Our target companies are the United States’ Home Depot, Inc. and the Canadian Tire Corporation. The Home Depot is an American largest home improvement retailer that specializes in wide range of building materials, home improvement products, lawn, garden products, and as well offer some improvement related services. The company has over 2,200 stores that are spread throughout the United States, Mexico and has some operations in Canada. On the other hand, Canadian Tire Corporation is a family business based in Canada. The company’s revenue streams include royalty sales, retail sales for the products, merchant sales and sale of gasoline among others. The two companies are in the retail business and as well franchising. This paper will compare the degree of accounting harmonization in the depreciation calculations, inventory costing and in the earnings per share.
Earnings per Share
In the Canadian Tire Corporation, the earning per share (EPS) refers to the portion of the company’s profit that is allocated to each outstanding share of the common stock. This is an indication into the organization’s profitability. The calculation for the parameter is universal in the two financials and is calculated as follow:
EPS = Net Income / Weighted Average Outstanding Common Shares
The Diluted EPS is calculated by adjusting the net income attributable to shareholders of the company and the weighted average number share outstanding for all the effects of potentially dilutive equity instruments, this includes the employee stock options. The net income attributable to the shareholders of the company is the same for both the basic EPS and diluted EPS calculation (page 82).
The same computation was performed for the Home Depot, Inc. (page 55).
Depreciation
Or the Canadian Tire Corporation, property and equipment are subject to depreciation as per the international accounting standards. Buildings, fixtures, and equipment are depreciated using the declining balance method to their estimated residual value over their useful lives. The estimated useful lives and the amortization methods are reviewed on annual basis with the changes being effected on prospective basis.
The leasehold improvements are amortized on s straight-line basis over the term of their leases. Items that are under finance leases are depreciated in the same way as fully owned leases. If there is no guarantee that the company will gain ownership at the end of the lease period, then it is depreciated over the shorter of the lease period or the useful life (P 77).
For the Home Depot, the Buildings, Furniture, Fixtures and Equipment recorded at cost and depreciated using straight line method over their estimated useful lives. The leases are depreciated using straight-line method over the shorter of the lease term or useful life. Buildings are depreciated for 5-45 years; Furniture, fixtures and equipment are depreciated over 2-20 years and leasehold for 5-45 years (p 38).
Inventory Cost Flow
For the Canadian Tire Corporation, the inventory is carried for the lower of the cost and net realizable value. There are as well provisions for the shrinkage (page 70). The cost of the inventory is calculated through the weighted average cost method and includes the cost incurred in bringing the inventory into the premises (page 76).
For the Home Depot, Inc. the inventory is stated at the lower of the cost or the market value (First in, First Out). The valuation is adjusted quarterly to cater for any changes in the realizable value. The company carries out independent inventory count on regular basis to ascertain that the value of the inventory in the financial statement reflects the value of the inventory held at the ground. The company records and adjusts for any losses or damages to reflect the true value of the inventory (page 27).
References
Canadian Tire Corporation. (2016). 2015 annual report. Toronto, Canada
The Home Depot, Inc. (2016). 2015 annual Report. Atlanta, Georgia
