Matthew Munk, a venture capitalist, is considering investing in Fly Fast Airlines Limited, a private company that owns and operates a small airline business. Fly Fast Airlines operates out of the major centres in Canada and competes directly with the larger airlines on short-haul flights. One of its major competitors is East Jet Airlines Limited.

Fly Fast prepares its financial statements in accordance with ASPE, while East Jet is a publicly traded company that prepares its financial statements in accordance with IFRS.

The following is an excerpt of selected financial amounts (in thousands) from Fly Fast's and East Jet's financial statements:

As Matthew considers investing in Fly Fast, he would like to evaluate its solvency and ability to pay interest on its liabilities.
Instructions
(a) Identify two ratios that Matthew can use to assess the solvency of Fly Fast in contrast to that of its main competitor, East Jet. Calculate the recommended ratios for both Fly Fast and East Jet. Which company has better solvency?
(b) In the current liability section of the statement of financial position, East Jet has recorded a provision while Fly Fast has recorded a contingent liability. As these are uncertain liabilities, which company is more likely to recognize this type of liability given the type of accounting standards it uses?

Transcribed Image Text:

East Jet Fly Fast Statement of Financial Position Current assets Non-current assets Current liabilitles Non-current liabilities $1,268,710 2,294,134 317,178 573,533 120,000 270,000 832,172 1,222,993 Income Statement Revenue Profit Income tax expense Interest expense $2,609,261 136,720 59,947 60,164 $652,315 34,180 14,986 9,876