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Four Little Girls Essays - Counterculture Of The 1960s, Free Essays

Four Little Girls Essays - Counterculture Of The 1960s, Free Essays Four Little Girls When documentaries are filmed, produced, and then viewed, the audience is left with more knowledge and awareness than before having watched it. When I watch a National Geographic documentary on exploitation of indigenous peoples, I become aware of their situation and further understand the cruel world around me. Also, my emotions are stirred up. With the awareness that documentaries bring, also comes the waves of emotional buildup. This is why documentaries are most effective in grabbing an audiences attention on a subject matter having to do with exploitation, injustice, and racism; they show the cruelty and disrespect the victims are faced with. Four Little Girls, a documentary directed by Spike Lee, is an example of this. He interviews those that were involved or held knowledge of the bombing at 16th St. Baptist Church in Birmingham, Alabama in 1963. He speaks with officials and professionals, preachers, family members and childhood friends of the four girls killed at this incident. At the same time that these interviews are going on, there are clips from the 50s and 60s of black protesters, marches, and beatings relevant to the political and social crisis of the day. Also included are picture shots of the girls, including their gravestones. Lee incorporates the ongoing Civil Rights Movement with the story of the bombing incident and the four girls that died as a result. The Civil Rights Movement becomes more real to us when the protagonists are also made real. The victims parents tell the audience through their words, stories, and pictures, of who the girls were and how they lived. They also display the girls badges, awards, certificates, and Bible that one had in her pocketbook the day she was in the church basement attending Sunday school. The white officials, who were more or less viewed as the antagonists, spoke of that same era from their point of view. Through intercutting photos of lynched black men wearing a sign that read This Nigger Voted, white men made common yet hypocritical remarks of how Birmingham was a pleasant place to raise a family. The films goes through a series of events and attempts by black leaders to build an effective civil rights coalition between local leaders like Reverend Fred Shuttlesworth and national leaders like Martin Luther King, Jr., and James Bevel. But the forces of the older black population slowly digressed as white leaders, like Bull Connor, Police Commissioner, strode around through black neighborhoods in his white army tank. The struggle moved on to the younger generation. Police men were even arresting them and placing them in jail cells. The quick inclusion of students into the movement allowed for a massive amount of young people to come together and protest full strength. It began first with the high school students, then junior high, and finally grade school students. When a younger child had been asked by her mother where she had been that day, the child proudly said, In jail. In jail? What were you doin in jail?, asked her astonished mother. The child answered, For freedom. Testimonies from the black citizens of Birmingham were intertwined coherently. Hope as well as fear spoke from their words as they invested courage into the populaces young people who proudly marched to jail. Subtle encouragement of the young was the way the black community supported their role in the movement. One teacher had said that when she told her class about the protests and demonstrations that were attracting students to the streets, she told them, I hope that when I turn my back to write on the blackboard that I dont turn around and find all you gone. The whole class was gone when she turned back around. There is a scent of pride in her voice when she remarks about the empty classroom. Birmingham had history of bombs being used to make political points. The existence of the steel mills, industry, and foundries, made accessibility to dynamite quite efficient and easy. When black families began to build substantial homes on a hill, the homes were destroyed by honkies that felt that they did not deserve to live too well. Dynamite Hill as the area was called, prepared for the events at 16th St. Baptist Church in 1963. The 16th St. Church had become a meeting place for all people involved in the civil rights struggle. It was an immediate target for the Klu Klux Klan to slow the momentum of the movement. The

Chose an interesting Topic Essay Example | Topics and Well Written Essays - 750 words

Chose an interesting Topic - Essay Example The purpose of this brief paper is to identify the various stages of relationship that my best friend and I went through growing up, identify conflicts that emerged between us, and to formulate a conclusion about the value of such interpersonal relationships. Our friendship was initiated during grade school. Ahmed and I ended up in the same class one particular year, with him being new to the school. Like most kids, I did not pay much attention to the ‘new kids’. Over time, however, I realized that we both had so much in common. We shared the same interests in sports, classes at school, and outside activities. It seemed that we would have been great brothers. During this stage of our just beginning friendship, I suppose we began to explore each other. Good friends are hard to come by, and we both wanted to make sure that we truly desired to invest the time in each other to make such a friendship work, blossom, and become a lifelong partnership. As the months of that scho ol year went by, our friendship began to intensify. This began with us playing simple games in the schoolyard. Before long, Ahmed was regularly in with my own group of friends, and he quickly became one of the ‘gang’. Over time, Ahmed and I spent more time with each other than others in the group because of our intensifying belief that we would make great friends. We had so much in common, it seemed that we were meant to help each other along life’s journey. Naturally, we were typical school age children growing up in the Middle East. We got into mischief, respected our elders when they were in our presence, and scorned them when they were not. During this intensifying portion of our friendship, Ahmed and I frequently would go to each other home’s after school, and we both got to know each other’s family well. In short, we became best friends within the span of a single school year. During the school year, life is quite hectic, especially for a youn g boy. There are many responsibilities to take care of, both at school and at home. Since Ahmed and I only met at the beginning of a school term, we needed that first year to discover one another and begin the process of growing our friendship. It was not until the end of the school year, and the beginning of the summer break, that our relationship turned quite stable. It was during that first summer that we were truly inseparable. Every day we were together, playing together and just enjoying life together. We shared our experiences together and it was during this stable stage of our relationship that I can honestly say forged our friendship for life, even when conflict eventually would arise. We remained like that for several years. A stable foundation had been laid and we were comfortable around one another. We continued to study together, played on various teams together, and our families even became great friends. On two different occasions, Ahmed took a holiday with my family, and I went with him and his family at least once that I can remember. Most every relationship will have its difficult times, and my friendship with Ahmed was no exception. While we had our minor disagreements during grade school, they were easily resolved as being over something petty. As we entered high school, however, our friendship entered into a period of decline. Looking back upon it, different interests got in our way and we both lost sight of what friendship truly was about. In high school, we were often in different classes, separate from

World Systems Essay Example | Topics and Well Written Essays - 1000 words

World Systems - Essay Example World systems are hence a system that has been developed by a historian Immanuel Wallerstein. He talked about economic forces interacting not within limits, rather on a global basis. This he said would be because of globalization and trade links throughout the world. However, he also said that the when world cannot be said to be in regards with this, rather it can be said that these changes and interactions can be talked to be about on a large scale. He gave the idea of the existence of three factors that shall be talked about in the following paragraphs. He related his ideas to capitalist and non-capitalist movements. He explained how certain societies developed while others did not because of their positions on world today and previously. These societies obviously in the context of social systems in accordance with world's systems approach. (Answers.com, n.d.) World systems theory does not come under social sciences by any way. It basically creates a wholesome form of a theory that takes into account economic, political and social characteristics and phenomenon that can be related to the events occurring throughout the world. Immanuel Wallerstein came up with this theory. His approach was very provocative and would focus on not just mere analytical proof rather on justifications related to psychological as well as ideological in nature. World systems approach aims at being a telescope rather than a microscope so as to focus on events and speculate accordingly. Global interaction is a main aim to understanding how events occur throughout the world. Wallerstein talked about world systems exiting in three categories. These categories being pertinent to specific areas places and countries. These three categories include the following: Core Periphery Semi-periphery The differences between rich and poor can be shown through the relationship that is depicted by core and periphery. This shows also, the income disparities that exist between the two. Semi periphery however, is more complex. It basically has a relationship with the others that is a little difficult to understand and relate to. Wallerstein overall had the grasp of all the key elements or categories and hence could then be used in the controlling forces that define the changes that occur initiating or maintaining changes and movement in the world. Wallerstein was one often first to think of a system that was different than the earlier developed theories relating to nations and countries and their movements or changes. He described how this theory can be used to study further how all global entities interact with each other. This theory was developed after the Marxist one. The latter provided concepts relating to how different individual units like each country go through each stage of functioning that is either development, sustaining or even in some cases under- development. Dependency theories as they were called would focus on "unequal exchange' that is richer countries would be forced into having trading partnerships with poorer countries so that transfer of excess surplus from the rich countries to the poor ones could take place. Theorists claiming and supporting such views were people by the names of Frank, Samir Amin, Celsu Fertudo, and Henrique Cordoso. (Sommers, 2005) Effects In and during this century, we can see the effects of world systems on events by various examples. For instance, world labor regime when developed it brought ILO or international Labor Organization to it. Now, when this

Unemployment UK Essay Example | Topics and Well Written Essays - 5000 words

