Reference no: EM13339357
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Sports Direct is the UK's leading sports retailer by revenue and operating profit, and the owner of a significant number of world-famous sport, fashion and lifestyle brands. Sports Direct provides a full multi-channel approach to the UK and European Retail markets. Its strategy includes identifying opportunities for improvement through in-store specialist collaborations and acquisitions, developing online opportunities and leveraging the SPORTSDIRECT.com fascia. The Group continues to enhance its store portfolio and now operates out of over 500 stores in the UK and internationally.
Instructions Use the annual report of 2012/2013 to answer the following questions:
1- Explain how International Financial Reporting Standards (IFRS) add to the integrity of Sports Direct's financial accounting information. Support your answer with evidence from the annual report
2- As mentioned in p. 51, Directors' responsibilities:
"The Directors have elected to prepare the Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practices (UK GAAP)."
Required: State the major sources of these practices. Support your answer with evidence from the annual report (Hint: some research is required here.)
3- As mentioned in p. 66, Notes to the Financial Statements:
"The critical accounting estimates and judgements made by the Group regarding the future or other key sources of estimation, uncertainty and judgement that may have a significant risk of giving rise to a material adjustment to the carrying values of assets and liabilities within the next financial year"
Required
a- Identify four items found in Sports Direct's annual report that are based on estimates and judgments.
b- Discuss the expected impact on the usefulness of the Company's financial statement of such estimates and judgments. Explain briefly why you think that the calculation of depreciation is based on estimates rather than actual information, relating your answer to Sports Direct' fixed assets.
4- Sports Direct mentioned in its annual report, pp. 62-63 that:
"Property, plant and equipment are stated at historical cost less depreciation less any recognised impairment losses. Cost includes expenditure that is directly attributable to the acquisition or construction of these items. Subsequent costs are included in the asset's carrying amount only when it is probable that future economic benefits associated with the item will flow to the Group and the costs can be measured reliably.
All other costs, including repairs and maintenance costs, are charged to the income statement in the period in which they are incurred.
Depreciation is provided on all property, plant and equipment other than freehold land and is calculated on a reducing balance basis or straight-line basis, whichever is deemed by the Directors to be more appropriate, to allocate cost less assessed residual value, other than assets in the course of construction, over the estimated useful lives, as follows:
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Freehold buildings
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2% per annum - straight line
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Long-term/short-term leasehold improvments
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over the terms of the lease - straight line
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Plant and equipment
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between 5% and 33% per annum - reducing balance
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The assets' useful lives and residual values are reviewed and, if appropriate, adjusted at each balance sheet date.
The gain or loss arising on disposal or scrapping of an asset is determined as the difference between the sales proceeds, net of selling costs, and the carrying amount of the asset and is recognised in the income statement."
Required
Write a memo, of no more than 400 words, stating (Hint: support your memo by suitable figures from the Sports Direct's annual report.)
a- The estimated useful life of the freehold buildings being depreciated.
b- How the useful life of assets is determined.
c- Sports Direct used different methods to depreciate its assets. State what is meant by the consistency principle and explain how the Company's depreciation policy complies with that principle.
d- Explain why Sports Direct uses of accelerated depreciation method for plant and equipment and uses of the straight-line method for most of its other assets?
e- Identify the basic "accountable events" in the lives of property, plant and equipment. For each event explain how they affect Sports Direct's consolidated net income and or consolidated cash flows (other than income tax payments) for the year ended April 28, 2013.
f- Referring to the definition of assets in Units 1 and 3. Discuss how leases of property, plant and equipment might qualify as assets of the lessee, Sports Direct under this definition.
5- Sports Direct's consolidated income statement reports amortization expense. State the types of assets that would require amortization. State the method of amortization that is generally used by the company. Support your answer by suitable figures from the Sports Direct' 2013 annual report.
6- State the circumstances under which Sports Direct will record goodwill in their accounts. Give 2 examples of internally created intangibles. Explain why Sports Direct makes a distinction between internally created intangibles and other intangibles.
7- The Sports Direct's annual report includes gains and losses on disposal of assets. Report the amount(s) of gains and losses on disposal and explain where in Sports Direct's consolidated income statement they are reported. Describe how gain or losses on disposals are reported in Sports Direct's statement of cash flows. Summarize the discussion in the Sports Direct's footnotes concerning the cause of disposals. Support your answer by suitable figures from the Sports Direct' 2013 annual report.
8- Identify the revenue recognition method(s) used by Sports Direct as discussed in its notes on accounting policies. Explain the rationale underlying the appropriateness methods for Sports Direct.