Brick Brewing Co. Limited is a Canadian-owned brewery with its head office in Kitchener, Ontario. The company brews, sells, and markets its products under the Waterloo, Laker, Red Baron, Red Cap, and Formosa brand names.

The company also produces, sells, markets, and distributes Seagram€™s Coolers across Canada. The information in Exhibit 7-22 was taken from the company€™s 2014 annual financial statements.

Required:
a. Note 15, shown in Exhibit 7-22C, breaks down Brick€™s inventory into three categories. Which categories of inventory do you believe should be used in determining the inventory turnover ratio? Why?
b. Describe Brick Brewing€™s inventory valuation policies in your own words. Specifically, explain what Brick Brewing includes in inventory cost, what cost formula(s) the company uses, and how it values its inventory on the statement of financial position.
c. Calculate the inventory turnover ratio and days to sell inventory ratio for 2014 and 2013. Use the inventory values in 2014 and 2013 rather than the average inventory to calculate the ratios. Explain the amounts you selected from the financial statements to use in your calculation.
d. Calculate the current and quick ratios and comment on them.

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BRICK BREWING CO. LIMITED S STATEMENTS OF FINANCLAL POSITION Statements of financial position As at January 31,2014 and January 31, 2013 Notes 31-Jan-14 31-Jan-13 ASSETS Revised note 27] Non-current assets $15,449,248 14,752,855 Property, plant and equipment Intangible assets Other assets Deferred income tax assets 12 13 $19.109,603 14,259,612 25,000 2,746,925 36,141,140 732 32,750,835 Notes 31-Jan-14 31-Jan-13 Current assets Accounts receivable 14 5,865,024 3,951,436 3,406,400 395,559 13,618,419 369,25 5,187,785 4,013,375 15 Assets held for sale Prepaid expenses 296,180 9,497,340 45,638,480 TOTAL ASSETS LIABILITIES AND EQUITY Equity Share capital Share-based payments reserves Deficit 38,955,236 1,060,533 (7,502,544) 32,513,225 35,895,873 1,092,414 8,027,743) 28,960,544 16 TOTAL EQUITY Non-current liabilities Provisions 19 20 289,083 018 101 326,646 6,078,719 6,405,365 term debt and note Current liabilities 1,694,178 6,050,679 Bank indebtedness Accounts payable and accrued liabilities Current portion of long-term debt and 21 2,310,809 6,306,292 071 9,301,928 029 note 20 1,655,470 10,272,571 16,677,936 TOTAL LIABILITIES COMMITMENTS TOTAL LIABILITIES AND EQUITY 24, 25 254 5,638,480 EXCERPT FROM NOTES TO BRICK BREWING CO. LIMITED'S 2014 FINANCIAL STATEMENTS 5.10 Inventories Inventories are recorded at the lower of cost and net realizable value. Cost includes expenditures incurred in acquiring the inventories and bringing them to their existing location and condition. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs to complete and sell the product. The cost of raw materials, supplies and promotional items are determined on a first-in, first-out basis. The cost of finished goods and work-in-process are determined on an average cost basis and include raw materials, direct labour, and an allocation of fixed and variable overhead based on normal capacity Inventories are written down to net realizable value if that net realizable value is less than the carrying amount of the inventory itern at the reporting date. If the net realizable value subsequently increases, a reversal of the loss initially recognized is applied to cost of sales. ECCHIBIT 7-22C EXCERPT FROM NOTES TO BRICK BREWING CO. LIMITED'S 2014 FINANCIAL STATEMENTS The inventories balance consists of the following: January 31, 2014January 31, 2013 Promotional tems Raw materials and supplies Work in progress and finished goods 61,344 1,457,066 2,433,026 $3,951,436 32,273 1,747,097 2,234,005 $4,013,375 As at January 31, 2014, a provision of $154,036 (January 31, 2013 $72,763) has been netted against inventory to account for obsolete materials. The cost of inventories recognized as cost of sales during the year ended January 31, 2014 are $23,326,559 (January 31, 2013 S22,339,768). Included in this amount are charges related to impairment caused by obsolescence. During the year ended January 31, 2014, these charges amounted to $152,820 (January 31, 2013-$46,873).