3595 Assignment

RA13-1

1. The current liabilities reported at December 2011 are composed of the following:

Bank indebtedness $172,262,000

Accounts payable and accrued liabilities $1,109,444,000

Income taxes payable $26,538,000

Dividends payable $53,119,000

Current portion of long term debt $249,971,000

Provisions of $12,024,000

Associate interest of $152,880,000

1. An amount from profits that is put aside in a company’s account for a future liability is called a provision. It can be a legal or constructive obligation that is a consequence from past events. For an obligation to be considered a provision it must be likely that the obligation will result in an outflow of economic benefits and it must be reliably measurable. Provisions are discounted at a pre-tax rate, if the time value of money is material. The discount rate takes risks related to the liability into account. Provisions are regularly reviewed and adjusted to reflect best estimates. Shoppers Drug Mart provisions are insurance claims, litigation claims, and store closing costs.

1. Current Ratio = current assets/current liabilities

January 3, 2010: 2,441,973/1,706,541= 1.43

January 1, 2011: 2,542,820/1,527,567 = 1.66

December 31, 2011: 2,605,647/1,776,230 = 1.52

The liquidity has decreased from the previous period but it is better than two years ago. This decrease is mainly due to the increase in current liabilities specifically the current portion of long term debt. Although current assets have also increased specifically inventory, it is offset by the greater increase in current liabilities. Overall, the ratio looks good since current assets exceed current liabilities. It would be helpful to compare the ratios to similar businesses to get a better understanding of the industry standard.