A company purchased a piece of manufacturing equipment for $30,000 on January 1, 2018. At that time, the company estimated the equipment would have a 7-year useful life and no salvage value. The company used straight-line depreciation based on this information through 2019. On December 31, 2020, the company determined the equipment instead has a 10-year useful life, with no salvage value. The company’s tax rate has been 30% since 2015.

What is the necessary adjustment to beginning retained earnings in 2020 for this change?

In January 1, 2015, Springfield Company acquired an 80% interest in Lincoln Company for a purchase price that was $350,000 over the book value of Lincoln’s Stockholders’ Equity on the acquisition date. Spring uses the equity method to account for its investment in Lincoln. Springfield assigned the acquisition-date AAP as follows:

Lincoln sells inventory to Springfield (upstream) which includes that inventory in products that it (Springfield), ultimately, sells to customers outside of the controlled group. You have compiled the following data as of 2020 and 2021:

The inventory not remaining at the end of the year has been sold outside of the controlled group.

Springfield and Lincoln report the following financial statements at December 31, 2021:

Required:

a.   Compute the EOY non-controlling interest equity balance.

b.   Prepare the consolidation spreadsheet on the acquisition date.

In January 1, 2015, Springfield Company acquired an 80% interest in Lincoln Company for a purchase price that was $350,000 over the book value of Lincoln’s Stockholders’ Equity on the acquisition date. Spring uses the equity method to account for its investment in Lincoln. Springfield assigned the acquisition-date AAP as follows:

Lincoln sells inventory to Springfield (upstream) which includes that inventory in products that it (Springfield), ultimately, sells to customers outside of the controlled group. You have compiled the following data as of 2020 and 2021:

The inventory not remaining at the end of the year has been sold outside of the controlled group.

Springfield and Lincoln report the following financial statements at December 31, 2021:

Required:

a.   Compute the EOY non-controlling interest equity balance.

b.   Prepare the consolidation spreadsheet on the acquisition date.

Ewig Berhad acquired 800, 000 out of the 1, 000, 000 RM1 ordinary shares of Leben Berhad on 1 January 2020 for RM900, 000 cash. The general reserves and retained earnings of Leben Berhad at the date of acquisition were RM400, 000 and RM250, 000 respectively.

Required:

(a) What is the percentage of acquisition by Ewig Berhad?

(b) What is the corporate relationship in this situation?

(c) Based on MFRS 10, briefly explain whether Ewig Berhad exercises control over Leben Berhad.

(d) Assuming the proportional net asset method is used, what is the fair value of the NCI?

(e) What is the goodwill or bargain purchase?

Traxonia Railroad Inc. has three regional divisions organized as profit centers. The chief executive officer (CEO) evaluates divisional performance, using income from operations as a percent of revenues. The following quarterly income and expense accounts were provided from the trial balance as of December 31, 2016:

The company operates three service departments: Shareholder Relations, Customer Support, and Legal. The Shareholder Relations Department conducts a variety of services for shareholders of the company. The Customer Support Department is the company’s point of contact for new service, complaints, and requests for repair. The department believes that the number of customer contacts is an activity base for this work. The Legal Department provides legal services for division management. The department believes that the number of hours billed is an activity base for this work. The following additional information has been gathered:

1. We have two potential designs for the homepage of our website, but we don’t know which one to use. The CEO likes one, and the CRO (Chief Revenue Office) likes another. Half the company likes one, and the other half of the company likes the other. Which one should we use?

2. Let's say you have an Excel spreadsheet with 10,000 leads from a few months back -- long enough that those leads' sales cycle has passed. The file contains information about each lead, like their industry, title, company size, and what they did to become a lead (like downloading an ebook). Also in the file is whether they closed as a customer and how much their order was for. Can you use this information to create a lead score? How would you do it?"

Question 6 Part a:

Which of the following are examples of genetic drift?

A) founder effect

B) natural selection

C) bottleneck effect

D) migration

Group of answer choices

A. Both A) and B) are examples of genetic drift

B. both B) and D) are examples of genetic drift

C. Both A) and C) are examples of genetic drift

D. all of these are examples of genetic drift

________________________________________________________________________________

Question 6 Part b:

Which of the following causes changes to populations that are beneficial?