Unemployment UK - Essay Example The main swings in joblessness over the past years are due principally to progresses in the fundamental experiential natural rate of unemployment. We may also discuss European Central Bank’s liability for evaluating any appliance and its need for a precise and autonomous evaluation of the labor market in the UK. Unemployment and price increases are each at their lowest stages for more than a few years. Even in a well-built labor market, many individuals become jobless for short phases as they go into the labor force or alter jobs. However, some individuals take several months to find work. Over the past more than a few decades, the percentage of joblessness lasting has augmented. Such long-standing unemployment may bring about severe problems for the jobless individuals themselves along with the overall nation. The frequent incidence of short spells of joblessness by people entering the labor force or altering jobs is the trait of a self-motivated economy: As new chances for personnel and firms occur, provisional periods of job loss may occur. Even in a well-built labor market, some individuals will be jobless. Individuals are classified as jobless if they are not functioning, are obtainable to work, and have lately made specific endeavors to find a work or are anticipated to be remembered from a impermanent lay-off (Long-Term Unemployment, 2007, p. 1). Unemployment will floor out at some phase, almost certainly close to its present stage and inflation is under the Bank of Englands aim. One of the confrontations for macroeconomic policy will be to protect as far as probable the enhancements that have been attained. This is anticipated to get firmer in the subsequent few years. The steady development in economic circumstances since the commencement of the 1990s can be viewed as the natural reaction to an unfavorable shock

Impact of Mobile Communications on Construction Industry

Impact of Mobile Communications on  Construction Industry 1. INTRODUCTION The total annual turnover of the building and construction industry in most economies around the world amounts to billions of dollars per annum, contributing approximately 10 per cent of GDP (Olomolaiye et al, 1998, quoted in Farin et al 2001). Although the Construction sector is pivotal in any economy as noted above, it is however an industry which is plagued by inefficiency which is caused by the lack of communication within organisations involved in the delivery of a project solution. According to Bowden and Thorpe (2002), 65% of contractor rework is attributed to insufficient, inappropriate and conflicting information on construction sites. The problem of communication on most construction sites are exacerbated because many operatives working in the field capture data manually (or maybe use a standalone handheld device) which is then physically transported to office. The information may then have to be manually keyed into the office computer system. This process is time consuming and requires extra workforce to re-enter data into the office computer. The introduction of Internet and communication technologies has seen the urgency in the expectations of people within the industry to have access to the latest information produced at any point in the project life. These expectations reflect the increasingly competitive pressure within the construction sector to deliver quicker and cheaper solutions. It also reflects the increased electronic awareness that internet use has cultured, realising a one-stop information on demand medium. The invention of handheld computing device enabled with a suitable wireless capability has proved a valuable innovation which reduces travel costs, increase operative efficiency, and speed data transfer. Data can easily be keyed on site and communicated wirelessly to the office computer. This information can further be uploaded on from the computer to the internet or extranet enabling faster and quicker process which reduces times. The use of project extranet solutions (a single project database shared by all project members: Client; Designer; Contractors; Suppliers) and document management systems is now common on large projects. Mobile communication technologies therefore can strategically be implemented to reduce cost and increase returns on investment. There are many applications of mobile communications in the construction industry. This report however focuses on the impact of mobile communication technologies in the construction industry. 2. Mobile Communication Mobile communication is a technology that eases communication by linking individuals or groups who are not physically present at the same location via wireless means. There are various software and hardware been used such as PDA, mobile phones, CAD application, data capture, project management etc. The mobile phone is still the king of mobile communication, and it has evolved to include smart features such as picture messaging, diary management, e-mail and web browsing. Likewise, many handheld computers (Personal Digital Assistants) are being produced with phone capabilities. For many individuals however, affordable smart phones have become feature rich enough to lure them away from their handheld computer, mainly because smart phones are more compact (Kinns and Babtie, 2005). As smart phones win over the personal computing device market, handheld computers are being developed more for the business computing market. Users in this market are more willing to sacrifice device size for increased computing power, and so devices such as the Tablet PC and Ultra Personal Computer (uPC) are being developed. Unlike most personal use, business use of mobile communication is concerned with the transfer of all forms of electronic data. Equally important is the way in which data and information is captured, and then managed to ensure it is readily available to other people/ devices when and where required. Improved cost effective mobile computing power will further reduce the office/ field divide. The uptake of integrated mobile communication computing devices and services has been significant. This growth in use will continue as smart phone devices gain more features, and handheld computers gain increased computing power. This is the belief of many leading players within the construction and telecom industries. Companies need to plan for this wireless future, and exploit the expected growth in their business strategies. 3. BENEFITS OF MOBILE TECHNOLOGY IMPLEMENTATION With the introduction of laptops into the work environment as a substitute for personal computers, the potential of the mobile worker became evident(Bowden et al, 2005). 3.1. Reduction in construction time and capital cost of construction According to (Bowden et al., 2005) mobile technologies can help minimise time and cut capital cost in the construction industry. Generic benefits of the provision of mobile technologies to point of activity workers include: doing away with retyping/redrafting, minimizing travel time in order to retrieve information and cut travel time to view point of actions or activities. Further explanation of cost savings and time are touched on in each of the developments assisted by mobile technologies below. 3.2. Reduction in operation and maintenance costs Mobile technology can help reduce maintenance cost and operation by improving upon the efficiency of workers and as well gather and provide information throughout the life cycle of a building or structure. The following construction industries (Network Rails London, North East and East Anglia Region) are using a PDA, GPS and GIS system to perform earthworks checks; look at the integrity of their embankments and cuttings. Network Rail currently obtains data from the inspections team on a week to week basis instead of waiting till the end of a 4-month inspection. This allows Network Rail to proactively organise their workload systematically. Getting Data using GIS can easily be grouped by condition enabling the identification of all ‘poor’ earthworks, including their location (automatically recorded by the GPS). A maintenance team can then be instructed to rectify groups of faults in a single pass. Within 1 year Network Rail achieved benefits for the solution(Bowden, 2004) . GPRS connected to PDA has been implemented by Rosser and Russell for obtaining new developments in terms of information from their maintenance engineers and delivering work orders. This has caused a significant change in administration required to accomplish their maintenance operation (Gooding, 2004). According to (Gooding and Bowden, 2004) GPS trackers are been utilised by Biwater for the implementation of fleet management system. This has given them the opportunity to able to analyse and track the actual position of their maintenance crews. Time has reduced drastically since the nearest crew to an incident could be spot on and instructed. The improved planning and implementation has considerably reduced maintenance cost, mileage, and also the fuel costs of the fleet. 3.3. Reduction in defects There have been several changes in national initiative that challenge the construction industry to target zero defects in handover. An example, even though Egan(Egan, 1998)came up with target for United Kingdom construction industry as a 20% annual reduction in the number of defects on handover, Egan proposed that there is considerably number of evidence which suggests that within 5 years the aim of zero defects could be achieved across the construction industry. Egan again touched on how some clients in the United States and the United Kingdom have already attained zero defects on handover. Taylor Woodrow and Mace piloted digital pen and paper solution and PDA solution respectively in their project. Both results gave them the knack to gather data electronically at source in a standardized format, and later were stored in a central database. The following trends could be searched on the database; reoccurring fault, re-offending subcontractors and setbacks in correcting errors. The various trends could be outline proactively. An additional benefit of having a central system for defect management is that the costs of rectifying snags can begin to be understood and hence a more proactive approach to managing quality throughout the construction process should be adopted to avoid these costs(Sommerville et al, 2004). According to (Newton, 1998) a research conducted in Australia depicted that 65% of contractor-rework is attributed to inadequate, unsuitable or contradictory information. Tablet PC system linked to a central database via a wireless LAN was developed by 3.4. Reduction in accidents For workers to report near misses, Mobile technologies could provide a mechanism that would increase the number of near misses reported in the construction industry. Those areas which need improvement in terms of electronic data could be analysed and highlighted. According to (Kiser and Fosbroke, 1994) the most common fatal injury is falling from height. OSHA Fall-Safe programme in the USA came up with a tablet PC audit tool(Becker et al, 2001). The work concluded that contractor control of fall hazards were improved when the conduct of an audit and the reports were generated. Next to fall from height are workers being struck by a moving vehicle which accounted for 10 fatalities in the UK in 2003/2004. In the Oil and Gas industry work is been carried out on the application of virtual exclusion zones for oil platform cranes. Cameras mounted on a crane boom can compute the position of personnel in an area hence could provide audible alert for the crane driver and personnel who are in d anger. Although, some vehicles give audible alerts this caution is not directed specifically to the person in danger and can be overlooked and identified as surrounding noise. This virtual exclusion or information zone could be utilized in the construction industry providing warning around machinery such as piling rigs or cranes and to provide information when entering areas with specific safety requirements. A step further along the line towards improving health and safety on-site is the possibility of automated construction, eliminating the need for personnel to be in dangerous areas. An example application is presented by 3.5. Reduction in waste Construction and demolition (CD) debris constitutes the waste generated during construction, renovation, and demolition projects. CD waste commonly includes building materials and products such as concrete, asphalt, wood, glass, brick, metal, gypsum wallboard, roofing, insulation, doors, windows and frames, flooring, and furniture. The U.S. Environmental Protection Agency (EPA) estimates that approximately 136 million tons of building-related CD debris were generated in 1996 — the majority from demolition (48%) and renovation (44%). New construction generated only 8% of building-related CD debris(Fishbein, 1998). The first step in understanding and reducing wastage on-site is to know what materials and equipment have been delivered. Several construction