Big Rock Brewery Inc which is based in Calgary Alberta

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Big Rock Brewery Inc., which is based in Calgary, Alberta, is a publicly listed company. The
company’s products are sold across the country in nine provinces and three territories as well
as being exported to Korea. One of the reporting requirements for financial instruments is that a
company must disclose if it has a high concentration of receivables from certain customers or
categories of customers, because this may increase the company’s level of credit risk as it
depends greatly on the ability of those customers to pay their accounts. In accordance with this
requirement, in its 2013 annual report, Big Rock disclosed the following:Big Rock has a
concentration of credit risk because a majority of its accounts receivable are from provincial
liquor boards, under provincially regulated industry sale and payment terms. The Corporation is
not exposed to significant credit risk as payment in full is typically collected by provincial liquor
boards at the time of sale and receivables are with government agencies. While substantially all
of Big Rock’s accounts receivable are from provincial government liquor authorities, the timing
of receipts of large balances may vary significantly from period to period. The majority of
product sold outside of Canada, which is included in GST and other receivables, is done so on
a ‘Cash on Delivery’ basis with no credit risk.Required:How would this disclosure affect your
assessment of Big Rock’s level of credit risk?View Solution:
Big Rock Brewery Inc which is based in Calgary Alberta

ANSWER
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