financial accounting

ACCT7102 Individual Case Study Assignment:
‘Biovail Corporation: Revenue recognition and FOB Sales Accounting’

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Task Description:
The financial reporting case study is a comprehensive case study which examines the specific application of case scenarios involving principally Topic 5 (Managerial incentives for financial statement management). The case will also be used to examine student report writing skills, general accounting knowledge, and ability to critically evaluate complex case scenarios. The case is to be undertaken individually and students should independently prepare their assignment. All cases will be reviewed for plagiarism and independent content. The
University has adopted the following definition of plagiarism:
Plagiarism is the act of misrepresenting as one's own original work the ideas, interpretations, words or creative works of another. These include published and unpublished documents, designs, music, sounds, images, photographs, computer codes and ideas gained through working in a group. These ideas, interpretations, words or works may be found in print and/or electronic media.
Students are encouraged to read the UQ Student Integrity and Misconduct policy
(http://ppl.app.uq.edu.au/content/3.60.04‐student‐integrity‐and‐misconduct) which makes a comprehensive statement about the University's approach to plagiarism, including the approved use of plagiarism detection software, the consequences of plagiarism and the principles associated with preventing plagiarism. Criteria & Marking:
A full marking criteria sheet is attached. In general, the case will be assessed based on: accuracy of answer and interpretation of relevant accounting standards; presentation of a thoughtful and well supported answer; clarity of analysis; and professional presentation including grammar, spelling, punctuation. This will also be judged based on it suitability to be presented to a fee paying client.

Weighting: 25% of final grade. Due Date: By 4:00pm, Thursday 29 May 2014.
Items (for which no extension has been granted) submitted after the due date and time, incur a late submission penalty. The penalty is at the rate of 5% (0.4 of a grade) of the total available marks for that particular piece of assessment, for each calendar day or part thereof that the item is overdue.

Length: The word limit is strictly 1500‐1800 words (excluding a reference list). Any material exceeding the word limit will not be read and the mark for the assignment will be based on the material up to the point where the word limit was exceeded. Referencing style: The appropriate referencing style is that used within any of the top accounting journals such as the Accounting Review, Journal of Accounting Research, Journal of
Accounting and Economics, and Accounting, Organizations and Society. All of these journals are available online through the UQ Library.

Case Study Assignment Questions
ACCOUNTING ISSUES AND RESEARCH COMPONENT
REVENUE RECOGNITION
Question One (Total marks: 24)
(a) How should the company recognise revenue based on the two possible ‘Free on
Board’ (FOB) contract structures mentioned in the case? Explain.
(9 marks) (b) There was dissention between the Distributor and Biovail over when title to the shipment of WellbutrinR passed. How does the accident affect the stated revenue under the two different FOB contract structures? Explain. (Hint: As part of your answer, complete the following table).
(6 marks) FOB Biovail
FOB Destination
Ownership transfers?

(e.g. upon delivery)
Revenue is earned?

(e.g. upon shipment)
Assuming that there was no accident, on which date would revenue be earned? (e.g. 1 August)
What was the status of

the revenue when the truck accident occurred?
(e.g. not earned because title had not passed)
What was the effect of

the truck accident on quarter 3 revenue?
(e.g. decreased)

(c) In light of your answer to (b) above, in your opinion, why was Biovail focussed on the amount of revenue impact of the truck accident? Explain. (Hint: Your answer should be supported by reference to at least two to three academic research articles.
Concentrate on the general results of the articles. You do not have to completely understand the statistical/econometric models).
(9 marks)

THE RELATION BETWEEN ANALYSTS AND CORPORATE MANAGERS
Question Two (Total marks: 18)
(a) How would you describe the Biovale Corporation’s treatment of Mr Treppel, the analyst who issued three downgrade recommendations? Explain.
(3 marks) (b) Do you think this treatment of Mr Treppel is actually representative of the behaviour of Biovail and its executives toward other analysts who cover the stock? Explain.
(Hint: Consider the likely reasons for Mr Treppel’s treatment).
(6 marks) (c) Analysts from JP Morgan noted that (case study, p. 3): ‘… (ii) Biovail’s low quality earnings in the past should not be news to those familiar with Biovail and (iii) poor earnings quality does not equal bad accounting’. Explain what is meant by this comment. (Hint: Your answer should be supported by reference to at least two to three academic research articles. Concentrate on the general results of the articles. You do not have to completely understand the statistical/econometric models).
(9 marks)

ETHICAL
Question 3 (Total marks: 6)
What should management of Biovail have done differently? Explain, including a consideration of the possible consequences of the alternate actions.