Order 1060548: Research Report on Samsung Group assingment

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CONTINGENT LIABILITY: According to AASB 1044, companies are expected to disclose provisions for contingent liabilities if the business is confident that they might be cash outflow as a result of past activities such a breach of contract. As a rule, the business should not only disclose the causes of contingent liabilities but also its implication on the financial statement. This means business must disclose all the contingent liabilities that are foreseeable. According to AASB, a contingent liability provision must be recognized by the business when there is probable that future sacrifices of economic benefit or losses will be incurred by the firm. Moreover, the cost/benefit of the future event can be measured reliably. Therefore, it is the duty of management to ensure that companies have provided provision for the contingent liability when there it is highly likely that a business will incur losses. According to Samsung annual report 2017, the company has not presented any provision for contingent liabilities (Samsung Annual Report, 2017). However, a critical analysis of Samsung shows that there was the significant probability of losing cash due to the breach of the patent right. Samsung management knew the business had a high probability of losing cash due to the lawsuit filed by Apple and Huawei. Samsung was ordered to pay $120 million as damages to Samsung for infringing two patents (Kastrenakes, 2017).

It also lost a case filed by Chinese mobile phone maker Huawei for $11.6 million (Chong, 2017). Samsung infringed Huawei smartphone cellular technology and was ordered to pay the fine.

The lawsuit was filed in 2016 but Samsung management has deliberately failed to disclose them as contingent liabilities.

Interestingly, even after the case against apple having being completed in 2016, Samsung appealed the case in 2017 but failed to provide provision for contingent liability. In the case against apple, Samsung management knew the firm had a high probability of losing the appeal case. Moreover, the cash outflow could be measured reliably since the court had already identified the fined to be paid. Therefore, it is correct to argue that Samsung either deliberately failed to disclose provision for contingent liability or it was an act of omission. This shows that the accuracy of Samsung annual report in 2017 is questionable. It does not represent the fair view financial position of the business.

METHOD OF DEPRECIATION:

According to AASB, firms should depreciate their asset to depict the fair value. Samsung has depreciated its assets on a straight line bases to allocate the cost between their cost and residual value. Samsung has complied with AASB require to depreciate its assets on a straight line bases.

SALES RETURNS COMPARISON:

Samsung recalled S7 and washing machines due to complain from customers that they were blasting (Dolcourt, 2017). It was expected that the sales return would reduce profitability and be disclosure in the annual report as note to financial statement. However, Samsung has not disclosed any sales return in its annual report. Consequently, it is difficult to establish the implication of the sales return on the annual report. However, the lack of disclosure shows that Samsung financial statement do not represent a fair view financial position of the business.

EFFECT ON THE EARNING PER SHARE (EPS):

The issues that has been facing Samsung such as S7 blast, lawsuit and bribery had little impact on earnings per share. Samsung earnings per share increased in 2017 from $139.66 in 2016 to $265.12 in 2017 as shown in the screenshot below.

Samsung revenues improved in 2017 which resulted to high net income attributed to shareholders. Irrespective of recalling S7 and washing machines, earnings per share continued to improve. However, it is essential to note that earnings per share is determine by management.

References

Chong, Z. 2017. Samsung to pay Huawei $11M for patent violations, court rules. Available at: https://www.cnet.com/news/huawei-beats-samsung-in-battle-over-patent-infringement/ (Accessed 20 Apr. 2018).

Dolcourt, J. 2017. Samsung Galaxy Note 7 recall: Here's what happens now. Available at: https://www.cnet.com/news/samsung-galaxy-note-7-return-exchange-faq/ (Accessed 20 Apr. 2018).

Kastrenakes J. 2017. Apple has finally won $120 million from Samsung in slide-to-unlock patent battle. Available at: https://www.theverge.com/2017/11/6/16614038/apple-samsung-slide-to-unlock-supreme-court-120-million (Accessed 8 Apr. 2018).

Samsung Annual Report. 2017. Consolidated financial statement. Available at: http://images.samsung.com/is/content/samsung/p5/global/ir/docs/2017_con_quarter04_all.pdf (Accessed 8 Apr. 2018).