Module 3 – Assignment 1

Practice Case Examination

Backgrounder
The background information relating to the Case Examination (Backgrounder) is
provided to candidates in advance of the examination date. The Backgrounder contains
information about both the company and the industry involved in the case. Candidates
are expected to familiarize themselves with this information in preparation for the
analysis that will be required during the Case Examination.

Candidates should note that they will not be allowed to bring any written material,
including the advance copy of this Backgrounder, into the examination centre. A
new copy of this Backgrounder, together with additional information about the
company and a supplement of formulae and tables, will be provided at the writing
centre for the Case Examination. Only the following models of calculators are
authorized for use during the Case Examination:

1. Texas Instruments TI BA II Plus (including the professional model)

2. Hewlett Packard HP 10bII (or HP 10Bii)
3. Sharp EL-738C (or EL-738)

Candidates are reminded that no outside research on the industry related to this case is
required. Examination responses will be evaluated on the basis of the industry
information provided in the Backgrounder and the question paper (Additional
Information).

Copyright © 2009 by The Society of Management Accountants of Canada. All rights reserved.
This material, in whole or in part, may not be reproduced or transmitted without authorization.
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Module 3 – Assignment 1 Practice Case Examination

Aqua Fish Canada Inc. (AFC)

Backgrounder
May 2000 to April 2009

Overview
Aqua Fish Canada Inc. (AFC) is a privately owned, Canadian company involved in
aquaculture in the Maritimes. Aquaculture is the cultivation and harvesting of fish in a
natural or manufactured environment. Federally incorporated on May 1, 2000, AFC has
established a reputation for delivering a quality product – Atlantic salmon – on a timely
basis from its profitable fish farms and is a growing, commercial operation. AFC builds
and maintains fish farm facilities; hatches, feeds, grows, and harvests Atlantic salmon;
and distributes the unprocessed fresh fish mainly to customers in Canada and the
northeastern U.S.

Company History
In early 2000, three Maritimers with backgrounds in the fishing industry (Joel Palango,
Wendy Starky, and Jeanne Poirier) decided to search for potential investment
opportunities that would help the local Maritime economy. They observed that, with
access to plentiful water and site resources, a large workforce with a background in
fishing, and governments eager to create employment, the aquaculture industry was
growing along the eastern coast of Canada. Although they knew that there would be no
revenue until the first fish grew large enough to sell, they were prepared to wait several
years to realize a return and they decided to invest in an aquaculture business. Aqua
Fish Canada Inc. was incorporated and the first decision made by the three
shareholders was to establish an Atlantic salmon aquaculture farm.

Guy Mills, an experienced aquaculture executive, was hired to build the business from
the ground up. The first farm site was established within six months and operations
began in November 2000 with the first spawning of fish. By October 2002, a sufficient
number of farmed fish had reached a marketable weight and AFC harvested its first
batch of salmon.

Over the next five years, the company established three more salmon farm sites in
three provinces as shown in Table 1 below.

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Table 1
AFC Aquaculture Sites
Province Date of First Spawning Date of First Fish Harvest
Site 1 New Brunswick November 2000 October 2002
Site 2 Nova Scotia November 2001 October 2003
Site 3 New Brunswick November 2003 October 2005
Site 4 Quebec November 2005 October 2007

In fiscal 2008, the board of directors decided to put a hold on the expansion strategy
and dividends were paid for the first time.

