Perspectives On The Personality Of Marshall Mathers Music Essay

Perspectives On The Personality Of Marshall Mathers Music Essay Multiple Perspectives on the Personality of Marshall Bruce Mathers III. Marshall Bruce Mathers III emerged from a poor neighborhood in Detroit, Michigan and quickly gained fame as the American, hip-hop music artist, Eminem. Marshall declared himself in My Name Is, the single that announced him as Eminem to the world (Hasted, 2005). His released albums are compilations of rap songs, each with creative rhymed verses about his life and the people in it, composed by Mathers himself. Some may claim that Eminem is a role model, in terms of his artistic talent and ability to overcome lifes hardships. For others, he sets a bad example in society, as he is degrading to women and homosexuals and he is promoting violence through visual outlets. The controversy remains, but perspective can be gained through psychologies different aspects of personality. Neo-Analytic Perspective The central theme of the neo-analytic approach to personality psychology is ego identity. The importance of the ego, a persons individuality, is emphasized as it struggles to cope with emotions and drives on the inside and the demands of others on the outside (Friedman Schustack, 2009). This feeling of self develops through the interactions and conflicts an individual faces during their life, and determines their personality. Unlike many other aspects of personality, neo-analytic theories and theorists agree that ones personality is not predetermined, or stable, and is shaped by encountered experiences. Marshall Bruce Mathers III is a famous personality whose life experiences can be analyzed in the perspective of the neo-analyst, Erik Erikson. Erikson considers the ego to be an influential and independent part of identity formation, and he also brings attention to the effects of society and culture during the process. He developed the theory of life-span development, claiming that there are eight predetermined stages and each involves a certain ego crisis that determines the direction of personality. As Friedman and Schustack aptly phrase, the outcome of each stage à ¢Ã¢â€š ¬Ã‚ ¦ is dependent to some degree on the outcome of the previous stage, and successful negotiation of each of the ego crises is essential for optimal growth (2009). The life-span perspective helps with understanding why Mathers behaves and thinks the way he does. The identity formation of Marshall Mathers began at birth; October 17, 1972 began the first ego crisis Erikson termed Trust versus Mistrust' (Friedman Schustack, 2009). Debbie Mathers-Briggs became Marshalls mother at age seventeen. As an adolescent, she was preoccupied with her own needs of finding out who she was and how she fit into society. Because of her young age, she was unable to successfully satisfy Marshall Mathers needs as a mother, which Erikson considers the most significant relationship of this stage. An infants needs are simple and straightforward, and it is necessary for a mother to contribute mature abilities and social support. Many agree that her parenting was inadequate and unreliable, which did not resolve the Trust versus Mistrust conflict for Mathers. Instead of developing feelings of hope, which is a psychosocial virtue in Eriksons theory, he has since been unable to rely on others, believing that the world is not a safe place. It is during this period of inf ancy that a child develops a sense of trust and hope which arises from the satisfaction personal needs (Friedman Schustack, 2009). Marshalls neediness only grew, though as a direct results of his mothers actions, (Hasted, 2005). She was in her own state of mind, and struggled to understand her son whose upbringing became hard to handle and caused Mathers directionless existence. The ego crisis, Autonomy versus Shame and Doubt, indicates the significance of parents during an individuals early childhood. Eriksons theory, when applied to the Mathers life, shows the negative impact of abandonment at early age. Hasted writes that it was, a consequence of his parents immature love, that led to his fathers decision to leave his wife and son (2005). Marshall Mathers was abandoned by his father; he did not ever see him or communicate with him after the day he left. He was raised by his mother no father image or figure was there (Hasted, 2005). It is during this stage of development that Erikson believes the ego skill, will, is formed. Friedman and Schustack write that, successful negotiation of this stage results in a child who knows the difference between right and wrong, and is willing and able to chose right most of the time (2009). This was not the case for Marshall Mathers, and some of his actions in his later life show this. In accordance to the stage theory p erspective, he was unable to develop self-control and self-esteem because of these matters. Shortly after Mathers was abandoned by his father, Debbie Marshall-Briggs began to live nomadically. Nick Hasted quotes Marshall Mathers, my mother never had a job, so we used to always stay with my family. We would stay until we got kicked out. Some of the relatives stayed in Kansas City, some in Detroit, so we just kept going back and forth (Hasted, 2005). The moving took place during his mid-childhood, which is the optimal time of the Initiative versus Guilt stage. With Mathers father abandoning him as a young child, the responsibility of this child was left to his mother, grandparents, and aunts and uncles. His life so far was lacking stability, and Hasted claims that he struggled to survive in series of elementary schools, (2005). It was difficult for Mathers to develop any friendships that would last longer than the three months he would spend with him before moving again. During Eriksons stage of Initiative versus Guilt, it is crucial for a child to interact with other childre n to learn how to plan and carry out actions as well as how to get along with peers to gain a sense of purpose (Friedman Schustack, 2009). Ones early adolescent is a time where a lot of ones time is spent attempting to fit in with a social group. Yet, what happens to the formation of ones identity if they never have the stability of a school, father, or even a home to help ground them is negative. Marshall rarely had the availability to make friends because of his constant moving and this had him bullied and teased at many of the schools he attended. This had a drastic impact on his identity formation, and is relieved in his thoughts and actions. It was not until Marshall Mathers reached the age of 12 that he began to reside permanently on the East Side of Detroit with his mother. Industry versus Inferiority stage develops competence through the interactions with in the neighborhood and school of an individual. Nick Hasted expresses that Mathers had a reputation as some kind of violent bad boy (2005) at his school. He was constantly bullied by his peers and let down by his teachers. Throughout his schooling, there have been multiple instances that Mathers competence was doubted by his teachers. His attendance was low, and his grades were far from average, which in Eriksons view is an outcome derived from the previous life stages. Educators would single Mathers out and comment that he is unable to make it. He ended up dropping out at a young age, after repeating the ninth grade three times, which was disestablishing to a school-aged child. (Hasted, 2005). Marshall Mathers did not complete tasks, especially academic ones, and f ind pleasure in doing so. His identity formed in this stage to develop the sense of inferiority as he was not able to successfully complete his education. As Marshall Mathers continued into the Identity versus Role Confusion stage of his adolescence, he was beginning to make some friends by being less distant and shy. Friedman and Schustack claim that, at this stage, the adolescent experiments with different roles, while trying to integrate identities from previous stages (2009). Mathers was becoming himself at this point in his life, in accordance to Eriksons theory, and the society is a huge factor to the process. Living in a white minority, victimized and twice almost murdered by blacks, Marshall could be excused for starting to feel racist himself (Hasted, 2005). The goal of the sixth stage of Erik Eriksons theory, Intimacy versus Isolation, is to achieve love during young adulthood (Friedman Schustack, 2009). It is inevitable that the relationship between Kim Scott and Marshall Mathers is significant in the artists identity formation. They became in separable as soon as they met and would later on marry and have a child together. Currently, Marshall Mathers is in the Generativity versus Stagnation stage of his development (Friedman Schustack, 2009). He has succeeded as an artist in the music industry, and is now able to provide for his daughter, Hailie Jade Mathers. He knew he was not going to raise his daughter in the same conditions he grew up in. Becoming a father was a huge turning point in Marshalls life; he knew he had to create something for himself and strives to provide for Hailie. His identity at this point in his life is to be the dad that he never had and he continues to do so (Hasted, 2005). Marshall Mathers life-span development has formed his personality and ego. He has gone through many life changing experiences, both positive and negative, that have shaped him into the man he is today. Erik Eriksons neo-analytic perspective has the goal of understanding what it means to be an individual in a social world (Friedman Schustack, 2009). After living such a difficult childhood and finally making something of himself, Marshall was being changed by the success that he received. Behaviorist Skinnerà ¢Ã¢â€š ¬Ã‚ ¦the study of behavior, emphasize the role of learning in the development of personality, human behavior. Most recognized amoung behaviorist theorists. Emphasize experience and learning as the primary forces that shape human behavior. skinner developed a psychology that concentrates not on the person but solely on those variables and forces in the environment that influence a person and that may be directly observed. Behavior can be understood in terms of responses to factors in the environment. Suggested to concentrate on the environmental consequences that determine and maintain an individuals behavior. Changes in the environment affect the individuals behavior. Internal forces cannot be operationally defined and their intensity cannot be measured. skinner believed that the laws of behavior must apply to each and every individual subject when it is observed under the appropriate conditions at birth, the human infant is simply a bundle of innate capacities, but consequent behaviors can be comprehended in terms of learning skinner derivedà ¢Ã¢â€š ¬Ã‚ ¦a reinforcement is anything that increases the likelihood of a response. The effect of ones behavior that determines the likelihood of its occurring again. If behavior results in reinforcement. If the behavior does not result in reinforcement. Behave in alternative ways to find patterns of behavior that are reinforced. Process of operant conditioning. originally spontaneous behaviors whose consequences determine their subsequent frequency. Operant conditioning can be systematically described, skinner box, operant conditioning apparatus to train animals and conduct controlled research. Appropriate reinforcement increases the likelihood of that behavior occurring again. Procedure termed shaping, deliberately mold the organisms behavior in order to achieve desired behavior. Induce to perform. Using behavioral-shaping methods. skinner believed that most animal and human behavior is learned throug h operant conditioning. The process of learning to speak ones native tongue involves reinforcing and shaping of operant behavior. operant behaviors are responses emitted without a stimulus necessisarily being present, they occur spontaneously verbal behavior evolved from signaling, imitating, and other nonverbal behaviors, following the rules of contingencies of reinforcementà ¢Ã¢â€š ¬Ã‚ ¦shaping is involved in learning to speak Marshall Mathers has become a famous personality recognized by the music he has created as Eminem. It started in the studio, where he began recording songs that eventually led to his music being played on local radio stations. At the age of 25, Eminem signed his first record deal with a well-known producer and rapper, Dr. Dre. Instantly, they began producing music together and striving to get Eminem out into the public. The hits became world-famous and sparked the beginning of a whole new world that was opened up to Mathers. He was a superstar within the hip-hop culture for his talents of composing and performing (Hasted, 2005). The behaviorist approach to personality analyzes an individuals learning experiences, indicating that the environment solely controls human thought and behavior. Burrhus Frederick Skinner is well-recognized for his efforts in developing the principle of operant conditioning. Friedman and Schustack define operant conditioning as, the changing of a behavior by manipulating its consequences, (2009). The key element of Skinners theory is reinforcement; his approach is that consequences of a behavior determines if the action will or will not occur again (Friedman Schustack, 2009). Many people view Eminem and his music as a very angry person because when he released his first few albums he was very upset and angered at the life he had grown up in. Much of the time his lyrics and rhymes are about actual events that have occurred throughout his lifetime. The way he explains situations is in such a harsh, raw way that people listening to his music are shocked. His lyrics are the way he lets out his desires about his emotions and life in a way where he is not thinking about what other people think, but rather spitting out the words that best express how he feels (Hasted, 2005). The flow of rap music comes easily to him and it became obvious that he has a special talent. Eminem uses music is an outlet to release emotions and sometimes the way he says his lyrics can leave society perceiving him as very negative. When he first was coming out into hip hop music scene, he had very controversial items on his albums. His music producer, Jimmy Iovine explained to Eminem that he would need to change some of the lyrics on his album if it were to be released. He found it difficult to do so, as he did not understand why it was necessary. This characteristic of personality is reflected in his music as he says what he wants to say, when he wants to say it. It was often difficult for him to understand why he would need to change the lyrics of his songs. Eminem grew up in Detroit, where these lyrics would be considered normal (Hasted, 2005). Operant conditioning explains why he has continued to produce music and grow from his fame. According to B.F. Skinner, personality is a repertoire of behavior learned from an organized set of environmental contingencies à ¢Ã¢â€š ¬Ã‚ ¦ personality is the group of commonly performed responses that a person has learned. Because it is environmentally determined, behavior is therefore very situation specific (Friedman Schustack, 2009). The reinforcements, both positive and negative, establish Eminems personality. Positive reinforcement is a reward to a desired response in the means of a stimulus. Some types of positive reinforcement are good grades and verbal praise, (Friedman Schustack, 2009). Grammy nominations, growing number of fans, and monetary success are some positive reinforcers that have strengthened Eminems behaviors. He learns from the reinforcement that his behaviors are accepted, which leads to increased occurrences. He responds to these stimuli by recording more songs and releasing more albums. There is also a biological reinforcement that plays a role in Eminems personality. The lifestyle of those that reside in Detroit, Michigan complies with that of Eminems. They are accepting to this type of music and way of life. Negative reinforcement is another aspect of Skinners theory that increases the likelihood of behavior. These are stimuli that, when withdrawn, increase desired behaviors, (Friedman Schustack, 2009). Because of his music career, Eminem has been withdrawn from a life of poverty. He struggled all throughout his early life to provide for himself, and his family. The behavior that is reinforced is his fame, and he continues to try his hardest to continue success to live a comfortable life. Eminem has learned a lot from his past experiences and represents them in his music in a way where the outside public can relate to him. He is in touch with his emotions and feelings and it is because of this that he has such a raw personality, and has the ability to show the world how he has become the person that he is.