A) founder effect

B) natural selection

C) sexual selection

D) migration

Group of answer choices

A. Both A) and C) are examples of genetic drift

B. both C) and D) are examples of genetic drift

C. Both A) and B) are examples of genetic drift

D. B) and C) causes changes that are beneficial

E. all of these are things that cause beneficial traits

Henry Doyle the president of King’s sugar is evaluating the addition of a new sugar-processing mill, to make white sugar, and eliminate the need to buy white sugar from its competitor, Kennard’s sugar company. King’s sugar makes brown sugar only, but would need a mill to process the brown sugar into white sugar. Kennard’s company produces white sugar from the raw sugar cane. Doyle believes that the new mill will bring in additional revenues and reduce operating costs. The competitor had excess capacity of white sugar that it sells to other sugar mills. Therefore, building the new mill would compete with Kennard’s mill. The new mill will cost $20 million in addition to the working capital requirements. Henry Doyle is wondering whether the investment can be justified. The project is expected to be 6 years until 2025.

The construction of the mill will take two years. $18 million will be spent in 2019, and $2 million in 2020. It is expected that when the plant start operating fully in 2020, the company’s operating costs will be reduced because the savings will be derived from the cost differences of producing versus buying white sugar from Kennard’s mill. The cost savings will be $ 2.8 million in 2020 and $ 3.7 million for the next five years. The company uses 15 % as the cost of capital. The following are the financial projections for the new mill.

Net working capital (10% of incremental sales)

SG&A (5% sales)

Taxes 40%

Answer all of the questions.

1. What is the net present value (NPV) and internal rate of return (IRR) for the investment?
2. What is the payback period of the project?
3. Would you recommend that King’s sugar go ahead with making this investment? Why?

SWOT analysis is a strategic planning technique for analyzing strengths, weaknesses, opportunities and threats faced by an organization. Based on the case study, prepare a SWOT analysis for Al-Ikhsan.