Industry Background
The Fishing Industry Worldwide
The two main categories of fish are finfish and shellfish (crustaceans and molluscs).
Fishing is one of the oldest industries in the world and continues to be an important
source of food. However, the world’s oceanic catch has not increased appreciably since
1990 due to overfishing this resource, and thus has fallen far behind the soaring growth
in the demand for fish. In response, aquaculture has become the fastest-growing food
production system in the world.
Generally, fish is regarded as a commodity in the international markets and competes
against other protein-based foods, such as meat and poultry. Prices depend primarily
on international supply and demand and, to a lesser extent, on quality and source
country reputation. Currently, fish producers in countries such as China and Chile are
developing high production capacity. In some cases, this is driving prices down.
The efficiency of a food production system is measured in terms of the feed conversion
ratio (FCR), i.e. the rate at which grain or other feed is converted into protein. Cattle in
feedlots require approximately seven kilograms of feed concentrate to produce one
additional kilogram of live weight. [Note: Although markets often express measurements
of livestock and fish in pounds, Statistics Canada uses metric measurements. For
consistency and simplicity, metric measurements are used throughout this case.] For
pigs, the ratio is nearly 4:1. Chickens are much more efficient, with a ratio of 2:1. Fish,
including both herbivorous and omnivorous species, require less than two kilograms of
input concentrate (feed) per kilogram of weight gain.
Proponents of aquaculture note that it offers many advantages over capture (wild)
fishing. Properly managed, farmed fish is a fully sustainable resource. Usually, the
harvest can be taken on demand year-round for maximum freshness, rather than on a
seasonal basis. The often dangerous task of deep-sea fishing is avoided and there are
no international issues or jurisdictional disputes. The largest disadvantage is that fish
must be fed by the operator rather than feed themselves.
Beginning in the 1960s in Norway and Scotland, salmon farming developed from the
techniques used to enhance stocks of wild salmon, which included hatching and rearing
the fish under controlled conditions. Rather than releasing the young fish for a portion of

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their life cycle, aquaculturists looked for ways to raise them to maturity in pens close to
shore. In this way, they could be harvested easily and delivered quickly to markets that
were ready and willing to pay a premium for fresh salmon. Exhibit 1 describes the
salmon life cycle and a typical aquaculture set-up.
The Canadian Fishing Industry
Canada has one of the world's most valuable commercial fishing industries operating in
the Atlantic, Pacific, and freshwater areas. Shellfish comprises close to 40% of the
domestic catch, and finfish the remaining 60%. The Atlantic fishing industry accounts for
80% of total landings, including both wild and farmed fish. The development of
aquaculture with respect to salmon, shellfish, and freshwater fish has contributed to the
recent growth in the Atlantic fishing industry.
With a limited home market to satisfy, Canada has developed export markets for fresh,
frozen and processed fish. The United States is Canada's largest export market,
followed by Japan, China, and the European Union. Canada enjoys a reputation
worldwide for safe, wholesome finfish and shellfish products because it has vast
amounts of clean ocean water and one of the most respected fish inspection and control
systems in the world. It also has a reputation for research and innovation in fish
production, quality of fish products, and environmental protection of fish habitats. As a
result, Canada is one of the top exporters of fish in the world.
In many markets, Canadian finfish and shellfish are considered exotic and can be sold
at a premium. Recently, the strengthening of the Canadian dollar against the U.S. dollar
has had a negative impact on exports to the U.S.
Aquaculture in Canada
Aquaculture is a growing industry, with farming operations in all 10 provinces as well as
in the Yukon Territory. In Atlantic Canada, finfish aquaculture is dominated by the
production of steelhead and Atlantic salmon, shellfish aquaculture primarily includes the
production of blue mussels and oysters, and there is an emerging sea scallop industry.
Between 1986 and 2001, Canadian aquaculture production increased at an average
rate of 19.8% per year. In 1995, the landed value of salmon from aquaculture exceeded
that of the wild salmon catch for the first time. In 2006, the Canadian aquaculture
industry grew by 21.4%, representing almost one quarter of all Canadian fish production
(fisheries and aquaculture combined).
With respect to finfish, Atlantic salmon is the predominant species farmed in Canada,
followed by chinook and coho salmon. The total value of finfish aquaculture in 2009 was
over $700 million, representing more than 85% of the total value of aquaculture
production.
Salmon aquaculture is now a major industry in Canada, operating year-round and
creating wealth and jobs in coastal communities. Salmon farming is one of New
Brunswick’s largest food industries and farmed salmon has become British Columbia’s
most significant agricultural export. Many companies have become vertically integrated
operations, running fish farms and hatcheries, raising brood stock, transporting and

