Bank

ch13 Student:  1. Some liabilities are not contractual obligations and may not be payable in cash. True False 2. Amounts withheld from employees in connection with payroll often represent liabilities to third parties. True False 3. A customer advance produces a liability that is satisfied when the product or service is provided. True False 4. Long-term debt that is callable by the creditor in the upcoming year should be classified as a current liability only if the debt is expected to be called.

True False 5. The concept of substance over form influences the classification of obligations expected to be refinanced. True False 6. Under IFRS, a liability that is refinanced after the balance sheet date but before the financial statements are issued would typically be classified as a current liability. True False 7. Warranty expense is recorded along with the related liability in the reporting period in which the product under warranty is sold. True False 8. For a loss contingency to be accrued, the claim must have been made before the accounting period ended.

True False 9. A company should accrue a liability for a loss contingency if it is at least reasonably possible that assets have been impaired and the amount of potential loss can be reasonably estimated. True False 10. A disclosure note is required for all material loss contingencies for which the probability of loss is reasonably possible. True False 11. Under IFRS, the term “probable” indicates a threshold of probability that is substantially higher than a 50/ 50 chance. True False 12.

Under IFRS, if it is probable that a contingent liability will result in a future payment but there is a range of equally likely amounts that will be paid, the midpoint of the range should be accrued as a loss. True False 13. The cost of promotional offers should be recorded as expenses in the accounting period when the offers are redeemed by customers. True False 14. Unlike the Social security tax there is no maximum wage base for the Medicare portion of the FICA tax. True False 15. State and Federal Unemployment Taxes (SUTA and FUTA) must be withheld from employees’ wages. True False 16.

Match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase. __ Liabilities when received. __ __ Confirming event is likely to occur. __ A loss contingency accrued in the period of__ related sales. __ Most common temporary financing__ arrangement. __ __ Requires collateral. __ 1. Short-term note 2. Warranty liability 3. Advances from customers 4. Secured loan 5. Probable 17. Match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase. 1. Accrued liabilities 2. Discount on notes payable 3.

Interest payable 4. Sales tax payable 5. Callable Due on demand. Contra liability. A third party liability. Accrues with passage of time. Expenses incurred but not yet paid. ____ ____ ____ ____ ____ 18. Match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase. 1. Reasonably possible 2. Noncommitted lines of credit 3. Customer deposits 4. Interest paid on debt 5. Gain contingencies Liabilities until refunded. More than remote but less than likely. Face amount x rate x time. Not recorded until realized. Informal borrowing agreements. ____ ____ ____ ____ ____ 19.

Match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase. 1. Unasserted claims 2. Factoring 3. Subsequent events 4. Accounting liabilities 5. Effective interest __ Exceeds the stated rate on discounted notes. __ __ May include items that are not legal liabilities. __ __ Sales of receivables. __ Evaluated for recognition only if an unfavorable__ outcome is probable. __ Occur in the current year before prior year financial__ statements are issued. __ 20. Match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase. . Noninterestbearing notes 2. Loss contingencies 3. Committed lines of credit 4. Accounts payable 5. Pledging arrangements __ Use accounts receivable as collateral. __ __ Often require compensating balance. __ __ Only formal credit instrument is the invoice. __ __ Effective interest higher than stated interest. __ Recorded if probable and amount is known or__ reasonably estimable. __ 21. Match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase. Present value of interest plus present value__ of principal. __ __ Required for contingencies. __ __ Payable with current assets. _ Short-term debt to be refinanced__ with long-term bonds payable. __ __ Avoids registration with SEC. __ 1. Current liabilities 2. Usual valuation of long-term liabilities 3. Disclosure notes 4. Long-term liabilities 5. Commercial paper 22. Indicate (by letter) the way each of the items listed below should be reported in a balance sheet at December 31, 2011. 1. Not reported 2. Disclosure note only 3. Liability 4. Liability A material gain contingent on a future event that appears__ exceedingly likely. __ A penalty assessment that probably will be asserted by__ the EPA, in which case a determinable payment is probable. _ Unassessed penalty with a reasonable possibility of being__ asserted, in which case a determinable payment is probable. __ An extremely likely loss due to an event that occurred__ previously and whose amount is unknown but estimable. __ 23. Match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase. _ _ How present values affect the measurement_ of contingent liabilities under IFRS. _ _ _ _ Definition of “probable” under IFRS. _ _ how IFRS refers to an accrued liability_ that would generally be referred to as_ an “accrued contingent loss” under U.

S. GAAP. _ _ _ The amount IFRS would accrue given a range_ of equally likely outcomes. _ _ _ _ Treatment of contingent gains under IFRS. _ 1. mid-point of the range 2. provision 3. more likely than not 4. contingent gains are not accrued 5. report at present value whenever time value of money is material 24. Indicate (by letter) the way each of the items listed below should be reported in a balance sheet at December 31, 2011. 1. Current liability 2. Current liability __ Estimated warranty cost. __ A material gain contingent on a future event that appears__ extremely likely to occur in three months. _ Unasserted assessment of penalty that probably will be 3. Not asserted, in which case there would probably be a loss in six__ reported months. __ 4. Unasserted assessment of penalty with a reasonable possibility Disclosure of being asserted, in which case there would probably be a loss in__ note only 13 months. __ A determinable loss from a past event that is contingent on 5. Current a future event that appears extremely likely to occur in three__ liability months. __ 25. Indicate (by letter) the way each of the items listed below should be reported in a balance sheet at December 31, 2011. 26.

Indicate (by letter) the way each of the items listed below should be reported in a balance sheet at December 31, 2011. 27. The most common type of liability is: A. B. C. D. One that comes into existence due to a loss contingency. One that must be estimated. One that comes into existence due to a gain contingency. One to be paid in cash and for which the amount and timing are known. 28. Which of the following is not a characteristic of a liability? A. B. C. D. It represents a probable, future sacrifice of economic benefits. It must be payable in cash. It arises from present obligations to other entities.

It results from past transactions or events. 29. Which of the following is the best definition of a current liability? A. An obligation payable within one year. B. An obligation payable within one year of the balance sheet date. C. An obligation payable within one year or within the normal operating cycle, whichever is longer. D. An obligation expected to be satisfied with current assets or by the creation of other current liabilities. 30. Which of the following is not a liability? A. B. C. D. An unused line of credit. Estimated income taxes. Sales tax collected from customers. Advances from customers. 31.

Current liabilities normally are recorded at their: A. B. C. D. Present value. Cost. Maturity amount. Expected value. 32. Current liabilities are normally recorded at the amount expected to be paid rather than at their present value. This practice can be supported by GAAP according to the concept of: A. B. C. D. Matching. Consistency. Materiality. Conservatism. 33. The key accounting considerations relating to accounts payable are: A. Determining their existence and ensuring that they are recorded in the appropriate accounting period. B. Determining their present value and ensuring that they are recorded in the appropriate accounting period.

C. Determining their existence and determining the correct amount. D. Determining the present value of the principal and the amount of the interest. 34. Classifying liabilities as either current or long-term helps creditors assess: A. B. C. D. Profitability. The relative risk of a firm’s liabilities. The degree of a firm’s liabilities. The amount of a firm’s liabilities. 35. When cash is received from customers in the form of a refundable deposit, the cash account is increased with a corresponding increase in: A. B. C. D. A current liability. Revenue. Shareholders’ equity. Paid-in capital. 36.

A discount on a noninterest-bearing note payable is classified in the balance sheet as: A. B. C. D. An asset. A component of shareholders’ equity. A contingent liability. A contra liability. 37. The rate of interest printed on the face of a note payable is called the: A. B. C. D. Yield rate. Effective rate. Market rate. Stated rate. 38. The rate of interest that actually is incurred on a note payable is called the: A. B. C. D. Face rate. Contract rate. Effective rate. Stated rate. 39. On October 31, 2011, Simeon Builders borrowed $16 million cash and issued a 7-month, noninterestbearing note.

The loan was made by Star Finance Co. whose stated discount rate is 8%. Sky’s effective interest rate on this loan is: A. B. C. D. More than the stated discount rate of 8%. Less than the stated discount rate of 8%. Equal to the stated discount rate of 8%. Unrelated to the stated discount rate of 8%. 40. Jane’s Donut Co. borrowed $200,000 on January 1, 2011, and signed a two-year note bearing interest at 12%. Interest is payable in full at maturity on January 1, 2013. In connection with this note, Jane’s should report interest expense at December 31, 2011, in the amount of: A. B. C. D. $0. $24,000. 48,000. $50,880. 41. What is the effective interest rate (rounded) on a 3-month, noninterest-bearing note with a stated rate of 12% and a maturity value of $200,000? A. B. C. D. 12. 4%. 12. 0 %. 11. 5%. 3. 0%. 42. On September 1, 2011, Hiker Shoes issued a $100,000, 8-month, noninterest-bearing note. The loan was made by Second Commercial Bank whose stated discount rate is 9%. Hiker’s effective interest rate on this loan (rounded) is: A. B. C. D. 9. 0%. 9. 5%. 9. 6%. 9. 7%. 43. Universal Travel Inc. borrowed $500,000 on November 1, 2011, and signed a 12-month note bearing interest at 6%.

Interest is payable in full at maturity on October 31, 2012. In connection with this note, Universal Travel Inc. should report interest payable at December 31, 2011, in the amount of: A. B. C. D. $8,000. $30,000. $5,000. $25,000. 44. Knique Shoes issued a $100,000, 8-month, “noninterest-bearing note. ” The loan was made by Second Commercial Bank whose stated “discount rate” is 9%. The effective interest rate on this loan (rounded) is: A. B. C. D. 9. 28% 9. 49% 9. 50% 9. 57% 45. Oklahoma Oil Corp. paid interest of $785,000 during 2011, and the interest payable account decreased by $125,000.

What was interest expense for the year? A. B. C. D. $890,000. $660,000. $555,000. $785,000. 46. On June 1, 2011, Dirty Harry Co. borrowed cash by issuing a 6-month noninterest-bearing note with a maturity value of $500,000 and a discount rate of 6%. What is the carrying value of the note as of September 30, 2011? A. B. C. D. $525,000. $300,000. $495,000. $475,000. 47. At times, businesses require advance payments from customers that will be applied to the purchase price when goods are delivered or services provided. These customer advances represent: A. B. C. D. Liabilities until the product or service is provided.

A component of shareholders’ equity. Long-term assets until the product or service is provided. Revenue upon receipt of the advance payment. 48. M Corp. has an employee benefit plan for compensated absences that gives employees 15 paid vacation days. Vacation days can be carried over indefinitely. Employees can elect to receive payment in lieu of vacation days. At December 31, 2011, M’s unadjusted balance of liability for compensated absences was $30,000. M estimated that there were 200 vacation days available at December 31, 2011. M’s employees earn an average of $150 per day.

In its December 31, 2011, balance sheet, what amount of liability for compensated absences is M required to report? A. B. C. D. $0. $30,000. $225,000. $450,000. 49. Which of the following generally is associated with accounts payable? A. B. C. D. Option A Option B Option C Option D 50. Lake Co. receives nonrefundable advance payments with special orders for containers constructed to customer specifications. Related information for 2011 is as follows ($ in millions): What amount should Lake report as a current liability for advances from customers in its Dec. 31, 2011, balance sheet? A. B. C. D. $0. $80. $125. $170. 51.

All of the following but one represent collections for third parties. Which one of the following is not a collection for a third party? A. B. C. D. Sales tax payable. Customer deposits. Employee insurance deductions. Social security taxes deductions. 52. When a deposit on returnable containers is forfeited, the firm holding the deposit will experience: A. B. C. D. A decrease in cost of goods sold. An increase in current liabilities. An increase in accounts receivable. An increase in revenue. 53. B Corp. has an employee benefit plan for compensated absences that gives employees 10 paid vacation days and 10 paid sick days.

Both vacation and sick days can be carried over indefinitely. Employees can elect to receive payment in lieu of vacation days; however, no payment is given for sick days not taken. At December 31, 2011, B’s unadjusted balance of liability for compensated absences was $42,000. B estimated that there were 300 vacation days and 150 sick days available at December 31, 2011. B’s employees earn an average of $200 per day. In its December 31, 2011, balance sheet, what amount of liability for compensated absences is B required to report? A. B. C. D. $60,000. $84,000. $90,000. 144,000. 54. On January 1, 2011, G Corporation agreed to grant its employees two weeks vacation each year, with the stipulation that vacations earned each year can be taken the following year. For the year ended December 31, 2011, G’s employees each earned an average of $800 per week. 500 vacation weeks earned in 2011 were not taken during 2011. Wage rates for employees rose by an average of 5 percent by the time vacations actually were taken in 2012. What is the amount of G’s 2012 wages expense related to 2011 vacation time? A. B. C. D. $0 $20,000 $400,000 $420,000 55.

Revenue associated with gift card sales should be recognized: A. When the gift card is sold. B. No later than the last day of the operating period in which the gift card is delivered to the customer. C. When the probability of gift card redemption is viewed as remote. D. Under no circumstances, as gift cards are not themselves a delivered product, but rather a selling technique. 56. All else equal, a large increase in unearned revenue in the current period would be expected to produce what effect on revenue in a future period? A. Large increase, because unearned revenue becomes revenue when revenue is earned. B.

Large decrease, because unearned revenue implies that less revenue has been earned, which reduces future revenue. C. No effect, because unearned revenue is a liability, so payment will use assets rather than providing revenue. D. Large decrease, because unearned revenue indicates collection problems that will reduce net revenues in future periods. 57. Peterson Photoshop sold $1000 of gift cards on a special promotion on October 15, 2011, and sold $1500 of gift cards on another special promotion on November 15, 2011. Of the cards sold in October, $100 were redeemed in October, $250 in November, and $300 in December.

Of the cards sold in November, $150 were redeemed in November and $350 were redeemed in December. Peterson views the probability of redemption of a gift card as remote if the card has not been redeemed within two months. At 12/31/2011, Peterson would show an unearned revenue account for their gift cards with a balance of: A. B. C. D. $0. $1000. $1350. $1500. 58. When a product or service is delivered for which a customer advance has been previously received, the appropriate journal entry includes: A. B. C. D. A debit to a revenue and a credit to a liability account. A debit to a evenue and a credit to an asset account. A debit to an asset and a credit to a revenue account. A debit to a liability and a credit to a revenue account. 59. Clark’s Chemical Company received customer deposits on returnable containers in the amount of $100,000 during 2011. Twelve percent of the containers were not returned. The deposits are based on the container cost marked up 20%. What is cost of goods sold relative to this forfeiture? A. B. C. D. $0. $2,000. $10,000. $14,400. 60. In May of 2011, Raymond Financial Services became involved in a penalty dispute with the EPA.

At December 31, 2011, the environmental attorney for Raymond indicated that an unfavorable outcome to the dispute was probable. The additional penalties were estimated to be $770,000 but could be as high as $1,170,000. After the year-end, but before the 2011 financial statements were issued, Raymond accepted an EPA settlement offer of $900,000. Raymond should have reported an accrued liability on its December 31, 2011, balance sheet of: A. B. C. D. $770,000. $900,000. $970,000. $1,170,000. 61. Slotnick Chemical received customer deposits on returnable containers in the amount of $300,000 during 2011.

Fifteen percent of the containers were not returned. The deposits are based on the container cost marked up 20%. How much profit did Slotnick realize on the forfeited deposits? A. B. C. D. $0. $7,500. $9,000. $45,000. 62. Which of the following is not a current liability? A. B. C. D. Accounts payable. A note payable due in 2 years. Accrued interest payable. Sales tax payable. 63. Short-term obligations can be reported as long-term liabilities if: A. B. C. D. The firm has a long-term line of credit. The firm has tentative plans to issue long-term bonds. The firm intends to and has the ability to refinance as long-term.

The firm has the ability to refinance on a long-term basis. 64. Of the following, which typically would not be classified as a current liability? A. B. C. D. Estimated liability from cash rebate program. A long-term note payable maturing within the coming year. Rent revenue received in advance. A six-month bank loan to be paid with the proceeds from the sale of common stock. 65. Large, highly rated firms sometimes sell commercial paper: A. B. C. D. To borrow funds at a lower rate than through a bank. To earn a profit on the paper. To avoid paperwork. Because the interest rate is locked in by the Federal Reserve Board. 6. Which of the following situations would not require that long-term liabilities be reported as current liabilities on a classified balance sheet? A. B. C. D. The long-term debt is callable by the creditor. The creditor has the right to demand payment due to a contractual violation. The long-term debt matures within the upcoming year. All of the above require the current classification. 67. A long-term liability should be reported as a current liability in a classified balance sheet if the long-term debt A. B. C. D. is callable by the creditor. is secured by adequate collateral. ill be refinanced with stock. will be refinanced with debt. 68. On December 31, 2011, L, Inc. had a $1,500,000 note payable outstanding, due July 31, 2012. L borrowed the money to finance construction of a new plant. L planned to refinance the note by issuing long-term bonds. Because L temporarily had excess cash, it prepaid $500,000 of the note on January 23, 2012. In February 2012, L completed a $3,000,000 bond offering. L will use the bond offering proceeds to repay the note payable at its maturity and to pay construction costs during 2012. On March 13, 2012, L issued its 2011 financial statements.

What amount of the note payable should L include in the current liabilities section of its December 31, 2011, balance sheet? A. B. C. D. $0 $500,000 $1,000,000 $1,500,000 69. Liabilities payable within the coming year are classified as long-term liabilities if refinancing is completed before date of issuance of the financial statements under A. B. C. D. US GAAP. IFRS. Either U. S. GAAP and IFRS. Neither U. S. GAAP and IFRS. 70. Kline Company refinanced current debt as long-term debt on January 5, 2012. Kline’s fiscal year ended on December 31, 2011, and its financial statements will be issued sometime in early March, 2012.

Under IFRS, how would Kline classify the debt on its December 31, 2011 balance sheet? A. In the “mezzanine” between current and non-current liabilities. B. Kline would not classify the debt as current or noncurrent, but rather would write a disclosure note explaining the circumstances. C. As a noncurrent liability. D. As a current liability. 71. Branch Company, a building materials supplier, has $18,000,000 of notes payable due April 12, 2012. At December 31, 2011, Branch signed an agreement with First Bank to borrow up to $18,000,000 to refinance the notes on a long-term basis.

The agreement specified that borrowings would not exceed 75% of the value of the collateral that Branch provided. At the date of issue of the December 31, 2011, financial statements, the value of Branch’s collateral was $20,000,000. On its December 31, 2011, balance sheet, Branch should classify the notes as follows: A. B. C. D. $15,000,000 long-term and $3,000,000 current liabilities. $4,500,000 short-term and $13,500,000 current liabilities. $18,000,000 of current liabilities. $18,000,000 of long-term liabilities. 72. Other things being equal, most managers would prefer to report liabilities as noncurrent rather than current.

The logic behind this preference is that the long-term classification permits the company to report: A. B. C. D. Higher working capital and a higher inventory turnover. Lower working capital and a higher current ratio. Higher working capital and a higher current ratio. Higher working capital and a lower debt to equity ratio. 73. Footnote disclosure is required for material potential losses when the loss is at least reasonably possible: A. B. C. D. Only if the amount is known. Only if the amount is known or reasonably estimable. Unless the amount is not reasonably estimable. Even if the amount is not reasonably estimable. 4. Gain contingencies usually are recognized in a company’s income statement when: A. B. C. D. Realized. The amount can be reasonably estimated. The gain is reasonably possible and the amount can be reasonable estimated. The gain is probable and the amount can be reasonably estimated. 75. A company should accrue a loss contingency only if the likelihood that a liability has been incurred is: A. B. C. D. More likely than not and the amount of the loss is known. At least reasonably possible and the amount of the loss is known. At least reasonably possible and the amount of the loss can be reasonably estimated.

