国际会计第七版英文版课后答案(第十章)1

Chapter10

ManagerialPlanningandControl

DiscussionQuestionsSolutions

1.Fourcriticaldimensionsoflong-rangeplanningare:

•Identifyingkeydriversofacompany’sfutureprogress.

•Developforecastsofkeydevelopmentsandassessthecompany’sabilitytocapitalizeonthesedevelopments.

•Developtheinformationsystemstosupportstrategicchoices.

•Translatestrategicchoicesintoactions.

2.Astandardcostingsystemhasasitsobjectivethenotionofcostcontrol.Itestimatesannuallywhatcostsshouldbeunderidealoperatingconditions.Actualresultsarethencomparedwithstandardcostswithvariancesreportedtothoseresponsibleforincurringthevariances.Kaizencostinghasasitsobjectivecontinuouscostreductionsbasedoncontinuousmanufacturingimprovements.Costreductiontargetsaresetmonthlywithvariancesbasedonconstantcostreductions;i.e.,werecoststhismonthlowerthanlastmonth?Ifnot,why?

3.Financialmanagersmustbepreparedtoevaluateforeigninvestmentsfrommultiplereportingperspectives.Thissignificantlycomplicatestheinformationrequirementsfordecisionsonforeigninvestment.Management’sobjectivefromaparentcompanyperspectiveistomaximizeshareholderwealth.Todothis,managementmustselectinvestmentopportunitiesthatpromisethehighestrisk-adjustednetpresentvalues.Therefore,managementaccountantsmustidentifycashflowsthatcanberepatriatedtotheparentcompany,takingintoconsiderationfutureexchangeratechanges.Becauseonlyafter-taxcashflowsarerelevant,thetimingandamountsoftaxespayableonforeignsourceincomemustbeestimated.

Aprojectevaluatedfromahostcountryspointofviewnecessitatesanincreaseinthequantityofinformationsupplied.Thesocialcostsandbenefitsofinvestmentproposalsmustsupplementtraditionalcashflowinformation.Quantificationofriskandtheidentificationofacceptableratesofreturntosovereigngovernmentscallformeasurementtechniquesnewtointernalaccountingtoolkits.

4.Manyvariablesmustbeconsideredwhenmeasuringamultinationalentity’scostofcapital.Thesevariablesinclude:

a.Differentialinterestratesbetweennationalmarkets

b.Foreignbusinessrisk

c.Foreignexchangerisk

d.Politicalrisk

e.Investorvaluationmodelsindifferentcountries

f.Internationaltaxes

g.Internationalfinancialreportinganddisclosurepractices

h.Governmentalrestrictionsonfundremittances

i.Jointventurearrangements

j.Nationalfinancialnorms

k.Differentialinflation

l.Differentfinancialinstitutionsandinstruments

m.Internationaldiversificationeffects

n.Nationalsavingspatterns

5.Amajorcomplexityindesigningmultinationalinformationandcontrolsystemsisculture.Culturaldifferencesinattitudestowardsriskandauthority,needachievementlevels,andlanguageoftenresultinmisunderstooddirectives,lowertolerancetocriticism,unwillingnesstoseekassistancewhenindoubt,unwillingnesstodelegateauthority,andreluctancetoassumeresponsibility.Asaresult,performancestandardsandincentivestructuresmustoftenbeadjustedforforeignnationals.Globalcompetitionalsomeansthatafirm’sproduction,marketing,andfinancingstrategymustbetrulyinternationalinscope.Thelikelyresultisthatforeignsubsidiarieswillbeviewedaspartsofanintegratednetwork.Tocoordinateparentandsubsidiarydecisions,managementwillneedinformationthatenablesittoplan,coordinate,andcontrolglobalproduction,marketing,andfinancialstrategies.

6.Thefirstvarianceholdsexchangeratesconstantandexamineshowthelocalmanagerperformedintermsofhisorherprimaryoperatingresponsibilities.Ineffect,thelocalmanagerisnotheldaccountableforexchangeratechanges.Thesecondvarianceexamineswhatportionofthelocalmanagersactualresultswereattributabletoexchangeratechanges.Thisexchangeratevariancewillhopefullybeoffsetbyotherexchangerateexposuresencounteredbysisteraffiliateswhichtheinternationaldivisionmanages.Thefinalvariancelooksattheoriginalbudgetandsays,ifthebudgetedperformancewereactuallyachieved,howsuccessfulwasTreasuryinforecastingforeignexchangeratesforthatparticularcountry.