Branding Strategies Of Asda Marketing Essay

Branding Strategies Of Asda Marketing Essay Branding is a most important tool for any product or company to gain a long term market share. The aim of this study is to develop an understanding of branding and its implications in the retail market. This will include the concepts and practices of branding that are adopted by different retailers in the UK as well as the new challenges faced by these retailers in UK market. This research will identify the benefits of branding for suppliers, customers and for the retailers. I will identify the strategic approach which retailers in the UK can adopt as a role model to survive in a highly competitive market and this will include the survey of UK food and grocery retail market. I will also investigate how the changes in the market from the early beginning have changed the position of grocery supermarket chains. I will describe the in-depth branding strategies of ASDA, various operations of ASDAs stores and its competition with world-wide and UK retailers. This study will also identify and investigate the competitive position of ASDA amount other key players in UK such as TESCO, Sainsbury and Morrison. INTRODUCTION What is branding? According to the Websters dictionary a brand is defined as a mean of identification and an arbitrarily adapted name that is given by manufacturer to a product to distinguish it and it may be used and protected as trade name.  [1]   A brand is defined as a name, term, design or symbol or a combination of them intended to identify the goods and services that identifies and distinguishes a specific sellers product from a competitive product of another seller. It is also defined as a part of a product and services tangible features, the verbal indication that help customers to identify the products they want. It plays a vital role in assessment of a product or service and can add value to them. It is a word which is commonly referred to by advertisers and marketing people. Why it is important? People generally recognize a well-known brand even if they do not know about the company or its products/services. These are usually the name of businesses or the name of a product, although it can be the name of a feature or style of a product too. A good brand delivers the message clearly and motivates the buyers. There are few other terms which have been used to define branding such as brand name, brand mark, trade name or trade mark. Thus branding is very essential for companies and it is beneficial for buyers and customers. INDUSTRY BACKGROUND ASDA was formed in 1965 with a merger of two companies, Associated Dairies and the Asquith Brothers supermarket chain Queen. ASDA Stored Ltd was created a supermarket with its objectives to offer the customers permanently low prices. In 1999 ASDA was acquired by Wal-Mart Stores Inc., and ASDA became part of the worlds biggest and best retailer. Since then, ASDA also became Britains second largest supermarket. ASDA has now over 300 stores across the UK and employ 150,000 staff and its friendly service is as inextricably linked to the ASDA brand as their reputation for quality and service.  [2]   According to a recent survey, as of 1st August 2010 ASDA has 376 locations with operating income of  £638 million and ranking as second largest supermarket chain in the UK. ASDA Group Ltd., operates as one of the largest food retailers in the United Kingdom. The companys stores sell a wide variety of merchandise including food and apparel, along with house wares, music, videos and books. The company once known as a diary conglomerate was acquired by Wal-Mart Inc. in 1999. Under its new parents guidance, ASDA has been adding pharmacies, opticians, jewelry and photo departments to its stores.  [3]   ASDAS BRANDING STRATEGY According to a survey in 2004 which shows the key figures of the UK retail market, states that UK retail sales reached approximately  £246 billion in 2004. This shows that retail industry, generally, continues to show positive signs of growth. The retail industry in any country is generally a very active, fast changing sector. Thus it comprises one of the main sectors in the economy of a country, in terms of transactions and turnover; as a result, it is a highly competitive and sophisticated industry. My research proposal is about the importance of branding in retail market particularly in the UK retail, food and grocery market. I will identify the branding strategy of ASDA and its market share in the UK retail sector. Currently ASDA is using one strategy which is: In September 2010 ASDA announced that it is going to re-launch its mid-tier private label range under the new Chosen by You brand name in a bid to improve perceptions of the quality of its food. This new rang is a part of a  £100m investment which includes 200,000 UK consumers taste testing and benchmarking the products.  [4]   And now ASDA has also decided to launch their new opticians business adopting similar logos and using slogans making indirect references to the chain. ASDA ran a campaign featuring the two slogans: Be a real spec saver at ASDA Spec savings at ASDA  [5]   These strategies are helping and will help ASDA to gain consumers satisfaction. Although ASDA is already getting continuous growth with the diversification and extension of its existing stores but the retail market has become more competitive and having less market share can affect the overall ranking and position of ASDA in the international market. Therefore I will analyse and evaluate the strategic position of ASDA in comparison to other UK retailers and in conclusion there will be future strategic options suggested which aimed to strengthen its position in the highly competitive market and to gain customers satisfaction and loyalty. While using the same brand name, ASDA is also offering financial services to its customers which include: Insurance Credit cards and loans Savings Motor breakdown cover Energy supplying According a recent report at BBC (27 May 2010) ASDA has also announced plans to buy Netto for  £778m. Netto has 193 stores in the UK which will continue to trade under the Netto name for the time being but will come under the ASDA brand by mid-2011.  [6]   ASDA is continuously promoting its brand strategy and has announced that its customers will benefit from low prices on a significantly broader range of quality products, complemented by the wide range of services ASDA offer at all their small stores (ASDA Chief Executive Andy Clarke). ASDA brand George was bought by ASDA in 1995, George was started in 1990 by George Davies and it was the first supermarket clothing brand. Thus George grew and become the largest clothing retailer by volume in the UK today. This brand is also traded internationally by Wal-Mart. RESEARCH OBJECTIVES The core idea of this research to analyze the different strategies ASDA is using for its branding to compete with all the supermarkets within UK to capture a large portion of market share in retail and other relative industries. This research will also throw light on the factors to identify how these branding strategies affect customers behaviour and why they chose ASDA as compare to all other supermarkets in UK. Without an appropriate set of objectives, you can end up not only with a misguided strategy, but with an unrealistic set of goals. Increasing brand awareness for a product that already has a baseline awareness of 99 percent, for example, can be virtually impossible. If you set the wrong objectives, you set yourself up for failure (Graham 2001).  [7]   This research will emphasize the practices of ASDAs brand objectives how ASDA is using its branding to get customers loyalty and trust within the competitive market where its main rivals TESCO, Sainsbury, Morison, Marks Spenser are operating side by side as strong competitor. ASDAs brand objectives are that it is comprised of ASDAs personality, image, core competencies and characteristics. ASDAs basic framework of its brand is to pursue to put an impression on its customers that describe the company to other people. ASDA is following the strategy of its branding to build a strong credibility and have more influence on the market and to motivate customers to shop at ASDAs stores. ASDAs objectives are to be looked as a leader and not as a follower. I will explore and find out that how ASDA is defining its objectives with specific timelines and how it has been developing plans of action to achieve those objectives. RESEARCH QUESTIONS Why branding is important and what ASDA wants from its brand to do? What does ASDA wants others to know and say about its products? How ASDA can retain its top ranking position in the UK retail market? RESEARCH AIMS Identify different retail brands in UK Identify current branding strategy of ASDA Review market share of ASDA in UK retail market Analysis of competitors of ASDA Study of future practices of ASDA Recommend improved strategy for ASDA to retain its top ranking position in the UK retail market. LITERATURE REVIEW The central concern of brand building literature experienced a dramatic shift in the last decade. Branding and the role of brands, as traditionally understood, were subject to constant review and redefinition. A traditional definition of a brand was: the name, associated with one or more items in the product line, which is used to identify the source of character of the item(s) (Kotler 2000, p. 396). A literature review is very important and critical for the justification of the proposed research in order to find out different factors to identify the research area and to clarify questions of the chosen research topic (Saunders, 2007). Aaker and Joachmisthaler (2000) argued the traditional branding model where a brand management team was liable for creating and coordinating the brands management program. In these circumstances, the brand manager was not high in the companys hierarchy; his focus was the short-term financial results of single brands and single products in single markets. The basic objective was the coordination with the manufacturing and sales departments in order to solve any problem concerning sales and market share. With this strategy the responsibility of the brand was solely the concern of the marketing department (Davis 2002). In general, most companies thought that focusing on the latest and greatest advertising campaign meant focusing on the brand (Davis and Dunn 2002). The model itself was tactical and reactive rather than strategic and visionary (Aaker and Joachimsthaler 2000). The brand was always referred to as a series of tactics and never like strategy (Davis and Dunn 2002). Brand is defined as a name, term, symbol, design or any other feature or a combination of any of them. Branding is used to define, or is proposed to identify the goods or services of one seller and distinct it from those of other sellers. Branding helps to differentiate ones service from those of its competitors. It plays vital role in assessment of product and can add value to a product. It is therefore an intimate aspect of product strategy. Therefore In developing a marketing strategy for individual products, the seller has to tackle the issue of branding. According to Peter Doyle; Brands are at the very heart of marketing. When a company creates a strong brand it attracts customers preference and builds a defensive wall against competition. Marketers and sellers make different strategies for their products and most of these are associated with branding. These decisions include how to create brands, how to choose brand names, brand marks, trademarks and trade names. A brand may identify one item, a family of items or all items of that seller. Brand loyalty is an integral part of building a brand, as consumers usually have a choice of products in the same market segment, and so a successful company will use a way to keep consumers re-buying their product or coming back to their stores rather than going to their competitor. These brand loyalty-building efforts may come in the form of coupons and incentives such as many grocery chains use a technique of grocery discount cards or loss leaders, meant to draw consumers into the store, where they will hopefully buy products at discounted fare with a higher profit ratio (Kumar 2010).  [8]   SOURCES TO BE USED FOR DATA I will be using different scholars books written in different countries on branding, why it is important and work of researcher all over the world in this field. As branding is the most important factor of any business, organisation, product or service so there is a lot of information on the internet, journals and newspapers. Proper references from all the sources will be included in my work. I will also be conducting interviews from different Managers of ASDA, TESCO and Sainsbury including some customers in the stores to get much information regarding my subject and a practical experience which will help me writing a good conclusion to my proposed work. Data collection will consist of surveys, interviews and observation with ASDA Managers, employees and customers as well as journal logs from scholars. As suggested by Prof. Francis Knox I am planning to conduct multiple interviews with each participant in order to provide more in-depth data collection and opportunities for follow-up. I will utilize a qualitative evaluation for this research project leveraging subjective methods such as interviews and observations to collect substantive and relevant data. I hope that such a qualitative approach will be valuable here due to the varying experiences of the Managers and customers visiting ASDA. Recent research on subject matter will also be consulted to validate collected data. DATA ANALYSIS Data analysis is an important part of any topic as it gives an outline and understanding of the subject. In the same way I will analyse the collected data by comparing it with all the other competitors of ASDA to find out how ASDA is benefiting from its branding strategies and objectives. I believe that data analysis shows the different things discussed in topic and which one is most suitable and favourable according to the situation. Data can be collected from various sources and its analysis gives understanding and shape to the topic or field of interest. Collect necessary Data to answer questions Analyse Data Creating strategies to use results Reporting out on recommendations and conclusion RESEARCH METHODOLIGIES My research methodology requires gathering relevant data from the scholars books, online journals, newspapers and internet and to compile the databases in order to analyze the material and to arrive at a more complete understanding of the importance of branding of a company or a product. The following chart can best represent how research methodology work: Source: http://www.clientopinions.com/pages/11/Research-Methodology/ My dissertation would be based upon primary and secondary sets of information available on branding within supermarkets and my research work will be based upon both qualitative and quantitative data, for example exploring the work of researcher on branding importance for supermarkets and conducting interviews with relevant employees working as Managers and customers of ASDA supermarket. In this research I will also include the current trends of branding in different countries of the world and especially in the UK. Questionnaires carried out during my research will help me to get the facts how big chains of supermarkets and other organisations are using their brand image to get a large portion of their respective markets. On the basis of all the relevant information available branding evaluation and conclusion will be carried out. The evaluation and conclusion will also include how and why ASDA branding is better comparing to its competitors and how ASDA can better use their branding strategy all over the world. The research approach is also constructive (Jarvinen 1999, Olkkonen 1993). The positivistic approach would have required a quantitative analysis of the system (Takala Helo 2000) which would be very difficult to accomplish without disclosing some confidential business information.  [9]   This nature of research is a process of finding information; analyzing, interpreting information to deal with questions which must have certain characteristics like be controlled, systematic, rigorous, valid and critical. My research will ideally be focused on primary and secondary research on ASDA brand name and image, which will enable me to get adequate knowledge and with the help of this awareness I will work on my dissertation with no trouble. I will be able to investigate the advantages of branding and will find out what can be the problems using a brand name/images in a most competitive market for a company. During this research proposal I found out that there is plenty of information available in the journals, books and on the internet specifically for ASDA and I will use that information in the dissertation to make it more clear and acceptable. With the help of this provided information I would be able to present this in a theoretical form including data chart, comparison diagrams etc, which will help to understand my subject simply. As mentioned earlier that brand is a most important tool for any company, product or service. There are so many products in the market who do not have proper brand name or image and these products disappear from the shelves after sometime. So in my research work I will explore few of those products and will compare the quality and price to ASDAs similar products, as this experiment will discover the importance of branding. EXPECTED OUTCOMES I consider that after having a detail study on brand name/image and its importance in the retail market and research on branding strategy of ASDA and its implementation, it will be helpful for me to suggest how ASDA can improve itself amongst its competitors in the United Kingdom. As we all know that branding is perhaps the most important fact of any business, beyond product, distribution, pricing and location for any company and this build a tangible trust and loyalty amongst the customers. Brand loyalty is an essential part of building a brand name/image as customers usually have a choice of similar products in the same market segment so a successful company like ASDA will come up with a way to keep customers re-buying their products or coming back to their store again and again rather than going to its competitors. During my dissertation while conducting different interviews and surveys I will find out how ASDA is successfully implementing its branding strategy and how it can more effectively improve this with my field work on this specific topic. So I conclude this proposal with acknowledging that if brand name is used properly, ASDA can keep the large share of the market. ASDA brand name is Saving you money every day, so as far ASDA is fulfilling the requirement of its brand name, there is no doubt that this big chain of supermarket will continue enjoying a large portion of the market share in the United Kingdom. During my research proposal I have found out that ASDA has improved its operations and thus it become the second largest supermarket in the United Kingdom and this is only because it has its long term branding strategies which reviewed on regular basis and the market is compared on weekly basis on the prices and quality of the product being sold at the similar stores in the country. SCHEDULE (DAILY TIME TABLE) Dissertation Working Process Start Date Finish Date 1. Introduction and history 01-01-2011 02-01-2011 2. Finalising aims/objectives and questionnaire 04-01-2011 06-01-2011 3. Draft a complete version of Literature review 08-01-2011 11-01-2011 4. Finalise Literature review 13-01-2010 17-01-2011 5. Revisit the methodology Literature 20-01-2011 24-01-2011 6. Finalising the research approach 26-01-2011 30-01-2011 7. Finalising research strategy and method 01-02-2011 03-02-2011 8. Finalising questionnaire and interviews 05-02-2011 08-02-2011 9. Entering and analysing the data 10-02-2011 12-02-2011 10. Update Literature if necessary 14-02-2011 15-02-2011 11. Completing the remaining work 17-02-2011 18-02-2011 12. Revise the draft make amendments format for submission 20-02-2011 22-02-2011 13. Write Reflective Document / add at the end of dissertation 24-02-2011 26-02-2011 14. Submit Dissertation Possible Submission Date: 31-03-2011

The Electoral College Essay -- Electoral Vote vs Popular Vote

This paper will take an in depth look at how the voting process works in the United States, but mainly focus on the Electoral College and its wrongs and rights in the American voting system. It’s difficult to understand or appreciate the Electoral College unless one completely understands its past circumstances and the problems it was attempting to solve. The Electoral College was established to elect a president in a country that was split up into thirteen states that lacked communication and transportation and was made up of 4 million people scattered through out thousands and thousands of miles (Middleton, 2012). After many attempts to set up a voting system that was accepted by the Constitutional Convention, the idea of letting the people elect the president indirectly was brought up. Which lead to the idea of the Electoral College, which was a system that was made up to let the people indirectly elect the president through a college of electors. The Electoral College is made up of electors in each state, who represent the states popular vote. Each presidential party or candidate designates a group of electors in each state, equal to the States electoral votes, who are considered to be loyal to that candidate, to each State’s chief election official. The number of electors a state receives is equal to its number of U.S. Senators plus its number of U.S. Representatives which is determined by its population (Rae, 23). Meaning that bigger states would have more Electoral votes than little states since their population is bigger. On the first Tuesday after the first Monday in November in years divisible by four, the people of each state submit their votes for the slate of electors representing their Presidential candidate which is inevitably the election of the States electors and not the election of the President (www.fec.gov/pages, 1). This â€Å"winner takes all† system is what decides which presidential candidat e wins the states electoral votes. The Presidential candidate who wins the popular vote in the state has its designated electors given the electoral votes for that state which means that candidate wins all of the electoral votes for that state. You need 1 more than the majority of the electoral votes to win the presidency (Rae, 34). The only problem with this is that a presidential candidate can win the Presidency with out winning the popular vot... ...tp://www.blackpast.org/primary/voting-irregularities-florida-during-2000-presidential-election Internet Sources Consulted "Frequently Asked Questions." U. S. Electoral College: Frequently Asked Questions. N.p., n.d. Web. 26 Nov. 2012. . "Popular Vote." Dictionary of Politics and Government. London: A&C Black, 2004. Credo Reference. Web. 26 November 2012. "U. S. Electoral College: How Are the Electoral College Votes Allocated." U. S. Electoral College: How Are the Electoral College Votes Allocated. N.p., n.d. Web. 26 Nov. 2012. . "U. S. Electoral College, Official - What Is the Electoral College?" U. S. Electoral College, Official - What Is the Electoral College? N.p., n.d. Web. 26 Nov. 2012. . Winston, Grant. "Poll Finds Majority Think Electoral College is a School". Web. 4 November 2012. wyfftv. "Electoral Vote vs Popular Vote." Online Video Clip. YouTube. YouTube, 5 November 2012. Web. 4. December. 2012.

