Case Study

Arab Open University B291: TMA – 1st Semester 2012-2013 Cut-Off Date: 10th of December 2012 About TMA: The TMA covers the financial accounting concepts…

Arab Open University B291: TMA – 1st Semester 2012-2013 Cut-Off Date: 10th of December 2012About TMA: The TMA covers the financial accounting concepts and practices in the businesses. It is marked out of 100 and is worth 20% of the overall assessment component. It is intended to assess students’ understanding of some of the learning points within Books 1 to 4. This TMA requires you to apply the course concepts.The TMA is intended to:  Increase the students’ knowledge about the reality of the accounting as a profession.  Assess students’ understanding of key learning points within Books 1 to 4.  Develop the ability to understand and interact with the nature of the financial statements in reality.  Develop students’ communication skills, such as memo writing, essay writing, analysis and presentation of material.  Develop basic ICT skills such as using the internet.The TMA: The TMA requires you to: 1- Review various study Books (from 1 to 4) of ‘Financial Accounting’ within it. 2- Conduct a simple information search using the internet. 3- Present your findings in not more than 1,600 words. The word count excludes headings, references, title page, and diagrams. 4- You should use a Microsoft Office Word and Times New Roman Font of 14 points. 5- You should read and follow the instructions below carefully. Each part of the process will carry marks for the assignment.Criteria for Grade Distribution: Criteria Content Using E-library & Referencing Structure and Presentation of ideas Total marks Financial Reporting on the Internet: Johnson Matthey Plc Marks 90 5 5 100The TMA Questions Financial Reporting on the Internet (Case study: Johnson Matthey Plc)The internet is a good place to get information that is useful to you in your study of accounting. For example, you can find information about current events, professional accounting organizations, and specific companies that may support your study. Johnson Matthey is a global specialty chemicals company underpinned by science, technology and its people. A leader in sustainable technologies, many of the group’s products enhance the quality of life of millions through their beneficial impact on the environment, human health and wellbeing. The world has changed a lot since Johnson Matthey’s foundation in 1817. From its early days as a precious metals assayer, the company has always sought to build on its strengths and respond to changing global needs. Today the group continues to apply its expertise in science and innovation to develop world leading products and technologies for customers around the world. Access the Johnson home page at: www.matthey.com. Johnson’ home page, access to “Investor Relations”, then “Reports and Publications”, then select the year 2012 to display and download the Annual Report for the year ended March 31, 2012. Instructions Use the annual report and accounts of 2011/2012 to answer the following questions: 1- Accounting and financial reporting is highly regulated in the UK. Financial accounting standards specify the types of information to be reported and how accounting numbers are to be calculated. Listed below are groups who benefit from these standards. For each group, explain why financial accounting standards are important. Substantiate your answer by different examples from the annual report. a- Board of directors b- Stockholders and Creditors c- KPMG Audit Plc. [Marks (Words): 12(300)] 2- Johnson’ financial statements are followed by a series of explanatory notes. What are some of the subjects covered by those notes? If Johnson does a good job presenting its financial statements, why are notes necessary? [Marks (Words): 5(100)] 3- Discuss several limitations of Johnson’s income statement. Substantiate your answer by three different examples from the annual report. [Marks (Words): 6(200)] 4- Assume that during 2011/2012, steadily increasing Johnson’s purchase costs, which inventory flow assumption results in the highest reported profit? The lowest taxable income? The valuation of inventory that closest to current replacement cost? Briefly explain your answers. [Marks (Words): 6(80)] 5- Assume that this is the first year of Johnson’s operation; there were numerous purchases of identical items of merchandise. However, there was no change during 2011 in prices paid for this merchandise. Under these special circumstances, how would the financial statements be affected by the choice between the FIFO and LIFO methods of inventory valuation? [Marks (Words): 4(50)] 6- Assume that Johnson operates in two locations: Cambridge and Chilton. The LIFO method is used in accounting for inventories at the Cambridge facility and the specific identification method for inventories at the Chilton location. Does this concurrent use of two inventory methods indicate that Johnson is violating the accounting principle of consistency? Explain. [Marks (Words): 5(100)] 7- List several principles to be observed by Johnson in establishing strong internal control over cash receipts. [Marks (Words): 7(200)] 8- Explain how each of the following is presented in (1) a multiple-step income statement and (2) a statement of cash flows for Johnson: a- Johnson made an adjusting entry to create (or increase) the allowance for doubtful accounts. b- Johnson made an adjusting entry to increase the balance in the Marketable Securities account to a higher market value (assume these investments are classified as available-for-sale securities). [Marks (Words): 8(90)] 9- On average, for how many days do Johnson’s accounts receivable remain outstanding before collection? [Marks (Words): 4(50)] 10- In what accounting period does the matching principle indicate that an expense should be recognized? [Marks (Words): 4(30)] 11- Johnson’s statement of financial position includes freehold buildings of £432.3 millions. Should depreciation continue to be recorded on a building when ample evidence exists that the current market value is greater than original cost and that the rising trend of market values is continuing? Explain. [Marks (Words): 5(50)] 12- Explain the meaning of an impairment of an asset. Provide several examples from Johnson’s 2012 annual report. What accounting event should occur when an asset has become substantially impaired? [Marks (Words): 5(80)] 13- Under what circumstances Johnson’s goodwill should be recorded in its accounts? [Marks (Words): 5(80)] 14- Which of the following characteristics would prevent Johnson’s item from being included in the classification of plant and equipment? a- Intangible, b- Limited life, c- Unlimited life, d- Held for sale in the regular course of business, e- Not capable of rendering benefits to Johnson. [Marks (Words): 6(30)] 15- The following is a note accompanying the annual report of Johnson (See p. 128 from 2012 annual report): Depreciation is provided at rates calculated to write off the cost less estimated residual value of each asset over its useful life. Certain freehold buildings and plant and equipment are depreciated using the units of production method, as this more closely reflects their expected consumption. All other assets are depreciated using the straight line method. The useful lives vary according to the class of asset, but are typically: leasehold property 30 years (or the life of the lease if shorter); freehold building 30 years; and plant and equipment 4 to 10 years. Freehold land is not depreciated. a- Are the depreciation methods used in Johnson’s annual report determined by current income tax laws? If not, who is responsible for selecting these methods? Explain. b- Does Johnson violate the consistency principle by using different depreciation methods for its assts? If not, what does the principle of consistency mean? Explain. c- What is the estimated depreciation rate of freehold building and plant and equipment? d- Who determines the useful lives over which specific assets are to be depreciated? [Marks (Words): 8(160)] [Total Marks (Words) = 90(1,600)]In your answer, you should explain each point or inquire separately. Use the following headings (below) to make up the different sections of your work:Cover The PT3 form (available on LMS) Contents Title and contents page TMA Financial Reporting on the Internet (Case study: Johnson Matthey Plc) References Recorded according to the Harvard style – Available on LMS