Canadian Tire Corporation: Financial Statements

Change from straight line to double declining balance

The change may indicate that the company is facing financial problems and the change may cover-up the financial position of a company. Thus, an investigator may check the financial performance of the company over time. An investigator should check the depreciation expense account for an increase in depreciation expense and reduced operating income. In the case of straight line depreciation, the depreciation expense is expected to be constant over the years after eliminating assets disposed during the year. The manipulation can be corrected by the entries listed below.

  • Debit: Depreciation account with depreciation amount calculated using the straight line method.
  • Credit: Accumulated depreciation account with depreciation amounted calculated using the straight line method.
  • Debit: Accumulated depreciation account with depreciation amount calculated using the double declining balance.
  • Credit: Depreciation account with depreciation amount calculated using the double declining balance.

Impairment write-down of capital assets

In this case, the accounts can be manipulated by failing to write-down fully impaired capital assets. An investigator should review specific capital asset accounts to check for book balances over time. This will reveal if the company has fully impaired capital assets. The investigator should also check the disposal account and gain on the disposal account if the entries for write-down of the assets have been passed. Adjustment can be made by passing entries to write-down.

Difference between net income and cash flow

An investigator should look for the possibility of a change in the revenue recognition policy. The company might decide to record revenue sooner than the previous years. For instance, a company may decide to record the entire value of a three-year contract up front instead of spreading it over the years. An investigator can detect the manipulation by observing the percentage change in revenue over time. The manipulation can be detected by a sudden percentage increase in the amount of revenue. In this case, adjustments will be made by spreading the revenue from such contracts over the period of contract using methods such as percentage of completion approach. This will eliminate manipulation. The accounts that will be affected are revenue and inventory accounts.

Change in useful life of large asset

In this case, an investigator should monitor the trend of depreciation or amortization expenses for any significant changes over time. Further, an investigator should also compare the depreciation rates used by the company against the industry norms. Any deviation from the industry norm may be an indication of manipulation of the useful life of an asset. The manipulation can be detected by reviewing the depreciation expense account. A change in the amount of depreciation expense of a large asset may be as a result of a change in useful life of the asset. The manipulation can be adjusted by reversing the manipulated entries and passing correct entries with a correct useful life of the asset. The accounts that will be affected are depreciation expense, accumulated depreciation and the asset account.

Recast financial statements

Canadian Tire Corporation

Recast balance sheet.

September 28, 2013 September 29, 2012
ASSETS
Cash and cash equivalents (Note 11) 331 218.1
Short-term investments 184.8 252.0
Trade and other receivables 720.7 779.1
Loans receivable (Note 9) 4,398.10 4,093.50
Merchandise inventories 1,736.10 1,839.90
Income taxes recoverable 40.9 35.9
Prepaid expenses and deposits 81.4 76.8
Assets classified as held for sale 10.1 20.4
Total current assets 7,503.10 7,315.70
Long-term receivables and other assets 718.4 699.7
Long-term investments 129.3 156.9
Goodwill and intangible assets 1,136.70 1,089.60
Investment property 92.3 76.0
Property and equipment 3,463.20 3,325.70
Deferred income taxes 36.6 44.0
Total assets $13,079.6 $12,707.6
LIABILITIES
Bank indebtedness (Note 11) $67.2 $113.8
Deposits 1,371.50 1,154.90
Trade and other payables 1,940.20 1,738.60
Provisions 183.6 176.3
Short-term borrowings 119.9 133.5
Loans payable 630.7 650.2
Income taxes payable 41.4 32.2
Current portion of long-term debt 272.8 661.3
Total current liabilities 4,627.30 4,660.80
Long-term provisions 35.9 49.4
Long-term debt 2,170.20 2,061.70
Long-term deposits 1,097.10 1,222.40
Deferred income taxes 91.6 83.1
Other long-term liabilities 229.1 204.7
Total liabilities 8,251.20 8,282.10
SHAREHOLDERS’ EQUITY
Share capital (Note 10) 621.5 708.9
Contributed surplus 3.5 2.8
Accumulated other comprehensive income (loss) 13.5 (17.00)
Retained earnings 4,189.90 3,730.80
Total shareholders’ equity 4,828.40 4,425.50
Total liabilities and shareholders’ equity $13,079.6 $12,707.6

Canadian Tire Corporation

Recast income statement.

