Paper on The Blue Hotel Essay Example | Topics and Well Written Essays - 1000 words

Paper on The Blue Hotel - Essay Example In this story by Stephen Crane the subject of contentions scores over different topics. The contentions identify with Swede and cultural response to his reckless independence. The itemizing of the topic uncovers how Crane tested such circumstances. Let’s take the case of Swede’s air to life. He emphatically feels that everybody in the Blue Hotel needs to murder him. His dread is unwarranted and no backgrounder data is given or rationale is given to the hiding dread in his brain. This shows struggle is the natural piece of his character and that is the explanation behind him to deduce that those in the inn are irate with him and they need to slaughter him. Regardless of whether it is accepted that he is suspicious being affected by liquor or medications, why the idea of murdering just should coast in his psyche. This shows the fundamental foolish conduct of Swede. Next, Swede provokes up Johnny. The main period of brutality doesn’t produce any substantial outcomes , and his second episode of hostility after he overcomes Johnny in the battle, takes him to death. In a battle this time with a card shark, Swede is cut to death. This is a pointer, as indicated by Crane, the things to happen when mankind in general takes to implosion, welcoming debacle that will at last lead to add up to obliteration of humankind itself. Nature won't target human race alone in disengagement for demolition. Plant and creature realms likewise will die by and large. The creator of any novel/story, howsoever brilliantly may attempt to hide away from plain view occasions identified with his life, will uncover something about one’s own brain science and mentalities to life, through the exchanges, and activities of his characters. This is valid for Stephen Crane (1871-1900). He kicked the bucket at 28 years old and accordingly he has a place with the more youthful age, which is ignitable. The crushing neediness he endured every through hey grown-up life and his poo r way of life has something to do with his pompous social attitude. Added to the issue, he had an unforeseen weakness record, experienced tuberculosis, and reached jungle fever and neglected to take appropriate consideration of himself. Not thinking about one’s wellbeing is again a demonstration of implosion and that demeanor needs to discover articulation is his artistic works and the equivalent has occurred in this story through the character of Swede. Did he feel confined from the general public and his environmental factors? It must be so as reflected in his manner. He acted like a renegade against all the set up cultural standards while associating in a gathering. Swede appears to have the perpetual resentment against the general public and it is uncovered in his little and enormous activities, directly from his enlistment into the plot of the story. That resentment is simply the underlying driver of his ruinous conduct. The gathering alluded to in the Blue Hotel is a sm aller than expected model of the general public and Swede gets genuine squabbles with those present there on one issue or the other. He makes issues out of no issues. He appears to have framed certain fixed negative sentiments about the general public. The reasons could be his childhood and the unfriendly conditions that he needed to confront from the get-go throughout everyday life. Nature appears to guess what the lethargic fomentations in him might be thinking and as he shows up at the Palace Hotel alongside two others, a snowstorm creates and everybody stands secluded at the inn. In the snowstorm ordinary vision is hindered, one can't see the environmental factors appropriately, and Crane has utilized the

(Urgent) Small business management (Due to the midnight of May 24 at Essay

(Critical) Small business the board (Due to the 12 PM of May 24 at most recent) - Essay Example Maybe, somebody who has been effective in his instructive accomplishments has contributed a great deal in empowering the private company to get serious and productive. The two articles I have picked are both alluding to the elements of Small Businesses. These articles have been decided to give us a superior comprehension on the elements that may add to the accomplishment of a little organization. The principal article, a worldwide based diary, features the impact of selecting outside board individuals to deal with a little privately-run company. The UK-based diary examine about the effect of proprietorship on the conduct and execution of a little organization. In accordance with the extraordinary presentation of a little organization, it is significant that we decide the effect of both inside and outer variables that could legitimately or potentially in a roundabout way influence the effectiveness of the business tasks and gainfulness. Interior factors that may add to the achievement of an association incorporate the sort of the board, kind of business possession, the initiative style of the directors, the size of the business association, hierarchical culture and conventions, passionate connection of the proprietors to the business, authoritative execution, and the hindrances to the usage of a procedure. In light of the This investigation plans to examine the perspective of the writers by thinking about the key contentions in each article. The hypothesis behind the independent company capacities utilized in the articles will be talked about altogether. As a component of the end, this paper will look into the principle assessment of the two chose articles. As indicated by Ghobadian and O’Regan (2006), the change authority style is more typical in autonomous plants than the value-based initiative style. The creators has reasoned that the value-based authority style is normally adjusted by the auxiliary plants

media weve been into recently

media weve been into recently In our last post, we mentioned that we were next going to blog about our urops. We recently found out, from one of our supervisors, that we actually cannot blog about our project until the end of the semester because it is *top secret* stuff for now. So, look out for that post around mid-December. Yesterday, we thought to ourselves, “so what should we blog about now? Nothing particularly interesting has been happening. But we have been consuming some content lately that has brought us joy, so we decided to make a list of all the stuff. We figured that some of yall might find this useful if youre looking for some distractions (specifically if youre a high school senior trying to distract yourself or take a break from college apps). So, here goes: Armor by Sara Bareilles Sara is one of our favorite artists… as is probably evident by our Waitress post. And she recently released a new song!!! And we really like it!! It reminded us a lot of the jazzy sound of this absolutely brilliant song she wrote and who Leslie Odon Jr. recorded. Dear Theodosia Reprise cover by Sara Bareilles Speaking of Leslie Odon Jr. and Sara Barellies lol. Sara covered a reprise of Dear Theodosia, a song  that Leslie’s character in Hamilton sings. This reprise actually isn’t in the musical, so we are especially happy that it exists  on the interwebs now, and especially especially happy because Sara covered it! And needless to say, the song itself is amazing as everything else that comes from Lin Manuel Mirandas brain is. Wicked Concert Our musical-loving friend Rukia, who we mentioned in our Waitress post, invited us to watch the Wicked 15th anniversary concert with her! So we did! And it was so good and fun! Our favorite performances were The Wizard and I performed by a very green Ariana Grande and What Is This Feeling performed by Pentatonix! Prelude by Dave Malloy Dave Malloy is the god of musicals… like hands down. We have been obsessed with two of his musicals, Ghost Quartet and The Great Comet, which we briefly talked about  here. Recently we discovered another of the musicals he’s composed, Prelude! Like his other works, it is wIeRd, like random-capitalization-worthy wierd. But for some reason, we LOVE it! Our fave songs are Your Day, Lilacs, and Natalya. ASMR Cooking Videos Literally what it sounds like. The Youtube recommended section is all knowing and powerful, and it gave us one of these videos we never knew existed one day. Weve been hooked ever since. We dont really watch these videos for the ASMR aspect, we just love them because the desserts they make are impeccabe and super satisfying to watch. One Small Step This animated short film is SO beautiful, from the visuals to the story!!! Just, like, yes! But also,  content warning, a part of it is really sad. emmymadeinjapan Again, Youtube recommended is magical and gave us this awesome channel! She does a lot of cooking videos, reviews of kitchen gadgets, and taste tests. We love her curiosity, positivity, and style of food reviews!   