Problem 1:
a. Two four-year-old companies are identical in all respects except that Company A has used straight-line depreciation exclusively since inception while Company B has used double-declining balance depreciation exclusively since inception. The depreciable assets have estimated lives of approximately 20 years. Describe how this difference in accounting policy has affected the companies' financial statements over that period of time. (max. 250 words)
b. Information about depreciation is disclosed on three different financial statements. For each statement, explain what knowledge is transmitted to the reader by the depreciation information contained on that statement. (max. 250 words)
Problem 2: (max. 400 words)
You are a finance manager with a medium-sized company, Kangaroo Express. The company is owned and managed by the Marsupial family. Currently, 60% of the company's financing is composed of non-current notes, 20% is current liabilities and the remainder consists of shares held by members of the Marsupial family. You have been asked to meet with the company's top management to discuss the company's capital structure and plans to raise capital for expansion.
Required
Write a short report describing three more alternative types of financing Kangaroo express might consider. Explain the risk and return implications of each alternative for the Marsupials.
Problem 3: (max. 250 words)
Many business organisations have adopted codes of ethics that describe expected behaviour for managers with respect to other stakeholders.
Required
Why is ethical behaviour important for managerial accounting? How does ethical behaviour in accounting affect the relationship between a company and its customers, employees and suppliers?
Problem 4: (max. 450 words)
You work as part of a team that selects parts suppliers for a large manufacturer. Your company is highly dependent on your suppliers, and you want long-term relationships. You want suppliers who are financially stable, without cash flow problems. If they need more
capacity in order to grow with you, you want them to be able to attract additional investors.
One of your team members claims that financial statements tell you everything you need to know to determine the future stability and growth potential of a supplier. Another claims that financial statements are useless in the process, and that talking with the people in the company is the only route to judging its future.
Required
Discuss the strengths and weaknesses of financial statements in assisting you as you try to determine the stability and growth potential of possible suppliers. What can you learn about a company from a standard set of financial statements? What are the limitations of financial statements? What would you look at in the statements to judge a supplier's ability to remain in business and avoid cash flow problems? What relationships in the statements would help you judge whether the company could attract additional capital for growth?