Essay about FC Determination Case Deloitte Cases

A significant proportion of the company’s revenue is generated from overseas operations in countries other than the United States. This means that the company has immense foreign currency exposure that may have a

All relevant costs located in worksheets #2, and #3 indicate that Shamrock manufacturing will benefit by replacing the machines at either equipment cost. However, worksheet #1 presents a problem for Mr. Fitzgerald as it shows a $6500 increase in the first year expenses, which are irrelevant in the long-run, but may encourage Mr. Fitzgerald not to purchase the new equipment because it may reflect badly on the short-run net operating income of his plant during the evaluation period for his promotion. Worksheet #3 offers a breakeven scenario in the first year and a $24,000 reduction in relevant cash flows in year two, which is the best option for Mr. Fitzgerald and Shamrock, if available.

Exchange rate gains or losses are brought to account in determining the net profit or loss in the period in which they arise, as are exchange gains or losses relating to cross currency swap transactions on monetary items. Exchange differences relating to hedges of specific transactions in respect of the cost of inventories or other assets, to the extent that they occur before the date of receipt, are deferred and included in the measurement of the transaction. Exchange differences relating to other hedge transactions are brought to account in determining the net profit or loss in the period in which they arise. Foreign controlled entities are considered self-sustaining. Assets and liabilities are translated by applying the rate ruling at balance date and revenue and expense items are translated at the average rate calculated for the period. Exchange rate differences are taken to the foreign currency translation reserve.

The aim of this report is to distinguish between capital expenditure and revenue expenditure and to explain the accounting treatment of different transactions. The classification of expenditures as capital or revenue will have an impact on the statements of financial position and comprehensive income. Therefore, when preparing financial statements, accountants need to adhere to and comply with the rules and regulations set out by the International Accounting Standards Board (IASB). As such, the report is limited to discussing the various expenditures covered by accounting standards. Furthermore, the report identifies what items can be recorded in accounts as assets in terms with the relevant accounting standards.

Net income is not a sufficient indicator of the financial health of an entity. It only serves as a basis of allocation of expenses from the revenues that are generated for a certain financial period. It involves “noncash expenses,” specifically “depreciation and amortization of intangible assets” that reduces its value, but have no effect on the net cash flows of the business. It also differs with cash flow under the context of timing of revenue and expense versus the actual “occurrence” of cash flows (Williams, et al.). There are other considerations that must be probed at, such as the procurement of funds from credit facilities, the ability to pay short-term and long-term financial obligations, distribution of annual dividends, cash inflow and outflow from operating, financing and investing activities. Along with the income statement, balance sheet and critical analysis of several factors, the use of cash flow statement of the company serves an important indicator of the financial health and continuous operations of the business.

Foreign exchange risk consists of three main types of exposures. First, transaction exposure is when a firm has a contractual obligation under which it supposed to receive or pay a certain amount in a currency that is different than its home currency. Transaction exposure has an effect of the firm’s income statement because the accounts payables or receivables can be affected by currency exchange rates. Second foreign exchange exposure is the translation which impacts the balance sheet of the firm. It occurs when consolidating financial statements of foreign units into a company’s home currency. The third type of foreign exchange exposure is the economic which influences a firm’s cash flows when exchange rates change. This type of exposure can impact assets, liabilities, or any type of anticipated foreign currency cash exchange.

IASB. 2010, "The Conceptual Framework for Financial Reporting" IFRS, pp. A21- A38, viewed 23 April 2014,

I. For each of the years on the Statement of Cash Flows: Major sources of cash in 1990 were investing activities, Major Sources of cash in 1989 were financing activities 1. What were the firm 's major sources of cash? Its Major sources of cash were provided by operating major uses of cash? activities. ( Cash provided by investing activities in 1991 followed by operating activities. Major uses of cash (operating activities also were sources of cash), while was much less than operating activities ). Major uses of were financing activities. major uses of cash were investing activities. cash were financing activities. 2. Was cash flow from operations greater than or CFO at $125.2M was greater than Net Income (in this

As mentioned in the case, the two essential standard approaches are widely used when evaluate the international cash flows. Follow the two approaches we can then get the below result:

The statement of Cash Flows offers insiders and outsiders insight into business fluidity. For example, for an insider the Cash Flow Statement is a tool to ananlyze “dividend policy, cash generated by operations, and investin and financing policy” (394). For an outsider, the Cash Flow Statement assist in analyzing “a firm’s ability to increase dividends, it’s ability to pay debt with cash from operations” and the relation between cash from operations with cash from financing (394). Cash Flow Statements are better short term indicators of performance than income statements. Unlike Incoe Statements, Cahs Flow Statemetns allow analyzers to see the difference between actual exchange of cash, liquidity, than the exchange of non-monetary assets. This is important for two reasons, first we can see if a company is equipped to handle sudden unforeseen events with current assets. A current asset being an asset that can become liquid in a short period (Morning Star, 2012). Second, the Statement of Cash Flows shows how a firm operates on liquid basis. We can see how cash is received and handled from a short term perspective (Morning Star, 2012).

When buying or selling foreign currency, a corporation can either do it as and when it needs to, at the prevailing exchange rate, or try to transact when the currency exchange rate is at an advantage. A remarkably simple form of currency hedging is exchanging the currency in parts. If the corporation is uncertain if the

3) Based on the data in Exhibit 7 and the definition of operating income gains given

Economical - the economy is a huge factor in this business which affects the current exchange rates. When the economy is good and the dollar is high and exchange rates good customers are more likely to spend more or buy currency for future travel. When the dollar is low and exchange rates low customers are less likely to buy more then they need or will try to negotiate or shop around for better rates. When customers do this, it means the company makes a smaller margin on the exchange rates and less profit.

Eradication of the expenses of converting currencies: for every personality and the organisation there is certain amount of charge to be paid while converting between the currencies. A single currency will help in elimination of such expenses.

2). Balance of payment is a systematic record of all ___________ during a given period of time.