| 3. CHANGES IN ACCOUNTING POLICIES | 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.
February
3,
2019 Change
in
February
2, 2019 IFRS
16 Adoption As
previously reported 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 IFRS
16 – Leases IFRS
16, “Leases’’ (“IFRS 16’’) replaces IAS 17, “Leases’’ and related interpretations.
The standard introduces a single on-balance sheet recognition and measurement model for lessees, eliminating the distinction between
operating and finance leases. The lessee recognizes a right-of-use asset representing its control of and right to use the underlying
asset and a lease liability representing its obligation to make future lease payments. Lessors continue to classify leases as
finance and operating leases. Certain exemptions will apply for short-term leases and leases of low value assets. The new standard
became 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. Substantially all of the Company’s existing leases are real estate leases
for its retail stores, warehouse and corporate head office. The adoption of IFRS 16 had a significant impact as the Company recognized
new assets and liabilities. 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 with no restatement of the
prior comparative period. Upon adoption of IFRS 16, the Company 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. The
effect of adoption of IFRS 16, including the voluntary change in accounting policy applied retroactively, 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
excess of onerous lease provision under IAS 37 over right-of-use asset at the date of transition (mainly due to the higher discount
rate used to calculate the lease liability and related right-of-use asset) amounted to $1,280 and was included in deficit. 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 initially measured at cost, which includes the initial amount of lease liabilities adjusted
for any initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. The
right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term
unless the Company is reasonably certain to obtain ownership of the leased asset at the end of the lease term. In addition the
right-of-use assets are subject to impairment and adjusted for any remeasurement of lease liabilities. 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 recognized 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 (9,153 ) —
Impairment
of right-of-use assets (7,076 ) —
Interest
Expense — 5,305
Payments — (17,342 )
CTA 71 234
Balance,
November 2, 2019 44,825 90,365
Presented
as:
Current — 16,291
Non-Current 44,825 74,074 The
Company recognizes variable lease payments of $409 and $839 respectively for the three and nine months ended November 2, 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. |
