Access the 2011 financial statements for Cenovus Energy Inc. by going to investor relations section of the company’s website. Answer the same questions as in Web Problem 1. For each question, indicate where in the financial statements you found the answer, and/or provide a brief explanation.
In Web Problem 1
(a) What inventory costing method does the company use?
(b) What portion of the company’s assets is inventory? Has the portion increased or decreased from last year?
(c) Does the company eliminate intercompany transactions and unrealized profits when preparing consolidated financial statements?
(d) Ignore your answer to part (c), and assume the following: (1) 25% of the inventory at December 31, 2011, had been sold by the parent to a wholly owned subsidiary during the year and that this inventory was the only intercompany sale during the year; (2) the gross margin on the sale was the same as the average gross margin for the consolidated entity as a whole; and (3) the intercompany sale and unrealized profit were not eliminated when preparing the consolidated financial statements. What is the impact of these errors on inventory turnover and earnings per share for the year?
(e) Does the company value its land at cost or fair value?
(f) Now assume that the company changes its policy to report its land at fair value under the revaluation option in IAS 16 (or to cost if it was using fair value). Also, assume that the fair value of land has increased steadily since it was acquired. What impact would this change in policy have on the debt-to-equity ratio at the end of the year and on return on average equity for the year?