Probable and the amount of the loss can be reasonably estimated. 76. A contingent loss should be reported in a footnote to the financial statements rather than being accrued if: A. B. C. D. The likelihood of a loss is remote. The incurrence of a loss is reasonably possible. The incurrence of a loss is more likely than not. The likelihood of a loss is probable. 77. Which of the following is a contingency that should be accrued? A. B. C. D. The company is being sued and a loss is reasonably possible and reasonably estimable. The company deducts life insurance premiums from employees’ paychecks.

The company offers a two-year warranty and the expenses can be reasonably estimated. It is probable that the company will receive $100,000 in settlement of a lawsuit. 78. A loss contingency should be accrued in a company’s financial statements only if the likelihood that a liability has been incurred is: A. B. C. D. at least remotely possible and the amount of the loss is known. reasonably possible and the amount of the loss is known. reasonably possible and the amount of the loss can be reasonably estimated. probable and the amount of the loss can be reasonably estimated. 79.

Paul Company issues a product recall due to an apparently pre-existing and material defect discovered after the end of its fiscal year. Financial statements have not yet been issued. The action required of Paul Company for this reasonably estimable contingency for the year just ended is: A. B. C. D. To disclose it in a footnote. To accrue a long-term liability. To accrue the liability and explain it in a footnote. To do nothing relative to the contingency. 80. Accounting for costs of incentive programs for customer purchases: A. B. C. D. Requires probability estimation. Follows the matching principle.

Is a loss contingency situation. All of the above are correct. 81. Providing a monetary rebate program for purchasing a product: A. B. C. D. Is accounted for similarly to product warranties. Creates an expense for the seller in the period of sale. Creates a contingent liability for the seller at the time of sale. All of the above are correct. 82. The main difference between accounting for rebate and cash discount coupons is: A. B. C. D. The latter is not treated as an expense. Only the former creates a contingent liability when issued. The expense for the latter is usually deferred until redemption of the coupon.

There are no significant differences in accounting between the two. 83. Which of the following entail essentially the same accounting treatment? A. B. C. D. Coupons for cash rebates and coupons for other premiums Cents-off coupons and coupons for other premiums Cents-off coupons and coupons for cash rebates All of the above are correct. 84. Blue Co. can estimate the amount of loss that will occur if a foreign government expropriates some of the company’s assets in that country. If the likelihood of expropriation is remote, a loss contingency should be A. B. C. D. Disclosed but not accrued as a liability. Disclosed and accrued as a liability.

Accrued as liability but not disclosed. Neither accrued as a liability nor disclosed. 85. Orange Co. can estimate the amount of loss that will occur if a foreign government expropriates some of the company’s asset in that country. If expropriation is reasonably possible, a loss contingency should be A. B. C. D. Disclosed but not accrued as a liability. Disclosed and accrued as a liability. Accrued as liability but not disclosed. Neither accrued as a liability nor disclosed. 86. Red Co. can estimate the amount of loss that will occur if a foreign government expropriates some of the company’s assets in that country.

If expropriation is probable, a loss contingency should be A. B. C. D. Disclosed but not accrued as a liability. Disclosed and accrued as a liability. Accrued as liability but not disclosed. Neither accrued as a liability nor disclosed. 87. Z Co. filed suit against W, Inc. in 2011 seeking damages for patent infringement. At December 31, 2011, legal counsel for Z believed that it was probable that Z would be successful against W for an estimated amount in the range of $30 million to $60 million, with each amount in that range considered equally likely.

Z was awarded $40 million in April 2012. Z should report this award in its 2011 financial statements, issued in March, 2012 as A. A receivable and unearned revenue of $40 million. B. A receivable and revenue of $40 million. C. A disclosure of a gain contingency of $40 million. D. A disclosure of a gain contingency of an undetermined amount in the range of $30 million to $60 million. 88. When a material gain contingency is probable and the amount of gain can be reasonably estimated, the gain should be: A. B. C. D. Reported in the income statement and disclosed.

Offset against shareholders’ equity. Disclosed, but not recognized in the income statement. Neither recognized in the income statement nor disclosed. 89. Which of the following is a contingency that would most likely require accrual? A. B. C. D. Potential claims on extended warranties. Customer premium offers. Potential liability on a product where none have yet been sold. Sales tax payable. 90. The cost of customer premium offers should be charged to expense: A. B. C. D. When the related product is sold. When the premium offer expires.

Over the life cycle of the product to which the premium relates. When the premiums are claimed. 91. The accounting concept that requires recognition of a liability for customer premium offers is A. B. C. D. Periodicity. Conservatism. Historical cost. The matching principle. 92. Accounting for costs of incentive programs for frequent customer purchases involves: A. B. C. D. Recording an expense and a liability each period. Recording a liability and a reduction of revenue each period. Recording an expense and an asset reduction each period. Recording an expense and revenue each period. 93.

A customer of RoughEdge Sharpeners alleges that RoughEdge’s new razor sharpener had a defect that resulted in serious injury to the customer. RoughEdge believes the customer has a 51% chance of winning the case, and that if the customer wins the case, there is a range of losses of between $1,000,000 and $3,000,000 in which any number is equally likely to occur. Under U. S. GAAP, RoughEdge should accrue a liability in the amount of: A. B. C. D. $0. $1,000,000. $2,000,000. $3,000,000. 94. A customer of Razor Sharpeners alleges that Razor’s new razor sharpener had a defect that resulted in serious injury to the customer.

Razor believes the customer has a 51% chance of winning the case, and that if the customer wins the case, there is a range of losses of between $1,000,000 and $3,000,000 in which any number is equally likely to occur. Under IFRS, Razor should accrue a liability in the amount of: A. B. C. D. $0. $1,000,000. $2,000,000. $3,000,000. 95. Volt Electronics sells equipment that includes a three-year warranty. Repairs under the warranty are performed by an independent service company under contract with Volt. Based on prior experience, warranty costs are estimated to be $25 per item sold. Volt should recognize these warranty costs: A. B. C. D.

When the equipment is sold. When the repairs are performed. When payments are made to the service firm. Evenly over the life of the warranty. 96. Funzy Cereal includes one coupon in each package of Wheatos that it sells and offers a toy car in exchange for $1. 00 and 3 coupons. The cars cost Funzy $1. 50 each. Experience indicates that 40% of the coupons eventually will be redeemed. During the last month of 2011, the first month of the offer, Funzy sold 12 million boxes of Wheatos and 2. 4 million of the coupons were redeemed. What amount should Funzy report as a promotional expense for coupons on its December 31, 2011, income statement?

A. B. C. D. $0. $400,000. $800,000. $1,200,000. 97. Captain Cook Cereal includes one coupon in each package of Granola that it sells and offers a puzzle in exchange for $2. 00 and 3 coupons. The puzzles cost Captain Cook $3. 50 each. Experience indicates that 20% of the coupons eventually will be redeemed. During the last month of 2011, the first month of the offer, Captain Cook sold 6 million boxes of Granola and 900,000 of the coupons were redeemed. What amount should Captain Cook report as a liability for coupons on its December 31, 2011, balance sheet? A. B. C. D. $0. $150,000. 300,000. $450,000. 98. At the beginning of 2011, Angel Corporation began offering a 2-year warranty on its products. The warranty program was expected to cost Angel 4% of net sales. Net sales made under warranty in 2011 were $180 million. Fifteen percent of the units sold were returned in 2011 and repaired or replaced at a cost of $5. 3 million. The amount of warranty expense on Angel’s 2011 income statement is: A. B. C. D. $5. 3 million. $7. 2 million. $10. 6 million. $27. 0 million. 99. During 2011, Deluxe Leather Goods sold 800,000 reversible belts under a new sales promotional program.

Each belt carried one coupon, which entitles the customer to a $5. 00 cash rebate. Deluxe estimates that 70% of the coupons will be redeemed, even though only 350,000 coupons had been processed during 2011. At December 31, 2011, Deluxe should report a liability for unredeemed coupons of: A. B. C. D. $560,000. $1,050,000. $1,225,000. $1,750,000. In 2011, Holyoak Inc. offers a $20 cash rebate coupon to customers who purchased one of its new line of products. Holyoak sold 10,000 of these products during the year. By year end of 2011, 7,600 of the rebates had been claimed, and 7,100 had been paid.

Holyoak’s historical experience with such rebates indicates that 85% of customers claim the rebates. 100. What is the expense that Holyoak should report for its promotional rebates in its 2011 income statement? A. B. C. D. $142,000 $152,000 $170,000 $200,000 101. What is the rebate promotion liability that Holyoak should report in its December 31, 2011 balance sheet? A. B. C. D. $20,000 $28,000 $18,000 None of the above is correct. 102. In the current year, Hanna Company reported warranty expense of $190,000 and the warranty liability account increased by $20,000. What were warranty expenditures during the year?

A. B. C. D. $190,000. $170,000. $210,000. $0. 103. Panther Co. had a warranty liability of $350,000 at the beginning of 2011, and $310,000 at end of 2011. Warranty expense is based on 4% of sales, which were $50 million for the year. What were the warranty expenditures for 2011? A. B. C. D. $0. $1,960,000. $2,000,000. $2,040,000. 104. Carpenter Inc. had a balance of $80,000 in its warranty liability account as of December 31, 2010. In 2011, Carpenter’s warranty expenditures were $445,000. Its warranty expense is calculated as 1% of sales. Sales in 2011 were $40 million.

What was the balance in the warranty liability account as of December 31, 2011? A. B. C. D. $35,000. $425,000. $125,000. $480,000. General Product Inc. shipped 100 million coupons in products it sold in 2011. The coupons are redeemable for thirty cents each. General anticipates that 70% of the coupons will be redeemed. The coupons expire on December 31, 2012. There were 45 million coupons redeemed in 2011, and 30 million redeemed in 2012. 105. What was General’s coupon liability as of December 31, 2011? A. B. C. D. $7. 5 million. $13. 5 million. $16. 5 million. $21. 0 million. 106.

What was General’s coupon promotion expense in 2011? A. B. C. D. $30. 0 million. $21. 0 million. $13. 5 million. $7. 5 million. 107. What was General’s coupon promotional expense in 2012? A. B. C. D. Zero, since all the expense should be reflected in 2011. $1. 5 million. $7. 5 million. $9. 0 million. 108. During the year, L Leather Goods sold 1,000,000 reversible belts under a new sales promotional program. Each belt carried one coupon, which entitles the customer to a $4. 00 cash rebate. L estimates that 70% of the coupons will be redeemed, even though only 500,000 coupons had been processed during the year.

At December 31, L should report a liability for unredeemed coupons of: A. B. C. D. $700,000 $800,000 $1,000,000 $2,800,000 109. Which of the following may create employer liabilities in connection with their payrolls? A. B. C. D. Employee withholding taxes Employee voluntary deductions Employee fringe benefits All of the above are correct. 110. Barbara Muller Services (BMS) pays its employees monthly. The payroll information listed below is for January, 2011, the first month of BMS’s fiscal year. The journal entry to record payroll for the January 2011 pay period will include a debit to payroll tax expense of A.

B. C. D. $6,120 $4,960 $11,080 $57,880 111. Ontario Resources, a natural energy supplier, borrowed $80 million cash on November 1, 2011, to fund a geological survey. The loan was made by Quebec Banque under a short-term credit line. Ontario Resources issued a 9-month, 12% promissory note with interest payable at maturity. Ontario Resources’ fiscal period is the calendar year. Required: (1. ) Prepare the journal entry for the issuance of the note by Ontario Resources. (2. ) Prepare the appropriate adjusting entry for the note by Ontario Resources on December 31, 2011. Show calculations. (3. Prepare the journal entry for the payment of the note at maturity. Show calculations. 112. On September 1, 2011, Triton Entertainment borrowed $24 million cash to fund a new Fun Park. The loan was made by Nevada Bank under a noncommitted short-term line of credit arrangement. Triton issued a 9month, 12% promissory note. Interest was payable at maturity. Triton’s fiscal period is the calendar year. Required: 1. Prepare the journal entry for the issuance of the note by Triton. 2. Prepare the appropriate adjusting entry for the note by Triton on December 31, 2011. 3. Prepare the journal entry for the payment of the note at maturity. 113.

On May 1, Lectric Industries issued 9-month notes in the amount of $60 million. Interest is payable at maturity. Required: Determine the amount of interest expense that should be recorded in a year-end adjusting entry under each of the following independent assumptions: 114. Grossman Products began operations in 2011. The following selected transactions occurred from September 2011 through March 2012. Grossman’s fiscal year ends on December 31. 2011: (a. ) On September 5, Grossman opened a checking account and negotiated a short-term line of credit of up to $10,000,000 at 10% interest. The company is not required to pay any commitment fees. b. ) On October 1, Grossman borrowed $8,000,000 cash and issued a 5-month promissory note with 10% interest payable at maturity. (c. ) Grossman received $3,000 of refundable deposits in December for reusable containers. (d. ) For the September through December period, sales totaled $5,000,000. The state sales tax rate is 4% and 75% of sales are subject to sales tax. (e. ) Grossman recorded accrued interest. 2012: (f. ) Grossman paid the promissory note on the March 1 due date. (g. ) Half of the storage containers are returned in March, with the other half expected to be returned over the next 6 months. Required: 1.

Prepare the appropriate journal entries for the 2011 transactions. 2. Prepare the liability section of the balance sheet at December 31, 2011, based on the data supplied. 3. Prepare the appropriate journal entries for the 2012 transactions. 115. Bencorp issues a $90,000, 6-month, noninterest-bearing note which the bank discounted at a 10% discount rate. Required: (1. ) Prepare the appropriate journal entry to record the issuance of the note. (2. ) Determine the effective interest rate. 116. On November 1, 2011, a $216,000, 9-month, noninterest-bearing note is issued at a 10% discount rate. Required: (1. Prepare the appropriate journal entry to record the issuance of the note. (2. ) Determine the effective interest rate. (3. ) Prepare the appropriate journal entry on December 31, 2011, to record interest on the note for the 2011 financial statements. (4. ) Prepare the appropriate journal entry(s) on July 31, 2012, to record interest and the payment of the note. 117. On November 1, 2011, Ziegler Products issued a $200,000, 9-month, noninterest-bearing note to the bank. Interest was discounted at a 12% discount rate. Required: (1. ) Prepare the appropriate journal entry by Ziegler to record the issuance of the note. 2. ) Determine the effective interest rate. (3. ) Suppose the note had been structured as a 12% note with interest and principal payable at maturity. Prepare the appropriate journal entry to record the issuance of the note by Ziegler. (4. ) Prepare the appropriate journal entry on December 31, 2011, to accrue interest expense on the note described in 3 for the 2011 financial statements. 118. On October 1, 2011, Home Builders Company issued to Carlton Bank a $600,000, 8-month, noninterestbearing note. Interest was discounted by the bank at a 12% discount rate. Required: 1.

Prepare the appropriate journal entry by Home Builders to record the issuance of the note. 2. Determine the effective interest rate. 3. Suppose the note had been structured as a 12% note with interest and principal payable at maturity. Prepare the appropriate journal entry to record the issuance of the note by Home Builders. 4. Prepare the appropriate journal entry on December 31, 2011, to accrue interest expense on the note described in 3 for the 2011 financial statements. 119. The following selected transactions relate to liabilities of Rose Dish Corporation. Rose’s fiscal year ends on December 31.

Required: Prepare the appropriate journal entries through the maturity of each liability. 2011 Feb. 3 Negotiated a revolving credit agreement with Second Bank which can be renewed annually upon bank approval. The amount available under the line of credit is $30,000,000 at the bank’s prime rate. April 1 Arranged a 3-month bank loan of $12 million with Second Bank under the line of credit agreement. Interest at the prime rate of 8% was payable at maturity. July 1 Paid the 8% note at maturity. Nov. 1 Supported by the credit line, issued $20 million of commercial paper on a nine-month note.

Interest was discounted at issuance at a 6% discount rate. Dec. 31 Recorded any necessary adjusting entry(s). 2012 Aug. 1 Paid the commercial paper at maturity. 120. Stern Corporation borrowed $10 million cash on September 1, 2011, to provide additional working capital for the year’s production. Stern issued a 6-month, 10% promissory note to Second State Bank. Interest on the note is payable at maturity. Each firm uses the calendar year as the fiscal year. Required: 1. Prepare all journal entries from issuance to maturity for Stern Corporation. 2. Prepare all journal entries from issuance to maturity for Second State Bank. 21. Hot Springs Marine borrowed $20 million cash on December 1, 2011, to provide working capital for year-end inventory. Hot Springs Marine issued a 4-month, 9% promissory note to Third Bank under a prearranged short-term line of credit. Interest on the note was payable at maturity. Each firm’s fiscal period is the calendar year. Required: 1. Prepare the journal entries to record (a) the issuance of the note by Hot Springs Marine and (b) Third Bank’s receivable on December 1, 2011. 2. Prepare the journal entries by both firms to record all subsequent events related to the note through March 31, 2012. 3.

Suppose the face amount of the note was adjusted to include interest (a noninterest-bearing note) and 9% is the bank’s stated “discount rate. ” Prepare the journal entries to record the issuance of the noninterestbearing note by Hot Springs Marine on December 1, 2011. What would be the effective interest rate? 122. On June 30, 2011, Chu Industries issued 9-month notes in the amount of $700,000. Assume that interest is payable at maturity in the following three independent cases: Required: Determine the amount of interest expense that should be accrued in a year-end adjusting entry under each assumption: 23. The following selected transactions relate to liabilities of Chicago Glass Corporation (Chicago) for 2011. Chicago’s fiscal year ends on December 31. (1. ) On January 15, Chicago received $7,000 from Henry Construction toward the purchase of $66,000 of plate glass to be delivered on February 6. (2. ) On February 3, Chicago received $6,700 of refundable deposits relating to containers used to transport glass components. (3. ) On February 6, Chicago delivered the plate glass to Henry Construction and received the balance of the purchase price. (4. ) First quarter credit sales totaled $700,000.

The state sales tax rate is 4% and the local sales tax rate is 2%. Required: Prepare journal entries for the above transactions. 124. In its 2011 annual report to shareholders, Ank-Morpork Times Inc. included the following disclosure: REVENUE RECOGNITION • Advertising revenue is recognized when advertisements are published, broadcast or when placed on the Company’s Web sites, net of provisions for estimated rebates, credit and rate adjustments and discounts. • Circulation revenue includes single copy and home-delivery subscription revenue. Single copy revenue is recognized based on date of publication, net of provisions for related returns.

Proceeds from home-delivery subscriptions and related costs, principally agency commissions, are deferred at the time of sale and are recognized in earnings on a pro rata basis over the terms of the subscriptions. • Other revenue is recognized when the related service or product has been delivered. Also, the following information on its current liabilities was included in its comparative balance sheets: Required: Assuming that Ank-Morpork Times Inc. collected $440,000,000 in cash for home delivery subscriptions during fiscal year 2011, what amount of revenue did it recognize during 2011 from this source?

