| 3. CHANGES IN ACCOUNTING POLICIES AND RESTATEMENT OF PREVIOUSLY-ISSUED FINANCIAL STATEMENTS | During the course of the Company’s financial
statement close process for the quarter ended November 2, 2019, accounting errors were identified in the assessment of impairment
indicators upon completing the store impairment analysis under IAS 36, Impairment of Assets Leases Effects of the restatement Based on the impairment test performed at
February 3, 2019 upon the voluntary change to the Company’s method of transition to IFRS 16 to eliminate the use of the
practical expedient, the Company’s ROU assets were impaired upon initial adoption by $32,487 as compared to the application
of the previously recognized onerous lease provisions of $19,154 against the ROU assets. The difference that results from performing
an IAS 36 impairment test at February 3, 2019 and the application of the practical expedient related to onerous leases results
from a difference in the application of certain assumptions required under the two standards. The Company previously had recorded
a reduction to the deficit of $1,280 on transition to IFRS 16. After the application of the voluntary change in accounting policy,
the deficit increased by $14,613 to $61,293. The additional reduction in the initial value of the ROU assets resulted in a decrease
in amortization expense in the three-month periods ended May 4, 2019 and August 3, 2019 of $689 and $699 respectively. The following
table illustrates the effect of the voluntary change in accounting policy on the adoption of IFRS 16 as at February 3, 2019:
February 3,
2019
February 2, 2019
IFRS 16 Adoption
As previously reported Change in Policy Adjustment
February 3, 2019
Restated
ASSETS
Right-of-use assets - 75,596 75,596 (14,613 ) 60,983
Other assets 122,500 - 122,500 - 122,500
Total assets 122,500 75,596 198,096 (14,613 ) 183,483
LIABILITIES
Lease liability - 102,168 102,168 - 102,168
Deferred rent and lease inducements 8,698 (8,698 ) - - -
Provisions 19,154 (19,154 ) - - -
Other liabilities 27,192 - 27,192 - 27,192
Total liabilities 55,044 74,316 129,360 - 129,360
EQUITY
Deficit (47,960 ) 1,280 (46,680 ) (14,613 ) (61,293 )
Other 115,416 - 115,416 - 115,416
Total equity 67,456 1,280 68,736 (14,613 ) 54,123
TOTAL LIABILITIES AND EQUITY 122,500 75,596 198,096 (14,613 ) 183,483 The following tables illustrate the impact
of the error correction related to unrecognized impairment charges, and the retrospective application of the voluntary change
in accounting policy: Consolidated Balance sheet
August 3, 2019
As previously reported Correction of error - Adjustment Correction of error - Restated Change in policy - Adjustment Restated
Right-of-use assets 68,230 (18,372 ) 49,858 - 49,858
Total assets 171,912 (18,372 ) 153,540 - 153,540
Deficit (57,512 ) (18,250 ) (75,762 ) - (75,762 )
Accumulated other comprehensive income 1,377 (122 ) 1,255 - 1,255
Total equity 57,766 (18,372 ) 39,394 - 39,394
Total liabilities and equity 171,912 (18,372 ) 153,540 - 153,540 Consolidated statement of income (loss)
and comprehensive income (loss)
For the three months ended August 3, 2019 For the six months ended August 3, 2019
As previously reported Correction of error - Adjustment Correction of error - Restated Change in policy - Adjustment Restated As previously reported Correction of error - Adjustment Correction of error - Restated Change in policy - Adjustment Restated
Selling, general and administration expenses 27,237 4,326 31,563 - 31,563 55,946 18,250 74,196 (14,613 ) 59,583
Results from operating activities (5,432 ) (4,326 ) (9,758 ) - (9,758 ) (7,805 ) (18,250 ) (26,055 ) 14,613 (11,442 )
Loss before income taxes (7,018 ) (4,326 ) (11,344 ) - (11,344 ) (11,027 ) (18,250 ) (29,277 ) 14,613 (14,664 )
Net loss (7,018 ) (4,326 ) (11,344 ) - (11,344 ) (11,027 ) (18,250 ) (29,277 ) 14,613 (14,664 )
Cumulative translation adjustment 136 119 255 - 255 (120 ) (122 ) (242 ) - (242 )
Total comprehensive loss (6,882 ) (4,207 ) (11,089 ) - (11,089 ) (11,147 ) (18,372 ) (29,519 ) 14,613 (14,906 )
Net loss per share (0.27 ) (0.17 ) (0.44 ) - 0.44 (0.42 ) (0.70 ) (1.12 ) 0.56 (0.56 ) Consolidated statement of cash flows
For the three months ended August 3, 2019 For the six months ended August 3, 2019
As previously reported Correction of error - Adjustment Correction of error - Restated Change in policy - Adjustment Restated As previously reported Correction of error - Adjustment Correction of error - Restated Change in policy - Adjustment Restated
Net loss (7,018 ) (4,326 ) (11,344 ) — (11,344 ) (11,027 ) (18,250 ) (29,277 ) 14,613 (14,664 )
Amortization of right-of-use assets 3,813 — 3,813 (699 ) 3,114 7,604 — 7,604 (1,388 ) 6,216
Impairment of right-of-use assets — 5,025 5,025 — 5,025 — 5,025 5,025 — 5,025
Cash flows related to operating activities 3,083 — 3,083 — 3,083 3,443 — 3,443 — 3,443 Consolidated statement of equity (deficit)
