The Aging of Hamlet Essay -- GCSE Coursework Shakespeare Hamlet

Economics of UAE Essay Example | Topics and Well Written Essays - 2500 words

Financial aspects of UAE - Essay Example The examination additionally centers around those variables which can be improved with the point of expanding the monetary steadiness of the country. It has been seen in such manner that UAE unequivocally has faith in broadening of the economy, trailed by solid assets for supporting the activities for improvement in fields of instruction towards upgrading the general competency of the country. The economy of UAE is one of the quickest developing economies on the planet (Ministry of Economy, 2008). Relevantly, the economy of UAE offers enormous extension to outside financial specialists. The extent of Foreign Direct Investments (FDIs) is high in UAE which makes the country one of the most potential center points for remote nationals to enter through business redistributing. As UAE has been growing energetically, there are numerous zones or parts of improvement which are rendered with most extreme need by the administration, for example, banking, instruction, mechanical and infrastruct ural advancement, oil ventures among others (Heyzer, 2009). The keys parts in UAE that has accomplished greatness inside the most recent ten years will be featured in this examination alongside the regions where UAE is condemned to be missing behind. Correspondingly, an exertion will likewise be made in this examination to recognize the regions in which future advancement will be a lot of promising to guarantee financial thriving of UAE. Macroeconomic Performance of the UAE The macroeconomic presentation of UAE can be surveyed concerning the significant markers including the GDP development rate, swelling rate, populace rate and its driving mechanical parts with due centrality to the elements of oil saves and oil trades. Relevantly, the traits implying the expansion and the structure of GDP, worldwide exchange (regarding its exhibitions as far as fares and imports), joblessness level, BoP, financial strategies and all the significant parts of development for example businesses, fram eworks, banking and instruction can likewise be considered as helpful while surveying the macroeconomic exhibition of UAE. With this worry, the financial exhibition of every one of these markers has been directed through a concise conversation in the beneath areas. Gross domestic product A degradable development in GDP has been seen in UAE in the course of recent years. For example, in the ongoing years, its GDP has been tumbling from 5% in 2012 to 3.7% in 2013. It merits referencing in this setting market analysts have been contending that the principle explanation behind the decay is to a great extent because of the institution of new strategies which are framed with the sole expectation to control oil efficiency, guaranteeing limits over the ecological risks brought about by this specific industry segment, which is regularly respected to be the fundamental wellspring of national pay in UAE. As indicated by a worldwide report, UAE’s GDP has been seen to have expanded by 6.8 % in 2012, commendably after its lofty fall in the year 2008 inferable from the event of worldwide downturn as can be seen in the pictorial portrayal beneath (Mubasher Info, 2013). With an expanded pace of GDP in 2012 it very well may be required to have more increment in the GDP rate in the year 2013 which can be considered as quality of the economy. And yet, the GDP development rodent

Live and Work

Live and Work Father was a hardworking man who delivered bread as a living to support his wife and three children. He spent all his evenings after work attending classes, hoping to improve himself so that he could one day find a better paying job. Except for Sundays, Father hardly ate a meal together with his family. He worked and studied very hard because he wanted to provide his family with the best money could buy.Whenever the family complained that he was not spending enough time with them, he reasoned that he was doing all this for them. But he often yearned to spend more time with his family.The day came when the examination results were announced. To his joy, Father passed, and with distinctions too! Soon after, he was offered a good job as a senior supervisor which paid handsomely. Like a dream come true, Father could now afford to provide his family with lifes little luxuries like nice clothing, fine food and vacation abroad.However, the family still did not get to see father for most of the week. He continued to work very hard, hoping to be promoted to the position of manager. In fact, to make himself a worthily candidate for the promotion, he enrolled for another course in the open university.Again, whenever the family complained that he was not spending enough time with them, he reasoned that he was doing all this for them. But he often yearned to spend more time with his family.Fathers hard work paid off and he was promoted. Jubilantly, he decided to hire a maid to relieve his wife from her domestic tasks. He also felt that their three-room flat was no longer big enough, it would be nice for his family to be able to enjoy the facilities and comfort of a condominium. Having experienced the rewards of his hard work many times before, Father resolved to further his studies and work at being promoted again. The family still did not get to see much of him. In fact, sometimes Father had to work on Sundays entertaining clients. Again, whenever the family complained th at he was not spending enough time with them, he reasoned that he was doing all this for them. But he often yearned to spend more time with his family.As expected, Fathers hard work paid off again and he bought a beautiful condominium overlooking the coast of Singapore. On the first Sunday evening at their new home, Father declared to his family that he decided not to take anymore courses or pursue any more promotions. From then on he was going to devote more time to his family.Father did not wake up the next day.Related story: The important things in lifeAuthor Unknown

