IAS 10: Events after the Reporting Period addresses two issues: adjusting events, namely, those events that provide evidence of conditions that existed at the end of the reporting period and non-adjusting events: which are those events that are indicative of conditions that arose after the reporting period that need to be reflected in the financial statements. Amounts recognized in the financial statements are adjusted to reflect adjusting events, but only disclosures are required for material non-adjusting events. Management’s judgment is required in determining whether events that took place after the end of the reporting period are adjusting or non-adjusting events. This will be highly dependent on the reporting date and the specific facts and circumstances of each company’s operations. Coronavirus has overwhelmed the world in various ways and at various times. China was the first to announce spread of the virus in November, 2019. UK announced its first case of coronavirus in February, 2020 and Ghana announced its first case in March, 2020. While company A resides in China, company B resides in the UK and C resides in Ghana. Company A’s financial reporting period ends on 31st October each year; company B’s financial reporting period ends on 31st December, each year and company C’s financial reporting period ends on the 31st of March each year. Management of these companies may need to continually review and update the assessments up to the date the financial statements are issued given the fluid nature of the crisis and the uncertainties involved.
You are required to discuss in respect of each of the companies, the potential management conclusions of the impact of the coronavirus on end of year reporting, mindful of IAS 10.

U.S. and Chinese GDP Growth in the Long Run. China is a country with a very high savings rate s, about 40%. The U.S. has a much lower savings rate, closer to 15%. (There are many reasons for this difference.) For this question, assume that the population growth rate n, technology growth rate g, depreciation rate δ, and production function f(k) in China are the same as in the U.S.

a) According to the full Solow growth model (with technology growth), what does this higher savings rate imply about the steady state of China’s output per effective worker relative to the U.S.? Draw a diagram to help illustrate your answer.

b) China’s GDP/person has been growing at about 8.2%/year for the past 25 years, while GDP/person in the U.S. has been growing closer to 2%/year. According to the full Solow growth model (with technology growth), how will the growth rate of China’s GDP/person compare to that of the U.S. once these two economies reach their steady states?

c) According to your analysis in part b, can China’s GDP/person continue to grow at its historical average rate of 8.2%/yr. for the indefinite future, while the U.S.’s steady-state growth rate of GDP/person is around 2%/yr.?

Even as the Japanese government pledged to clean up its ravaged banking industry, Japanese regulators pressured Shinsei Bank Ltd. – the first Japanese bank bought by foreigners – to continue lending to some of its shakiest customers. In meetings with Shinsei executives, top officials of Japan’s Financial Services Agency directed Shinsei to loosen its credit policy and be more lenient to ailing borrowers. Shinsei was formed in March 2000 when a U.S. investor group, Ripplewood Holdings, acquired the failed Long-Term Credit Bank of Japan Ltd. (LTCB).

LTCB failed because it was unable – and unwilling – to follow the basic prescription for revitalizing a collapsing bank: Write off bad loans and cut credit to hopeless companies. That failure - as competitive, rational American one and Japan’s longstanding system of entangled preferences and noneconomic motives. These conflicting visions are best expressed by the former head of LTCB, who said, “Perhaps the American way might be more efficient in a narrow economic sense, but it risked sacrificing the values that were most precious in Japan; ideas of harmony, respect and consensus.” As Japan’s property and stock markets collapsed during the 1990s, and bad loans proliferated, the Ministry of Finance quietly told banks to understate their bad debts and keep their borrowers on financial life support. LTCB followed this advice and kept growing, even showing profits by adopting ever more lenient loan classifications, Eventually, after several rescue plans fell through, LTCB was sold to Ripplewood.

