BUSI 353

ASSIGNMENT #4

GENERAL INSTRUCTIONS FOR ALL ASSIGNMENTS:

(A) See the course outline for due dates.
(B) Please do not use a cover page. Provide your full name and student number on the top
of the first page and then proceed with your answers.
(C) All assignments must be typed and submitted via Canvas using PDF.
(D) Use Arial font and font size 11 with a minimum 2.5-centimetre (1-inch) margin.
(E) For some questions, a page limit is indicated at the top. If you are having difficulty
maintaining the page limit, consider that a challenge for being clear and concise.
Effective use of point form is a good technique for being clear and concise. Do not feel
obligated to use the entire page limit. Often times, the best answers are the ones that
directly address the relevant aspects of the question.
(F) It is unnecessary to repeat the question. You can assume that I am familiar with the
question and proceed with your answer.
(G) Failure to comply with the above instructions may result in a deduction of marks.

** SHOW YOUR WORK **

Question 1

Pacific Trading Limited (PTL), a company which reports under IFRS, received merchandise that
was damaged during shipment. Unfortunately, the contract terms were FOB Shipping Point and
PTL was responsible for any damages during shipping. The amount of damage involved was
too low to file an insurance claim. PTL has decided to repair and resell the damaged items as
“refurbished”. The following information is available:

Item 1 Item 2 Item 3

Volume 300 units 500 units 100 units

Cost (per unit) including allocated shipping costs $53 $17 $250
Estimated cost to rebuild (per unit) 15 6 110
Estimated sales price after being refurbished (per unit) 42 28 180
Estimated cost to sell (per unit) (e.g. commission) 4 3 15

REQUIRED

1. Calculate the net realizable value for each item of inventory.

2. How much should each item of inventory be written down?

3. Prepare a journal entry(s) to record the write down for each item of inventory.

4. If IFRS permitted impairments based on total inventory, what would be the loss on this
basis?

5. Most companies formerly applied impairments on a “total inventory” basis, as opposed to an

“item-by-item” basis. Why do you believe this was the case?

1
Question 2

Grouse Mountain Equipment Inc. (GME) sells biking, skiing and hiking equipment to retailers.
GME reports under ASPE. After a very successful ski season, GME lost its entire inventory in a
fire in April 2018. The company’s insurance policy covers 84% of the “cost” of the inventory,
calculated in accordance with GAAP, lost in this fire. The company’s records show the
following:

Sales at retail prices (all on credit; net/30) $615,000

Sales returns at retail price 13,000
Cash collected on accounts 580,000
Inventory, January 1, 2018 150,000
Purchases during 2018 (all on credit; 2/10, net/15) 470,000
Payments to suppliers for purchases 440,000
Insurance coverage during shipping 9,000
Customs and duties on purchases 8,000
Freight-in (shipping) costs 44,000
Interest expense on the purchased inventory 10,000

GME normally realizes a gross profit of 26% on its net sales. It accounts for inventory using a
periodic inventory system. Any loss from the fire is deductible for income tax purposes. GME’s
tax rate is 43%.

REQUIRED

1. Calculate the net loss from the fire that should be reported on the income statement.

2. If GME were using IFRS, instead of ASPE, what amount of comprehensive loss arising from
the fire would be reported on the comprehensive income statement and how much of this
loss would be considered “other comprehensive income”?