ACCT 203 Lecture Notes - Lecture 3: Accrual, Deferral, Office Supplies

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raspberryimpala524

18 Jan 2017

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Major concepts and skills i expect you to learn related to topic 3: all of the learning objectives that i identified for topic 1 and topic 2 are reinforced in topic 3. How to calculate the book value of an asset: understand how to compute, and the usefulness of, the debt to assets ratio, return on assets ratio and return on equity ratio. A deferral type event is one in which a significant business transaction or adjusting activity. Understand what deferral events are and how to account for them using fsets occurs after cash is exchanged. For example, a company usually has to pay the landlord of the office- space it rents at the beginning of the month, before it is allowed to use the office space. Even though the cash is paid up front, the rent expense is not incurred until the office-space is used.

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Scenario 1 â NPV, Business as Usual Eliminate the NegativeProjects The team has been working throughout the Pre-developmentstage in order to get an understanding of the present value of eachof the (9) projects by understanding market pricing and theposition within the market of each of the prospective projects,among other things. This analysis has given the team accurateinformation surrounding the overall development costs and costs tocommercialize for each project as well. As a part of your normalbusiness strategy, prepare a report analyzing the net present valueof each project, rank those projects, and provide a Go/Killrecommendation for each. â¢ Scenario 2 â NPV PI, A New RankingStrategy with a Budget $25M Budget As your company looks to manageresources, your director wants to understand how you can maximizeyour Bang-for-buck on the work your team is doing, and has askedyou to add a NPV productivity analysis to your Go/Kill decisionprocess. Additionally, he has capped you at $25M. Prepare a reportanalyzing the NPV PI of each project, rank those projects, andprovide a Go/Kill recommendation for each, maintaining your $25Mdevelopment budget. Maximize the NPV of your portfolio using thismethod. â¢ Scenario 3 â ECV PI, Understanding The ExpectedCommercial Value $25M Budget Your director is interested inunderstanding the expected commercial value method and how it mightimpact investment decisions. He also wants to maximize the bang forbuck so he has asked you to add the expected commercial value andECV PI to your analysis. You are able to do this because your teamhas worked hard to understand the likelihood of commercial andtechnical success in each project. Prepare a report analyzing theECV PI of each project, rank those projects, and provide a Go/Killrecommendation for each, maintaining your $25M development budget.Maximize the ECV of your portfolio using this method. â¢ Scenario 4â ECV PI, A Trimmed Budget, and Modified Risk $17.5M Budget,Minimize Risk Your director, given the ability to implement riskinto the decision process, wants to evaluate one additionalscenario. The VP mention in his staff meeting last week that themarket is changing and he may be implementing a 30% reduction inbudgets across the company. Assuming this information to be true,your team has created a scenario based on the changing market thathas updated rick assessments for both the probability of commercialand technical success. Using this information, prepare a reportanalyzing the ECV PI of each project, rank those projects, andprovide a Go/Kill recommendation for each, maintaining your $25Mdevelopment budget. Maximize the ECV of your portfolio using thismethod and new data. â¢ Compare and contrast each of the scenariosand provide a final suggestion on the type of analysis that shouldbe completed AND what the decision is for each project. I dont needcalculations but i need OUTLINE, a PLAN OF ATTACK, DISCUSSION OVERRELEVANCE, and DISCUSSION OVER LIKELY OUTCOMES plan the steps youwill take in a full analysis, and talk about why those steps areimportant. Conclude with discussion over how you think things willchange throughout the different scenarios.

1. Understand how to use EXCEL Spreadsheet
(a) Develop proforma Income Statement Using ExcelSpreadsheet
(b) Compute Net Project Cashflows,NPV, and IRR
(c) Developproblem-solving and critical thinking skills
	and make long-term investment decisions

1) LifePeriod of the Equipment = 4 years			8) Sales for first year (1)			$200,000
2) Newequipment cost		$(200,000)	9) Sales increase per year			5%
3)Equipment ship & install cost		$(35,000)	10) Operating cost (60% of Sales)			$(120,000)
4) Relatedstart up cost		$(5,000)	(as a percent of sales in Year 1)			-60%
5)Inventory increase		$25,000	11) Depreciation (Straight Line)/YR			$(60,000)
6) AccountsPayable increase		$5,000	12) Marginal Corporate Tax Rate (T)			21%
7) Equip.salvage value before tax		$15,000	13) Cost of Capital (Discount Rate)			10%