suppliers are currently considering or piloting Mobile IT solutions to facilitate their goods delivery process, providing electronic goods received notes (GRNs) and proof of delivery. A commonly held view is that the weakest point of the supply chain in the construction industry is the site; paper gets delivered and then lost. It may not get filed properly and the people on-site have no real awareness of how all the documents in the supply chain are linked. Lost GRNs are a huge problem for both the contractor and the supplier. One supplier stated that out of 4.5 million tickets issued each year contractors asked them to replace 300,000 GRNs. A contractor stated that on a  £45M project  £133,000 of invoices was being queried on any one day; Chen et al, 2002). The benefits achieved in relation to waste reduction include: faster location of materials/equipment; certainty that only the correct materials are used, reducing costs associated with damaged items; reduction in lost or stolen items; easier maintenance of a materials tracking database. CPIC (Centre for Performance Improvement in Construction) has developed a toolkit for measuring performance on-site; CALIBRE 2000. Wastage in time, materials and energy are collected by construction â€Å"observers† using a PDA device, which is then synchronised with a central database. The PDA enables information to be collected in real-time and it is then available for analysis by the site team the next day. (Chen et al, 2002).According to (Chen et al, 2002)suggest the use of bar-codes to facilitate a crew-based incentive reward programme (IRP). The workers are rewarded according to the amounts and values of materials they saved from their operations. This resulted in a 10% saving of material wastage. In both of these examples the drawback is that collection of the data still requires manual intervention. (Li et al, 2005). This reduces the possibility of damage to materials from ingress of weather and movement of people, plant and equipment within temporary storage facilities. As stated above, the majority of CD waste is generated during demolition and renovation. RFID tagging provides the capability of attaching information permanently to building components, which in turn offers the opportunity to provide future owners with information about the make-up of each component. Items can then be easily identified for recycling or reuse; even those items that cannot currently be recycled may be recyclable in the future. This would eliminate some of the prohibitive costs associated with identifying and sorting materials, making recycling a more viable option. 3.6. Increase in productivity Productivity is defined as the ratio of the amount of work produced to the resources used in its production. Productivity is increased if it takes fewer resources to do the same amount of work, or the same number of resources can achieve more. The drive for improved productivity in the construction industry has come with the recognition that productivity is inextricably linked to international competitiveness(Teicholz, 2004). Several of the national construction change initiatives promote the use of information technology as a tool to increase productivity, through automating tasks and enhancing collaboration. Task automation provides the following productivity enhancements: delivery of required information e.g. method statements; production of reports e.g. daily progress reports; alerts e.g. notification of safety hazard; data collation, reduces number of administration staff required. One area where significant losses in productivity occur is downtime on-site due to unforeseen problems. The opportunity for mobile technologies to provide immediate access, from the point of activity, to the personnel which may be able to resolve the problem has been an ongoing subject of research(Ballard and Howell, 1994). The Last Planner system has been set up to facilitate this method of planning and its toolset includes: collaborative programming; look-ahead meeting; weekly work plan meeting. The premise is that better planning improves productivity by reducing delays, getting the work done in the best constructability sequence, matching manpower to available work, and coordinating multiple interdependent activities 3.7. Increase in predictability The construction industry is noted for its delays in project delivery and over budget(Bourn, 2001). This is engineered by the following reasons methods of procurement, communication issues and culture. This section of the industry could be transformed by using mobile technology to provide precise real-time progress and cost information as the project progresses. In the above sections it can be observed that communication enhancement from one phase to the other became possible and in some situations have been achieved by most of the construction industries. The following Mobile applications are already in use progress reporting, timesheet, materials management and plant utilisation. This should now pave a way for most construction industries to compare and contrast planned programmes or budget and use this information in future projects. 4. CURRENT USE OF MOBILE TECHNOLOGY IN CONSTRUCTION. 4.1 Software and Hardware Innovations in Mobile Communications 4.1.1 Software Mobile CAD applications: Mobile devices equipped with CAD applications used by Construction personnel can mark-up, view, create and edit 2D/3D AutoCAD compatible designs at any place at anytime on construction site. CAD application may contact engineers, drafters and designers etc. who needs supports of designs and drawings in the construction site. Majority of mobile CAD applications are compatible with well-known mobile devices that run Windows mobile and Windows CE operating systems (COMIT, 2003). In order to communicate drawing files with desktop PCs, mobile CAD applications can connect and swap data with PCs by using ActiveSync for Windows OS or HotSync for Palm OS. The following are some of the CAD applications been used PocketCAD, PowerCAD and ZipCAD. Data capture applications: Bar code scanning, wireless sensors network and data capture are the three various types of data capture application used on sites. One of the mobile data capture system known as SHERPA enable users to collect real time piling work data by using mobile computers through a wireless local area network (WLAN) (Ward et al., 2003). Mobile construction chain supply(M-ConSCM) also named as bar- code enabled PDA, has been developed to create convenience and improve information flow in the construction supply chain environment through the integration of bar code scanner and PDA combined (Tserng and Dzeng, 2005). A new innovation has come into play i.e. Wireless sensor network that consists of various devices capable of a cooperative sensing task and is compared with the concept of ubiquitous computing. A mass concrete curing management system (CMS) has been developed to investigate the possibility of applying wireless sensor network to on-site data collection proces ses (Lee and Kang, 2006). This system can allow the collection, transfer, and delivery of the recorded curing temperature data automatically in real time in a wireless sensor network environment. Project management applications: Applications in the project administration area provide users with the capabilities of project and programme management such as construction activity review, activity monitoring and updating, progress management, risk management, Microsoft Project file view and update, and material and equipment management, through their on-hand mobile computers. Available commercial applications include Primavera Mobile Management, CYtools, and OnSite FDM. 4.1.2 Hardware Palmtops / PDA – Personal Digital Assistance PDA (Personal Digital Assistant), sometimes known as a Palmtop, is a mobile computer that allows you to store, access, and organize information. More sophisticated PDAs can run word processing, spreadsheet and industry specific applications and also provide e-mail and internet process. Some models now offer the functionality of a mobile phone and a PDA in a single unit. These units use either a Palm or Microsoft Windows Pocket PC operating system. In general, the more functions offered on the device, the shorter the battery life. Currently, there are no rugged devices available in this category, since they could be seen as more akin to a non-rugged mobile phone. Many of these devices use an electronic pen (called a stylus) rather than a keyboard for input. This is associated with special operating systems that support handwriting recognition so that users can write on the screen or on a tablet instead of typing on a keyboard. Hand-held Computers A hand-held computer offers the main functionality of a laptop in a smaller package. They feature a full QWERTY style keyboard and a landscape display. Typically, they run on a Windows-based operating system, like a desktop PC. Because they have a keyboard, this type of device is probably best suited where it can be used on a stable base, for example in a pick-up truck. Although the Windows CE OS is more demanding on battery life and memory, many of the devices will compensate for this by providing more memory space and larger capacity batteries as standard. 4.2 Health and Safety One of the most hazardous industries to work in the is the construction industry; it is noted that 3.6 per 100,000 workers in the United Kingdom encounter fatal injury, associating with 70 people, depicts an unfavourably average of 0.81 in the industry(Mckerman, 2001). 4.2.1 Case Study (Health and Safety-Skanka) The civil engineering division of Skanska known as Skanska Tekra Oya in Finland is currently using SMS/WAP and MMM based system which propels them to collect data electronically by using the supervisor’s phone. It then passes problem notifications on to the subcontractors who then respond with via SMS when problem is resolved. Issues which took days to complete could be dealt with in few hours and since then accidents have decreased drastically with the use of the system. The gathered data are stored on a central database facilitating the classification of trends to be automated. Continual non application can be emphasized and a more positive approach of doing away with their reoccurrence can be established, such as training preventative measures put in place e.g. warning signs placed at dangerous areas and barriers around overhead electricity cables. In addition, subcontractors who are time and again causing safety issues and are reluctant in putting an end to them can be dea lt with properly. Finnish Institute of Occupational Health came up with a mobile system that replicates MVR safety method for civil engineers and is used in most construction industry in Finland. Coming up with a single tool and comparing across construction sites will smooth the progress of improvement hence reduce. The â€Å"Accident Triangle†(Heinrich et al, 1980)illustrates that fatal injuries are just the tip of the iceberg (Fig 1). Theory states that â€Å"if you reduce the number of near misses, this in turn will reduce the number of fatalities†. The records show near misses is performing badly. The reason could be the number of times they occur and the amount of paperwork that has to be completed and recorded. 5. Emerging Trends and innovation The core reason of mobile in the built environment is its mobility. Mobile phones (speech and text messages), cameras in cell phones, GPRS are the commonly used within the construction industry. In terms of logistics, quality control and control of equipment, RFID reader is applied. Additional use of RFID is the access right control, emerging in janitorial services; access rights controls and mobile access managements with very short-range wireless point-to-point interconnection technology. This technology is likely to become common in mobile phones, and in fact such kinds of phones are been in use in the industry offering intuitive and user-friendly touched based communication. The interactions that exit between the two devices are reasonable in terms of price and also low immunity to eavesdropping. According to (Tolman et al., 2006b) the new messaging and communication systems been used gives current method and possibilities to communicate and manage with embedded sensors networks in a buildings with general terminal equipments through local or global information networks. During the past decade the port of services has been rated as one of the most powerful trends in information technology. Services offered by web can be thought as environment where services are delivered in a formal way and this formal are interpreted by client side browsers. With the nature of all browsers been able to use all services it is of no importance to install locally specific software to use a specific service. Web paradigm is gradually taking place in mobile devices but there have been several impediments that slow down the trend. In technology mobile browsers are not in the same level as compared with that of desktop browsers and top of that since the web has been design with more resources, the of resources in mobile devices are limited hence makes it a problem. That indicates that mobile devices that use web pages should be designed for them. Web paradigm is a natural fit to mobile devices as distributing software to mobile devices is cumbersome and leads to difficult maintenance problems. 