Bon Appetit Test Kitchen Carla and Ina We have recently been obsessed with Carla from Bon Appetit Test Kitchen. Her suburban momness and sarcastic humor just really speaks to us. In high school, we were obsessed with Ina Garten  from Food Network. And in this iconic episode, THE Ina Garten cooked with THE Carla. World’s didn’t just collide. They also exploded. Next Haunt Next Haunt is a really cool thing that happens every year at Next House! Students, FROM SCRATCH, build an entire 2 story escape-the-room, withIN Next House! This was us, seeing it being built: Ö Ö. This year, we did it for the first time, and it was so fun!! We didnt manage to escape, but boy oh boy did we scream haha. It was very sp00py! from left to right: Karen C. 20, Danny, Katherine C. 19, Allan, Nia M. 20 Jebberwokey poem We recently discovered this poem, which is actually written by Lewis Caroll, the person who wrote the books that Disneys Alice in the Wonderland was based off of. Its super unique and we really like it! Here is our favorite stanza: He took his vorpal sword in hand;          Long time the manxome foe he soughtâ€" So rested he by the Tumtum tree          And stood awhile in thought. I’d Rather Be Me  Music Video Mean Girls the musical is SO GOOD and BARRET IS INCREDIBLE! Anastasia Music Videos In My Dreams really just tugs at our heartstrings. We love how hopeful its tone is! Its a very I-can-do-anything song, and sometimes, you just need that. Teen Titans Live Action Theme Danny: Ummm noo this is kinda wierd and cringy Allan: NOOO PLEASE I WANT THISSSSSS ^ This is an actual snippet from our google doc as we were writing this post. It very accurately describes our writing process if anyone is curios. As you can see, Allan won our heated debate, since you are reading this now. Anyways, we  saw this on facebook and even though Danny thinks its cringy, he secretly loves it, because IT IS PERFECTION!   Mitski Nobody Elissa showed us this song when we were hanging out and we LOVE IT, especially the lyric break down video! Pasta A friend showed us this video, and like, it really speaks for itself. We are obsessed. America Pls Explain The same friend showed us this meme! We had heard people using the phrase I am confusion in conversation and we both use it occasionally too its a very applicable phrase here honestly lol. Were so glad that we now know its origin story! Thats about all the media we have for now! Till next time! :A :D Post Tagged #a piece of toast #chocolate puddles #content #Dave Malloy's musicals in three words: ImperialRussia Space Dissonance #every winter i get lilacs in the mail #i am confusion #I grated cheese over it with a new cheese grater #jub jub #k we should stop these tags now and really do our reading for 6.031 #memes #momsie and popsicle #musicals #saraB is QUEEN #TORTELLINI

Breast Cancer Case Study - 1234 Words

3.14 Target genes Lee et al cultured two strains of OSCC cells, SAS cells treated by AG1478 (inhibitor of EGFR) and OECM1 cells treated with EGF (activator of EGFR). While the SAS cells showed decrease in nuclear ÃŽ ² catenin with increase in membranous ÃŽ ² catenin, OECM1 cells showed increased amount of nuclear ÃŽ ² catenin overtime. This showed that EGFR plays a vital role in Wnt signalling influencing the stabilisation and nuclear accumulation of ÃŽ ² catenin. They also showed that histone markers effect the expression on target gene, cyclin D1. These ultimately lead to the progression of oral cancer. (Lee et al, 2010). c‑myc was among the first oncogenes found to be amplified in breast cancer, and it can contribute to many other forms of cancer†¦show more content†¦Protein expression of GSK3B was significantly elevated in the cytoplasm of tumor cells. This study provides evidence that variations in Wnt genes shown to be involved in oral-facial clefting may also increase an individ ual’s susceptibility of developing oral squamous cell carcinoma (Filho et al, 2011). 3.16 Wnt/ÃŽ ² catenin signaling pathway as therapeutic targets Wnt pathway is broadly classified as canonical and non canonical, where the specific composition of Wnt/Fzd complex defines which of the two pathway is activated. The canonical Wnt pathway is better understood and was first linked to colon cancer formation. Various drugs are being identified and developed as Wnt pathway inhibitors including NSAIDS, Vitamin A, Vitamin D, monoclonal antibodies, small molecule inhibitors to disrupt Tcf - ÃŽ ² catenin protein complex, adenoviruses engineered to express cytotoxic genes or oncolytic adenoviruses. These drugs and targeted therapies are evaluated to have indirect or direct effect on the Wnt pathway. Cancer having molecular diversity will need combination therapies. However, all the mentioned drugs are largely in its infancy with more need for clinical trials to test their safety and efficacy (Barker and Clevers, 2006). The tightly regulated canonical Wnt pathway with a hallmark increased level of ÃŽ ² catenin and well identified target genes like c - myc and Cyclin D can offer ample target nodal points for cancer drug development.Show MoreRelatedBreast Cancer Case Study929 Words   |  4 PagesIn the present study, we found that rate of pCR to neoadjuvant chemotherapy was 24.7% (n=25) in the whole cohort (n=101). This finding was consistent with the range of pCR rates to prospective randomized trials of preoperative chemotherapy of 15%-40% mentioned in the literature (Burstein et al., 2008). Moreover, high Ki-67 expression (cutoff 14%) was significantly correlated with achieving a pCR in the large cohort (p=0.016). This result matched with the finding of several studies that reported thatRead MoreBreast Cancer Case Study803 Words   |  4 Pagessecondary organs fibronectin expression is upregulated by primary tumors via resident fibroblasts, which serves as a docking site for VEGFR1+ hematopoietic progenitor cell (HPC) clusters and secondary seeding. During metastasis of breast cancer to lung, interaction of VCAM-1+ cancer cells with VLA-4-expressing macrophages, activates PI3K/Akt signaling in tumor cells, protecting them from caspase-induced apoptosis. Bone metastasis is also facilitated by interaction of VCAM1 with different integrin partnerRead MoreBreast Cancer Case Study1306 Words   |  6 Pagesmetastases have caused substantial mortality and morbidity in cancer patients. Approximately 15% of women with breast cancer will be diagnosed with brain metastases (Zakaria et al., 2014). With early diagnosis and appropriate treatment, the quality of the patient’s life could be enhanced. 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However, mammograms can have their limitations. A mammogram will miss some cancers, and it sometimes can leadRead MoreThe Treatment Of Breast Cancer1309 Words   |  6 Pages Introduction: Breast cancer is the most common malignant disease occurring in women in Saudi society. After study and research, it found that two-thirds of the injuries in the Saudi society are diagnosed in advanced stages. The reasons for that are the lack of education for necessary of Self-examination and clinical examination annual, leading to the spread of the disease further. In addition to genetic changes, environmental pollution, bad lifestyle , Obesity ,Lack of exercise are also factorsRead MoreGenome Wide Association Studies Essay1142 Words   |  5 Pageswide association study has been very useful in the recent years. It has helped researchers to detect genes that are not detected that easily. With the detection, it helps the researchers to prevent and treat the particular disease. Breast cancer has been one of the most common cancer in the world and the most common in women. Even though, breast cancer is detected easily with mammograms or self examination there are times where it c an be hard to detect. Genome wide association studies help to identifyRead MoreBreast Cancer : A Malignant Tumor1203 Words   |  5 PagesChapter I - Introduction Breast cancer is defined as a malignant tumor in the cells of the breast. A cancerous tumor develops when a group of malignant cells invade the tissue surrounding the breast and can spread to other parts of the body (Cancer.org, 2015). This type of cancer is most common in women. However, men can also fall victim to the disease. In 2015, about 230,000 new cases of breast cancer will be diagnosed in women and approximately 40,000 women will die from this disease (CancerRead MoreStrength Of Association1146 Words   |  5 Pagesrule out causality and may still be of significant effect on the disease under study. This is applied in a case where the exposure is in a common population. For instance passive smoking and lung cancer (Risk Ratio: 1.3) (Morein Stuart, n.d). Consistency: Repeated observation of an association in a different population under different circumstances showing the same results suggests that the results of a single study are not due to chance. Criticism: This should be applied cautiously to avoid chances

