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ANSWER ALL QUESTIONS (5Q X 10MARKS)
CASE STUDY 1
Ice-Cola started its business in 1886 as a local soda producer in Atlanta,
Georgia (US) selling about nine beverages per day. By the 1920s, the
company had begun expanding internationally, selling its products first in
the Caribbean and Canadian markets and then moving in consecutive
decades to Asia, Europe, South America and the Soviet Union. By the end
of the 20th century, the company was selling its products in almost every
country in the world. In 2005 it became the largest manufacturer,
distributor and marketer of non-alcoholic beverages and syrups in the
world. Ice-Cola is a publicly-held company listed on the New York Stock
Exchange (NYSE).
Several campaigns and demonstrations followed the publication of a report
issued by the Indian NGO Centre for Science and Environment (CSE) in
2003. The report provided evidence of the presence of pesticides, to a level
exceeding European standards, in a sample of a dozen Ice-Cola and
Thunder Cola beverages sold in India. With that evidence at hand, the CSE
called on the Indian government to implement legally enforceable water
standards. The report gained ample public and media attention, resulting
in almost immediate effects on Ice-Cola revenues. The main allegations
made by the NGO against Ice-Cola were that it sold products containing
unacceptable levels of pesticides, it extracted large amounts of ground
water and it had polluted water sources. Ice-Cola was also accused of
causing water shortages in – among other areas – the community of
Plachimada in Kerala, southern India. In addition, Ice-Cola was accused
of water pollution by discharging wastewater into fields and rivers
surrounding Ice-Cola’s plants in the same community. Groundwater and
soil were polluted to an extent that Indian public health authorities saw
the need to post signs around wells and hand pumps advising the
community that the water was unfit for human consumption.
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The long legal procedures against the Indian government that Ice-Cola had
to face were not the only consequence of the conflict. The brand suffered
a great loss of consumer trust and reputational damage in India and
abroad. In India there was an overall sales drop of 40% within two weeks
after the release of the 2003 CSE report. The impact in annual sales was
a decline of 15% in overall sales in 2003 in comparison to prior annual
growth rates of 25-30%. This highly publicized conflict in India also caught
the attention of consumers in the US. After a series of demonstrations by
students who joined two activist groups in the US, Ten American
Universities temporarily stopped selling Ice-Cola products at their campus
facilities. Although Ice-Cola still denies most of the allegations, the
reputational damage experienced after the controversy in India pushed
Ice-Cola to take damage-control measures. Those measures at first
consisted of statements to confirm Ice-Cola’s integrity. For example, IceCola dedicated a page in the Corporate Responsibility Review of 2006 to
address the controversy.
Required:
Q1. Discuss in detail various conflicts, Coco Cola Company involved
in relation to Corporate Social Responsibility. (3Marks)
Q2. What are the learning experiences that motivated the company
to adopt a more proactive CSR policy? (3 Marks)
Q3. What suggestions will you give to the management of Ice Cola
Company to avoid conflicts like above in mere future? (4Marks)
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CASE STUDY 2
Many people pointed out that it is very difficult to value human resources.
Some others have cautioned that people are sensitive to the value others
place on them. A machine never reacts to an over or under-valuation of its
capacity, but an employee will certainly react to such distortion.
Conventionally human resources are treated just as any other services
purchased from outside the business unit. As a result conventional
balance sheets fail to reflect the value of human assets and hence distort
the value of the business. The treatment of human resources as assets is
desirable with a view to ensuring comparability and completeness of
financial statements and more efficient allocation of funds as well as
providing more useful information to management for decision-making
purposes. Human resources information of a particular company are
mentioned in below table.
Particulars
Annual average earning of an employee till the
retirement age
Age of retirement (Years)
Discount rate
No. of employees in the group
Average age (Years)
Skille
d
SemiSkilled
Un
Skilled
90000
70
12%
30
67
62000
65
12%
30
61
37000
60
12%
45
57
Q1. You are required to measure human resources value for the above
company using suitable valuation model by applying present values
at given discount rate factor. In what way the model you applied is
superior than other valuation models? (6 Marks)
Q2. Also calculate percentage of human resources value of each
category to the total value of human resources and identify the
category with maximum value to the company. On what grounds the
above model was criticized? (4Marks)
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CASE STUDY 3
OMAN FLOOR MILLS, one of Oman’s most Dynamic and successful food
Company. The company established with a capital base of OMR 90 million
as a leading Oman conglomerate as joint stock sweets company. The
factory is strategically located in Muscat, and is involved in manufacturing
and distribution of various varieties of Food Products and the rate of return
on investment for the industry it belongs to stood at 20%. To cover whole
of Oman as well as growing market, with strong supply and distribution
chain, the company has strong presence of Oman market flanked by fleet
over 100 distribution vehicles covering all corners of Sultanate of Oman
and earned a profit of OMR 9.3 million. At every stage of operations, all
employees work seriously and tirelessly to ensure that system keeps its
promise of quality products and services, to ensure the uncompromising
safety of the products company produce and distribute.