Internet Addiction :: Expository Essays

Internet addiction is a growing problem with more and more people. The internet is much more accessible to people now than it was just a few years ago. The internet provides people with entertainment, loads of information, and an escape from everyday life, but like anything else, too much a good thing can be addictive. This paper will cover what internet addiction is, warning signs of internet addiction, problems caused by internet addiction, who develops internet addiction, preventing and treating internet addiction, and safety guidelines for internet users. In the modern world internet access is a vital part of everyday life. It is important for education, and is a necessary skill for those entering the job markets of today. The internet is highly entertaining and informative. These qualities make the internet an attractive escape from the stress of everyday life. People can enter a different world and make the problems of the real world disappear. Anything is possible on the internet. Internet addiction has the same symptoms as an addition to drugs, alcohol, cigarettes, or caffeine. When someone becomes addicted to the internet they will have increasing tolerance to the amount of time they spend online, withdrawal, mood changes between when online and off, and there will be an interruption of social relationships and activities. People with an addiction will need more time online to be happy. When access to the internet is not available people will show signs of anxiety, depression, irritability, trembling hands, a nd restlessness. There are five types of internet addiction. The first is Net-Gaming. People with this addiction participate in online games, Multi User Dungeon Games (MUDs), will visit virtual casinos, and my become obsessed with e-auctions and online trading and shopping. Another type of internet addiction is Cyber-Relational Addiction. People with this tend to make chat room relationships more important than their relationships with family or friends. They may even try to meet someone personally after meeting him or her online. The third type of internet addiction is Information Overload. People become obsessed with tracking down certain information and organizing it.

Some Cannot Forget :: essays research papers

The Vietnam War Purpose: To illustrate my view on the Vietnam War. Audience: Anyone with an interest in the Vietnam War. Some Can't Forget I awaken and bolt upright in bed, my heart racing and sweat beginning to bead on my forehead. My chest heaving with ragged breaths, I try to figure out what startled me out of sleep. Then I hear it: The terrified scream of my father piercing through the eerie silence. My heart skips a beat and I shuffle my feet under the covers, letting them fall off the bed and land on the carpet. I start to push myself up, but then hear my mom's voice slowly drift down the hall as she tries to awaken and comfort my father. "It's okay. You're home. You're okay. It's over." A sigh escapes my lips and I lay back in bed, pull the covers to my neck, and desperately hope to fall back asleep. Another nightmare of the Vietnam War. I could never in my wildest dreams even begin to imagine having to experience something with such controversy and horror. But my father was there and it is still with him today, almost thirty years later. As most people know, there was an extreme amount of debate over the Vietnam War. There were protesters in the streets and marching on the White House lawn, preaching about peace and civil rights. Young men were fleeing to Canada to escape the draft, while others freely volunteered to join the service. Even though the war was in Vietnam, the fighting spirit could be found all over in the cities of the United States. I understand the opposition to the war, because technically it wasn't even our fight. It was, after all, within the country of Vietnam. But the reason we intervened was because the South Vietnamese government asked us to fight the communism that was trying to take them over. While most people knew this, I don't think they fully understood it or even cared. All they knew was that people they loved were being sent off to a foreign country to die. One thing that I really don't understand is the way that the Vietnam veterans were treated after they returned home. These soldiers were fighting for our country, doing their duty to serve and protect. They were not the ones who started the war, so why should they be blamed for it?

“What is ‘Superblood” Analysis

The article â€Å"What is ‘Superblood' and Why Do I Want It?†, written by Kyree Leary, explains a great potential medical advancement. A biotech startup company, Rubius Therapeutics, wants to use red blood cells to replace missing enzymes in patients with rare diseases or conditions along with patients with autoimmune disorders in order to treat them. These diseases include Type 1 diabetes and even cancer. The technique Rubius Therapeutics plans on using is equipping red blood cells with a protein that can be tailored to treat the condition of the patient it is being infused into. Then, the company plans on putting these blood cells into the body, but overall, it will account for less than 1 percent of the patient's total blood volume. This idea is similar to the idea of using modified T-cells to fight cancer; however, red blood cell therapies do not need to be personalized. For T-cell therapy, the cells must be taken from the patient and put back into the same patient to avoid rejection by the immune system, whereas for the red blood cell treatment, only the use of any person's O negative blood can be effective, for it is a universal donor. In fact, one donor could generate enough therapeutic doses to treat hundreds of thousands of different patients. The company has not released any products yet, but they have raised $220 million in funding which is going to go towards the development of products along with clinical trials necessary for ensuring their safety. This article certainly grabbed my attention when I saw it while scrolling through articles. I have done a lot of work with blood and enzymes in PBS and Biology, so I was intrigued to see what this new â€Å"Superblood† was. Having learned about blood and the topic of the article already, I understood the methods the company plans on using, which made the article and story even more interesting. I found it fascinating that something as simple as placing missing enzymes back into someone's body can possibly have the ability to treat a condition as serious as cancer. In addition, it astonishes me how individuals and companies can think of innovative things like this that could have such an impact on people and the field of medicine. The health of millions is compromised by cancer and autoimmune disease, which this procedure targets. If Rubius Therapeutics can successfully use this red blood cell therapy as a treatment for cancer or even Type 1 diabetes, our world will be a better place, and the healthcare field would be drastically altered. This could diminish the need for insulin injections or pumps if done properly along with other standard treatments. Although this idea may not be able to actually cure cancer, it definitely could and probably will lead to other scientists and/or physicians getting inspired and developing innovations that could bring humanity closer to a cure for the deadly disease. Overall, this â€Å"Superblood† can certainly lead to advancements in the medical field which would make our population a healthier group of people.

Accounting Theory Cga

Slide 1 ACCOUNTING THEORY & CONTEMORARY ISSUES (AT1) MODULE ONE Slide 2 ACCOUNTING UNDER IDEAL CONDITIONS Part 1 – Foundation items re the course Part 2 – Present value accounting under certainty Part 3 – Present value accounting under uncertainty Part 4 – Reserve recognition accounting Part 5 – Examination question examples Part 6 – Historical cost accounting Lecture by: Dr. A. L. Dartnell, FCGA Year 2009 – 2010 2 Slide 3 PART 1 Foundation Items re the Course Different Course Financial reporting is extremely important in our everyday life. You have heard of the many irregularities that have occurred in recent years which primarily involved financial reporting. Financial reporting is controlled by standards set so that the best disclosure will take place. To fully understand the importance and necessity for these standards, you need to appreciate that they are designed so as to trade off the conflicting interests of constituencies affected by them — usually investors and managers. Note carefully that Standard Setting bodies make these trade-offs through due process. That is, standards are set in consultation with major constituencies. Devices to achieve due process include representation of major constituencies on the standard setting boards, supermajority voting, exposure drafts, and public meetings. In other words, the issues and topics are well-vetted prior to their implementation. Thus the course deals with standard setting of accounting policies by which you are guided in your work as an accountant. Slide 4 Second, students often ask why they need an accounting theory course. We need to understand the thinking and action underlying the requirements for the standards we follow. All activities in life have a theoretical background. For example, how a chef prepares a meal in a restaurant. If the theory behind the meal is good, customers return. If not, they dine elsewhere. How you cut the lawn has a theory. You follow a theoretical plan for the actions you choose. So with accounting we have theories and to understand them is extremely important for the accountant. Why we do things the way we do. We do not want to follows principles which we do not understand. and Slide 5 Third, students ask why the course writer refers so much to shares, the stock market, financing and related matters. If you consider any undertaking it has finance involved. So the writer refers a great deal to shares and the market. 3 Financial institutions are throughout the world. For example, besides banks in all countries, there are many large stock exchanges, even in Socialist countries like China. Further, smaller businesses and organizations, such as, not-for- profit entities, obtain financing from banks and credit unions, as well as other sources of money, such as, donations from the public. Thus, stocks, bonds, financial institution loans, and other financing, are the life blood of our economic activity. Without these sources of funds our economy as we know it would not survive. Thus, it is important to you as an accountant to be fully aware of the financial activity we encounter day by day and we must provide good financial information for those who have invested or loaned their money for organizations to exist for our economic benefit. Slide 6 Objective To sum up: †¢ The Course revolves around setting of standards for release of information for investors and creditors. †¢ Standards can be set by various regulatory bodies – CICA, Securities Commissions, Stock Exchanges, and other groups. †¢ Our objective is to provide the best information possible for the readers of the reports. Slide 7 Standards in the Future As you know, financial reporting for publicly-traded firms in Canada will be in accordance with International Accounting Board (IASB) standards from 2011 on. This course includes coverage of IASB standards, in the textbook, the modules, the assignments, and review material. We do have a number which are in accord with IASB standards but the task is expected to be completed by 2011. While the current edition of the textbook has few references to Canadian standards, coverage of current Canadian standards is included in the modules, as well as, the review and assignment material. Coverage of certain United States standards is also included where these differ significantly from, or are in advance of, IASB standards. All of this material is examinable unless specifically marked to the contrary. 