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Dr Winston Kwok Department of Accounting NUS Business School National University of Singapore

ACC1002 FINANCIAL ACCOUNTING Semester 1, 2011 / 2012 Group Project

(A) Learning objectives of project The project is the integrative component of the course. The objectives of this project are to: 1. familiarize students with reading real published financial statements contained in corporate annual reports, so as to provide them with an integrated view of the various topics covered during the lectures; 2. require students to apply what they have learnt during lectures to search for, analyze and interpret information presented in annual reports; 3. provide students with the opportunity to self learn and discover further aspects of accounting not covered in the module; 4. expose students to Asian business; and 5. develop skills in working as a team and writing effectively.

(B) Project group size This project is to be done on a group basis, with 4 or 3 students per group (please consult your tutor if you cannot get the required number). The project group must comprise members of the same tutorial group. We have emphasized the need for you to attend tutorials in order to socialize with your classmates so it is your responsibility to find a group. (C) Assessment Each group will have to hand in a project report, which will be marked by your tutor. The project report constitutes 20% of the course assessment. The marking of the project report is based on the substantive answers to the project questions (see section (E) below), organization of report and standard of writing. The written report should be printed on white A4 paper, with 1.5 spacing, font-size 11point or larger, and be no more than 16 pages (double-sized is encouraged) including any tables and annexes but excluding the cover page. Please number the pages. On the cover page, indicate the project group members (names and matriculation numbers), your tutorial group and your tutors name. Note that extra pages will not be marked. You must also email a soft copy of the report to your tutor by the due date.

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All members of the group will get the same marks for this assessment, unless there is clear evidence of free-ridership. In this regard, each member of the project group is to separately complete and submit the optional Project Peer Review Form in Annex A of this document. If there is evidence that any student did not contribute fairly to the project, he or she may get less marks or even zero for this assessment. (D) Due date The project report (both hard and soft copies) and the optional peer review forms are to be submitted by 5pm (1700hours), Wednesday, 9 November 2011. Late submissions will not be marked regardless of reasons. You will be informed of the submission location later. (E) Requirements of project 1. Form your project group, and inform your tutors of the members names as soon as possible. 2. Download from the IVLE Workbin the complete 2010 annual report of GOME Group (GOME) or visit GOMEs corporate website: http://www.gome.com.hk/report.php 3. Read the annual report, including both the non-financial reports (e.g. Chairmans Statement, Management Discussion and Analysis) and the financial statements. 4. In your project report, answer all the project questions listed in Annex B of this document. Note that some of the project questions are based on topics to be covered in later lectures so you are advised to attempt them only after those lectures are over. On the other hand, there are some questions which require you to self learn topics that will not be directly covered in this module. In answering your questions, please do so in the order given and be concise. There is no need to show the questions, only the question numbers Q1, Q2, Q3. Write your answers in your own words. If you simply copy and paste (with quotes) from the annual report, you will score low marks or even zero for the project. If you provide additional relevant information over and above that in the annual report, you can be rewarded with bonus marks. Feel free to use diagrams, charts, graphs, pictorials, etc. to make your report more readable and interesting. You may also use colors. Appropriate use of these aids will result in higher marks. However, you should spend your time on the content of your project before you touch up the formatting of the report. Remember to keep within the 16-page limit including annexes. Indicate which page or note of the annual report you obtained information from to answer the questions. Quote the page number of the PDF document (e.g. Chairmans Statement is on page 10 although for the printed annual report it is page 8). Failure to do so will result in difficulties for the tutor to verify your answers and this will be penalized accordingly. If you use materials from other than the annual report such as websites, please list them in a bibliography page at the end of your report. Academic honesty requires proper acknowledgement of your sources; otherwise it can be considered as plagiarism which is a serious University offence.

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5. Submit the project report and the optional peer review forms by the due date stated above. Remember to keep within the page limit for the report. If you feel that all group members have contributed fairly to the project, then you need not submit the peer review forms. 6. If there are any questions regarding the requirements of the project, please consult your tutor as soon as possible. Late consultation is not an excuse for late submission. Note that your tutor can only provide guidance and not direct answers to the project questions; this is supposed to be your project and it is graded. Your tutor will mark your projects and has the final say. Dr Kwoks advice for a smooth project experience: 1. Start early. As the lectures progress, your project group can tackle one or two questions each week; this will also help your cumulative learning to prepare for test and exam. If you wait until the final weeks before submission due date, you will be stressing yourself unnecessarily and will probably not produce a good report. 2. Do not let any one or two students dominate the project; remember that everyone in the project group will get the same marks. 3. Do not just divide up the questions to each project member and then join or paste individual answers to form your report. Some questions are quite challenging and require group brainstorming and discussion. If the report does not flow in terms of presentation and style, it will be penalized. Please refer to document Effective Group Work in IVLE Workbin for more tips.

Learning accounting which is the language of business opens you up to a whole new world; you will be able to read the financial reports of many companies at the end of this project. Enjoy!