For the six months ended August 3, 2019
As previously reported Correction of error - Adjustment Correction of error - Restated Change in policy - Adjustment Restated
IFRS 16 adoption adjustment 1,280 - 1,280 (14,613 ) (13,333 )
Adjusted balance at beginning of period 68,736 - 68,736 (14,613 ) 54,123
Net loss (11,027 ) (18,250 ) (29,277 ) 14,613 (14,664 )
Accumulated other comprehensive loss (120 ) (122 ) (242 ) - (242 )
Total comprehensive loss (11,147 ) (18,372 ) (29,519 ) 14,613 (14,906 ) IFRS 16 – Leases IFRS 16, “Leases’’
(“IFRS 16’’) replaces IAS 17, “Leases’’ and related interpretations. This standard provides
a single model for leases abolishing the current distinction between finance and operating leases, with most leases being recognized
on the balance sheet. Certain exemptions will apply for short-term leases and leases of low value assets. The new standard is effective
for annual periods beginning on or after January 1, 2019.
a)
Nature of the effect of adoption of IFRS 16 (restated) The Company has adopted
IFRS 16 as at February 3, 2019. The adoption of IFRS 16 had a significant impact as the Company recognized new assets and liabilities
for its operating leases of retail stores. In addition, the nature and timing of expenses related to those leases will change as
IFRS 16 replaces the straight-line operating lease expense with a depreciation charge for right-of-use assets and interest expense
on lease liabilities. The Company has elected to apply the modified retrospective method by setting right-of-use assets based on
the lease liability at the date of initial application, adjusted by the amount of any prepaid or accrued lease payments, and has
applied the following practical expedients:
· applying IFRS 16 exclusively to contracts that were previously identified as leases applying IAS 17 at the date of initial application;
· applying a single discount rate to a portfolio of leases with reasonably similar characteristics;
· excluding initial direct costs from the measurement of the right-of-use asset at the date of initial application; and
· not separating the lease component and its associated non-lease component. At the date of
initial application of IFRS 16, the Company decided to test for impairment in accordance with IAS 36 Impairment of assets The effect of adoption
of IFRS 16 as at February 3, 2019 is as follows:
February 3,
2019
February 2, 2019
IFRS 16 Adoption
As previously reported Change in Policy Adjustment
February 3, 2019
Restated
ASSETS
Right-of-use assets - 75,596 75,596 (14,613 ) 60,983
Other assets 122,500 - 122,500 - 122,500
Total assets 122,500 75,596 198,096 (14,613 ) 183,483
LIABILITIES
Lease liability - 102,168 102,168 - 102,168
Deferred rent and lease inducements 8,698 (8,698 ) - - -
Provisions 19,154 (19,154 ) - - -
Other liabilities 27,192 - 27,192 - 27,192
Total liabilities 55,044 74,316 129,360 - 129,360
EQUITY
Deficit (47,960 ) 1,280 (46,680 ) (14,613 ) (61,293 )
Other 115,416 - 115,416 - 115,416
Total equity 67,456 1,280 68,736 (14,613 ) 54,123
TOTAL LIABILITIES AND EQUITY 122,500 75,596 198,096 (14,613 ) 183,483 For leases previously classified as operating
leases, the Company recorded the right-of-use assets based on the amount equal to the lease liabilities, adjusted for any related
prepaid and accrued lease payments previously recognized. Due to this, the Company derecognized an amount of $8,698 that was previously
included under deferred rent and leasehold inducements with a corresponding adjustment to the right-of-use asset. The lease liabilities
as at February 3, 2019 can be reconciled to the operating lease commitments as of February 2, 2019 as follows:
February 3,
2019
$
Minimum lease payments under operating lease 116,772
Discounted using a weighted average incremental borrowing rate of 6.63% (24,484 )
Discounted non-lease component associated with lease component pursuant to practical expedient 9,880
102,168 Operating lease payments which were previously
included in cost of sales on the consolidated statement of income are replaced with depreciation expenses (included in selling,
general and administrative expenses) from the right-of-use asset and interest expense (included under finance costs) from the lease
liability. b)
Summary of new accounting policies Right-of-use assets The Company recognises
right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use
assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease
liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred,
and lease payments made at or before the commencement date less any lease incentives received. Unless the Company is reasonably
certain to obtain ownership of the leased asset at the end of the lease term, the recognised right-of-use assets are depreciated
on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment.
