Maple Leaf Foods Inc. is a producer of food products under leading brands including Maple Leaf, Maple Leaf Prime, Schneiders, and Country Natural. Exhibit 8.26 is an extract from Maple Leaf’s consolidated financial statements for the year ended December 31, 2016:

EXHIBIT 8.26 Extract from Maple Leafs Foods Inc. 2016 Consolidated Financial Statements (in thousands of dollars)

Maple Leaf’s depreciation policies for its property and equipment state that:

Property and equipment, with the exception of land, is recorded at cost less accumulated depreciation and any net accumulated impairment losses. Land is carried at cost and not depreciated. For qualifying assets, cost includes interest capitalized during the construction or development period. Construction-in-process assets are capitalized during construction and depreciation commences when the asset is available for use. Depreciation related to assets used in production is recorded in inventory and cost of goods sold. Depreciation related to non-production assets is recorded through selling, general, and administrative expense. Depreciation is calculated on a straight-line basis, aft er taking into account residual values, over the following expected useful lives of the assets:

Buildings, including other components .............................  10-40 years
Machinery and equipment ..................................................    3-20 years
When parts of an item of property and equipment have different useful lives, those components are accounted for as separate items of property and equipment.

Required

a. Determine the average age percentage of Maple Leaf’s property and equipment. Compare this with the ratio determined for Dollarama (see Appendix A), and identify which company would be able to go longer without replacing its assets based on this ratio.

b. Given that Maple Leaf estimates that its machinery and equipment will have useful lives between 3 and 20 years, determine the annual straight-line depreciation rate that the company is using for its
machinery and equipment. c. Explain, in your own words, why Maple Leaf begins depreciation when the asset is available for use.

d. Explain, in your own words, what Maple Leaf means when it states that “depreciation related to assets used in production is recorded in inventory and cost of goods sold.”

e. If Maple Leaf’s net carrying amount for property and equipment was $1,085,275 thousand at its 2016 year end and $1,082,360 thousand at its 2015 year end, and its sales revenue was $3,331,812 thousand for the 2016 fiscal year, determine the company’s fixed asset turnover ratio. Compare this with the ratio determined for Dollarama in Appendix A and comment on which company did a better job of using its long-term assets to generate revenues.

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Machinery and equipment $1,136,716 (679,058) $ 457,658 Under construction Total Land Buildings $33,891 $56,792 $2,015,109 (929,834) $787,710 Cost Accumulated depreciation (250,776) $56,792 $1,085,275 Net balance, December 31, 2016 $33,891 $536,934 Machinery and equipment $ 997,417 (550,570) $ 446,847 Under Buildings Land Total construction $68,097 $33,891 $1,857,897 Cost $758,492 Accumulated depreciation (224,967) (775,537) Net balance, December 31, 2015 $33,891 $68,097 $1082,360 $533,525