Question

E10-30. Analyzing, Interpreting, and Capitalizing Operating Leases TJX Companies Inc. reports the following balance sheet in its 2019 first-quarter report (10-0). May 4, 2019 February 2, 2019 $ 2,235,056 393,276 5,057,202 381,678 8,067,212 5,018,598 5.801 8,810,367 96,685 490,401 $22,489,064 $ 3,030,229 346,298 4,579,033 513,662 8,469,222 5,255,208 6,467 97,552 497,580 $14,326,029 S thousands Assets Current assets Cash and cash equivalents Accounts receivable, net Merchandise inventories Prepaid expenses and other current assets Total current assets Net property at cost .. Noncurrent deferred income taxes, net Operating lease right-of-use assets. Goodwill.... Other assets Total Assets Liabilities Current liabilities Accounts payable. Accrued expenses and other current liabilities Current portion of operating lease liabilities. Federal, state and foreign income taxes payable Total current liabilities. Other long-term liabilities .. Noncurrent deferred income taxes, net Long-term operating lease liabilities.. Long-term debt.. Shareholders' Equity Preferred stock, authorized 5,000,000 shares, par value $1, no shares issued....... Common stock, authorized 1,800,000,000 shares, par value $1, issued and outstanding 1,212,667,546; 1,217,182,508 and 1,250,405,376 respectively.. Additional paid-in capital... Accumulated other comprehensive loss. Retained earnings ... Total shareholders' equity... Total Liabilities and Shareholders' Equity $ 2,644,143 2,733,076 $ 2,578,370 2,468,588 1,343,243 190,818 6,581,019 752,968 167,283 7,621,531 2,234,368 154,155 5,531,374 1,354,242 158,191 2,233,616 1,212,668 1,217,183 (633,282) 4,552,509 5,131,895 $22,489,064 (630,321) 4,461,744 5,048,606 $14,326,029

Answer 1

Answer: Summarized the information provided in the tables given in the question, TJX companies Inc., @ challenges if one wants to analyze TJx at may 4 ,2019 ate; (i) Due to adoption of the new lease standard, the company has a new line item Operating lease right of - We assets and Operating lease liabilities in the balance sheet as disclosed above. Since the past period has not been restarted, this balances do not appear in the comparative balance sheet. Hence, the Company will not be able to compare what would be the impact in the comparative period and how much movement from last period (8) Since the operating lease right -of-use over the life of lease ६ & 'Operating lease liabilities is adjusted with actual lease payment and interest accurled every period. In the comparative year lease expense was changed ton operating lease as and when incussed. There are two different methods of becognising lease expense in both the periods poesented. Hence, it is difficult to access was the poesented. assets amootised

Teaser the impact of the new standard in the cuorent period via-s-via past perrod in the statement of profit & loss or in retained earsnings. O present value of the econin operating lease payments at fiscal year-end feb-2 2019; Interest rate 3.75%. in thousandy operating I PV at the end Remarks of feb-2, 2019 Fiscal year / opasating $1,676,700.00-PV3.250,0,0, 2020 leases |$1,676,700 1676900) 20 21 $1,603,348 $1,545,424.58 PU 3.75l,1,0,1603378 2022 $1,441,444 $1,339,126. 38 -PU(3.75/,8,0,1441444) 2023 1,253, 420 $1,122,360.32-P13.75,3,0,12534201 2024 1,042, 184 $899,480.97 -PU(3751,4,0,1042154) Later $2,309,33):631 -Pu (3.75l5,0, years 2774845). pv of the operating lease $8,891, 423.87 2,774,845 payments at fiscal year end feb-2, 2019 Note: Since the question doesn't mention When in the fiscal year be made it is assumed it would in the beginning of each year. would the payment

Note-10 Later years is assumed as year -5 as there no explanation in the qustion, i the question has not mentioned what is the date of transition to new lease standard 11) The question has not mentioned what isas the interest rate on the date of transition. 11i) The question hasn't mentioned operating lease right of use assets has been calculated on the date of transition i.e., on the commencement of each lease iv) The question hasn't mentioned how year comprises of later yearos. many
ANSWER-C:   

The Company has calculated the present value of liability in answer b as on February 2, 2019. The Company can calculate the operating lease right-of-use assets as on February 2, 2019 on the same principal it is calculated in May 4, 2019 Balance sheet. The same can be disclosed or adjusted. Doing the balance sheet at two fiscal-year-end would become comparable.

Alternatively, the Company can calculate and present the impact of new lease standard on total asset, total liability and shareholder's equity to make it comparable with last fiscal year end.

ANSWER-D:

Material effect is a very broad term. The materiality varies from Company to Company and from person to person who is seeing the financial statement. The total operating lease lease liability as on May 4, 2019 is $8,964,774 (i.e.1343243+7621531) and operating lease right-of-use assets is $8,810,367. If we see the impact on the balance sheet on May 4, 2019 it is $154,407 (i.e. 8,964,774-8,810,367). As a comparison to balance sheet size it is 0.69% (i.e. 154,407/22489064). Since the retained earning movement and details have not been given the impact for the period on statement of comprehensive income cannot be accessed. Basis the comparison with balance sheet size, the impact is only 0.69% hence it is not material. As an emphasis, Material effect is a very broad term and very subjective

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