7.Anexaminationofthesevencaveatsneartheendofthechapterwillhighlightsomeofthemajorissuesinvolvedindesigningandimplementinginternationalperformanceevaluationsystems.Weillustratetwomajorissuesraisedbythesecaveats.

First,foreignsubsidiariesshouldnotbeevaluatedasindependentprofitcenterswhentheyarereallystrategiccomponentsofamultinationalsystem.Company-widereturn-on-investmentcriteriashouldbereplacedbyperformancemeasuresmoreinlinewiththespecificobjectivesandenvironmentsofeachforeignsubsidiarybeingevaluated.Oneexampleofadysfunctionalevaluationsystemisthepracticeofappraisinginternationalfinancialsubsidiariesintermsoftraditionalrate-of-returncriteria.Thesesubsidiariesshouldbeevaluatedaccordingtotheirintendedmission,whichistoincreasethesupplyoffundstothemultinationalenterpriseatthelowestpossiblecost.Rate-of-returnstatisticsshouldbereplacedbymeasuresreflectingthequantityandcostoffundssecureddomestically.Anotherapproachwouldbetoevaluatetheoverseasfinancingsubsidiaryintermsofthebenefitsthatitsoperationsmakepossibleforthemultinationalsystemasawholeasopposedtothecostsitincursinsecuringthenecessaryfunds.

Second,toprotectthevalueofassetslocatedindevaluation-pronecountries,headquartersmanagementoftenwillremovesurplusfundsfromforeignoperatingsubsidiariesbyincreasingthetransferpricesthesubsidiariesmustpayforimportedcomponents.Evaluatingforeignmanagersintermsoftheirreportedprofitsisgrosslyunfairwhenartificialtransferpricesareimposed.Itismoreappropriatetodiscounttheeffectsofstrategicpricingactionsonsubsidiarymanagementperformance,thatis,measureperformanceintermsofphysicalproductionstatisticsorvalue-added.

8.Moneylosespurchasingpowereverydayinahighlyinflationaryeconomy.Toproperlymeasureeconomicperformance,transactionsshouldberecordedinhardcurrencyequivalentsonthedaythetransactionissettled.Ifasaleismadeforcash,itsvalueisitshardcurrencyequivalentonthatdate.Recordingthesaleatanyotherdatedistortsthetransactionbyintroducingchangesinthepurchasingpowerofmoney(orimplicitinterest)intotheanalysis;thatis,therecordedamountwillnotreflectthetransactionstruevalue.

9.Wefavorthebudgetaryexchangeratecombinationthatusesaprojectedratetosetthebudgetandtheend-of-periodratetotrackperformance.Useofaprojectedratetosetthebudgetencouragesmanagerstoincorporatetheeffectsofanticipatedexchangeratechangesintotheiroperatingplansanddecisions.Useoftheendingratetomonitorperformancemotivatesmanagerstorespondtounanticipatedexchangeratechanges.Wherelocalmanagershavetheauthorityandmeanstohedgecurrencychanges,itisjustifiabletoholdthemaccountableforunexpectedratechanges.Whiletheycannotcontrolexchangeratechanges,theycancountertheiradverseeffectssomebeforeandsomeaftertheratechange.Wethinkthatmakinglocalmanagersaccountableforunexpectedexchangeratechangeswhentheydonothavethenecessaryhedgingauthorityisunjustified.

10.Thisdiscussionquestionisdesignedtogetstudentstothinkoutsidethebox,sotheirsuggestionsshouldnotbeconstrainedbutsupportedbytheiranalysis.Agoodtackwouldbetobreaktheclassintosmalldiscussiongroupsandhaveeachgroupselectaspokespersontoreportbackonalternativestrategiestheyidentified.