Beach Home Pros And Cons - 726 Words

I visited Shea Homes in South west San Diego near the City of Imperial Beach Imperial and spoke to a sales agent named David. The development has 174 homes to be released over two years in 15 Phases. Averaging 10 to 15 every month and a half to two months. This development sells two brands housing. One brand is called Sea Glass and the other is Blue Strand. Sea Glass the cheaper of the two with 3 to 4 bedrooms and 2.5 to 3 bathrooms and the area range from 1660 to 1999 square feet with three styles Santa Barbara, Spanish, and Craftsman. 2 car garage. No driveways. The starting price without the upgrades $420,000 to $460,000 Blue Strand is the more luxurious of the two communities. It offers 4-5 bedrooms and 3 to 5 baths and the area range†¦show more content†¦The targeted demographic for these developments are mid-sized family with median income. At all the phase release all the homes get sold because they are priced relatively cheaper for the quality. The price per soft rages from $214 to $254 the average price per soft is close to $350. This area is likely to continue to develop, but at a slow rate since it is mostly built. Future price could continue to increase due to the demand for housing. The issue of polluted beach if it continues to be unresolved could lower or maintain the value these properties. To value this development is using the market sales comparison approach method and adding additional value for new construction then adjusting negatively for the crowded or lack of privacy and tight parking situation. NEIGHBORHOOD DESCRIPTION These communities are located in the city of San Diego in the Southern portion of San Diego County. The immediate area consists mostly of average to good quality, tract built homes with a small mix of multi-family dwellings and condominiums. Schools, shopping, public private facilities are all located nearby. Freeway access is adequate. 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Acca F7 Free Essays

Answers Fundamentals Level – Skills Module, Paper F7 (INT) Financial Reporting (International) 1 (a) December 2008 Answers Pedantic Consolidated income statement for the year ended 30 September 2008 $’000 98,000 (72,000) ––––––– 26,000 (3,000) (7,600) (500) ––––––– 14,900 (5,400) ––––––– 9,500 ––––––– Revenue (85,000 + (42,000 x 6/12) – 8,000 intra-group sales) Cost of sales (w (i)) Gross profit Distribution costs (2,000 + (2,000 x 6/12)) Administrative expenses (6,000 + (3,200 x 6/12)) Finance costs (300 + (400 x 6/12)) Profit before tax Income tax expense (4,700 + (1,400 x 6/12)) Profit for the year Attributable to: Equity holders of the parent Non-controlling interest (((3,000 x 6/12) – (800 URP + 200 depreciation)) x 40%) (b) 9,300 200 ––––––– 9,500 ––––––– Consolidated statement of financial position as at 30 September 2008 Assets Non-current assets Property, plant and equipment (40,600 + 12,600 + 2,000 – 200 depreciation adjustment (w (i))) Goodwill (w (ii)) Current assets (w (iii)) Total assets Equity and liabilities Equity attributable to owners of the parent Equity shares of $1 each ((10, 000 + 1,600) w (ii)) Share premium (w (ii)) Retained earnings (w (iv)) 55,000 4,500 ––––––– 59,500 21,400 ––––––– 80,900 ––––––– 11,600 ,000 35,700 ––––––– 55,300 6,100 –––– ––– 61,400 Non-controlling interest (w (v)) Total equity Non-current liabilities 10% loan notes (4,000 + 3,000) 7,000 Current liabilities (8,200 + 4,700 – 400 intra-group balance) 12,500 ––––––– 80,900 ––––––– Total equity and liabilities Workings (figures in brackets in $’000) (i) Cost of sales Pedantic Sophistic (32,000 x 6/12) Intra-group sales URP in inventory Additional depreciation (2,000/5 years x 6/12) $’000 63,000 16,000 (8,000) 800 200 ––––––– 72,000 ––––––– The unrealised profit (URP) in inventory is calculated as ($8 million – $5 ·2 million) x 40/140 = $800,000. 1 (ii) Goodwill in Sophistic Investment at cost Shares (4,000 x 60% x 2/3 x $6) Less – Equity shares of Sophistic (4,000 x 60%) – pre-acquisition reserves (5,000 x 60% see below) – fair value adjustment (2,000 x 60%) $’000 (2,400) (3,000) (1,200) –––––– Parent’s goodwill Non-controlling interest’s goodwill (per question) Total goodwill The pre-acquisition reserves are: At 30 September 2008 Earned in the post acquisition period (3,000 x 6/12) Alternative calculation for goodwill in Sophistic Investment at cost (as above) Fair value of non-controlling interest (see below) Cost of the controlling interest Less fair value of net assets at acquisition (4,000 + 5,000 + 2,000) Total goodwill Fair value of non-controlling interest (at acquisition) Share of fair value of net assets (11,000 x 40%) Attributable goodwill per question $’000 9,600 (6,600) –––––– 3,000 1,500 –––––– 4,500 –––––– 6,500 (1,500) –––––– 5,000 –––––– 9,600 5,900 ––––––– 15,500 (11,000) ––––––– 4,500 ––––––– 4,400 1,500 –––––– 5,900 –––––– The 1 ·6 million shares (4,000 x 60% x 2/3) issued by Pedantic would be recorded as share capital of $1 ·6 million and share premium of $8 million (1,600 x $5). $’000 16,000 6,600 (800) 200 (600) –––––– 21,400 ––––––– (iii) Current assets Pedantic Sophistic URP in inventory Cash in transit Intra-group balance (iv) Retained earnings Pedantic per statement of financial position Sophistic’s post acquisition profit (((3,000 x 6/12) – (800 URP + 200 depreciation)) x 60%) (v) Non-controlling interest (in statement of financial position) Net assets per statement of financial position URP in inventory Net fair value adjustment (2,000 – 200) Share of goodwill (per question) 12 $’000 35,400 300 ––––––– 35,700 ––––––– 10,500 (800) 1,800 ––––––– 11,500 x 40% = 4,600 ––––––– 1,500 ––––â⠂¬â€œÃ¢â‚¬â€œ 6,100 –––––– (a) Candel – Statement of comprehensive income for the year ended 30 September 2008 $’000 297,500 (225,400) ––––––––– 72,100 (14,500) (21,900) (1,400) ––––––––– 34,300 (11,600) ––––––––– 22,700 Revenue (300,000 – 2,500) Cost of sales (w (i)) Gross profit Distribution costs Administrative expenses (22,200 – 400 + 100 see note below) Finance costs (200 + 1,200 (w (ii))) Profit before tax (Income tax expense (11,400 + (6,000 – 5,800 deferred tax)) Profit for the year Other comprehensive income Loss on leasehold property revaluation (w (iii)) (4,500) ––––––––– Total comprehensive income for the year 8,200 –––– ––––– Note: as it is considered that the outcome of the legal action against Candel is unlikely to succeed (only a 20% chance) it is inappropriate to provide for any damages. We will write a custom essay sample on Acca F7 or any similar topic only for you Order Now The potential damages are an example of a contingent liability which should be disclosed (at $2 million) as a note to the financial statements. The unrecoverable legal costs are a liability (the start of the legal action is a past event) and should be provided for in full. (b) Candel – Statement of changes in equity for the year ended 30 September 2008 Balances at 1 October 2007 Dividend Comprehensive income Balances at 30 September 2008 (c) Equity shares $’000 50,000 Revaluation reserve $’000 10,000 ––––––– 50,000 ––––––– (4,500) –––––– 5,500 –––––– Retained earnings $’000 24,500 (6,000) 22,700 ––––––– 41,200 ––––––– Total equity $’000 84,500 (6,000) 18,200 ––––––– 96,700 ––––––– $’000 $’000 Candel – Statement of financial position as at 30 September 2008 Assets Non-current assets (w (iii)) Property, plant and equipment (43,000 + 38,400) Development costs 81,400 14,800 –––––––– 96,200 Current assets Inventory Tra de receivables 20,000 43,100 ––––––– Total assets Equity and liabilities: Equity (from (b)) Equity shares of 25 cents each Revaluation reserve Retained earnings 63,100 –––––––– 159,300 –––––––– 50,000 5,500 41,200 ––––––– Non-current liabilities Deferred tax 8% redeemable preference shares (20,000 + 400 (w (ii))) Current liabilities Trade payables (23,800 – 400 + 100 – re legal action) Bank overdraft Current tax payable Total equity and liabilities 13 6,000 20,400 ––––––– 23,500 1,300 11,400 ––––––– 46,700 –––––––– 96,700 26,400 36,200 –––––––– 159,300 –––––––– Workings (figures in brackets in $’000) (i) Cost of sales: Per