...ABC Company (NAME OF COMPANY IN CASE) Date: September 24, 2012 (DATE ASSIGNMENT DUE) Prepared by: Really Smart Senior (YOUR NAME) Reviewed by: Professor Robert Elya ISSUE: Accounting for ABC’s sale-sublease-leaseback of solar equipment with customers and third party investors. (THIS TOPIC/ISSUE LINE SHOULD SUCCINCTLY DESCRIBE THE OVERALL ACCOUNTING ISSUE BEING ADDRESSED IN THE MEMO) BRIEF BACKGROUND OF COMPANY (THIS SECTION IS DESIGNED TO PUT THE ISSUE IN CONTEXT) THIS SECTION SHOULD BRIEFLY DESCRIBE THE IMPORTANT INFORMATION ABOUT THE COMPANY THAT A READER OF MEMO WOULD FIND HELPFUL IN EVALUATING THE ISSUE, INCLUDING NATURE OF ITS BUSINESS, RELATIVE SIZE (TO PROVIDE DEGREE OF MATERIALITY OF ISSUE TO THE COMPANY’S OVERALL FINANCIAL STATEMENTS),PUBLIC/PRIVATE (TO DETERMINE SEC CONSIDERATIONS), AND AN INTRODUCTION TO THE OVERALL QUESTION BEING ADDRESSED ABC Company is a publicly held alternative energy firm that develops and leases solar panel technology to residential, government and commercial markets. As of December 31st, 2011, ABC Company recognized $X billion in revenue for the sale, lease and installation of photovoltaic solar systems. Customers have the choice of either purchasing or leasing ABC’s solar panels. ABC Company is currently involved in a sale and leasing arrangement involving residents and third party investors. KEY CONSIDERATIONS INVOLVED IN THE ACCOUNTING QUESTIONS (IN THIS SECTION YOU WILL BREAKDOWN THE OVERALL ACCOUNTING QUESTION INTO...
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...Prabhakar Date: January 17th, 2011 Re: ABC Trucking Co. assignment results Message: These are the results of the assignment given to me by you last week regarding ABC Trucking company potential new client. I have done the required research on the Financial Accounting Standards Board (FASB) website regarding lease structures and current practices as it would relate to the specific issue at hand with ABC Trucking. All my research has shown that leasing would be an optimum option for the company to consider when leasing the extra trucks according to the requirement of the new potential client. Some of the benefits of leasing are that they will be able to finance all of the cost of the additional trucks without having to use of their own cash, they will be able to keep the trucks off their balance sheet if they choose an operating lease, and a lease will protect them when the trucks will became old and obsolete. Basically, there are two types of leases that ABC Trucking can choose from, below is a brief description and requirements of each: 1. Capital Lease: this is when the agreement for the lease is designed for the lessee acquires the assets and the end of the lease. From ABC Trucking’s perspective, they will be entering into a capital lease if it meets any one of the following four conditions as in paragraph 840-10-25-1 of the FASB Codification: (1) At the end of the lease, the lessee becomes the owner of the asset (2) The lease give lessee an choice to purchase...
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...Technical Case Studies SOLUTIONS Case: Accounting for Lease Extension (Revised and updated 5/2013) Jack leases an office building from Jill. The lease is classified as an operating lease under the guidance of ASC Topic 840, Leases. The lease does not include any renewal options upon the expiration, but Jack is in the process of negotiating an extension of the lease. Jack proposes to make a single up-front payment of $1.2 million to Jill in exchange for an extension of the lease at the current rate for another 10 years. The extension would create a new lease under ASC par. 9 of 840-10-35-4. 1. 2. Should Jack include the $1.2 million in the calculation of the minimum lease payments when classifying the new lease? Assuming the new lease would qualify as an operating lease under ASC 840, when should Jack recognize the $1.2 million as rental expense? A1: Yes. Jack should include the up-front payment in the calculation of the minimum lease payments. ASC par. 840-10-25-5 defines minimum lease payments from the standpoint of the lessee as “ ...the payments that the lessee is obligated to make or can be required to make in connection with the leased property…,excluding...(a) contingent rentals, (b) any guarantee by the lessee of the lessor’s debt and the lessee’s obligation to pay (apart from the rental payments) executory costs such as insurance, maintenance, and taxes in connection with the leased property. The $1.2 million is not a contingent rental, a guarantee of Jill’s ” debt...