Show the relevant T-account information to support your answer. 125. MullerB Company’s employees earn vacation time at the rate of 1 hour per 40-hour work period. The vacation pay vests immediately, meaning an employee is entitled to the pay even if employment terminates. During 2011, total wages paid to employees equaled $808,000, including $8,000 for vacations actually taken in 2011, but not including vacations related to 2011 that will be taken in 2012. All vacations earned before 2011 were taken before January 1, 2011. No accrual entries have been made for the vacations.

Required: Prepare the appropriate adjusting entry for vacations earned but not taken in 2011. 126. The following facts relate to gift cards sold by Sunbru Coffee Company during 2011. Sunbru’s fiscal year ends on December 31. (a. ) In October, 2011 sold $3,000 of gift cards, and redeemed $500 of those gift cards. (b. ) In November, 2011, sold $4,000 of gift cards, and redeemed $1,400 of October gift cards and $700 of November gift cards. (c. ) In December, 2011, sold $3,000 of gift cards, and redeemed $200 of October gift cards, $2,000 of November gift cards, and $400 of December gift cards. (d. Sunbru views a gift card to be “broken” (with a remote probability of redemption) two months after the end of the month in which it is sold. Thus, an unredeemed gift card sold at any time during July would be viewed as broken as of September 30. Required: 1. Prepare all journal entries appropriate to be recorded only during the month of December, 2011 relevant to gift card sales, gift card redemptions, and gift card breakage. 2. Determine the balance of the unearned revenue liability to be reported in the December 31, 2011, balance sheet. Show the relevant T-account information to support your answer. 127.

Diversified Industries sells perishable electronic products. Some must be shipped in reusable containers. Customers pay a deposit for each container. The deposit is equal to the container’s cost. Customers receive a refund when the container is returned. During 2011, deposits collected on containers shipped were $700,000. Deposits are forfeited if containers are not returned in 18 months. Containers held by customers on January 1, 2011, were $330,000. During 2011, $410,000 was refunded and deposits of $25,000 were forfeited. Required: 1. Prepare the appropriate journal entries for the deposits received and returned during 2011. . Determine the liability for refundable deposits to be reported in the December 31, 2011, balance sheet. 128. At December 31, 2011, Cordova Leather’s liabilities include the following: 1. $15 million of noncallable 9% notes were issued for $15 million on August 31, 1992. The notes mature on July 31, 2012. Sufficient cash is expected to be available to retire the notes at maturity. 2. $30 million of 8% notes were issued for $30 million on May 31, 2007. The notes mature on May 31, 2017, but investors have the option of calling (demanding payment on) the notes on June 30, 2012.

However, the call option is not expected to be exercised, given prevailing market conditions. 3. $18 million of 10% notes are due on March 31, 2013. A debt covenant requires Cordova to maintain current assets at least equal to 150% of its current liabilities. On December 31, 2011, Cordova is in violation of this covenant. Cordova obtained a waiver from Village Bank until June 2012, having convinced the bank that the company’s normal 2 to 1 ratio of current assets to current liabilities will be reestablished during the first half of 2012.

Required: For each of the three liabilities, indicate the portion of the debt that can be excluded from classification as a current liability (that is, reported as a noncurrent liability). Explain. 129. In its 2011 annual report to shareholders, Border Airlines Inc. presented the following balance sheet information about its liabilities: In addition, Border presented the following among its footnote disclosures: Maturities of long-term debt (including sinking fund requirements) for the next five years are: 2012 – $421 million; 2013 – $212 million; 2014 – $273 million; 2015 – $1. 0 billion; 2016 – $777 million.

Required: Consider the appropriate classification of these long-term debt obligations. Assuming no more long-term debt will be issued, what are the implications of the information above for Border’s liquidity and solvency risk in 2011 and the following years? 130. Mozart Music Co. began operations in December of 2011. The company sold gift certificates during December in various amounts totaling $1,600. The gift certificates are redeemable for merchandise within 3 years of the purchase date. However, experience within the industry predicts that 90% of gift certificates will be redeemed within one year.

Certificates totaling $500 were presented for redemption during 2011 as part of merchandise purchases having a total retail price of $750. Required: (1. ) Determine the liability for gift certificates to be reported in the December 31, 2011, balance sheet. (2. ) What is the appropriate classification (current or noncurrent) of the liabilities at December 31, 2011? Show calculations. In its 2011 annual report to shareholders, the Goodday Chemical Company included the following footnote excerpts on CONTINGENCIES in its annual report to shareholders: At December 31, 2011, Goodday had recorded liabilities aggregating $66. million for anticipated costs related to various environmental matters, primarily the remediation of numerous waste disposal sites and certain properties sold by Goodday. These costs include legal and consulting fees, site studies, the design and implementation of remediation plans, post-remediation monitoring and related activities and will be paid over several years. The amount of Goodday’s ultimate liability in respect of these matters may be affected by several uncertainties, primarily the ultimate cost of required remediation and the extent to which other responsible parties contribute.

At December 31, 2011, Goodday had recorded liabilities aggregating $218. 7 million for potential product liability and other tort claims, including related legal fees expected to be incurred, presently asserted against Goodday. The amount recorded was determined on the basis of an assessment of potential liability using an analysis of available information with respect to pending claims, historical experience and, where available, current trends.

Goodday is a defendant in numerous lawsuits involving at December 31, 2011, approximately 63,000 claimants alleging various asbestos related personal injuries purported to result from exposure to asbestos in certain rubber coated products manufactured by Goodday in the past or in certain Goodday facilities. Typically, these lawsuits have been brought against multiple defendants in state and Federal courts. In the past, Goodday has disposed of approximately 22,000 cases by defending and obtaining the dismissal thereof or by entering into a settlement.

Goodday has policies and coverage-in-place agreements with certain of its insurance carriers that cover a substantial portion of estimated indemnity payments and legal fees in respect of the pending claims. At December 31, 2011, Goodday has recorded an asset in the amount it expects to collect under the policies and coverage-in-place agreements with certain carriers related to its estimated asbestos liability. Goodday has also commenced discussions with certain of its excess coverage insurance carriers to establish arrangements in respect of their policies.

Subject to the uncertainties referred to above, Goodday has concluded that in respect of any of the above described liabilities, it is not reasonably possible that it would incur a loss exceeding the amount recognized at December 31, 2011, with respect thereto which would be material relative to the consolidated financial position, results of operations, or liquidity of Goodday. 131. Required: Briefly explain the authoritative basis on which the costs/obligations for environmental cleanup and product liability/tort claim matters were accrued in the financial statements.

Answer: GAAP regarding accounting for contingencies requires that contingent losses (and the corresponding obligations) be recorded (accrued) when the loss is both probable and the amount is known or reasonably estimable. Goodday based its analysis on pending claims, historical experience and current trends, such as recent case verdicts with similar manufacturers. 132. Required: What is the point of the last paragraph of the Goodday disclosure? Explain in terms of authoritative GAAP. 133.

Required: Show the summary journal entry that Goodday recorded for the environmental cleanup and product liability/tort claim matters, described in the footnote disclosure. 134. The following selected transactions relate to contingencies of Eastern Products Inc. which began operations in July, 2011. Eastern’s fiscal year ends on December 31. Financial statements are published in April, 2012. 1. No customer accounts have been shown to be uncollectible as yet, but Eastern estimates that 3% of credit sales will eventually prove uncollectible.

Sales were $300 million (all credit) for 2011. 2. Eastern offers a one-year warranty against manufacturer’s defects for all its products. Industry experience indicates that warranty costs will approximate 2% of sales. Actual warranty expenditures were $3. 5 million in 2011 and were recorded as warranty expense when incurred. 3. In December, 2011, Eastern became aware of an engineering flaw in a product that poses a potential risk of injury. As a result, a product recall appears inevitable. This move would likely cost the company $1. 5 million. 4.

In November, 2011, the State of Vermont filed suit against Eastern, asking civil penalties and injunctive relief for violations of clean water laws. Eastern reached a settlement with state authorities to pay $4. 2 million in penalties on February 3, 2012. 5. Eastern is the plaintiff in a $40 million lawsuit filed against a customer for costs and lost profits from contracts rejected in 2011. The lawsuit is in final appeal and attorneys advise that it is virtually certain that Eastern will be awarded $30 million. Required: Prepare the appropriate journal entries that should be recorded as a result of each of these contingencies.

If no journal entry is indicated, state why. 135. The following selected transactions relate to contingencies of Bowe-Whitney Inc. Bowe-Whitney’s fiscal year ends on December 31, 2011, and financial statements are published in March 2012. 1. Bowe-Whitney is involved in a lawsuit resulting from a dispute with a customer over a 2011 transaction. At December 31, attorneys advised that it was probable that Bowe-Whitney would lose $3 million in an unfavorable outcome. On February 12, 2012, judgment was rendered against Bowe-Whitney in the amount of $14 million plus interest, a total of $15. 2 million.

Bowe-Whitney does not plan to appeal the judgment. 2. Since August of 2011, Bowe-Whitney has been involved in labor disputes at two of its facilities. Negotiations between the company and the unions have not produced a settlement and, since January 2011, strikes have been ongoing at these facilities. It is virtually certain that material costs will be incurred but the amount of resultant costs cannot be adequately predicted. 3. Bowe-Whitney is the defendant in a lawsuit filed in January 2012 in which Access Company seeks $10 million as an adjustment to the purchase price related to the sale of Bowe-Whitney’s hardwood division in 2011.

The lawsuit alleges that Bowe-Whitney misrepresented the division’s assets and liabilities. Legal counsel advises that it is reasonably possible that Bowe-Whitney could lose $5 million, but that it’s extremely unlikely it could lose the $10 million asked for. 4. At March 1, 2012, the EPA is in the process of investigating the possibility of environmental violations at one of Bowe-Whitney’s sites, but has not proposed a penalty assessment. Management feels an assessment is reasonably possible, and if an assessment is made, a settlement of up to $33 million is probable.

Required: Prepare journal entries that should be recorded as a result of each of the above contingencies. 136. Concept 1 Office Products sells office electronics that carry a 60-day manufacturer’s warranty. At the time of purchase, customers are offered the opportunity to also buy a 1-year or 2-year extended warranty for an additional charge. Required: 1. Does the sale of the extended warranty represent a loss contingency? 2. Provide journal entries for the extended warranty sales and revenue recognition. 137. In its 2011 annual report to shareholders, Hyer Aviation Group Inc. ncluded the following disclosure: On October 6, 2010, the company’s subsidiary, Pyro Aeroplex, filed suit against Syntex, an unincorporated division of Bright American Corporation, for breach of contract and fraud with regard to the supply of deficient wire rope that is installed as aircraft flight control cables on WD-50 aircraft. The case, filed in the circuit court of Bell County, Arkansas, was brought to trial and on September 20, 2011, a jury returned with a verdict in favor of the company in the amount of $17. 5 million. The Court, upon a postjudgment motion filed by Pyro, reduced the judgment to $4. million. Pyro has appealed that Order to the Supreme Court of Arkansas. The company believes the appeal is without merit and will continue to pursue final judgment on the Order. The company, pending appeal, has not recorded the $4. 5 million favorable judgment. Required: What journal entries, if any, has Hyer recorded regarding this contingency? Explain its rationale. The following facts apply to TinyPart Toy Company’s pending litigation as of December 31, 2011: a. TinyPart is defending against a lawsuit and believes there is a 51% chance it will lose in court.

If they lose, TinyPart estimates that damages will be $100,000. b. TinyPart is defending against another lawsuit for which management believes it is virtually certain to lose in court. If it loses the lawsuit, management estimates damages will fall somewhere in the range of $30,000 – $50,000, with each amount in that range equally likely to occur. c. TinyPart is defending against another lawsuit that is identical to item (b), but the relevant losses will only occur far into the future. The present values of the endpoints of the range are $15,000 and $25,000.

TinyPart’s management believes the effects of time value of money on these amounts are material, but also believes the timing of these amounts is uncertain. d. TinyPart is defending against a fourth lawsuit and believes there is only a 25% chance it will lose in court. If TinyPart loses, it believes damages will fall somewhere in the range of $35,000 – $40,000, with each amount in that range equally likely to occur. 138. Required: Indicate how TinyPart would disclose or account for the lawsuit described in part (a) under U. S. GAAP and under IFRS in the financial statements for the year ended December 31, 2011. 39. Required: Indicate how TinyPart would disclose or account for the lawsuit described in part (b) under U. S. GAAP and under IFRS in the financial statements for the year ended December 31, 2011. 140. Required: Indicate how TinyPart would disclose or account for the lawsuit described in part (c) under U. S. GAAP and under IFRS in the financial statements for the year ended December 31, 2011. 141. Required: Indicate how TinyPart would disclose or account for the lawsuit described in part (d) under U. S. GAAP and under IFRS in the financial statements for the year ended December 31, 2011. 142.

In 2011, Cap City Inc. introduced a new line of televisions that carry a two-year warranty against manufacturer’s defects. Based on past experience with similar products, warranty costs are expected to be approximately 1% of sales during the first year of the warranty and approximately an additional 3% of sales during the second year of the warranty. Sales were $6,000,000 for the first year of the product’s life and actual warranty expenditures were $29,000. Assume that all sales are on credit. Required: 1. Prep

Contents 1. Introduction2 2. Main Body2 2. 1 Ratio Analysis2 2. 1. 1 Profitability3 2. 1. 2 Efficiency4 2. 1. 3 Liquidity6 2. 1. 4 Risk7 2. 2 Evaluation of Mulberry’s shares as a potential investment7 2. 2. 1 Revenue and Share price8 2. 2. 2 Return10 2. 2. 3 Risk14 2. 3 Funding and capital analysis15 2. 3. 1 Funding analysis15 2. 3. 2 Working capital18 2. 4 Risk management and governance20 2. 4. 1 Corporate governance of Mulberry20 2. 4. 1 Risk & control management22 2. 4. 3 Information and Communication24 2. 4. 4 Monitoring24 3. Conclusion25 Reference26 1. Introduction

The company that we chose is Mulberry Group. PLC. This is a company that produces and sells bags and purses, as well as designs them for both individuals and other companies. We have chosen the annual report of Mulberry Group. PLC that gives us an in-depth view of the company’s finance performance, investment potential, capital structure and manage operating during the period of time which from financial year 2010 to 2011. With this annual report, we will try to analyze and critically appraise the company’s accounting information, market report and management control system.

The following content will be included in this paper: Ratio analysis, investment return, debt and capital analysis, governance and risk management. 2. Main Body 2. 1 Ratio Analysis Ratio analysis is frequently used in evaluating a company’s financial condition. The financial ratios are able to provide us significant information to analyse the company’s financial performance. Depends on these ratios, we can examine the condition of the company’s finance and check whether the results of the company’s operating meet its targets (Atrill and Mclaney, 2008).

Normally, we will use cash flow, income statement and finance position to calculate ratios. In the ratio analysis parts, we will calculate and analyse the core ratios of Mulberry plc, these ratios will also be the base of the following parts of this article. According to Mulberry’s annual report, during the financial year 2010 to 2011, the company has experienced a successful year. Mulberry Group’s business mainly focused on the UK market, and the revenues of this company comprised retail and income of design, as the demand of its products increased strongly during the past financial year, the sales raise rapidly.

In this part, we will try to analyze the core ratios of the company and simply analyze the probable reason for the changes of these ratios. 2. 1. 1 Profitability To analyse a company’s profitability, there are three ratios concerned: gross margin, net margin and return on capital employed (Collier, 2009). Firstly, we will look into gross margin. This margin mainly shows the relations between the costs and the price of finished goods. Gross margin (2011: 65. 35%; 2010:58. 97%) Gross margin is: (Sales – cost of sales)/sales * 100% The gross margin in 2011: 79501 / 121645*100%=65. 35 % The gross margin in 2010:42487 /72052*100%=58. 7 % From the ratio, we can see that the gross margin of Mulberry increased to 65. 35% in 2011 from 58. 97% in 2010. The reasons that can cause changes in gross margin is the changes in prices and costs. In Mulberry’s case, the higher gross margin results from the dramatic improvement in revenue as well as cost of sales. According to Note 5, apart from the growth in sale of goods which caused by the impressive performance in new oversea stores and online stores, the 900,000 income, which disclosed in other income, received on the exit of the New Bond Street lease also contributes to the increase in revenue.

Net margin (2011:18. 92%; 2010:6. 74%) Net margin is an important ratio to examine a company’s profitability. The formula is: Net margin=Operating profit / sales * 100%, and the ratio for Mulberry is: The net margin in 2011: 23010/121645*100%=18. 92 % The net margin in 2010: 4856/72052*100%=6. 74% Net margin is closely connected with gross margin. From the information above, we can see that during the last year, the gross margin of this company has increased. But the extant of the increase of net margin is higher than it of the gross margin.

The most crucial factor result in the increase of operating profit is the operating profit before exceptional items. Details about those exceptional items can be found in Note 7 that a deferred consideration of ? 1,000,000 has been paid to Challice Limited in terms of the growth in the USA operations. Return on capital employed (2011:55. 54%; 2010:19. 26%) Return on capital employed shows the ability of the company to get rewards which can be added into its equity through company’s operating behaviors (Atrill and Mclaney, 2008)

Return on capital employed: Operating profit / assets- current liabilities) * 100% Return on capital employed in 2011: 23010/ (76587-34555)*100%=55. 54 % Return on capital employed in 2010: 4856/ (40284-13819)*100%=19. 26% From the ratio above, it is easy to find that the return on capital has raised rapidly in last year, from 19. 26% to 55. 54%. ROCE increased not only because the growth in operating profit and raised asset which mainly contributed by increased inventories as a result of the demand of growing sales and trade receivables.

The trade creditors as well as accruals and deferred income have been included in current liabilities since all of them could be paid within 12 months. Moreover, there are ? 1,000,000 provision for the USA deferred consideration, ? 3,900,000 relating to payroll and bonus payments made post year end cut off and ? 1,537,000 accruals for fixed assets happened in 2011 while there were all nil in 2010. 2. 1. 2 Efficiency Based on Collier’s study (2009), there are three core ratios that are usually used to analyse a company’s efficiency, they are asset turnover, stock turnover and sales per employee.

The first two ratios are used to measure the efficiency of the company’s operating of turning its property to generate marketing behaviors and sales, the sales per employee is try to evaluate the employees’ performance. Asset turnover (2011:5. 90x; 2010:6. 70x) Asset turnover: Sales / non-current assets, from it we can calculate: Asset turnover in 2011: 121645/20620=5. 90x Asset turnover in 2010: 72052/10760=6. 70x The asset turnover has slightly fallen, from 6. 70 to 5. 90. The drop of asset turnover indicates a less efficiency use of shareholders’ assets in terms of sales, although the revenue has increased dramatically.

However, according to Note 16, it might because the investment in software of ? 615,000 which cost nil in 2010. It also can be interpreted that the return of investment can be effective and huge if invest on new stores or flagship, however, it could also be inefficient but significant return on investment if invest on software, such as ERP system, which might be expensive and need much more time to gain benefit from them. Stock turn (2011: 1. 9x; 2010:3. 3x) The main business of Mulberry is design and retail, according to Collier’s work (2009), stock turn is one of the most important ratio to evaluate the company’s management of its stock.

Stock turn: Cost of sale / stock Stock turn in 2011: 42144/22408=1. 9x Stock turn in 2010: 29565/9090=3. 3x The stock turn in 2011 is lower than it in 2010. That means the stock of Mulberry turns 1. 9 times each year now. The considerably increase in inventories which related to the growing demand of sales of goods has contributed to the decline of stock turn. This ratio should be one of the most important ratios of it (Atrill and Mclaney, 2008). Stock turn stands for how many times the stock will turn in a year.