Amortization expense is recorded in selling, general and administrative expense. Lease liabilities At the commencement date
of the lease, the Company recognises lease liabilities measured at the present value of lease payments to be made over the lease
term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable
lease payments that depend on an index or a rate. The lease payments also include the exercise price of a purchase option reasonably
certain to be exercised by the Company and payments of penalties for terminating a lease, if the lease term reflects the Company
exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognised as expense
in the period on which the event or condition that triggers the payment occurs. In calculating the present
value of lease payments, the Company uses the incremental borrowing rate at the lease commencement date if the interest rate implicit
in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect
the accretion of interest and reduced for the lease payments made. Interest accretion is recorded as interest expense in finance
costs. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term,
a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset. The Company has
elected to apply the practical expedient to not separate the lease component and its associated non-lease component. Short-term leases and leases of low-value
assets The Company applies the
short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e., those leases that have a lease
term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value
assets recognition exemption to leases of office equipment that are considered of low value (i.e., below US $5,000). Lease payments
on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term. Significant judgement in determining the
lease term of contracts with renewal options The Company determines
the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if
it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain
not to be exercised. The Company has the option,
under some of its leases to lease the assets for additional terms of three to five years. The Company applies judgement in evaluating
whether it is reasonably certain to exercise the option to renew. That is, it considers all relevant factors that create an economic
incentive for it to exercise the renewal, including store performance, expected future performance and past business practice.
After the commencement date, the Company reassesses the lease term if there is a significant event or change in circumstances that
is within its control and affects its ability to exercise (or not to exercise) the option to renew (e.g., a change in business
strategy). c)
Amounts recognised in the statement of financial position and profit or loss Set out below are the
carrying amounts of the Company’s right-of-use assets and lease liabilities and the movements during the period:
Right-of use Lease
assets liability
$ $
Balance, February 3, 2019 60,983 102,168
Amortization expense (6,216 ) -
Impairment of right-of-use assets (5,025 )
Interest expense - 3,608
Payments - (11,622 )
CTA 116 419
Balance, August 3, 2019 49,858 94,573
Presented as:
Current - 16,416
Non-Current 49,858 78,157 The Company recognizes variable lease payments
of $220 and $430 respectively for the three and six months ended August 3, 2019. IFRS 23 – Uncertainty over Income
Tax Treatments IFRIC 23, “Uncertainty over Income Tax
Treatments” (the “Interpretation”), was issued by the IASB in June 2017. The Interpretation provides guidance
on the accounting for current and deferred tax liabilities and assets in circumstances in which there is uncertainty over income
tax treatments. The Interpretation is effective for annual periods beginning on or after January 1, 2019. Earlier application is
permitted. The Interpretation requires an entity to:
· Contemplate whether uncertain tax treatments should be considered separately, or together as a group, based on which approach provides better predictions of the resolution;
· Reflect an uncertainty in the amount of income tax payable (recoverable) if it is probable that it will pay (or recover) an amount for the uncertainty; and
· Measure a tax uncertainty based on the most likely amount or expected value depending on whichever method better predicts the amount payable (recoverable). The adoption of this interpretation did not
have a significant impact on the Company’s financial statements. |
