Sailing Voyages, Inc. is a tour boat company offering day cruises on a sailing schooner. In this exercise, the owner of the company needs to determine the amount and nature of costs and revenues with varying number of sailing voyages and a limited season of operation.
A 23-year-old sales executive for a multinational office furniture and supply company was thinking of leaving the company over a dispute regarding her compensation. After doing some cost analysis on the feasibility of starting a recruiting agency, the young entrepreneur decided it was worth trying. One year later, the company had experienced a successful and profitable first year. This follow-up to the (A) case, 9A99B033, provides the opportunity to compare estimates with actual financial performance.
An auditor is planning the audit of a new client, Acme Hardware. For preparing the audit plan, he becomes aware of the possibility that certain managers might be using accounting flexibility to aid them in qualifying for incentive bonuses based on profitability. The areas are inventory and advertising. The auditor must decide what action, if any, to take.
In late 2001 and in 2002, investors, securities regulators, the energy industry and the capital markets watched as the details of behind the collapse of Enron Corporation unfolded. Enron was the largest corporation to collapse in U.S. history, with the company's share price losing most of its value in the 10 months preceding its bankruptcy petition. A large shareholder, like virtually all of Enron's shareholders, was unhappy with his losses and he wanted to know how, despite all the checks and balances in the financial reporting system, this collapse happened suddenly and with so little warning. This shareholder wondered whether the system be relied upon to protect him and what he should do in the future if he continued to invest in capital markets.
Tricon Logistics China is the logistics department of Tricon Restaurants International (China) and is responsible for supervising the operations and cost management of supplies to Kentucky Fried Chicken and Pizza Hut restaurants from 12 distribution centres in China. The market manager of one of the regional companies is concerned about the performance of his company's affiliated distribution centre in Suzhou. The director of Tricon Logistics China must determine why the actual cost of the distribution centre have exceeded the targets by analysing performance, cost variance and internal price negotiation.
Sailing Voyages, Inc. is a tour boat company offering day cruises on a sailing schooner. In this exercise, the owner of the company needs to determine the amount and nature of costs and revenues with varying number of sailing voyages and a limited season of operation.
The entrepreneurs of the Regical Electronics Company Limited, a financial software and integrated system developer in Guangzhou, have perceived a new e-business opportunity in the sale of an electronic payment system. To implement the Hotye business project, a new company is established, and the immediate task for the chief financial officer is to seek financing sources for the huge investment and to determine the appropriate accounting policies that will help the new company decide on its business and financial strategies. Two significant financial reporting issues are the depreciation of the Hotye electronic payment terminals and the method of revenue recognition, as various approaches of depreciation and revenue recognition can produce different impacts on taxation and on the bottom line.
Livent Inc. is the only publicly traded theatrical production firm in North America. A member of the audit committee at Livent is preparing to address the company's board of directors regarding issues contained in a letter published by a leading business magazine. The letter, written by a securities analyst, suggests the company's accounting policies are very aggressive, in particular the approach taken to capitalize and amortize its pre-production costs. In order to address this issue, the audit committee member wants to review the company's current capitalization and amortization policies and to compare its approach with the accounting policies used by other industries which also incur significant development costs.
PepsiCo Inc. spanned more than 190 countries and accounted for approximately one-quarter of the world's soft drinks. The vice-president of finance for PepsiCo East Asia had been collecting data on the firm's proposed equity joint venture in Changchun, People's Republic of China (PRC). While PepsiCo was already involved in seven joint ventures in the PRC, this proposal would be one of the first two green-field equity joint ventures with PepsiCo control over both the board and day-to-day management. Every investment project at PepsiCo had to go through a systematic evaluation process that involved using capital budgeting tools such as new present value (NPV) and internal rate of return (IRR). He needed to decide if the proposed Changchun joint venture would meet PepsiCo's required return on investment. He was also concerned what the local partners would think of the project. The final decision would be made after a presentation to the president of PepsiCo Asia-Pacific.
This note will familiarize users of financial statements with how Earnings Per Share (EPS) is calculated, what accounting rules apply, and how the new CICA Handbook Section 3500 will make Canadian, U.S. and international EPS figures more comparable. It also includes a simple exercise to test the students' understanding of the mechanics. The accompanying teaching note provides the solution.
