The average weight of American adults increased by about 10 pounds in the 1990s. In November of 2004, it was reported that U.S. airlines spent $275 million more in fuel costs to transport this additional weight. Under what circumstances would this increased cost be an externality of obesity, and under what circumstances would it not be an externality?

You are the manager of Coca-Cola and are facing the effect of a research (published in 2004) that reports that consuming high fructose corn syrup (HFCS) is associated with promoting obesity. Consider the number of news reports and the number of other research papers on this topic that have been published since 2004. This issue is relevant to you because HFCS is the sweetener used in soft drink manufacturing. Then, you are to:

1. What would you do to offset the effect of the HFCS-obesity research on the demand for Coca-Cola? Based on economic theory explain your decision. Explain if your decision is working.

2. Would you increase or decrease price to boost Coke sales? Based on economic theory, explain your choice.

3. Based on economic theory, explain how Coke’s advertising would affect the demand for Pepsi.  

4. Based on economic theory, explain why you would spend a lot of money on.

1. Under IFRS, a discontinued operation must be a: Select one: a. Product line. b. Cash Generating Unit (CGU) c. Product line or Geographic segment. d. Geographic segment.

2.

A company is preparing its bank reconciliation for December 31, 2004 (end of the reporting period). The following verified data are available:

Based on the above data only, the amount for the December 2004 bank reconciliation Deposits in Transit is:

Select one:

a. Insufficient Information Provided

b. 17810

c. 3070

d. 1560

e. 3770

3.

Ambo Inc. earned $200,000 for the current year. This means:

Select one:

a. Ambo's retained earnings must be $200,000 more at December 31 than it was at January 1

b. Ambo's cash increased $200,000 during the year.

c. Ambo's earnings increased Ambo's net assets $200,000 during the year.

d. Ambo's total assets increased $200,000 during the year.

A manufacturer of plastic products spent $2,400,000 during the course of 2004 on research and development. $800,000 of this was spent on an unsuccessful attempt to design new and cheaper moulds which would have lasted twice as long as the moulds currently in use; this proved impossible because the moulds would not sustain the temperature of the molten plastic. $1,200,000 was spent on a very successful project to enable the gnomes to be cast in a cheaper form of plastic, and the remaining $400,000 was spent in the rental, heating and lighting costs of the research and development office.

Required: Advise the manufacturer how the expenditure of $2,400,000 should be treated in the income statement (Statement of Profit & Loss) and balance sheet (Statement of Financial Position). Explain your reasoning carefully and indicate any assumptions you make.

Proterra was founded by Dale Hill in 2004 with a vision to design and manufacture world-leading, advanced technology heavy-duty vehicles powered solely by clean domestic fuels. After launching a first successful fleet of alternative fuel buses in the 1990s, Proterra focused on developing the 'bus of tomorrow.' Proterra Inc. also designs and manufactures heavy-duty vehicles including EcoRide, a battery electric and zero-emissions bus, and Proterra Catalyst, an electric transit vehicle. The company manufactures a TerraFlex Energy System that enables customers to select amount and type of energy storage to meet specific route requirements, plus TerraVolt fast-charge batteries, TerraVolt extended range batteries, an on-route charge station and in-depot charging services. It offers financing solutions, route simulation analysis, battery lifecycle management, and standard warranty services (Proterra, 2015). It serves customers throughout the United States. The company is privately owned, but is in the process of becoming a public corporation. With this expectation, the firm's chief executive officer (CEO) has asked for determination of which of two companies appears to be a better peer to compare itself against, New Flyer Industries, Inc. (a Toronto-based firm), or Tesla. Tesla Motor Vehicles designs, develops, manufactures, and sells high-performance fully electric vehicles and stationary energy storage units similar to certain Proterra products. Tesla Motors has subsidiaries in North America, Europe and Asia, with the primary purpose of these subsidiaries being to market, manufacture, sell and/or service their vehicles (Tesla Motors, 2016). New Flyer was founded in 1930, and is now the largest transit bus and motorcoach manufacturer and parts distributor in North America with fabrication, manufacturing, distribution and service centers in Canada and the United States. It is North America's heavy-duty transit bus leader and offers clean diesel, natural gas, diesel-electric hybrid, electric-trolley and battery-electric. Information regarding Tesla and New Flyer is given here, for your use in comparing these firms.

Tesla Versus New Flyer

Significance

Measure

TSLA

NFI

Total Market Value of all outstanding shares.

Market capitalization

33.63B

1.831B

Number of outstanding shares currently held by all shareholders.

Outstanding shares of stock

147.28M

59.742M

A Beta coefficient indicates the systemic risk that an asset has relative to an average asset. A risk-free asset has a Beta of zero.