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...Mecca Street, P.O. Box 921951, Amman 11192, Jordan. Tel: 962-7-950-1220. E-mail: muhannad.atmeh@gju.edu.jo Received: May 22, 2012 doi:10.5539/ijbm.v7n18p49 Accepted: June 20, 2012 Online Published: September 16, 2012 URL: http://dx.doi.org/10.5539/ijbm.v7n18p49 Abstract Islamic banks use finance leases as a mode of financing, after incorporating major alterations in the structure of the contract in order to meet Shariah principles. In this case, the contract is called ‘Ijarah Muntahia Bittamleek’. As different structures might lead to different accounting results, the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) issued Financial Accounting Standards to tackle the accounting treatment for such transactions. The paper criticised the accounting treatment offered by AAOIFI for violating the matching principle and lacking faithful representation. Suggested amendments for accounting treatments are also proposed. Keywords: Ijarah, lease, Islamic accounting, Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), financial reporting 1. Introduction Ijarah, also referred to as ‘Islamic lease’, is a contract where one party transfers the usufruct (Note 1) of an item to another party for a specified period, in exchange for a specified consideration (Asian-Oceanian...
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...Company Car Policy 1. Objective The new Company Car Policy has been formulated in order to introduce an employee friendly and easy to administer car scheme in the company with effect from -----------. With the introduction of this scheme all previous car schemes stand withdrawn. 2. Scope Employees in Grade M1 and above are entitled to participate in this scheme. These employees have been assigned Management Allowance / Car Kitty as part of their remuneration package. Their Management Allowance / Annual Car Kitty amount is given in the table included herein below. |(A) |(B) |(C) |(D) |(E) | | | | | | | |Grade |Car Kitty Amt. (p.a.)* |Mgmt. Allow. (p.m.) |Addnl. Car Kitty (p.a.)* |Max. Car Kitty Amt. (p.a.)* | | | | | | | | |Rs. |Rs. |Rs. |Rs. | |M5 |240,000 |20,000 |60,000 |300,000 | |M4 |195,000 |16,250 |45,000 |240,000 ...
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...Chapter 9 3. Turner Company owned and operated a cable television business. The company owned more than 780 miles of feeder cable. The cable was annexed to telephone poles owned by BTT Telephone Company under a lease that required removal of the cable if BTT should need the space for its own service needs. Butte County assessed the Turner Company cable as real property because it is properly classified as a fixture. Is the county correct? Why? A fixture is defined as personal property that has become attached or annexed to real estate; a fixture generally is treated as part of real estate. There are certain things considered when determining whether or not the item will be considered as a fixture. First, it will need to be determined whether the fixture is included in the real estate for tax purposes. Second it would need to determine if the sale of the real estate will include the item of property. Third, it will need to be determined whether the item is covered by the mortgage and fourth, if the item belongs to the landowner, not the tenant that could be terminated of a lease. Base on information above, although the cable was annexed to the telephone poles, it was based on a lease, it did not belong to the landlord owner, therefore it could not qualify as a fixture. In addition, the cable is not included in the value of the property nor is it part of a security given by mortgagor. The cable is an item that can be removed in which will not change the value of the property...
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...Accounting for Leases Rae Girl ACC306 Intermediate Accounting II Professor Bill Wax August 21, 2015 Accounting for Leases Leasing is a commonly used financing vehicle in both personal and business arenas because the lease allows the parties to accomplish a sales-type transaction that benefits each without the commitment of an outright purchase on the part of the lessee. While the basic concept of a lease is simple, there are many complexities in theory and practice that have given rise to much discussion in the accounting profession. Still, leasing is a popular instrument and accountants must fully understand the methodology of decision-making and accounting for leases in order to properly reflect these transactions in a company’s financial statements. Simply defined, a lease is a contract between a lessor, the owner of an asset, and a lessee, the user of the asset. In other words, the lessor gives legal rights over the asset for a specified period of time to the lessee through a contractual agreement called a lease. The lessor retains legal ownership of the asset while the lessee has the right utilize the asset in business operations without having to purchase the asset outright. For this reason, in many instances, leases can be considered a financing vehicle. There are two basic lease classifications. The operating lease is a simple lease to account for because it is considered to be of the nature of a rental agreement. “The fundamental rights and responsibilities...