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ANNEX A ACC1002 Group Project Peer Review Form (Optional)

My name: _________________________________ (must be filled in)

My assessment of the efforts put in by my group members is as follows: Name of group member (including yourself) 1 2 3 4 Contribution to project in terms of effort and final output

TOTAL

100%

The submission of this form is optional and should be used only if you think one or more members of the project did not contribute fairly. If you assign very high or very low contribution to any particular member, then you must provide detailed reasons (e.g. the member missed meetings on which dates).

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ANNEX B

Project Questions The questions are based on the 2010 annual report of GOME Group (GOME). Use the marks as a guide to the length of your answers to each part, remembering not to exceed the overall 16-page limit. Unless otherwise stated in the questions, use the consolidated financial statements for fiscal year 2010. GOMEs consolidated financial statements are titled Income Statement (IS), Statement of Comprehensive Income (SCI), Statement of Financial Position (SFP), Statement of Changes in Equity (SCE), and Statement of Cash Flows (SCF). Remember to read (E) Requirements of project on page 2 of this document before answering.

Q1. Where is GOME listed? What are its principal activities? What accounting standards does it use to prepare its financial statements? (3 marks) Q2. Who are GOMEs external or independent auditors? What sort of audit opinion did GOME receive? In your own words, explain what this audit opinion means to external users such as investor and creditors. (4 marks) Q3. How do the inflows and outflows of cash affect GOMEs revenue recognition? (4 marks) Q4. Examine GOMEs SFP and related notes. Identify two items or accounts which will most likely have market or fair values that differ significantly from the carrying amounts (book values). What general accounting principles or assumptions give rise to these differences? Explain. (4 marks) Q5. (a) What inventory costing method does GOME use? Is the method appropriate given what you know about GOMEs business or industry? (2 marks) (b) Calculate the 2010 inventories amount as a percentage of that years (1) total current assets, and (2) total current liabilities. (2 marks; round to one decimal place for each percentage) (c) Explain the significance of the Lower of Cost and NRV as applied to GOME, considering its business or industry. Are you satisfied with the way GOME apply and disclose its use of the Lower of Cost and NRV? (2 marks) Q6. (a) How does GOME depreciate its property, plant and equipment? Does this policy look reasonable given what you know about GOMEs business or industry? What is the longest useful life (in years) that GOME used for its property, plant and equipment? (3 marks) (b) GOME sold or disposed of some property, plant and equipment during the year. Assuming that it disposed of them in one transaction, show the journal entry that it would have recorded, showing the credit as net property, plant and equipment. (3 marks) Q7. Does GOME have any contingent liabilities? If so, did it recognize or record any provision? (2 marks)

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Q8. (a) Do the financial statements include the results of GOMEs subsidiaries? How do you know? (1 mark) (b) Using information from only the SFP, how can you tell if GOME own 100% of all its subsidiaries? Explain. (1 mark) (c) In its purchase of its subsidiaries, did GOME pay more than the market or fair values of their net assets? Explain. (1 mark) Q9. Draw an Income Summary account for GOME and show the item(s) and amount(s) that should appear on the credit side. (3 marks) Q10. Your classmate said: I noticed from the SCF that the amount for inventories is RMB 1,552,518,000, which equals the change in inventories which can be calculated from the SFP. This means that in fiscal year 2010, the company bought all inventories using cash. Explain whether you agree or disagree and draw an appropriate T-account to support your explanation. (4 marks) Q11. For each fiscal year 2010 and 2009, show the journal entries for (a) issuance of ordinary shares, and (b) payment for cash dividends on ordinary shares. (3 marks) Q12. An existing shareholder of GOME was puzzled by the different profit measures found on GOMEs IS and SCI: gross profit, profit from operating activities, profit for the year, total comprehensive income and earnings per share. Explain which measure is most relevant or useful to him. Use GOMEs comparative figures for years 2010 and 2009 to support your answers. (6 marks) Q13. Using the definitions shown on page 534 of the textbook, calculate for GOME the following financial ratios for each fiscal year 2010 and 2009: (1) Current ratio (2) Days sales uncollected (3) Days sales in inventory (4) Days purchases in accounts payable (5) Debt ratio (6) Times interest earned (7) Profit margin ratio (8) Return on total assets (9) Return on ordinary shareholders equity (10) Price-earnings ratio (search for GOMEs closing share price as at 31 Dec 2010) (10 marks) Q14. Given your analysis of GOMEs financials, would you use your own money to invest in the shares of GOME? Your answer is basically the conclusion of the report. There is no need to present much more new computations in this answer. Instead, you should be summarizing or synthesizing your earlier answers. For this project, there is no need to discuss the past share price performance of GOME or compare its financials with competitors. (12 marks) The tutor has another 10 marks that she can award for good features such as neatness or appropriate use of colors and diagrams. On the other hand, the tutor can also deduct up to 10 marks for copy-and-paste answers or other bad features. Total marks = 80; percentage of course assessment = 20%

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