Big Rock Brewery Inc. is a regional producer of craft beers and ciders that are sold across Canada. 

Exhibit 9.12 contains Note 3.11 detailing Big Rock’s policy regarding keg deposits from the 2016 annual report.

EXHIBIT 9.12 Excerpt from Big Rock Brewery Inc.’s 2016 Annual Report

BIG ROCK BREWERY INC.

Notes to the Consolidated Financial Statements

(In thousands of Canadian dollars, unless otherwise stated)

3.11 Keg deposits

Big Rock requires that customers pay deposits for kegs purchased which are reflected as a liability on the Corporation’s Consolidated Statement of Financial Position. The deposits are subsequently refunded to customers via invoice credits or cash payments when kegs are returned. In the normal course of business, there are a percentage of kegs which are never returned for refund. As a result, Big Rock performs an analysis based on factors such as total kegs produced, current inventory rates and average keg turnover. In addition, return percentages are calculated and tracked to estimate an average keg turnover rate. Together, this information is used to estimate a keg deposit liability at each reporting date. Any adjustments required to the keg liability account are recorded through revenue.

Required

Refer to Note 3.11 in Exhibit 9.12, and in your own words explain how Big Rock accounts for keg deposits.