13 weeks ended
September 28, 2013
39 weeks ended
September 28, 2013
Revenue $2,956.0 $8,456.9
The cost of producing revenue (2,026.90) (5,817.10)
Gross margin 929.1 2,639.80
Other (expense) income (0.80) 3.2
Operating expenses
Distribution costs (85.80) (255.20)
Sales and marketing expenses (427.80) (1,233.50)
Administrative expenses (183.50) (555.20)
Total operating expenses (697.10) (2,043.90)
Operating income 231.2 599.1
Finance income 4.8 15.2
Finance costs (29.90) (95.10)
Net finance costs (25.10) (79.90)
Income before income taxes 206.1 519.2
Income taxes (60.60) (145.80)
Net income $145.5 $373.4
Personal expenses 253.4 742.1
Depreciation of property and equipment and investment property 63.9 187.0
Amortization of intangible assets 24.2 68.6
Others 117.7 353.7
Taxes 60.60 145.80
Adjusted pre-tax net income $665.30 $1,870.60

Canadian Tire Corporation

Recasted statement of cash flow.

13 weeks ended
September 28, 2013
39 weeks ended
September 28, 2013
Cash generated from (used for):
Operating activities
Net income $665.30 $1,870.60
Adjustments for:
Gross impairment loss on loans receivable (Note 9) 84.3 238.7
Depreciation on property and equipment and investment property (Note 7) 63.9 187.0
Income tax expense 60.6 145.8
Net finance costs 25.1 79.9
Amortization of intangible assets (Note 7) 24.2 68.6
Changes in fair value of derivative instruments (6.40) (12.60)
Deferred income taxes 7.4 7.0
Other 3.4 (1.90)
$927.80 $2,583.10
Change in operating working capital and other (Note 11) (87.10) 74.3
Change in loans receivable (152.60) (363.70)
Change in deposits 61.20 69.60
Cash generated from operating activities before interest and income taxes 225.6 835.4
Interest paid (16.00) (87.20)
Interest received 2.7 9.1
Income taxes paid (26.70) (143.20)
Cash generated from operating activities 934.90 2977.40
Investing activities
Acquisition of Pro Hockey Life Sporting Goods Inc. (Note 15) (58.00) (58.00)
Acquisition of short-term investments (37.30) (69.50)
Proceeds from the maturity and disposition of short-term investments 51.0 136.5
Acquisition of long-term investments (30.00)
Proceeds from the disposition of long-term investments 0.4
Additions to property and equipment and investment property (164.60) (293.20)
The proceeds of disposition of property and equipment, investment property and assets held for sale 0.4 19.2
Additions to intangible assets (20.10) (49.40)
Long-term receivables and other assets (13.20) (34.30)
Other (3.10) (4.90)
Cash used for investing activities (244.90) (383.20)
Financing activities
Net issuance (repayment) of short-term borrowings (21.40) (20.70)
Issuance of loans payable 48.6 185.2
Repayment of loans payable (58.40) (178.20)
Issuance of share capital (Note 10) 1.2 4.2
Repurchase of share capital (Note 10) (18.30) (70.10)
Issuance of long-term debt 92.9 165.4
Repayment of long-term debt and finance lease liabilities (5.90) (655.30)
Dividends paid (28.20) (84.90)
Payment of transaction costs related to long-term debt
Cash used for financing activities (82.40) (654.40)
Cash used in the period -$266.50 -$1,598.40
Cash and cash equivalents, net of bank indebtedness, beginning of period 607.60 1939.80
The effect of exchange rate fluctuations on cash held (0.10) (0.40)
Cash and cash equivalents, net of bank indebtedness, end of period (Note 11) $341.0 $341.0

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BusinessEssay. 2022. "Canadian Tire Corporation: Financial Statements." October 30, 2022. https://business-essay.com/canadian-tire-corporation-financial-statements/.

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BusinessEssay. "Canadian Tire Corporation: Financial Statements." October 30, 2022. https://business-essay.com/canadian-tire-corporation-financial-statements/.