trial balan ce Depreciation (w (iii)) – leasehold property – plant and equipment Loss on disposal of plant (4,000 – 2,500) Amortisation of development costs (w (iii)) Research and development expensed (1,400 + 2,400 (w (iii))) (ii) $’000 204,000 2,500 9,600 1,500 4,000 3,800 –––––––– 225,400 –––––––– The finance cost of $1 ·2 million for the preference shares is based on the effective rate of 12% applied to $20 million issue proceeds of the shares for the six months they have been in issue (20m x 12% x 6/12). The dividend paid of $800,000 is based on the nominal rate of 8%. The additional $400,000 (accrual) is added to the carrying amount of the preference shares in the statement of financial position. As these shares are redeemable they are treated as debt and their dividend is treated as a finance cost. (iii) Non-current assets: Leasehold property Valuation at 1 October 2007 Depreciation for year (20 year life) 50,000 (2,500) –––––––– 47,500 (43,000) –––––––– 4,500 –––––––– Carrying amount at date of revaluation Valuation at 30 September 2008 Revaluation deficit Plant and equipment per trial balance (76,600 – 24,600) Disposal (8,000 – 4,000) Depreciation for year (20%) Carrying amount at 30 September 2008 Capitalised/deferred development costs Carrying amount at 1 October 2007 (20,000 – 6,000) Amortised for year (20,000 x 20%) Capitalised during year (800 x 6 months) Carrying amount at 30 September 2008 $’000 52,000 (4,000) –––––––– 48,000 (9,600) –––––––– 38,400 –––––––– 14,000 (4,000) 4,800 –––––––– 14,800 –––––––– Note: development costs can only be treated as an asset from the point where they meet the recognition criteria in IAS 38 Intangible assets. Thus development costs from 1 April to 30 September 2008 of $4 ·8 million (800 x 6 months) can be capitalised. These will not be amortised as the project is still in development. The research costs of $1 ·4 million plus three months’ development costs of $2 ·4 million (800 x 3 months) (i. . those incurred before 1 April 2008) are treated as an expense. 3 (a) Eq uivalent ratios from the financial statements of Merlot (workings in $’000) Return on year end capital employed (ROCE) Pre tax return on equity (ROE) Net asset turnover Gross profit margin Operating profit margin Current ratio Closing inventory holding period Trade receivables’ collection period Trade payables’ payment period Gearing Interest cover Dividend cover 20 ·9% 50% 2 ·3 times 12 ·2% 9 ·8% 1 ·3:1 73 days 66 days 77 days 71% 3 ·3 times 1 ·4 times (1,400 + 590)/(2,800 + 3,200 + 500 + 3,000) x 100 ,400/2,800 x 100 20,500/(14,800 – 5,700) 2,500/20,500 x 100 2,000/20,500 x 100 7,300/5,700 3,600/18,000 x 365 3,700/20,500 x 365 3,800/18,000 x 365 (3,200 + 500 + 3,000)/9,500 x 100 2,000/600 1,000/700 As per the question, Merlot’s obligations under finance leases (3,200 + 500) have been treated as debt when calculating the ROCE and gearing ratios. 14 (b) Assessment of the relative performance and financial position of Grappa and Merlot for the year ended 30 September 2008 Introduction This report is based on the draft financial statements supplied and the ratios shown in (a) above. Although covering many aspects of performance and financial position, the report has been approached from the point of view of a prospective acquisition of the entire equity of one of the two companies. Profitability The ROCE of 20 ·9% of Merlot is far superior to the 14 ·8% return achieved by Grappa. ROCE is traditionally seen as a measure of management’s overall efficiency in the use of the finance/assets at its disposal. More detailed analysis reveals that Merlot’s superior performance is due to its efficiency in the use of its net assets; it achieved a net asset turnover of 2 ·3 times compared to only 1 ·2 times for Grappa. Put another way, Merlot makes sales of $2 ·30 per $1 invested in net assets compared to sales of only $1 ·20 per $1 invested for Grappa. The other element contributing to the ROCE is profit margins. In this area Merlot’s overall performance is slightly inferior to that of Grappa, gross profit margins are almost identical, but Grappa’s operating profit margin is 10 ·5% compared to Merlot’s 9 ·8%. In this situation, where one company’s ROCE is superior to another’s it is useful to look behind the figures and consider possible reasons for the superiority other than the obvious one of greater efficiency on Merlot’s part. A major component of the ROCE is normally the carrying amount of the non-current assets. Consideration of these in this case reveals some interesting issues. Merlot does not own its premises whereas Grappa does. Such a situation would not necessarily give a ROCE advantage to either company as the increase in capital employed of a company owning its factory would be compensated by a higher return due to not having a rental expense (and vice versa). If Merlot’s rental cost, as a percentage of the value of the related factory, was less than its overall ROCE, then it would be contributing to its higher ROCE. There is insufficient information to determine this. Another relevant point may be that Merlot’s owned plant is nearing the end of its useful life (carrying amount is only 22% of its cost) and the company seems to be replacing owned plant with leased plant. Again this does not necessarily give Merlot an advantage, but the finance cost of the leased assets at only 7 ·5% is much lower than the overall ROCE (of either company) and therefore this does help to improve Merlot’s ROCE. The other important issue within the composition of the ROCE is the valuation basis of the companies’ non-current assets. From the question, it appears that Grappa’s factory is at current value (there is a property revaluation reserve) and note (ii) of the question indicates the use of historical cost for plant. The use of current value for the factory (as opposed to historical cost) will be adversely impacting on Grappa’s ROCE. Merlot does not suffer this deterioration as it does not own its factory. The ROCE measures the overall efficiency of management; however, as Victular is considering buying the equity of one of the two companies, it would be useful to consider the return on equity (ROE) – as this is what Victular is buying. The ratios calculated are based on pre-tax profits; this takes into account finance costs, but does not cause taxation issues to distort the comparison. Clearly Merlot’s ROE at 50% is far superior to Grappa’s 19 ·1%. Again the issue of the revaluation of Grappa’s factory is making this ratio appear comparatively worse (than it would be if there had not been a revaluation). In these circumstances it would be more meaningful if the ROE was calculated based on the asking price of each company (which has not been disclosed) as this would effectively be the carrying amount of the relevant equity for Victular. Gearing From the gearing ratio it can be seen that 71% of Merlot’s assets are financed by borrowings (39% is attributable to Merlot’s policy of leasing its plant). This is very high in absolute terms and double Grappa’s level of gearing. The effect of gearing means that all of the profit after finance costs is attributable to the equity even though (in Merlot’s case) the equity represents only 29% of the financing of the net assets. Whilst this may seem advantageous to the equity shareholders of Merlot, it does not come without risk. The interest cover of Merlot is only 3 ·3 times whereas that of Grappa is 6 times. Merlot’s low interest cover is a direct consequence of its high gearing and it makes profits vulnerable to relatively small changes in operating activity. For example, small reductions in sales, profit margins or small increases in operating expenses could result in losses and mean that interest charges would not be covered. Another observation is that Grappa has been able to take advantage of the receipt of government grants; Merlot has not. This may be due to Grappa purchasing its plant (which may then be eligible for grants) whereas Merlot leases its plant. It may be that the lessor has received any grants available on the purchase of the plant and passed some of this benefit on to Merlot via lower lease finance costs (at 7 ·5% per annum, this is considerably lower than Merlot has to pay on its 10% loan notes). Liquidity Both companies have relatively low liquid ratios of 1 ·2 and 1 ·3 for Grappa and Merlot respectively, although at least Grappa has $600,000 in the bank whereas Merlot has a $1 ·2 million overdraft. In this respect Merlot’s policy of high dividend payouts (leading to a low dividend cover and low retained earnings) is very questionable. Looking in more depth, both companies have similar inventory days; Merlot