Beta

1.28

0.16

The return the firm must earn on its existing assets to maintain the value of its stock, and the required return on any investments by the firm that have essentially the same risks as existing operations.

WACC

9.03%

8.34

PE ratio divided by expected future earnings growth (after multiplying the growth rate by 100).

PEG Ratio

18.47

0.5

A measure of profit per dollar of assets.

ROA

-7.04%

6.26%

A measure of how the stockholders fared during the year.

ROE

-113.20%

13.21%

A measure of how much investors are willing to pay per dollar of current earnings. Higher PEs are often taken to mean the firm has significant prospects for future growth.

P/E Ratio

-29.17

25.3

Ratio of Net income to sales.

Profit Margin

-23.91%

-3.83%

References

Bloomberg. United States rates and bonds.

Federal Reserve. (2016). Federal Reserve economic data.

Korosec, K. (2015). This startup is gearing up to be the Tesla of electric buses. Fortune Magazine.

Proterra. (2015). About Proterra.

Securities and Exchange Commission. (n.d.) SEC.gov home.

Tesla Motors. (2016). Tesla Motors, Inc. 2016 annual report.

Yahoo. (n.d.) Yahoo finance.

Assume that you are the finance manager for Proterra and you have been asked to provide an analysis of the following issues, as the firm develops benchmarks for its cost of capital (WACC) estimates. The firm's CEO has instructed you to use the pure play approach to estimate its WACC cost of capital, and has chosen Tesla Motors (ticker symbol TSLA) and New Flyer (ticker symbol NYI.TO) as possible representative peers (Korosec, 2015).

QUESTION: Analyze the relative applicability or inapplicability of utilizing these firms as peers to evaluate Proterra's likely cost of capital, with the given above data about Proterra, Tesla and New Flyer, and the lessons of Capital Market History.

QUESTION ONE:

In 2004, the IASB and FASB signed a MoU (Memorandum of Understanding) to achieve convergence of their Conceptual Frameworks.

Required:

Discuss to what extent you believe that a Conceptual Framework is needed. Critically discuss the efforts made by international regulators to amend the contents and elements of this Framework in order to enhance its usefulness.

QUESTION 2

The European Commission has in its latest update issued on 13 December 2016 stated the following: “Large public-interest entities (listed companies, banks, insurance undertakings and other companies that are so designated by Member   States) with more than 500 employees should disclose in their management report relevant and useful information on their policies, main risks and outcomes relating to at least:

• environmental matters,
• social and employee aspects,
• respect for human rights,
• anti-corruption and bribery issues,
• diversity in their board of directors.

There is significant flexibility for companies to disclose relevant information (including reporting in a separate report), as well as they may rely on international, European or national guidelines (e.g. the UN Global Compact, the OECD Guidelines for Multinational Enterprises, ISO 26000, etc.).”

Required:

With reference to the above EC extract, discuss to what extent you believe that it is important for firms to provide information on non-financial performance. Explain how such information could be disclosed in public-interest entities’ annual reports.

QUESTION 3

‘IAS19, Employee Benefits, was introduced to improve the quality of reporting for companies who sponsored defined benefit pension schemes. However, the unintended consequences of the introduction of IAS 19 may have a significant impact on both future pensioners and for the State.’

Required:

Discuss to what extent you agree with the above comments.

QUESTION 4

‘IFRS 9, Financial Instruments, which will replace IAS 39, Financial Instruments: Recognition and Measurement, is effective for periods beginning on or after 1 January 2018…[and] will lead to significant changes in the accounting for financial instruments.’

Barclays plc, Annual report 2015, p261.

Required:

Discuss to what extent you believe that these ‘significant changes’ will result in improvements in the transparency and usefulness of the financial statements of banks and other financial institutions.

QUESTION 5‘This article has considered how [Social and Environmental Accounting] SEA is perceived and constructed within three very different frames of reference. It has highlighted the tensions and contradictions among the various social actors that have an interest in this field. In doing so we hope that we have provided a more complete picture than accounts that focus on a single frame of reference. SEA is an interpretively complex field. These competing perspectives – business case, stakeholder accountability and critical theory – have important implications for the social realities we construct, embed or seek to change’ (Brown & Fraser, 2006).

Brown, J., & Fraser, M. (2006). Approaches and perspectives in social and environmental accounting: an overview of the conceptual landscape. Business Strategy and the Environment, 15(2), 103-117.

Required:

As stated in the above quote, Brown and Fraser (2006) identify three perspectives on Social and Environmental Accounting. You are required to critically evaluate the key assumptions of the three case studies presented, and discuss their differences providing relevant ‘real-life’ examples.

