Carla, Inc. is a furniture manufacturing company with 50 employees. Recently, after a long negotiation with the local labor union, the company decided to initiate a pension plan as a part of its compensation plan. The plan will start on January 1, 2020. Each employee covered by the plan is entitled to a pension payment each year after retirement. As required by accounting standards, the controller of the company needs to report the pension obligation (liability). On the basis of a discussion with the supervisor of the Personnel Department and an actuary from an insurance company, the controller develops the following information related to the pension plan. Average length of time to retirement 15 years Expected life duration after retirement 10 years Total pension payment expected each year after retirement for all employees. Payment made at the end of the year. $812,100 per year The interest rate to be used is 9%. On the basis of the information above, determine the present value of the pension obligation (liability). (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

CASE STUDY - Global Bike Incorporated GBI Background Global Bike is a world class bicycle company serving the professional and “prosumer” cyclists for touring and off-road racing. Global Bike Inc. is registered as a US company, following US GAAP accounting standards. Due to several tax and export issues, Global Bike Groups’s headquarters remains located in Dallas while its subsidiary company, Global Bike Germany GmbH, which is based in Heidelberg is subject to IFRS accounting standards and German tax regulations. History GBI divisions were running multiple, independent application environments. This was inefficient, inaccurate, and expensive, and information was not available in real-time. In fact, many of GBI’s processes were obsolete and there was a need to dismantle existing processes into individual activities and put them back together in a new set of business flows. In addition to this, GBI ran into trouble with its reporting to the IFRS in 2017 because some significant financial transactions could not be accounted for. GBI started to struggle for market share with a relative newcomer to the bicycle industry, FED Bicycles who was emerging as a formidable player largely due to the company’s culture of embracing technology as a strategic competitive advantage in improving efficiency and customer service. GBI was experiencing shipping errors due to the wrong address or loading the box on the wrong truck. Errors happened frequently on systems that required manual data entry, and multiple systems required redundant processes to utilize the data. Much of the bicycles looked similar, which allowed for picking errors. Fixing these errors were expensive and time consuming. GBI’s customer service received an overwhelming number of phone inquiries each day that required time and cost-consuming processes to locate approximate package status. GBI divisions were running multiple, independent application environments. This was inefficient, inaccurate, and expensive, and information was not available in real-time. In fact, many of GBI’s processes were obsolete. In 2017, GBI ran into trouble with its reporting to the IFRS because some significant financial transactions could not be accounted for. It was at this time that GBI decided to dismantle existing processes into individual activities and put them back together in a new set of business flow, with an ERP system as the enabling technology. Technology Implementation GBI integrated a shared services model for all IT functions, located in the Dallas office. Along with this move to centralized IT, Global Bike also implemented SAP ERP (version 6.0). GBI set up teams to implement hardware and software, modify the software to meet the goals, convert the legacy data to the new system, and develop a reporting framework and initial set of reports to be included in the system implementation. Not having highly skilled IT developers and a proven process for managing such big technology projects, GBI engaged an external company as an implementation partner. The external consultant evaluated the different ERP systems on the market and recommended SAP. GBI initially believed that SAP was not a good fit, but as the company went through the evaluation process, finally decided SAP actually was the best system for them. The implementation approach started off with a goal to minimize the tailoring of SAP but later changed to become focused on changing the system to match their processes. Eight different modules were implemented, first starting with the Sales and Distribution, Procurement, and Accounting modules. Next the Warehouse Management, Production, and Asset Management were included, and finally, the Project Systems, and Quality Management modules were incorporated. Problems experienced in the implementation of the first three modules were also experienced in the implementation of the subsequent modules. Interviews with staff during the project revealed a culture of closed communication and very little commitment to training. At some point, there seemed to be no more contribution from the implementation partner, who was also responsible for providing training. The project took eighteen months to complete, and several staff resigned before the end of the project as they were unsure of the changes happening in the company. Despite the issues, the system went live. Difficulties continued in the first sixty to ninety days. Further interviews with staff indicated that there was a huge number of support calls recorded as many of them could not utilise the capabilities of the system and had in fact forgotten most of the things they had been taught about the new system. Many comments reflected that it took so much time to learn the system. There were also many comments