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processing fish, conducting research, and marketing the product internationally. Canada
is now the world’s fourth-largest producer of farmed salmon, after Norway, Chile, and
the United Kingdom.
Shellfish farming is an increasingly important contributor to Canada's expanding
aquaculture industry. Prince Edward Island's rope-grown mussels are well-known
around the world as is the technology that was developed to culture them. The
Canadian aquaculture industry supplies 80% of the blue mussels in the North American
market. Current industry growth areas include oysters (Atlantic, Pacific, and European),
Manila clams, and scallops. These bivalve molluscs are relatively inexpensive to farm
because they feed on the natural plankton available in the ocean and there is no need
to purchase feed. As a result, farming shellfish is environmentally friendly. Generally,
shellfish farmed in Canada, such as the American oyster, require more growing time
than in warmer climates, but the habitat is much cleaner, resulting in top grade quality
shellfish that can be sold at premium prices.
New software now permits operators in the fishing industry to find customers worldwide.
The software matches seller and buyer online with respect to selected criteria, such as
product specifications, price, volume, and terms of payment. Exports of Canadian
aquaculture products have continued to rise, with sharp increases in shellfish. The
majority of aquaculture exports are bound for the U.S., with France, Japan, and Taiwan
taking most of the remainder.
Successful marketing of farmed fish depends on consumer confidence in product safety
and quality. The aquaculture industry is supported by the federal and
provincial/territorial governments in ensuring water quality and in maintaining the
highest standards of product quality and safety.
Two national associations support various aspects of the industry: the Canadian
Aquaculture Association and the Canadian Aquaculture Institute. In addition, there are
several smaller, provincial organizations and an aboriginal association.
Salmon Markets
Several varieties of salmon, including Atlantic, Pacific, and Alaskan, are fished and
marketed worldwide. Developed countries account for the vast majority of total salmon
imports worldwide, led by Japan, the United States and the European Union. There is
substantial farming of all salmon species in a number of countries, including Norway,
Scotland, Chile, Canada, and the United States.
Traditionally, salmon was sold smoked or canned for the most part; today, most salmon
is sold frozen or fresh. Most smoked salmon is sold in Europe, and most frozen salmon
is sold in Japan. The last decade has seen a dramatic growth in markets for fresh
salmon in the United States, Japan, and western Europe.
The wholesale salmon industry is highly competitive and the various species of salmon
are considered commodities. In the past, the seasonality of the capture fishing industry
resulted in greatly fluctuating prices. The growth of the aquaculture industry has
provided year-round production of fresh farmed salmon, filling the seasonal gap. As a

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result, prices have decreased but have been more stable throughout the year. From
2000 to 2003, outbreaks of disease in farmed salmon and an increasing general
concern regarding the environmental dangers of aquaculture caused prices to decrease
further. In 2004, prices began to stabilize as the aquaculture industry made operational
changes in an effort to address the environmental issues.
In 2006 and 2007, competition from aquaculturists in Chile increased. The salmon farms
in that country have substantially lower labour and feed costs that are only partially
offset by the higher costs of transporting the product to markets in the United States and
Canada. Consequently, Chilean producers have been able to offer lower prices that
have put downward pressure on the overall market prices for fresh salmon and salmon
products.
Canadian farmed Atlantic salmon has maintained a reputation for high quality and,
therefore, is sold at a premium in international wholesale markets.
Environmental Concerns
In recent years, environmental concerns have arisen and such organizations as the
David Suzuki Foundation have spoken out loudly against finfish aquaculture for a
variety of reasons. From time to time, open net-pen systems are torn apart in storms
and farmed fish are released into the natural environment. This can introduce a non-
native species to a body of water, such as Atlantic salmon to the Pacific Ocean. In
addition to competing for food and spawning habitat, the escaped farmed fish may
interbreed with wild specimens, reducing the latter’s fitness.
Parasite damage is another concern. Salmon farms in British Columbia have been
accused of contributing to the sea lice infestations that have wiped out some species of
wild salmon in certain areas. In addition, diseases can spread quickly in aquaculture
farms. In the early 1990s, disease nearly destroyed all aquaculture stocks of shrimp in
China. In 1998, a mass slaughter of farmed salmon in New Brunswick was necessary to
prevent a major outbreak of infectious salmon anemia (ISA). To reduce the spread of
disease, salmon farmers employ antibiotics, vaccines and other chemicals, much of
which can enter the water through the net-pens.
Open net-pen systems also permit fish feed, fish waste, and parasites to accumulate in
the coastal marine environment in vastly greater concentrations than would occur
naturally. A buildup of fish waste can alter the natural environment, increasing the
amount of nitrogen and phosphorous in the water. This, in turn, can stimulate the growth
of destructive algae.
The aquaculture industry has countered these arguments, citing the fact that escaped
fish have a low survival rate because they are no longer fed and protected in the wild.
The problem of waste accumulation under the net-pens is addressed by using a bag
system, whereby the waste is collected and removed. Alternatively, all farming activity
at a particular location can be ceased for a period of four to eight months. This fallow
period provides an opportunity for the breakdown of the organic matter that has
accumulated on the seabed. The fallow method is more commonly used by Canadian
fish farms.

