Country Coffee Limited is a restaurant chain specializing in fresh, ready-to-serve coffee. Country Coffee is owned by its sole founder, who began the chain over 20 years ago. Today the business has expanded to 25 corporate locations and 30 franchise locations across Canada. Country Coffee faces fierce competition from various other chains specializing in coffee. Happy Coffee Inc. is a major competitor that has successfully built a chain of over 500 restaurants. Happy Coffee enjoys strong brand recognition and customer loyalty in the Canadian market. The founder of Country Coffee would like to compare his chain's results with those of Happy Coffee. Happy Coffee is publicly traded and prepares its financial statements in accordance with IFRS, whereas Country Coffee uses ASPE. The following are condensed versions of income statements for Happy Coffee and Country Coffee for the year ended December 31, 2015:

Instructions
(a) What is the main difference between the income statement presentation of Country Coffee and of Happy Coffee?
(b) Are these two formats acceptable under both ASPE and IFRS? Which of these methods requires a greater degree of judgment? Which of these two formats do you prefer and why?
(c) How will this difference affect the comparability of the two income statements?
(d) Will the use of different presentation formats impact the comparability of the gross profit margin and the profit margin of Country Coffee and Happy Coffee? Why or why not?
(e) What options does Country Coffee have if it wants to improve the comparability of its financial results with those of Happy Coffee?

Transcribed Image Text:

HAPPY COFFEE INC Income Statement Year Ended December 31, 2015 (in millions) $1,619 417 General and administrative expenses-42%0 Other revenues and expenses Profit before income tax COUNTRY COFFEE LIMITED Income Statement Year Ended December 31, 2015 Merchandise inventory purchased Changes in merchandise inventory $25 Advertising Other revenues and expenses Interest expense Profit before income tax Income tax expense