Generally, it is important because some businesses treat too much stock as a waste of sources and a high stock turnover rate will usually be regarded as a sign of good management. Although in 2011, there is a decrease from 3. 3 to 1. 9, it didn’t necessarily mean the company’s management of stock had some problems because the inventories of the company has increased rapidly as we discussed before. As a retailer, the inventories are very important to ensure its market position and the increase of inventories as a result of preparation for market exploring is reasonable. 2. . 3 Liquidity Atrill and Mclaney (2008) stated that the liquidity stands for the short-term finance ability of the company. The ratios that generally used to analyse liquidity are current ratio, and acid test. Current ratio (2011:1. 62x; 2010:2. 14x) First of all, current ratio stands for the proportion between current assets and current liabilities. It is used to analyse the company’s ability to repay its short-term liabilities. High current ratio means the company has enough property to cover its debt, if the current ratio was below 1, the company could be in danger.

However, a too high current ratio might mean the company doesn’t make full use of its property. Current ratio: Current assets / current liabilities Current ratio in 2011: 55967/34555=1. 62x Current ratio in 2010: 29524/13819=2. 14x According to Note 24, the decrease of current ratio mainly because of the current liabilities has increased more than current assets because of those trade payables in current liabilities that not exist in 2010. Acid test (2011:0. 97x; 2010:1. 48x) Acid test is a ratio which trying to evaluate the company’s monetary asset.

Different from current ratio, acid test is focusing on whether the company can repay its short-term liabilities with its monetary assets. Acid test: Monetary current assets / current liabilities Acid test in 2011: 33519/34555=0. 97x Acid test in 2011: 20453/13819=1. 48x Because there is high level of inventory in 2011 in order to support the adequate amount of goods to be sale, it is not unacceptable that the monetary current assets without inventory are less than current liabilities for this year. Furthermore, there are several trade payables occurred in 2011 while nil in 2010 in terms of Note 24. . 1. 4 Risk Interest cover (2011:531. 57x; 2010: 197. 00x) The interest cover has increased as a result of much higher profit since it can be seen in Note 22 that there is no changes in borrowings these two years. Therefore, it can be a good thing to shareholders that interest cover increased healthily. The confusing things we found in the annual report were that there is no debt within these two years, only borrowings can be taken into consideration the risk. The details about borrowings can be found in Note 22 that seems all the borrowings are repayable on demand.

So, we can’t analyze the risk of this company through these ratios. The reasons why the company didn’t borrow long-term loans from banks and the advantages as well as disadvantages will be discussed in risk management analysis and funding analysis part. The investor part will be analysed in next part, in the form of buying shares. 2. 2 Evaluation of Mulberry’s shares as a potential investment Mulberry has experienced a significant growth in revenue from 2010 to 2011 and the basic earnings per share increased by 473% to 29. 8p while it was 5. 2p in 2010, both of which are shareholders would like to appreciate.

Moreover, it might be out of question that those figures would attract a good deal of investment. However, it is always necessary to assess whether it is an appropriate timing to invest a company in terms of several financial indicators, such as, market value of equity, the P/E ratio (price earnings ratio), dividend yield as well as gearing (Fonseka and Tian, 2011). This part is going to critically interpret these indicators respectively after an overview on the fundamental financial circumstances and provide a suggestion for investment in the end. . 2. 1 Revenue and Share price |? ’m |2011 |2010 |2009 |2008 |2007 | |Revenue |121,645 |72,052 |58,585 |51,174 |45,078 | |Share price (p) |1,333. 33 |183. 33 |64. 52 |133. 33 |187. 5 | (Table 1) Before conducting a thorough analysis of return and risk, it is worth reviewing Mulberry’s revenue for last five years.

It can be seen from Table 1 that Mulberry has kept a sustainable growth in revenue since 2007, which indicates the optimistic picture of their financial condition. Furthermore, it is remarkable that Mulberry group performed satisfyingly as usual even when other organisation experienced a depressing year result from the financial crisis happened in 2009. [pic](Figure 1) However, comparing the FTSE All-Share, which is a market-capitalisation weighted index of all shares traded listed on the London Stock Exchange’s main market (Ince and Porter, 2006), Mulberry group’s share price has changed significantly since May 2011.

As can be seen from Figure 1, the share price has increased dramatically after May in 2010 while the FTSE All-Share index has gone up slightly with fluctuation. [pic] (Figure 2) Furthermore, according to Figure 2, which clearly shows Mulberry’s share price combined with FTSE All-Share index from 2007 to May 2010, the performance of Mulberry basically enable the share price to track market all the time. Although the price touched bottom in 2009 due to the financial crisis, when there has been an uptrend in market between April in 2009 and April in 2010, Mulberry seemed to catch that opportunity and in April 2010, he price went up to the price peaked point in 2007. It is crucial to mention that the marketing strategy as well as the performance of Mulberry group has contributed most to the significant increase since the second half year of 2009. According to Mulberry’s annual report and financial statement for the year ended 31 March 2010, they have continuously invested their business both in the UK and internationally, using retained profit and cash flow.

For example, the showrooms opened in New York and Paris could be successful attempts, both of which have played an important role in the growth of profit. In terms of the strategy has made an initial success, it can be assumed that there might be an unpredictable potential market share for Mulberry to explore. Actually, the assumption has been approved with the significant increase in revenue and share price for the next half year in 2010 and continued in 2011. [pic] (Figure 3) Figure 3 shows Mulberry’s one-year share price associated with FTSE All-Share index comparison starting with June in 2010.

As can be seen from this chart, the price of Mulberry increased too enormously to see the change of FTSE All-Share index, which means Mulberry performed outstanding when the general financial background was not optimistic. Although it is rare to see the share price recover and grow in such a short time after the financial crisis, the increase of Mulberry’s might had already been predicted and both managers and shareholders are confident enough to take more market share. Consequently, the ambitious attempts of opening 9 new stores and on-line shop during the next half year of 2010 have been achieved successfully.

Fortunately, the dramatic revenue increase harvested by those new stores and flagship indicates the significant demand of Mulberry’s products and services existing in market. In addition, the remarkable performance attracts more investors. However, it is crucial for them to weigh if it is a good timing to invest even though the performance of Mulberry after the financial crisis is extraordinary brilliant. Thus a depth analysis in terms of both return and risk will be conducted in the following sections. 2. 2. 2 Return

Price / earnings ratio (P/E Ratio) Price earnings ratio indicates that the common stock of a company is priced in terms of the ability to generate earnings of this company. Meanwhile, it also can be used to examine whether a stock is cheap or expensive (Muresan and Wolitzer, 2001). |? ’m |2011 |2010 |2009 |2008 |2007 | |P/E Ratio (adjusted)|45. 20 |27. 60 |14. 30 |22. 20 |23. 00 | (Table 2)

Table 2 shows the adjusted P/E ratio of Mulberry between 2007 and 2011. Comparing with the persistence increase in revenue, the P/E ratio, which related to shareholders as well as potential investors, still has declined since 2008. However, the decrease is completely reasonable because the share price was influenced by the unpleasant economic circumstances. In addition, to some extent, it is the financial crisis that reminds Mulberry to consider expand their business internationally rather than focus on UK local market in order to distract risk.

According to Mulberry’s five-year P/E ratio, the expansion strategy enables the company not only to recover from the financial crisis but also to double their share price. However, it is also indispensible to take the probability of continuous earnings growth into account, regardless of the appealing doubled return indicated by the P/E ratio. In terms of Mulberry’s following strategy will concentrate on production capacity expansion to meet the growing demand, the considerable ability of generating earnings may be guaranteed and remained, even though it seems impossible to gain the similar incredible increase in revenue next year.

Consequently, although Mulberry is a company worth investing since it has extraordinary performance in reacting to crisis, as well as the considerable demand for their products in the market, the best timing of investment in Mulberry has already lost. Market capitalisation (value of equity) The market value of equity is a measurement of present value of all future cash flows to shareholders from both assets and future investment opportunities (Adam and Goyal, 2008). It can be calculated by P/E ratio time earnings which is the profits after tax. |? m |2011 |2010 |2009 |2008 |2007 | |Share price (p) |1,333. 33 |183. 33 |64. 52 |133. 33 |187. 5 | |Market value of equity |771. 11 |81. 97 |36. 89 |76. 37 |91. 54 | |P/E Ratio (adjusted) |45. 20 |27. 60 |14. 30 |22. 20 |23. 00 | |Profits after tax |17. 06 |2. 7 |2. 58 |3. 44 |3. 98 | |Equity |42. 03 |26. 47 |24. 38 |22. 52 |16. 87 | (Table 3) According to table 3, the market value of equity changed with share price instead of the number of equity. However, it is remarkable that even when the market value of equity decreased by half in 2009, it still surpassed the equity in that year. Additionally, with the dramatic growth in revenue, the market value of equity has increased by nearly 95% to 771. 1 million between 2010 and 2011, which gives the confidence not only to shareholders but also some potential investors. Nevertheless, if investors decided to invest Mulberry now, it is possible to have two results in terms of return. Firstly, investing for short-term, investors would buy shares with an extremely higher price than two years ago whereas the return would be incredibly smaller. Secondly, investors may harvest a steady return in a long-term investment and there might be another significant increase when Mulberry conducts some other expansion strategies.

Dividend yield Dividend yield can be calculated by taking the dividend per share and divide by the share price. To analysis the investment opportunity with dividend yield, this part applies Burberry as a competitive objective. Even though Mulberry’s share price overweighed Burberry’s slightly in 2011, Burberry has a much longer history with high share price as in a same industry. Table 4 provides the share price, dividends per share as well as dividend yield for Mulberry and Table 5 shows Burberry’s. Mulberry group plc: |? m |2011 |2010 |2009 |2008 |2007 | |Share price (p) |1,333. 33 |183. 33 |64. 52 |133. 33 |187. 5 | |Dividends per share |4. 00 |2. 20 |2. 00 |2. 00 |1. 50 | |(p) | | | | | | |Dividend yield |0. 30% |1. 20% |3. 10% |1. 50% |0. 0% | (Table 4) Burberry group plc: |? ’m |2011 |2010 |2009 |2008 |2007 | |Share price (p) |1,176. 47 |700 |279. 07 |444. 44 |656. 25 | |Dividends per share |20. 00 |14. 00 |12. 00 |12. 00 |10. 50 | |(p) | | | | | | |Dividend yield |1. 70% |2. 00% |4. 0% |2. 70% |1. 60% | (Table 5) With comparing Table 4 and Table 5, it is obviously that Mulberry has not adjusted their dividends instantly when the share price increased significantly, which results in the unpleasant dividend yield this year. In this circumstance, Burberry seems a wiser investing choice since the 5 times dividends per share of Mulberry’s, which will generate more returns for investors. However, Kothari and Shanken (1997) argues that a considerable increase in share price is possible to result in not only the large positive returns but a downward in yield as well.

In addition, according to Akhigbe and Madura (1996), managers’ expectation to alter performance strategy would be a factor contributed to the dividend adjustment. Consequently, Mulberry needs more time to balance share price and dividend. Burberry has been mature in its global marketing expansion, while Mulberry has just started to occupy its international market share, and therefore there are more potential opportunities for Mulberry’s global development. Thus, Mulberry could be the company suitable and profitable to be selected as a long-term investment. 2. 2. 3 Risk Gearing Gearing (%) |2011 |2010 |2009 |2008 |2007 | |Mulberry |n/a |n/a |0. 54 |0. 14 |23. 05 | |Burberry |n/a |n/a |n/a |n/a |n/a | |ASOS |n/a |n/a |n/a |n/a |n/a | (Table 6) It seems strange that Mulberry does not have debt which results in the incalculable gearing.

However, it is a common phenomenon in rag and accessories trade industry in terms of the gearings of the other two companies presented in Table 6 are unavailable. As a result, the risk of investment on Mulberry would be limited. However, considering the high share price this time, it would be a better decision to invest Mulberry for a long time instead of short time. 2. 3 Funding and capital analysis In this part, we are going to identify the sources of funds, analyse the capital structure of Mulberry Group PLC and try to evaluate its suitability.

It is easy to witness from its balance sheet in 2011, the company did not have any non-current liabilities. This situation can be triggered by a wide range of reasons, we will try to figure them out in this essay. 2. 3. 1 Funding analysis To begin with, it is necessary to draw on the annual report of Mulberry Group PLC in 2007, and to compare the different data in the two years. According to Mulberry’s annual report, in 2007, the quantity of total non-current liabilities was ? 3. 99 million, composed by borrowings (? 1. 25 million), preference shares (? . 564 million), deferred tax liabilities (? 149 thousand), and obligations under finance leases (? 27 thousand). Therefore, the gearing in 2007 is 19%, which was quite low. So, the relevantly large proportion of funds, used for maintaining the enterprise’s operation, was from internal financial resources. Besides, it also lowered the financial cost, which is used to pay the interest to the financial institutions. In terms of the cash flow in 2007, it was clearly stated in the balance sheet, the cash generated from operation was ? ,926 thousand and, after the corporation taxes, interest and preference dividends were paid, the net cash from operating activities was ? 5700 thousand. Afterwards, the primary use of cash lied in the investing activity, with ? 3,518 thousand. Finally, the cash and cash equivalents at the end of 2007 was ? 10,271 thousand, with a big increase of ? 2,989 thousand. This absolutely intensified the repayment ability and liquidity, when we compare this data with the number of non-current liabilities. Apart from that, the retained profit in this year surged from ? 4,562 thousand to ? ,186 thousand, acting as a significant role in the sources of funds (annual report 2008). By contrast, in 2011, the company had no non-current liabilities. So we use the current liabilities to calculate the gearing of this year, which is 45%. The cash generated from operation was ? 26,264 thousand and the net cash from operating activities was ? 22,724 thousand. At the end of 2011, the cash and cash equivalents fairly increased from ? 12,171 thousand to ? 21,373 thousand. The increase in raw materials (? 13,318 thousand) and purchases of property, plant and equipment (? 1,176 thousand) were the important components of cash outflow in this year. When it comes to retained earnings, the data increased by ? 16,080 thousand to ? 30,696 thousand. | |Gearing |Non-current liabilities |Net increase in cash and cash|Cash and cash equivalents at the end|Retained profits | | | | |equivalents |of the year | | |2007 |19% |? 3,990 thousand |? 2,989 thousand |? 0,271 thousand |? 8,186 thousand | |2011 |0 |0 |? 9,202 thousand |? 21,373 thousand |? 30,696 thousand | It is obviously displayed in the table above that Mulberry’s sources of funds and the capital structure are greatly distinct from each other. The gearing of Mulberry in 2007 was 19% due to the existence of Non-current liabilities. By contrast, since there were no non-current liabilities at all in 2011, the gearing of Mulberry this year was 0.

This definitely lowered the financial expenses which were incurred by bank loans, and the company did not need to face the financial risk triggered by bank loans as well. Furthermore, the operating profit in 2007 was ? 6,672 thousand and the interest payable of that year was ? 298 thousand, the interest cover ratio in 2007 was 22. 4 times. By contrast, due to the dramatic increase in operating profits (? 23,110 thousand) and the large drop in interest payables (? 44 thousand), the interest cover rate in 2011 became as high as 525. times. As Gillespie et al(2000) stated that high operating profits could be seen as the company has abilities to control its costs effectively, or the volume of sales are increasing faster than operating cost. Currently, Mulberry has got a much better capacity in paying the interests to the financial institutions, those financial institutions may become more willing to lend money to Mulberry now. Although the retained profits in 2007 played an greatly important role as the major internal funds, but taking the non-current liabilities (? ,990 thousand) into consideration, the level of its significance is partly weakened when we compare it with the situation in 2011, because Mulberry currently just use retained profits as the primary source of their funds for operation. It is worthwhile to mention that, one of the Non-Executive Directors, Melissa Ong, who was appointed on 7 September 2010, her parents held about 57% voting rights of the company. Although it is not clarified in the annual report, we can easily deduct that her parents input a large amount of investment for Mulberry, which is also a main source of funding.

Inventories acted as another source of funding in Mulberry. The stock turn of Mulberry in 2011 was 1. 88x, so the stock turn period was 194 days. The period was relatively long when we compare it with the one (130 days) in 2007, this was partly due to the striking increase in the quantities of inventories, from ? 6,688 thousand to ? 22,408 thousand. However, as mentioned in the annual report, the demand of the market surged in recent years, so the high level of stock is beneficial for Mulberry. When the company suffers from the shortage of cash, they can simply turn their large amount of stocks in to the form of cash.

Apart from that, a relatively large proportion of inventories were occupied by the finished goods with ? 20,069 thousand. For Mulberry, which used internal funds as the major source of funding, the high level of inventories is reasonable. However, the reason why Mulberry stopped acquiring long-term funds from banks can be quite complex. As we all knew, the overwhelming Subprime Crisis happened in the year of 2007,forcing a wide range of banks to close down, simultaneously the interest for applying for long-term loans from financial institutions rocketed since then. The telegraph 2007) This big trend of the economic environment might lead to Mulberry Group’s cease of issuing new loans from the bank. Also, there may be some other reasons. It is fairly clear in the table above, the net increase in cash and cash equivalents in 2011 is about 8 times more than 2007, the balance of cash and cash equivalents in 2011 is approximately 3 times more than the previous and the similar situation also happens in the retained profits and inventories of these two years.

Therefore, it seems quite normal for Mulberry to cease the long-term creditors and use its retained profits, inventories and the short-term loans as their source of funds, which can also lower the financial expenses for the enterprise. 2. 3. 2 Working capital In order to figure out the suitability of the current financial structure, it is necessary to calculate the number of the working capital and the working capital cycle. Broadly speaking, working capital is a measure of capability for the company which can pay its debt in the short-term liability.

It is certainly important to distinguish between positive and negative working capital (Dyson, 2011). The amount of the working capital is equal to the total amount of receivables, payables, stock of raw materials, work-in-progress and finished goods. As what we mentioned above, we can calculate the working capital of Mulberry in 2011. Receivables: ? 12,186 thousand Payables: ? 11,949 thousand Stock of raw materials: ? 1,684 thousand Work-in-progress: ? 655 thousand Finished goods: ? 20,069 thousand

In 2011, the total working capital of Mulberry was ? 22,645 thousand. From the composition of the working capital, it is apparent that a comparably large amount was occupied by the form of inventories (? 22,408 thousand). As the manufacturer, designer and the seller of their own products, it is normal for Mulberry to hold such a proportion of working capital in the form of inventories, thereby meeting the needs of customers and quickly reacting against the sudden change of market’s demand, like the big increase in seasonal demand.

When we compare the amount of working capital (? 22,645 thousand) and the retained profits (? 30,696 thousand), it seems that there are not any problems for Mulberry to cover the working capital with their retained earnings, due to the considerable gap between them. Taking the cash and cash equivalents (? 21,373), this indicates that the cash in Mulberry was allocated in operating activities appropriately and there was no idle cash existing in the company, which would lead to an opportunity cost to Mulberry.