The Journey Into Cedar Forest - 1307 Words

Gilgamesh, powerful, charismatic, and burly that he was hankering to make a title for himself, therefore commencing on a perilous journey into Cedar Forest. Gilgamesh presumed that if he executed the imposing Humbaba, the citizens of Uruk would gaze upon him with astonishment and awe. He yearned for his name to surpass his demise so that all would know the glorious king of Uruk who defeated the fearsome Humbaba. Gilgamesh blatantly disregards nature and its beauty in his conquest to slay the monstrous Humbaba. Nature has been long forgotten and demolished by beings who do not understand nor value its beauty. Humbaba was delegated by Enlil to be entrusted with the forest to keep human beings whose only desire was to log the luscious trees that thrived within the woodland. He was viewed by the majority as a ferocious beast that bestowed fear in all. In contrast to that, we see near the end of book V that Humbaba may not be as malicious as he was portrayed. He even begs for his life, saying that if they spare him, then he will become their personal slave. This makes Gilgamesh have a moment of contemplation on whether or not he should end Humbaba’s life. However, this moment is quickly terminated by Enkidu as he encourages Gilgamesh to continue with his mission. Though we will never know if Humbaba truly meant what he uttered to Gilgamesh we feel empathy for him. Seem genuine, yearning to safeguard the forest as he was put on Earth to do so and for doing so he was viciouslyShow MoreRelatedThe Greatest Lesson Of The Cedar Forest884 Words   |  4 Pagesthe Cedar Forest, and the only t hing that lasts is fame. But when Enkidu is cursed with an inglorious, painful death, their bravado rings hollow. Shamash, the sun god, consoles Enkidu by reminding him how rich his life has been, but though Enkidu finally resigns himself to his fate, Gilgamesh is terrified by the thought of his own. Mesopotamian theology offers a vision of an afterlife, but it gives scant comfort—the dead spend their time being dead. If Gilgamesh’s quest to the Cedar Forest was inRead MoreEpic of Gilgamesh Theme1707 Words   |  7 Pagesin the Cedar Forest, and the only thing that lasts is fame. But when Enkidu is cursed with an inglorious, painful death, their bravado rings hollow. Shamash, the sun god, consoles Enkidu by reminding him how rich his life has been, but though Enkidu finally resigns himself to his fate, Gilgamesh is terrified by the thought of his own. Mesopotamian theology offers a vision of an afterlife, but it gives scant comfort—the dead spend their time being dead. If Gilgamesh’s quest to the Cedar Forest was inRead MoreHeroes and How to Represent Them929 Words   |  4 Pagesself sacrifice† (Vogler, pg. 29). A hero represents an ego which distinct them from the rest of the human race. The journey of many heroes separates them from a family or tribe. They begin a long journey of only wisdom and power which keeps them distant from their home. According to Christophe r Vogler, the author of The Writers Journey: Mythic Structure for writers, a hero’s journey requires many inner strength and functions. One of these functions is growth. Growth meaning growing from a young manRead MoreThe Journey Of Gilgamesh And Enkidu904 Words   |  4 PagesGilgamesh had a journey that he had begun with Enkidu which they had to travel to Cedar Forest to defeat Humbaba. When Enkidu died, Gilgamesh had to deal with his own journey that’s when everything begins for him. He learned immortality from which he got from Utnapishtim. His journey ended when he had