reflecting incomplete integration of the Warehouse Management module with the Production and Sales and Distribution modules. Particularly, stock in the warehouse was not displaying correctly when viewed from the Sales and Distribution module. Stabilisation took a little longer than expected. One year later however, the implementation one year was considered successful. Outcomes By implementing the ERP, GBI saved a tremendous amount of money for the goods and services purchased from hundreds of locations around the globe. In addition, the GBI procurement network, which is very extensive due to numerous materials, is now rigorous because it was built on well-defined technological standards. When GBI adds new applications, therefore, they fit into the rest of their interconnected IT infrastructure, which doesn’t tolerate excessive waste. GBI makes sure all new technology fits in nicely over their architecture. Current Situation In the end, all ERP functions are centralized with the primary objectives to reduce costs and deliver best-in-class technology to all divisions globally. This centralized approach offers Global Bike an advanced business platform under a highly controlled environment, which enables consistency of operations and process integrity across the globe. Given the requirement for multiple accounting standards across the US and German companies, GBI maintains one leading accounting ledger for both companies, but also one accounting book for the US company and another for the German company. Material planning, finance, administration, HR and IT functions are consolidated at the Dallas headquarters. The Dallas facility manufactures products for the US and export markets and its warehouse manages product distribution for the central US and internet retailers. Global Bike Inc. also has warehouses for shipping and export in both San Diego and Miami. San Diego handles West Coast distribution and exports for Asia, while Miami handles East Coast distribution and Latin America exports. Global Bike Germany GmbH has its headquarters in Heidelberg Germany. The majority of research and development is housed in the Heidelberg offices. Heidelberg is also the main manufacturing facility for Global Bike in Europe. The Heidelberg warehouse handles all shipping for southern Europe. Global Bike operates two production facilities (Dallas and Heidelberg) and has outsourced the production of both off-road and touring frames and the carbon composite wheels to trusted partners who have specialty facilities to fabricate the complex materials used. Global Bike maintains very collaborative research and design relationships with these specialty partners to ensure that innovations in both material and structural capabilities are incorporated into the frames. Global Bike has established an extensive partner operation to ensure process continuity between Global Bike and its partners to deliver best-in-class products for its customers. Special attention has been paid to nurturing strong relationships with suppliers and Global Bike is generally the largest customer of its main suppliers. Given the highly specialized nature of Global Bike’s bicycles and the personalized needs of riders, Global Bike sells its bikes exclusively through well-known and respected Independent Bicycle Dealers (IBDs). These dealers employ staff members who are experts in off-road and tour racing to help consumers choose the right bike and accessories for their individual needs. GBI has several vendors across the US and Germany. Identification and selection of vendors, including negotiation of general conditions of purchase and contracts, for the US facilities are organised centrally from the US head office. Similarly, Identification and selection of vendors for the US facilities are organised centrally from the German head office in Heidelberg. GBI has several customers across the US and Germany. All credit for the US customers are managed by the US head office. Similarly, all credit for the German customers are managed by the German head office in Heidelberg. GBI has multiple assets and also tracks the financial consequences associated with the entire lifecycle of an asset, from acquisition to disposal. All financial transactions related to the processes and costs related to all of these processes are used for the internal management of the firm in terms of cost and revenue. What’s Next? GBI distributors and customers continue to desire the power to buy, sell, and research on their own terms – not as dictated by GBI. GBI still experiences data issues that make simple tasks such as tracking repeat customers difficult and needs all the data accessible in real time to track the individual customer’s buying behaviour and personal preferences. GBI is seeking to build close customer relationship by analysing customer information and permit coherent view of customer and is now contemplating a help desk ticket management software with fully integrated customer database to be connected to the ERP system. GBI’s key requirement is to provide gateway for customers to interact electronically with the company and in so doing create interaction points between the organization and the customer. In addition, GBI’s supply chain network remains very extensive due to numerous materials and now beginning to suffer as discount retailers have started to supply bicycles to GBI’s distributors, thereby encroaching on GBI’s market space. In response, GBI is now shifting to a high-end product line that would generate better profit margins by engaging suppliers to through joint design and collaborative planning, forecasting, and replenishment. To make this new strategy work, however, GBI is beginning to investigate new supply chain technologies and processes to drive the speed-to-market requirements of the new growth strategy.  