collects its receivables one week earlier than Grappa (perhaps its credit control procedures are more active due to its large overdraft), and of notable difference is that Grappa receives (or takes) a lot longer credit period from its suppliers (108 days compared to 77 days). This may be a reflection of Grappa being able to negotiate better credit terms because it has a higher credit rating. Summary Although both companies may operate in a similar industry and have similar profits after tax, they would represent very different purchases. Merlot’s sales revenues are over 70% more than those of Grappa, it is financed by high levels of debt, it rents rather than owns property and it chooses to lease rather than buy its replacement plant. Also its remaining owned plant is nearing the end of its life. Its replacement will either require a cash injection if it is to be purchased (Merlot’s overdraft of 15 $1 ·2 million already requires serious attention) or create even higher levels of gearing if it continues its policy of leasing. In short although Merlot’s overall return seems more attractive than that of Grappa, it would represent a much more risky investment. Ultimately the investment decision may be determined by Victular’s attitude to risk, possible synergies with its existing business activities, and not least, by the asking price for each investment (which has not been disclosed to us). (c) The generally recognised potential problems of using ratios for comparison purposes are: – – – – – – inconsistent definitions of ratios financial statements may have been deliberately manipulated (creative accounting) different companies may adopt different accounting policies (e. g. use of historical costs compared to current values) different managerial policies (e. . different companies offer customers different payment terms) statement of financial position figures may not be representative of average values throughout the year (this can be caused by seasonal trading or a large acquisition of non-current assets near the year end) the impact of price changes over time/distortion caused by inflatio n When deciding whether to purchase a company, Victular should consider the following additional useful information: – – – – – 4 in this case the analysis has been made on the draft financial statements; these may be unreliable or change when being finalised. Audited financial statements would add credibility and reliance to the analysis (assuming they receive an unmodified Auditors’ Report). forward looking information such as profit and financial position forecasts, capital expenditure and cash budgets and the level of orders on the books. the current (fair) values of assets being acquired. the level of risk within a business. Highly profitable companies may also be highly risky, whereas a less profitable company may have more stable ‘quality’ earnings not least would be the expected price to acquire a company. It may be that a poorer performing business may be a more attractive purchase because it is relatively cheaper and may offer more opportunity for improving efficiencies and profit growth. (a) A liability is a present obligation of an entity arising from past events, the settlement of which is expected to result in an outflow of economic benefits (normally cash). Provisions are defined as liabilities of uncertain timing or amount, i. e. they are normally estimates. In essence provisions should be recognised if they meet the definition of a liability. Equally they should not be recognised if they do not meet the definition. A statement of financial position would not give a ‘fair representation’ if it did not include all of an entity’s liabilities (or if it did include, as liabilities, items that were not liabilities). These definitions benefit the reliability of financial statements by preventing profits from being ‘smoothed’ by making a provision to reduce profit in years when they are high and releasing those provisions to increase profit in years when they are low. It also means that the statement of financial position cannot avoid the immediate recognition of long-term liabilities (such as environmental provisions) on the basis that those liabilities have not matured. (b) (i) Future costs associated with the acquisition/construction and use of non-current assets, such as the environmental costs in this case, should be treated as a liability as soon as they become unavoidable. For Promoil this would be at the same time as the platform is acquired and brought into use. The provision is for the present value of the expected costs and this same amount is treated as part of the cost of the asset. The provision is ‘unwound’ by charging a finance cost to the income statement each year and increasing the provision by the finance cost. Annual depreciation of the asset effectively allocates the (discounted) environmental costs over the life of the asset. Income statement for the year ended 30 September 2008 Depreciation (see below) Finance costs ($6 ·9 million x 8%) Statement of financial position as at 30 September 2008 Non-current assets Cost ($30 million + $6 ·9 million ($15 million x 0 ·46)) Depreciation (over 10 years) Non-current liabilities Environmental provision ($6 ·9 million x 1 ·08) (ii) $’000 3,690 552 36,900 (3,690) –––––– 33,210 ––––––– 7,452 If there was no legal requirement to incur the environmental costs, then Promoil should not provide for them as they do not meet the definition of a liability. Thus the oil platform would be recorded at $30 m illion with $3 million depreciation and there would be no finance costs. However, if Promoil has a published policy that it will voluntarily incur environmental clean up costs of this type (or if this may be implied by its past practice), then this would be evidence of a ‘constructive’ obligation under IAS 37 and the required treatment of the costs would be the same as in part (i) above. 6 5 Year ended/as at: Income statement Depreciation (see workings) Maintenance (60,000/3 years) Discount received (840,000 x 5%) Staff training Statement of financial position (see below) Property, plant and equipment Cost Accumulated depreciation Carrying amount Workings Manufacturer’s base price Less trade discount (20%) Base cost Freight charges Electrical installation cost Pre-production testing Initial capitalised cost 30 September 2006 30 September 2007 30 September 2008 $ $ $ 180,000 270,000 119,000 20,000 20,000 20,000 (42,000) 40,000 ––––†“––– –––––––– –––––––– 198,000 290,000 139,000 ––––––– –––––––– –––––––– 920,000 (180,000) –––––––– 740,000 –––––––– 920,000 (450,000) –––––––– 470,000 –––––––– 670,000 (119,000) –––––––– 551,000 –––––––– $ 1,050,000 (210,000) –––––––––– 840,000 30,000 28,000 22,000 –––â₠¬â€œÃ¢â‚¬â€œÃ¢â‚¬â€œÃ¢â‚¬â€œÃ¢â‚¬â€œÃ¢â‚¬â€œÃ¢â‚¬â€œ 920,000 –––––––––– The depreciable amount is $900,000 (920,000 – 20,000 residual value) and, based on an estimated machine life of 6,000 hours, this gives depreciation of $150 per machine hour. Therefore depreciation for the year ended 30 September 2006 is $180,000 ($150 x 1,200 hours) and for the year ended 30 September 2007 is $270,000 ($150 x 1,800 hours). Note: early settlement discount, staff training in use of machine and maintenance are all revenue items and cannot be part of capitalised costs. Carrying amount at 1 October 2007 Subsequent expenditure Revised ‘cost’ 470,000 200,000 –––––––– 670,000 –––––––– The revised depreciable amount is $630,000 (670,000 – 40,000 residual value) and with a revised remaining life of 4,500 hours, this gives a depreciation charge of $140 per machine hour. Therefore depreciation for the year ended 30 September 2008 is $119,000 ($140 x 850 hours). 17 Fundamentals Level – Skills Module, Paper F7 (INT) Financial Reporting (International) December 2008 Marking Scheme This marking scheme is given as a guide in the context of the suggested answers. Scope is given to markers to award marks for alternative approaches to a question, including relevant comment, and where well-reasoned conclusions are provided. This is particularly the case for written answers where there may be more than one acceptable solution. Marks 1 (a) (b) Income statement: revenue cost of sales distribution costs administrative expenses inance costs income tax non-controlling interest 11/2 3 1/ 2 1 1/ 2 1/ 2 2 9 Statement of financial position: property, plant and equipment goodwill current assets equity shares share premium retained earnings non-controlling interest 10% loan notes current liabilities Total for question 2 (a) (b) (c) Statement of comprehensive income: revenue cost of sales distribution costs administrative expenses finance costs income tax ot her comprehensive income 2 5 11/2 1 1 2 2 1/ 2 1 16 25 1 5 1/ 2 11/2 11/2 11/2 1 12 Statement of changes in equity: rought forward figures dividends comprehensive income 1 1 1 3 Statement of financial position: property, plant and equipment deferred development costs inventory trade receivables deferred tax preference shares trade payables overdraft current tax payable Total for question 19 2 2 1/ 2 1/ 2 1 1 11/2 1/ 2 1 10 25 3 (a) (b) 1 mark per valid comment up to (c) Marks 8 Merlot’s ratios 1 mark per relevant point 12 Total for question 4 5 25 (a) 1 mark per relevant point 5 (b) (i) explanation of treatment depreciation finance cost non-current asset provision 2 1 2 1 7 (ii) figures for asset and depreciation if not a constructive obligation what may cause a constructive obligation subsequent treatment if it is a constructive obligation Total for question 5 1 1 1 3 15 Total for question 2 1 1 3 1 1 1 10 initial capitalised cost upgrade improves efficiency and life (theref ore capitalise) revised carrying amount at 1 October 2007 annual depreciation (1 mark each year) maintenance costs charged at $20,000 each year discount received (in income statement) staff training (not capitalised and charged to income) 20 How to cite Acca F7, Essay examples

