Intangibles and Reserves the Shaw Group

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ACCOUNTING 742 Professor Brian Bushee The Wharton School of Business Intangibles and Reserves The Shaw Group SOLUTION Please refer to the attached Shaw Group case to answer the following questions. 1. What does the “Goodwill” from Shaw’s acquisitions represent (i.e., what are some of the economic assets that comprise this account)? Which intangible assets and liabilities does Shaw amortize over time? Which intangibles, if any, are not amortized? Shaw defines Goodwill as the “excess of the purchase price of acquisitions over the fair value of the net assets acquired” (Note 1). The net assets acquired include not only tangible assets and liabilities, such as accounts receivable and PP&E, but all separately identifiable and transferable…show more content…
Because the “extra” profit of these contracts was recognized at acquisition, there must be a reduction in profits recognized at contract completion to avoid double counting. The amortization of contract liability adjustments (and accrued contract losses) reduces costs of revenues. Again, the “extra” losses of the contracts were recognized at acquisition, so cost of revenues is reduced to avoid double counting. 3. Using Exhibit 2, compute Shaw’s gross profit margin for each quarter between 2000: Q4 and 2003: Q4: a. As reported Quarter Q4:00 Q1:01 Q2:01 Q3:01 Q4:01 Q1:02 Q2:02 Q3:02 Q4:02 Q1:03 Q2:03 Q3:03 Q4:03 Revenues 263.8 418.8 340.3 394.2 385.7 453.6 566.2 902.6 1248.2 996.9 720.5 824.0 765.4 Cost of Revenues 212.2 349.1 282.4 324.7 313.5 384.8 492.4 809.3 1127.9 903.3 666.9 738.3 680.0 Gross Profit 51.6 69.6 57.9 69.5 72.3 68.8 73.8 93.3 120.3 93.7 53.5 85.7 85.4 Gross Profit Percentage 19.6% 16.6% 17.0% 17.6% 18.7% 15.2% 13.0% 10.3% 9.6% 9.4% 7.4% 10.4% 11.2% Intangibles and Reserves: The Shaw Group Solution Page 2 of 10 b. Assuming that Shaw had never recorded any Contract Liability Adjustments and Accrued Contract Loss Reserves Quarter Q4:00 Q1:01 Q2:01 Q3:01 Q4:01 Q1:02 Q2:02 Q3:02 Q4:02 Q1:03 Q2:03 Q3:03 Q4:03 Revenues 263.8 418.8 340.3 394.2 385.7 453.6 566.2 902.6 1248.2 996.9 720.5 824.0 765.4 Gross Profit 51.6 69.6 57.9 69.5 72.3 68.8 73.8 93.3 120.3 93.7 53.5 85.7 85.4 Gross Profit Pct 19.6% 16.6%

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