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Chapter 24: Question 1IFRS (page 1467)
Where can authoritative IFRS be found related to the various disclosure issues discussed in the chapter?
IAS 1, IAS 24, IAS 10, IFRS 8, and IAS 34 are discussed in the chapter.
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Answer each of the questions in the following unrelated situations.
b) A company had an average inventory last year of $200,000 and its inventory turnover was 5. If sales volume and unit cost remain the same this year as last and inventory turnover is 8 this year, what will average inventory have to be during the current year?
What is an operating segment, and when can information about two operating segments be aggregated?
Morlan Corporation is preparing its December 31, 2017, financial statements. Two events that occurred between December 31, 2017, and March 10, 2018, when the statements were authorized for issue, are described below.
Instructions
What effect do these subsequent events have on 2017 net income?
Cineplex Corporation is a diversified company that operates in five different industries: A, B, C, D, and E. The following information relating to each segment is available for 2018.
A | B | C | D | E | |
Sales revenue | \(40,000 | \)75,000 | \(580,000 | \)35,000 | \(55,000 |
Cost of goods sold | 19,000 | 50,000 | 270,000 | 19,000 | 30,000 |
Operating expenses | 10,000 | 40,000 | 235,000 | 12,000 | 18,000 |
Total expenses | 29,000 | 90,000 | 505,000 | 31,000 | 48,000 |
Operating profit (loss) | \)11,000 | \((15,000) | \)75,000 | \(4,000 | \)7,000 |
Identifiable assets | \(35,000 | \)80,000 | \(500,000 | \)65,000 | \(50,000 |
Sales of segments B and C included intersegment sales of \)20,000 and $100,000, respectively.
Instructions
(a) Determine which of the segments are reportable based on the:
Picasso Company is a wholesale distributor of packaging equipment and supplies. The company’s sales have averaged about \(900,000 annually for the 3-year period 2015–2017. The firm’s total assets at the end of 2017 amounted to \)850,000.
The president of Picasso Company has asked the controller to prepare a report that summarizes the financial aspects of the company’s operations for the past 3 years. This report will be presented to the board of directors at their next meeting.
In addition to comparative financial statements, the controller has decided to present a number of relevant financial ratios which can assist in the identification and interpretation of trends. At the request of the controller, the accounting staff has calculated the following ratios for the 3-year period 2015–2017.
2015 | 2016 | 2017 | |
Current ratio | 1.80 | 1.89 | 1.96 |
Acid-test (quick) ratio | 1.04 | 0.99 | 0.87 |
Accounts receivable turnover | 8.75 | 7.71 | 6.42 |
Inventory turnover | 4.91 | 4.32 | 3.42 |
Debt to assets ratio | 51.0% | 46.0% | 41.0% |
Long-term debt to assets ratio | 31.0% | 27.0% | 24.0% |
Sales to fixed assets (fixed asset turnover) | 1.58 | 1.69 | 1.79 |
Sales as a percent of 2015 sales | 1.00 | 1.03 | 1.07 |
Gross margin percentage | 36.0% | 35.1% | 34.6% |
Net income to sales | 6.9% | 7.0% | 7.2% |
Return on assets | 7.7% | 7.7% | 7.8% |
Return on common stockholders’ equity | 13.6% | 13.1% | 12.7% |
In preparation of the report, the controller has decided first to examine the financial ratios independent of any other data to determine if the ratios themselves reveal any significant trends over the 3-year period.
Instructions
c) Using the ratios provided, what conclusion(s) can be drawn regarding the company’s net investment in plant and equipment?
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