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Answers Fundamentals Level – Skills Module, Paper F7 (INT) Financial Reporting (International) 1 (a) December 2008 Answers Pedantic Consolidated income statement for the year ended 30 September 2008 $’000 98,000 (72,000) ––––––– 26,000 (3,000) (7,600) (500) ––––––– 14,900 (5,400) ––––––– 9,500 ––––––– Revenue (85,000 + (42,000 x 6/12) – 8,000 intra-group sales) Cost of sales (w (i)) Gross profit Distribution costs (2,000 + (2,000 x 6/12)) Administrative expenses (6,000 + (3,200 x 6/12)) Finance costs (300 + (400 x 6/12)) Profit before tax Income tax expense (4,700 + (1,400 x 6/12)) Profit for the year Attributable to: Equity holders of the parent Non-controlling interest (((3,000 x 6/12) – (800 URP + 200 depreciation)) x 40%) (b) 9,300 200 ––––––– 9,500 ––––––– Consolidated statement of financial position as at 30 September 2008 Assets Non-current assets Property, plant and equipment (40,600 + 12,600 + 2,000 – 200 depreciation adjustment (w (i))) Goodwill (w (ii)) Current assets (w (iii)) Total assets Equity and liabilities Equity attributable to owners of the parent Equity shares of $1 each ((10, 000 + 1,600) w (ii)) Share premium (w (ii)) Retained earnings (w (iv)) 55,000 4,500 ––––––– 59,500 21,400 ––––––– 80,900 ––––––– 11,600 ,000 35,700 ––––––– 55,300 6,100 –––– ––– 61,400 Non-controlling interest (w (v)) Total equity Non-current liabilities 10% loan notes (4,000 + 3,000) 7,000 Current liabilities (8,200 + 4,700 – 400 intra-group balance) 12,500 ––––––– 80,900 ––––––– Total equity and liabilities Workings (figures in brackets in $’000) (i) Cost of sales Pedantic Sophistic (32,000 x 6/12) Intra-group sales URP in inventory Additional depreciation (2,000/5 years x 6/12) $’000 63,000 16,000 (8,000) 800 200 ––––––– 72,000 ––––––– The unrealised profit (URP) in inventory is calculated as ($8 million – $5 ·2 million) x 40/140 = $800,000. 1 (ii) Goodwill in Sophistic Investment at cost Shares (4,000 x 60% x 2/3 x $6) Less – Equity shares of Sophistic (4,000 x 60%) – pre-acquisition reserves (5,000 x 60% see below) – fair value adjustment (2,000 x 60%) $’000 (2,400) (3,000) (1,200) –––––– Parent’s goodwill Non-controlling interest’s goodwill (per question) Total goodwill The pre-acquisition reserves are: At 30 September 2008 Earned in the post acquisition period (3,000 x 6/12) Alternative calculation for goodwill in Sophistic Investment at cost (as above) Fair value of non-controlling interest (see below) Cost of the controlling interest Less fair value of net assets at acquisition (4,000 + 5,000 + 2,000) Total goodwill Fair value of non-controlling interest (at acquisition) Share of fair value of net assets (11,000 x 40%) Attributable goodwill per question $’000 9,600 (6,600) –––––– 3,000 1,500 –––––– 4,500 –––––– 6,500 (1,500) –––––– 5,000 –––––– 9,600 5,900 ––––––– 15,500 (11,000) ––––––– 4,500 ––––––– 4,400 1,500 –––––– 5,900 –––––– The 1 ·6 million shares (4,000 x 60% x 2/3) issued by Pedantic would be recorded as share capital of $1 ·6 million and share premium of $8 million (1,600 x $5). $’000 16,000 6,600 (800) 200 (600) –––––– 21,400 ––––––– (iii) Current assets Pedantic Sophistic URP in inventory Cash in transit Intra-group balance (iv) Retained earnings Pedantic per statement of financial position Sophistic’s post acquisition profit (((3,000 x 6/12) – (800 URP + 200 depreciation)) x 60%) (v) Non-controlling interest (in statement of financial position) Net assets per statement of financial position URP in inventory Net fair value adjustment (2,000 – 200) Share of goodwill (per question) 12 $’000 35,400 300 ––––––– 35,700 ––––––– 10,500 (800) 1,800 ––––––– 11,500 x 40% = 4,600 ––––––– 1,500 ––––â⠂¬â€œÃ¢â‚¬â€œ 6,100 –––––– (a) Candel – Statement of comprehensive income for the year ended 30 September 2008 $’000 297,500 (225,400) ––––––––– 72,100 (14,500) (21,900) (1,400) ––––––––– 34,300 (11,600) ––––––––– 22,700 Revenue (300,000 – 2,500) Cost of sales (w (i)) Gross profit Distribution costs Administrative expenses (22,200 – 400 + 100 see note below) Finance costs (200 + 1,200 (w (ii))) Profit before tax (Income tax expense (11,400 + (6,000 – 5,800 deferred tax)) Profit for the year Other comprehensive income Loss on leasehold property revaluation (w (iii)) (4,500) ––––––––– Total comprehensive income for the year 8,200 –––– ––––– Note: as it is considered that the outcome of the legal action against Candel is unlikely to succeed (only a 20% chance) it is inappropriate to provide for any damages. We will write a custom essay sample on Acca F7 or any similar topic only for you Order Now The potential damages are an example of a contingent liability which should be disclosed (at $2 million) as a note to the financial statements. The unrecoverable legal costs are a liability (the start of the legal action is a past event) and should be provided for in full. (b) Candel – Statement of changes in equity for the year ended 30 September 2008 Balances at 1 October 2007 Dividend Comprehensive income Balances at 30 September 2008 (c) Equity shares $’000 50,000 Revaluation reserve $’000 10,000 ––––––– 50,000 ––––––– (4,500) –––––– 5,500 –––––– Retained earnings $’000 24,500 (6,000) 22,700 ––––––– 41,200 ––––––– Total equity $’000 84,500 (6,000) 18,200 ––––––– 96,700 ––––––– $’000 $’000 Candel – Statement of financial position as at 30 September 2008 Assets Non-current assets (w (iii)) Property, plant and equipment (43,000 + 38,400) Development costs 81,400 14,800 –––––––– 96,200 Current assets Inventory Tra de receivables 20,000 43,100 ––––––– Total assets Equity and liabilities: Equity (from (b)) Equity shares of 25 cents each Revaluation reserve Retained earnings 63,100 –––––––– 159,300 –––––––– 50,000 5,500 41,200 ––––––– Non-current liabilities Deferred tax 8% redeemable preference shares (20,000 + 400 (w (ii))) Current liabilities Trade payables (23,800 – 400 + 100 – re legal action) Bank overdraft Current tax payable Total equity and liabilities 13 6,000 20,400 ––––––– 23,500 1,300 11,400 ––––––– 46,700 –––––––– 96,700 26,400 36,200 –––––––– 159,300 –––––––– Workings (figures in brackets in $’000) (i) Cost of sales: Per trial balan ce Depreciation (w (iii)) – leasehold property – plant and equipment Loss on disposal of plant (4,000 – 2,500) Amortisation of development costs (w (iii)) Research and development expensed (1,400 + 2,400 (w (iii))) (ii) $’000 204,000 2,500 9,600 1,500 4,000 3,800 –––––––– 225,400 –––––––– The finance cost of $1 ·2 million for the preference shares is based on the effective rate of 12% applied to $20 million issue proceeds of the shares for the six months they have been in issue (20m x 12% x 6/12). The dividend paid of $800,000 is based on the nominal rate of 8%. The additional $400,000 (accrual) is added to the carrying amount of the preference shares in the statement of financial position. As these shares are redeemable they are treated as debt and their dividend is treated as a finance cost. (iii) Non-current assets: Leasehold property Valuation at 1 October 2007 Depreciation for year (20 year life) 50,000 (2,500) –––––––– 47,500 (43,000) –––––––– 4,500 –––––––– Carrying amount at date of revaluation Valuation at 30 September 2008 Revaluation deficit Plant and equipment per trial balance (76,600 – 24,600) Disposal (8,000 – 4,000) Depreciation for year (20%) Carrying amount at 30 September 2008 Capitalised/deferred development costs Carrying amount at 1 October 2007 (20,000 – 6,000) Amortised for year (20,000 x 20%) Capitalised during year (800 x 6 months) Carrying amount at 30 September 2008 $’000 52,000 (4,000) –––––––– 48,000 (9,600) –––––––– 38,400 –––––––– 14,000 (4,000) 4,800 –––––––– 14,800 –––––––– Note: development costs can only be treated as an asset from the point where they meet the recognition criteria in IAS 38 Intangible assets. Thus development costs from 1 April to 30 September 2008 of $4 ·8 million (800 x 6 months) can be capitalised. These will not be amortised as the project is still in development. The research costs of $1 ·4 million plus three months’ development costs of $2 ·4 million (800 x 3 months) (i. . those incurred before 1 April 2008) are treated as an expense. 