6. Challenges of mobile Technology in the construction industry Though the above benefits of mobile technology shows a headway for most construction industry in using mobile technology there are several challenges faced by the industry that needs to be addressed. 6.1. Hardware for Mobile Technology Handheld computers, lightweight and compact laptops have come into extensive use over the past few years; other devices like wearable computers are also making great impact as well. Where improvement has been sluggish the integration ofmobilehardware seams to bridge a user’s desktop, activities whilemobile, and the Internet. There are four basic issues that complicate implementation and design (Satyanarayanan, 1996). In relation to static element mobile elements are resource-poor in terms of weight, size and power. Due to the transmission of data through open space mobile communication are vulnerable to security violation. In addition, wireless connectivity is very unpredictable in reliability and performance. Finally,mobile elements must rely on limited energy sources. It is important to note that these issues are not artifacts of current technology but are intrinsic to mobility. Collectively, they complicate the design ofmobile technologysystems. As a result, even though imp ortant research progress has been conducted, the implementation and design of mobile computing systems still remain a problem. 6.2. Location-Sensing One of the most widely used location-sensing today is the Global Positioning System (GPS). Using time-of-flight information derived from radio signals broadcast by a group of satellites in earth orbit. GPS makes it possible for a relatively cheap receiver (on the order of $100 today) to deduct latitude, longitude, and altitude to an accuracy of a few meters (Hightower and Borriello, 2001). The U.S. Department of Defence maintained the expensive satellite infrastructure, but with the investment been made many civilian benefits from it. Without a doubt, the past few years there has been a real sudden increase of GPS-based services for the consumer market. Although GPS is certainly important its location mechanism is not universally applicable. It cannot function indoors, particularly in places where there are steel-framed buildings and for many applications its resolution of a few meters is not adequate. GPS requires coordinates relative to specific objects whereas some applications (e .g., guidance systems for robotic equipment) use an absolute coordinate system. Further, the specific mechanism required for GPS impose cost, energy use requirements and weight that are difficult formobilehardware. Consequently, the following mechanism for tracking location (e.g., active badges, e911, and Cricket) considerably varies in their capabilities and infrastructure requirement. System costs vary as well, reflecting different trade-offs among device portability, device expense, and infrastructure needs. For applications involvingmobileobjects, orientation sensing (determining the direction an object faces) is also important, and this continues to be an active area of research. 6.3. Wireless Communications There has been a tremendous growth in the deployment of wireless communication technologies in the past decade. Although there has been considerable increase in data communication technologies, the most recognised one is voice communication (cell phones) which has been the primary driver. With many vendors offering hardware that supports the IEEE 802.11, wireless LAN technologies is now widely embraced in the construction industry (Williams, 2000). Although Bluetooth offers no bandwidth advantage as compared with 802.11, its standard has been backed by a number of hardware and software vendors and it is cheap to produce and frugal in power demand (Haartsen, 2000). The lowest-cost wireless technology in the market is the Infrared wireless communication this is due to the fact that it is primarily used in TV remote controls. IrDA supports handheld computers, laptops and other peripherals devices like printer been used today. Infrared wireless communication must be by line of sight, wit h range limited to a few feet. It is also affected adversely by high levels of ambient light, such as prevail outdoors during daylight hours. Greenhalgh claim that WI-FI network do perform well in open space when on construction site, due to the fact that when projects starts, getting wireless signals is easy but at a stage when they are boxed there seems to be interferences (COMIT, 2003). It is difficult to foresee what new wireless technologies will emerge in the future. Power consumption clearly will be an important factor for untethered devices, such asmobile computers, PDAs, and Smart Dust. In addition, it is clear that advances will be constrained by trade-offs among four factors: frequency, bandwidth, range, and density of wired infrastructure. Devices operating at a higher frequency could have greater bandwidth but would require major advances in high-frequency very-large-scale integration (VLSI) design. Advances also will be constrained by policy decisions on frequency usage (spectrum allocation) by the Federal Communications Commission. Range is fundamentally related to transmission power, but generating high pow er at high frequency always has been a difficult technical challenge. This is not a short-term annoyance but a core, long-term requirement of successful system architectures 6.4. Privacy and Trust Mobile computing and distributed system have been experiencing problems when it comes to privacy and this is greatly complicated by pervasive computing. Smart spaces, surrogates imonitor and location tracking are mechanisms used on a continuous basis. As a users keep on depending on this pervasive computing systems, they get more knowledge about the behaviour pattern, habits and the movement. Utilising this information becomes vital to successful proactivity and self-tuning. In addition, unless information used is strictly controlled, they will be unsafe from targeted spam to blackmail. Indeed, the constant loss of confidentiality will discourage users from using computing system. Greater dependence on mobile communications on site means that users should have confidence in that infrastructure to a considerable extent. On the other hand, the infrastructure has to be confident enough to authorise and identify users credential before responding to request. It is very challenging to cre ate this mutual trust in a manner that is minimally intrusive and thus preserves invisibility. Privacy and trust are likely to be enduring problems in Mobile communication technology in the construction industry. 7. Conclusion The current usage of mobile communication in the construction industry brings many change improvements wished for within the industry by enabling point of activity workers to participate in the electronic flow of information using mobile technologies. Although this is not the only solution to the problems to be addressed, it does offer the potential of significant impact in reducing construction time and cost, defects, accidents, waste

Penicillin Essay -- essays research papers fc

Penicillin was accidentally discovered at St. Mary's Hospital, London in 1929 by Dr. Alexander Fleming. As test continued, Fleming began to realize that he was on the verge of a great discovery. However, he still did not know the identity of the fungus, and had little knowledge of fungi. His crude extracts could be diluted 1,000 times and still be effective in killing bacteria. After years of working on penicillin and going nowhere, many of his co-workers grew tired of hearing about it. The first real test for penicillin came when a 48-year-old police officer nicked himself shaving. After a time, Alexander's face became infected and he developed a temperature. When he was rushed to the hospital, the doctors believed that he had only hours to live. Then Dr Fleming and his crew started to treat this patient. This was the first person that penicillin was used on. After five days, he was getting better. Unfortunately, because it was in such short supply, it had to be extracted from his urine, and the penicillin had been used up. The police officer died five days l ater. Their next attempt was successful. It involved a punctured eye. The stone was still in the eye, and normally the eye would have been amputated, but penicillin allowed the man to make a full recovery. By this time, it was now 1941, it was now acknowledged that penicillin was indeed a worthwhile drug and could save thousands of lives.   Ã‚  Ã‚  Ã‚  Ã‚  During World War I, death rate from pneumonia in th...

Accounting Theory Cga

Slide 1 ACCOUNTING THEORY & CONTEMORARY ISSUES (AT1) MODULE ONE Slide 2 ACCOUNTING UNDER IDEAL CONDITIONS Part 1 – Foundation items re the course Part 2 – Present value accounting under certainty Part 3 – Present value accounting under uncertainty Part 4 – Reserve recognition accounting Part 5 – Examination question examples Part 6 – Historical cost accounting Lecture by: Dr. A. L. Dartnell, FCGA Year 2009 – 2010 2 Slide 3 PART 1 Foundation Items re the Course Different Course Financial reporting is extremely important in our everyday life. You have heard of the many irregularities that have occurred in recent years which primarily involved financial reporting. Financial reporting is controlled by standards set so that the best disclosure will take place. To fully understand the importance and necessity for these standards, you need to appreciate that they are designed so as to trade off the conflicting interests of constituencies affected by them — usually investors and managers. Note carefully that Standard Setting bodies make these trade-offs through due process. That is, standards are set in consultation with major constituencies. Devices to achieve due process include representation of major constituencies on the standard setting boards, supermajority voting, exposure drafts, and public meetings. In other words, the issues and topics are well-vetted prior to their implementation. Thus the course deals with standard setting of accounting policies by which you are guided in your work as an accountant. Slide 4 Second, students often ask why they need an accounting theory course. We need to understand the thinking and action underlying the requirements for the standards we follow. All activities in life have a theoretical background. For example, how a chef prepares a meal in a restaurant. If the theory behind the meal is good, customers return. If not, they dine elsewhere. How you cut the lawn has a theory. You follow a theoretical plan for the actions you choose. So with accounting we have theories and to understand them is extremely important for the accountant. Why we do things the way we do. We do not want to follows principles which we do not understand. and Slide 5 Third, students ask why the course writer refers so much to shares, the stock market, financing and related matters. If you consider any undertaking it has finance involved. So the writer refers a great deal to shares and the market. 