The company is in process of expanding and diversifying its activities,
creating value by providing safe & refreshing experience. Many new
planned projects are on execution that will open new vistas for company
which also contribute towards industrial and economic growth of Oman.
The company is in the process of recruiting a new COO and expecting that
the profits will increase by OMR 1.5 million over and above the target
profit, when his services are acquired by the company.
Required:
Q1. You are required to determine the amount of maximum bid price
for the COO to be recruited for the company. What qualitative aspects
need to be considered while valuing human assets? (7 Marks)
Q2. What is the maximum salary that can be offered to COO as per
the above calculations (Q1)? Due to financial crisis, if the company
can offer only a maximum salary of OMR 10 million, what will you
suggest to the company to do? (3 Marks)
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CASE STUDY 4
SWEETS OF OMAN audited financial statements for the year ending 31st
December 2019, based on Historical Cost Accounting, are extracted from
Muscat Securities Market. It is observed from its income statement that
the company earns a sales revenue for the current by selling 90,000 units
@ OMR 13.25 per unit. It is observed from the notes in the financial
statements that 40,000 units are sold to customers on credit allowing a
credit period of 30 days. Value of inventory lay down in factory on 1st
January 2019 stood at OMR 175,000. Purchases made for the current year
are 75,000 units @ 8.75 each and it includes purchase of 25,000 units
from a supplier, who is allowed a credit period of 20 days, located abroad.
During the year an amount is borrowed from the market by issuing 5000
10% debentures @ OMR 10 each. It is found that interest is paid only for
a period of 6 months.
The company block of assets consists of plant & machinery with a book
value of OMR 500,000 @ 10% depreciation and Tools & equipment with a
book value of OMR 300,000 @ 6% depreciation assuming that additions
are made in the middle of the year. Direct expenses of the company for the
year are OMR 25,000. Consolidated value of operating, office &
administrative and selling & distribution expenses including depreciation
on plant & machinery and tools & equipment is OMR 550,000. At the end
of 31st December 2019 value of stock available in the factory is OMR
125,000. The company is in the tax bracket of 10%. It is also found from
the notes that company have return inwards and outwards worth of OMR
10,000 and 20,000. The company is in the process of estimating real gain
or loss as per the inflation accounting.
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Required:
Q1. You are required to prepare income statement as per Historical
Cost Accounting method and adjusted income statement as per
Current Purchasing power method by considering consumer price
index vales of 105 (opening), 125 (closing). (8 Marks).
Q2. What is the impact on profitability position of the company as
per inflation accounting application? (2 Marks)
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CASE STUDY 5
Annual reports of PACKAGING CO. LTD. for the year ending 31st
December 2019 are taken from company official website. Income
statement and balance sheet along with related notes are analyzed and
observed that net borrowings for the current year are OMR 180,000 and it
is 20¾% increase from the previous year. Shareholders’ funds including
equity share capital, 9% preference share capital and reserves & surplus
etc. is OMR 575,000 and it is 30% more than the previous year. Value of
depreciation adjusted based on the current cost accounting method of
inflation accounting is OMR 23,500. Sum of opening and closing inventory
for the year is OMR 40,000 and it is detected that closing stock is OMR
5,000 more than opening stock. Firm’s current assets include accounts
receivable, short term investments and stock. Accounts receivable for the
current year stood at OMR 45,000 and it is 10% less than the previous
year. There is no change in the amount of short term investments which
is OMR 12,000. Whereas accounts payables for the previous year is OMR
30,000 and there is 15% enhancement for the current year. As per the
recommendations of the expert committee, the company management is
planning to adopt current cost accounting method to correct the
deficiencies of the historical cost accounting system. The CCA method
seeks to ensure that adequate, provision/ adjustments are made for the
maintenance and replacement of the operating assets of the company, at
least at the minimum physical level at which the enterprise can operate
efficiently and not only for the year under the review but also for the future.
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Required:
Q1. In order to achieve the objectives stated above, you are required
to make the adjustments of cost of sales, monetary working capital
and gearing adjustments by using above information with an index
value of 105 (opening) and 125 (closing). (8 Marks)
Q2. How much amount is transferred to current cost reserve account
from the above (Q1) calculations? What are the other values
transferred to current cost reserve account as per CCA method of
inflation accounting? (2 Marks)
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