4 In this course, material relating to specific accounting standards is largely (but not completely) at a conceptual level. Fortunately, at this level, most standards in Canada, the United States, and internationally are broadly similar, thereby reducing the amount of detail you will have to learn. However, there are some important differences, particularly with respect to current value accounting, and these will be emphasized where appropriate. It would seem that from 2011, current Canadian standards will no longer be relevant or examinable. Future versions of this course will include only IASB and relevant United States standards. Slide 8 History and Research There is an interesting rundown on the history of accounting and research in the first 15 pages of the text. Go over them to get some background for the course. Topic 1. 2 of the module notes relates to recent developments in financial accounting. It gives an excellent account leading up to the current recession and also the effect on fair value accounting which we will be dealing with in the course. Read it carefully. It is level 2 and you should know it in a general manner. Slide 9 Information Asymmetry – an important topic The aim of the course is to deal with information economics. The theme relates to the fact that some parties have an information advantage over others in business transactions. If one party is better informed than the other(s), then it is referred to as information asymmetry. We will deal with these topics later but for the moment, information asymmetry comes in two forms: Adverse selection and Moral hazard. Slide 10 †¢ Adverse selection relates to the possession of greater information by one party over the other. †¢ Adverse selection in the securities market stems from insider trading and selective release of inside information, which is releasing only the information the manager decides to release. Bad news may be withheld from public consumption. †¢ Full disclosure is the antidote. 5 Slide 11 Moral hazard relates to shirking on the part of managers, or any situation where a person cannot be observed by the employing party. For example, a trustee for a bond issue could shirk if not carrying out his/her duties as they should be. †¢ For the manager (employee) participation in the fruits of the operations, for example, profit sharing is an antidote. Slide 12 Present Value Accounting †¢ An English economics professor named Hicks sai d the way to determine the real change in economics of the firm is to take the difference between net assets at the beginning of the period and at the end of the period and that would be your profit. That would be market value. †¢ If the net assets have increased, your wealth has increased and you have made a profit. If they have decreased, you have suffered a loss and your wealth had decreased. Your welloffness has changed Slide 13 †¢ How do we measure this well-offness of the firm? The present value system is probably the best way of measuring the change in the value of the assets and comes closer to the valuation of the market value than do other systems. In real terms – what is it worth today and what will it be worth in the future. We want to start with present value accounting. It is theoretical, no doubt not fully attainable, but a target at which we can shoot. While a full presentation of present value accounting would be difficult for a organization it can be considered from an ideal situation point of view. Slide 14 Current Value Accounting However, before moving ahead, on page 4 of the text the term current value accounting is used. This is a general term used to refer to departures from our currently used historical cost accounting. It is designed to increase relevance of financial information. Present value accounting (also called value-in-use) is a departure from historical cost. The other departure is fair value accounting (also called exit value or opportunity cost). Fair value is the amount the firm could sell an asset for or the cost to dispose of a liability, that is, market value. An implication of valuing assets and liabilities at opportunity cost is that management’s success is 6 then evaluated by its ability to generate more profits from retaining assets and liabilities and using them in the business rather than by selling them. Slide 15 It should be noted that under ideal conditions, present value and market value are equal. This module concentrates on present value accounting, since this is the fundamental basis on which market values are determined. However, when ideal conditions do not hold, the present value of an asset or liability may differ from its market value. It should also be noted that for many assets market value is not readily available. Think of steamships, what is their value? The fast ferries were a perfect example when the BC Government endeavoured to sell these vessels a few years ago. There was no market level for their sale price. Also, intangibles, and power plants, are other examples. Markets for these types of items are â€Å"incomplete†. Slide 16 Present Value Calculations and Limitations First, you have done present value calculations but to refresh your memory there are two examples in the appendix. However, if you have difficulty make sure you can under present value, future value, and annuities. The financial institutions and leasing firm use present value calculations extensively. Present Value Limitations It is difficult to precisely relate the present value system to the market value. Why? There must be ideal conditions: a definite and perfect knowledge held by all. Ideal conditions would include: †¢ a definite cash flow situation a definite discount rate – what we would term a riskless rate. †¢ a definite time period. In making our statements we want to give the best picture possible. Question is – is it a reality for us to give present value figures for all our assets and liabilities? Some – not all. To repeat – in many ways ideal conditions are a theoretical target at w hich to aim. Present value accounting is an example of the more general concept of fair value accounting, where the fair value of an asset or liability is its exit price, that is, the amount the firm could sell it for (asset) or the cost to dispose of it (liability). As noted above. ) Under ideal conditions, present value and market value are the same. However, when ideal conditions do not 7 hold, the present value of an asset or liability to a prospective purchaser may substitute for market value when, as is often the case, a market value does not exist. Slide 17 Relevance and Reliability We want to make our statements as relevant as possible and as reliable as possible. Relevance To be relevant statements must give users information on future cash flows, which show what the assets are worth in the future, that is, Predictive value. Reliability To be reliable financial statements and information should be precise and as free from bias as possible. If the present value is the same as the market value then they are relevant. If the data are correct and unbiased then they are reliable. This is our aim. Slide 18 Generally relevance and reliability work against each other. With present value you get more relevance but you lose some reliability because of unknowns such as future cash flows, the discount rate, etc. With historical cost you get reliability as transactions past are the basis of the statements, but you lose some relevance as the historical cost statements become dated. Relevant financial information gives investors information about the firm's future economic prospects. Reliable financial information faithfully represents without error and bias what it is intended to represent. Be sure you understand why, except under ideal conditions, relevance and reliability must be traded off. This is the main purpose of this topic. While the text concentrates on the relevance and reliability trade-off of historical cost accounting, there are different tradeoffs for other bases of accounting. For example, cash basis accounting represents the trading off of a lot of relevance in order to attain high reliability. Conversely, current value accounting represents the trading off of a lot of reliability in order to attain high relevance. Historical cost accounting can then be thought of as a compromise between these two extremes. Increasing both relevance and reliability is extremely difficult to do. (Can you think of a financial accounting product that does this? ) The text suggests that the reporting of supplementary information (such as RRA) enables increased relevance while retaining the reliability of historical cost in the financial statements proper. 8 Slide 19 Dividend Irrelevancy †¢ Theoretical concept – if conditions are certain, i. . , if cash flows, discount rates and time periods are certain then the present value will equate to market value. Income is not a determining factor. †¢ Dividend irrelevancy is the situation where it is presumed whether or not dividends are paid to the shareholders or profit retained where it earns the same return. There is one basic rate i n the economy. It is irrelevant whether dividends are paid or retained in the company for reinvestment. Slide 20 Arbitrage †¢ What is it? If the market gets out of equilibrium under ideal conditions â€Å"Arbitrage† will bring it back into equilibrium. Briefly arbitrage is buying in one market and selling in another for a higher price, thus, making a profit. Slide 21 Example: If I buy a share for $60. 00 in the Toronto market and can sell it for $61. 00 in the New York market, above commissions and foreign exchange, I can make a dollar per share. This possibility exists because there is imperfect information. If there is no arbitrage possibility then the market is working well. If, however, there is a rectifiable difference between the two markets and information asymmetry exists, then there is a problem. Arbitrage is a means to bring the two into equilibrium. Slide 22 †¢ How does arbitrage work in our ideal situation to bring the markets back into equilibrium? †¢ What happens from an economic theory point of view? If I buy in the Toronto market share price will rise and sell in the New York market share price will fall. The supply/demand relationship will erase differences which exist. This is an important economic principle. Demand will increase in the Toronto market increasing price and supply will increase in the New York market, decreasing price, bringing them into equilibrium. 9 Slide 23 Keep your Handout available PART 2 Present Value Under Certainty Major topics Comment on Present Value Example Description and Required What is the Answer Steps – year zero Balance sheet Steps – end of first year Slide 24 Present Value Under Certainty (con’t) Income statement – first year Balance sheet – first year Steps – end of second year Income statement – second year Balance sheet second year Summary of present value under certainty Slide 25 Comment on Present Value Present value accounting – you will find this different than historical cost accounting. For example, the point in the historical cost operating cycle at which we recognize revenue is the point of sale. Note carefully – in present value accounting under ideal conditions, the present value of all future revenues (net of costs) is recognized when productive capacity is acquired (for example, plant and equipment is valued at the present value of its future net cash receipts at date of acquisition – that is, when you commence to operate). Then, income for the year is simply the accretion of discount (profit) on the opening present value. That is, under ideal conditions, it is not necessary to wait until the realization of revenue is probable, since, by definition, all future revenues are reliably known. While the text addresses this in terms of asset valuation it is also revenue recognition. The opposite side of the same coin. Another interesting point is that even if the firm pays out all of its profits as dividends, there will be cash-on-hand equal to accumulated amortization. This illustrates the point you 10 learned in accounting courses that â€Å"amortization† retains â€Å"assets† in the business. The amount is not paid out. Slide 26 Example Description of Question Let’s look at a theoretical, ideal situation. Jane bought a fixed asset and operates under ideal conditions with certainty. She anticipates it will bring cash flows of $300 at the end of the first year and $400 at the end of the second year, with a salvage value of $100 at the end of the second year. The interest rate is 9%. Jane takes out a bank loan of $150 at 8%, and she issues a bond to I. Save for $120, with a coupon rate of 10%. Make provision for $100 in the cash account for working capital. The current yield in the market for a similar security is 9%. Interest is payable at the each year-end, at the rate of 9% At the end of the second year the loan will be paid and the bond will mature. Dividends of $20 will be paid at each year-end. Slide 27 After receiving the loan and the bond money, the balance of the assets are financed by common shares. There will be $100 additional subscription for common shares at the end of the second year. Required Prepare a balance sheet at year zero, and income and balance sheets for years one and two. It is generally wise to prepare a balance sheet at year zero. It prevents mistakes later. Slide 28 Answer: First of first year – steps 11 1. Obtain the present value of the asset by discounting cash flows and salvage. 