The Hong Kong Convention and Exhibition Centre (HKCEC), a trade infrastructure owned by the Hong Kong Development Council and operated by the New World Group, was the most prestigious convention and exhibition venue in Hong Kong. After hosting several musical events in Hall Three of HKCEC, the management of HKCEC decided to actively market Hall Three to concert organizers during the off-season. These events could bring in substantial rental income per day. Seat-risers had been leased and temporarily installed for these events, but the cost was prohibitively expensive for concerts booked for short durations, such as concerts by visiting international performing artists, a segment that HKCEC intended to target. The director of operations of HKCEC had been trying to find the most cost effective solution to provide a seat-riser for Hall Three. There were three options: to purchase a seat-riser, to rent a seat-riser for the duration of booked events, or to rent a seat-riser for the entire off-season period. He must analyse the options and find the solution that would be attractive to concert organizers, the most cost effective with the least risk to HKCEC, and consistent with HKCEC's current operations.
The chief financial officer and acting chief executive officer of PixStream Incorporated, a high-tech video networking solutions company, was contemplating how going public in the next couple of years might affect his decisions and choices relating to the company's accounting practices for research and development expenditures. He needed to determine if he should continue expensing all research and development costs or if he should capitalize and amortize some or all of the costs over the period of time the company is expected to benefit from the research and development efforts. There were many practical business reasons for keeping development costs off the balance sheet, but he wanted to ensure that PixStream would get its proper valuation when the time came for the company to go public. He wanted to approach his analysis from a proper accounting perspective and from a practical business perspective, to make sure that all angles were covered. Once he has decided on his course of action, he must determine the ramifications of his decision and the actions that he will have to take as a result.
A 23-year-old sales executive for a multinational office furniture and supply company was thinking of leaving the company over a dispute regarding her compensation. A friend had suggested setting up her own business: a recruiting agency. The sales executive had known some human resources managers and office managers throughout the years, however, she also realized that it was a very competitive business and she had no experience. She did some cost analysis and had to decide whether it was worth doing. This case could be used as an introduction to management accounting or entrepreneurial finance.
A 23-year-old sales executive for a multinational office furniture and supply company was thinking of leaving the company over a dispute regarding her compensation. After doing some cost analysis on the feasibility of starting a recruiting agency, the young entrepreneur decided it was worth trying. One year later, the company had experienced a successful and profitable first year. This follow-up to the (A) case, 9A99B033, provides the opportunity to compare estimates with actual financial performance.
The vice president, finance must quickly address several choices concerning a proposed office relocation. His analysis will likely include discounted cash flow analysis (DCF) and the topics of capital asset pooling and tax benefits. The case compares and contrasts the concepts of DCF and net present value analysis with Seagram's version of EVA (Economic Value Added). The case also provides a unique Asian focus for this type of decision. Office space location and the rent vs. buy option are extremely important decisions faced by a multitude of managers in Hong Kong. The traditional wisdom in Hong Kong has been that buying property was more efficient - especially given the phenomenal appreciation of property values. However, it can serve to distract a firm from its' core competencies and tie up working capital in non-producing assets. Finally, the case also provides a brief overview of capital asset pooling and depreciation tax law in Hong Kong. While the discussion is brief, it nevertheless provides an adequate first step towards further study in this area. Students from other areas of the world will also be interested in examining the differences between their country's tax laws and Hong Kong's.
Several large Canadian public companies announced their intent to merge and use the pooling of interests method rather than the traditional purchase method. Pooling had been rarely used to account for business combinations in Canada. The case focus is on an analyst who wanted to ensure that she understood the differential impact of both methods so that she could more fully represent her clients' interests. She decided to use an analysis of the recent merger of TransCanada Pipelines and NOVA Corporation to help her better understand and evaluate the two alternative accounting methods and their impact on the financial statements.
The vice-president of finance at Seagram Greater China was contemplating what actions to take in light of the proposed changes to the duty rates which applied to imported scotch and cognac in Taiwan. Given that the Taiwanese spirits market had become very competitive in recent years, careful management of the duty rate changes was critical for ensuring future market share and profitability in Taiwan. The task facing the decision maker was to determine what pricing levels to recommend for Seagram's scotch and cognac products based upon the proposed duty regime. The case is particularly suitable to managerial accounting classes intending to develop skills and application of contribution and margin analysis. The strong marketing linkages in the case also make it applicable to classes dealing with pricing in highly competitive markets.