Blue Jay Metals Inc. is a small Canadian manufacturer of parts used in the construction of machinery.
Question:
Blue Jay Metals Inc. is a small Canadian manufacturer of parts used in the construction of machinery. For the year ended December 31, 2017, Blue Jay Metals prepared two sets of financial statements-one in accordance with ASPE for its Canadian business associates, the other in accordance with IFRS, which it requires for doing business overseas. It is considering adopting IFRS as a one-time change so that it no longer has to prepare two sets of statements. Excerpts from Blue Jay Metals Inc.'s financial statements appear below.
Key information from the 2017 Consolidated Statement of Earnings:
Net income = $91,000
Interest expense = $94,000
Key information from the 2017 Consolidated Statement of Comprehensive Income:
Net Income = $31,000
Interest expense = $94,000
Notice that the presentation of the financial statements differs somewhat, as well as some of the recorded balances. These differences arise because ASPE and IFRS rules measure certain transactions differently. However, the focus of this question is the impact on ratios of using a different set of accounting rules. Investors need to understand that if two companies in the same industry are being compared, their results could be very different depending on whether IFRS or ASPE is used in the preparation of the financial information.
Required
1. Compute the following ratios for 2017 based on Blue Jay Metals' financial statements prepared in accordance with ASPE:
a. Current ratio b. Acid-test ratio c. Debt ratio d. Rate of return on total assets
2. Compute the same ratios in Requirement 1 for 2017 based on Blue Jay Metals' IFRS financial statements.
3. What effect did the different standards have on the results? Should Blue Jay Metals switch to IFRS?
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
Step by Step Answer:
Horngrens Accounting
ISBN: 978-0133855388
10th Canadian edition Volume 2
Authors: Tracie L. Miller Nobles, Brenda L. Mattison, Ella Mae Matsumura, Carol A. Meissner, Jo Ann L. Johnston, Peter R. Norwood