Shinsei has stirred controversy since it opened under new management because it told its corporate borrowers that if loans did not meet new standards for profitability, the borrowers had to repay them, pay higher interest, or offer collateral. Even more shocking to Japanese sensibilities, Shensei refused to help finance bailouts of delinquent borrowers and cut off credit to risky customers. Such practices, standard among Western banks, are a novelty in Japan and have resulted in a spate of newspaper and magazine articles criticizing Shensei for being tight fisted. Foreign investors are closely watching Shensei as a test of whether Japan will allow modern lending practices in its clubby banking world. Arm-twisting of bankers by politicians and regulators to support deadbeat borrowers is a major reason why Japan’s banks have been crippled by bad loans for over a decade. Although Shinsei agrees to some of the Financial Supervisory Agency’s changes to its lending policy, the bank said it would not make concessions that compromise its financial health.

The prospect of investing in Japan scares many foreign companies. Real estate is prohibitively expensive. Customers are extraordinarily demanding. The government bureaucracy can seem impenetrable at times, and Japanese competitors fiercely protect their home market.

An investment in Japanese operations provides a variety of intangible benefits, however. More companies are realizing that to compete effectively elsewhere, they must first compete in the toughest market of all: Japan. What they learn in the process – from meeting the stringent standards of Japanese customers and battling a dozen relentless Japanese rivals – is invaluable and will possibly make the difference between survival and extinction. At the same time, operating in Japan helps a company such as IBM keep up the pressure on some its most potent global competitors in their home market. A position in the Japanese market also gives a company an early look at new products and technologies originating in Japan, enabling it to pick up and quickly transfer back to the United States information on Japanese advances in manufacturing technology and product development. And monitoring changes in the Japanese market helps boost sales there as well.

Required:

How might foreign investors respond to the Japanese challenges?

As a foreigner, how you analyse the country risk of Japan? Outline each of factors and you may support with any data or figures to proof your explanations. You also need to include the country risk rating based on your assumption information.

The U.S. government allows firms to subtract many business expenses from their gross income in determining taxes due. This process is relatively straight-forward for some expenses, such as labor and materials, which are “consumed” in the process of producing goods and services. This chapter on depreciation presents what happens when a business purchases a piece of durable equipment, such as a forklift, crane, or computer, which will be used over many years. This equipment is not directly consumed but does deteriorate with time and is clearly a business expense. It does not make sense for firms to be able to subtract the entire equipment cost immediately, when full value has not yet been realized from the equipment and payment may not even be fully complete. Therefore, the government has devised depreciation rules that allow firms to recoup durable equipment and other durable property value over time, much like other business expenses.

Firms can also apply depreciation to durable intangible assets, such as patents, trademarks, or even the estimated value of customer relationships. Like durable equipment, these types of durable intangible property provide value to the business over time, rather than being consumed during production, and also degrade in value or usefulness over time. For instance, patents and most customer relationships have a limited life span. While trademarks do not, the goods and services they are associated with are not generally expected to have indefinite appeal. When depreciation is applied to an intangible asset, this process is typically referred to as amortization.

While amortization of intangible assets may see like it would be a minor concept for most businesses, the value of a Coca-Cola or Nike brand, a major drug or hardware patent, or the customer base of an acquired firm can be in the millions or billions of dollars. For instance, Apple and Samsung have been engaged in an ongoing and highly publicized multinational legal battle over patents, trademarks, and other intangible assets with damages sought totaling in the billions of dollars. While not every firm will have intangible assets worth quite this much, intangible assets are a critical property class in many firms. Recent data indicate that intangible property accounts for around 80% of the total market value of the “typical” U.S. firm. For example, intangible property comprised about 78% of the market value of Alphabet, Inc. (the parent company of Google) circa 2015. Thus, all firms should consider their intangible property in investment decisions, including correctly evaluating tax implications over time through the application of the appropriate amortization procedures.

1. Besides Apple and Samsung, what other examples of legal battles over intangible assets can you identify?
2. If you had to develop a method for amortizing an intangible asset such as a patent, how would you go about doing this? What sorts of parameters would you need to consider in developing this method?
3. Does the percentage of market value tied to intangible assets in U.S. firms surprise you? Why or why not? Do you think this percentage differs in other countries? Why or why not?