QUESTION 6‘The [IASBs] due process procedures were not the objective, transparent, and representative measures they are claimed to be. Rather, the due process provided a forum within which powerful and self-interested constituents and constituent coalitions could contribute to and capture the standard-setting process in order to secure favourable regulation …’ (Cortese et al., 2010. 85)

Cortese, C. L., Irvine, H. J., & Kaidonis, M. A. (2010). Powerful players: How constituents captured the setting of IFRS 6, an accounting standard for the extractive industries. Accounting Forum, 34, 2, pp. 76-88.

Required:

In light of the above quote, critically evaluate the role of the IASB, considering the issues and benefits of their processes.

QUESTION 7

‘It is 25 years since LCP started publishing the analysis of FTSE 100 pension disclosures. Much has changed since then. In 1993, virtually all FTSE 100 companies offered final salary pensions to their new hires; now not a single one does. For some companies, the financial position of the pension scheme vitally affects the health of the company.’

LCP 2018, p2. LCP, Accounting for Pensions - Spring 2018.

Required:

Discuss to what extent you believe that the introduction of IAS19, Employee Benefits, has been responsible for the decline and abolition of the defined benefit schemes of many companies.

QUESTION 8

The IASB has based IFRS9, Financial Instruments, on a mixed model approach. This model requires companies to normally report equity-based and debt-based financial instruments under different methods.

Required:

Carefully explain the aims of IFRS9 and discuss the nature and application of the classification ‘tests’ involved in applying this ‘mixed-model’ reporting.

[In your answer you should also discuss whether adoption of a ‘single model’ approach would usefully simplify the reporting of financial instruments.]

QUESTION 9

Benston, Bromwich and Wagenhofer (2006) argued that as the SEC moves towards a principles-based approach a major ‘…the shortcoming is the dismissal of a true-and-fair override that we argue is a necessary requirement for any standard-setting approach’.

Required

Discuss the extent to which the true and fair override is necessary for standard-setting and financial reporting.

QUESTION 10

Bengtsson (2011) argued that “the global financial crisis contributed to a Repoliticization of accounting standard-setting… since the crisis, a rebalancing of power has occurred, where political actors have gained influence at the expense of other stakeholders”.

Required:

Discuss the influence that the Global Financial Crisis had on the IASB and the extent to which you agree that there has been a rebalancing of power since the crisis.

QUESTION 11

‘… accounting played a part in the pension change [from a defined benefit to a defined contribution scheme]. For example, the way pensions were accounted for (by)…IAS 19 (Accounting for Employee Benefits), leading to particular disclosures in the balance sheet, motivated the change. Companies were concerned about the impact of the liabilities disclosed on the face of the balance sheet arising from pension deficits and the image this portrayed of financial stability’. p34.

[Josiah, J. et al (2014), Corporate Reporting Implication in Migrating from Defined Benefit to Defined Contribution Pension Schemes: A Focus on the UK. Accounting Forum, 38(1) 18-37.]

Required:

Discuss to what extent you believe that accounting regulators are responsible for many organisations changing their provision of employee pensions from defined benefit to defined contribution schemes. In addition, explain what you consider may be the financial and social implications of this move to defined contribution schemes for employees on retirement.

QUESTION 12

IFRS 9, Financial instruments, which became applicable on 1^st January 2018 is based on a ‘mixed measurement’ model for the reporting of both equity-based and debt-based assets and liabilities.

Required:

1. Discuss what you understand by this ‘mixed measurement model’ and explain the nature of the two tests that assist in determining the reporting of different categories of financial assets and liabilities.
2. Explain how and why IFRS9 has introduced changes to the reporting of companies’ ‘own credit adjustments’ (debt valuation adjustments) for financial liabilities.

Proterra was founded by Dale Hill in 2004 with a vision to design and manufacture world-leading, advanced technology heavy-duty vehicles powered solely by clean domestic fuels. After launching a first successful fleet of alternative fuel buses in the 1990s, Proterra focused on developing the 'bus of tomorrow.' Proterra Inc. also designs and manufactures heavy-duty vehicles including EcoRide, a battery electric and zero-emissions bus, and Proterra Catalyst, an electric transit vehicle. The company manufactures a TerraFlex Energy System that enables customers to select amount and type of energy storage to meet specific route requirements, plus TerraVolt fast-charge batteries, TerraVolt extended range batteries, an on-route charge station and in-depot charging services. It offers financing solutions, route simulation analysis, battery lifecycle management, and standard warranty services (Proterra, 2015). It serves customers throughout the United States. The company is privately owned, but is in the process of becoming a public corporation. With this expectation, the firm's chief executive officer (CEO) has asked for determination of which of two companies appears to be a better peer to compare itself against, New Flyer Industries, Inc. (a Toronto-based firm), or Tesla. Tesla Motor Vehicles designs, develops, manufactures, and sells high-performance fully electric vehicles and stationary energy storage units similar to certain Proterra products. Tesla Motors has subsidiaries in North America, Europe and Asia, with the primary purpose of these subsidiaries being to market, manufacture, sell and/or service their vehicles (Tesla Motors, 2016). New Flyer was founded in 1930, and is now the largest transit bus and motorcoach manufacturer and parts distributor in North America with fabrication, manufacturing, distribution and service centers in Canada and the United States. It is North America's heavy-duty transit bus leader and offers clean diesel, natural gas, diesel-electric hybrid, electric-trolley and battery-electric. Information regarding Tesla and New Flyer is given here, for your use in comparing these firms.

