The Second Cup Ltd. is one of Canadas best-known specialty coffee caf franchisors. Exhibits 9.10A to 9.10C

The Second Cup Ltd. is one of Canada’s best-known specialty coffee café franchisors. Exhibits 9.10A to 9.10C contain Second Cup’s statements of financial position, Note 11 detailing accounts payable and accrued liabilities, and Note 2(m) regarding gift card liability.

EXHIBIT 9.10A The Second Cup Ltd.’s 2016 Statements of Financial Position

EXHIBIT 9.10B Excerpt from the Second Cup Ltd.’s 2016 Annual Report, Note 11

EXHIBIT 9.10C Excerpt from the Second Cup Ltd.’s 2016 Annual Report, Note 2(m)

m. Gift card liability
The gift card program allows customers to prepay for future purchases by loading a dollar value onto their gift cards through cash or credit/debit cards in the cafés or online through credit cards, when and as needed. The gift card liability represents liabilities related to unused balances on the card net of estimated breakage. These balances are included as sales from franchised cafés, or as revenue of Company-operated cafés, at the time the customer redeems the amount in a café for products. Gift cards do not have an expiration date and outstanding unused balances are not depleted. When it is determined the likelihood of the remaining balance of a gift card being redeemed by the customer is remote, the amount is recorded as breakage. The determination of the gift card breakage rate is based upon Company-specific historical load and redemption patterns. The 2016 analysis determined that a breakage rate of 3% was applicable to gift card sales, which is consistent with 2015 experience. Gift card breakage is recognized on a pro rata basis based on historical gift card redemption patterns. Breakage income is fully allocated to the Co-op Fund and not recorded in earnings.

Required

a. Calculate the current ratio for 2016 and 2015. Comment on the company’s ability to meet its current liabilities. Has it improved over the prior year?

b. Calculate the accounts payable turnover ratio and accounts payable payment period. Second Cup’s cost of goods sold was $5,795 thousand for its 2016 fi scal year. Comment on these ratios.

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THE SECOND CUP LTD. Statements of Financial Position As at December 31, 2016 and December 26, 2015 (Expressed in thousands of Canadian dollars) 2016 2015 ASSETS Current assets Cash and cash equivalents $3,004 $3,080 Restricted cash (note 22) 1,947 840 Trade and other receivables (note 6) 3,023 3,434 Notes and leases receivable (note 7) 139 120 Inventories (note 8) 229 200 Prepaid expenses and other assets 251 427 Income tax receivable 532 687 9,096 8,817 Non-current assets 173 268 Notes and leases receivable (note 7) Property and equipment (note 9) 3,434 4,761 Intangible assets (note 10) 32,611 32,639 $46,485 Total assets $45,314 2016 2015 LIABILITIES Current liabilities Accounts payable and accrued liabilities (note 11) $3,700 $5,360 Provisions (note 12) 1,598 1,655 Other liabilities (note 13) 217 534 Gift card liability 3,484 3,554 Deposits from franchisees 1,243 701 10,242 11,804 Non-current liabilities Provisions (note 12) 530 982 Other liabilities (note 13) 267 314 Long-term debt (note 14) 7,181 5,977 Deferred income taxes (note 19) 3,818 3,481 Total liabilities 22,038 22,558 SHAREHOLDERS' EQUITY 23,276 23,927 Total liabilities and shareholders' equity $45,314 $46,485