3 (a) Eq uivalent ratios from the financial statements of Merlot (workings in $’000) Return on year end capital employed (ROCE) Pre tax return on equity (ROE) Net asset turnover Gross profit margin Operating profit margin Current ratio Closing inventory holding period Trade receivables’ collection period Trade payables’ payment period Gearing Interest cover Dividend cover 20 ·9% 50% 2 ·3 times 12 ·2% 9 ·8% 1 ·3:1 73 days 66 days 77 days 71% 3 ·3 times 1 ·4 times (1,400 + 590)/(2,800 + 3,200 + 500 + 3,000) x 100 ,400/2,800 x 100 20,500/(14,800 – 5,700) 2,500/20,500 x 100 2,000/20,500 x 100 7,300/5,700 3,600/18,000 x 365 3,700/20,500 x 365 3,800/18,000 x 365 (3,200 + 500 + 3,000)/9,500 x 100 2,000/600 1,000/700 As per the question, Merlot’s obligations under finance leases (3,200 + 500) have been treated as debt when calculating the ROCE and gearing ratios. 14 (b) Assessment of the relative performance and financial position of Grappa and Merlot for the year ended 30 September 2008 Introduction This report is based on the draft financial statements supplied and the ratios shown in (a) above. Although covering many aspects of performance and financial position, the report has been approached from the point of view of a prospective acquisition of the entire equity of one of the two companies. Profitability The ROCE of 20 ·9% of Merlot is far superior to the 14 ·8% return achieved by Grappa. ROCE is traditionally seen as a measure of management’s overall efficiency in the use of the finance/assets at its disposal. More detailed analysis reveals that Merlot’s superior performance is due to its efficiency in the use of its net assets; it achieved a net asset turnover of 2 ·3 times compared to only 1 ·2 times for Grappa. Put another way, Merlot makes sales of $2 ·30 per $1 invested in net assets compared to sales of only $1 ·20 per $1 invested for Grappa. The other element contributing to the ROCE is profit margins. In this area Merlot’s overall performance is slightly inferior to that of Grappa, gross profit margins are almost identical, but Grappa’s operating profit margin is 10 ·5% compared to Merlot’s 9 ·8%. In this situation, where one company’s ROCE is superior to another’s it is useful to look behind the figures and consider possible reasons for the superiority other than the obvious one of greater efficiency on Merlot’s part. A major component of the ROCE is normally the carrying amount of the non-current assets. Consideration of these in this case reveals some interesting issues. Merlot does not own its premises whereas Grappa does. Such a situation would not necessarily give a ROCE advantage to either company as the increase in capital employed of a company owning its factory would be compensated by a higher return due to not having a rental expense (and vice versa). If Merlot’s rental cost, as a percentage of the value of the related factory, was less than its overall ROCE, then it would be contributing to its higher ROCE. There is insufficient information to determine this. Another relevant point may be that Merlot’s owned plant is nearing the end of its useful life (carrying amount is only 22% of its cost) and the company seems to be replacing owned plant with leased plant. Again this does not necessarily give Merlot an advantage, but the finance cost of the leased assets at only 7 ·5% is much lower than the overall ROCE (of either company) and therefore this does help to improve Merlot’s ROCE. The other important issue within the composition of the ROCE is the valuation basis of the companies’ non-current assets. From the question, it appears that Grappa’s factory is at current value (there is a property revaluation reserve) and note (ii) of the question indicates the use of historical cost for plant. The use of current value for the factory (as opposed to historical cost) will be adversely impacting on Grappa’s ROCE. Merlot does not suffer this deterioration as it does not own its factory. The ROCE measures the overall efficiency of management; however, as Victular is considering buying the equity of one of the two companies, it would be useful to consider the return on equity (ROE) – as this is what Victular is buying. The ratios calculated are based on pre-tax profits; this takes into account finance costs, but does not cause taxation issues to distort the comparison. Clearly Merlot’s ROE at 50% is far superior to Grappa’s 19 ·1%. Again the issue of the revaluation of Grappa’s factory is making this ratio appear comparatively worse (than it would be if there had not been a revaluation). In these circumstances it would be more meaningful if the ROE was calculated based on the asking price of each company (which has not been disclosed) as this would effectively be the carrying amount of the relevant equity for Victular. Gearing From the gearing ratio it can be seen that 71% of Merlot’s assets are financed by borrowings (39% is attributable to Merlot’s policy of leasing its plant). This is very high in absolute terms and double Grappa’s level of gearing. The effect of gearing means that all of the profit after finance costs is attributable to the equity even though (in Merlot’s case) the equity represents only 29% of the financing of the net assets. Whilst this may seem advantageous to the equity shareholders of Merlot, it does not come without risk. The interest cover of Merlot is only 3 ·3 times whereas that of Grappa is 6 times. Merlot’s low interest cover is a direct consequence of its high gearing and it makes profits vulnerable to relatively small changes in operating activity. For example, small reductions in sales, profit margins or small increases in operating expenses could result in losses and mean that interest charges would not be covered. Another observation is that Grappa has been able to take advantage of the receipt of government grants; Merlot has not. This may be due to Grappa purchasing its plant (which may then be eligible for grants) whereas Merlot leases its plant. It may be that the lessor has received any grants available on the purchase of the plant and passed some of this benefit on to Merlot via lower lease finance costs (at 7 ·5% per annum, this is considerably lower than Merlot has to pay on its 10% loan notes). Liquidity Both companies have relatively low liquid ratios of 1 ·2 and 1 ·3 for Grappa and Merlot respectively, although at least Grappa has $600,000 in the bank whereas Merlot has a $1 ·2 million overdraft. In this respect Merlot’s policy of high dividend payouts (leading to a low dividend cover and low retained earnings) is very questionable. Looking in more depth, both companies have similar inventory days; Merlot collects its receivables one week earlier than Grappa (perhaps its credit control procedures are more active due to its large overdraft), and of notable difference is that Grappa receives (or takes) a lot longer credit period from its suppliers (108 days compared to 77 days). This may be a reflection of Grappa being able to negotiate better credit terms because it has a higher credit rating. Summary Although both companies may operate in a similar industry and have similar profits after tax, they would represent very different purchases. Merlot’s sales revenues are over 70% more than those of Grappa, it is financed by high levels of debt, it rents rather than owns property and it chooses to lease rather than buy its replacement plant. Also its remaining owned plant is nearing the end of its life. Its replacement will either require a cash injection if it is to be purchased (Merlot’s overdraft of 15 $1 ·2 million already requires serious attention) or create even higher levels of gearing if it continues its policy of leasing. In short although Merlot’s overall return seems more attractive than that of Grappa, it would represent a much more risky investment. Ultimately the investment decision may be determined by Victular’s attitude to