3 Financial institutions are throughout the world. For example, besides banks in all countries, there are many large stock exchanges, even in Socialist countries like China. Further, smaller businesses and organizations, such as, not-for- profit entities, obtain financing from banks and credit unions, as well as other sources of money, such as, donations from the public. Thus, stocks, bonds, financial institution loans, and other financing, are the life blood of our economic activity. Without these sources of funds our economy as we know it would not survive. Thus, it is important to you as an accountant to be fully aware of the financial activity we encounter day by day and we must provide good financial information for those who have invested or loaned their money for organizations to exist for our economic benefit. Slide 6 Objective To sum up: †¢ The Course revolves around setting of standards for release of information for investors and creditors. †¢ Standards can be set by various regulatory bodies – CICA, Securities Commissions, Stock Exchanges, and other groups. †¢ Our objective is to provide the best information possible for the readers of the reports. Slide 7 Standards in the Future As you know, financial reporting for publicly-traded firms in Canada will be in accordance with International Accounting Board (IASB) standards from 2011 on. This course includes coverage of IASB standards, in the textbook, the modules, the assignments, and review material. We do have a number which are in accord with IASB standards but the task is expected to be completed by 2011. While the current edition of the textbook has few references to Canadian standards, coverage of current Canadian standards is included in the modules, as well as, the review and assignment material. Coverage of certain United States standards is also included where these differ significantly from, or are in advance of, IASB standards. All of this material is examinable unless specifically marked to the contrary. 4 In this course, material relating to specific accounting standards is largely (but not completely) at a conceptual level. Fortunately, at this level, most standards in Canada, the United States, and internationally are broadly similar, thereby reducing the amount of detail you will have to learn. However, there are some important differences, particularly with respect to current value accounting, and these will be emphasized where appropriate. It would seem that from 2011, current Canadian standards will no longer be relevant or examinable. Future versions of this course will include only IASB and relevant United States standards. Slide 8 History and Research There is an interesting rundown on the history of accounting and research in the first 15 pages of the text. Go over them to get some background for the course. Topic 1. 2 of the module notes relates to recent developments in financial accounting. It gives an excellent account leading up to the current recession and also the effect on fair value accounting which we will be dealing with in the course. Read it carefully. It is level 2 and you should know it in a general manner. Slide 9 Information Asymmetry – an important topic The aim of the course is to deal with information economics. The theme relates to the fact that some parties have an information advantage over others in business transactions. If one party is better informed than the other(s), then it is referred to as information asymmetry. We will deal with these topics later but for the moment, information asymmetry comes in two forms: Adverse selection and Moral hazard. Slide 10 †¢ Adverse selection relates to the possession of greater information by one party over the other. †¢ Adverse selection in the securities market stems from insider trading and selective release of inside information, which is releasing only the information the manager decides to release. Bad news may be withheld from public consumption. †¢ Full disclosure is the antidote. 5 Slide 11 Moral hazard relates to shirking on the part of managers, or any situation where a person cannot be observed by the employing party. For example, a trustee for a bond issue could shirk if not carrying out his/her duties as they should be. †¢ For the manager (employee) participation in the fruits of the operations, for example, profit sharing is an antidote. Slide 12 Present Value Accounting †¢ An English economics professor named Hicks sai d the way to determine the real change in economics of the firm is to take the difference between net assets at the beginning of the period and at the end of the period and that would be your profit. That would be market value. †¢ If the net assets have increased, your wealth has increased and you have made a profit. If they have decreased, you have suffered a loss and your wealth had decreased. Your welloffness has changed Slide 13 †¢ How do we measure this well-offness of the firm? The present value system is probably the best way of measuring the change in the value of the assets and comes closer to the valuation of the market value than do other systems. In real terms – what is it worth today and what will it be worth in the future. We want to start with present value accounting. It is theoretical, no doubt not fully attainable, but a target at which we can shoot. While a full presentation of present value accounting would be difficult for a organization it can be considered from an ideal situation point of view. Slide 14 Current Value Accounting However, before moving ahead, on page 4 of the text the term current value accounting is used. This is a general term used to refer to departures from our currently used historical cost accounting. It is designed to increase relevance of financial information. Present value accounting (also called value-in-use) is a departure from historical cost. The other departure is fair value accounting (also called exit value or opportunity cost). Fair value is the amount the firm could sell an asset for or the cost to dispose of a liability, that is, market value. An implication of valuing assets and liabilities at opportunity cost is that management’s success is 6 then evaluated by its ability to generate more profits from retaining assets and liabilities and using them in the business rather than by selling them. Slide 15 It should be noted that under ideal conditions, present value and market value are equal. This module concentrates on present value accounting, since this is the fundamental basis on which market values are determined. However, when ideal conditions do not hold, the present value of an asset or liability may differ from its market value. It should also be noted that for many assets market value is not readily available. Think of steamships, what is their value? The fast ferries were a perfect example when the BC Government endeavoured to sell these vessels a few years ago. There was no market level for their sale price. Also, intangibles, and power plants, are other examples. Markets for these types of items are â€Å"incomplete†. Slide 16 Present Value Calculations and Limitations First, you have done present value calculations but to refresh your memory there are two examples in the appendix. However, if you have difficulty make sure you can under present value, future value, and annuities. The financial institutions and leasing firm use present value calculations extensively. Present Value Limitations It is difficult to precisely relate the present value system to the market value. Why? There must be ideal conditions: a definite and perfect knowledge held by all. Ideal conditions would include: †¢ a definite cash flow situation a definite discount rate – what we would term a riskless rate. †¢ a definite time period. In making our statements we want to give the best picture possible. Question is – is it a reality for us to give present value figures for all our assets and liabilities? Some – not all. To repeat – in many ways ideal conditions are a theoretical target at w hich to aim. Present value accounting is an example of the more general concept of fair value accounting, where the fair value of an asset or liability is its exit price, that is, the amount the firm could sell it for (asset) or the cost to dispose of it (liability). As noted above. ) Under ideal conditions, present value and market value are the same. However, when ideal conditions do not 7 hold, the present value of an asset or liability to a prospective purchaser may substitute for market value when, as is often the case, a market value does not exist. Slide 17 Relevance and Reliability We want to make our statements as relevant as possible and as reliable as possible. Relevance To be relevant statements must give users information on future cash flows, which show what the assets are worth in the future, that is, Predictive value. Reliability To be reliable financial statements and information should be precise and as free from bias as possible. If the present value is the same as the market value then they are relevant. If the data are correct and unbiased then they are reliable. This is our aim. Slide 18 Generally relevance and reliability work against each other. With present value you get more relevance but you lose some reliability because of unknowns such as future cash flows, the discount rate, etc. With historical cost you get reliability as transactions past are the basis of the statements, but you lose some relevance as the historical cost statements become dated. Relevant financial information gives investors information about the firm's future economic prospects. Reliable financial information faithfully represents without error and bias what it is intended to represent. Be sure you understand why, except under ideal conditions, relevance and reliability must be traded off. This is the main purpose of this topic. While the text concentrates on the relevance and reliability trade-off of historical cost accounting, there are different tradeoffs for other bases of accounting. For example, cash basis accounting represents the trading off of a lot of relevance in order to attain high reliability. Conversely, current value accounting represents the trading off of a lot of reliability in order to attain high relevance. Historical cost accounting can then be thought of as a compromise between these two extremes. Increasing both relevance and reliability is extremely difficult to do. (Can you think of a financial accounting product that does this? ) The text suggests that the reporting of supplementary information (such as RRA) enables increased relevance while retaining the reliability of historical cost in the financial statements proper. 8 Slide 19 Dividend Irrelevancy †¢ Theoretical concept – if conditions are certain, i. . , if cash flows, discount rates and time periods are certain then the present value will equate to market value. Income is not a determining factor. †¢ Dividend irrelevancy is the situation where it is presumed whether or not dividends are paid to the shareholders or profit retained where it earns the same return. There is one basic rate i n the economy. It is irrelevant whether dividends are paid or retained in the company for reinvestment. Slide 20 Arbitrage †¢ What is it? If the market gets out of equilibrium under ideal conditions â€Å"Arbitrage† will bring it back into equilibrium. Briefly arbitrage is buying in one market and selling in another for a higher price, thus, making a profit. Slide 21 Example: If I buy a share for $60. 00 in the Toronto market and can sell it for $61. 00 in the New York market, above commissions and foreign exchange, I can make a dollar per share. This possibility exists because there is imperfect information. If there is no arbitrage possibility then the market is working well. If, however, there is a rectifiable difference between the two markets and information asymmetry exists, then there is a problem. Arbitrage is a means to bring the two into equilibrium. Slide 22 †¢ How does arbitrage work in our ideal situation to bring the markets back into equilibrium? †¢ What happens from an economic theory point of view? If I buy in the Toronto market share price will rise and sell in the New York market share price will fall. The supply/demand relationship will erase differences which exist. This is an important economic principle. Demand will increase in the Toronto market increasing price and supply will increase in the New York market, decreasing price, bringing them into equilibrium. 