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It seemed that the entire document has been sprayed with red ink. Neelima frowned. The
balance sheet and P & L statement of Sundaram Home Furnishings, along with their
application for loan has been returned by her boss at Continental Bank with numerous
comments in red ink on practically every page! Neelima was a Management Trainee in
the Credit (Loans) department of this multinational bank. Two months into her job, she
was trying hard to learn banking and credit appraisal. On her initiative, her boss Jayantallowed her to handle loan application of Sundaram Home Furnishings. To get an idea of
financial health and profitability of the client, he had asked her to annex the financial
statements of last three years along with the application to be sent to him with remarks.
Jayant rejected the application and sent it back with a number of comments.
Neelima, disappointed at the rejection of her first solo proposal, sighed. Ok, let me find
out what went wrong- she told herself. Then she set about going through each remark
carefully. The remarks were like this:
1. Depreciation method has been changed from straight line to written down value
without assigning any reasons.
2. Every year, bad debts were being charged to Profit and Loss account. There was no
provision made, however.
3. In the year 2013-14, Rs 600000 has been debited as Miscellaneous Expenses with no
other information about them. The Sales that year were Rs 7500000.
Concept Box
This case of Sundaram Home Furnishings illustrates the importance of following
Accounting Principles, Concepts and Conventions while preparing financial statements.
4. The value of Showroom building was shown at an increased amount in 2013-14 over
previous year on account of rise in the price of land.
5. There was a loss by fire in the year 2013 (January). However, no insurance exists.
6. It was learnt from banks other clients that M/s Sundaram was involved in a court case
with Tax department. If lost, Sundaram will need to pay Rs 500000. However, the
financial statements were silent on this.
7. The salary of security guards appointed in March 2013 was charged to Profit and Loss
account of 2013-14.
8. Sale of Rs 340000 on Approval Basis has been included to compute profits for year
2012-13.
9. The balance sheet of 2013-14 had the date in caption as on 30-04-2014 and that of
2012-13 had as on 31-03-2013.
10. School fee of owners kid was debited to Profit and Loss account in the year 2013-14.
Questions:
1. Who are the users of financial statements other than the promoters of a business?
2.
Can you help Neelima by discussing with reasons which of the accounting
concepts/principles are being violated in each of the 10 remarks?
3. How do you differentiate between accounting concepts/principles/conventions?
4. Why did Jayant reject the loan application with these remarks?
Course Reference: Concept Generally Accepted Accounting Principles/ Users of
Financial Statements/Unit-1/ Subject : Financial Accounting & Management
Source/References: Authors own work.
Other Key words: True and Fair View/Interpretation/ Errors
Hints:
1. Other users of financial statements may be investors, creditors, bankers, government,
trade unions, suppliers etc.
2.
On August 3, 2005, Adidas-Salomon AG (Adidas), Germanys largest sporting goods maker merged with the USbased Reebok International Limited (Reebok) for US$ 3.8 billion. With this merger, Adidas and Reebok aimed to
compete against American sports goods maker Nike International Inc. (Nike).
The companies felt that the major driving force behind the merger was greater sales growth rather than just cost
savings. The annual sales of the merged entity was predicted to be US$ 11.7 billion. The merger was expected to
give Adidas products a strong push in the US market because of the link with Reebok, while Reebok would
gain a large presence in Europe and Asia with the help of Adidas.
Analysts had varied opinions about the deal. However, a few analysts warned that repositioning the two brands
would be a difficult exercise. Analysts were concerned that Adidas would have to support two separate brand
identities while rival Nike was intensely focused on a single identity. Some analysts felt that Adidas could beat
Nike to become the industry leader while others opined that it was impossible to dislodge Nike from its No. 1
position. Nike was a preferred brand because of its fashion status, colors, and combinations.
Some analysts raised doubts over the success of the merger of the companies. They were of the view that the
merger would not generate much synergy because the individual brand identities would be maintained even after
the merger. Analysts also doubted the effectiveness of the merger as a strategy to beat Nike. They felt that the
combined entity would have to work really hard to further expand its market share in the US market and
globally.
Some instances of mergers and acquisitions include the November, 2012 acquisition of India-based United
Spirits Limited (USL), owned by the UB Group by the UK-based beverages company Diageo Plc (Diageo)
where Diageo acquired a 53.4 percent stake for US$ 2.1 billion. In another instance, on August 2, 2013, USbased Internet Corporation Yahoo! Inc. (Yahoo) acquired US-based social browsing startup Rockmelt, for a
reported US$ 6070 million. The amount was paid largely in cash along with some stock incentives to the
employees of Rockmelt. The acquisition was expected to bolster Yahoos mobile and social networking efforts.
In another instance, in September 2013, US-based computing major, Microsoft Corp. (Microsoft) and Finlandbased communications company, Nokia Corporation (Nokia), entered into a transaction where Microsoft
acquired Nokias Devices & Services segment, license Nokias patents, and license and use Nokias mapping
services, for US$ 7.2 billion.
The case of the Adidas-Reebok merger highlights the rationale for the merger and whether the merger would
be successful in the long run.
Sources: Laura Petrecca and Theresa Howard, Adidas-Reebok Merger Lets Rivals Nip at Nikes Heels,
www.usatoday.com, August 4, 2005.
News Snap, Adidas to Buy Reebok; 2Q Net Profit Rises 50%, www.news.morningstar.com, August 3,
2005.
Course Reference: Concept- Amalgamation/Merger of Companies/Unit 15-Company Management and
Winding up/Subject-Business Environment
Other Keywords: Mergers and Acquisitions, Integration
DISCUSSION QUESTIONS
1.
2.
Companys Beliefs
1. Empower people to share and make
the world more open and connected
2. Create and build a shared identity
and vision as the company grew
Facebooks
Mission
Companys Beliefs
1. Was not considered as the sole
responsibility of the HR department
2. New employee orientation was
regarded as a serious process
The
Onboarding
Process
Companys Beliefs
1. Employees were allowed to pose a
question directly to the companys
leadership
2. Employees were allowed to even ask
controversial or sensitive questions in
Conducted
Weekly Allhands
Meetings
Companys Beliefs
1. Culture was of significance to an
organization
2. Culture grew only if tended to
Companys Beliefs
Employees were encouraged to
participate in social activities
Companys Beliefs
1. Fewer hierarchies and greater
collaboration
2. Focused on 2 aspects:
How did the company want to be known
as it grew?
What was communicated to the outside
world about working at Facebook?
Conscious
Attention to
Culture
Encouraged
Social
Activities
Employed
Unique HR
Strategies
Despite its contribution to the company, experts have raised certain concerns over
Facbooks organizational culture:
1. Incentives like paid paternal leaves for parents were often unclaimed. The
company had not revealed the proportion of employees who fully claimed the
allotted paternal leave
2. Policies like egg-freezing were viewed as incentives to discourage employee
poaching