Fine Leather Ltd. (FLL) is a retailer of various leather goods. Its major competitor is Deluxe Leatherwear Ltd. (DLL). During the past year, Fine Leather has recorded a large loss in other comprehensive income while DLL reported no other comprehensive income or loss. FLL has also reversed an impairment loss on some equipment, accrued a provision relating to a salary dispute, and adjusted some of its equipment up to fair value. DLL has recorded no similar transactions.
FLL uses the FIFO inventory cost method while DLL uses average. Both companies are experiencing rising costs for merchandise inventory and both companies have more current assets than current liabilities.
Instructions
(a) One of the companies described above prepares financial statements using IFRS while the other uses ASPE. Which one complies with IFRS and which one with ASPE?
(b) Do all of the differences between the two companies relate to IFRS and ASPE differences?
(c) For each of the following ratios, determine if FLL could be expected to have a higher or lower ratio based on the different approach that it takes when preparing financial statements: current ratio, inventory turnover debt to total assets, profit margin, and asset turnover.