2010年10月17日星期日

Advanced Accy-3 methods -2

Several advanced accounting texts (1) present the full equity method in their consolidated statement working paper pedagogies. In these texts, many of the entries made by the parent company to adjust its accounts for unrealized profits on intercompany transactions would be different or would require modification if the parent issued "parent only" statements, or if the subsidiary was not consolidated.

The above paragraph is not a criticism of these textbooks, as their objectives are directed toward the preparation of consolidated financial statements. All of the equity-method approaches listed above, in addition to the cost method, are appropriate pedagogies. (2) In all of these texts, the consolidated statement working papers and resulting consolidated statements are correct in all respects, regardless of the method used by the parent company to account for its subsidiary investment. However, there appears to be a void in the literature with respect to accounting for intercompany transactions when a parent/investor uses the equity method to account for its …

Advanced Accy-3 methods

Advanced accounting textbooks present consolidation techniques and procedures from the standpoint of the parent's use of both the cost and equity methods. With respect to the equity method, one or more of the following three approaches are generally presented:

1. The "simple" equity method: Under this method, the parent's investment account reflects the price paid plus the parent's share of the subsidiary's net income less dividends.

2. The "partial" equity method: This method is the same as the "simple" equity method, except that the parent also adjusts its investment and subsidiary income accounts each period for any excess of cost over book value (or vice versa) as the undervalued (overvalued) assets and/or liabilities are used by the subsidiary in its earnings process.

3. The "full" or "complete" equity method. The parent extends the "partial" equity method and adjusts its accounts for intercompany transactions such as intercompany inventory profits that are unrealized at a financial statement date.

2010年7月18日星期日

Bill-and-hold Basis p.352

In May 2001 the Securities and Exchange Commission sued the former top executives at Sunbeam , charging the company with financial reporting fraud that allegedly cost investors billions in losses.

In the mid-1990s, Sunbeam needed help: its profits had declined significantly as did its stock price, and in 1996, the company reported a loss from continuing operations of 198 million. To the rescue comes Albert Dunlap, also known as "Chainsaw AL", based on his reputation as a ruthless executive known for his ability to restructure and turn around troubled companies, largely by eliminating jobs.

The strategy appeared to work. In 1997, Sunbeam's revenue had risen by 18% and profits were back in the black with income from continuing operations of 123 million. However, in April 1998, Paine Webber Inc. downgraded Sunbeam's stock recommendation. Why the downgrade? Paine Webber had noticed unusually high A/R, massive increase in sales of electric blankets in the third quarter 1997, which usually sell best in the fourth quarter, as well as unusually high sales of barbecue grills for the fourth quarter. Soon after Sunbeam announced a first quarter loss of 44.6 million, and Sunbeam's stock price fell 25%.

It eventually came to light that Dunlap and Sunbeam had been using a "bill and hold" stragtegy with retail buyers. This involved selling products at large discounts to retailers before they normally would buy and then holding the products in third-party warehouses, with delivery at a later date. According to an article in Barron's, much of the variation in Sunbeam's income from 1996 to 1997 reflected a discretionary use of accruals to accelerate expenses to 1996.

Bad debt expense, and the corresponding allowance for uncollectible accounts, is one of several so-called discretionary accruals that directly impact a company's income. Other discretionary accruals include warranty expenses, disscretionary compensation expenses such as bonuses, sales returns, and resturcturing costs. Each of these accrual requires estimates of future events, thus providing management the opportunity to shift income among reporting periods. For example, if management overestimates bad debt expense one period, a company will report lower profit that period and higher profit in a later period.

Bill-and-Hold Basis

Bill-And-Hold Basis

What Does Bill-And-Hold Basis Mean?
A method of conducting sales by billing the customer on the same day the transaction occurs, but not delivering the goods until a later date. Using the bill-and-hold basis is sometimes regarded as a controversial practice because allowing the seller to receive payment now, but making them wait a length of time before transferring the product could be used to inflate revenues meant for subsequent quarters.

Investopedia explains Bill-And-Hold Basis
The bill-and-hold basis is one method of revenue recognition. According to the Securities and Exchange Commission, it is the buyer's responsibility to request that a transaction be on a bill-and-hold basis and must have substantial business purposes in doing so. In addition to those criteria, any goods sold under this basis must be finished goods at the time of sale and not be available to fulfill any other orders.

In 1998, Sunbeam CEO, Al Dunlap used a bill-and-hold strategy in order to make Sunbean'sfinancial performance better than it really was by artificially inflating Sun Beam's revenue by 18%. Eventually, Dunlap was relieved of his station as the board of directors realized that he did not do anything to materially improve the company's financial situation.

Discretionary Accruals

Non-obligatory expense (such as an anticipated bonus formanagement) that is yet to be realized but is recorded in the account books.

cf.

non-discretionary accrual

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Definition

An obligatory expense that has yet to be realized but is already recorded in the account books. Examples of non-discretionary accruals are any upcoming bills or next month's salary.

2010年7月17日星期六

[eng] factor

變化形 factors;

分解...的因子; 把...分解成[(+into)]
把...作為因素計入[(+into/in)]
代理經營; 代管(產業)

vi. 不及物動詞