Below are the historical data for ShipCo, a manufacturer of ships. Based on the data, how has ShipCo performed over the past five years? What is its ROIC for years 2 to 5 (using average invested capital)? What is its operating margin? What is its capital turnover? Is it creating more or less value over time? Assume an operating tax rate of 30 percent and cost of capital of 9 percent.
Using the data presented in Question 1, decompose operating margin and capital turnover. What has been occurring at ShipCo over the five-year period? What might be driving these results?
Decompose the ratio of operating working capital to sales for ShipCo into operating-cash days, accounts-receivable days, inventory days, accounts payable days, and accrued-expenses days. (For comparability, use sales in all calculations.) Compare these results with those in data below for DefenseCo, a large diversified defense contractor. Which firm is showing a better trend in its management of its working capital? What might explain the differences in these variables?
Below are the historical data for ShipCo, a manufacturer of ships. Based on the data, how has ShipCo performed over the past five years? What is its ROIC for years 2 to 5 (using average invested capital)? What is its operating margin? What is its capital turnover? Is it creating more or less value over time? Assume an operating tax rate of 30 percent and cost of capital of 9 percent.
Using the data presented in Question 1, decompose operating margin and capital turnover. What has been occurring at ShipCo over the five-year period? What might be driving these results?
Decompose the ratio of operating working capital to sales for ShipCo into operating-cash days, accounts-receivable days, inventory days, accounts payable days, and accrued-expenses days. (For comparability, use sales in all calculations.) Compare these results with those in data below for DefenseCo, a large diversified defense contractor. Which firm is showing a better trend in its management of its working capital? What might explain the differences in these variables?
Below are the historical data for ShipCo, a manufacturer of ships. Based on the data, how has ShipCo performed over the past five years? What is its ROIC for years 2 to 5 (using average invested capital)? What is its operating margin? What is its capital turnover? Is it creating more or less value over time? Assume an operating tax rate of 30 percent and cost of capital of 9 percent.
Using the data presented in Question 1, decompose operating margin and capital turnover. What has been occurring at ShipCo over the five-year period? What might be driving these results?
Decompose the ratio of operating working capital to sales for ShipCo into operating-cash days, accounts-receivable days, inventory days, accounts payable days, and accrued-expenses days. (For comparability, use sales in all calculations.) Compare these results with those in data below for DefenseCo, a large diversified defense contractor. Which firm is showing a better trend in its management of its working capital? What might explain the differences in these variables?
United Kingdom. Investor currently appraises investment opportunities using a cost of capital of 10 per cent. On 1 April 20X9 Investor purchased 80 per cent of the equity share capital of Cornwall for a total cash price of Shs.60m. Half the price was payable on 1 April 20X9; the balance was payable on 1 April 20Y1. The net identifiable assets that were actually included in the statement of financial position of Cornwall had a carrying value totaling Shs.55m at 1 April 20X9. With the exception of the pension provision (see below), you discover that the fair values of the net identifiable assets of Cornwall at 1 April 20X9 are the same as their carrying values. When performing the fair-value exercise at 1 April 20X9, you discover that Cornwall has a defined-benefit pension scheme that was actuarially valued three years ago and found to be in deficit. As a result of that valuation, a provision of Shs.6m has been built up in the statement of financial position. The fair-value exercise indicates that on 1 April 20X9, the pension scheme was in deficit by Shs.11m. This information became available on 31 July 20X9. Assume that today’s date is 31 October 20X9. You are in the process of preparing the consolidated financial statements of the group for the year ended 30 September 20X9. Intangible assets are normally written off on a pro-rata basis over twenty years. Your financial director is concerned that profits for the year will be lower than originally anticipated. She is therefore wondering about changing the accounting policy used by the group, so that all intangible assets are treated as having an indefinite useful life. Required (b) Write a memorandum to your financial director.(i) Evaluate the policy of writing off all intangible assets over twenty years (7MARKS)(ii) Explain whether it is ever permissible to select a longer write-off period for intangible assets, and describe the future implications of selecting such a period (8 marks)(c) Cornwall has purchased some valuable brands, which are included in the statement of financial position. Explain the justification for including purchased brands in the statement of financial position and how non-purchased brands should be treated. (5 marks) (Total = 20 marks)
Evan Engineering Group receives royalties on a technical manual written by two of its engineers and sold to a publishing company. Royalties are 10% of net sales, receivable on October 1 for sales in January through June and on April 1 for sales in July through December of the prior year. Sales of the manual began in July 2015, and Evan accrued royalty revenue on $33,180 of sales at December 31, 2015. Evan received royalties of $2,698 on April 1, 2016. On October 1, 2016 Evan received royalties of $3,025. The 2nd half of 2016 sales were estimated to be $41,880 What is Evan’s 2016 royalty revenue?
Task Details: Mags Ltd is an Australian mail-order company. Although the sector in Australia is growing
slowly, Mags 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, Mags 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
Mags 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, Mags 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, Mags 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.
Mags 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.
Mags 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 Mags Ltd.’s marketing practices are relatively
easy to replicate. However, Mags 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.
Required:
Discuss the requirements under AASB138 / IAS 38 Intangible Assets how Mag Ltd should
account for the costs. Provide reasons for your answer in reference to relevant paragraphs of AASB138
/ IAS 38.
Research requirements: Students need to support their analysis with reference to relevant material from
the text and a minimum of eight (8) suitable, reliable, current and academically acceptable sources -
this should include at least 2 peer-reviewed academic journal articles.
Presentation: 2000 + 10%-word short report format. Title page, executive summary, table of contents,
appropriate headings and sub-headings, recommendations/findings/conclusions, in-text referencing and
reference list (Harvard - Anglia style), attachments if relevant. Single spaced, font Times New Roman
12pt, Calibri 11 pt. or Arial 10 pt.