In terms of the working capital cycle, we need to draw on some other data from the income statement and the cash flow statement. Sales of goods: ? 121,645 thousand Cost of sales: ? 42,144 thousand Material cost: ? 13,318 thousand Bought-in service: ? 11,176 thousand So the working capital cycle of Mulberry in 2011 was 85 days. The credit given cycle was 37 days, comparatively a short period when we compare it with the data of credit taken cycle (178 days). This means that Mulberry just spent 37 days getting the cash back for the portion of which was sold to customers on credit.

Also, it could guarantee that Mulberry got enough time to enhance the balance of cash, in order to cover the following trade payables and avoid the running out of cash at the mean time. In another aspect, the liquidity of Mulberry was intensified at the same time as well. However, if we take the company’s long-term strategy into consideration, keeping more cash is not the bad thing for Mulberry, as stated in the annual report, they are planning to continually expand the international market and opening more and more retailing and flagship stores throughout the world. Expansion at such a fast rate may call for a large amount of cash.

So, even though there are no problems at all currently for Mulberry to utilize retained profits and short-term creditors as the only source of their funds, issuing some long-term funds, like bank loans, will not bring any disadvantages, although this may incur some charges on financial expenses. From the long-term perspective, it will be beneficial for the company to get some long-term and stable external funds, thereby avoiding the shortage of cash and funds during the process of expansion. 2. 4 Risk management and governance 2. 4. 1 Corporate governance of Mulberry

At the beginning of the corporate governance part, the company states itself as an AIM (Alternative Investment Market) member and complying with the Corporate Governance Code is not required (Mulberry, 2011). AIM is a second board enables smaller companies to float shares with more flexible stipulations (Tricker, 2009). Still, Mulberry follows the fundamental principles of the code (Mulberry, 2011), and importantly, they fit the code contents with their individual situations. Based on this state, our analysis still follows the UK Corporate Governance Code primarily and detects any issues contrary to the code.

Besides, comments and debates are connected with the company’s own factors. In the board of Mulberry, the chairman and CEO is the same person. This person, named Godfrey Davis, has been in charge of this company for nearly ten years from November 2002. This setting goes against the UK Combined Code which states, “The role of chairman and chief executive should not be exercised by the same individual” (the UK Corporate Governance Code, 2010:13). In this case, we doubt that if Godfrey’s power is over-concentrated, which makes him have too strong influence on decision making process in the board (Goyal and Park, 2002).

Consequently, strategies may be generated subjectively. However, a specific explanation is not given in the report. Instead, they only point out several criteria of director selection should be carefully assessed, as a way of reduce the possibility of the problems addressed above. But actually, this state explains nothing about the problem, which conversely doubles our doubts. Next, the numbers of Executive Directors and Non-executive Directors are unbalanced, with five Non-executive Directors and only two Executive Directors.

The five Non-executive Directors are not entitled to govern company routine affairs and the specific running plans while these two Executive Directors actually do (Mallin, 2004). Hence it is doubtful that if these two people really execute independently or just execute generally. Moreover, combining the fact of Godfrey Davis’s acting as both chairman and CEO, it especially intensifies our thought on the existence of subjective decision making process (Mallin, 2004), or even the over-centralized management in the company.

On the other hand, these outside directors, instead of actually contributing to the company’s strategy and policy making relating to its performance, they are actually “pushed into a conformance and compliance mode” (Tricker, 2009) and do not take much positive effect. Conversely, McKinsey (2002) debates that a sensible structure is combined with a majority of Non-executive directors because they are indeed independent and can result in an effective evaluation. On the other hand, it is found in the profile of directors that, both the executives have the FCA background.

Obviously, it enables them to detect and control the financial risk better, by using their financial knowledge (Dionne and Triki, 2005). Conversely, we may also suspect they are fully capable to use professional financial tricks to disguise the poorer performance areas, and at the same time, make their stewardship looks proper. On the other side, according to the UK corporate governance code (2010), audit committee is required to monitor the financial performance and check the company’s risk assessment.

Chris Robert, the chairman of the Audit Committee, as another financially educated director, suits the requirement of responsibilities stated in the code. Considering the independence of Non-executives, several problems which may raise suspicions are found referring to the code. Firstly, all the Non-executives except Melissa Ong, have been appointed for more than 6 years. Especially Robin Gibson, this person has been in this position for more than 14 years since 1996. These facts raise some questions about the independence of the board and no explanations are given by Mulberry.

Additionally, both Steven Grapstein and Bernard Lam Kong Heng are presently serving in Como Holding Group, though in different subsidiary company. This relationship particularly could pose a negative impact on the independent base (Mallin, 2004). Thirdly, Melissa Ong, who is quite young at 37, was newly appointed in 2010. This lady does not directly hold any shares for Mulberry, however, her parents are “beneficially interested approximately 57% of the Company’s total voting rights” (Mulberry, 2010:14). In other words, Melissa though not own the huge amount of share, she’s actually represent a significant shareholder indirectly.

In contrast, according to the code (UK corporate governance code, 2010), some aspects are shown to enhance independence of the Non-executives. For example, no bonus was paid for these Non-executives during the year and none of them was included in the company’s pension contributions (Mulberry, 2011). The company’s internal ‘watchdogs’, three recommended sub-committees (Audit, Remuneration and Nomination) (Pierce, Personal Communication, 2011) are established by Mulberry, with a combination of Remuneration and Nomination body.

Additionally, both committees are chaired by Non-executives and effects of the committees are related to the independence of these Non-executives (Mallin, 2004) which has been discussed above. Moreover, the responsibility appointing is reasonably complying with the code (2010). In specific, the Audit Committee is entitled to check issues regarding to the company’s financial affairs, while Nominations and Remuneration is responsible for employment terms and conditions and the remuneration (Mulberry, 2011).

However, the numbers and identities of other committee members are not mentioned in the report, which interfere our assessment of Mulberry sub-committee structure and quality. 2. 4. 1 Risk & control management In this part, COSO Internal Control – Integrated Framework (COSO, 1994) is sited as the principal structure to consider Mulberry’s risk control and management. Control Environment A formal system is required make sure the risks are appropriately evaluated and controlled in board level (Tricker, 2009). It is manifested in the report that the Board is fully responsible for Mulberry’s internal risk (Mulberry, 2011).

Specifically, Directors pay great attentions to the control throughout the comprehensive aspects of the company’s business running and make it available in practice. These states, though quite simple with only few sentences, clarify the Board’s serious attitude to risk control. Additionally, increasing literature viewpoints in recent years call for “a formal system to ensure that risk is properly assessed board to give assurances that systems are in place to handle corporate risk in their regular corporate governance reports to shareholders” (Tricker, 2009:328).

For Mulberry, the control system was established and the report model well fit the requested as mentioned. Specifically, the control system mainly consists of subsystems including budgeting, actual running results comparison, forecast and review (Mulberry, 2011). Also, the information is reported to shareholders twice a year (Mulberry, 2011). Risk assessment and control activity First of all, as a result of continuous recession in the UK economy which leads to sales reduce in domestic market, Mulberry considers relieving from the decrease risk by international expansion (Mulberry, 2011).

It is reasonable that they concern about the negative impact of recession in the UK (OECD, 2010). However, it seems lack considered by their merely switching to international market because the international market is much more complex with various risks involved (Hollensen, 2006), for example, local regulation limitations, economic environment in foreign market, competitors, customer preference diversity and so on (Kotler, 1994). Also, failure of the global risk transfer may occur that leads to even serious financial crisis for Mulberry. Secondly, terrorist attack, as regarded a principle risk by Mulberry, is related to warehouse disruption.

The company tries to prevent it by developing “a business continuity plan” (Mulberry, 2010). However, it is illogical to take terrorist attack as a major risk, which is a rarely happened incident. Moreover, there is no any further explanation about the so called ‘business continuity plan’ solution. Conversely, an improved warehouse control and management system accompanying an emergency program may be a better approach to prevent the risk. Besides, the risk may be more sensible to be associated with stock disruption or supply chain failure (Aon, 2007) rather than terrorist attack as is stated.

On the other hand, key personnel loss is mentioned in the report with simple solutions of remuneration review and succession preparation. However, either the reasons or the details are not revealed. So it is uncertain that if the methods are valid or not. For example, if the loss was caused by unreasonable decision making caused by the arbitrary executive as we mentioned above, then either these ways can hardly solve the problem. As to the online system establishment and accomplishment, Mulberry involves more senior managers for supervising and impose carefully test to reduce the risk of system implement failure which is quite reasonable.

With increased attention paid by senior managers, staffs in relative department will do the task more carefully. Also, comprehensive test further guarantees the system implemented successfully. Finally, it is mentioned in the report that the company intends to solve the risk by building a ‘natural hedge of Euro and US Dollar denominated sales and purchases’ (Mulberry, 2011:12). This sector involves professional knowledge about the currency policies and financial operating. Unfortunately, we are lack of knowledge in this area. Hence we would not analyse this issue in depth. . 4. 3 Information and Communication The company includes an information and reporting subsystem in the integrated internal control procedure (Mulberry, 2011), which obviously, is used for collecting and conveying relative information. Furthermore, since the internal control is taken charge by the Board at the top of the company’s management layer, it is essential to ensure the effectiveness of information collecting and communication in time according to COSO framework (1994). However, relative details are not mentioned for the assessment and herefore, the facts for the effectiveness are unsure. 2. 4. 4 Monitoring According to COSO Framework (1994), there are two approached for monitoring, one is undertaking it along with the ongoing activities, the other is put it into a separate process. Mulberry adopts the later approach by putting the monitoring process separately. However, a combination of both approaches is recommended in COSO framework (1994), in order to ensure the effect of internal control. In other words, it can be more sensible for Mulberry to develop monitoring affairs in the whole business running procedure.

Moreover, the internal audit is functioned by the Board (Mulberry, 2011), for which the details are not given in the report. For example, factors like how the deficiencies been detected and conveyed upstream to the Board are not revealed. Thus the monitoring effect of Mulberry internal control can not be evaluated comprehensively through the report itself. 3. Conclusion From the information above, we can see Mulberry made efforts for market place on the Uk market during the year of 2010 to 2011 and managed each aspect of overseas development.

In 2010, Mulberry has become aggressive in invest oversea markets and online stores. As a result, the income of Mulberry has created its new page for share price. However, as other companies, Mulberry has its flaws and drawbacks. Firstly, there is no debt existed in Mulberry; therefore, the investment could be limited. The main funding of Mulberry is internal funding. Mulberry has experienced extraordinary successful times since 2009, which contributed to the significant increase in share price. However, the higher share price can be a double-edge sword which might attract many investors as well as scare them.

After analyzing the probability of return and the extent of risk, Mulberry is a company worth investing. Nevertheless, it is necessary to mention that it would be much better to choose a long-term investment than a short one. And Mulberry has a series of solutions to solve the risks that existing in its operating process and markets. Reference Anderson, R. 2004. Risk Management and Corporate Governance: The Importance of Independence and Financial Knowledge for the Board and the Audit Committee Anonymous. 2007. The body shop design: An evolving retail brand identity”, Strategic Direction, 23(11), p9-11. Aon (2007), “Enterprice Risk Mangement-Aon Insurance Bookers” [Online]. Available from: www. aon. com/us/busi/risk_management/risk_consulting/ent_risk_mgmt/default. jsp [Accessed on: 4/12/2011]. Adam, T. & Goyal, V. K. 2008. ‘The Investment of Opportunity Set and Its Proxy Variables’. The Journal of Financial Research. 31, 1, 41-63. Akhigbe, A. and Madura, J. ,1996. ‘Dividend Policy and Corporate Performance’. Journal of Business Finance & Accounting. 23, 9&10, 1267-1287.

COSO Framework 1994 Collier, P. M 2009, Accounting For Managers. Interpreting Accounting Information for Decision-Making. Third Edition. Dyson, J. R. (2001). Accounting for non-accounting students, Essex: Pearon education Limited. Fonseka, M. M. and Tian G. L. , 2011. ‘What factors motivate the analysts stock recommendation in a small emerging market? Evidence from Sri Lanka’. African Journal of Business Management. 5, 26, 10908-10920. Gillespie, I. & Lewis, R. &Hamilton, K. 2000. Principles of financial accounting, Essex: Pearon education Limited. Goyal and Park,2002.

Board leadership structure and CEO turnover, Journal of corporate finance, 8, p49–66. Governance Code 2010, The UK Corporate Governance Code, Financial Reporting Council, London. Hollensen, S. 2006. Marketing Planning: a global perspective, Maidenhead: McGraw-Hill Education. Ince, O. S. and Porter, R. B. , 2006. ‘Individual Equity Return Data from Thomson Data Stream: Handle with Care! ’. The Journal of Financial Research. 29, 4, 463-479. Kotler, P. 1994. Marketing Management: Analysis, Planning, Implementation, and Control (8th Ed. ). New Jersey: Prentice-Hall, Inc. Kothari, S.

P. and Shanken, J. 2003. ‘Book-to-market, dividend yield, and expected market returns: A time-series analysis’. Journal of Financial Economics. 44, 169-203. Mallin, C. A. 2004. Corporate governance, New York: Oxford University Press Inc. Tricker, B. 2009. Corporate Governance: Principles, Policies, and Practices, New York: Oxford University Press Inc McKinsey, C. 2002. Investor opinion survey on corporate governance. London: McKinsey &CO. Muresan, E. R. and Wolitzer, P. Organize your Financial Ratios Analysis with PALMS (September 20, 2004). EMuresan Working Paper No. 2-01. Available at SSRN: http://ssrn. com/abstract=375880 or doi:10. 2139/ssrn. 375880 OECD (2011), OECD Economic Surveys United Kingdom MARCH 2011 Pierce, B. 2011. Personal Communication, Course Lecture 1 Nov 2011. Sheffield: The University of Sheffied. The telegraph,2007, Crisis may make 1929 look a ‘walk in the park’. [Online]. Available from:http://www. telegraph. co. uk/finance/newsbysector/banksandfinance/2821629/Crisis-may-make-1929-look-a-walk-in-the-park. html [Accessed on: 01/12/2011]. Annual report of Mulberry plc. 2011 Annual report of Mulberry plc. 2007

Activity-based costing emphasizes the demand to obtain a better apprehension of the behaviour of operating expense costs, and therefore ascertains what causes overhead costs and how they relate to merchandises. ABC recognizes that in long tally, most fabrication costs are non fixed, and it seeks to understand the forces that cause overhead costs to alter over clip. ( Colin Drury, 1995 p. 275 )

The definition of accounting supplied by Zlatkovich, et. Al. ( 1966 ) is the procedure of identifying, measurement, and pass oning economic information to license informed opinions and determinations by users of the information.

ABC besides can be defined as a method of bing activities that are necessary for the production of merchandises or services ( i.e. activities being undertaken ) ( Dandago, 2003 ) .

Whatever the definition of ABC, this method was originally developed by Cooper and Kaplan in 1988 as a solution to the insufficiency of traditional direction accounting techniques that used volume based methods to apportion operating expenses to merchandises. ABC is a method of apportioning overhead costs. Eventhough, it is similar to the direct method of overhead costs allotment found in traditional method, but there are two important different. In the traditional direct method, overhead costs are identified by service and production sections while in ABC operating expense costs are identified by activities which likely non the same as sections.

In the traditional direct method, service section costs are allocated straight to production sections and so overhead allotment rates are prepared from these combined costs. Overhead costs are so assigned from the production section cost pool to the merchandises processed through this section. The different with ABC method this intermediate measure has been eliminated. Overhead costs are collected by activity and so straight allocated straight to the merchandise. In traditional method direct, the cost object is the terminal merchandise or service. And the premier costs and production costs are charged straight to merchandise or service whereas non-production costs will non bear down to merchandise or service.

There are five ( 5 ) chief advantages of following ABC methods are:

Accurate Information

ABC offers more accurate estimations. Businesss typically have to compare an point ‘s monetary value and merchandising record to see if it is deserving bring forthing, and one of the benefits of ABC is better analysis of both profitable and non-profitable merchandises. Overhead costs can be a major job with some merchandises, but this method will place the costs and helps cut down operating expense. Directors frequently can work better under this costing method, because they have more accurate information.

Accurate Product-Creation Cost

Another benefit of ABC method is a more accurate product-creation cost. By following this bing method, analysts can calculate out the per-product cost and, therefore, more realistic prosodies are used for appraisal.

Competitive Placement

ABC is helpful in choosing which merchandises are profitable and which 1s should be eliminated. If a merchandise is identified as non-profitable, the concerns seldom continuously sell a merchandise. This is because the ABC method enables the concerns to find more accurate merchandise pricing and therefore competitory placement of the merchandise in the market place.

Better Decision Making

Since ABC provide accurate information on costs, more appropriate capital investing determinations can be made as a consequence of better burdening being determined on assorted facets.

Future Planing

ABC helps the concerns estimates the cost of all activities or processes that associated to future merchandise planning accurately determined before it is launched. This can so assist with finding pricing, and any associated outgo. By implementing ABC method, the concerns besides could place which production line is inefficiently. This enables the concerns to make up one’s mind whether to go on the procedure or activity in-house or outsourcing the procedure or activity to 3rd party.

Despite the advantages of implementing ABC, the method besides has disadvantages and restriction. The disadvantages of the method are elaborated in the following paragraph.

Complexity

The most obvious disadvantage of ABC is complexness in nature. It prevents the system to widespread into other companies. This ensuing the ABC methods normally remain hard to grok and dearly-won to run. ABC requires direction to non merely estimate the costs of each activities and identify and step the cost drivers for such activities, but besides update the same on a regular footing. This utilise much of the organisation ‘s resources such as direction clip and cost.

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Premises

ABC while it institutes a complex methodological analysis to delegate costs to activities, the method remains far from perfect. The major defects include:

Certain overhead costs remain impossible to split and apportion on a per-product usage footing.

Not all productive activities will add value to merchandises.

Most activity based bing methods assign such ‘business prolonging ‘ costs to merchandises on a proportionate footing or based on premises, and this makes the method far from perfect.

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The Big Picture

ABC places excessively much attending to detail and command on procedures. This causes a terrible restraint in that it obscures the bigger image by doing the organisation to lose sight of strategic long term aims in a pursuit for short term nest eggs.

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Confirmation to Standards

This method, while supplying for better direction control over the concern procedure, does non conform to by and large recognized accounting rules ( GAAP ) . This means that for the companies that practising GAAP demand to duplicate their attempts by keeping two cost systems and separate accounting books for internal usage and external studies.

Replacing Procedure

Finally, ABC method does non replace an bing occupation order or procedure cost system, but instead supplement the same. Indirectly, this will be seen as excess procedure.

Eventhough the method has disadvantages ; it has proven that it still taking method to bring forth the most dependable, accurate bing information particularly for fabricating companies today. Although this method may non be easy to implement, since it utilizing activities to follow costs but it provides more accurate information ensuing in better scheme, better planning, and better prediction. However, the most influential facet of ABC is the ability to salvage cost. If company has a more accurate image of costs, so it is in a place to accomplish higher net incomes which straight maximize the stockholder wealth.

Case Studies

The following paragraph discussed on the execution of the ABC method in four ( 4 ) different states with different civilization and industries. The analysis was based on the research documents conducted in these states.

The first research paper by Wen-Hsien Tsai and Jui-Ling Hsu. The survey was carried out to analyse the operational costs of a hot spring hostel in the Yang-Ming-Shan country of Taiwan. The ABC method was used to calculate housing, hot spring usage and repast helping costs per client. Based on the consequence of the research, it was reported that the cost of merchandises was lower than utilizing other methods eventhough during winter season. The research worker besides compares the ABC method with the traditional costing method and concludes that the ABC method is practical and appropriate for such a hot spring state hostel and outputs more accurate information for cost direction and pricing determinations.

