The TMA Questions Financial Reporting on the Internet (Case study: Philips) The

Question

The TMA Questions

Financial Reporting on the Internet

(Case study: Philips)

The internet is a good place to get information that is useful to you in your study of accounting. For example, you can find information about current events, professional accounting organizations, and specific companies that may support your study.

The Philips Company was founded in 1891, by Gerard Philips and his father Frederik. Frederik. It is one of the largest electronics companies in the world and employs around 105,000 people across more than 60 countries.

Philips is organized into three main divisions: Philips Consumer Lifestyle (formerly Philips Consumer Electronics and Philips Domestic Appliances and Personal Care), Philips Healthcare (formerly Philips Medical Systems) and Philips Lighting. As of 2012[update], Philips was the largest manufacturer of lighting in the world measured by applicable revenues Philips has a primary listing on the Euronext Amsterdam stock exchange and is a component of the Euro Stoxx 50 stock market index. It has a secondary listing on the New York Stock Exchange.

You can directly access the annual report on the below link:

https://www.philips.com/a-w/about/investor/financial-reporting/annual-reports.html

Instructions

Use the 2016 Annual report of Philips to answer the following questions:

1- Stakeholders can affect or be affected by the organization's actions, objectives and policies. Discuss at least two types of stakeholders and give examples from the Philips annual report to justify your answer. Also explain the reason of their interest in the financial statements.

[Marks (Words): 10(300)]

2- In which category of users or stakeholders do you think the following fit from the Philips Annual report 2016?

a. Frans Van Houten

b. Audit & Risk committee

c. Ernts & Young LLP

d. Apollo Global Management LLC

e. World Heart Federation (WHF)

[Marks (Words): 10(50)]

3- As you learned in Unit 1, Session 3, the major environmental factors impacting on an organization can be grouped under four headings: political/legal, economic, social/demographic and technological (PEST analysis). Giving examples from the annual report, discuss the impact of each of the elements in the PEST analysis on Philips.

[Marks (Words): 10(300)]

4- The distinction between cash transactions and credits transactions is fundamental to bookkeeping and accounting. Elaborate the main difference between these two-accounting systems and refer the details from Philips annual report 2016.

[Marks (Words): 10(300)]

5- IAS 16 Property, plant and equipment identifies and describes two different models of accounting for tangible non-current assets. Discuss the importance of these two models for Philips and describe the depreciation methods used by Philips.

[Marks (Words): 10(100)]

6- In preparing financial statements in accordance with GAAP, there are certain accounting policies that may require a judgment or estimation in their application. Give examples of Philips estimates and assumptions reported in consolidated financial statements.

[Marks (Words): 10(100)]

7- Transaction takes place when one party exchanges or promise to exchange good or service with another party for money. Identify the difference between revenue expenditure and capital expenditure and provide the example from Annual report of Philips 2016.

[Marks (Words): 10(100)]

8- Contingent Liabilities are those obligations that are contingent on events that have not yet taken place. Discuss the contingent liabilities and provide the contingent liabilities example from the Annual Report of Philips.

[Marks (Words): 10(200)]

9- Explain why the going concern basis is important in understanding Philips financial statement; Support your answer with evidence from Philips annual report.

[Marks (Words): 10(100)]

10- Classify the revenue recognition method(s) used by Philips as discussed in annual report. Explain the rationale underlying the appropriateness of methods used by Philips.

[Marks (Words): 10(100)]

[Total Marks = 100]

In your answer, you should explain each point or inquire separately. Use the following headings (below) to make up the different sections of your work:

Cover

The PT3 form (available on LMS)

Contents

Title and contents page

TMA

Financial Reporting on the Internet (Case study: Philips)

References   

( I was asked to provide anual report to get the answer of this homework but in fact its in PDF file which is 264 pages so please could you guide to how to upload it to your website because need to submit this as soon as possible.)

Explanation / Answer

1- Stakeholders can affect or be affected by the organization's actions, objectives and policies. Discuss at least two types of stakeholders and give examples from the Philips annual report to justify your answer. Also explain the reason of their interest in the financial statements.