11.For:

a.Thereisareducedcostofimplementation.

b.Financialcontrolmaynotbeacriticalproblemduringtheinitialphaseofoperations

c.Therearefewerproblemsrelatedtopreparingandanalyzingconsolidatedreportsofdomesticandforeignoperations.

d.Thefinancialcontrolsystemcanbeinstalledmorequicklyassystemtestinganddesignhavealreadybeencompleted.

e.Headquarterspersonnelassignedabroadwillfeelcomfortablewithafamiliarcontrolsystem.f.Thesystemfacilitatescentralizedcontrolfromcorporateheadquarters.

Against:

a.Theorganizationandenvironmentofforeignoperationsmaybesufficientlydifferenttowarranttailor-madecontrolsystems.

b.Foreignpersonnelmaybecomefrustratedanddemoralizedinhavingtoadapttoanunfamiliarcontrolsystem.

c.Reconciliationofdatageneratedbytwodifferentbutparallelcontrolsystemsmaynotbeaseriousproblemgivenextantdataprocessingtechnology.

d.Localmanagersadaptingtothetransplantedcontrolsystemmayengageindecisionsthataredysfunctionaltothesuccessoflocaloperations.

e.Itisthemissionoftheforeignunitandnottheexecutivesneedtofeelcomfortablethatshoulddictatethetypeofcontrolsystememployed.

f.Successfulimplementationofthetransplantedcontrolsystemmaydictatethesoleuseofdomesticcompanypersonnel,whichmaysourrelationswiththehostgovernment.

12.Valuereportingisforwardlookingwhereasthetraditionalfinancialreportingmodelstudents

learnishistoricalinitsorientation.Thosewhofavorvaluereportingwillappreciateitsfocusonwhatfinancialstatementanalysisistryingtoachieve.Moreover,itprovidesawayofeliminatingthearbitrarydistinctionthatisdrawnbetweenmanagerialandfinancialaccounting.Those

opposedtovaluereportingwillarguethattheinformationislessobjectiveandleavestoomuchtomanagementdiscretion.

DiscussionQuestions

1.2,250/100units=22.50X1.10=24.75.

2.Slovenia’stargetcostisderivedasfollows:

Sellingprice=21.50X100units=2,150

Allowablecosts=2,150-.10X=X

X=1,955

ThiscalculationimpliesthatGlasgowCorporationneedstoreduceproductioncostsby295[2,250-

1,955].

3.ThefollowinganalysisignoresRussianwithholdingtaxesondividendsremittedtotheU.S.parent.

Chapter11treatsthisaspectofinternationaltaxation.

CashFlows

RussianSubsidiary

a.Pre-taxearnings

b.Incometaxat40%

c.Netincome

d.DividendtoU.S.parent(linecX70%)

U.S.Parent

e.f.

g.h.i.

j.k.

l.

Income

Dividendgross-up

(lined./linec.Xlineb)

Taxableincome

U.S.taxat34%

Less:Foreigntaxcredit(linef)

U.S.taxespayable

(lineh-linei)

Netcashflow(rubles)(linee-linej)

Netcashflow(dollars)

Year1

RUB55,600,000

22,240,000

RUB33,360,000

RUB23,352,000

RUB23,352,000

15,568,000

RUB38,920,000

13,232,800

15,568,000

-0-

RUB23,352,000

$1,167,600

Year2

RUB130,332,000

52,132,800

RUB78,199,200

RUB54,739,440

RUB54,739,440

36,492,960

RUB91,232,400

31,019,016

36,492,960

-0-

RUB54,739,440

$2,606,640

4.Thisexerciseshouldmakeforinterestingdiscussionandshouldbeusedtohighlightthemanymeasurementissuessurroundingforeigninvestmentdecisions.

YearCashFlowExchangeCashFlowPVfactorPresentValue

(Rubles)Rate(Dollars)at20%equivalent

0-8,000,0001.000-8,000,000

123,352,000R20=$11,167,600.833$972,611

254,739,440R21=$12,606,640.694$1,809,008

357,476,412R23=$12,498,974.579$1,446,906

460,350,232R25=$12,414,009.482$1,163,552

563,367,743R25=$12,534,710.402$1,018,953

666,536,130R25=$12,661,445.335$891,584

Netpresentvalue$(697,386)

Becausethenetpresentvalueisnegative,theinvestmentmightnotappearattractive.However,studentswillquicklyandrightlybegintoquestiontheexercisesassumptions.Pointsthatstudentsshouldraiseinclude:

1.Themeasurementofcashflow:Shouldoneignorecashflowsbeyondyear6?