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One solution to many environmental concerns is to use a closed-pen system. Using this
system, it is impossible for farmed fish (dead or alive), fish feed, fish waste, or parasites
to escape into the coastal marine environment. Few salmon farmers use such a system
because it is more expensive to construct and requires very costly oxygen supplements.
Environmentalists also oppose the following practices in aquaculture:
• the use of low value fish to make feed for high value fish, because this depletes
global fish stocks and these fish could instead be eaten by people in poor countries;
• the use of antibiotics, biocides, and harmful chemicals, because these are a form of
pollution; and
• the use of genetically modified fish.
Some environmental groups and their followers have advocated a consumer boycott of
all farmed fish in Canada and the U.S. However, this does not appear to be the attitude
of the general public.
Regulation of the Fishing Industry and Aquaculture in Canada
Canada's inspection and control system contributes to the country’s reputation for safe,
wholesome fish products. It is the intention of the Canadian government to assure
buyers worldwide that fish from Canada meets the increasingly rigorous standards of
the world's major markets.
The Canadian Food Inspection Agency (CFIA) sets the policies, requirements, and
inspection standards with respect to fishing vessels, fish products, importers, fish
processing establishments, and equipment used for handling, transporting, and storing
fish. All facilities that process finfish or shellfish for export or interprovincial trade must
be registered federally and must develop and implement a quality management
program (QMP). The QMP outlines the controls that ensure that all fish are processed
under sanitary conditions, and that the resulting products are safe and meet all
regulatory requirements. The Canadian Shellfish Sanitation Program (CSSP) helps
ensure that all shellfish consumed in the country come from approved (safe) growing
areas.
With respect to aquaculture, a site licence, issued by the federal government, is
required in order to operate a fish farm in a particular location. In addition, all
aquaculture sites must be inspected twice each year by the federal government. The
export certification program of the CFIA provides Canadian exporters of finfish and
shellfish with official documents that guarantee their products will be acceptable to
importing countries.

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Aqua Farm Canada Inc. (AFC) Operations