9 Slide 23 Keep your Handout available PART 2 Present Value Under Certainty Major topics Comment on Present Value Example Description and Required What is the Answer Steps – year zero Balance sheet Steps – end of first year Slide 24 Present Value Under Certainty (con’t) Income statement – first year Balance sheet – first year Steps – end of second year Income statement – second year Balance sheet second year Summary of present value under certainty Slide 25 Comment on Present Value Present value accounting – you will find this different than historical cost accounting. For example, the point in the historical cost operating cycle at which we recognize revenue is the point of sale. Note carefully – in present value accounting under ideal conditions, the present value of all future revenues (net of costs) is recognized when productive capacity is acquired (for example, plant and equipment is valued at the present value of its future net cash receipts at date of acquisition – that is, when you commence to operate). Then, income for the year is simply the accretion of discount (profit) on the opening present value. That is, under ideal conditions, it is not necessary to wait until the realization of revenue is probable, since, by definition, all future revenues are reliably known. While the text addresses this in terms of asset valuation it is also revenue recognition. The opposite side of the same coin. Another interesting point is that even if the firm pays out all of its profits as dividends, there will be cash-on-hand equal to accumulated amortization. This illustrates the point you 10 learned in accounting courses that â€Å"amortization† retains â€Å"assets† in the business. The amount is not paid out. Slide 26 Example Description of Question Let’s look at a theoretical, ideal situation. Jane bought a fixed asset and operates under ideal conditions with certainty. She anticipates it will bring cash flows of $300 at the end of the first year and $400 at the end of the second year, with a salvage value of $100 at the end of the second year. The interest rate is 9%. Jane takes out a bank loan of $150 at 8%, and she issues a bond to I. Save for $120, with a coupon rate of 10%. Make provision for $100 in the cash account for working capital. The current yield in the market for a similar security is 9%. Interest is payable at the each year-end, at the rate of 9% At the end of the second year the loan will be paid and the bond will mature. Dividends of $20 will be paid at each year-end. Slide 27 After receiving the loan and the bond money, the balance of the assets are financed by common shares. There will be $100 additional subscription for common shares at the end of the second year. Required Prepare a balance sheet at year zero, and income and balance sheets for years one and two. It is generally wise to prepare a balance sheet at year zero. It prevents mistakes later. Slide 28 Answer: First of first year – steps 11 1. Obtain the present value of the asset by discounting cash flows and salvage. 2. Financing – present value of the principal and interest of the loan and the bond. 3. Make provision for the $100 in the cash account. . Deduct the p. v. of the loan and the bond from the capital asset to arrive at the shareholders' equity. Jane's Company Balance Sheet As at January 1st, x1 Assets: Cash $100. 00 Capital Asset – 300/1. 09 + 400/1. 188 + 100/1. 188 696. 11 Total assets $796. 11 Note: the interest rate is 9%. Liabilities and Shareholders' Equity Loan: 12/1. 09 + (12. 00 + 150. 00)/1. 188 $147. 37 Bond: 12/1. 09 + (12 +120)/1. 188 122. 12 Shareholders' Equity $796. 11 – (147. 37 + 122. 12)* 526. 62 Total liabilities and shareholders' equity $796. 11 *Proceeds from the loan and the bond are deducted from the total assets to obtain shareholders’ equity. Slide 29 First Year Results – End of First year: 5. Set up income statement. You need sales, interest on the cash balance, amortization for the year, (present value of second year deducted from original present value) and interest expense, which is, the discount rate times the original present value of the loan and the bond. 6. Set up your balance sheet for the first year. 7. Next is the cash and that which is actually paid out – interest and dividends 8. Determine the remaining balance of your capital asset – from the income statement. 9. Obtain your liabilities for the loan and the bond. This is the remaining amount for the second year, discounted. 0. Obtain retained earnings – net income for the year less dividends. 12 Jane's Company Income Statement For the Year Ending December 31, x1 Sales $300. 00 Interest $100. 00 x 0. 09 9. 00 309. 00 Less: Amortization $696. 11 – 458. 71 = $237. 40 400/1. 09 + 100/1. 09 = $458. 71 Interest expense:* Loan $147. 37 x 0. 09 = 13. 25 Bond 122. 12 x 0. 09 = 10. 98 261. 63 Net income $ 47. 37 *Note: interest is at the going rate in the economy. Jane's Company Balance Sheet As of December 31, x1 Assets Cash $100. 00 + 300. 00 + 9. 00 – ($12. 00 interest on bond, $365. 00 $12. 00 interest on the loan and $20 dividend) Capital asset $696. 1 Accumulated amortization 237. 40 458. 71 $823. 71 Liabilities and Shareholders' Equity Loan outstanding p. v. at end of year one – (12 + 150)/1. 09 $148. 62 Bonds outstanding p. v. at end of year one – (12 + 120)/1. 09 121. 10 Shareholders' equity – as shown above 526. 62 Retained earnings: Net income $47. 37 Less Dividends 20. 00 27. 37 Total liabilities and shareholders' equity $823. 71 13 Slide 30 Second Year Results – End of Year Two: 11. Set up your second year's income statement 12. In addition to your cash flow you should show your interest received on the bank balance of $32. 85 (made up of $365. 00 x 0. 09) 13. Less amortization – balance left in the capital account is salvage value of $100. 00 14. Obtain interest expense – the discount rate of 0. 09 times the carrying value of the loan and the bond in year 2 15. Set up the balance sheet 16. Cash account will be the carryover of $365. 00 from the previous year plus the sales of $400 and the interest on the cash account of $32. 85 plus the additional $100. 00 put into shareholders' equity. Deductions will be the actual paid out interest on the loan and the payoff of the loan ($162) and payment of the interest and the maturity of the bond ($132. 00) and the deduction of the dividend ($20. 0). Total in the cash account should be $583. 85 17. The capital asset will be $100. 00. You deduct the salvage from the carrying value of the capital asset in the second year ($458. 71 – 358. 71 = $100. 00) 18. Set up the liabilities and the shareholders' equity – show zero for the loan and the bond as they have been paid off Sli de 31 19. Shareholders' equity will be the original balance plus $100. 00, plus retained earnings from the previous year plus the addition of net income for year two and the deduction of the dividends in year two. Net Income will be $49. 86 and Total assets $683. 85. Jane's Company Income Statement For the Year Ending December 31, x2 Sales $400. 00 Interest on cash in bank ($365. 00 x 0. 09) 32. 85 $432. 85 Less: Amortization $458. 71 – $100. 00 = $358. 71 Interest expense: Loan $148. 62 X 0. 09 = 13. 38 Bond 121. 10 x 0. 09 = 10. 90 382. 99 Net Income $ 49. 86 14 Jane's Company Balance Sheet As at December 31, x2 Assets Cash $583. 85 Change: ($400 + 365 + 32. 85 + 100) – (12 + 150 + 12 + 120 + 20) Capital Asset: $458. 71 – 358. 71 100. 00 Total assets $683. 85 Liabilities and Shareholders' Equity Loan outstanding $ 0 Bonds outstanding 0 Shareholders' equity 526. 62 Additional subscription 100. 00 Retained earnings: Previous balance $ 27. 37 Net income 49. 86 $77. 23 Less: Dividends 20. 00 57. 23 Total liabilities and shareholders' equity $683. 85 That is a rundown on ideal conditions under certainty. Under ideal conditions everything, i. e. , cash flows, discounts, and other estimates, would happen as given. 15 Slide 32 PART 3 Follow the Handout – Page 15 Present Value Under Uncertainty Major Topics †¢ Present Value under Uncertainty – what is it? †¢ Example †¢ Description and Required †¢ Answer †¢ Steps – year zero †¢ Balance sheet Slide 33 Topics (con’t) †¢ Income statement – year 1 †¢ Balance sheet – end of year 1 Present value income statement – year 1 †¢ Income statement – year 2 †¢ Balance sheet – year 2 †¢ Summary of present value re Accounting Material †¢ A typical short answer exam question Slide 34 Present Value Under Uncertainty In this part we want to inject some uncertainty into the cash flows We are still under ideal circumstances and the theoretical aspect of things, thus, everything remains the same apart from revenues. Jane has a new company, that started operations on January 1, x1 Assume cash flows could be $250 for each of two years if the economy is good and $120 a year for each of two years if the economy is poor. There is a 50% chance there will be a good year each year and a 50% chance there will be a poor year. These are called states of nature. 16 To set the company up Jane makes a loan of $200 and finances the balance by common shares. The loan will be paid off at the end of two years. Loan rate 9%. We will make certain assumptions: – the discount rate is 8% – the states of nature and probabilities are publicly known and observable. – cash flows are given but uncertain as to which result will occur. Slide 35 Balance Sheet at Time 0: 1. Determine the capital asset – $329. 91 2. Determine the p. v. of the loan and shareholders' equity. P. V. = 0. 5(250)+ 0. 5 (120)+ 0. 5(250) + 0. 5(120) 1. 08 1. 08 1. 1664 1. 1664 = 0. 5(231. 48) + 0. 5(111. 11) + 0. 5(214. 33) + 0. 5(102. 88) = 115. 74 + 55. 56 + 107. 17 + 51. 44 = $329. 91 Jane's Company Balance Sheet As at January 1st, x1 Capital Asset $329. 91 Loan $203. 55 ______ Shareholders' equity 126. 36 $329. 91 $329. 91 Loan $18. 00/1. 08 + (18 + 200)/1. 1664 = $203. 55; common shares $329. 91 – 203. 55 = $126. 36 Time 1 Slide 36 First Year Results Assume there is a GOOD economy for time 1. 3. For the income statement determine sales $250. 00 4. Determine amortization – need the p. v. s of January 1st, x2 5. Charge interest on loan outstanding 6. Determine net income – $75. 10 17 Jane's Company Income Statement For the year ending December 31, x1 Sales $250. 00 Amortization $329. 91 – 171. 30* = $158. 61 Interest 203. 55 x 0. 08 = 16. 29 174. 90 Net Income $ 75. 10 * This figure can be taken from the first year above – $115. 74 + 55. 5 6 = $171. 30 Slide 37 7. For the balance sheet determine cash – sales revenue less interest paid 8. Deduct amortization to obtain p. v. of capital 9. Calculate p. v. of the loan 10. Include in statement the common shares and retained earnings. Jane's Company Balance Sheet As at December 31, x1 Assets Liabilities and Shareholders' Equity Cash $250. 00 – 18. 00 $232. 00 Loan $201. 84* Capital asset $329. 91 Amortization 158. 61 171. 30 Shareholders' equity 126. 36 ______ Retained earnings 75. 10 $403. 30 $403. 30 * Loan – $218. 00/1. 08 = $201. 84 Slide 38 Lets look at the present value statement: 11. Need accretion of discount – multiply the common shares by discount rate 12. Add revision of cash flows by deducting expected cash flows from actual cash flows. Present value Income Statement Jane’s Company Income Statement for the year ending December 31, x1 8 Accretion of discount $126. 36 x 0. 08 (rounded) $10. 10 Actual cash flows in year 1 $250. 00 Expected cash flows (0. 5 x 250 + 0. 5 x 120) 185. 00 65. 00 Net Income $75. 10 Abnormal earnings One thing you should be aware of is the abnormal earnings. The abnormal earnings in this instance are $65. 00. They indicate the difference between the expected value o f earnings and their actual realization. This is an important concept that will come up again when you study investor reaction to firms’ reported earnings in later Modules. For example, investors seem to respond strongly to unexpected earnings. You have probably seen the major effect on share price when a firm reports earnings higher or lower than the market had expected. The Present Value Income Statement above and also the illustration in Example 2. 2 (see pages 30 to 33) show how reported earnings can consist of an expected and an unexpected component. Slide 39 Now consider Year Two – Assume it is a poor year, that is, $120. 00 revenue Steps 1. Sales 2. Interest received on cash account 3. Interest paid on loan 4. Amortization – no salvage 5. Income for the year will be a loss of $(48. 90) Jane's Company Income Statement For the year ending December 31, x2 Sales $120. 00 Interest 18. 56 $138. 56 Amortization $171. 30* – 0 = $171. 30 Interest 201. 84 x 0. 08 = 16. 16 ** 187. 46 Net Income $(48. 90) * This figures can be taken from the first year above: $115. 74 + 55. 56 = $171. 30 ** rounded up 19 Slide 40 For the Balance Sheet: Steps 1. Determine Cash 2. Calculate Capital Assets to zero 3. Extinguish Loan 4. Show Shareholders’ Equity 5. Determine Retained Earnings Jane's Company Balance Sheet As at December 31, x2 Assets Liabilities and Shareholders' Equity Cash $152. 