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...Delivery Models • Read the three scenarios below • In each case, indicate which Could Delivery model would best fit the situation described. • Include a brief description explaining your answer Scenario #1 XYZ is a large real estate firm. Their core competence is their understanding of the real estate market, and their understanding of their customers and the customer needs. Their most critical tools are their CRM and email servers. They are growing, and so is their customer list and their IT and marketing costs are growing at an alarming rate. They currently use managed services to run their CRM, email, etc software but they have had to deal with significant delays as each growth spurt is bogged down by the time and cost it takes to provision new servers, install the software, test it and bring it online. Which cloud delivery model would be best suited for them? IaaS / PaaS / SaaS --> SaaS is the best fit for scenario #1. XYZ uses managed services to run their CRM, email etc. SaaS has many advantages like reducing IT support cost by outsourcing hardware and software maintenance and support to SaaS provider. It also reduces the time to install the software and configure the software which could lead to problems during software deployment. It also has advantages over scalability and integration compared to traditional models, users do not have to buy another server or software. Scenario #2 ABC is a mid-size animation company that has historically worked...
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...An analysis was conducted on the financial statements of Custom Snowboards, Inc. for consideration of a 5-year-loan with our institution. Financial statement line items, risk assessments, and ratios were all examined with pertinent items that need to be considered are included in this report, and if granted the loan, can track the progress of the company’s ability to repay the loan. The financial statement line items of Custom Snowboards, Inc. were analyzed focusing on areas that were influential in determining the risk factors of extending a 5-year-loan to the company by assessing these bottom line issues: (1) the company’s ability to make money, profitability; (2) the company’s ability to pay it’s bills, liquidity (http://www.ehow.com/how_2317586_improve-liquidity.html), and in the meet long-term financial obligations and business longevity, solvency (http://www.ehow.com/info_8752952_solvency-accounting.html). Banks pay close attention to borrowing liabilities before granting a loan to evaluate the how much the company owes and who the existing creditors are. Liability trends are gauged to ensure the bank is not over-extending itself to its customers. Assets are a prime factor in a bank’s lending decision as it represents the resources the borrower has to generate cash to repay a loan. Short-term solvency is determined by the company’s existing assets. Bankers pay special attention to profits and losses to assess the company’s revenues in search of trends that can limit the...
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...ACCOUNTING METHODS Presentation of the course Introductory course 4 “intensive” days Theory, terminology, practical examples Suggested readings: Elliott, Barry; Elliott, Jamie: "Financial Accounting and Reporting", Prentice Hall 2012, 15th edition. Horngren, Bhimani, Datar and Foster: "Management and Cost Accounting." Prentice Hall, 2007, 4th edition. Info What to expect from this course: An introduction to the discipline to prepare you for the proceedings of your Master To learn the “language” of the Business An overview of the topics in FA, MA and FSA “Course Limitations” Key questions What is the role of accounting? Accounting provides information. It measures business transactions and operations, “translating” them into numbers, in order to provide information. Why do we need to study accounting? Who are the user of this information? Why do we study accounting? To understand the world of business (and its language) To make better investment choices (resource allocation) To become advanced users To become advanced preparers … The “users” of accounting information Primarily “external” oriented Financial Accounting Managerial Accounting Primarily “internal” oriented Tax Accounting Primarily “external” oriented Financial Accounting and Reporting Generally Accepted Accounting Principles (GAAP), International Accounting Standards (IAS), International Financial Reporting Standards (IFRS)...
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...Financial modelling techniques * Learn to develop income statement and cash flow statement. * Understand the concept of time value of money, the present & future value. * Understand what is cost of capital to a company. * What is payback period for an investment? * How to compute NPV & IRR? * What are the decision criteria of NPV & IRR? * How to apply them in decision making? * Case studies. Case Studies: 1. Dwyer Company plans to develop a new product. Sales manager believes that the firm could sell 5000 units per year at $14 each for 5 years. Production manager has determined that machinery costing $60000 and having a 5-year life with $5000 salvage value would be required. The machinery has fixed operating cost of $4000 annually. Variable cost per unit would be $8. Straight line depreciation would be used and tax rate is 40%. The firm cost of capital is 14%. Should the firm proceed? 2. Kiernan Company is deciding if they should add a new model of desk to their office equipment. The desk can sell for $500 each and has variable cost of $320. Volume is expected to be 4500 units per year for 5 years. To make the desk, the firm will have to buy additional machine at $1,500,000, having a 5-year life with no salvage value. Annual fixed cost is $300,000. Straight line depreciation will be used. The firm is in 40% tax bracket and its cost of capital is 10%. Should Kiernan proceed to introduce the new model? ...