Management and Organization
A summarized organizational chart for AFC is found in Exhibit 2.
Guy Mills is President and Chief Executive Officer (CEO). He holds an undergraduate
degree in biology and a master’s degree in science and has worked in the aquaculture
industry since graduating 18 years ago. Mills is 44 years old and is passionate about
aquaculture, AFC, and his role in the company. He is based in the head office and has
three administrative staff reporting to him as well as four vice-presidents and a director
of human resources.
Bill Egin, 53 years old, is Vice-President, Operations and is comfortable in his
leadership role. In this position, he is responsible for all direct fish functions, including
facility construction, hatching, growing, and harvesting, as well as research &
development (R&D). His responsibility ends when the fish are harvested and handed
over for distribution.
Rob Vanic, 42 years old, is Vice-President, Distribution. A mechanical engineer by
profession with experience in the transportation business, his responsibility is to get the
fish from the water to the customer.
AFC’s Vice-President, Sales is Juliette Maise. She has a degree in biochemistry and is
39 years old. Her primary responsibility is to lead the sales team to generate customer
orders. She is an optimistic, outgoing individual who is very good at managing the sales
force.
Jacques Dubois, CMA, is Vice-President, Finance, and Chief Financial Officer (CFO).
He holds an Executive MBA from a university in the Maritimes and is 59 years old.
Reporting to Dubois are Adam Rice, Controller, and Justin Singh, Director, Computer
Systems.
Gale Harper is Director, Human Resources and reports directly to the president. She is
responsible for all hiring, evaluation and termination of employees, and for payroll,
which is handled through a service. Harper is based in AFC’s head office and has a
staff of five.
Board of Directors
The board of directors is comprised of the shareholders and the following three outside
parties: Fraser Coupland, a former owner of a capture fishing business in
Newfoundland, now retired; Mary-Anne Fisher, a former politician affiliated with the
current ruling party in New Brunswick; and Paul Seminole, a prominent Nova Scotia
lawyer. Joel Palango is Chair and Guy Mills represents the management team on the
board. Every two years, the board reviews the company’s strategic plan. At the end of
fiscal 2008, they conducted an environmental analysis and updated the corporate
mission and vision (see Exhibit 3).

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Human Resources
In the Maritimes, low-cost labour is plentiful for such manual tasks as feeding,
harvesting, truck-driving, and maintenance. These employees can be temporarily laid
off when they are not needed and they may be eligible to collect employment insurance
(EI) during layoffs. Most of these workers are paid only $2.00 per hour more than the
provincial minimum wage.
As a result of these factors, the level of employee turnover is higher than average.
Harper believes that the high turnover rate has no impact on operations because this
type of work requires little skill.
Aquaculture Operations
AFC operates four coastal aquaculture sites and pays a nominal rent to the Crown for
the rental of the underwater space. The company has implemented a successful quality
management program (QMP) at each site.
Each location has a site manager in charge of the operations, a person in charge of
hatching, a veterinarian, and many manual labourers who feed and harvest fish and
maintain the facility. Each site is of approximately the same size and scale. The site
managers report to Bill Egin.
When a new site is established, the same number of salmon eggs is incubated and
hatched in the fall each year. Because individual growth rates vary, only 50% of the
salmon reach harvestable weight within the first 30 months. About three years are
required before the level of harvestable fish at the site becomes consistent.
In addition to extensive freshwater tanks and pens, each site has a series of open net-
pens in the ocean, adjacent buildings, and other necessary infrastructure. The open net-
pens float in the ocean in a bay or sheltered area, and nets keep the farmed salmon in
and predators out. The pens rise and fall with the tide and are cleansed by the rushing
tidewater.
Feed is the largest cost component of the operation. Therefore, a critically important
success factor is the feed conversion ratio (FCR), i.e. the amount of feed required per
unit of output. The FCR can be improved by changing the composition of the feed and
the way in which it is distributed to the fish.
Salmon are a carnivorous fish that normally feed on a variety of insects, crustaceans,
and other fish. This diet produces the rich, orange colour of their flesh. The salmon feed
used by AFC is composed of ground crustaceans and fish, such as sardines,
anchovies, and menhaden, and is 10% more expensive than the feeds used by many
other salmon farms. Because the AFC feed more closely resembles the diet of wild
salmon, AFC’s farmed salmon have dark orange flesh. Consequently, AFC does not
need to use chemical agents to enhance the colour of the fish, and for this it has won
favour with environmental groups.
The company does not use growth hormones. However, certain government-approved
drugs are used to improve the spawning function and to control fungi, parasites, and