return to Uruk. The second part of his journey was for wisdom. When Gilgamesh had to find Utnapishtim, he believes that it was for immortality. But it was impossible. It was not possible.Read MoreGilgamesh : A Hero Or Hero?1623 Words   |  7 PagesHumbaba and sharing fame. He made it sound as he would get all of that if Enkidu helped, so Enkidu should be just a helper and supporter and no more than that. Besides that, when Gilgamesh was going to the Cedar Forest he was giving long speech to his people in Uruk and he said â€Å" I will journey/I will walk / I will face/give me†¦Ã¢â‚¬ (95) why he didn’t mention Enkidu even that he was asking his help and to join him? He is so selfish to even mention his friend name on that moment before he left Uruk soRead MoreThe Epic Of Gilgamesh : The Jeopardy Of A Hero1271 Words   |  6 Pages half god. Enkidu, Gilgamesh’s friend is a man that was created from clay to balance out Gilgamesh. Gilgamesh and Enkidu emerge to depart t o various adventures. During the initiation of their very first adventure Gilgamesh and Enkidu go to the Cedar Forest to fight the ruthless monster, Humbaba. Later on, Enkidu has a spell casted onto himself which caused his death. Gilgamesh recovery from the death of himself, Gilgamesh arrives home with the unknown boatman of Utnapishtim, Urshanabi. Joseph CampbellRead MoreThe Epic Of Gilgamesh Essay1198 Words   |  5 Pagespoem The Epic of Gilgamesh, described the characteristic of king Gilgamesh from the beginning, middle, and end. Throughout the poem, there are immature and petrified moments of Gilgamesh, but more importantly he learned to grow as he explore his journey. Friendship, love, and fear appears to be essential in this poem. Why are those terms relevant ? and how does it connect with the trait of Gilgamesh ?, let’s continue to find out the truth about Gilgamesh. In the beginning of the poem, GilgameshRead MoreEpic of Gilgamesh Essay915 Words   |  4 Pageslove, and journeys and the one I would like to discuss is the theme of death. Also, I will discuss if Gilgamesh accepts morality at the end of the story and the development of Gilgamesh’s character throughout the story. The story mainly focuses on the character Gilgamesh and this wild man created by the gods, Enkidu in which Gilgamesh and Enkidu later become good friends. Together they go upon quests to defeat creatures and upset the gods to help Gilgamesh find immortality. The first journey they goRead MoreGilgamesh And Enkidu Analysis901 Words   |  4 PagesEnkidu continues to push Gilgamesh to smite Humbaba. On p. 44, once Enkidu makes the final case to Gilgamesh to kill Humbaba, Humbaba curses both of them: â€Å"My friend, Humbaba who guards the Forest [of Cedar —]/ [finish him,] slay him, [do away with his power,] /.../ Humbaba heard...and†¦[bitterly cursed them:]/ ‘May the pair of them not grow old,/ besides Gilgamesh his friend, none shall bury Enkidu!† Humbaba curses Enkidu for fervently encouraging a hesitant Gilgamesh to kill him. Although GilgameshRead More The Friendship of Gilgamesh and Enkidu Essay778 Words   |  4 Pagesto the city of Uruk and meet Gilgam esh. From that moment on, the two were very close. They planned a trip to the forest of cedars to defeat the monster known as Humbaba so that Gilgamesh could show his power to the citizens of Uruk. However, Enkidu tried â€Å"vainly to dissuade† (18) Gilgamesh in going to the forest. Despite Enkidu’s plead, the two continued on their voyage to the forest where Humbaba lives. Once they arrived, they found the monster and killed him. They cut down trees, â€Å"then Enkidu