The following research paper was carried out by Ahmet Agca and Ali Cagri Buran in implementing ABC method in Third Party Logistics ( 3PL ) houses at Turkey. This survey was carried out for selected endeavors that are expertise in logistic activities at Turkey. The successful factors for these houses are the service they provide and accommodating their clients to their procedures in an optimum manner.

The 3PL houses can plan their services in a two different manner to run into their clients ‘ outlooks i.e. service-oriented and customer-oriented. By following ABC, it shown that either service-oriented or customer-oriented, both theoretical accounts need to find the optimal cost degree for accurate pricing determinations to enable them to find the profitableness of clients or services. Therefore, the bing method they use need to be qualified adequate to run into the demand for accurate cost informations.

The houses have found out that, ABC method has proved the optimum method in both state of affairss. As this method allocates costs by the activities ; so, it is the method supplying the most accurate cost informations both in bing logistic activities and finding the costs of clients and services/products.

The 3rd research paper was carried out by Francesca Bartolacci for logistic procedure in Italy. In this instance survey, Francesca defined logistics as portion of the supply concatenation procedure that plans, implements and controls the effectual and efficient flow of goods, services and related information from the point of beginning to the point of ingestion. Nowadays, the market really competitory, the merchandises, monetary value and quality are easy imitated and the velocity of the physical and information flows plays a cardinal function for the accomplishment of the company objectives. Excellence client service can be the cardinal component for the company to be at the competitory border and one of the maps evidently plays a critical function in the success or failure of a company is logistic.

Eventhough Francesca Bartolacci has identified some disadvantages and drawback in implementing the ABC method in logistic, nevertheless ABC method has references to work out the jobs refering the usage of traditional cost accounting system based on volume and the betterment of concern profitableness. The method provides directors with utile information about labor and other resources, including ingestion for merchandises, consumers and providing channels, taking to the direction and control of the operating expenses nowadays in the company.

The analysis besides managed to place the factors that determine the operating expense consumed. By following this method it is possible to do the logistics activities more efficient by extinguishing redundant or unneeded undertakings, and optimizing resource allotments to activities adding more value to the merchandise or client.

Other advantage of the method is, ABC permits the planning of more efficient collaborative relationships among the companies in the supply concatenation. Francesca concludes that “ the designation of costs in return influenced allows for a pick of coactions as a method which is more convenient for the whole partnership. Correct information about the differential costs originating from possible change of the coaction relationships aid companies to do those appropriate strategic determinations with their logistics activities. This in bend helps them gain, with other companies, how best to modify the object of the cooperation in order to do the whole supply concatenation more competitory ” .

The concluding research paper was analysing the consequences of following of ABC methods in service sectors at United State of America by Ashford C. Chea.

It was reported that the acceptance of ABC to efficaciously apportion resources and to find monetary values was the primary aim in the instance of a big regional bank. Previously, the bank had no clear manner to be services or find how resources were being consumed by different activities. In add-on, since some of the clients were related parties, the bank wished to demo that the charges being made to them were effort-and-use-based, i.e. , there was a direct correlativity between the nature of service provided and the charge for this service. ABC method assisted the bank to turn to both i.e. internal pricing and strategic pricing.

For planetary insurance company, the determination to follow ABC method simply for revenue enhancement intents. The method was adopted to find its allotment methodological analysis for external transportation pricing intents. This is because the company wanted to guarantee that its charges to its abroad affiliates were accurate and defendable to revenue enhancement governments. By following ABC, the company ensured that the services provided to all abroad affiliates were tracked through the ABC systems, ensuing in charges straight related to the economic benefit received by the receiver. As a consequence, the company was able to take down its effectual revenue enhancement rate.

Decision

ABC was introduced in the 1920 ‘s and over period of clip the method continually bettering. As shown in four ( 4 ) instance surveies, ABC is non merely allow for usage in a fabrication environment ; it is besides reported to be most appropriate for service organisations such as fiscal establishments, the health care industry, and authorities organisations. In fact, some banking and fiscal establishments have been using the construct for old ages under other names. One of them is unit costing, which is used to cipher the cost of banking services by finding the cost and ingestion of each unit of end product of maps required to present the service.

The micro and macro environment both have different factors. The Micro environmental factors include: organisations, suppliers, customer market, the intermediaries and competitors. Macro factors include Demographic, natural, technological, cultural, political and economic factors. However, these factors may vary depending with the company. In this study case of Air Asia, low price was the smartest marketing strategy Air Asia used. The company has done its research and found that there were a huge mass middle-class people that love to travel by plain.

They targeted these people and offered them convenient and affordable air travel experience. By this approach, the company has satisfied its slogan “Now everyone can fly”. Second factors in micro enviroment is ‘the company’. One department must work closely with other company departments. Other departments have an impact on marketing department’s plans and actions. Fernandes (the CEO of Air Asia) contributed heavily to the success of Air Asia. He was seen working alongside with the employees as a baggage hander to get to know his staff members and to listen to the customer’s wants and needs.

Mr. Fernandes also asked customers for feedback for the service that was provided for them. Feedback is crucial for Air Asia so that they could implement their strategy effectively and efficiently. Moreover, Frenades has support and engaged Dr, Mahathir M. to network with neighboring countries in an effort to develop an open-skies agreement and grant landing rights to Air Asia. This worked to the advantage of the company now it could penetrate a bigger market and target a wider pool of customers.

Convenience also played a major role in the marketing strategy. To keep customers happy, Air Asia offered customers with agents to cater to travelers who are uncomfortable with booking online. Also it provided an easier way to pay for tickets by visiting a local bank and pay by cash. This is a genius strategy because Air Asia knows its customers. It knows that a portion of its customers that fly Air Asia don’t have that much money to carry around so there are little chances that they would own a personal credit/debit card.

Economic theory speculates that a house ‘s end is to capitalise on stockholders wealth ; accomplishable with entrepreneurial house since proprietors are directors. However, ownership presents is significantly diluted, with companies owned by big stockholder groups. This causes the separation of ownership and direction which hinders the relationship between stockholders and directors ; where directors replace stockholders involvement with their ain. This may be due to information dissymmetry

[ 1 ]

where directors have the power to move in conformity to stockholder demands. This is known as the “ bureau job ” and is common in modern corporate.

Under this theory the relationship is formed through a binding contract whereby principal ‘s ( stockholders ) appoint the agents ( directors ) to put to death services with authorization to do determinations. However such “ contracts ” are imperfect as the impracticality to include every action of the agent whose determinations has an impact on their and the principal ‘s benefits. Therefore, self interested behavior arises in administrations as the involvement of both parties diverges, i.e. principal ‘s involvement respects maximization of stockholders wealth ( net income maximization ) whereas agent ‘s involvement lies in ain public-service corporation maximization ( bonuses/promotion ) . Stockholders permit directors to run the house ‘s assets ; ensuing in a struggle of involvement. The cardinal job therefore is to aline the involvements of both parties.

Furthermore, principals expect board of managers to establish their determinations on maximizing equity value. However the board of managers expect directors to follow schemes that support their ends. This state of affairs illustrates that stockholders have no direct input into the operation and hence have no power to state directors what to make. This issue arises because of the separation of ownership and control and therefore directors are able to prosecute ends good to them and unfavorable to stockholders. Overall, withdrawal between the two parties increases deficiency of end congruity.

The inquiry arises as to why stockholders do non supervise direction? There are three grounds why taking control causes troubles. ( 1 ) Expensive to supervise managerial activities as obtaining information is hard ( 2 ) disgruntled stockholders are unable to present menaces in order to cut down unwanted managerial behavior i.e. engaging an outside member and ( 3 ) dispersed stockholders have an inducement to “ free drive ” . Keasy et al 1997 regards the above as economic costs to monitoring.

These restrictions pose jobs for stockholder wealth since unwanted managerial actions takes topographic point in the absence of control. Stockholders may present inducement bundles which include net income related fillips, public presentation, publicity inducements and promote employees to purchase portions which increase their rewards, to promote agents to do “ optimum attempt ” . Due to the above jobs, states have developed systems which carry out independent monitoring and control of the house in order to aline the overall end.

OECD 1999 stated that “ corporate administration construction specifies the distribution of rights and duties among different participants in the corporation, and spells out the regulations and processs for doing determinations on corporate personal businesss. By making this, it besides provides the construction through which the company aims are set, and the agencies of achieving those aims and supervising public presentation. ”

In UK capital markets play a critical function where portion monetary values advocates public presentation degrees. Management ‘s focal point is to maximise stockholders wealth through the usage of independent board of managers. The fright of coup d’etat commands forces direction to undergo effectual actions. Approximately 50 % of portions are held by institutional investors bespeaking dominant ownership. Cadbury Report 1992 provinces big proportion of stockholder ownership influence company ‘s actions.

In 2008 the Financial Reporting council developed the ‘Combined Code ‘ i.e. assorted reports/codes refering ‘good ‘ corporate administration. The most influential is Cadbury Report 1992

[ 2 ]

, was produced as the deficiency of supervising direction activities caused several dirts whereby executives acted in their involvement. Initially, Polly Peck

[ 3 ]

went into settlement after old ages of false accounting taking to size uping of the fiscal facets and answerability. However after the cozenage of BCCI and Robert Maxwell, they revised the relationship between boards, hearers and stockholders. The concluding study states CEO ‘s and Chairman ‘s of companies should be separated. Jenson 1993

[ 4 ]

provinces that if functions were common, struggle of involvement would originate. Furthermore, 3 non-executive managers, two of whom should be independent

[ 5 ]

and an audit commission affecting non-executives should be included.

Companies were encouraged to follow these practises alongside “ the codification of best practise ” which outlines other countries of concern. However the “ one size fits all ” job was recognised by Cadbury doing all companies registered in UK to follow the “ comply or explicate ” system. Companies should follow with corporate best practise or have legitimate grounds for non-compliance. Furthermore, the board must offer a full account to stockholders and explain how their practises are consistent with stockholders. It ‘s acceptable merely when stockholders believe good administration has been achieved.

Greenbury commission, formed to measure manager ‘s wage bundles and the deficiency of revelation of payments in the one-year studies, commenced over populace ‘s choler sing additions in executive wage. The study added to the Cadbury Code and advised ( 1 ) each board include a wage commission affecting independent non-executives briefing stockholders yearly and ( 2 ) managers should hold LT

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public presentation related wage, all disclosed in the one-year histories. Furthermore, advancement should be reviewed every 3 old ages to guarantee companies are runing efficaciously.

The Hampel commission

[ 7 ]

formed in 1998 suggested all old rules should be collaborated into a “ Combined Code ” . Furthermore, the president of the boards should move as the ‘leader ‘ , investors should see voting the portion and all wages information including pensions should be disclosed.

The Turnbull Committee, created the following twelvemonth, advised that managers should be held accountable for internal fiscal and scrutinizing controls. Several studies have contributed to the Combined Code viz. the Higgs reappraisal sketching the actions of non-executives. More late, after the prostration of Northern Rock and the fiscal crisis that followed, the Walker Review formed a study refering banking sectors. The Financial Reporting Council produced a new Stewardship Code in 2010.

Germany ‘s corporate system is chiefly stakeholder oriented and diffuses off from stockholders involvements. The aim is maximizing stakeholder value thereby uncovering several typical differences.

First, the banking sector is a major stakeholder. Charkham ( 1994 ) stated that Bankss hold a dominate place in funding and oversing companies for legion grounds. ( 1 ) During 1870 companies were to a great extent reliant on recognition. Banks began offering LT loans to LT clients who tied the companies, obtaining ownership and moving as ‘shareholders ‘ within industrial houses. ( 2 ) Banks hold 25 % of voting capital in big corporations and 28 % of seats on the supervisory boards. ( 3 ) Banks are stockholder representatives, authorised to vote for their portions plus proxy portions

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, giving farther control. Consequently companies are improbable to face coup d’etats, since Bankss will back up them through fiscal adversities unlike in the UK.

Second, “ co-operative ” civilization is articulated under the Co-determination Act 1976 whereby workers obtain important functions in the direction procedure ; known as work councils. Work council staff influence concern actions and partake in determination devising procedures. Employees ( elected by work councils ) sit on the supervisory board when a house has more than 2000 employees aboard stockholder representatives. This system reduces work force struggles by bettering communicating channels, addition dickering power of workers through statute laws and eventually right market failures. Overall productiveness degrees addition, with low degrees of work stoppages as better wage and conditions implying “ good industrial dealingss ” .

Finally, Germany involves a two – tier board compared to UK ‘s one – tier board. It includes a direction board ( Vorstand ) where directors monitor day-to-day operation and behavior of the house. Plus a supervisory board ( Aufsichtsrat ) affecting merely non-executives

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who monitor the direction board duties and O.K.ing determinations. Separation of the two increases the consciousness of single duties and helps forestall direction maltreatment. The ruin is holding worker representatives on the supervisory board as they will choose for determinations good for employees instead than company. For illustration shuting down a mill may hold good for the company nevertheless debatable for excess employees, doing it is hard to work in the best involvement of the company.

Germany ‘s corporate system lies to a great extent on good industrial dealingss which considers it ‘s company, employees and public. It shows corporations are a societal establishment instead than an economic 1 as it “ does non set fiscal value for stockholders at the top of the list of policy aims ”

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. Stockholders are seen as one of many stakeholders and non merely a privileged constituency.

The Nipponese corporate administration revolves around banking dealingss like Germany along with life clip employment. There are outstanding characteristics including the intercession of authorities and close confederations between authorities and companies. Business and industrial activities are monitored by the Nipponese Ministry of Finance, affecting them in the direction and determination procedure.

Nipponese corporate rely on chief Bankss

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which are all interlinked with houses, organizing a concentrated ownership ( stockholders ) . Prowse 1992 provinces that persons hold 26.7 % of a house ‘s equity while corporations hold 67.3 % . Unlike western states, Nipponese Bankss can keep equities up to 5 % . The statement is by moving as loaners and stockholders, struggle of involvements of debt suppliers and equity will be eradicated. Furthermore Bankss hold these equities for long periods, constructing a LT “ banking relationship ” unlike UK ‘s “ transactional banking ” . Furthermore, they are involved with the internal direction by obtaining seats on the board of managers. They actively contribute in the determination procedure and act as insurance companies for companies come ining fiscal troubles i.e. bankruptcy or coup d’etats. Like Germany, Bankss form LT contracts with companies based on fiscal services and supervising and act as representatives for other stockholders through proxy ballots.

One major differentiation in Japan is the Keiretsu system. Companies form close confederations chiefly between Bankss, concerns and the authorities, by working towards each other success. The function of the authorities became of import when they intervened in 1990s as Japan suffered a recession. The authorities wanted to reconstruct the economic system through its policies and ordinances by bettering the corporate administration to excite growing and investing.

Germany and Japan both work toward the involvement of the company and workers as a collective. However Japan ‘s board construction is different as all members consist of former employees excepting “ outside ” managers apart from bank functionaries. The boards have more members than UK and Germany as some companies have over 60 managers. This proves really effectual as no domination of managers occur.

Harmonizing to Allen and Gale ( 2000 ) , concentrating on stakeholders instead than entirely on stockholders, societies resources are being used expeditiously as employees, providers and clients are taken into history. This enhances productiveness, therefore bring forthing higher net incomes, profiting the house and stockholders.

Since 1990 the UK have implemented many policies reforming the direction and administration of companies. These scope from codifications, studies, ordinance and statute laws ; but how effectual are they?

To guarantee company involvements are aligned with stockholders, UK has imposed assorted commissions to supervise the effectivity. For illustration, audit commissions review audits yearly and overlook fiscal relationships between companies and hearers. Nomination commissions administer human resources and programs future managers. Compensation commissions examine direction actions and day-to-day operations. Furthermore the being of institutional investors has its advantages as puting in houses they have incentive and motive to supervise them. This leads to high public presentation degrees which reduces bureau costs. However, companies practise ST

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net income maximization without LT be aftering doing companies underperform, therefore investors sell their portions and “ issue ” instead than “ voice ” their discontent ( occurs chiefly in Germany ) . Overall UK ‘s attack in supervising company involvement is effectual as companies have bulk of bing stockholders through the demand of commissions.

The ‘Code of best pattern ‘ gives stockholders assurance that companies are runing with high degrees of transparence during determination devising procedures. From this, the “ comply or explicate ” system was created, whereby some freedom is left for companies to do effectual determinations. The additions from this is that ( 1 ) directors and stockholders follow the LT involvement of both the company and proprietors ( 2 ) distinguishes the civilization barrier single houses face since there are different degrees, size and ownership of companies, whereas codification of best pattern instils “ one size fits all ” regulation. Furthermore, codifications are more effectual than ordinances as companies can turn whereas implementing rigorous internal controls companies are limited to processs. Furthermore, codifications tackle more ‘softer ‘ jobs associating to best practise compared to ordinances i.e. preparation and back uping managers in their function.

The Cadbury Report reflects the above whereby “ The effectivity with which boards discharge their duties determines Britain ‘s competitiveness place. They must be free to drive their companies frontward, but exercising that freedom within a model of effectual answerability. This is the kernel of any system of good corporate administration. ”

For this system to work efficaciously stockholders require full revelation to ease them in their determinations and holding rights when dissatisfied. Consequently companies must unwrap information in their one-year studies saying how they have applied the combined codification and giving stockholders voting rights to dispatch managers. All these demands are set out under the company jurisprudence doing the system successful since it was adopted in EC

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and included in the EUD

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in 2006 ; sketching same rules.

Empirical grounds show that UK has drawn near to the construct of ‘good ‘ corporate administration. Harmonizing to the FTSE ISS Corporate Governance Index and Governance Metrics International Reports, the UK has the highest mean administration score out of all the states. Furthermore 94 %

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of UK pension Fundss considered corporate criterions in the UK has developed exceptionally.

The undermentioned reforms revolve about two primary issues ( 1 ) deficiency of separation of direction and control and ( 2 ) quandary faced by non-executive managers in footings of monitoring. Accordingly UK ‘s current reforms indicated the demand for independent non-executive managers to understate struggles otherwise present. However, the disadvantage sing this independency is, there is less incentive to pass a sufficient sum of clip commanding company issues because they have no direct relationship with the company. In add-on, uncertainties on how much cognition they get besides poses a job.

One possible polar solution that could be incorporated into UK administration is increasing the frequence and continuance of board meetings. Company information is really wide and complex particularly associating to LT fiscal public presentations, competitory place and organizational construction. Therefore it is critical that managers assign more clip to measure the information and deem upon past determinations and events. It is recommended that managers meet on a monthly footing for continual supervising and let managers to turn to all countries and inquire specific inquiries that affect the hereafter of the company. There are issues environing this proposal for illustration, readying, nevertheless the more frequent the meetings the less clip needed to fix as oppose to the clip needed for meetings held every one-fourth. Furthermore, meetings should non be limited to a clip agenda but instead should last until all facets are covered. This method is really flexible for illustration meetings could last more than one twenty-four hours when a company is in a hard state of affairs. The advantage is that sentiments will be shared more openly and allows non-executive managers to be more involved ; this should be carried when discoursing the long term corporate scheme.