2.Doaccountingprinciplesdifferencesaffectthemeasurementofincomeandcashflow?

3.Whatistheterminalvalue(includingtherecaptureofworkingcapitalattheendofthe6-yearinvestmenthorizon)?

4.Isitwisetopenalizeallfuturecashflowsbya10percentpremium?Onecouldarguethattheriskpremiummightbepartlyoffsetbyaninternationaldiversificationdiscount.Howdoesonequantifyriskinamultinationalsetting?

5.Howreasonableareexchangerateforecasts?

6.Taxratesareseldomconstant.

7.Howvalidarethestrategicdimensionsoftheinvestmentdecision?

5.Thisquestionshouldgenerateusefulideasanddiscussionontheimportanceofstrategicthinkingandanalysis.

6.YTL1,000,000ExpensesinMonth1

VaryingInvoiceDatesandPaymentDates

Invoice

Day

Payment

Day

Conventional

Measure

Proposed

MeasureDifference

1Cash7,69210,0002,308

515days7,6928,361669

525days7,6927,6920.0

7.Theanswerwilldependonthestudentsdomicile.Thepurposeofthisexerciseistoforcestudentstothinkabouthowenvironmentalconsiderationsaffectthemeasurementandinterpretationofaccounting-basedperformancemeasures.Politicalconsiderationssuchaslegallyrequiredcapitalinfusionsfromtheparentcompany(e.g.,Mexico)willincreasethedenominatoroftheROIratioandreducethatstatisticrelativetoacompanythatcanfillmostofitsfinancialneedsbylocalborrowing(Singapore).Economicconsiderationssuchasinflationandcurrencydevaluation(Mexico)willtendtolowerthenumeratoroftheROIstatisticrelativetoastrongcurrencycountry(Singapore)withlowerratesofinflation.Socialandculturalconsiderationswouldaffectafirmsoperatingleverage(i.e.,theratiooffixedcoststovariablecostsinafirmsoperatingcoststructure).This,inturn,wouldmagnifychangesinincomeorlosses

relativetoachangeinsalesforthatcompany.Finally,legalconsiderations(suchastheimpactoftaxlawonfinancialreporting)wouldtendtoimpartaconservativebiastoreportedearningswheregenerousdepreciationallowances,suchasacceleratedandexcessdepreciation,arepermitted.

8.

Unit

(attributableitems)

Sales

Otherincome

Costsandexpenses:

CostofSales

Sellingandadministrative

Depreciation

Interest

Exchangegains&losses

Incomebeforetaxes

$4,000,000

120,000

3,200,000

330,000

160,000

162,000

------

268,000

Performanceevaluationmetricsofaforeignunitshouldreflectitsmissioninrelationtooverallcorporategoals.Accordingly,allrevenuesandexpensesattributabletotheforeignunitaregermane.AsFXriskandtaxationaremanagedbycorporateheadquarters,onecouldarguethattheseshouldnotbeincludedintheperformanceoftheunit.

9.Manager

(controllableitems)

Sales

Otherincome

Costandexpenses:

Costofsales

Sellingandadministrative

Depreciation

Interest

Exchangegains&losses

Incomebeforetaxes

Incometaxes

$4,000,000

120,000

4,120,000

3,050,000

280,000

160,000

42,000

------

$588,000

TheinclusionofselectitemsofrevenueandexpenseintheperformancereportofthemangerofCompagniedeCalaisreflectsthegeneralprinciplethatamanagershouldonlybeheldaccountableforitemsoverwhichheorshehassomecontrol.

10.

