Required a. Determine the average age percentage of Spin Master's moulds, dies, and tools. Does this make sense given the company's depreciation estimates for them? b. Spin Master recorded depreciation on its computer hardware in the amount of $446 thousand for its 2016 fiscal year. Compare the estimated useful life for computer hardware used by Spin Master with that used by Dollarama (see Appendix A). Explain what might be the reason for the difference. c. What is management saying about the expected useful life of its machinery and equipment, given the depreciation method used for them? d. The net carrying amount of Spin Master's property, plant, and equipment at December 31, 2015, was $16,096 thousand. If Spin Master's sales revenue was $1,154,454 thousand for the 2016 fiscal year, deter- mine the company's fixed asset turnover ratio. Explain what you can tell about Spin Master based on the result of this ratio. EXHIBIT 8.27 Extract from Spin Master Corp. 2016 Consolidated Financial Statements (in thousands of US dollars) Moulds, dies and tools Equipment Property Computer hardware Total 95,884 15,401 9,453 8,415 129,153 Cost December 31, 2016 Accumulated depreciation December 31, 2016 (77,019) (11,228) (6,410) (7,500) (102,157) Net carrying amount Balance at December 31, 2016 18,865 4,173 3,043 915 26,996 Spin Master's depreciation policies for its property and equipment state that: Depreciation is recognized so as to write off the cost or valuation of assets less their residual values over their useful lives, using the straight-line method or declining balance method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. The following are the estimated useful lives for the major classes of property, plant and equipment: Land Buildings Moulds, dies and tools Office equipment Leasehold improvements Computer hardware Machinery and equipment Not depreciated 30 years 2 years 3 years Lesser of lease term or 5 years 3 years 30% declining balance Required a. Determine the average age percentage of Spin Master's moulds, dies, and tools. Does this make sense given the company's depreciation estimates for them? b. Spin Master recorded depreciation on its computer hardware in the amount of $446 thousand for its 2016 fiscal year. Compare the estimated useful life for computer hardware used by Spin Master with that used by Dollarama (see Appendix A). Explain what might be the reason for the difference. c. What is management saying about the expected useful life of its machinery and equipment, given the depreciation method used for them? d. The net carrying amount of Spin Master's property, plant, and equipment at December 31, 2015, was $16,096 thousand. If Spin Master's sales revenue was $1,154,454 thousand for the 2016 fiscal year, deter- mine the company's fixed asset turnover ratio. Explain what you can tell about Spin Master based on the result of this ratio. EXHIBIT 8.27 Extract from Spin Master Corp. 2016 Consolidated Financial Statements (in thousands of US dollars) Moulds, dies and tools Equipment Property Computer hardware Total 95,884 15,401 9,453 8,415 129,153 Cost December 31, 2016 Accumulated depreciation December 31, 2016 (77,019) (11,228) (6,410) (7,500) (102,157) Net carrying amount Balance at December 31, 2016 18,865 4,173 3,043 915 26,996 Spin Master's depreciation policies for its property and equipment state that: Depreciation is recognized so as to write off the cost or valuation of assets less their residual values over their useful lives, using the straight-line method or declining balance method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. The following are the estimated useful lives for the major classes of property, plant and equipment: Land Buildings Moulds, dies and tools Office equipment Leasehold improvements Computer hardware Machinery and equipment Not depreciated 30 years 2 years 3 years Lesser of lease term or 5 years 3 years 30% declining balance