ESTIMATING Initial Outlay (Cash Flow, CFo, T= 0)

		CF0	CF1	CF2	CF3	CF4
Year		0	1	2	3	4
Investments:
1)Equipment cost
2) Shippingand Install cost
3) Start upexpenses
Total Basis Cost (1+2+3)
4) Net Working Capital
Total Initial Outlay

Operations:
Revenue
OperatingCost
Depreciation
EBIT
Taxes
Net Income

Addback Depreciation

Total Operating Cash Flow			XXXXX	XXXXX	XXXXX	XXXXX

Terminal:
1) Changein net WC			$-	$-	$-	$20,000
2) Salvagevalue (after tax)		Salvage Value Before Tax (1-T)				XXXXX
Total						XXXXX

Project Net Cash Flows		$-	$-	$-	$-	$

NPV =		IRR =			Payback=

Q#1	Would you accept the project based on NPV, IRR?
	Would you accept the project based on Payback rule if projectcut-off
	is 3years?
Q#2 Impact of 2017 Tax Cut Acton Net Income, Cash Flows and
	Capital Budgeting (Investment ) Decisions
(a)	Estimate NPV, IRR and Payback Period of the project if equipment isfully
	depreciated in first year and tax rate equalsto 21%. Would you
	accept or reject the project?
(b)	As a CFO of the firm, which of the above two scenario(a) or (b)
	would you choose? Why?
Q#3 How would you explain to your CEOwhat NPV means?
Q#4 What are advantages anddisadvantages of using only Payback method?
Q#5 What are advantages and disadvantages of usingNPV versus IRR?
Q#6 Explain the difference between independent projectsand mutually exclusive projects.
	When you are confronted with Mutually Exclusive Projects and havecoflicts
	with NPV and IRR results, which criterion would you use (NPV orIRR) and why? *****SHOW WORK PLEASE !!!!

mauvespider741

Senior Immigrants (SI) is an NFPO established a few years ago to help senior immigrants learn English and integrate into Canadian society. SI has some paid staff supported by a large group of volunteers. The organization is funded by government grants and private donations. During the current year, the following events occurred:

- SI was awarded a $1,000,000 government grant. The terms of the grant are:

$380,000 for the acquisition of four mini-buses

$120,000 for rent for the next 2 years

$500,000 for SIâs operations and programs

- In the current year, SI received $750,000â$380,000 for the mini-buses, $120,000 for the rent, and $250,000 for its operations and programs. The remaining $250,000 will be released next year.

- During the current year, SI paid actual rental costs of $55,000.

- A local car dealership that has made substantial donations to SI in the past supplied the mini-buses and customized them to SIâs requirements. The customized vehicles have a fair value of $500,000, but the car dealership sold the vehicles to SI for $425,000. SI took delivery of the vehicles in the summer of the current year.

- The vehicles are expected to have a 10-year useful life. SIâs policy is to take a full yearâs of amortization in the year of acquisition.

- In the current year, SI paid salaries of $150,000. $25,000 of the salaries related to fundraising for endowments and the rest was related to operations and SIâs annual fundraising projects.

- In the current year, SI paid $10,000 for a training seminar for volunteers.

- In the spring of the current year, SI held a karaoke fundraiser that raised $50,000. SI incurred $21,000 in costs related to this fundraiser. The funds raised have been designated by the donor for SIâs Canadian cooking program.

- SIâs participation in an annual local television telethon resulted in pledges of $235,000. $169,000 had been collected by the end of the current year.

- On July 1 of the current year, SI received an endowment of $250,000 from a refugee who became a successful business person in Canada. The investment income from this endowment can be used by SI as it sees fit. The funds were invested in bonds that have an annual yield of 3%.

Required:

Prepare the necessary journal entries for the current year using

i) the deferral method

and

ii) the restricted fund method.

Be sure the account names you use clearly identify the type of account or fund.

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ACCT 203 Lecture Notes - Lecture 3: Accrual, Deferral, Office Supplies

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