Question

Dixon Ltd acquired all the assets and liabilities of Nemo Ltd a number of years ago when it took over that company’s operations.

Dixon Ltd has always marketed itself as operating in an environmentally responsible manner, and is an advocate of sustainable fishing. The public regards it as a dolphin-friendly company as a result of its previous campaigns to ensure dolphins are not affected by tuna fishing.

The marketing manager of Dixon Ltd has noted the efforts of the ship, the Panamax, to disrupt and hopefully stop the efforts of Japanese whalers in the Pacific Ocean and the publicity that this has received. He has recommended to the board of directors that Dixon Ltd strengthen its environmentally responsible image by guaranteeing to repair any damage caused to the Panamax as a result of attempts to disrupt the Japanese whalers. He believes that this action will increase Dixon Ltd.’s environmental reputation, adding to the company’s goodwill. He has told the board that such a guarantee will have no effect on Dixon Ltd.’s reported profitability. He has explained that, if any damage to the Panamax occurs, Dixon Ltd can capitalise the resulting repair costs to the carrying amounts of its brands, as such costs will have been incurred basically for marketing purposes. Accordingly, as the company’s net asset position will increase, and there will be no effect on the statement of profit or loss and other comprehensive income, this will be a win-win situation for everyone.

The chairman of the board knows that the marketing manager is very effective at selling ideas but knows very little about accounting. The chairman has, therefore, asked me to provide him with a summary advising the board on how the proposal should be accounted for under the Financial Reporting Standards and how such a proposal would affect Dixon Ltd.’s financial statements.

Answer 1

Sustainable fishing guarantees there will be populations of ocean and freshwater wildlife for the future. Aquatic environments are home to countless species of fish and invertebrates, most of which are consumed as food. (Others are harvested for economic reasons, such as oysters that produce pearls used in jewelry.) Seafood is respected all over the world, in many diverse cultures, as an important source of protein and healthy fats. For thousands of years, people have fished to feed families and local communities.

Demand for seafood and advances in technology have led to fishing practices that are depleting fish and shellfish populations around the world. Fishers remove more than 77 billion kilograms (170 billion pounds) of wildlife from the sea each year. Scientists fear that continuing to fish at this rate may soon result in a collapse of the world’s fisheries. In order to continue relying on the ocean as an important food source, economists and conservationists say we will need to employ sustainable fishing practices.

Consider the example of the bluefin tuna. This fish is one of the largest and fastest on Earth. It is known for its delicious meat, which is often enjoyed raw, as sushi. Demand for this particular fish has resulted in very high prices at markets and has threatened its population. Today’s spawning population of bluefin tuna is estimated at 21 to 29 percent of its population in 1970.

Since about that time, commercial fishers have caught bluefin tuna using purse seining and longlining. Purse seine fishing uses a net to herd fish together and then envelop them by pulling the net’s drawstring. The net can scoop up many fish at a time, and is typically used to catch schooling fish or those that come together to spawn. Longlining is a type of fishing in which a very long line—up to 100 kilometers (62 miles)—is set and dragged behind a boat. These lines have thousands of baited hooks attached to smaller lines stretching downward.

Thus due to rising awarnss about ecosensitivity among consumers as well as on Government level we can say that Dixon Ltd has good market opportunities due to its environment support attitude and hence Marketing Manager's expectations are worh noting. Only the things are as an accoutant we need to present these facts and figures in proper format accepatable to all.

Let us discuss in detail what is the right way to present the accounting info which will evaluate the proposal in most proper way.

Financial statements provide the raw data for analysis and valuation exercises. In fall 2005, the CFA Institute’s Centre for Financial Mar- ket Integrity issued for comment an important new monograph, A Comprehensive Business Reporting Model: Financial Reporting for Investors. Pub- lished in July 2007, this elaborate, formal portrayal of professional investors’ information needs appeared after a joint Financial Accounting Standards Board (FASB)/International Accounting Standards Board (IASB) project on income statement display began in April 2004. That joint effort quickly became the Finan- cial Statement Presentation Project, a comprehensive consideration of the form and content of a complete set of business enterprises’ general-purpose financial state- ments described most fully in a 2008 FASB Discussion Paper, “Preliminary Views on Financial Statement Pre- sentation.” We examine these developments and relate them to business valuation. We also examine several alternatives for reporting disaggregated financial state- ment data, including some voluntary public company disclosures that disaggregate reported data in innovative ways relevant to the valuation process. In addition, we provide an assessment of the formal proposals and the voluntary disclosures in a valuation context and suggest priorities to be pursued going forward. The principles underlying business valuation are well-founded in discounted cash flow techniques: analyze the historical operating performance of the tar- get company, project future operating cash flows after considering anticipated operating enhancements, and discount those estimated flows at the firm’s cost of capi- tal. Acquisition value is driven by the projected perfor- mance of the underlying business—revenue growth, operating margins, operating tax rates, working capital needs, and capital investment requirements. Compa- nies’ general purpose financial statements provide the starting point for most valuation data-gathering exercis- es that forecast cash flow or residual income. We exam- ine the extent to which recent financial reporting display proposals and other innovative voluntary disclo- sures offer improved information for business valuation. This should be of interest to professional investors, financial statement preparers, and standards setters committed to the usefulness of financial statement information.