Answer the questions below in relation to the case study provided.

As part of Re-engineering business processes, GBI will need to dismantle its business processes into individual activities and put them back together in new sets of business flows.

a. Identify how processes are dismantled to drive benefits of Business Process Re-engineering

b. Once Business Process Re-engineering is concluded, how might GBI continue to improve its business processes to make it more efficient? (1 Mark)

An investor offers you $706,274 in exchange for shares of your start-up company. The investor demands an annual rate of return of 64%, and expect that your IPO will be in 6 years. At that time you expect your firm to have annual income of around $1,812,034 dollars. A similar firm was recently acquired for $18,052,305 dollars. At the time of acquisition, their income was $1,836,685 million dollars per year.

What percentage of your equity should you give to the investor?

Foxrun Company has three equal shareholders, Thomas, Kimberly, and Jennifer. Kimberly and Jennifer are Thomas’s daughters. On September 2 Foxrun redeemed all of Thomas’s stock in return for $250,000. Thomas had acquired the stock six years ago for $190,000. Foxrun’s current E&P was $325,000. Thomas would like to minimize his federal income tax liability. Explain the alternative available to him and how they would impact his taxable income.

Week 12

1. Explain 2 reasons for the formation of corporate subsidiaries.

2. Identify four reasons for the formation of foreign subsidiaries.

3. Why is Amazon considering foreign subsidiaries in Europe as a management strategy?  

4. Explain two reasons why Vodafone and Verizon talked about an acquisition. Which company was acquired and what was the cost? Was this strategy of acquisition positive or negative?

5. Why did Google acquire Android? Explain why it was a good acquisition for Google.

Windsor Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown, who owns 15% of the common stock, was one of the organizers of Windsor and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, 2021, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two $34,970 notes, which are due on June 30, 2021, and September 30, 2021. Another note of $5,970 is due on March 31, 2022, but he expects no difficulty in paying this note on its due date. Brown explained that Windsor’s cash flow problems are due primarily to the company’s desire to finance a $300,080 plant expansion over the next 2 fiscal years through internally generated funds.

The commercial loan officer of Topeka National Bank requested the following financial reports for the last 2 fiscal years.

(a)

Compute the following items for Windsor Corporation. (Round answers to 2 decimal places, e.g. 2.25 or 2.25%.)

Assume that Company A acquires 70% of Company for a cash price of $10 million when the share capital and reserves of Company B are:

Share capital $8 million

Retained earnings $2 million

$10 million

(a) What amount will be shown in the consolidated statement of financial position for goodwill pursuant to AASB 3 assuming that any non-controlling interest in the acquired is measured at fair value?

(b) What amount will be shown in the consolidated statement of financial position or goodwill pursuant to AASB 3 assuming that any non-controlling interest in the acquiree is measured at the non-controlling interest’s proportionate share of the acquiree’s identifiable new assets?

(c) What are some of the implications of allowing the group to have two options in accounting for goodwill on consolidation?

Doane Company has entered into two rental agreements. In each case the cash equivalent purchase price of the asset acquired is known and you wish to find the interest rate which is applicable to the rental payments.

Instructions:

Calculate the implied interest rate for the rental payments in each situation below:

Agreement A — Covers office equipment which could be purchased for $37,907.90. Doane Company has, however, chosen to rent the equipment for $10,000 per year, payable at the end of each of the next 5 years.

Agreement B — Applies to a machine which can be purchased for $48,448.20. Doane Company has chosen to rent the machine for $12,000 per year on a 5-year rental agreement. Payments are due at the beginning of each year.

Find a publicly traded company that has treasury stock on its balance sheet. Provide a link to the balance sheet in your post and explain the details of the treasury stock transactions based upon the amounts and disclosures found in the financial statements. Why do you think the company acquired the treasury stock? Do not choose a company that has already been reported on by one of your classmates. Participate in follow-up discussion by critiquing the posts provided by your classmates and defending their challenges to your post. Your initial post should be 250-500 words and should demonstrate solid academic writing skills. Please include proper citations in your discussion post. Points will be deducted if proper citations are not used.

Oriental Hotel Bhd owned a few hotels in Malaysia. Their hotel in Melaka is set against a picturesque vista of Melaka’s most famous historical landmarks pf Melaka Raya. The location is close to Melaka City Centre with cheerful nightlife and mere minutes from the acclaimed UNESCO World Heritage site. The office management operates in the same hotel building as the hotel services provided to its guest. The company itself manages the hotel except for the laundry services which was transferred to its tenant, Cuci-Cuci Services Sdn. BHd.

Oriental Hotel Bhd take another step forward in its expansion plan with the opening a new hotel in the southern region in Malaysia. On 1 January 20X5, the company acquired a land for RM3,200,000 to construct a 4-star hotel building in Pangerang, Johor. Construction of the hotel building commenced on 1 March 20X5 and it was completed on 31 January 20X7, but was only used on 1 March 20X7.Total construction cost incurred excluding borrowing costs were RM34,000,000. The construction cost also includes the rectification of RM200,000. In order to finance the construction, the company took an 8%, 3 year-term loan of RM30,000,000 on 1 February 20X5. The company received a government grant of RM1,400,000 on 1 February 20X7 for the newly constructed hotel building. It is the company’s policy to use deferred income method for the government grant received.

Required:
Explain the accounting treatment for government grant received and how will it differ from the alternative method.