ABC Ltd is an Australian mail-order company.

Although the sector in Australia is growing slowly, ABC Ltd has reported significant increases in sales and net income in recent years.

While sales increased from $50 million in 2009 to $120 million in 2018, profit increased from $3 million to $12 million over the same period.

The stock market and analysts believe that the company’s future is very promising. In early 2019, the company was valued at $350 million, which was three times 2018 sales and 26 times estimated 2019 profit.

Company management and many investors attribute the company’s success to its marketing flair and expertise.

Instead of competing on price, ABC Ltd prefers to focus on service and innovation, including:

free delivery
a free gift with orders over $200.
As a result of such innovations, customers accept prices that are 60% above those of competitors, and ABC maintains a gross profit margin of around 40%.

Nevertheless, some investors have doubts about the company as they are uneasy about certain accounting policies the company has adopted.

For example, ABC Ltd capitalises the costs of its direct mailings to prospective customers ($4.2 million at 30 June 2018) and amortises them on a straight-line basis over 3 years.

This practice is considered to be questionable as there is no guarantee that customers will be obtained and retained from direct mailings.

In addition to the mailing lists developed by in-house marketing staff, ABC Ltd purchased a customer list from a competitor for $800 000 on 4 July 2019.

This list is also recognised as a non-current asset.

ABC Ltd estimates that this list will generate sales for at least another 2 years, more likely another 3 years.

The company also plans to add names, obtained from a phone survey conducted in August 2019, to the list.

These extra names are expected to extend the list’s useful life by another year.

ABC Ltd.’s 2018 statement of financial position also reported $7.5 million of marketing costs as non- current assets.

If the company had expensed marketing costs as incurred, 2018 net income would have been $10 million instead of the reported $12 million.

The concerned investors are uneasy about this capitalisation of marketing costs, as they believe that ABC Ltd.’s marketing practices are relatively easy to replicate.

However, ABC Ltd argues that its accounting is appropriate.

Marketing costs are amortised at an accelerated rate (55% in year 1, 29% in year 2, and 16% in year 3), based on 25 years’ knowledge and experience of customer purchasing behaviour.

Question
How ABC Ltd should account for the costs?

(Specify with the numbers of each cost in the question with AASB138/IAS38)

Short essay question:

Using your readings, including "Drug Goes From $13.50 a Tablet to $750, Overnight,”:

a. How would you describe the price elasticity of demand for Daraprim? What barrier to entry into the Daraprim market does Turing Pharm use to maintain its monopoly market position and keep other firms from entering into the Daraprim market?

b. For practically any other business that chooses to raise its price by 50 times, the business would surely lose most if not all of its customers. Why is Turing still in business? (Elasticity of demand for Daraprim and total revenue relationship is key here.)

c. Describe how the elasticity of Daraprim would change if there were generic versions of the drug offered by other companies and how would total revenue be affected accordingly?

QUESTION FOUR

1) How does a company generate Cash?

2) How does a company use Cash?

3) To what extent do accounting numbers reflect economic reality

4) How do you incorporate in your financial analysis many ‘assets’ not reported in the financial
statements that generate more income in the future ( capacity of assets in place to generate
future income, role of better management/executives, loyal customers etc)

5) Are positive accounting earnings a sign of superior performance (can support increase in
wages, taxes, and bonuses?). How do you factor cost of equity

A company manufactures and sells x cellphones per week. The weekly​ price-demand and cost equations are given below.

p = 500-0.5x and C(x)=15,000+135x

What price should the company charge for the​ phones, and how many phones should be produced to maximize the weekly​ revenue? What is the maximum weekly​ revenue?

(B) What price should the company charge for the​ phones, and how many phones should be produced to maximize the weekly​ profit? What is the maximum weekly​ profit?

Problem 7 : Ali Company sells tickets for an upcoming theatre season. All funds are paid upfront. It is the first year of operations for Ali Company. The revenue recognized during the year was $105,000 and the ending balance in unearned revenue is $75,000. How much cash was collected during the year?

Problem 8 : On October 1st, Max Company paid for six months of insurance coverage for their building. As of December 31st, Max Company had $5,000 in the prepaid insurance account. What was the total cost paid on October 1st for the six month policy?

Below is the post-closing trial balance of Felix Consultancy Services as at 30 June 2019:

The following transactions occurred during the month July 2019.

Required

a)     Journalise the transactions, including narrations.

b)    Prepare an unadjusted trial balance as at 31 July 2019. (Total 20 Marks)

Below is the post-closing trial balance of Felix Consultancy Services as at 30 June 2019:

The following transactions occurred during the month July 2019.

Required

a)     Journalise the transactions, including narrations.

b)    Prepare an unadjusted trial balance as at 31 July 2019. (Total 20 Marks)

Below is the post-closing trial balance of Sam Consultancy Services as at 30 June 2019:

The following transactions occurred during the month July 2019.

Required

a)     Journalise the transactions, including narrations.

b)    Prepare an unadjusted trial balance as at 31 July 2019. (Total 20 Marks)

Analyze each transaction.  Under each category in the accounting equation, indicate whether the transaction:

A. increases,

B. decreases, or

C. has no effect.  The item (a) is provided as an example.

1. Provided services to a customer on account.  (Revenue increases causing Stockholders’ Equity to increase, Assets increase, and no effect on Liabilities).

6.  Collected from customers for services provided on account.

7.  Incurred salaries for the month, will pay next week.

8.  Purchased office equipment and will pay vendor later.

9.     At the beginning of January, the balance in the Retained Earnings account is $210,000 for BMJ Corporation.  During the month of January, BMJ had the following external transactions.

$______________Determine ending Retained Earnings for January 31st.

According to eMarketer, mobile ads will top 100 and it accounts for about 16.5 percent of total advertising spending in 2016. The top five spenders of mobile ads are the United States, China, the United Kingdom, Japan and Germany. This number is expected to increase as the worldwide adoption of smartphones continue to grow. In 2015, there were about 2.6 billion smartphone users. This number is expected to top 6.1 billion globally by 2020.

Businesses are increasingly using mobile ads. Location data from mobile devices is the key element for a successful mobile ad campaign. Facebook and Google are two biggest players that generate the highest revenue from mobile ads. PlaceIQ, a technology form headquartered in New York city collects billions of data points from mobile devices and other sources and is able tract potential customers as they move from one retail location to another retail location – such as from one car dealership to another. PlaceIQ is also able to help businesses find out if the ads can translate to an actual visit by a customer. In addition to its huge data set for business, PlaceIQ also offers location data and analytics tools to businesses and allows them to do their own advertising.

Audi is using the Place IQ data to measure how many potential customers will visit its dealerships before and after they have seen ads. They also want to target potential customers who are visiting their competitors’ showrooms. Stacom Media Group is using PlaceIQ in order to find out how mobile location data can be helpful and eventually attract more customers to a business.

Questions:

a)     By 2020 how many smartphones will be existing globally?

b)    Who are the two leading companies that generate the biggest revenue from mobile ads?

c)     How PlaceIQ impact businesses?

d)    Why is Audi using the services offered by PlaceIQ?

e)    Your overall observation and learning from the above case study.