Sales

Exchange

Rate

$Equivalent

Variance

LocalcurrencyMXP8,000,000operatingvariance

CAD.00032

CAD2,560

(foreignmanagement)-9,000,000

CAD.00032

2,880

CAD320

Parentcurrency9,000,000CAD.00032CAD2,880

operatingvariance

(headquartersmgt.)-9,000,000CAD.000242,160CAD(720)

Expenses

Exchange

Rate

$Equivalent

Variance

Localcurrency

MXP6,400,000

CAD.00032

CAD2,048

operatingvarianceParentcurrency

-7,000,000

CAD.00032

2,240

CAD(192)

operatingvariance

MXP7,000,000

CAD.00032

CAD2,240

7,000,000

CAD.00024

1,680

CAD560

Ifweignoretheeffectsofunanticipatedexchangeratechanges,thelocalmanagerappearstohaveperformedwell.Althoughhisexpenses,fromalocalcurrencyperspective,exceededhisbudgetbyCAD192,000,hisactualsalesperformanceexceededhisbudgetbyCAD320,000,resultinginanetpositivecontributionofCAD128,000.

11.Ifthelocalcurrencyisdeemedthefunctionalcurrency,theexchangeratevarianceinExhibit10.10willchangetonegative239.Thedifferenceincurrencyeffectsisduetotheuseofthecurrentinsteadofthetemporalcurrencytranslationmethod(i.e.,theuseofthecurrentratetotranslateinventoriesandfixedassetsandtheirassociatedexpenses).

Analysisofvarianceprocedureswouldbethesameasunderthetemporalmethodusingthebeginning-of-yearexchangerateasourbenchmark.Thus,thevolumeprice/costandexpensevarianceswouldreflectthesamerelationshipsaftertranslationtotheparentcurrencyasbeforewiththeexceptionofthecurrencyvariance.ThefavorableexchangevarianceofPC456inoperatingearningswouldbeattributedtothe

followingfactors:

Highersalesvolume

Lowersellingprice

Lowerproductioncost

Higheroperatingexpenses

HigherInterestexpense

Exchangeratechanges

PC+400

-300

+720

-75

-50

-239

PC+456

12.

Sub

Nominal

Country

Risk-adjustment

Actual

ROI

Risk

Coefficient

ROI

ROI

X

10%

30/60=50%

.10/.50=20%

25%

Y

10%

21/60=35%

.10/.35=28.6%

30%

Z

10%

15/60=25%

.10/.25=40%

40%

Onthisanalysis,SubsidiaryXperformedbest.

Case10-1

ForeignInvestmentAnalysis:ATangledAffair

FollowingisacomparisonofthetranslationadjustmentwithMBI’sexposure:

2007$1.698billion-$1.917billion

$15.034billion=-1.46%

2008$3.266billion-$1.698billion

$15.443billion=+10.15%

Changesinthetrade-weightedindex:

2007:

2008:

-1.0%

+10.6%

Ascanbeseen,thetrade-weightedindexisareasonableproxyforMBI’sexchangerateexperience.Assumingthat90percentofMBIsnetassetsabroadarealsoinlocalcurrencies,theimpactofforeigncurrency(FC)changesonnetassetsemployed(ameasureofMBIsforeigncurrencyexposureperthe

currentratetranslationmethod)follows:

20082007

Non-U.S.netassets(billions)$18.985

Localcurrency=Functional

currency(90%)$17.086

CumulativetranslationAdjustment$3.266

2006$17.159

$15.443

$1.698

16.704

$15.034

$1.917

RealChangeinNetAssets:

Year

ReportedChange

Changein

Translation

Adjustment

RealChange

2007

$455

$(219)

$674

2008

1,826

1,568

258

Theimpactofforeigncurrency(FC)changesonrevenuesisdeterminedasfollows(inmillions):

200820072006

Non-U.S.revenues$41,886$36,965$34,361

Non-$FCrevenues(90%)37,69733,26830,925

Percentincrease+13.3%+7.6%---

Dollarindex89.198.692.7

FCrevenuesFC33,588FC32,802FC28,667

Percentincrease2.4%+14.4%

Theimpactofforeignexchangechangesonnetincomeisdeterminedas:

Foreignpre-taxincome(bil.)Non-$FCincome(90%)

Percentincrease

Dollarindex

Adj.Pre-taxincome

Percentincrease

2008

$7.844

7.0594.6%

89.1

6.289

-5.4%

20072006

$7.496$7.088

6.7466.379

5.8%---

98.692.7

6.6515.913

+12.5%---

Whentheeffectofexchangeratechangeshavebeeneliminated,weseeacompl