2. Financing – present value of the principal and interest of the loan and the bond. 3. Make provision for the $100 in the cash account. . Deduct the p. v. of the loan and the bond from the capital asset to arrive at the shareholders' equity. Jane's Company Balance Sheet As at January 1st, x1 Assets: Cash $100. 00 Capital Asset – 300/1. 09 + 400/1. 188 + 100/1. 188 696. 11 Total assets $796. 11 Note: the interest rate is 9%. Liabilities and Shareholders' Equity Loan: 12/1. 09 + (12. 00 + 150. 00)/1. 188 $147. 37 Bond: 12/1. 09 + (12 +120)/1. 188 122. 12 Shareholders' Equity $796. 11 – (147. 37 + 122. 12)* 526. 62 Total liabilities and shareholders' equity $796. 11 *Proceeds from the loan and the bond are deducted from the total assets to obtain shareholders’ equity. Slide 29 First Year Results – End of First year: 5. Set up income statement. You need sales, interest on the cash balance, amortization for the year, (present value of second year deducted from original present value) and interest expense, which is, the discount rate times the original present value of the loan and the bond. 6. Set up your balance sheet for the first year. 7. Next is the cash and that which is actually paid out – interest and dividends 8. Determine the remaining balance of your capital asset – from the income statement. 9. Obtain your liabilities for the loan and the bond. This is the remaining amount for the second year, discounted. 0. Obtain retained earnings – net income for the year less dividends. 12 Jane's Company Income Statement For the Year Ending December 31, x1 Sales $300. 00 Interest $100. 00 x 0. 09 9. 00 309. 00 Less: Amortization $696. 11 – 458. 71 = $237. 40 400/1. 09 + 100/1. 09 = $458. 71 Interest expense:* Loan $147. 37 x 0. 09 = 13. 25 Bond 122. 12 x 0. 09 = 10. 98 261. 63 Net income $ 47. 37 *Note: interest is at the going rate in the economy. Jane's Company Balance Sheet As of December 31, x1 Assets Cash $100. 00 + 300. 00 + 9. 00 – ($12. 00 interest on bond, $365. 00 $12. 00 interest on the loan and $20 dividend) Capital asset $696. 1 Accumulated amortization 237. 40 458. 71 $823. 71 Liabilities and Shareholders' Equity Loan outstanding p. v. at end of year one – (12 + 150)/1. 09 $148. 62 Bonds outstanding p. v. at end of year one – (12 + 120)/1. 09 121. 10 Shareholders' equity – as shown above 526. 62 Retained earnings: Net income $47. 37 Less Dividends 20. 00 27. 37 Total liabilities and shareholders' equity $823. 71 13 Slide 30 Second Year Results – End of Year Two: 11. Set up your second year's income statement 12. In addition to your cash flow you should show your interest received on the bank balance of $32. 85 (made up of $365. 00 x 0. 09) 13. Less amortization – balance left in the capital account is salvage value of $100. 00 14. Obtain interest expense – the discount rate of 0. 09 times the carrying value of the loan and the bond in year 2 15. Set up the balance sheet 16. Cash account will be the carryover of $365. 00 from the previous year plus the sales of $400 and the interest on the cash account of $32. 85 plus the additional $100. 00 put into shareholders' equity. Deductions will be the actual paid out interest on the loan and the payoff of the loan ($162) and payment of the interest and the maturity of the bond ($132. 00) and the deduction of the dividend ($20. 0). Total in the cash account should be $583. 85 17. The capital asset will be $100. 00. You deduct the salvage from the carrying value of the capital asset in the second year ($458. 71 – 358. 71 = $100. 00) 18. Set up the liabilities and the shareholders' equity – show zero for the loan and the bond as they have been paid off Sli de 31 19. Shareholders' equity will be the original balance plus $100. 00, plus retained earnings from the previous year plus the addition of net income for year two and the deduction of the dividends in year two. Net Income will be $49. 86 and Total assets $683. 85. Jane's Company Income Statement For the Year Ending December 31, x2 Sales $400. 00 Interest on cash in bank ($365. 00 x 0. 09) 32. 85 $432. 85 Less: Amortization $458. 71 – $100. 00 = $358. 71 Interest expense: Loan $148. 62 X 0. 09 = 13. 38 Bond 121. 10 x 0. 09 = 10. 90 382. 99 Net Income $ 49. 86 14 Jane's Company Balance Sheet As at December 31, x2 Assets Cash $583. 85 Change: ($400 + 365 + 32. 85 + 100) – (12 + 150 + 12 + 120 + 20) Capital Asset: $458. 71 – 358. 71 100. 00 Total assets $683. 85 Liabilities and Shareholders' Equity Loan outstanding $ 0 Bonds outstanding 0 Shareholders' equity 526. 62 Additional subscription 100. 00 Retained earnings: Previous balance $ 27. 37 Net income 49. 86 $77. 23 Less: Dividends 20. 00 57. 23 Total liabilities and shareholders' equity $683. 85 That is a rundown on ideal conditions under certainty. Under ideal conditions everything, i. e. , cash flows, discounts, and other estimates, would happen as given. 15 Slide 32 PART 3 Follow the Handout – Page 15 Present Value Under Uncertainty Major Topics †¢ Present Value under Uncertainty – what is it? †¢ Example †¢ Description and Required †¢ Answer †¢ Steps – year zero †¢ Balance sheet Slide 33 Topics (con’t) †¢ Income statement – year 1 †¢ Balance sheet – end of year 1 Present value income statement – year 1 †¢ Income statement – year 2 †¢ Balance sheet – year 2 †¢ Summary of present value re Accounting Material †¢ A typical short answer exam question Slide 34 Present Value Under Uncertainty In this part we want to inject some uncertainty into the cash flows We are still under ideal circumstances and the theoretical aspect of things, thus, everything remains the same apart from revenues. Jane has a new company, that started operations on January 1, x1 Assume cash flows could be $250 for each of two years if the economy is good and $120 a year for each of two years if the economy is poor. There is a 50% chance there will be a good year each year and a 50% chance there will be a poor year. These are called states of nature. 16 To set the company up Jane makes a loan of $200 and finances the balance by common shares. The loan will be paid off at the end of two years. Loan rate 9%. We will make certain assumptions: – the discount rate is 8% – the states of nature and probabilities are publicly known and observable. – cash flows are given but uncertain as to which result will occur. Slide 35 Balance Sheet at Time 0: 1. Determine the capital asset – $329. 91 2. Determine the p. v. of the loan and shareholders' equity. P. V. = 0. 5(250)+ 0. 5 (120)+ 0. 5(250) + 0. 5(120) 1. 08 1. 08 1. 1664 1. 1664 = 0. 5(231. 48) + 0. 5(111. 11) + 0. 5(214. 33) + 0. 5(102. 88) = 115. 74 + 55. 56 + 107. 17 + 51. 44 = $329. 91 Jane's Company Balance Sheet As at January 1st, x1 Capital Asset $329. 91 Loan $203. 55 ______ Shareholders' equity 126. 36 $329. 91 $329. 91 Loan $18. 00/1. 08 + (18 + 200)/1. 1664 = $203. 55; common shares $329. 91 – 203. 55 = $126. 36 Time 1 Slide 36 First Year Results Assume there is a GOOD economy for time 1. 3. For the income statement determine sales $250. 00 4. Determine amortization – need the p. v. s of January 1st, x2 5. Charge interest on loan outstanding 6. Determine net income – $75. 10 17 Jane's Company Income Statement For the year ending December 31, x1 Sales $250. 00 Amortization $329. 91 – 171. 30* = $158. 61 Interest 203. 55 x 0. 08 = 16. 29 174. 90 Net Income $ 75. 10 * This figure can be taken from the first year above – $115. 74 + 55. 5 6 = $171. 30 Slide 37 7. For the balance sheet determine cash – sales revenue less interest paid 8. Deduct amortization to obtain p. v. of capital 9. Calculate p. v. of the loan 10. Include in statement the common shares and retained earnings. Jane's Company Balance Sheet As at December 31, x1 Assets Liabilities and Shareholders' Equity Cash $250. 00 – 18. 00 $232. 00 Loan $201. 84* Capital asset $329. 91 Amortization 158. 61 171. 30 Shareholders' equity 126. 36 ______ Retained earnings 75. 10 $403. 30 $403. 30 * Loan – $218. 00/1. 08 = $201. 84 Slide 38 Lets look at the present value statement: 11. Need accretion of discount – multiply the common shares by discount rate 12. Add revision of cash flows by deducting expected cash flows from actual cash flows. Present value Income Statement Jane’s Company Income Statement for the year ending December 31, x1 8 Accretion of discount $126. 36 x 0. 08 (rounded) $10. 10 Actual cash flows in year 1 $250. 00 Expected cash flows (0. 5 x 250 + 0. 5 x 120) 185. 00 65. 00 Net Income $75. 10 Abnormal earnings One thing you should be aware of is the abnormal earnings. The abnormal earnings in this instance are $65. 00. They indicate the difference between the expected value o f earnings and their actual realization. This is an important concept that will come up again when you study investor reaction to firms’ reported earnings in later Modules. For example, investors seem to respond strongly to unexpected earnings. You have probably seen the major effect on share price when a firm reports earnings higher or lower than the market had expected. The Present Value Income Statement above and also the illustration in Example 2. 2 (see pages 30 to 33) show how reported earnings can consist of an expected and an unexpected component. Slide 39 Now consider Year Two – Assume it is a poor year, that is, $120. 00 revenue Steps 1. Sales 2. Interest received on cash account 3. Interest paid on loan 4. Amortization – no salvage 5. Income for the year will be a loss of $(48. 90) Jane's Company Income Statement For the year ending December 31, x2 Sales $120. 00 Interest 18. 56 $138. 56 Amortization $171. 30* – 0 = $171. 30 Interest 201. 84 x 0. 08 = 16. 16 ** 187. 46 Net Income $(48. 90) * This figures can be taken from the first year above: $115. 74 + 55. 56 = $171. 30 ** rounded up 19 Slide 40 For the Balance Sheet: Steps 1. Determine Cash 2. Calculate Capital Assets to zero 3. Extinguish Loan 4. Show Shareholders’ Equity 5. Determine Retained Earnings Jane's Company Balance Sheet As at December 31, x2 Assets Liabilities and Shareholders' Equity Cash $152. 56* Loan $ 0** Capital asset $171. 30 Amortization 171. 0 0 Shareholders' equity 126. 36 ______ Retained earnings 26. 20*** $152. 56 $152. 56 * Cash $232 + 120 + 18. 56 – (18 + 200) = $152. 56 **Loan extinguished *** Retained Earnings $75. 10 + (-$48. 90) = $26. 20 Slide 41 Summary: Application of Present Value to Accounting Material These ideal, present value statements are relevant and reliable – dividends are irrelevant and expected cash flows have been assumed to include all possible events. – They are relevant because the values in the statements are based on all future cash flows. – They are reliable because the values reflect for sure future cash flows. Arbitrage assures the market value as time passes. How easy is it to apply present value material to accounting material? 