Another solution is changing the composing of the board. In the ‘Combined Code ‘ subdivision A.3.2 it pronounces that “ at least half the board, excepting the Chairman, should consist non-executive managers determined by the board to be independent ” . This does non stipulate the maximal figure of seats in entire. Therefore it is advisable that the fewer managers, the more likely that each manager can play a dynamic and imperative function. The recommended figure should dwell of eight to ten managers in entire. This is so that there is adequate assortment and sufficient array of point of views. When there are more than ten or twelve members on the board, there will be a “ free rider ” job where some manager ‘s will halt preparing for meetings and rely on the work of others ensuing in subjects non being discussed in deepness.

Finally UK should see adding a supervisory board like Germany and Japan as this will let wider diverseness among the determination devising procedures. Furthermore it will cut down maltreatments from dominate managers since there is changeless alteration of direction public presentation. Overall UK should discontinue to better bing constabularies and the challenge lies in maintaining UK ‘s corporate administration an plus instead than a liability for companies.

1. 0 INTRODUCTION 1. 1 The objectives of the Industrial attachment The purpose of industrial attachment is to bridge the gap between the theory and the practise of coursework learnt in the University of Botswana. It is meant to give students a clearer perspective of concepts learnt in the academic environment and in turn prepare them for the work environment upon completion of the degree programme. Internship is also aimed at give students a chance to apply the material learnt into a practical environment and get to know the work industry.

In applying academic material, it is understood more and in familiarising with the work environment, a career option can be chosen. Part of the attachment was for students to create networks. networks are useful in securing jobs and getting information about the industry. 1. 2 Methodology The industrial attachment was conducted over the period between May 10th and July 27th 2012. This period amounted to a total of 10 weeks over the school holidays. It was after the third year of study in the degree. Each student, with the help of the internship coordinator had to find a company of their choice in the relevant field of study to work in.

A place was to be secured through an application letter accompanied by a copy of a transcript, a letter of acknowledgement of student status from the University. A letter of acceptance would then be sent to the university by the company that agreed to attach a student and the area in which the student will work. Students were expected to work in various sectors of the company, but within their course of study while under attachment. The students were also to keep weekly log sheets which were to be signed by the supervisor with the work they had conducted. ? 2. 0 BACKGROUND OF THE ORGANISATION . 1 History of Great Advisory Services Dotaka Investments (Pty) Ltd was incorporated in Namibia in the year 2005. It has two businesses operating, an insurance brokerage called Coverage Insurance and an accounting business called Great Advisory Services. The company has two directors namely Alex Mundey and Gracia Hunde. Mr Mundey is a non-executive director while Miss Hunde is an executive director. The insurance brokerage was the first business to be registered by the company in 2005 and has since grown to be one of the most renowned insurance broking firms in Namibia.

The business headquarters are situated in the Windhoek International Finance Park while another branch operates in the Caesar International Office Park. This is because all insurance companies are found in the Caesar Office Park, making it convenient to get quotes upon request or to make an inquiry quicker. Having become a success and seeing the need for better accounting practise for the smaller businesses, the company diversified into the accounting field and registered a business named Great Advisory Services.

The role of Great Advisory Services is to assist entrepreneurs to sustain their businesses by upholding proper and consistent accounting ethos. Great Advisory Services was registered in September 2011 and has been in operation since then. Not only does the business deal with accounting but it also in company secretarial and consultancy. It registers companies, sits as a director on the board and act as agents on submitting applications for permits. The staff includes Gracia Hunde, Elaine Chatonga and Palesa Mosa.

Gracia Hunde is the executive director having gained all her knowledge from experience and is currently pursuing a degree in the University of South Africa. She mainly deals in company secretarial and business consultancy. Elaine Chatonga is the head accountant, having graduated with an Honourary degree in accounting and is pursuing chartered accountancy. She draws up the financial statements and calculates the tax returns due for all the clients and for the business as well. As head accountant, it is also her duty to supervise the work of the cler and make necessary changes.

Palesa Mosa is the accounting clerk, having acquired an AAT qualification. As a clerk she does the day to day recording of accounts for the business and for the clients. She is also in charge of the petty cash book, answering calls, submitting tax returns and miscellaneous work. MISSION The mission of Geat Advisory Services is to provide accounting services to small, medium and large enterprises. In providing accounting services, the aim is to also influence the practise of proper accounting ethos and to improve the running and quality of business in the country.

This is will be accomplished by building a relationship with the clients and explaining accounting procedures to them. By building relationships with clients and keeping a small number of clients, the company is able to focus on each client and not do a rush job. By targeting smaller businesses, the company is also able to probe into the finer details. Clientele These consist mainly of small businesses with very few employees as these are the main target of the business. Most of the clients are in the motoring industry and have just been contracted; hence there is not much history that has been built.

The range of clients runs from auto mechanics to caterers, and interior designers. Clients are drawn in through word of mouth and through networking, as the company barely advertises itself. The biggest client of the firm is its own spear header- Coverage Insurance Brokers. Most of the clients are for accounting services as opposed to the other branches of the business. The business started with a small clientele base of 4, and has since increased to over 10 contracted clients in the accounting branch. 3. 0 MANAGEMENT, TRAINING AND EMPLOYEE INFORMATION 3. 2 Supervisor assistance

I was also debriefed on other office duties that I would be taught which would have nothing to do with schoolwork but were skills needed in the office for example, filing, photocopying, faxing, filling bank cheques and deposit slips and going to the bank. I was also told that I would not have any specific responsibilities but work would come up as and when needed which I would be given a briefing on how to do what at that moment. 3. 3 Qualities and skills possessed and developed The job called for speed, teamwork capabilities, versatility, fluency, flexibility and grasping concepts quickly.

This I had no problem with, having gone through internship before and being a member of clubs that required teamwork. Being tossed around between jobs, and not knowing what to be doing when you get to work in the office ensured that I was always on my toes. As the job went by, I learnt to be quick but thorough, to ask questions; to be accountable- work was tossed form one person to the other. If I was capturing information, I had to be thorough so that the next person, in this case the accountant, would be able to use the information. If I gave her the wrong information, it would mess all the accounts up.

I also had to learn to be responsible ? 3. 0 MANAGEMENT, TRAINING AND EMPLOYEE INFORMATION 3. 1 Job orientation A brief meeting was held on the first day of work in which an assessment of my course work and accounting knowledge was made. The information available on the transcript and curriculum vitae was used for the assessment. This same meeting was also used for the purpose of giving me a tour through the company, debriefing on company history and the services offered by the company. I also got the opportunity to familiarise with the business environment and the rest of the staff around.

The next step was to test the skills I had I stated that I had. I was shown how to capture information form a receipt, change it, delete it and create a file for a company in the accounting software. After a series of examples, I was asked to do the same. I went through a series of tests in using the accounting system, which in this case was called Quick books. Having shown adequate knowledge, I was informed that I would assist in that part of the job. The main job was capturing, but some more office jobs were to be done, which I was kindly briefed on.

I was to be the extra hand in the office; hence I would be tossed around everywhere, having been given a short tutorial prior to execution of a task. There were no specific responsibilities that were given to me; most of the work to be done would be broken down before being done. Having been briefed on the jobs to be done, I was shown the office space that I would use. A few minutes later I was assigned to my primary role for the week- filing, organising documents prior to capturing, checking if transactions had been captured properly and at the correct amounts and banking.

In between the small jobs, I was to familiarise myself with the software and practise before I could be given any work concerning that. 3. 2 Supervisor assistance My supervisor adequately explained all duties and responsibilities before I undertook them. The first question before doing anything was an enquiry as to whether I had done any such thing. If I answered in the negative, I was shown how to do it. I would then attempt the same job under her watch until I had perfected my work In cases were computer use was required, a different document altogether would be opened for the sake of demonstration.

A supervisor was always ready to help if I did not understand anything. As this is a small company, help was easy to find as my slowing down would also affect the other operations. My supervisors were quick to explain and guide through new processes especially those that involved going to NURS, going to clients and going to Company registration. I would receive office calls whenever I spent more time than usual. During the first days in the office, I would also get momentary calls just to check on progress or if everything under control 3. 3 Qualities needed and qualities gained

Versatility and flexibility were needed to succeed in this position as I would be tossed into any work. This meant I would have to be a receptionist, or an accountant, or the driver so adaptation and was needed. There was much work to do in the office so I had to be quick to catch onto the job as I would often receive crash courses to do a new task. In a job where there were had no fixed duties, and work to do decided on each morning, it was critical to grasp the concept quickly. The job also called for an ability to work without supervision as there was a lot of work to be done between the three services offered by the company.

There was a need to be organised and to ask questions to do with more clarification to get an understanding as soon as a task was given in order to curb backlog. The amount of work to be done was much so that made round the clock assistance rather impossible. Time keeping was also very critical. We all depended on each other as one person’s slow delivery affected everyone. There was a need to pay attention to detail when doing accounts so as to come up with the correct financial statements and prevent reworking which would waste time.

Ten client companies would expected their returns to be calculated every second month so each company had specific time slots for doing their books which had to be maximised in order to prevent a rush job being done or eating into another company’s time. Fluency in English and articulation was a needed quality because there were clients to talk to, going to the Registrar of Companies and calls to be answered when the clerk/receptionist was not around. Qualities gained during the process included the ability to think on my feet, tenacity, responsibility and team working.

Concerning the ability to think on my feet, jobs done outside the office required decisions to be made quickly if things did not go according to plan this needed one to exercise discretion and take control without having to call the office first. Thinking on one’s feet required the ability to reason carefully and objectively. Over time, I developed tenacity. It became apparent that not only did the job call for work to be done, but to be completed on or before time. Working after hours became normality and not burdensome and neither was it something to complain over.

The key was to understand the importance of completing a task before the next day, regardless of working hours. Honesty and responsibility came with the job. Whenever personal resources were used in incurring company expenses, they had to be accounted for. This called for keeping of receipts and disclosing the corrected amounts actually spent in order to qualify for a refund. These expenses also had to be incurred wholly towards the company and not be mixed with personal expenses. Every business can only achieve its goals through teamwork.

Work was passed from one person to the other as processes were interlinked. The clerk and I did most of the primary work- capturing and organising files and it had to be understood by the next user of the information. Having done my part for the day, I would not sit around as others worked but pitch in to also help in order for the task to be completed. ? 4. 0 SPECIFIC JOB INFORMATION 4. 1 Daily Responsibilities There were no specific daily responsibilities given as work arose as and when needed but there were things that became routine, for example filing, faxing and photocopying.

The other jobs included capturing invoices and receipts into the accounting system, checking if receipts and invoices had been entered into the system, helping to separate receipts into different expenses and banking. Accounting Capturing accounting information from invoices was a daily task. Expenses had to be separated into cost of sales, company expenses and capital expenditures. That done, a list of all transactions entered would be printed and cross-checked with the corresponding receipts as an internal check on capturing all expenditure and at their correct amounts.

Every month end, tax return forms were filled out and withholding tax charges calculated. For those companies which took the liberty to calculate their own taxes, their figures would be matched with those in the tax tables to ensure consistency. The difficult part of this was working with companies that pay employees through commission as they had a different way of calculating applicable charges. Bank reconciliation at the end of each month was a required duty.

The task was to go through a monthly bank statement, reconcile the figures with those in the cheque book, adjust for unpresented cheques, account for stop orders and total the bank interest charges for the month. After that the money drawn out for personal use would be calculated for drawings. Filing The first thing upon receipt of files from a client was to sort them out in chronological order. This made it easier to account for the dates on transactions as the date would not be changed with each receipt, it also made it easier to find a missing receipt or to look fo r a query on the receipt if they were in order.

The filing work included the tax returns that would come from NURS, documents from the clients in the form of bills, contracts and agreements made between the client and the firm. For withholding taxes, each company had a separate filing place for rental withholding taxes and employee withholding taxes. Printing, copying and faxing Accounting involves a lot of printing, faxing and photocopying. The responsibility assigned was to do exactly that. It was of utmost importance to make sure that the company had one file while the client also had another copy. Banking

This involved drawing up cheques for clients, having been given the due amounts, fill in cheque deposit slips whenever a client made a payment via cheque, signing and accounting for the cheque in the company books before going to the bank to deposit it. This also involved cashing some cheques and depositing them in the respective employee accounts at the end of the month for salaries. 4. 2 Other responsibilities Messenger Jobs that were done outside the office included fetching files with client’s receipts and invoices for the month and returning them, submitting and collecting returns forms to NURS, getting clients to stamp taxes due forms.

Being a messenger also involved following up on company or business name reservations with the Registrar of Companies. The other tasks at the Registrar of Companies were submission of forms for the change of directors and the transfer of ownership of a firm. All paperwork generated from this would be copied and sent to the concerned client Office jobs Part of the office odd jobs was answering the phone when the person responsible was not available. This would involve taking messages and answering for where the required person was, putting through phone calls and answering whatever questions a client had about the business.

When clients arrived before their appointed time had to be attended and entertained until their attendant returned. This was achieved by preparing refreshments and chatting up the client, sitting them comfortably and continuous reassurance that the required person would be with them. Ensuring office security involved locking up doors and cabinets, closing windows, switching off the air conditioners by the last person to leave the office. 4. 3 Knowledge from course work Three years of in the University of Botswana has come with grasping many skills and concepts.

Some proved necessary, other premature and some skills use stood out more than others. Knowledge from Accounting Information Systems learnt in BIS309 was the most used and hence the most helpful. It offered a foundation to be able to use any accounting software. BIS309 also helped because it dealt with the daily running of business and how to enter daily transactions into the books of accounts, the separation of bills and invoices and how to create a debit or credit note. BIS309 also included how to account for a refund, how to add an account into the list of accounts.

Most accounting now is done by software so the ability to use software and the knowledge of the way around the software was an added advantage Knowledge of basic accounting and bank reconciliations was taught in Financial Accounting I (ACC100) and it offered know how on entering costs into books of accounts and drawing up bank reconciliations and treating unpresented cheques. Some clients, being new, lacked adequate accounting information. This amounted to missing receipts and invoices, misnumbered invoices, missing bank cheques or narrations to the cheques.

In order to deal with this one had to work backwards from the bank statement to find missing figures and asking for rough estimates for jobs done. Incomplete Records aught in Financial Accounting II (Acc200) was a useful resource. For the purpose of separation of business costs into cost of sales and expenses Introduction to Cost Accounting (ACC201) was very useful. Some business incurred expenses that had to be charged to their cost of sales, not costs of running the business, for example the cost of delivery, the cost of assembly, etc.

One company was a delivery company and conducted trade by going to South Africa and taking goods for delivery into Namibia, the cost of the job did not only include fuel to travel to South Africa but it included the driver’s accommodation and food and the cost of toll gates. Dealing with these expenses was leant in Managaemnt accounting applications ACC303. Final accounts are drawn at the end of each month and they have to be drawn up according to the formats in the accounting standards.

Knowledge of accounting standards and presentation formats was acquired in Auditing I (ACC301) and Financial Accounting II (ACC 300. ) Upon the calculation of taxes for individual employees, calculating the gross taxes, doing a bank reconciliation, comparison of figures, checking if all receipts had been entered Microsoft excel was used. BIS 205 dealt with the primary use of computers and plugging in formulae. General Education Courses dealt with the use of computers and communication.

Businesses require a lot of communication and etiquette. Gec 121,introduction to Computers was useful for the purpose of using email, Introduction to Communication (GEC111 and 112) helped in articulation and Introduction to Rhetoric and Public Speaking (GEC 364) helped in building confidence and addressing people. For the sake of company registration, the difference between a company and a business grasped in Introduction to Company Law (LAW351) was a critical tool in knowing the difference, lest the two be wrongly interchanged.

This difference was also critical whenever capturing expenses, keeping in mind that sole traders were not separated from the business and withdrawals made were charged as drawings. 4. 4 Beneficial things to have learnt It would have been very helpful to have gone through an introductory lesson in tax so as to understand the format, the applicable tax figures had and to fill in a tax from with understanding. Most of the workings in tax were done out of memory, having been briefed on before but with no adequate understanding as to why they were done that way for example amounts exempt from tax and the calculations of allowable deductions.

Cash flow Statements are part of the final accounts drawn up at the end of the month. This was also something learnt on the job but without full comprehension of what exactly to be done and what to be done. 4. 5 new skills acquired The reservation of a company name and creation of a shelf company is one of the stand out skills I acquired on the job. A lot of companies open new branches, since Botswana is a developing country and there is positive economic growth, many businesses and companies are being opened as a result and know how in reserving a name and registering a business has become a crucial tool that one may use as an agent.

In learning how to reserve company names and creating shelf companies, it was inevitable that I had to learn how to change directors of a company. Some companies do not immediately operate upon been granted approval or even fail to start, these companies can then be taken over by other persons. Forms for changes in directors of a company are retrieved from the Registrar of Companies’ website. The website hosts many forms that can just be downloaded and printed without necessarily collecting them from their offices. I learnt how to collect a tax return form. These forms are collects directly from NURS.

A tax return form has to types, one being for VAT and the other being income tax. The person collecting the tax returns forms has to have knowledge of their Tax Identity Number. Other small skills acquired include:- •Calculation of PAYE. Pay as You Earn tax is calculated using the tax tables. Each income has a specific tax matched to it and those that go beyond the normal amount have a specific extra amount to apply. •How to register a company for tax. The form is collected from NURS and it contains various areas to be filled out including the type of business, the name of the business.

The bank needs to also certify that an account by that person exists. •How to fax and photocopy. This was part of daily office work. No knowledge of such skills had been possessed before. •How to use Quickbooks. This was the accounting software used by the company. Knowledge of Pastel Accounting and the use of Microsoft in Accounting were the only prior knowledge. Most companies use Quickbooks so this is a relevant skill upon job search at the completion of the degree. •How to use office stationery properly. There is some stationery designed for office use that we fail to use properly.

Documents need to be filed neatly and in an orderly manner. That said, learnt how to align a paper before punching, refill staples and to use the various types of files. ? 5. 0 Conclusions and recommendation 5. 1 Career goals versus industrial attachment The Industrial attachment surely did bring some perspective. The daily work in accounting is significantly different from the theory learnt in school. Day to day accounts is routine and very simple. Within a short period of time, one begins to know the routine of recording and creating financial statements at the end of the year.

That said, I realise now that accounting needs to be supplemented with other courses, for example ACCA, CFA, CIMA, etc. These professional courses give one the ability to review policies placed by the business in their accounting. They also help one to become more marketable in the industry and prevent the boredom inherent in most office jobs with routine tasks. Looking at the clientele of the business, there is a dire need for accountants and for people to learn to be ‘accounts smart’. Most companies do not even have a clerk and most small businesses do not have an accounts department as the owner does everything and the results nd up being very poor. I have also come to realise that the lack of consultancy and knowledge of cost versus revenue makes some businesses fail or not realise their full potential as much is taken from the business without replacement via drawings. That said, may career goals really have changed and I would not want to end up sitting in the office, day by day, drawing accounts for people, but instead to give advice on running a business and creating strategies that work. I would like to move into explaining accounts to business owners and creating strategies for the purpose of cost reduction and ensuring longevity in a business.

Clients constantly complain about the return on their taxes, some do not even know what it means or how it is calculated and are always disgruntled when they see an accountant coming through. Clients therefore need tutorials in the accounting field so that they just do not accept anything or begin to distrust their accountants. 5. 2 derivations from the attachment Two stand out lessons were derived from internship, the first being that university education alone does not fully equip one for the work environment; one needs a bit of experience.

