This project is weighted 12% of total ACCT221 marks
The aim of this Assignment is to develop the students’ ability to critically analyse accounting issues
and to apply accounting knowledge to solve problems (L01).
The case below about Spar and Nisa companies. Both firms in the same industry (Selling
agricultural machinery) in UK and have provided you with the following financial information.
Please read the case and answer the required questions.
Years |
2013
£ M |
2014
£ M |
2015
£ M |
2016
£ M |
Spar |
1,000000 |
2,000000 |
4,000000 |
8,000000 |
Nisa |
4,000000 |
(1,000000) |
15,000000 |
(3,000000) |
Based on the information above and the materials given about the topic, answer the following
questions.
A. When you compare the profit of both companies, do you think there is earnings
management? If so, in which company and which method of creative accounting that the
company used to do earnings management. 1.5 marks
B. Which firm do you think might be favoured by the stock market? Why. 1.5 marks
In 2013 Spar company has only one asset, inventory, worth say £20,000000, then if the equity is
£19,000000 and this year’s profit is £1,000000. If the company could first, adopt more generous
inventories valuation policy to decrease provisions for obsolete inventoriesiby £200,000. Second
revaluate the value of the inventories based on market value not on book value to increase the
inventories by 1,000000.
A. How is the balance sheet of the company looks like before and after adopting these
polices?. 1.5 marks
B. Do you think by adopting these polices to decrease provisions for obsolete inventories
and increase inventories effect the company’s profit? Explain your answer using the
calculation when it need it. 1.5 marks
Nisa company in UK, where the tax system gives capital allowance (money deducted from the
overall income tax). The tax year runs from 10thof April to 9thof April. The financial year of the
company end was 30 of June. Tom is farmer and want to buy machine in March and wanted the
machinery invoiced in in March, but would pay in August when the machine will be delivered.
A. Why do you think Tom wished to do this? 1.5 marks
B. The manager of Nisa company accepted and decided to send the bill to the farmer Tom
and record the transaction as revenue as soon as the bill has been sent. Why do you
think the manager accept and decided to do revenue recognition in the way that he
decided to do? Is there profit management here? explain your answer and show if there
advantage and disadvantage of manager’s decision. 1.5 marks
Assume that In 2014 Spar made profit of £2,000000 before deprecation. The company has
£20,000000 worth of equipment. Currently it using the straight line method to depreciate its
equipment over 10 years. However, the company is thinking to change its depreciation policy by
to 20 years estimated useful life instead of 10 years.
A. Do you think this change will affect the company’s profit? Explain your answer using the
calculation to show the profit before and after the change. If there was effect on company’s
profit, what is the amount of the change. 1.5 marks
B. After you finish analysing the case, now you need to conclude your assignment with
the consequences of using creative accounting in managing the profits of companies.
1.5 marks
Notes:
Please note that the writing should be in essay style, the report should contains about 1000 words
except title page. Use Times New roman with font size 12. Title page should be included (name
and student identity number).
Due date for submitting the case study is
7thDecember, 2017 (midnight)using the
SafeAssignment and hard copy to your instructor in next day.
iAn inventory provision is typically a dollar figure companies write off for theft, spoilage, obsolete or damaged inventory.
Companies use these provisions to ensure the inventory figures on the accounting books accurately reflect the physical inventory
products in the company