Financial Statements of - Shoppers Drug Mart

SHOPPERS DRUG MART CORPORATION
Notes to the Consolidated Financial Statements
(unaudited)
(in thousands of Canadian dollars, except per share data)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
(ii) Shoppers Optimum ® Loyalty Card Program
The Shoppers Optimum ® Loyalty Card Program allows members to earn points on their purchases in
Shoppers Drug Mart ® , Pharmaprix ® , Shoppers Simply Pharmacy ® , Pharmaprix Simplement Santé ® ,
Shoppers Home Health Care ® and Murale TM stores at a rate of 10 points for each dollar spent on
eligible products and services, plus any applicable bonus points. Members can then redeem points, in
accordance with the Program rewards schedule or other offers, for qualifying merchandise at the time
of a future purchase transaction.
When points are earned by Program members, the Company defers revenue equal to the fair value of
the awards. The Program’s deferred revenue is included in accounts payable and accrued liabilities
on the Company’s consolidated balance sheets. When awards are redeemed by Program members, the
redemption value of the awards is charged against the deferred revenue balance and recognized as
revenue.
The estimated fair value per point is determined based on the expected weighted average redemption
levels for future redemptions based on the program reward schedule, including special redemption
events. The trends in redemption rates (points redeemed as a percentage of points issued) are
reviewed on an ongoing basis and the estimated fair value per point is adjusted based upon expected
future activity.
(d) Vendor Rebates
The Company classifies rebates and other consideration received from vendors as a reduction to the
cost of inventory. These amounts are recognized in the cost of goods sold when the associated
inventory is sold. Certain exceptions apply where the consideration received from the vendor is a
reimbursement of a selling cost or a payment for services delivered to the vendor, in which case the
consideration is reflected in operating and administrative expenses.
(e) Finance Expenses
Finance expenses are comprised of interest expense on borrowings and the amortization of transaction
costs incurred in conjunction with debt transactions. All borrowing costs are recognized in earnings
on an accrual basis using the effective interest method, net of amounts capitalized as part of the cost
of qualifying property and equipment.
The Company’s finance income is not significant.
(f) Borrowing Costs
Borrowing costs that are directly attributable to the acquisition, construction or development of a
qualifying asset are recognized as part of the cost of that asset. Qualifying assets are those that
require a substantial period of time to prepare for their intended use. All other borrowing costs are
recognized as finance expenses in the period in which they are incurred.
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