financial accounting

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Arab Open University

B326: TMA –1st Semester 2018-2019

About TMA:

The TMA covers the advanced 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 chapter 1, 3,4 and 5 beside the supplementary material. This TMA requires you to apply the course concepts. The TMA is intended to:

· Assess students’ understanding of key learning points within chapter 1, 3,4 and 5.

· Increase the students’ knowledge about the reality of the advanced Accounting.

· Develop students’ communication skills, such as memo writing, essay writing, analysis and presentation of material.

· Develop the ability to understand and interact with the nature of the advanced accounting tools in reality .

· Develop basic ICT skills such as using the internet.

The TMA:

This TMA is based around two cases of “ business combination” and “ intercompany transaction and relevant information ”. Marks will be awarded for blending the context of each case and with relevant theory by means of your own interpretation. In addition to this, some research is required.

The TMA requires you to:

1- Review various study sessions beside the supplementary materials.

2- Conduct a simple information search using the internet.

3- Present your findings in not more than 2,000 words ± 10%

4- You should use a Microsoft Office Word and Times New Roman Font of 12 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	Referencing& e-library	Structure and Presentation of ideas	Total marks
	Part A	Part B	Part C
Marks	40	35	25	(5)	(5)	100

The TMA Questions

PART A: case study (Nike)

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.

Access the Nike home web page From home page and then “The Company”, click on “FINANCIAL INFORMATION”, followed by “Reports and results”, then select the year 2017 to display and download the “Annual report ” 2017 on Form PDF.

Note: the financial statements of Nike are available at:

https://s1.q4cdn.com/806093406/files/doc_financials/2017/ar/docs/nike-2017-form-10K.pdf

Instructions Use the annual report and accounts of 2017 to answer the following questions:

1. What is Nike mission statement and what can you analysis from it ( further search required)

[Marks 6]

2. Financial accounting has allowed the accountant to use estimates when preparing the financial statements.

a. Please provide examples from Nike financials on items which were estimated by management.

b. Explain window dressing in accounting and is it ethical to use it ( give examples on famous companies who has used window dressing).

[Marks 6]

3. Define business combination and mention reasons why do companies merge?

[Marks 10]

4. What are the steps that the company has to do in time of merger transaction? And What are the obstacle that may lead to merger failure? [Marks 8]

5. What are the Exceptions to not to consolidate the financial statement and what are the benefits of consolidating the financial statements?[Marks 10]

PART B: case study

In January 1, 2014 James Company has acquired 85% of LuLu Company for $2,125,000 on the date of the acquisition the subsidiary had retained earnings $650,000 and a capital of $1,100,000.

Separate balance sheet as of 1 January 2014 for James and its Subsidiary.

Description	Parents	Subsidiary
Cash	60,000	35,000
Receivable	35,000	40,000
Land	1,550,000	550,000
Property	1,500,000	1,200,000
Investment in Subsidiary	2,125,000	-
Total asset	5,270,000	1,825,000
Account payable	50,000	60,000
Other liabilities	67,000	15,000
Capital stock	3,900,000	1,100,000
Retained earnings	1,253,000	650,000
Total equity and liabilities	5,270,000	1,825,000

a. Record the parent entry in time of acquisition of assets. [Marks: 5]

b. Is there any Goodwill raised from the business combination? If yes compute the amount of Goodwill. [Marks: 10, 5 marks each amount]

c. Using the cost method, record the elimination entry required for consolidation as of January 1, 2014. [Marks: 10]

d. Prepare the consolidated balance sheet as of January 1, 2014. [Marks: 5]

e. Calculate the Investment amount of the parent and Non-controlling interest in the subsidiary as of January 1, 2015 , assuming that on the 31st of December 2014, the subsidiary has distributed $10,000 of cash dividends and has a net income of $90,000.

[Marks: 5, 2.5 marks per amount]

Part C: Case study 3

A. Below are the income statement information for 2015 of COS and its 80% owned subsidiary “H&M”.

	Parent	Subsidiary
Sales	9,000,000	5,400,000
Cost of goods sold	4,500,000	1,800,000
Gross profit	4,500,000	3,600,000
Operating expense	2,250,000	720,000
Net income	2,250,000	2,880,000

During 2015, Subsidiary sold goods to its parent for $ 1,700,000 with a cost of 1,250,000 . The remaining inventory on the hand with the parent is 35%.

Required

· Compute the unrealized profit – ending (5 marks)

· Compute profit for 2015 for the: (5 marks, 2.5 each)

· Non-controlling interest

· Parent profit

· Prepare the consolidated income statement for 2015, show the elimination entries. (15 marks : each entry 2.5 marks and income statement 5 marks)

Use the following headings (below) to make up the different sections of your work:

	The PT3 form
	Title and contents page
	References ( Recorded according to the Harvard style - Available on LMS )

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