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bacterial infection. In compliance with government regulations, administration of this

medication, which is given to the salmon in their feed, is overseen by the licensed staff
veterinarians.
The staff veterinarians are responsible for ensuring that only healthy, disease-free fish
are distributed for human consumption. On a regular basis, samples of fish are given a
detailed biological examination. Nets are used to harvest the salmon when they reach
market size. All of the harvested fish are inspected visually and those that are certified
by the veterinarians are refrigerated before shipment is made to the end customer.
AFC is a member of the New Brunswick Salmon Growers Association, the Canadian
Aquaculture Institute, and the Canadian Aquaculture Association.
Some operating statistics are shown in Table 3:
Table 3
Operating Statistics
for the Years Ended April 30 (in ’000s of kg)
2009 2008 2007 2006 2005
1
Kilograms sold 3,380 3,252 2,730 2,412 1,933
Kilograms exported1 (included in
1,318 1,234 1,092 941 735
kilograms sold)
Inventory of harvestable fish1 (kg) 559 295 235 75 146
Inventory of growing fish1 (kg) 1,621 1,648 1,256 1,227 862
Expected harvested weight of
3,861 3,960 3,960 3,465 2,970
growing fish in stock2 (kg)
Number of sites 4 4 4 4 3
Number of producing sites3 4 4 3 3 2

1
All fish weights are reported as actual weight less the shrinkage from gutting the fish
during harvesting (harvested fish are gutted and washed, but heads are left on). To
aid comparability, a standard gutting shrinkage is deducted from the actual weights of
the fish not yet harvested (both harvestable and growing).
2
The estimated future yield from all fish that are growing but are not yet of harvestable
weight.
3
A producing site is one that has harvestable fish ready for sale.

Research & Development (R&D)

Dr. Lily Stern is the director of a small R&D unit composed of scientists and technicians
who carry out applied research with the objective of improving the company’s short- and
long-term profits. To date, the unit’s most significant practical achievement has been to
identify the strain of Atlantic salmon that would be the most disease-resistant for the
specific environment of each of the company’s farm locations.

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The employees in this unit work on projects that relate to the following:
1. Product quality – determining improved diets for fish and better husbandry methods.
2. Fish health – focusing on disease resistance, surveillance and detection; and
studying the life cycles of causative agents (pests, pathogens, and parasites).
3. Environmental considerations – studying the treatment of fish farm discharge and
the interaction of aquaculture and the environment; monitoring the carrying capacity
and treatment of fish farm discharges at individual sites; and performing other
biological and environmental monitoring.
Sales
AFC salmon is sold fresh and unprocessed in the wholesale market. Ultimately, it
reaches the final consumer in one of the following ways:
1. served smoked or freshly cooked in restaurants;
2. sold fresh in retail stores (whole, filleted, or sectioned into steaks, strips for stir-
frying, cubes for kebobs, or other sizes); or
3. sold frozen, smoked, or otherwise processed in retail stores.
Worldwide, AFC competes against all other sellers of Atlantic salmon, both wild and
farm-raised. The company also competes indirectly against sellers of other protein-
based foods, such as other fish, meat, and poultry. In general, there are three grades of
Atlantic salmon in the market. The fish produced by AFC are in the top category and,
therefore, can be sold at the highest wholesale market price.
Most years, approximately 50% of sales are made by individual purchase orders to fish
processors in Canada and the U.S. at market prices. The company has three long-term
contracts with Canadian and U.S. grocery retailers, specifying minimum volumes that
AFC must deliver twice per week. Because AFC has a superior product, these retailers
have agreed to pay 5% more than the market price at the time of delivery.
A small amount of product is sold directly to Atlantic region restaurants at 20% more
than the market price. Some AFC salmon is sold overseas through large, international
fish brokers in Boston, Massachusetts. These overseas customers pay a premium of
10% and AFC pays the broker a 5% commission.
Reporting to Juliette Maise is a team of six salespeople who are responsible for selling
the company’s salmon output in North America and four additional employees who help
process orders and assist with the department’s paperwork. Two of the salespeople are
desk-bound; the others travel within Eastern Canada and the northeastern U.S., with
each assigned to a particular sales territory. The salespeople earn a commission of four
percent of the value of product sold.
All export sales are in U.S. dollars. Normally, terms are net 30 days and product returns
are rare and small. In fiscal 2009, sales distribution was about 60% to customers in
Canada, 35% to buyers in the U.S. and 5% to markets outside North America.
The company maintains a website that provides product information and sales contacts.
The website also describes employment opportunities and provides hiring contacts.