56* Loan $ 0** Capital asset $171. 30 Amortization 171. 0 0 Shareholders' equity 126. 36 ______ Retained earnings 26. 20*** $152. 56 $152. 56 * Cash $232 + 120 + 18. 56 – (18 + 200) = $152. 56 **Loan extinguished *** Retained Earnings $75. 10 + (-$48. 90) = $26. 20 Slide 41 Summary: Application of Present Value to Accounting Material These ideal, present value statements are relevant and reliable – dividends are irrelevant and expected cash flows have been assumed to include all possible events. – They are relevant because the values in the statements are based on all future cash flows. – They are reliable because the values reflect for sure future cash flows. Arbitrage assures the market value as time passes. How easy is it to apply present value material to accounting material? 20 In some cases it is easy and in some cases more difficult, for example, it is easy, with a bond, a mortgage, a loan, etc. P. V. can hold in the case of a bond which is purchased at face value and held to maturity. If it is purchased at other than its face value a premium or discount occurs. This will be covered in Module 5. P. V. can be partially successful in non-contractual cases such as the lower-of-cost or market or (fair value). On the lower side it is marked to market but not on the upside. In some cases it has been difficult. However, more is being added as time passes. A typical short examination question: Question: What is the change in the present value of an asset over time? Answer: It is the amortization of the asset. 21 Slide 42 PART 4 Follow the Handout – Page 21 Reserve Recognition Accounting What is Reserve Recognition Accounting? In this part we want to deal with an attempt by the Financial Accounting Standards Board in the United States to implement present value accounting material in the oil and gas company reports, for American companies, domestically, and their international subsidiaries. This was released under SFAS 69. It should be noted that this was supplemental material to the financial statements. Some Canadian companies have adhered to RRA because their parent companies in the U. S. have had to follow it in that country. Canada does not require it. However, Canada has implemented a standard of its own referred to below. Among the items was the requirement of an estimate of the present value of future receipts from a company's proved oil and gas reserves. What is its purpose? To give some idea of the discounted cash flows which an investor might expect the company to experience. As you know historical cost becomes obsolete very quickly and irrelevant in a short time. This attempt was to try to add to it so people would get some idea of the future expectations from the reserves and future cash flows. Oil and gas companies do not operate under conditions of certainty nor do any companies. This new consideration relates to present value under uncertainty. As noted earlier, recognizing revenue by the process of proved reserves indicates an early recognition of revenue in the operating cycle. Other companies, for example, recognize revenue at point of sale, or when they ship product to a distributor. Early recognition adds to the relevance aspect of revenue recognition but reduces the reliability because there are estimates being made which may not prove to be the outcome. It is suggested that you carefully read the comments on revenue recognition in the module notes under the heading of Reserve Recognition Accounting. Slide 43 Standardized Measure Theoretical and Practical RRA 22 Lets use the information of from a former year of Renaissance Energy: You have similar information in your text for Suncor Energy Inc. , page 36. What is the standardized measure? Standardized Measure is the expected discounted net cash flows from proved reserves in the ground to which the oil company has claim. Standardized Measure Millions Future cash inflows $8,822 Future production and development costs (3,603) Future Income Taxes (1,361) Future Net Cash Flows $3,858 10% annual discount for estimated timing of cash flows (1,148) Standardized measure of discounted net cash flows $2,710 Let’s assume $20 a barrel at the time – that would be approximately 441,000,000 bbls. Points: 1. Total proved reserves are the first line. 2. Development and production costs will be deducted 3. Deduct income taxes 4. Discount at 10% 5. Discounted net cash flows. Changes in the Measure during year Millions Standardized measure – beginning of year $3,704 Less: Sales less royalties and production costs (598) $3,106 Add: Accretion of discount (expected profit) 529 Abnormal earnings: Net present value of additional reserves added – Extensions, discoveries and improved recovery 577 Purchase of reserves in place 100 677 Development costs incurred 288 Unexpected items – changes in value of previous year Net change in prices, net of royalties and production costs (2,647) Change in future development costs (4) Revision of quantity estimates 249 23 Net change in income tax 1,157 Change in timing and other items (645) (1,890) Standard measure – future value of discounted net cash flows $2,710 Note: this could be considered similar to your book value. Another Note: Under the global aspect you deduct your costs from the cash inflows, leaving standardized measure of $2,710 Million. However, when you come to the reconciliation statement above you add in purchase costs, development costs and extension costs. At that stage you are adding to the value of your proved reserves because you have increased your proved reserves. You have acquired new reserves. It is a different aspect of the accounting operation. Accretion of Discount: this is the expected net income for the year. Under ideal conditions your anticipated net income at the first of the year and the actual would be the same. In real world conditions you do get differences. We want to look at the loss or gain for the year. Note with RRA additional reserves can result in anticipated revenue. Net Loss from Proved Oil and Gas Reserves Sales $598 Development costs incurred in the year (288) Amortization expense – (Decline from $3, 704 to $2,710)* (994) Net loss $ (684) See change statement above. Present Value Format: Expected net income – accretion of discount $529 Abnormal earnings: Additional reserves proved during the year $ 677 Unexpected items – changes in value (1,890)* (1,213) Net loss $(684) *This is the total of the unexpected items in the change statement above. Note carefully that amortization takes the difference between the two years and unexpected items takes only in the items shown. Amortization is used in the Income Statement and unexpected items are used in the present value income statement. Slide 44 An Examination question: 24 Students often find it difficult to connect the theoretical aspect to the practical output by gas and oil companies. Following is actual information taken from Exxon, an oil and gas company in the U. S. This will connect the practical to the theoretical aspect of the RRA process. Exxon Corporation – 1993 – supplemental information (millions) Shown in the annual report under change in net cash flows: 1993 Millions Value of reserves added during the year due to extensions, discoveries, improved recovery and net purchases less costs. $ 527 Changes in value of previous – year reserves due to: Sales and transfer of oil and gas produced (6,975) Development costs incurred during the year 2,947 Net change in prices , lifting and development costs (10,229) Revision of previous reserve estimates 1,137 Accretion of discount 2,817 Net change in income tax 4,499 Total change in standard measure during the year $(5,277) Comparison of Theoretical and Practical models Now to make a comparison with our theoretical model the various items below are numbered 1, 2 or 3 indicating the category within which they fall. . Accretion of discount 2. Development and other costs 3. Changes in estimates. Millions Value of reserves added during the year due to extensions, discoveries, improved recovery and net purchases less costs $ 527 (2) Changes in value of previous – year reserves due to: Sales and transfer of oil and gas produced (6,975) (sales) Development costs incurred during the year 2,947 (2) Net change in prices, lifting and development costs (10,229) (3) Revision of previous reserve estimates 1,137 (3) Accretion of discount 2,817 (1) Net change in income tax 4,499 (3) Total change in standard measure during the year $(5,277) Question: 25 Prepare the supplemental information of net income from proved oil and gas reserves in the â€Å"sales less amortization format† and the present value format: Exxon Corporation Income Statement for the year ending December 31st, 1993 Millions RRA Sales in year $6,975 Development costs incurred in year (2,947) Amortization expense (5,277) Net loss ($1,249) The present value statement would be the following: Accretion of discount $2,817 Abnormal earnings: Additional reserves proved 527 Changes in estimates – unexpected items – as shown below (4,593) Net loss ($1,249) Changes in estimates made up of: Net change in prices – $(10,229) Revision of estimates – 1,137 Net change – income tax – 4,499 $( 4,593) Slide 45 Summary The Exxon financial statements contained a comment that the corporation believed the standardized measure was not meaningful and may be misleading. It appeared management thought it lacked reliability and the reserve quantities would be as useful without the remainder of the calculations. The major problems with RRA: – Many estimates must be made how sound are they? Because conditions are not ideal, RRA estimates are compromised and revisions must be made. Example, future oil and gas prices fluctuate significantly. – Changing interest rates – Information on the states of nature is changing – very complex – probabilities are difficult to determine. – How does one determine complete cash flows? 26 Gulf oil was quite comfortable with the physical data but not the dollar amounts. They and other Canadian companies have dropped the process. RRA was an American requirement but CICA under Section 4580 did require physical data for Canadian companies. That Section has been suspended. While RRA was a good attempt to gain present value information – it gained some relevance but lost reliability. RRA is closer to market value than is historical cost but investors have not shown a particular interest in it. Canadian Requirement Similar to SFAS 69 As noted above, more recently the Canadian Securities Administrators have issued their own RRA standard. It is National Instrument 51-101. This is supported by all securities commissions in 13 provinces and territories. It goes beyond SFAS 69 in certain ways: Briefly: †¢ The definition of proved reserves is tightened. NI 52-101 states that proved reserves are those with at least 90% probability of recovery. SFAS 69 states only â€Å"reasonable recovery. † †¢ Probable reserves must be reported. These are additional reserves such that there is as greater than 50% probability that the sum of proved plus probable will be recovered.. †¢ Two present value estimates of future cash flows from reserves are required – based on yearend prices and costs (as in SFAS 69) based on forecasted prices and costs. †¢ Discounting is required at several different discount rates, ranging from 0% to 20%. SFAS requires only 10%. The Canadian requirements go beyond those of SFAS 69 but it will be noted that the same problems of reliability still exist. A further point which should be noted is that if a firm reports under SFAS 69, they can apply for exemption from NI 51-101 It should be noted that Canadian firms can apply for exemption from NI 51-101 if they report under SFAS 69. Most large Canadian oil and gas companies have secured this exemption. Consequently, despite the Canadian standard, RRA as per SFAS 69 remains as an important disclosure standard in Canada. For example, Canadian Natural Resources Limited, with shares traded on the Toronto and New York stock exchanges, has been granted an exemption from National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (â€Å"NI 51-101†), which prescribes the standards for the preparation and disclosure of reserves and related information for companies listed in Canada. This exemption allows the Company to substitute United States Securities and Exchange Commission (â€Å"SEC†) requirements for certain disclosures required under NI 51-101. 