20 In some cases it is easy and in some cases more difficult, for example, it is easy, with a bond, a mortgage, a loan, etc. P. V. can hold in the case of a bond which is purchased at face value and held to maturity. If it is purchased at other than its face value a premium or discount occurs. This will be covered in Module 5. P. V. can be partially successful in non-contractual cases such as the lower-of-cost or market or (fair value). On the lower side it is marked to market but not on the upside. In some cases it has been difficult. However, more is being added as time passes. A typical short examination question: Question: What is the change in the present value of an asset over time? Answer: It is the amortization of the asset. 21 Slide 42 PART 4 Follow the Handout – Page 21 Reserve Recognition Accounting What is Reserve Recognition Accounting? In this part we want to deal with an attempt by the Financial Accounting Standards Board in the United States to implement present value accounting material in the oil and gas company reports, for American companies, domestically, and their international subsidiaries. This was released under SFAS 69. It should be noted that this was supplemental material to the financial statements. Some Canadian companies have adhered to RRA because their parent companies in the U. S. have had to follow it in that country. Canada does not require it. However, Canada has implemented a standard of its own referred to below. Among the items was the requirement of an estimate of the present value of future receipts from a company's proved oil and gas reserves. What is its purpose? To give some idea of the discounted cash flows which an investor might expect the company to experience. As you know historical cost becomes obsolete very quickly and irrelevant in a short time. This attempt was to try to add to it so people would get some idea of the future expectations from the reserves and future cash flows. Oil and gas companies do not operate under conditions of certainty nor do any companies. This new consideration relates to present value under uncertainty. As noted earlier, recognizing revenue by the process of proved reserves indicates an early recognition of revenue in the operating cycle. Other companies, for example, recognize revenue at point of sale, or when they ship product to a distributor. Early recognition adds to the relevance aspect of revenue recognition but reduces the reliability because there are estimates being made which may not prove to be the outcome. It is suggested that you carefully read the comments on revenue recognition in the module notes under the heading of Reserve Recognition Accounting. Slide 43 Standardized Measure Theoretical and Practical RRA 22 Lets use the information of from a former year of Renaissance Energy: You have similar information in your text for Suncor Energy Inc. , page 36. What is the standardized measure? Standardized Measure is the expected discounted net cash flows from proved reserves in the ground to which the oil company has claim. Standardized Measure Millions Future cash inflows $8,822 Future production and development costs (3,603) Future Income Taxes (1,361) Future Net Cash Flows $3,858 10% annual discount for estimated timing of cash flows (1,148) Standardized measure of discounted net cash flows $2,710 Let’s assume $20 a barrel at the time – that would be approximately 441,000,000 bbls. Points: 1. Total proved reserves are the first line. 2. Development and production costs will be deducted 3. Deduct income taxes 4. Discount at 10% 5. Discounted net cash flows. Changes in the Measure during year Millions Standardized measure – beginning of year $3,704 Less: Sales less royalties and production costs (598) $3,106 Add: Accretion of discount (expected profit) 529 Abnormal earnings: Net present value of additional reserves added – Extensions, discoveries and improved recovery 577 Purchase of reserves in place 100 677 Development costs incurred 288 Unexpected items – changes in value of previous year Net change in prices, net of royalties and production costs (2,647) Change in future development costs (4) Revision of quantity estimates 249 23 Net change in income tax 1,157 Change in timing and other items (645) (1,890) Standard measure – future value of discounted net cash flows $2,710 Note: this could be considered similar to your book value. Another Note: Under the global aspect you deduct your costs from the cash inflows, leaving standardized measure of $2,710 Million. However, when you come to the reconciliation statement above you add in purchase costs, development costs and extension costs. At that stage you are adding to the value of your proved reserves because you have increased your proved reserves. You have acquired new reserves. It is a different aspect of the accounting operation. Accretion of Discount: this is the expected net income for the year. Under ideal conditions your anticipated net income at the first of the year and the actual would be the same. In real world conditions you do get differences. We want to look at the loss or gain for the year. Note with RRA additional reserves can result in anticipated revenue. Net Loss from Proved Oil and Gas Reserves Sales $598 Development costs incurred in the year (288) Amortization expense – (Decline from $3, 704 to $2,710)* (994) Net loss $ (684) See change statement above. Present Value Format: Expected net income – accretion of discount $529 Abnormal earnings: Additional reserves proved during the year $ 677 Unexpected items – changes in value (1,890)* (1,213) Net loss $(684) *This is the total of the unexpected items in the change statement above. Note carefully that amortization takes the difference between the two years and unexpected items takes only in the items shown. Amortization is used in the Income Statement and unexpected items are used in the present value income statement. Slide 44 An Examination question: 24 Students often find it difficult to connect the theoretical aspect to the practical output by gas and oil companies. Following is actual information taken from Exxon, an oil and gas company in the U. S. This will connect the practical to the theoretical aspect of the RRA process. Exxon Corporation – 1993 – supplemental information (millions) Shown in the annual report under change in net cash flows: 1993 Millions Value of reserves added during the year due to extensions, discoveries, improved recovery and net purchases less costs. $ 527 Changes in value of previous – year reserves due to: Sales and transfer of oil and gas produced (6,975) Development costs incurred during the year 2,947 Net change in prices , lifting and development costs (10,229) Revision of previous reserve estimates 1,137 Accretion of discount 2,817 Net change in income tax 4,499 Total change in standard measure during the year $(5,277) Comparison of Theoretical and Practical models Now to make a comparison with our theoretical model the various items below are numbered 1, 2 or 3 indicating the category within which they fall. . Accretion of discount 2. Development and other costs 3. Changes in estimates. Millions Value of reserves added during the year due to extensions, discoveries, improved recovery and net purchases less costs $ 527 (2) Changes in value of previous – year reserves due to: Sales and transfer of oil and gas produced (6,975) (sales) Development costs incurred during the year 2,947 (2) Net change in prices, lifting and development costs (10,229) (3) Revision of previous reserve estimates 1,137 (3) Accretion of discount 2,817 (1) Net change in income tax 4,499 (3) Total change in standard measure during the year $(5,277) Question: 25 Prepare the supplemental information of net income from proved oil and gas reserves in the â€Å"sales less amortization format† and the present value format: Exxon Corporation Income Statement for the year ending December 31st, 1993 Millions RRA Sales in year $6,975 Development costs incurred in year (2,947) Amortization expense (5,277) Net loss ($1,249) The present value statement would be the following: Accretion of discount $2,817 Abnormal earnings: Additional reserves proved 527 Changes in estimates – unexpected items – as shown below (4,593) Net loss ($1,249) Changes in estimates made up of: Net change in prices – $(10,229) Revision of estimates – 1,137 Net change – income tax – 4,499 $( 4,593) Slide 45 Summary The Exxon financial statements contained a comment that the corporation believed the standardized measure was not meaningful and may be misleading. It appeared management thought it lacked reliability and the reserve quantities would be as useful without the remainder of the calculations. The major problems with RRA: – Many estimates must be made how sound are they? Because conditions are not ideal, RRA estimates are compromised and revisions must be made. Example, future oil and gas prices fluctuate significantly. – Changing interest rates – Information on the states of nature is changing – very complex – probabilities are difficult to determine. – How does one determine complete cash flows? 26 Gulf oil was quite comfortable with the physical data but not the dollar amounts. They and other Canadian companies have dropped the process. RRA was an American requirement but CICA under Section 4580 did require physical data for Canadian companies. That Section has been suspended. While RRA was a good attempt to gain present value information – it gained some relevance but lost reliability. RRA is closer to market value than is historical cost but investors have not shown a particular interest in it. Canadian Requirement Similar to SFAS 69 As noted above, more recently the Canadian Securities Administrators have issued their own RRA standard. It is National Instrument 51-101. This is supported by all securities commissions in 13 provinces and territories. It goes beyond SFAS 69 in certain ways: Briefly: †¢ The definition of proved reserves is tightened. NI 52-101 states that proved reserves are those with at least 90% probability of recovery. SFAS 69 states only â€Å"reasonable recovery. † †¢ Probable reserves must be reported. These are additional reserves such that there is as greater than 50% probability that the sum of proved plus probable will be recovered.. †¢ Two present value estimates of future cash flows from reserves are required – based on yearend prices and costs (as in SFAS 69) based on forecasted prices and costs. †¢ Discounting is required at several different discount rates, ranging from 0% to 20%. SFAS requires only 10%. The Canadian requirements go beyond those of SFAS 69 but it will be noted that the same problems of reliability still exist. A further point which should be noted is that if a firm reports under SFAS 69, they can apply for exemption from NI 51-101 It should be noted that Canadian firms can apply for exemption from NI 51-101 if they report under SFAS 69. Most large Canadian oil and gas companies have secured this exemption. Consequently, despite the Canadian standard, RRA as per SFAS 69 remains as an important disclosure standard in Canada. For example, Canadian Natural Resources Limited, with shares traded on the Toronto and New York stock exchanges, has been granted an exemption from National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (â€Å"NI 51-101†), which prescribes the standards for the preparation and disclosure of reserves and related information for companies listed in Canada. This exemption allows the Company to substitute United States Securities and Exchange Commission (â€Å"SEC†) requirements for certain disclosures required under NI 51-101. 