CASE STUDY
Source: The Star Online, New Straits Times
THE economy may be slowing and the retail industry is going through a rough patch, but Al-Ikhsan Sports Sdn Bhd believes this is as good a time as any for it to shine. “The economy is soft, even globally. I think Malaysia is fairly stable in that sense. When the economy faces rough weather, that’s when the true strength of retailers can be seen. “When the economy does well, everyone does well. You can hide your inefficiencies and all that. But if you can grow your business when the economy is down, it shows the strength of the company. As the economy gets tougher, Al-Ikhsan will become more relevant,” says chief executive officer Vach Pillutla. At a time when most businesses are looking to downsize their physical presence, Al-Ikhsan is looking at ways to expand its number of outlets. The company currently has 131 stores under five different retail models, namely, the Al-Ikhsan Sports chain (116 outlets), Sports Warehouse (4), Football Republic (6), Sneaker Street (2) and Factory Outlets (3). The homegrown sports retailer has carved a name for itself in the market by selling products from international sporting brands such as Nike, Adidas, Puma and Umbro at an affordable price. Pillutla says it is planning to open 12 to 14 new doors every year, with 80% of its expansion plans focused on the entry- to mid-level concept. Although the retail industry has become increasingly competitive, he notes that the company’s advantage in staying ahead of the pack is its core mission to stay affordable.
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“Our core purpose will keep us going for the next few years. As long as we are able to communicate our core purpose properly to consumers, I think they will keep coming back,” he says. Tapping the bottom As consumers become a little more tight-fisted, retailers have been trying to diversify into either the more premium or niche markets to maintain margins and profitability. Pillutla notes that unlike most emerging markets, the local retail space has two very distinct segments: the high-end and entry-level segments. “Most emerging markets have a very big middle-class segment. It works like a typical pyramid, where the well-heeled consumers make up the smaller segment at the top and the entry level is much bigger. As the economy grows, the middle-class will expand and other consumers will aspire to move up the pyramid. “Malaysia is different in the sense that people are either at the top end or at the entry level. There’s very little middle-class. So brands and retailers who try to stay in the middle of the spectrum don’t do well because consumers who see a middle-class brand are either willing to trade up or trade down. So you either have to be at the upper-end or lower-end of the market, ” he explains. Hence, he believes that there is also money to be made at the bottom of the pyramid. “People at the bottom of the pyramid are also aspirational. They, too, want things and if you can make it affordable for them, you can tap that market. Consumers are the king. So we have to keep our brand focus and give them what they want,” he adds. Although margins may be thinner at the entry-level, Al-Ikhsan has a variety of retail concepts which can be pushed out to meet the needs of the market it is in and grow its volume. Pillutla says its Sports Warehouse brand, for example, which focuses on entry-level consumers, is a concept that still has legs to go, particularly in smaller towns. “Wherever that has a catchment of 50,000 people, we can do any one of our concepts. We started the Warehouse this year and it has shown very strong results so far. We can
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see another 35 to 40 Sports Warehouse outlets over the next three to five years. Our next position is to move down, deeper,” he says. That said, he maintains that Al-Ikhsan also has enough variety of products to cater to a wider range of consumers. “Our stores have products from different brands. We can have prices for certain products that go up to RM600. So while we make products affordable to consumers, we are also able to sell them at a certain level of prices if the brand can command that price. In that way, we can cater to a wider range. “But we always try to stay to our core purpose, to stay affordable. We are about making Malaysia fit and active since 1993 by making brands affordable to consumers. That is our strength and our core purpose. It cannot go away.” Al-Ikhsan was founded by Ali Hassan Mohd Hassan in 1993 in a small shop in Holiday Plaza, Johor. His entrepreneurial pursuit had started earlier on as a student in Universiti Teknologi Malaysia to fund his studies. He sold trinkets and such and managed to graduate with a diploma. When he started the business, he was diligent to ensure that he maximised every opportunity to keep sales going. He built a good rapport with his customers and kept his sports products affordable. Ali Hassan’s success in growing Al-Ikhsan was obvious when the retailer caught the eye of government-linked private equity firm Ekuinas, which bought a 35% stake in the company in 2016. Ali Hassan and his wife still holds the remaining 65% of the company and he has stayed on as its chairman. Pillutla thinks the company is only halfway through “what we are really capable of doing”. As long as the sports industry continues to grow, Al-Ikhsan will be able to grow in tandem. He adds that its retail concepts are also applicable to any emerging market, making it easier for it to expand overseas when the time is right.
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On the horizon Over the next three years, the company will continue to expand into tier-2 and -3 cities. It will also continue its focus on the entry-level concept stores like the Sports Warehouse. Another thing that the company will be paying close attention to in the coming years is its private label. Pillutla hopes to make its private label and licences more relevant to the masses as he views this as a good channel for Al-Ikhsan to have a deeper engagement with its consumers. “We want to create products that consumers want. I think our house brand can grow to be a significant brand pillar for us, maybe making up to 30% of the brands we have,” he says. With these strategies in place, the retailer is aiming to keep its double-digit growth every year – a target that Pillutla says is “absolutely achievable”. “That’s the job of professional CEOs like us. There’s a limit to what founders and entrepreneurs can do for a company because the thing about professional CEOs is that we don’t think from our hearts. “We see opportunities, we look at our current capabilities and we think in terms of how we can build that capability for future growth. We are a bit disconnected, so we don’t make decisions based on emotions. But that is not to say that one is right and one is wrong. It is just a way of working. “In business, you need data and experience to take a very informed action, so that you’ll have stronger chances of success. And we believe we have a formula here,” he says. “The challenge for us is more internal. We are no longer small. And we need to continue to drive and align our people towards our mission. As long as we understand our core, we can have market share,” he says.If all goes well, the company is eyeing listing plans in two to three years’ time. The company’s three concepts – Al-Ikhsan, Football Republic and Sneakers Street – are vital to promote sustainable growth for its retail sports business in order to mitigate the seasonal impact.
