timer Asked: May 4th, 2020

Question Description

need to do this 5 cases this is mix with calculation questions

in historical cost method and cpp method

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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. 4|Page 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) 5|Page 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) 6|Page 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) 7|Page 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. 8|Page 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) 9|Page 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. 10 | P a g e 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) 11 | P a g e ...
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