27 Slide 46 PART 5 Follow the Handout at page 27 Examination Question Examples Examination Question 1: On January 1, 2006, XYZ Ltd. , a hypothetical oil and gas firm, purchased a producing oil well with a life of 15 years. Operations were started immediately. The management calculated that future net cash flows from the well would be $1,500,000. The discount rate was 10% which was the company's expected return on investments. During 2006 cash sales were recorded (net of production costs) of $600,000. The company also paid dividends for the year of $50,000. a) Prepare the income statement for the year ending December 31, 2006 using RRA accounting. Prepare the balance sheet as at December 31, 2006, using RRA accounting. Answer: We first need our amortization so we take the beginning total of $1,500,000 and take a similar approach to our change statement under our first example – Renaissance Energy. We deduct sales and add accretion of discount, to arrive at amortization. PV beginning $1,500,000 Less: Sales 600,000 900,000 Accretion of discount 150,000 10% of $1,500,000 PV end 1,050,000 Amortization $ 450,000 XYZ Limited Income Statement for the year ended December 31st, 2006 Net sales $ 600,000 Amortization 450,000 Net Income $ 150,000 28 XYZ Limited Balance Sheet s at December 31st, 2006 Cash $600,000 – 50,000 $ 550,000 Shareholders' equity $1,500,000 Retained earnings: Reserves 1,050,000 $150,000 – 50,000 100,000 $1,600,000 $1,600,000 b) Question: summarize the perceived weaknesses of RRA accounting Answer: Three weaknesses are: 1. The discount rate of 10% might not reflect the expected return for the fir m. 2. RRA involves making a large number of assumptions and estimates and it may not bear any relationship to the net revenue to be received in the future. 3. Conditions in the oil and gas industry may change rapidly possibly making frequent changes in estimates. ) Question: Why does SFAS 69 require all firms to use 10% rather than letting firms select their own rate of return? Answer: The use of a single rate for all firms was to improve comparability. Slide 47 Continue to follow the Handout A Second Example: This one is particularly difficult. ABC Company (hypothetical) operates under ideal conditions. On January 1, 2001, it purchased a capital asset with a useful life of three years at which time it would be totally used and have no value. It will generate a cash flow of $3,993, on December 31st, 2003, at the end of its 3 year life. The purchase is financed partly by common shares and partly by a non-interest bearing note which matures on December 31, 2003, with a maturity value of $1,500. The interest rate in the economy is 10%. The shares and the note thus both have to receive a return. Required: a) Prepare an income statement and balance sheet for December 31, 2001. 29 b) Prepare an income statement and balance sheet for December 31, 2002. c) Prepare an income statement and balance sheet for December 31, 2003 d) Calculate the expected net income for the second year Answer Consider this as an investment of $3,000 and you are earning 10%, so income for the first year is $300, the second $330 and the third $363, totalling $993. 00. In other words if you left your earnings in the firm that is what you would have. However, you have borrowed money and it has to earn 10%, so it will reduce your income by the cost of the borrowed money at 10%. Capital Asset each year: PV (Jan. 1/2001) = $3,993/1. 103 = $3,000. 00 PV (Jan. 1/2002) = $3,993/(1. 21) = $3,300. 00 PV (Jan. 1/2003) = $3,993/(1. 10) = $3,630. 00 PV (Dec. 31/2003) = $3,993/1. 00 = $3,993. 00 Note: As the earnings remain the capital asset increases. Non-interest bearing note: Interest Expense Present Value and Discount Amortization Carrying Value of Note Jan. 1, 2001 – $1,126. 97 Dec. 31, 2001 $112. 70 1,239. 67 Dec. 31, 2002 123. 97 1,363. 64 Dec. 31, 2003 136. 36 1,500. 00 $373. 03 Book Value each year Accretion of Discount or Expected Income at 10% $3,000. 00 – $1,126. 97 = $1,873. 03 – $187. 30 $3,300. 00 – 1,239. 67 = $2,060. 33 – $206. 03 $3,630. 00 – 1,363. 64 = $2,272. 36 $227. 24 $3,993. 00 – 1,500. 00 = $2,493. 00 Total $620. 57 30 Some rounding may be needed. Slide48 To answer the parts: a) ABC Company Income Statement Year Ended December 31, 2001 Sales revenues $ 0 Amortization of capital assets 300. 00 Interest expense 112. 70 Net income $187. 30 This is unusual as there is shown income which has been earned but not received and the income statement is based on the amortization of capital assets and the loan. ABC Company Balance Sheet as at December 31, 2001 Capital asset $3,000. 00 Notes payable $1,239. 67 Add: amortization 300. 00 Shareholders’ Equity Common Shares $3,000 – 1,126. 97 1,873. 03 Retained earnings 187. 30 Total assets $3,300. 00 $3,300. 00 b) ABC Company Income Statement Year Ended December 31, 2002 Sales revenues $ 0 Amortization of capital assets 330. 0 Interest expense 123. 97 Net income $206. 03 31 ABC Company Balance Sheet as at December 31, 2002 Capital asset $3,000. 00 Notes payable $1,363. 64 Add: amortization 630. 00 Shareholders’ Equity: Common Shares 1,873. 03 Retained earnings * 393. 33 Total assets $3,630. 00 $3,630. 00 †¢ $187. 30 + $206. 03 Slide 49 c) ABC Company Inco me Statement Year Ended December 31, 2003 Sales revenues $3,993. 00 Less: Amortization $3,630. 00 Interest 136. 36 3,766. 36 Net income $ 226. 64 ABC Company Balance Sheet as at December 31, 2003 Cash $3,993 – 1,500 = $2,493. 00 Notes payable $ 0 Capital asset $3,630. 0 Shareholders’ Equity Less: Common Shares 1,873. 03 Amortization 3,630. 00 0 Retained earnings 619. 97 Total assets $2,493. 00 $2,493. 00 d) What you have to do to get the expected net income (the accretion of discount) it must be taken from the above balance sheet/and table that is the end of the first year: Net book value January 1, 2002 – $3,300. 00 – $1,239. 67 = $2,060. 33 Expected net income – 10% of $2,060. 33 = $206. 03 Note very carefully the book value and how it is obtained. 32 Slide 50 PART 6 Historical Cost Accounting Topics †¢ Why present value accounting †¢ Major problems with historical cost Examples Amortization Full cost versus successful efforts †¢ C onclusion Want to Consider Historical Cost Accounting but first make some comments about Present Value Accounting. Slide 51 Why Present Value Accounting? Why do we want present value accounting? What are some of the shortcomings of historical cost accounting? †¢ First, present value accounting is a balance sheet approach to accounting, also †¢ Referred to as the measurement approach. †¢ Increases and decreases in assets and liabilities are recognized, that is, measured, as they occur. †¢ Future cash flows are discounted and capitalized on the balance sheet. Income then is essentially the net change in present values for the period. †¢ Changes, whether realized or not, are recognized in the balance sheet. Slide 52 Historical Cost Accounting – Major Problems Comments Historical cost accounting is an income statement approach. It is referred to as an â€Å"information† approach to decision usefulness. In this situation unrealized increases or decr eases are not recognized in the balance sheet and net income lags behind real economic performance. 33 Thus, under this approach the accountant waits until there is actual validation of changes by increased sales or cash flows. This comes down to a matching of revenues and costs used to earn those revenues. First, it may make more sense than we give it credit for, and, second, it is firmly in place and may be difficult to replace. Then, how do we improve it? Slide 53 Major problems: 1. It does not equate in large measure with present value accounting – in some cases it does and many others it does not. 2. As it does not present complete relevant and reliable statements, there must be a tradeoff between the two. They tend to be opposites. Historical cost is more reliable than relevant. There as often different bases used for measurement and thus a problem arises. See page 42 of your text, 3. With historical cost there is a recognition lag of revenue. In other words, the revenue may be recognized over several periods. The revenue is recognized only when transactions take place. See page 42 of the text. This is the timing of revenue recognition lags behind changes in real economic value. On the other hand current value accounting has little recognition lag as changes in economic value are recognized as they occur, for example, recognizing revenue when proved reserves are recognized under oil and gas accounting. Do not overlook the fact, however, that RRA is supplemental accounting and appears separately in the financial statements. Note: carefully there is little matching of costs and revenues under current value accounting. Current value accounting really tells you how the value has changed of the assets and liabilities. Under historical cost the accountant waits until there is objective evidence before recognizing revenue. Thus, historical cost tends to be reliable while current value tends to be more relevant. See page 43 of the text. 4. We are faced with the fact that it is difficult to solve many problems within the historical cost system itself, thus, it is necessary to look for other ways to solve some issues, say to, present value accounting. There is accrual accounting is available to aid historical costing but matching of costs and revenues requires estimates, which can be difficult. Thus, historical cost does have it problems. See page 43 of the text. Some examples of problems Slide 54 Amortization: †¢ It is necessary to amortize the wearing out of assets to meet the matching principle. But historical cost rules do not direct how much should be amortized each year. †¢ It just states that the method to be used should be consistent with the time pattern 34 of expiration of the asset. †¢ A variety of methods are in use – straight-line, declining balance, double digit, etc. , which complicates matters between companies. †¢ If there were the requirement of present value for valuation pur poses, there would be only one method. Slide 55 Full Cost vs Successful Efforts in Oil and Gas Under full cost all drilled gas and oil well holes – both dry holes and successful efforts in drilling are capitalized. Thus some of the expenses for dry holes are deferred rather than written off. The concept is that they are all part of the development process. It is contended the costs match the revenue as it is earned. Under successful efforts dry drill hole costs are expensed immediately as it is thought they should not be part of the capitalization process. It is contended only successful efforts really match with the revenue of future years. Under historical cost CICA allows both methods; getting different income figures; under present value there would be one method. Slide 56 Conclusion: We conclude under historical cost that, â€Å"net income does not exist as a well-defined economic concept. † It is an artificial figure. See page 45 of the text. The matching principle under historical cost allows for different ways to be followed, as indicated above, as well as many other situations, e. g. , inventories Accounting challenge – Our quest for the balance of the course will be how can we improve historical cost statements if, as we concluded, we cannot have full present value statements. Slide 57 Appendix Present value annuities – one of the most used processes in the mathematics of finance. Its purpose is to discount a series of equal payments over a series of equal periods. Present value annuities with even payments Example: Assume you will receive $60 a year for four years for a dividend payment. The accepted discount rate (or the yield you would expect) is 10%. What is the present value (or value today) of these four cash flows, discounted at 10%? 35 P. V. = ? Formula P. V = R[1 – (1 + i)-n ] / i i = 10% P. V. 60[ 1 – (1 – 1. 10)-4/0. 10 n = 4 P. V = 60 (3. 16987) (can be obtained from the P. V. table. ) R = 60 P. V. = $190. 19 Second example: Present value annuity with uneven payments. Assume there are unequal payments over five years: Year 1, $60; Year 2, $40; Year 3, $50; Year 4, $35 and Year 5, $45. P. V. = ? i = 10% n = 5 R = as shown Formula: PV. = CF/(1. 10) + CF(1. 10)2 + CF/(1. 10)3, etc. P. V. = 60/ (1. 10) + 40/(1. 10)2 + 50/(1. 10)3 + 35/(1. 10)4 + 45/(1. 10)5 P. V. = $54. 55 + 33. 06 + 37. 57 + 23. 91 + 27. 93 P. V. = $177.