risk, possible synergies with its existing business activities, and not least, by the asking price for each investment (which has not been disclosed to us). (c) The generally recognised potential problems of using ratios for comparison purposes are: – – – – – – inconsistent definitions of ratios financial statements may have been deliberately manipulated (creative accounting) different companies may adopt different accounting policies (e. g. use of historical costs compared to current values) different managerial policies (e. . different companies offer customers different payment terms) statement of financial position figures may not be representative of average values throughout the year (this can be caused by seasonal trading or a large acquisition of non-current assets near the year end) the impact of price changes over time/distortion caused by inflatio n When deciding whether to purchase a company, Victular should consider the following additional useful information: – – – – – 4 in this case the analysis has been made on the draft financial statements; these may be unreliable or change when being finalised. Audited financial statements would add credibility and reliance to the analysis (assuming they receive an unmodified Auditors’ Report). forward looking information such as profit and financial position forecasts, capital expenditure and cash budgets and the level of orders on the books. the current (fair) values of assets being acquired. the level of risk within a business. Highly profitable companies may also be highly risky, whereas a less profitable company may have more stable ‘quality’ earnings not least would be the expected price to acquire a company. It may be that a poorer performing business may be a more attractive purchase because it is relatively cheaper and may offer more opportunity for improving efficiencies and profit growth. (a) A liability is a present obligation of an entity arising from past events, the settlement of which is expected to result in an outflow of economic benefits (normally cash). Provisions are defined as liabilities of uncertain timing or amount, i. e. they are normally estimates. In essence provisions should be recognised if they meet the definition of a liability. Equally they should not be recognised if they do not meet the definition. A statement of financial position would not give a ‘fair representation’ if it did not include all of an entity’s liabilities (or if it did include, as liabilities, items that were not liabilities). These definitions benefit the reliability of financial statements by preventing profits from being ‘smoothed’ by making a provision to reduce profit in years when they are high and releasing those provisions to increase profit in years when they are low. It also means that the statement of financial position cannot avoid the immediate recognition of long-term liabilities (such as environmental provisions) on the basis that those liabilities have not matured. (b) (i) Future costs associated with the acquisition/construction and use of non-current assets, such as the environmental costs in this case, should be treated as a liability as soon as they become unavoidable. For Promoil this would be at the same time as the platform is acquired and brought into use. The provision is for the present value of the expected costs and this same amount is treated as part of the cost of the asset. The provision is ‘unwound’ by charging a finance cost to the income statement each year and increasing the provision by the finance cost. Annual depreciation of the asset effectively allocates the (discounted) environmental costs over the life of the asset. Income statement for the year ended 30 September 2008 Depreciation (see below) Finance costs ($6 ·9 million x 8%) Statement of financial position as at 30 September 2008 Non-current assets Cost ($30 million + $6 ·9 million ($15 million x 0 ·46)) Depreciation (over 10 years) Non-current liabilities Environmental provision ($6 ·9 million x 1 ·08) (ii) $’000 3,690 552 36,900 (3,690) –––––– 33,210 ––––––– 7,452 If there was no legal requirement to incur the environmental costs, then Promoil should not provide for them as they do not meet the definition of a liability. Thus the oil platform would be recorded at $30 m illion with $3 million depreciation and there would be no finance costs. However, if Promoil has a published policy that it will voluntarily incur environmental clean up costs of this type (or if this may be implied by its past practice), then this would be evidence of a ‘constructive’ obligation under IAS 37 and the required treatment of the costs would be the same as in part (i) above. 6 5 Year ended/as at: Income statement Depreciation (see workings) Maintenance (60,000/3 years) Discount received (840,000 x 5%) Staff training Statement of financial position (see below) Property, plant and equipment Cost Accumulated depreciation Carrying amount Workings Manufacturer’s base price Less trade discount (20%) Base cost Freight charges Electrical installation cost Pre-production testing Initial capitalised cost 30 September 2006 30 September 2007 30 September 2008 $ $ $ 180,000 270,000 119,000 20,000 20,000 20,000 (42,000) 40,000 ––––†“––– –––––––– –––––––– 198,000 290,000 139,000 ––––––– –––––––– –––––––– 920,000 (180,000) –––––––– 740,000 –––––––– 920,000 (450,000) –––––––– 470,000 –––––––– 670,000 (119,000) –––––––– 551,000 –––––––– $ 1,050,000 (210,000) –––––––––– 840,000 30,000 28,000 22,000 –––â₠¬â€œÃ¢â‚¬â€œÃ¢â‚¬â€œÃ¢â‚¬â€œÃ¢â‚¬â€œÃ¢â‚¬â€œÃ¢â‚¬â€œ 920,000 –––––––––– The depreciable amount is $900,000 (920,000 – 20,000 residual value) and, based on an estimated machine life of 6,000 hours, this gives depreciation of $150 per machine hour. Therefore depreciation for the year ended 30 September 2006 is $180,000 ($150 x 1,200 hours) and for the year ended 30 September 2007 is $270,000 ($150 x 1,800 hours). Note: early settlement discount, staff training in use of machine and maintenance are all revenue items and cannot be part of capitalised costs. Carrying amount at 1 October 2007 Subsequent expenditure Revised ‘cost’ 470,000 200,000 –––––––– 670,000 –––––––– The revised depreciable amount is $630,000 (670,000 – 40,000 residual value) and with a revised remaining life of 4,500 hours, this gives a depreciation charge of $140 per machine hour. Therefore depreciation for the year ended 30 September 2008 is $119,000 ($140 x 850 hours). 17 Fundamentals Level – Skills Module, Paper F7 (INT) Financial Reporting (International) December 2008 Marking Scheme This marking scheme is given as a guide in the context of the suggested answers. Scope is given to markers to award marks for alternative approaches to a question, including relevant comment, and where well-reasoned conclusions are provided. This is particularly the case for written answers where there may be more than one acceptable solution. Marks 1 (a) (b) Income statement: revenue cost of sales distribution costs administrative expenses inance costs income tax non-controlling interest 11/2 3 1/ 2 1 1/ 2 1/ 2 2 9 Statement of financial position: property, plant and equipment goodwill current assets equity shares share premium retained earnings non-controlling interest 10% loan notes current liabilities Total for question 2 (a) (b) (c) Statement of comprehensive income: revenue cost of sales distribution costs administrative expenses finance costs income tax ot her comprehensive income 2 5 11/2 1 1 2 2 1/ 2 1 16 25 1 5 1/ 2 11/2 11/2 11/2 1 12 Statement of changes in equity: rought forward figures dividends comprehensive income 1 1 1 3 Statement of financial position: property, plant and equipment deferred development costs inventory trade receivables deferred tax preference shares trade payables overdraft current tax payable Total for question 19 2 2 1/ 2 1/ 2 1 1 11/2 1/ 2 1 10 25 3 (a) (b) 1 mark per valid comment up to (c) Marks 8 Merlot’s ratios 1 mark per relevant point 12 Total for question 4 5 25 (a) 1 mark per relevant point 5 (b) (i) explanation of treatment depreciation finance cost non-current asset provision 2 1 2 1 7 (ii) figures for asset and depreciation if not a constructive obligation what may cause a constructive obligation subsequent treatment if it is a constructive obligation Total for question 5 1 1 1 3 15 Total for question 2 1 1 3 1 1 1 10 initial capitalised cost upgrade improves efficiency and life (theref ore capitalise) revised carrying amount at 1 October 2007 annual depreciation (1 mark each year) maintenance costs charged at $20,000 each year discount received (in income statement) staff training (not capitalised and charged to income) 20 How to cite Acca F7, Essay examples