Description

University of Surrey

Cases in Accounting and Finance

Group Assignment

Group Assignment

• 100% Course work (2,500 words)
• Critically review academic literature
• Deadline for submission, 4pm, 27th July, 2020

 

Group Assignment

For group assignment, Please choose One case from the two listed below

1. Silic (A): Choosing Cost or Fair Value on Adoption of IFRS
2. Assessing Earnings Quality: Nuware, Inc.

Purchase Link: https://hbsp.harvard.edu/import/723079

Note: remember to download the Supplementary Material

 

Silic (A): Choosing Cost or Fair Value on Adoption of IFRS

Questions

1. Assume here are two separate real estate companies: France Realty (which applies the cost model), and International Realty (which applies the fair-value model). Assume also that on December 31, 2003, each company pays €1,000 cash to obtain investment property comprising land with negligible value and an office building worth €1,000. The building has a 10-year useful life, has no residual value, and is expected to provide a constant stream of economic benefits over time. What is the accounting entry for each company for the following four scenarios:

(a) on December 31, 2003, at acquisition

(b) on December 31, 2004, assuming the investment property fair value is €1,500

(c) on December 31, 2005, assuming the investment property fair value is €1,200

(d) on December 31, 2006, assuming the investment property fair value is €600

2. Using the above illustrations, what financial analysis challenges arise as a result of these different accounting models?
3. As the CEO of Silic, which model, cost or fair value, would you adopt? Why?
4. In general, do you think the adoption of IFRS has improved financial reporting quality? Why?

What evidence do you have? Use academic literature to support your arguments.

 

Case: Assessing Earnings Quality: Nuware, Inc.

Questions

1. Assume the role of Hereford and adjust Nuware’s 2013 reported accounting figures as if the company had used a similar accounting method and assumptions as R. P. Stuart. After these adjustments, do Nuware’s earnings remain superior to those of R. P. Stuart?
2. Would you characterize the accounting discretion applied by Nuware management as aggressive? Do you think the company has been “managing” earnings?
3. What is earnings quality? How to measure earnings quality?
4. Does conservative accounting represent high earnings quality? Why? Use academic literature to support your arguments.

Solution to case 2: Nuware Inc. 

Introduction

Financial reports are aimed at providing crucial information to the users about the performance and health of a firm in accordance to the applicable accounting standards (Brigham & Ehrhardt, 2014).  As such, in order for the accounting information to be relevant to the users, it must be comparable. Nonetheless, in situations where such information is not comparable, due to the reliance of different accounting standards, there is need for reinstatement of the reported earnings. Moreover, Milton (2020) indicates that, accounting standards adopted by the management also have a significant impact on the earnings quality. In some cases, management adopt accounting standards to enable them manipulate earnings and mislead users into the performance of the firm. It is on this basis, that, this paper discusses various issues in regard to earnings quality of Nuware Inc.

Question 1

Restating Nuware’s reported earnings for 2013

Restatement of financial statements is the act of revising the firm’s financial statements in order to correct errors or to make them comparative with other statements (Flower & Ebbers, 2018). Normally, restatement is conducted where there are material errors such as accounting mistakes, fraud misrepresentation or use of different accounting standards.

Table 1: Restated Nuware Inc. reported earnings for 2013

	2013 reported earnings $ 000	Adjustments $ 000	restated using RP Stuart accounting practices $ 000
Net sales	1,754,861		1,754,861
Cost of sales	1,001,892	5,600	1,007,492
Gross income	752,969		747,369
Selling and administration expenses	586,124	4,270	590,394
advertising and marketing expenses		10,200	10,200
Depreciation	36,356		36,356
Operating profit	130,489		110,419
net interest & investments	XXX	XXX	XXX
interest costs	XXX		XXX
profit before tax	XXX	XXX	XXX
income tax	XXX		XXX
Net profit	XXX		XXX
Earnings per share  – basic	XXX		XXX
– diluted	XXX		XXX

To receive a full sample to case 2: Nuware inc, please click the download icon below:

To receive a high quality, customised and plagiarism free solutions to both questions, please contact us on WhatsApp +254716353533