Financial Statements of - Shoppers Drug Mart

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SHOPPERS DRUG MART CORPORATION Notes to the Consolidated Financial Statements (unaudited) (in thousands of Canadian dollars, except per share data) 13. EXPLANATION OF TRANSITION TO IFRS (continued) v) Employee Benefits IFRS 1 permits a first-time adopter to account for its employee benefits under the “corridor” approach as measured retrospectively under IFRS or to recognize all cumulative actuarial gains and losses in retained earnings at the date of transition to IFRS. The Company has elected to recognize all unrecognized actuarial gains and losses as determined under the Company’s previous GAAP as at January 3, 2010 in retained earnings. The Company has applied this election to all of its pension and other benefit plans. vi) Investments in Subsidiaries, Jointly Controlled Entities and Associates IFRS 1 addresses the determination of “cost” for investments in subsidiaries, jointly controlled entities and associates in separate (non-consolidated) financial statements. The Company is not presenting separate financial statements under IAS 27, “Consolidated and Separate Financial Statements” (“IAS 27”). As a result, no election was made under IFRS 1. vii) Designation of Previously Recognized Financial Instruments Financial instrument designations are made on initial recognition. IFRS 1 permits an “available for sale” designation or a “fair value through profit or loss” designation to be made at the date of transition to IFRS. The Company has elected to change the designation of cash and bank indebtedness to loans and receivables and financial liabilities, respectively, as at January 3, 2010 from “held for trading” under previous GAAP. viii) Fair Value Measurement of Financial Assets or Financial Liabilities at Initial Recognition IFRS 1 permits a first-time adopter to use a valuation technique prospectively from the date of transition to IFRS in place of the transaction price where an active market does not exist. The Company has used the transaction price to establish the fair value of financial instruments upon initial recognition of the financial instruments. As a result, no election was made under IFRS 1. ix) Borrowing Costs IFRS 1 permits a first-time adopter to apply the transitional guidance in IAS 23, “Borrowing Costs” (“IAS 23”), rather than adopt IAS 23 retrospectively. The Company has chosen to apply the requirements of IAS 23 to borrowing costs incurred on or after December 30, 2007 associated with all qualifying assets. x) Hedge Accounting The Company formally identified, designated and documented all relationships between its hedging instruments and hedged items, as well as its risk assessment objectives and strategies for undertaking various hedge transactions as at January 3, 2010. The Company’s hedge transactions continue to be effective hedges under IFRS. Accordingly, there was no change to the Company’s financial position or results of operations associated with its hedging activity as a result of the transition to IFRS. 61
SHOPPERS DRUG MART CORPORATION Notes to the Consolidated Financial Statements (unaudited) (in thousands of Canadian dollars, except per share data) 13. EXPLANATION OF TRANSITION TO IFRS (continued) xi) Non-controlling Interests IFRS 1 requires a first-time adopter to apply certain requirements of IAS 27 on a prospective basis. These exceptions to the retrospective application of IAS 27 did not have an impact of the Company’s transition to IFRS. xii) Estimates The estimates used under IFRS are consistent with those made, for the same dates, in accordance with previous GAAP, except where they were impacted by a difference in accounting policy. b) Financial Impacts of Adopting IFRS i) Revenue Recognition – Optimum ® Loyalty Card Program Under previous GAAP, the Company recorded an expense and established a liability for future redemptions when points were earned by a program member by multiplying the number of points issued by the estimated cost per point. When points were redeemed, the actual costs of the redemptions were charged against the liability account. Points were valued at cost. Under IFRS, the Company defers a portion of the revenue associated with the sales transaction equivalent to the fair value of the points issued to the customer (retail value of the points) when points are earned by a program member. When points are redeemed, the redemption value of the award is charged against the deferred revenue balance and the revenue is recognized. Points are valued at fair value. The following is the impact of adopting IFRIC 13, “Customer Loyalty Programmes” (“IFRIC 13”), on the Company’s earnings for the 52 weeks ended January 1, 2011 and 12 weeks ended March 27, 2010 and the Company’s financial position as at January 1, 2011, March 27, 2010 and January 3, 2010: Net earnings impact Sales $ 52 weeks ended January 1, 2011 (183,353) $ 12 weeks ended March 27, 2010 (36,666) Cost of goods sold 179,071 36,419 Gross profit (4,282) (247) Income tax expense (1,204) (69) Decrease in net earnings $ (3,078) $ (178) As at Balance sheet impact Accounts payable and accrued liabilities $ January 1, 2011 19,735 $ March 27, 2010 15,700 $ January 3, 2010 15,453 Deferred tax liabilities (5,551) (4,416) (4,347) Decrease in retained earnings $ (14,184) $ (11,284) $ (11,106) 62
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Financial Statements of - Shoppers Drug Mart

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