The second lesson being, there is a lot of ignorance concerning accounting in Namibia, to the point of business owners doing their own book-keeping. This comes from a lack of appreciation of the role of accounting in business. Concerning the equipping by the University, there is not enough room for doing accounting practically. There are too many courses from other faculties that students are encouraged to take up in their first year, which leaves little room for proper accounting courses in the degree.

The result is that most accounting is taught in a rush manner without adequate understanding and the result is that students cram without grasping concepts fully. This became apparent on the calculation of a business’ daily expenses. In the examples given us in school, the figures are already summed up and apparent, most of the work involves drawing final accounts, but in businesses, final accounts are drawn up only once a month. The recording of a business’ daily expenses is critical and needs to be given attention in the foundation courses of the degree.

Concerning ignorance of accounting , most businesses have no accountant and do not keep the relevant information used in drawing up accounts. The use of interns is also a wide spread normality among those who wish to have some form of book-keeping in their business. However, interns are fresh from university and often make mistakes. This results in backlogs during work as some of the books have to be redone. 5. 3 most significant learning experience The most significant learning process was that on the importance of teamwork. Business processes are intertwined that each person relied the other person.

Slacking was therefore intolerable as it affected everyone else’s progress. That said, I learnt to rely on other people, and to become a person to be relied upon. I also learnt to value the contribution of other people and the vitality of making a significant contribution in a team. 5. 4 self-evaluation The key strengths I possessed for this job were adaptation and quick-learning. I understood whatever work was assigned to me in a very short space of time. There was a lot of tossing around involved in the job as I had no specific responsibilities, this meant I had to be versatile and ready for anything.

The ability to think quickly and summon best judgement in a rash situation was very useful when running errands and things would not go according to plan or clients were late. This required changing things or rearranging with a client on my own without calling the office first. The ability to work without supervision and being self-motivated was an added advantage. Because of the lack of space, I shared the office with the other company branch of Dotaka Investments called Coverage Insurance. This meant I had no round the clock supervision in my work. I however managed to complete all my work before time or on time.

Being reliable is another quality I possess that the executive director would allow me to run errands for her with her car while she would be in the office. She relied on me to represent her well wherever she sent me on her behalf. Dress was no problem for me as I made sure I was clad formally and presentable each day. Articulation and fluency in English was an added quality as well that enabled me to win over clients and explain to them adequately what we required of them. im formal. time keeping My time keeping in the morning was not the most efficient.

Most of the time i was not punctual to work and i would arrive a little bit after time. I however compensated for this shortfall by personally working during lunch or working late. 5. 5 recomendations for improvement in the organisation Great Advisory Services needs bigger office space. During this period of attachment, there were five employees sharing two rooms. This meant that the main office had three employees which is too large a number for a small space. The room became crowded to the point that clients would notice and either mention in a joking manner or just showed unpleasantness.

The company vision has to be printed and stuck on the wall and be used in company stamps. I only knew the vision when I had. A company vision helps in boosting employee morale by showing them that whatever they are doing is contributing to the achievement of the vision. Grievances in the company need to be addressed. There were matters that were swept under the carpet even though they were important. There were times were there would be some tension in the office or gossip over another person over things that were not properly stipulated yet could be solved with a sit down meeting.

There needs to be an investment towards the training of employees. An accounts consultant was employed by the firm for enquiries’ sake. However, his availability was after hours which could go on till midnight this was not an efficient way of working. The problem can be overcome by putting one of the accountants through an ACCA program. Also the clerks’ work was not up to standard as most of it had to be redone. Employee training should also be in answering calls, using appropriate register as there was a tendency for employees to use an incorrect tone or a colloquial term in a formal set-up.

This article is brought to you by www. bdresearch. org Banking Sector in Bangladesh: Its Contribution and Performance Sharif Rayhan Siddique* A F M Mafizul Islam** Abstract: The paper attempted to highlight the prospects and opportunities of banking sector in Bangladesh. Like other economic sector in the country, Banking is one of major sectors which contribute to the national economy. The study tried to furnish the overview of the performances of banking sector and also find out the comparison among the various categories of banks with respect to the Profitability.

Finally, the paper tried to establish the linear relationship among the various variables and net profit of the banking sector. 1. Introduction Banking sector of Bangladesh is one of the major sectors, which contributes significantly to the national economy. The sector comprises a number of banks in various categories. Considering ownership the sector can be classified in to four major categories – such as Nationalized Commercial Banks (NCBs), Specialized Banks (SPBs), Private Commercial Banks (PCBs), and Trans-National Banks (TNBs). The list of banks under different categories is furnished in the appendix – A.

The study has been initiated to analyze the contribution of this sector and its profitability. This paper attempts to provide an overview of the contribution of the sector in national economy. The paper also analyzes the profitability of different categories of banks. Finally a regression analysis has been done to examine the relationship between the profitability and other variables. 2. Contribution of the Banking sector in National Economy Economic development – of the country is executed by the contribution of various economic sectors. Like agriculture, industries, power, transport, rade service, etc. , banking sector also has a contribution to the economic growth. In mid 80s Banking and Insurance contributed 1. 69% of GDP and gradually the figure was increasing. The maximum contribution was 2. 09% of GDP in the year 1993 and it was 2. 00% in 1996-971 Average growth rate of this contribution was 1. 51% of GDP, which shows a positive trend. Again, the sector makes a positive impact on the economic development by generating employment. In the year 1980 total number of employees in this sector was 59,235 but with in 15 years of time the figure shoot approximately double to 101,444. The average growth rate of employment generation was 3. 76% (1980-1995). Countries like Bangladesh have a burden of its unemployment, where as banking sector still keep certain impact on employment generation.

Assistant Professor, Institute of Business Administration, University of Dhaka. ** Associate Professor, Institute of Business Administration, University of Dhaka.

1. Calculated from the data collected from Economic Trend, December 1997.
2. Ibid. 2 Banking Sector in Bangladesh: Its Contribution and Performance Branches of the banks were also growing significantly.

Increasing branches indicate a wide service provider to the population of Bangladesh. Overall growth rate of the bank branches was 2. 11% (1980-1995). But before 1990 the rate was 3. 00% and after 1990 it was 0. 92%. In early 80s for the first time Government of Bangladesh (GOB) allowed private sector to operate commercial banks. At that time number of bank branches was growing rapidly. In the early 90s this growth rate was reduced, which may be because of the saturation stage. Individuals and business organizations used to deposit their savings in the bank and borrow money form it.

More the bank branches more people can be covered to avail them in banking services. Average population per branch was 19,875 during the period from 1984 to 1995. Because of the higher population growth rate (2. 22%),3 in spite of increasing branches, the population per branch was also increasing. Commercial banks are one of the profit making organizations, they are also making money by investing their deposits to the profitable venture through lending to the entrepreneurs. Commercial banks earn money from interest for loan and commissions and service charges for the services and it incurred expenditure as well.

Average profit per taka of expenditure was 0. 10. Before 1991 this figure was quite good, but after 1991 the ratio was negative up to 1993. Maximum figure was in the year 1982 that was 0. 23 and minimum was -0. 04 in the year 1991. Recently the ratio became 0. 07 in the year 1995. During 1991 to 1993 net profit was negative. i. e. commercial banks spent more than earning but again they improved the situation by reducing their expenditure compared to income. Banks’ income generated by the positive efforts of their employees.

Efficient employees can earn more which observed a positive impact to profit generation. Income per employee can be one of the indicators of commercial banks’ performance. Average income per employee from 1980 to 1995 was Tk. 227,046, i. e. per employees’ contribution to income was more than Tk. 2 lacs. The ratio was increasing significantly with the average growth rate of 12%, to Tk. 371,297 in the year 1995. A country leads itself to the economic development by investing and producing more in the local area. Investment can be ensured through increased savings rate.

Monetization ratio indicates a positive impact to the economic growth. This ratio is Broad Money to GDP. Average monetization ratio was 28% of GDP, and it was growing significantly from 17% in the year 1981 to 35% in the year 1995. 4 Commercial banks, as a whole, performing well and contributing to the economic development of the country. The average profitability of all banks collectively was 0. 09% during 1980 to 1995, which means profit Tk. 0. 09 earned by utilizing assets of Tk. 100. In every aspect of profit, banking sector contributes to national economy as well as to the individual organization.

Despite overall growth of the banking sector was positive, but the performances of different categories of banks were not equally attractive. Following section would compare analytically the performances of various categories of banks. Calculated from the data collected from Statistical Yearbook, 1996. Ibid. Journal of Business Research, Vol. 3, 2001 3 3. Profitability of the Different Categories of Banks: A Comparative Analysis Main focus of this comparison on net profit earned by the banks.

Profit ratio, profit per taka of expenditure, profit per employee, profit per branch, profit per advance account, profit per taka of investment, profit per taka of deposit (savings), and per capita profit earned by the banks will be the variables for this analysis. Various groups of banks have different performances in terms of profit. Average measures were calculated for different categories of banks over the period from 1980 to 1995.

Profit Ratio In case of profitability, i. e. amount of profit per Tk. 100 of asset. The ratio indicates the effective utilization of assets.

Performance of the organization can be expressed by this ratio. Average profitability ratios for the various categories of banks during 1980 to 1995 were exhibited in the table below: Table 1: Profit Ratio for Various Banks Banks Profit Ratio (%) NCBs 0. 08 SPBs -0. 32 PCBs 0. 13 TNBs 0. 71 Over all 0. 09 Source: Adopted from data in Appendix – B. The table indicated the performances in terms of utilization of assets in generating profit TNBs were the best. Specialized Banks had a very worst situation in utilizing of their assets, by showing negative average net profit.

Though as of 1990 net profits were increasing positively, but from 1991 to 1995 these net profit were gradually decreased to negative because of their declining income. On the other hand TNBs performance was excellent as compared to overall banks performance. Average growth rate of net profit for TNBs was 39%, which was extremely good.

Profit per Taka of Expenditure Banks earned profit by incurring expenditure for their operations. Effective usage of financial resources led to a commendable profit situation. “How much profit earned by spending one taka” is the measure of efficiency of an organization.

Following table shows net profit per taka of expenditure for the different banks Table 2 : Profit per Taka of Expenditure for Various Banks Banks Profit per taka of expenditure (Tk. ) NCBs 0. 029 SPBs -0. 092 PCBs 0. 033 TNBs 0. 307 Overall 0. 10 Source: Adopted from data in Appendix – B. 4 Banking Sector in Bangladesh: Its Contribution and Performance Over all average profit was Tk. 0. 1 by incurring expenditure of Tk. 1. i. e. average return on expenditure was 10%. But in case of individual performance SPBs had negative average return on expenditure (-9. %), on the other hand TNBs performance (30. 7%) was above the industry average. Other than these two NCBs and PCBs both had vulnerable situation.

Profit per Employee Effective utilization of human resources produces higher return. Earned more profit by few numbers of employee indicates commendable performance of the banks and human efficiency. Since the nature of the industry is service oriented, so human efficiency depends on intellectual abilities of the employees. Following table shows the comparison among various banks Table 3 : Profit per Employee for Various Banks

Banks Profit per employee (Tk. ) NCBs 4,538 SPBs -34,216 PCBs 9,659 TNBs 285,659 Over all 12,88 Source: Adopted from data in Appendix – B. Over all profit per employee was Tk. 12,880, i. e. each employee’s average contribution to the net profit was Tk. 12,880 in a year. TNBs as compared with overall, the figure was extremely good (Tk. 285,659). There are two indications for this picture, one is TNBs had highly efficient employees, and other is less number of employees. On the other hand except SPBs (which had negative figure), NCBs average profit per employee was Tk. ,538, which was far below from TNBs, even below from overall performance, which shows un-utilized human resources.

Profit per Branch All categories of banks have numbers of branches covering wide range of the population of the country. To provide service to the wide range of people, banks have to establish multiple branches. Contribution to the total profit of different branches was varied, depending on the amount of deposits and advances. Table below expresses average profit contribution by the branches. Table 4 : Profit per Branch for Various Banks Banks Profit per branch (Tk. ) NCBs 6,205 SPBs -491,827 PCBs 181,548 TNBs 13,171,737 Over all 210,481 Source: Adopted from data in Appendix – B. 5 Banking Sector in Bangladesh: Its Contribution and Performance Considering all commercial banks in Bangladesh, these were earned on an average Tk. 0. 064 from investing one taka. The average Return on Investment (ROI) was not inadequate (6. 4%) as compared to any business. In case of TNBs this rate was very attractive (12. 7%), but except SPBs, both NCBs and PCBs had 1. 2% and 2. 5% respectively.

Per Capita Profit Commercial banks are operating countrywide by offering services.

Accumulating funds and distributing them to entrepreneur was the main function of commercial banks. Wider area coverage makes the commercial bank more comfortable in terms of operation. Per capita profit earned by the commercial bank would indicate overall economic strength of banking system. Average profit gained per head can be expressed in the table below: Table 7 : Per Capita Profit for Various Banks Banks Per Capita Profit (Tk. ) NCBs 2. 53 SPBs -5. 25 PCBs 1. 46 TNBs 2. 51 Over all 10. 66 Source: Adopted from data in Appendix – B. Average profit per individual in the country for all banks was Tk. 0. 66, i. e. banking sector earns over Tk. 10 per head. But using same coverage for different categories of banks, the picture would be different. In case of NCBs operation they gained on an average Tk. 2. 53 per individual, where as TNBs earned Tk. 2. 51 per head. Apparently these two figures were same but considering the coverage in terms of number of branches, NCBs have 170 time more branches than TNBs. 3. 8 Overall Situation Considering all variables regarding profit, TNBs were doing extraordinarily good operation in this sector. Because of the policies and managements TNBs performance was better.

Keeping TNBs aside, PCBs performance comparatively better. As far as the ownership was concerned both NCBs and SPBs were same. PCBs started their operations in 1982, before the Government of Bangladesh controlled that total financial sector. But after allowing private sectors to operate commercial banks, PCBs were gradually capturing the market share. Surprisingly SPBs had negative performances in every aspect because of their negative net profit. 4. Relationship of Profit With Other Variables In the above section comparison of profitability among various groups of banks has been discussed.

But it was desired to know about the sensitivity of profit on various variables. Journal of Business Research, Vol. 3, 2001 6 Multiple regression analysis has been done to analyze the relationship between net profit as dependent variable and asset, expenditure, number of employees, number of branches, number of advance accounts, investment, time deposit are as independent variables. In this paper it was assumed that the relationship among the variables was linear, which is ? = A + B? + C? + D? + E? + F? + G? + H? where, ? is net profit ? is number of employees ? is amount of expenditure ? is number of branches ? is amount of investment ? is amount of asset ? is amount of time deposit ? is number of advance accounts A is constant The following section expressed the determination of coefficient of the independent variables, which indicate the degree of influences on net profit by corresponding variables. 4. 1 Regression Result Based on data provided in appendix – C, the values of coefficients and constant were calculated and also found the relationship among them.

Multiple linear regression equation is expressed in equation (ii). ? = – 68459+0. 002 ? -0. 186 ? +0. 159? -0. 084? +0. 003? +0. 133 ? -1. 03×10-6?……. (ii) Above linear equation shows that some of the independent variables have positive relationship and others have negative. Amount of expenditure, amount of investment and number of advance accounts all have negative relationship with net profit. On the other hand amount of asset, number of employees, number of branches and amount of time deposit have positive relationship with net profit.

Further, the strength of the relationship among the variables measured by the coefficient of determination (r2). The value was calculated as 0. 89, indicating very strong relationship. Therefore, the independent variables collectively may play important role on earning net profit in the banking sector as a whole.

Scope to Improve of Profit

In the equation (ii), it was evident that some of the independent variables have positive impact on net profit, though the degree of influences was very low. Net profit may increases by increasing values, which have positive relations.

From equation (ii), it was 7 Banking Sector in Bangladesh: Its Contribution and Performance clear that number of employee, number of branches, amount of asset and amount of time deposit have positive relations with net profit. From above relationship, it can be explained that if number of employee increased by one, the net profit will increase by Tk. 0. 002 crores, i. e. every 1,000 employees can contribute Tk. 2 crores to net profit. This indicated that there might be still opportunities to generate employment in this sector and can contribute to the national economy.

Again number of branches has also positive impact on net profit. Equation (ii) reflects that increase in one branch may increase net profit by the amount of Tk. 0. 159 crores, which also testifies that there was still scope to increase branches. In Bangladesh there were opportunities to establish branches in the rural areas where lots of business potentials were looking for the banking service. Another variable the amount of asset has positive relationship with net profit. Even it has very little influences on profit; every Tk. 1,000 crores of assets would increase net profit by the amount of Tk. 3 crores.

Therefore, it was apparent that there was still room to increase the amount of asset to earn more profit. Finally, the amount of time deposit was other variable, which has positive influences on net profit. Coefficient of this variable in equation (ii) was 0. 133, this indicated that every Tk. 1,000 crores increase in time deposit would increase profit by the amount of Tk. 133 crores. Analyzing above relationship, time deposit has stronger influences on net profit. Therefore, banking sector as a whole may increase their contribution to national economy if the amount of time deposit was increased.

Analyzing the regression equation it was clear that some of the independent variables have positive control over the generation of net profit, and also might increase the contribution of the banking sector to national economy by increasing the values of those variables.

Conclusion

The performance of the banking sector in terms of net profit varies in various groups of bank. The study revealed that in every aspect, TNBs had a commendable performance. But comparing among other groups of banks (NCBs, SPBs, and PCBs), PCBs had preferred achievement aiming profit. On the other hand Specialized Banks in Bangladesh had a very poor performance.

This meager activity affected the overall banking sector’s performance. The comparison among various categories of banks has been done on the basis of the profit with respect to some other variables. The study also revealed the relationship among the dependent variable and independent variables. The equation (ii) shows the weights of the independent variables that influences net profit of the banking sector. Finally, the paper intended to identify the scopes and opportunities of the factors by which over all net profit might increase, and contribute to the national economy.

Journal of Business Research, Vol. 3, 2001 8

References

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Banking Sector in Bangladesh: Its Contribution and Performance Appendix – A List of Banks: [a] Nationalized Commercial Banks (NCBs) Agrani Bank Janata Bank Sonali Bank Rupali Bank Ltd. [b] Specialized Banks (SPBs) Bangladesh Krishi Bank Bangladesh Shilpa Bank Rajshahi Krishi Unnayan Bank [c] Private Commercial Banks (PCBs) Arab Bangladesh Bank Ltd. Islami Bank Bangladesh Ltd. National Bank Ltd. The City Bank Ltd. IFIC Bank Ltd. United Commercial Bank Ltd. Pubali Bank Ltd. Uttara Bank Ltd. Al-Baraka Bank Bangladesh Ltd. BSIC Bangladesh Ltd. Eastern Bank Ltd. National Credit and Commerce Bank Ltd.

Prime Bank Ltd. Southeast Bank Ltd. Dhaka Bank Ltd. Al-Arafah Islami Bank Ltd. Social Investment Bank Ltd. Dutch-Bangla Bank Ltd. [d] TNBs Hanil Bank Hongkong Bank Society General Bank American Express Bank Ltd. ANZ Grindlays Bank Plc. S tandard Chartered Bank State Bank of India Habib Bank Ltd. Citi Bank N A Banque Indosuez National Bank of Pakistan Muslim Commercial Bank Ltd. J ournal of Business Research, Vol. 3, 2001 10 Appendix – B Various Data for PCBs Year 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 Advance Assets Net Profit Expenditure Employees Branches