The Characters Of Frankenstein - 1425 Words

ey’s novel Frankenstein, the conflict between the subordinate character—the monster and the dominant characters—human beings runs through the beginning to the end. The human beings are the dominant power because the society belongs to them and they get to decide who’s accepted and who’s not. The behaviors of the monster tries to get involved to fit in with the human society is a reflection of human being’s dominant power, and thus makes the monster subordinate. It sounds impossible for people in the 19th century to embrace a disfigured monster, despite the fact that he acts like human. Through the novel, it looks like that the mainstream remains its dominant power but in fact the subordinate monster in some way successfully threats its stability. In Frankenstein, human beings’ mainstream power stays dominant and the monster fights to break away from his subordinate identity. However the progress of recognizing his identity is gradual, first is through developing the relationship with nature. The monster comes to the forest soon after he was born, he hears the birds tweeting and his heart is filled with joy, sometime he even tries to imitate the pleasant songs of birds (71). Later he learns to distinguish various kinds of insects and herbs. This is his recognition of the nature. The monster’s mental state at the point is like a child, he regards himself as part of the nature, and he does not realize that he might be â€Å"human†. When he walks into the village, people are panicShow MoreRelatedCharacters in Frankenstein1261 Words   |  6 PagescenterbExamine the way in which characters are portrayed in the novel./b/center br brIn the novel Frankenstein, written by Mary Shelley, the characters have been p ortrayed effectively. Much of the interactions between characters, and characteristics of the characters have been based on events which have occurred in Shelley s own life, or they represent what she believes is important. For example, Victor is portrayed as having a strong passion for science, and a poor understanding ofRead MoreFrankenstein Character Analysis831 Words   |  4 Pages The novel Frankenstein, written by Mary Shelley, is a gothic novel about a creature that achieves humanity through his emotional feelings and intellectual thoughts. Throughout the novel, Shelly demonstrates that the goodwill of a person dominates his or her overall disposition. The reader feels sympathy for the characters when they suffer through hardships and tragedies because of their redeeming qualities that reflect a positive light on mankind. Shelly develops the novel by portraying the charactersRead MoreFrankenstein as Anti-Hero Character1578 Words   |  7 PagesSUCI HANIFAH LITERARY CRITICISM II EDRIA SANDIKA/MARLIZA YENI 8 MAY 2013 Frankenstein as Anti Hero Character A women who wrote â€Å"Frankenstein† named, Mary Shelley, she was born August 30, 1797, in London, England. Mary Shelley came from a rich literary heritage. She was the daughter of William Godwin, a political theorist, novelist, and publisher. Her ideas to write Frankenstein cameon summer of 1816, Mary and his brother Percy visited the poet Lord Byron at his villa beside Lake Geneva in SwitzerlandRead MorePortrayal of the Characters in Frankenstein Essay1293 Words   |  6 PagesPortrayal of the Characters in Frankenstein      Ã‚   In the novel Frankenstein, written by Mary Shelley, the characters have been portrayed effectively. Much of the interactions between characters, and characteristics of the characters have been based on events which have occurred in Shelleys own life, or they represent what she believes is important. For example, Victor is portrayed as having a strong passion for science, and a poor understanding of relationships. Elizabeth is shown as a stereotypicalRead MoreThe Importance Of Minor Characters Of Frankenstein 1656 Words   |  7 PagesRosikga Mohanalingam Mr. McDowell ENG4U1-04 Monday December 8th, 2014 Frankenstein: The Importance of Minor characters Every novel consists of minor characters that may seem to be useless aspects to the story but are actually very important. They have a purpose that helps carry out the main focus of the novel. They may serve as a means of revealing more about major characters as well as to advance or move along the plot. They can be either good or bad, serving as a central part of the storyRead MoreThe Character of the Monster in Frankenstein Essay1847 Words   |  8 PagesExplore the ways Mary Shelley presents the character of the monster in Frankenstein We are prepared for the arrival of the monster in many different ways, before he is created we know the monster is going to be a repulsive figure of a human being, but the reader is still intrigued into reading further, and because of Shelleys descriptive language we already feel disgust towards victors creation, and in doing so, we our-selves become just as callous as those people in the book that neglectRead MoreVictor Frankenstein Character Analysis Essay1645 Words   |  7 PagesMs. Straatsma ENG4U0-A Ryan Makhanlall ISU Reading Analysis Questions/Notes – Frankenstein by: Mary Shelley Character Analysis: Give your ideas about the main characters(s). Include what you like and dislike about the characters and why they deserve praise or criticism. Does the author intend for you to like/dislike them? How do you know? Victor Frankenstein: Victor Frankenstein, is the protagonist who describes his life to Robert Walton. In my opinion, Victor shows his ambition, logic and intelligenceRead MoreEssay on The Role of Female Characters in Frankenstein1459 Words   |  6 PagesCan you imagine Mary Wollstonecraft Shelleys Frankenstein, the great work of literature, without, for example, such female characters as Mrs. Margaret Saville, Elizabeth Lavenza, and Justine Moritz? In this case the novel will have no meaning. All the women help to develop the plot, and without them Frankenstein will lose its spirit. Although these heroines have a lot in common in their characters: they are all strong-willed, kind, careful, and selfless, at the same time, each of them is uniqueRead More Comparison between Characters of Frankenstein Essay1513 Words   |  7 PagesComparison between Characters of Frankenstein      Ã‚  Ã‚   In Frankenstein, Mary Shelley combines three separate stories involving three different characters--Walton, Victor, and Frankensteins monster. Though the reader is hearing the stories through Waltons perspective, Walton strives for accuracy in relating the details, as he says, I have resolved every night,...to record, as nearly as possible in his [Victors] own words, what he has related during the day (Shelley 37). Shelleys shift inRead MoreCharacter Analysis Of Elizabeth Lavenza s Frankenstein 1562 Words   |  7 PagesShelby Guffey English 251 October 2, 2017 Character Analysis of Elizabeth Lavenza in Frankenstein In Mary Shelley’s 1831 novel, Frankenstein, there are several smaller characters that help to move the plot forward. Perhaps the most influential character to Victor Frankenstein’s life is Elizabeth Lavenza, his doomed fiancà ©. By the end of the novel, her character serves as the final tool for Victor Frankenstein to be able to understand his creature. Parallel to the time-period, Elizabeth seems to