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“Our three concepts are catered for entry to mid-level consumers and up to high-end consumers. Football Republic is a specifically designed for personalisation or customisation of football’s boots and attire, targeting professional amateur players or fans”. “Sneakers Street category is a sports lifestyle concept that offers affordability for sneakers and accessories to consumers,” he said. Pillutla said the company aspires to have stability in its business earnings with promising growth for long-term sustainability, while adapting to the current market needs. “We want to aggressively expand our market reach, especially in East Malaysia and outside the country with about eight stores are expected to be opened this year. “For long-term expansion plan, we target to open up to 30 stores by 2021,” he said, adding that this would allow the company to reach about 145 Al-Ikhsan stores nationwide. Pillutla said the company also plans to open 15 Sneakers Street stores in the next three years, with initial four stores to be opened this year, followed by additional five Football Republic stores in the future from the current five stores. He said Al-Ikhsan is currently in the discussion with various parties to expand its business in other market in Southeast Asia region, while providing numerous choices to consumers. “We have ‘reasonable’ allocation for capital expenditure (capex) as it will be financed internally. The cost of each store will typically be depended on its size and location,” he said, citing that it is important for the company to have single-digit or lowest double-digit rent-to-sales ratio. Pillutla said capex should not be extremely high as the company on its self-sustaining mode to generate sustainable earnings, while reducing its debt. The company’s inventories is also important to keep its earnings healthily to avoid inventories not age beyond certain points. “We will also embark on digital platform – Omni Channel – to complement our existing retail stores. This allows customers to choose and buy our products virtually through
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mobile app or online platform. The initiative would also enhance our efficiency and productivity, as it easily helps us to monitor our inventories,” he said. "Our commitment is to keep Malaysia fit and active by making sports affordable for all. We also need to understand consumers well and must change ourselves based on what consumers want,” he said in a media interview here recently. Al-Ikhsan will launch a new e-commerce online platform (website) next month, a move that will help the company become a global player in the sports retail segment. “We are ranked 64th largest sports retailer in the world. Therefore, when consumers look at us, they don’t just perceive us as a Malaysian company but rather benchmark us as a global player,” Pillutla said. “I don’t think, even our founder Tuan Haji Ali, thought that we could reach this stage,” says Vach Pillutla, Chief Executive Officer of Al-Ikhsan from his office at Taman Tun Dr Ismail. The company, with its various concept outlets, is by far the largest sports retailer in Malaysia, commanding over 20 percent market share in the sports equipment, apparel and footwear segment. “Ten million people have walked through our doors every year. To put things into perspective, almost one third of the Malaysian population visited Al-Ikhsan stores.” He expects Al-Ikhsan’s e-commerce platform to contribute about 5.0 per cent of the total sales over three years. “In general, the overall retail sector grows about 4.0 per cent to 5.0 per cent annually, while the sports retail around 8.0 per cent to 9.0 per cent. “Globally, most markets are likely to remain stagnant but I think Malaysia continues to perform quite well in sports retail,” he said. He also said Al-Ikhsan continued to learn about consumers and offered products and services at prices preferred by customers. “As long as we continue to pursue it, we are not worry about competitions. For the next three years, we intend to open up to 14 stores annually in the Peninsular Malaysia with
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concepts including Football Republic and Sneakers Street, depending on the market and catchment to match consumers’ demand,” he said. He did not divulge further on how much capital the company would invest, saying that it had sufficient money to fork out internally. As stated earlier, Ekuiti Nasional Bhd (Ekuinas) acquired a 35 per cent stake in Al-Ikhsan in July 2016 for RM68.6 million. Ekuinas chief executive officer Syed Yasir Arafat Syed Abd Kadir said the first two years since the partnership with Al-Ikhsan were about stabilising the company, in particular improving its back-end support. “We need to ensure that we have strong back-end processes before exploring growth. We focus on effective resource planning - an inventory software system - as well as execute strategic business plans, recruit the right talent and strengthen existing brands under us,” he said. Syed Yasir Arafat said it was important for the government-linked private equity fund manager to strengthen Al-Ikhsan’s foundation and expand in certain areas, while offering different products not only active brands but promoting in-house products. “We have about 30 brands under Al-Ikhsan. We employ around 1,200 staff and command about 30 per cent local market share in multi-retailer segment.” Syed Yasir added that since Ekuinas invested in Al-Ikhsan, the former had managed to more than recoup its investment. “From Ekuinas’ perspective, Al-Ikhsan has strong liquidity and sufficient cashflow to grow, with good inventory management. Hence, Al-Ikhsan doesn’t require further capital injection to expand further,” he added. Al-Ikhsan founder and chairman Ali Hassan Mohd Hassan believes the sports retail business was growing with abundance of opportunities locally. “We are investing about RM1mil in each new outlet, inclusive of renovation and stocks.” Ali Hassan said strengthening the company’s position in the local sports goods retailing segment would discourage foreign companies from taking over the domestic market.
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He said it was important to stop these companies from expanding in Malaysia, as local players should be given the opportunities. He said prospects for sports goods in Malaysia were bright as the goods sold here were the second cheapest in the world after the US. Ali Hassan said by having a formidable presence in the urban and rural areas, it would be almost impossible for foreign sports goods retailers to gain a strong footing here. He said the company catered to customers who were serious in sports and those who were into sports fashion. He said Malaysians were brand conscious and more customers were willing to spend money on branded items. “Previously, there was a huge pressure from the sports brand principals as they demanded for growth based on the global trend. “Similarly, they expected growth from Al-Ikhsan in Malaysia due to opportunities in sight. Hence, we decided to partner with Ekuinas to support our future growth and become more competitive,” he said. Through the partnership, Ali Hassan said Al-Ikhsan had undergone due diligence exercise to evaluate the company’s weaknesses and strengthens. “Ekuinas had helped us to find new team members, while consolidating our stores and improving the back-end processes.
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