27 Slide 46 PART 5 Follow the Handout at page 27 Examination Question Examples Examination Question 1: On January 1, 2006, XYZ Ltd. , a hypothetical oil and gas firm, purchased a producing oil well with a life of 15 years. Operations were started immediately. The management calculated that future net cash flows from the well would be $1,500,000. The discount rate was 10% which was the company's expected return on investments. During 2006 cash sales were recorded (net of production costs) of $600,000. The company also paid dividends for the year of $50,000. a) Prepare the income statement for the year ending December 31, 2006 using RRA accounting. Prepare the balance sheet as at December 31, 2006, using RRA accounting. Answer: We first need our amortization so we take the beginning total of $1,500,000 and take a similar approach to our change statement under our first example – Renaissance Energy. We deduct sales and add accretion of discount, to arrive at amortization. PV beginning $1,500,000 Less: Sales 600,000 900,000 Accretion of discount 150,000 10% of $1,500,000 PV end 1,050,000 Amortization $ 450,000 XYZ Limited Income Statement for the year ended December 31st, 2006 Net sales $ 600,000 Amortization 450,000 Net Income $ 150,000 28 XYZ Limited Balance Sheet s at December 31st, 2006 Cash $600,000 – 50,000 $ 550,000 Shareholders' equity $1,500,000 Retained earnings: Reserves 1,050,000 $150,000 – 50,000 100,000 $1,600,000 $1,600,000 b) Question: summarize the perceived weaknesses of RRA accounting Answer: Three weaknesses are: 1. The discount rate of 10% might not reflect the expected return for the fir m. 2. RRA involves making a large number of assumptions and estimates and it may not bear any relationship to the net revenue to be received in the future. 3. Conditions in the oil and gas industry may change rapidly possibly making frequent changes in estimates. ) Question: Why does SFAS 69 require all firms to use 10% rather than letting firms select their own rate of return? Answer: The use of a single rate for all firms was to improve comparability. Slide 47 Continue to follow the Handout A Second Example: This one is particularly difficult. ABC Company (hypothetical) operates under ideal conditions. On January 1, 2001, it purchased a capital asset with a useful life of three years at which time it would be totally used and have no value. It will generate a cash flow of $3,993, on December 31st, 2003, at the end of its 3 year life. The purchase is financed partly by common shares and partly by a non-interest bearing note which matures on December 31, 2003, with a maturity value of $1,500. The interest rate in the economy is 10%. The shares and the note thus both have to receive a return. Required: a) Prepare an income statement and balance sheet for December 31, 2001. 29 b) Prepare an income statement and balance sheet for December 31, 2002. c) Prepare an income statement and balance sheet for December 31, 2003 d) Calculate the expected net income for the second year Answer Consider this as an investment of $3,000 and you are earning 10%, so income for the first year is $300, the second $330 and the third $363, totalling $993. 00. In other words if you left your earnings in the firm that is what you would have. However, you have borrowed money and it has to earn 10%, so it will reduce your income by the cost of the borrowed money at 10%. Capital Asset each year: PV (Jan. 1/2001) = $3,993/1. 103 = $3,000. 00 PV (Jan. 1/2002) = $3,993/(1. 21) = $3,300. 00 PV (Jan. 1/2003) = $3,993/(1. 10) = $3,630. 00 PV (Dec. 31/2003) = $3,993/1. 00 = $3,993. 00 Note: As the earnings remain the capital asset increases. Non-interest bearing note: Interest Expense Present Value and Discount Amortization Carrying Value of Note Jan. 1, 2001 – $1,126. 97 Dec. 31, 2001 $112. 70 1,239. 67 Dec. 31, 2002 123. 97 1,363. 64 Dec. 31, 2003 136. 36 1,500. 00 $373. 03 Book Value each year Accretion of Discount or Expected Income at 10% $3,000. 00 – $1,126. 97 = $1,873. 03 – $187. 30 $3,300. 00 – 1,239. 67 = $2,060. 33 – $206. 03 $3,630. 00 – 1,363. 64 = $2,272. 36 $227. 24 $3,993. 00 – 1,500. 00 = $2,493. 00 Total $620. 57 30 Some rounding may be needed. Slide48 To answer the parts: a) ABC Company Income Statement Year Ended December 31, 2001 Sales revenues $ 0 Amortization of capital assets 300. 00 Interest expense 112. 70 Net income $187. 30 This is unusual as there is shown income which has been earned but not received and the income statement is based on the amortization of capital assets and the loan. ABC Company Balance Sheet as at December 31, 2001 Capital asset $3,000. 00 Notes payable $1,239. 67 Add: amortization 300. 00 Shareholders’ Equity Common Shares $3,000 – 1,126. 97 1,873. 03 Retained earnings 187. 30 Total assets $3,300. 00 $3,300. 00 b) ABC Company Income Statement Year Ended December 31, 2002 Sales revenues $ 0 Amortization of capital assets 330. 0 Interest expense 123. 97 Net income $206. 03 31 ABC Company Balance Sheet as at December 31, 2002 Capital asset $3,000. 00 Notes payable $1,363. 64 Add: amortization 630. 00 Shareholders’ Equity: Common Shares 1,873. 03 Retained earnings * 393. 33 Total assets $3,630. 00 $3,630. 00 †¢ $187. 30 + $206. 03 Slide 49 c) ABC Company Inco me Statement Year Ended December 31, 2003 Sales revenues $3,993. 00 Less: Amortization $3,630. 00 Interest 136. 36 3,766. 36 Net income $ 226. 64 ABC Company Balance Sheet as at December 31, 2003 Cash $3,993 – 1,500 = $2,493. 00 Notes payable $ 0 Capital asset $3,630. 0 Shareholders’ Equity Less: Common Shares 1,873. 03 Amortization 3,630. 00 0 Retained earnings 619. 97 Total assets $2,493. 00 $2,493. 00 d) What you have to do to get the expected net income (the accretion of discount) it must be taken from the above balance sheet/and table that is the end of the first year: Net book value January 1, 2002 – $3,300. 00 – $1,239. 67 = $2,060. 33 Expected net income – 10% of $2,060. 33 = $206. 03 Note very carefully the book value and how it is obtained. 32 Slide 50 PART 6 Historical Cost Accounting Topics †¢ Why present value accounting †¢ Major problems with historical cost Examples Amortization Full cost versus successful efforts †¢ C onclusion Want to Consider Historical Cost Accounting but first make some comments about Present Value Accounting. Slide 51 Why Present Value Accounting? Why do we want present value accounting? What are some of the shortcomings of historical cost accounting? †¢ First, present value accounting is a balance sheet approach to accounting, also †¢ Referred to as the measurement approach. †¢ Increases and decreases in assets and liabilities are recognized, that is, measured, as they occur. †¢ Future cash flows are discounted and capitalized on the balance sheet. Income then is essentially the net change in present values for the period. †¢ Changes, whether realized or not, are recognized in the balance sheet. Slide 52 Historical Cost Accounting – Major Problems Comments Historical cost accounting is an income statement approach. It is referred to as an â€Å"information† approach to decision usefulness. In this situation unrealized increases or decr eases are not recognized in the balance sheet and net income lags behind real economic performance. 33 Thus, under this approach the accountant waits until there is actual validation of changes by increased sales or cash flows. This comes down to a matching of revenues and costs used to earn those revenues. First, it may make more sense than we give it credit for, and, second, it is firmly in place and may be difficult to replace. Then, how do we improve it? Slide 53 Major problems: 1. It does not equate in large measure with present value accounting – in some cases it does and many others it does not. 2. As it does not present complete relevant and reliable statements, there must be a tradeoff between the two. They tend to be opposites. Historical cost is more reliable than relevant. There as often different bases used for measurement and thus a problem arises. See page 42 of your text, 3. With historical cost there is a recognition lag of revenue. In other words, the revenue may be recognized over several periods. The revenue is recognized only when transactions take place. See page 42 of the text. This is the timing of revenue recognition lags behind changes in real economic value. On the other hand current value accounting has little recognition lag as changes in economic value are recognized as they occur, for example, recognizing revenue when proved reserves are recognized under oil and gas accounting. Do not overlook the fact, however, that RRA is supplemental accounting and appears separately in the financial statements. Note: carefully there is little matching of costs and revenues under current value accounting. Current value accounting really tells you how the value has changed of the assets and liabilities. Under historical cost the accountant waits until there is objective evidence before recognizing revenue. Thus, historical cost tends to be reliable while current value tends to be more relevant. See page 43 of the text. 4. We are faced with the fact that it is difficult to solve many problems within the historical cost system itself, thus, it is necessary to look for other ways to solve some issues, say to, present value accounting. There is accrual accounting is available to aid historical costing but matching of costs and revenues requires estimates, which can be difficult. Thus, historical cost does have it problems. See page 43 of the text. Some examples of problems Slide 54 Amortization: †¢ It is necessary to amortize the wearing out of assets to meet the matching principle. But historical cost rules do not direct how much should be amortized each year. †¢ It just states that the method to be used should be consistent with the time pattern 34 of expiration of the asset. †¢ A variety of methods are in use – straight-line, declining balance, double digit, etc. , which complicates matters between companies. †¢ If there were the requirement of present value for valuation pur poses, there would be only one method. Slide 55 Full Cost vs Successful Efforts in Oil and Gas Under full cost all drilled gas and oil well holes – both dry holes and successful efforts in drilling are capitalized. Thus some of the expenses for dry holes are deferred rather than written off. The concept is that they are all part of the development process. It is contended the costs match the revenue as it is earned. Under successful efforts dry drill hole costs are expensed immediately as it is thought they should not be part of the capitalization process. It is contended only successful efforts really match with the revenue of future years. Under historical cost CICA allows both methods; getting different income figures; under present value there would be one method. Slide 56 Conclusion: We conclude under historical cost that, â€Å"net income does not exist as a well-defined economic concept. † It is an artificial figure. See page 45 of the text. The matching principle under historical cost allows for different ways to be followed, as indicated above, as well as many other situations, e. g. , inventories Accounting challenge – Our quest for the balance of the course will be how can we improve historical cost statements if, as we concluded, we cannot have full present value statements. Slide 57 Appendix Present value annuities – one of the most used processes in the mathematics of finance. Its purpose is to discount a series of equal payments over a series of equal periods. Present value annuities with even payments Example: Assume you will receive $60 a year for four years for a dividend payment. The accepted discount rate (or the yield you would expect) is 10%. What is the present value (or value today) of these four cash flows, discounted at 10%? 35 P. V. = ? Formula P. V = R[1 – (1 + i)-n ] / i i = 10% P. V. 60[ 1 – (1 – 1. 10)-4/0. 10 n = 4 P. V = 60 (3. 16987) (can be obtained from the P. V. table. ) R = 60 P. V. = $190. 19 Second example: Present value annuity with uneven payments. Assume there are unequal payments over five years: Year 1, $60; Year 2, $40; Year 3, $50; Year 4, $35 and Year 5, $45. P. V. = ? i = 10% n = 5 R = as shown Formula: PV. = CF/(1. 10) + CF(1. 10)2 + CF/(1. 10)3, etc. P. V. = 60/ (1. 10) + 40/(1. 10)2 + 50/(1. 10)3 + 35/(1. 10)4 + 45/(1. 10)5 P. V. = $54. 55 + 33. 06 + 37. 57 + 23. 91 + 27. 93 P. V. = $177.