Exercise 20-04

The following facts apply to the pension plan of Sheridan Inc. for the year 2020. Plan assets, January 1, 2020 $528,000 Projected benefit obligation, January 1, 2020 528,000 Settlement rate 8 % Service cost 43,400 Contributions (funding) 26,600 Actual and expected return on plan assets 51,600 Benefits paid to retirees 35,600 Using the preceding data, compute pension expense for the year 2020.

As part of your solution, prepare a pension worksheet that shows the journal entry for pension expense for 2020 and the year-end balances in the related pension accounts. (Enter all amounts as positive.)

Part II: Wexler Wholesalers has an extensive line of sought after books, which has led to amassing an efficient distribution system to retailers. The following activities occurred during the first six months of 2020 with respect to its inventory:

1. Jan. 3, 2020: Wexler Wholesalers purchased 1,000 books from Jolly Publishers for $28 per book, terms 2/10,n30.

2. Jan. 7, 2020: Wexler Wholesalers returned 20 of the books purchased in transaction #1 for full credit.

3. Jan. 9, 2020: Wexler Wholesalers paid Jolly Publishers in full.

4. Feb. 1, 2020: Wexler Wholesalers purchased 1,200 books from Simon and Schuster for $34 each, terms 1/15,n30.

5. Feb. 2, 2020: Wexler Wholesalers phoned Simon and Schuster after receiving the order in transaction #4. The issue is the books were water damaged from sitting on a loading dock in the rain. Simon and Schuster offered Wexler Wholesalers a 75% allowance on the damaged books. Wexler Wholesalers accepted the offer.

6. Feb. 3, 2020: Wexler Wholesalers paid Simon and Schuster in full.

7. Feb. 27, 2020: Wexler Wholesalers sold inventory to Juniper Reading Nook costing $28 with a sales price of $60 each. A total of 180 books were sold, terms 3/15,n45.

8. Mar. 5, 2020: Wexler Wholesalers received payment from Juniper Retailers.

9. Jun. 3, 2020: Wexler Wholesalers sold 400 books to Read It Again Sam. The cost was $17 per book with a selling price of $55 each, terms 2/10,n30.

10. Jun. 8, 2020: Read It Again Sam returned 30 books to Wexler Wholesalers for full credit.

11. Jun. 9, 2020: Wexler Wholesalers received payment in full from Read It Again Sam.

12. Jun. 30, 2020: After being lost in the mail for months, Wexler Wholesalers received and paid $175 shipping costs associated with purchases from Simon and Schuster. Wexler Wholesalers is responsible for paying the shipping costs.

Part B: Prepare the income statement for Wexler Wholesalers for the first six months of the year through gross margin (gross profit). Part C: Wexler Wholesalers had opening inventory on January 1, 2020 of $11,500. What is the ending inventory as of June 30, 2020?

Who are Amazon`s important managers (aka: insiders) CEO, CFO, etc.? What is their experience? Is it applicable to their current position within the firm? Are they owners of the firm’s stock/bonds? How are they compensated? Are they buyers or sellers of the firm’s stock/bonds?

Who are Amazon`s important managers (aka: insiders) CEO, CFO, etc.? What is their experience? Is it applicable to their current position within the firm? Are they owners of the firm’s stock/bonds? How are they compensated? Are they buyers or sellers of the firm’s stock/bonds?

Who are Amazon`s important managers (aka: insiders) CEO, CFO, etc.? What is their experience? Is it applicable to their current position within the firm? Are they owners of the firm’s stock/bonds? How are they compensated? Are they buyers or sellers of the firm’s stock/bonds?

Who are Amazon`s important managers (aka: insiders) CEO, CFO, etc.? What is their experience? Is it applicable to their current position within the firm? Are they owners of the firm’s stock/bonds? How are they compensated? Are they buyers or sellers of the firm’s stock/bonds?