EMPLOYEES - Examples: European works councils and individual employees

Reasons for interest:

CUSTOMERS

Example: Hospitals, Retailers, Consumers

Reasons for interest

2- In which category of users or stakeholders do you think the following fit from the Philips Annual report 2016?

a. Frans Van Houten – he is an Employee as he is the CEO – has interest to improve the company and to transform the company, in his own words “from an old world maker of electronics and lighting into a leader in health care technology”

b. Audit & Risk committee – is a supplier of services – it is a branch of Non-Executive Directors who are looking after the interests of the shareholders to prevent non governance issues of Executive Directors

c. Ernts & Young LLP – is a supplier of services – is the Auditor of the company. They check the accounts and ensure it reports the “true and fair” report of financial statements so that users of the accounts can depend on the independence of report

d. Apollo Global Management LLC – is a supplier of financial services specializing in purchases of distressed securities, corporate restructuring, consolidations etc assisting investors and advising them of their investment

e. World Heart Federation (WHF) – is a nongovernmental organisation committed to uniting its members and leads the global fight against heart disease and stroke, with a focus on low-and middle-income countries

3- Major environmental factors impacting on an organization can be grouped under four headings: political/legal, economic, social/demographic and technological (PEST analysis). Giving examples from the annual report, discuss the impact of each of the elements in the PEST analysis on Philips.

4- The distinction between cash transactions and credits transactions is fundamental to bookkeeping and accounting. Elaborate the main difference between these two-accounting systems and refer the details from Philips annual report 2016.

The Balance Sheet highlights the Accounts Receivable figure at EUR 4, 277M as owing from Customers which is a significant figure when compared with the rest of Current Assets (EUR 12,693) accounting for 33% and could impact the cash equivalent figure of EUR 1,766M. This makes the company dependable on the debtors paying them

5- IAS 16 Property, plant and equipment identifies and describes two different models of accounting for tangible non-current assets. Discuss the importance of these two models for Philips and describe the depreciation methods used by Philips.

A company may use either the cost model or revaluation model as accounting for tangible assets and intangible assets. In respect of PPE, the company measured cost less accumulated depreciation and accumulated impairment losses. Philips thus capitalizes intangible assets and subsequently amortizes it. This prevents excess profits being recorded by writing down the losses due to usage/ spread the benefit

6- In preparing financial statements in accordance with GAAP, there are certain accounting policies that may require a judgment or estimation in their application. Give examples of Philips estimates and assumptions reported in consolidated financial statements.

Regarding Financial Instruments: in the Balance Sheet notes = Estimated fair value of financial instruments has been determined by the company using available market information and suitable valuation methods. The estimates presented are not necessarily indicative of the amounts that will ultimately be realised by the company on maturity or disposal

7- Transaction takes place when one party exchanges or promise to exchange good or service with another party for money. Identify the difference between revenue expenditure and capital expenditure and provide the example from Annual report of Philips 2016.

A revenue expenditure is a cost that is charged to expense as soon as the cost is incurred. By doing so, a business is using the matching principle to link the expense incurred to revenues generated in the same accounting period

Whereas money spent by a business or organization on acquiring or maintaining fixed assets, such as land, buildings, and equipment.

In Philips Report 2016: revenue expenditure is seen in the Income statement for items like repairs to vehicles whilst capital expenditure is seen in the Balance Sheet where Tangible Assets were acquired during the year

8- Contingent Liabilities are those obligations that are contingent on events that have not yet taken place. Discuss the contingent liabilities and provide the contingent liabilities example from the Annual Report of Philips.

The company provides guarantees on its products. Also the Masimo Corporation lawsuit for patent infringement

9- Explain why the going concern basis is important in understanding Philips financial statement; Support your answer with evidence from Philips annual report.

A going concern is a business that functions without the threat of liquidation for the foreseeable future, usually regarded as at least within 12 months. ... Hence, the declaration of going concern means that the entity has neither the intention nor the need to liquidate or curtail materially the scale of its operations.

Current assets are EUR 32, 303 M and Current Liabilities are EUR 5,125m REFELCTING IN A CURRENT RATIO OF 32303/5125 = 6.4 TIMES which is very healthy and is not a going concern issue

10- Classify the revenue recognition method(s) used by Philips as discussed in annual report. Explain the rationale underlying the appropriateness of methods used by Philips

Sales contracts for certain transactions entered in the Diagnosis & treatment involve multiple elements. These are separately identifiable components recognized based on relative fair value. This gives rise to risk that sales could be misstated

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