Assignment- 'Biovail Corporation: Revenue recognition and FOB Sales Accounting'
Case Study Assignment Questions-
Question One -
(a) The following table provides a summary of the revenue recognition that would occur if the company Biovail implemented (i) 'free on board' (FOB) Biovail; or (ii) FOB destination. Justify the choice of timing selected for each cell in the table.
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FOB Biovail
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FOB Destination
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Ownership transfers:
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Upon shipment from Biovail facility in Manitoba, Canada
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Upon delivery to North Carolina facility of Distributor
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Revenue is earned:
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Upon shipment from Biovail
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Upon delivery to North Carolina facility of Distributor
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Assuming that there was no accident, the associated revenue would be earned:
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30 September when the truck left Biovail's facility in Manitoba
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Either very late on 1 October, or more likely 2 October given that North Carolina is more than 8 hours' drive away
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(b) There was dissention between the Distributor and Biovail over when title to the shipment of WellbutrinR passed. Discuss why you think the disagreement occurred between Biovail and Distributor. (Hint: Your answer should be supported by reference to at least three academic research articles. Concentrate on the general results of the articles. You do not have to completely understand the econometric models.)
Question Two-
Following the truck accident, analysts from J.P. Morgan upheld their 'overweight' stock rating for Biovail. In fact, representatives from J.P. Morgan noted that (case study, p. 3):
'...its analysts had never argued with earlier claims that Biovail's accounting might have been aggressive. However, its analyst report concluded that Biovail's current accounting did not seem egregious and that the earnings impact of Wellbuetrin XL was completely transparent.'
Evaluate these comments from J.P. Morgan. (Hint: Your answer should evaluate earnings quality (i.e. aggressive accounting choices compared with egregious accounting choices) and be supported by reference to at least two academic research articles. Concentrate on the general results of the articles. You do not have to completely understand the econometric models).
Question Three-
Assume that Biovail plans to undertake a significant share issue in the near future and is considering either J.P. Morgan or Banc of America to handle this lucrative transaction.
Would you expect this to influence Mr Maris' analysis of the truck accident and subsequent stock recommendation? Justify your opinion discussing any ethical issues that may arise.
This fiancial reporting case study is designed to examine the specific application of case scenarios invovlving principally managerial incentives for financial statement management. the case will be used to examine your report writing skills , general accounting knowledge and ability to critically evaluate complex case scenarios.
1500 words.
8 references.
Attachment:- Biovail.rar