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AFC owns several refrigerated trucks to deliver product to its customers. During busy
periods, the overflow volume is contracted out to independent trucking companies.
Some customers pick up product at the aquaculture facilities. Deliveries to overseas
customers are by commercial refrigerated air cargo.
Accounting, Budgeting and Taxation
The company uses the BalancesNow™ accounting system for the general ledger,
accounts payable, and accounts receivable. The system has worked reasonably well
since it was installed by Dubois’s predecessor in 2003. BalancesNow™ allows up to
eight general ledgers per organization; currently, AFC uses one general ledger for the
head office and one for each of the aquaculture sites. In addition, the system permits up
to four concurrent users; normally, there are only three. BalancesNow™ handles
transactions in two currencies, Canadian and U.S. dollars; no other currencies are
needed.
Revenue from the sale of harvested fish is recognized on delivery to the customer.
Inventories consist of fish feed and the live fish that are in the hatchery and net-pens.
The full costs of the fish hatching and growing operations (i.e. direct variable and fixed
hatching and growing costs plus site amortization costs) are inventoried until the fish are
harvested and sold, at which time they are charged to cost of sales. The direct costs of
harvesting and delivering the fish are also charged to cost of sales. Capital assets, such
as tanks, nets, and other structures, are amortized over their expected useful lives using
the straight-line method. The company pays income taxes at a blended rate of
approximately 30%.
The planning and budgeting function is led by Rice, the controller. The company’s
annual budget is prepared by the end of March and is approved by the board of
directors. It is reviewed and updated each quarter, and has been well received by staff
both within and beyond the finance area. The budgeting process has proven to be fairly
accurate.
Since inception, the company has been audited by the same, mid-sized, New Brunswick
accounting firm. Historic, audited financial results for the company are found in
Exhibit 4.
Banking and Financing
Because Joel Palango had a long relationship with the Eastern Bank of Canada, AFC
has always banked with this financial institution. The bank has provided the company
with a $2 million operating line of credit as well as an $8 million property, plant and
equipment financing loan, repayable over eight years at six percent.
Each aquaculture site, except the one adjacent to the head office, has a bank account
from which urgent local expenses can be paid. These accounts are replenished from
time to time via electronic transfer from the company’s main account.

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Exhibit 1
Salmon Aquaculture

The Atlantic salmon is an anadromous species, spending part of its time in fresh water
and part in sea water. In the wild, a young salmon spends between one and three years
in freshwater rivers and streams before migrating downstream to the ocean. The fish
then lives in sea water for one to five years before returning as an adult salmon to its
river of origin to spawn. After spawning, most adult salmon die. The life cycle of a wild
salmon is between two and six years in length.

Salmon farming mimics the natural salmon life cycle while controlling many factors that
affect growth, such as water temperature, feed, predators, and disease. The fish adapt
well to living the first eight months to two years in fresh water in tanks and pens, and the
next year or two in seawater in open net-pens.

The floating net-pens are generally 20 metres deep and are held in place with moorings.
Nets surround all sides of each pen, including the top and bottom, preventing the
farmed salmon from escaping and keeping predators out. Each farm site is located in a
protected area along the coastline and the net-pens are clustered together in groups of
8-20 to form a site serviced by platforms for storage of feed and supplies. Net-pen
systems cover several hectares of surface water.

Throughout their lives, the salmon are fed a special diet of fish meal pellets, vitamins,
and minerals, and good growth rates are achieved. To prevent the spread of disease,
either the fish are inoculated or antibiotics are added to the fish feed. Once they reach a
market weight of between two and five kilograms, they are harvested. Overall, the life
cycle of farmed fish is between 20 months and four years in length.

