Consolidated Balance Sheets

March 31, 2008 and 2007 Nippon Corporation:

 

  Fiscal 2008 Fiscal 2007
  JPY JPY
Assets    
I. Current assets:    
1. Cash and bank deposits 74,758 65,778
2. Notes and accounts receivable 188,605 205,639
3. Short-term investments
4. Inventories 71,860 84,942
5. Short-term loans receivable 3,153 5,145
6. Deferred tax assets 5,573 4,655
7. Other 39,348 41,709
Allowance for doubtful accounts (1,007) (1,280)
Total current assets 382,307 406,590
II. Fixed assets:    
1. Tangible fixed assets    
1) Leased property 9,380 9,519
Accumulated depreciation (4,090) 5,289 (3,907) 5,611
2) Buildings and structures 14,461 16,722
Accumulated depreciation (9,047) 5,414 (10,357) 6,365
3) Machinery, equipment, vehicles and tools 26,950 31,945
Accumulated depreciation (20,225) 6,725 (24,160) 7,784
4) Land 17,575 20,820
5) Construction in progress 47 19
Total tangible fixed assets 35,052 40,601
2. Intangible fixed assets    
1) Goodwill
2) Other 2,781 3,265
Total intangible fixed assets 2,939 3,549
3. Investments and other assets    
1) Investments in securities 47,521 71,616
2) Long-term loans receivable 14,280 14,231
3) Doubtful accounts 20,332 23,809
4) Deferred tax assets 17,208 19,595
5) Other 10,919 12,402
Allowance for doubtful accounts (27,104) (29,221)
Total investments and other assets 83,156 112,435
Total fixed assets 121,149 156,586
Total assets 503,456 563,176
     
Liabilities    
I. Current liabilities:    
1. Notes and accounts payable 131,594 153,283
2. Import bills payable 25,205 23,374
3. Short-term borrowings 89,080 143,527
4. Accrued income taxes 2,381 3,424
5. Deferred tax liabilities
6. Other 43,062 43,882
Total current liabilities 291,323 367,493
II. Non-current liabilities:    
1. Long-term borrowings 134,622 127,151
2. Deferred tax liabilities
3. Accrued retirement benefits 4,329 5,441
4. Allowance for loss on guarantees 4,189
5. Allowance for loss on lawsuits
6. Allowance for retirement benefits to directors and statutory auditors
7. Other 9,442 9,510
Total non-current liabilities 149,894 146,916
Total liabilities 441,217 514,409
     
Net assets    
I. Shareholders’ equity:    
1. Common stock 27,781 27,781
2. Capital surplus 27,644 27,646
3. Retained earnings (Deficit) 9,556 (9,496)
4. Treasury stock (645) (627)
Total shareholders’ equity 64,336 45,303
II. Valuation and translation adjustments:    
1. Net unrealized gains on securities, net of tax 1,576 3,853
2. Net gains (losses) on deferred hedges, net of tax (912)
3. Revaluation reserves for land
4. Foreign currency translation adjustments 2,819 (561)
Total valuation and translation adjustments (2,097) 3,462
Total net assets 62,239 48,765
Total liabilities and net assets 503,456 563,176
     

 

Consolidated Statements of Income

For the years ended March 31, 2008 and 2007 Nippon Corporation

 

  Fiscal 2008 Fiscal 2007
  JPY JPY
I. Net sales 1,244,020 1,281,331
II. Cost of sales 1,153,692 1,177,619
Gross trading profit 90,327 103,711
III. Selling, general and administrative expenses : 67,721 81,997
Operating income 22,605 21,713
IV. Non-operating income: 5,145 5,320
V. Non-operating expenses: 9,004 9,778
Ordinary income 18,747 17,255
VI. Extraordinary gains: 16,006 8,779
VII. Extraordinary losses: 5,778 11,420
Income before income taxes 28,975 14,615
Income taxes 8,344 6,332
Net income 20,630 8,282
     

Notes: The consolidated financial statements of Nippon Corporation are prepared in accordance with the “Regulations Concerning Terminology, Forms and Preparation Methods of Consolidated Financial Statements” (Ministry of Finance Ordinance No. 28, 1976). The Company and its domestic consolidated subsidiaries maintain their accounts and records in accordance with the provisions set forth in the Companies Act of Japan and the Financial Instruments and Exchange Law of Japan, and in conformity with accounting principles generally accepted in Japan, which are different in certain respects as to application and disclosure requirements from International Financial Reporting Standards.

 

 

Required:

a) Calculate the following ratios for Nippon Corporation for 2007 and 2008

 

i) Return on total capital employed

ii) Return on equity employed

iii) Gross profit margin

iv) Gearing ratio

v) Dividend cover (40 marks)

 

 

b) Using the information calculated in (a) discuss Nippon’s performance in the two years ended 31 March 2007 and 2008. (20 marks)

 

c) In your opinion, what further information is required before a final acquisition decision can be made? (20 marks)

 

d) What type of additional information might be provided in cash-flow statements which cannot be obtained from the above comparative balance sheets or income statements?

(20 marks)

SECTION B

Candidates may answer one question from this section

 

3. a) Outline and discuss the factors that have resulted in different financial reporting practices in different countries. (40 marks)

 

 

b) In recent decades, the International Accounting Standards Board has been regarded as the leading international organization in the promotion of international accounting harmonisation. Their efforts has been particularly prominent in recent years because the companies listed in Europe have had to comply with IFRSs for consolidation purposes since 2005. Moreover, the SEC has announced that foreign companies listed in the U.S. market are permitted to use IFRSs with no reconciliation.

 

Discuss whether attempts to harmonize accounting are desirable (30 marks) and assess the success made by the International Accounting Standards Board (30 marks).

 

4. What are the measures that can be used to assess the performance of a foreign subsidiary’s managers? You should discuss the advantages and disadvantages of each of the method(s) included in your answer. (100 marks)

 

QUIZ 2

 

SECTION A