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...CASE ANALYSIS You have just been hired as a graduate accountant by Greenwood Industries, a company that manufactures electronic products. There are five divisions within Greenwood: Oaktree, which produces large-screen televisions; Gumtree, which produces sound systems, including hi-fi and digital radios; Pinetree, which produces video cameras; Cedartree, which produces kitchen accessories, and Birchtree, which produces electronic medical products. All divisions are standalone, with a manager responsible for each division, as well as its own administrative functions. The accounting function is centralised, however, each division has an accounts team to help with preparation of planning and reports. From time to time, an accountant from the main office may be assigned to a division to assist with issues that the division may encounter, and which the accounts team may not have the expertise or experience to handle. You have been appointed to a graduate position with the central accounting team and have been made aware that from time to time, your job assignation may take you out of the central office into a division. You will be reporting to Maureen Pistana, the Chief Financial Officer of Greenwood industries. On your first day, Maureen called you into her office and informed you that you have to prepare a report for her. You are required to head down to Birchtree to speak to Michael Fowler, the manager of the division to discuss some planning issues. You are then...
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...With the sales growth and expected continual growth in Europe, Custom Snowboards, Inc. is considering an expansion into Europe. The company has two options for expansions; to build a new manufacturing facility or to merge/acquire the operations of an already established European manufacturer called European Snow Fun. In order for an acquisition to work, the company would need a loan from the bank for one million dollars. A1. Looking at the financial aspect of the company, there are a few key points that could affect a bank officer’s decision. The bank officer would need to figure in on how the company would be able to pay the debt back. The vertical analysis shown in the financial statement shows how the base amount in relation to the particular items. There are a few main points to gather from the vertical analysis. The first one we will take a look at is the net sales of every year. In year 2012, the net sale was $6,601,000 with a gross profit of $2,009,000. In year 13, we saw an increase to $6,633,200 in net sales with a gross profit of $2,018,800. However, we see some concern when taking a look at year 14. The sales declined by $225,400 compared to year 13, while gross profits took only a slight decline of $68,600. It seems that this was due to the fact that they were cutting back on operating expenses compared to the previous years. In year 12, the total selling expense was $779,000, in year 13 it was $782,800, and in year 14 they dropped it down to $756,200. In...
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...SECTION A Question A1 is COMPULSORY Question A1 Below are extracts from the financial statements of a listed company which operates a chain of bakery and sandwich retail outlets in the United Kingdom. Income statements | |2012 |2011 | | |£’000 |£’000 | |Revenue |658,186 |628,198 | |Cost of sales |(252,284) |(241,939) | |Gross profit |405,902 |386,259 | |Distribution costs |(321,686) |(309,735) | |Administrative expenses |(35,783) |(35,944) | |Other income |- |8,033 | |Operating profit |48,433 |48,613 | |Interest receivable and similar income |346 |857 ...
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...Project Finance Module NATIONAL STOCK EXCHANGE OF INDIA LIMITED Dtp-Sys-9\D:\F\2012\F-902-12-Project_Finance/F-902-12-Project_Finance.indd Test Details: Sr. No. Name of Module Fees (Rs.) Test Duration (in minutes) No. of Questions Maximum Marks Pass Marks (%) Certificate Validity 1 Financial Markets: A Beginners’ Module * 1686 120 60 100 50 5 2 Mutual Funds : A Beginners' Module 1686 120 60 100 50 5 3 Currency Derivatives: A Beginner’s Module 1686 120 60 100 50 5 4 Equity Derivatives: A Beginner’s Module 1686 120 60 100 50 5 5 1686 120 60 100 50 5 1686 120 60 100 50 5 7 Interest Rate Derivatives: A Beginner’s Module Commercial Banking in India: A Beginner’s Module Securities Market (Basic) Module 1686 120 60 100 60 5 8 Capital Market (Dealers) Module * 1686 105 60 100 50 5 9 Derivatives Market (Dealers) Module * 1686 120 60 100 60 3 1686 120 60 100 60 5 1686 120 60 100 60 5 12 FIMMDA-NSE Debt Market (Basic) Module Investment Analysis and Portfolio Management Module Fundamental Analysis Module 1686 120 60 100 60 5 13 Financial Markets (Advanced) Module 1686 120 60 100 60 5 14 Securities Markets (Advanced) Module 1686 120 60 100 ...
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