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Exhibit 2
Aqua Fish Canada Inc.
Summarized Organizational Chart
As at April 30, 2009

Board of Directors
Joel Palango (Chair)
Wendy Starky
Jeanne Poirier
Fraser Coupland
Mary-Anne Fisher
Paul Seminole
Guy Mills

President & CEO

Guy Mills

Vice-President, Vice-President, Vice-President, Vice-President,

Finance & CFO Operations Distribution Sales
Jacques Dubois Bill Egin Rob Vanic Juliette Maise

Director, Research Director, Human

Controller & Development Resources
Adam Rice Dr. Lily Stern Gale Harper

Director, Computer
Systems
Justin Singh

Page 14 (16 pages) CMA Canada

Practice Case Examination Module 3 – Assignment 1

Exhibit 3
Environmental Scan – April 2009

Strengths
• Highest grade of salmon is produced
and sold at highest market price
• Reputation for timely delivery
• Competent management and staff
• Dark colour of salmon caused by
superior feed, not chemical agents
• Growth hormones are not used
• Three long-term contracts provide
some stability
• Good relationship with bank
• Member of provincial and national
industry associations
• R&D’s success in identifying disease
resistant strains of salmon – yield has
improved
Opportunities
• Growing demand for salmon and
shellfish in international markets
• Canada’s reputation for safe,
wholesome fish – receive premium
prices in foreign markets
• Availability of government funding
• Large markets for fish in U.S., Japan,
China, and European Union
• Plentiful low-cost labour in the
Maritimes
Weaknesses
• High employee turnover
• Open net-pen damage caused
significant loss of fish in 2008
• High cost of fish feed
• Limited overseas exports
• Accounting system supports only two
currencies
• Decreased operational efficiencies
Threats
• Competition from other salmon
suppliers (e.g. Chile) and suppliers of
other fish, poultry, and meat
• Demand for salmon is maturing
• Increased government regulation of
the industry
• Increasing fuel prices
• Environmental concerns
• Strengthening Canadian dollar
• Fluctuating prices for fish in
international markets
• Increasing cost of fish feed

Aqua Fish Canada Inc. – Vision:

AFC feeds the global community.

Aqua Fish Canada Inc. – Mission:

AFC provides a sustainable source of fresh, disease-free fish to domestic

and export markets through aquaculture farming. AFC strives to exceed
environmental and quality standards and regulations, provide a safe
environment for our employees, and generate reasonable financial returns to
our shareholders.

CMA Canada Page 15 (16 pages)

Module 3 – Assignment 1 Practice Case Examination

Exhibit 4
Aqua Fish Canada Inc. (AFC)
Balance Sheets
as at April 30 (Audited)
(in ’000s)

Assets 2009 2008 2007 2006 2005

Cash $ 871 $ 892 $ 1,118 $ 586 $ 651
Accounts receivable, net 1,135 1,119 968 868 742
Inventory 6,521 5,746 5,105 4,282 3,645
Other current assets 86 85 84 82 80
8,613 7,842 7,275 5,818 5,118
Property, plant & equipment (net) 5,281 6,648 8,035 9,526 7,233
$13,894 $14,490 $15,310 $15,344 $12,351
Liabilities & Shareholders’
Equity
Current liabilities $ 4,939 $ 4,563 $ 4,439 $ 4,280 $ 3,524
Long-term debt 4,000 5,000 6,000 7,000 5,000
Shareholders’ Equity:
Capital stock 4,850 4,850 4,850 4,850 4,850
Retained earnings 105 77 21 (786) (1,023)
4,955 4,927 4,871 4,064 3,827
$13,894 $14,490 $15,310 $15,344 $12,351

Income Statements
for the Years Ended April 30 (Audited)

2009 2008 2007 2006 2005

Revenue $14,187 $13,984 $12,095 $10,854 $9,280
Cost of sales 11,546 11,080 8,761 8,436 6,191
2,641 2,904 3,334 2,418 3,089
Expenses:
Selling 878 809 709 654 581
Research and development 365 335 301 256 246
General & administrative 1,359 1,251 1,171 1,170 996
2,602 2,395 2,181 2,079 1,823
Income before taxes 39 509 1,153 338 1,266
Income taxes 12 153 346 102 380
Net income $ 27 $ 356 $ 807 $ 237 $ 887

Page 16 (16 pages) CMA Canada