Accounting Theory Cga Free Essays

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. We will write a custom essay sample on Accounting Theory Cga or any similar topic only for you Order Now 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 Shareh olders’ 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 (ma de 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 bee n paid off Slide 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 â₠¬â€œ $115. 74 + 55. 56 = $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 ex pected value of 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 reliabl e – 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 firm. 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. How to cite Accounting Theory Cga, Essay examples

The Heart of Darkness free essay sample

In the critically acclaimed novelette, The Heart of Darkness, Joseph Conrad offers us a unique perspective into the nature of evil that is present in the hearts and minds of men. We will write a custom essay sample on The Heart of Darkness or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Throughout the novel, the narrator struggles to maintain his sense of morality and justice as he continues to unearth the dark secrets of the enigmatic Mr. Kurtz and the conspiracies of the trading company. As the narrator’s perceptions of good and evil begin to blur, resulting in only futile efforts to try to do good. The narrator discovers first-hand that there are places in the world where no absolute good exists, and the only options are a wide array of lesser evils. As he voyages into the savage â€Å"heart of darkness† in Africa continues, the narrator finds it increasingly difficult to differentiate between benevolence and wickedness. Contrasting some of the other characters, however, the narrator successfully escapes from the malevolence that tries to consume the hearts and minds of men. The narrator is able to conclude that Kurtz’s plunge down the path of darkness is directly associated with his unjustifiable brutality. More distressing, however, is th e narrator’s realization that light does not necessarily symbolize good in men and that light can often give way to darkness. Near the beginning of his harrowing journey, the narrator comes to the assumption that evil stems from the atrocities that men are capable of. The narrator describes some of the other Europeans by saying â€Å"I’ve seen the devil of violence, the devil of greed, and the devil of hot desire; but by all the stars! These men were strong, lusty, red-eyed devils, that swayed and drove men men, I tell you.† In this statement, the narrator describes the men who had enslaved the African-Americans as devils, which is the ultimate manifestation of evil. This statement also supports that the perceptions of good and evil began to blur, the very same men that the narrator called devils believe that they are doing nothing but good for the African-Americans. Besides the slave-drivers, we also come to learn the accountant shows no compassion for the slaves when he and the narrator are speaking and the accountant says â€Å"When one has got to make correct entries, one comes to hate those savages hate them to death.† When the accountant says â€Å"savages†, he is referring to the African-Americans and we learn that he does not try to show any bit of compassion towards them. Even as they are dying, he finds their moans of agony as an annoyance because they distract him from his work. Quite frankly, if one can’t show compassion towards a dying human being, then their hearts are surely tainted with evil. The most important insight into the narrator’s perspective about the nature of evil is when Conrad says â€Å"sunlight can be made to lie, too.† The narrator comes to believe that light does not necessarily mean something is good and pure, but is merely a tool that helps pave the way to the path of darkness. The narrator observes that while the sun may be the epitome of light and good, the sun eventually sets and plunges the world into darkness. The narrator compares the white men to the African-Americans, with the white men being the earthly manifestation of good and light, while the African-Americans were characterized as the manifestation of evil. After much thought, the narrator finally concludes that white men and African-Americans are essentially the same. Seeing how people during this era believed that white men were good and African Americans were evil, if the narrator’s interpretation was is true, then there is no distinction between good and evil. Esse ntially, we come to learn that the narrator believes that good and evil are the same thing, good is evil and evil is good.