Tesla Versus New Flyer

Significance

Measure

TSLA

NFI

Total Market Value of all outstanding shares.

Market capitalization

33.63B

1.831B

Number of outstanding shares currently held by all shareholders.

Outstanding shares of stock

147.28M

59.742M

A Beta coefficient indicates the systemic risk that an asset has relative to an average asset. A risk-free asset has a Beta of zero.

Beta

1.28

0.16

The return the firm must earn on its existing assets to maintain the value of its stock, and the required return on any investments by the firm that have essentially the same risks as existing operations.

WACC

9.03%

8.34

PE ratio divided by expected future earnings growth (after multiplying the growth rate by 100).

PEG Ratio

18.47

0.5

A measure of profit per dollar of assets.

ROA

-7.04%

6.26%

A measure of how the stockholders fared during the year.

ROE

-113.20%

13.21%

A measure of how much investors are willing to pay per dollar of current earnings. Higher PEs are often taken to mean the firm has significant prospects for future growth.

P/E Ratio

-29.17

25.3

Ratio of Net income to sales.

Profit Margin

-23.91%

-3.83%

References

Bloomberg. United States rates and bonds.

Federal Reserve. (2016). Federal Reserve economic data.

Korosec, K. (2015). This startup is gearing up to be the Tesla of electric buses. Fortune Magazine.

Proterra. (2015). About Proterra.

Securities and Exchange Commission. (n.d.) SEC.gov home.

Tesla Motors. (2016). Tesla Motors, Inc. 2016 annual report.

Yahoo. (n.d.) Yahoo finance.

Assume that you are the finance manager for Proterra and you have been asked to provide an analysis of the following issues, as the firm develops benchmarks for its cost of capital (WACC) estimates. The firm's CEO has instructed you to use the pure play approach to estimate its WACC cost of capital, and has chosen Tesla Motors (ticker symbol TSLA) and New Flyer (ticker symbol NYI.TO) as possible representative peers (Korosec, 2015). You will deliver your analysis in the form of a memo, or formal communication addressed to the firm's CEO. In this discussion, you are to present this memo in which you:

QUESTION:

Using the information provided here and speaking of Finance Director of Proterra, brief the firm's CEO, analyzing: Analyze the relative applicability or inapplicability of utilizing these firms as peers to evaluate Proterra's likely cost of capital, given what you know about Proterra, Tesla and New Flyer, and the lessons of Capital Market History.

In the 2004 baseball season, Ichiro Suzuki of the Seattle Mariners set the record for most hits in a season with a total of 262 hits. In the following probability distribution, the random variable X represents the number of hits Ichiro obtained in a game.

1. What is the probability that in a randomly selected game, Ichiro got at least 3 hits? =.2112
2. Compute the mean of the random variable X. (round to two decimal places) =1.63
3. Compute the standard variation of the random variable X. (round to two decimal places) =1.18

4) What would be the upper limit of range that would include the number of hits Ichiro obtained in 75% of the games?

The Kaiser Family Foundation commissioned an extensive survey in 2004 that investigated the degree to which American youth from ages 8-18 have access to various forms of media. They distributed written questionnaires to a random sample of 2032 youths in this age range. One of the many questions asked youths about whether or not they have a television in their bedroom, to which 68% answered yes. Additionally, 49% reported having a video game player and 31% reported having a computer in their bedroom.  

Determine a 95% confidence interval for the population proportion of American youths who have a video game player in their bedrooms. Report the lower endpoint of the interval.

Determine a 95% confidence interval for the proportion who have a computer in their bedrooms. Report the upper endpoint of the interval.

Find and report the margin of error for the 95% confidence interval for the proportion of American youths with a computer in their bedrooms.

In late 2004 and early 2005, the price of raw coffee beans jumped as much as 50% from the previous year. In response, the price of roasted coffee rose about 14%. Similarly, in late 2014 and early 2015, the price of raw beans fell by about 25%, yet the price of roasted coffee fell by only a few percentage points. Why did the roasted coffee price change less than in proportion to the rise in the cost of raw beans?