‘Biovail Corporation: Revenue recognition and FOB Sales Accounting’

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ACCT7102 Individual Case Study Assignment:
‘Biovail Corporation: Revenue recognition and FOB Sales Accounting’
Weighting: 75 marks, [converted to weighting of 25% of final subject grade]
Due Date: By 4:00pm, Monday 15th Oct 2018 (week 12)
Length: 1500-1800 words
Individual or Group Task: Individual
Task Description:
This financial reporting case study is designed to examine the specific application of case
scenarios involving principally Topic 5 (Managerial incentives for financial statement
management). The case will be used to examine your report writing skills, general
accounting knowledge, and ability to critically evaluate complex case scenarios.
NOTE: This case is to be undertaken individually, which means you are required to
independently research and prepare your assignment.
ADDITIONAL GUIDANCE
1. Criteria & Marking.
A full marking criteria sheet is included in this document and will be discussed in Seminar 5.
In general, the case will assess your:
 accuracy of answer and interpretation of relevant accounting standards;
 presentation of a thoughtful and well supported answer;
 clarity of analysis; and
 professional presentation (which will take into account grammar, spelling and
punctuation).
Your submission will also be judged on its suitability for presentation to a fee paying client.
2. Plagiarism.
All cases will be reviewed for plagiarism and independent content. At the University of
Queensland, plagiarism is defined as follows:
Plagiarism is the act of misrepresenting as one’s own original work the ideas,
interpretations, words or creative works of another. These include published and
unpublished documents, designs, music, sounds, images, photographs, computer
codes and ideas gained through working in a group. These ideas, interpretations,
words or works may be found in print and/or electronic media.
You are encouraged to read the UQ Student Integrity and Misconduct policy
(http://ppl.app.uq.edu.au/content/3.60.04-student-integrity-and-misconduct) which makes
a comprehensive statement about the University’s approach to plagiarism, including the
approved use of plagiarism detection software, the consequences of plagiarism and the
principles associated with preventing plagiarism.
3. Late Submission.
An assignment (for which no extension has been granted) submitted after the due date and
time, will incur a late submission penalty. The penalty is at the rate of 5% of the total
available marks for that particular piece of assessment, for each calendar day or part
thereof that the item is overdue. Late assignments may be submitted through Turnitin since
all assignments automatically have a time/date stamp of when they are submitted.
However, please contact the course coordinator if you are submitting a late assignment.
4. Length.
The word limit is strictly 1500-1800 words (excluding a reference list). Any material
exceeding the word limit will not be read and the mark for the assignment will be based on
the material up to the point where the word limit was exceeded.
5. Referencing Style.
You are required to use the referencing style of the accounting journal, Accounting,
Organizations and Society. On its home webpage, the journal has a section, ‘Guide for
Authors’, which provides detail on the referencing style to be adopted. Access to
Accounting, Organisations and Society is available online through the UQ Library.
6. Format of Assignment
The assignment is to be prepared as a pdf document using 12 point font with 1.15 line
spacing. The questions may be included as headings and will not be included in the word
count. Please include your full name and student number as part of the file name e.g.
‘347185_Clayton Thompson’.
7. Submission
The assignment is to be submitted through Turnitin which is available in a separate case
study assignment submission folder on the course’s blackboard website. If you experience
problems uploading your assignment before the due date please contact AskIT for help, and
continue to try to upload the assignment until you are successful. A link to the AskIT
instructions on Turnitin is as follows: https://www.library.uq.edu.au/ask-it/turnitinassignments.
Note that assignment submission is a three step process and it is your
responsibility to check the assignment preview and confirm that the assignment has been
successfully submitted. You will need to keep a copy of the Submission ID as proof you have
submitted the assignment.
Case Study Assignment Questions
(The “Biovail Corporation” case background document and this separate ACCT7102 case
requirement document are both available from the ACCT7102 blackboard website, under
the ‘Assessment’ folder. The questions imbedded in the “Biovail” Harvard case document
itself should be ignored or used by students as a knowledge building exercise, and should
not be addressed or included in the submitted case study). You are only required to answer
and submit the following three questions:
ACCOUNTING ISSUE – REVENUE RECOGNITION, MANAGERIAL MOTIVATIONS AND
RESEARCH COMPONENT
Question One (Total marks: 25 marks)
(a) The following table provides a summary of the revenue recognition that would occur if
the company Biovail implemented (i) ‘free on board’ (FOB) Biovail; or (ii) FOB
destination. Justify the choice of timing selected for each of the six cells in the following
table. (10 marks)
FOB Biovail FOB Destination
Ownership transfers: Upon shipment from
Biovail facility in
Manitoba, Canada
Upon delivery to North
Carolina facility of Distributor
Revenue is earned: Upon shipment from
Biovail
Upon delivery to North
Carolina facility of Distributor
Assuming that there
was no accident, the
associated revenue
would be earned:
30 September when the
truck left Biovail’s facility
in Manitoba
Either very late on 1 October,
or more likely 2 October given
that North Carolina is more
than 8 hours’ drive away
(b) There was dissention between the Distributor and Biovail over when title to the
shipment of WellbutrinR passed. Discuss why you think the disagreement occurred
between Biovail and the Distributor. Your answer should be supported by reference to
at least three academic research articles. (Hint: Concentrate on the general results of
the articles. You do not have to completely understand the econometric models if used
in articles.) (15 marks)
ACCOUNTING ISSUE – EARNINGS QUALITY AND RESEARCH COMPONENT
Question Two (20 marks)
Following the truck accident, analysts from J.P. Morgan upheld their ‘overweight’ stock
rating for Biovail. In fact, representatives from J.P. Morgan noted that (case study, p. 3):
‘…its analysts had never argued with earlier claims that Biovail’s accounting might
have been aggressive. However, its analyst report concluded that Biovail’s current
accounting did not seem egregious and that the earnings impact of Wellbutrin XL
was completely transparent.’
Evaluate these comments from J.P. Morgan. (Hint: Your answer should evaluate earnings
quality (i.e. aggressive accounting choices compared with egregious accounting choices) and
be supported by reference to at least two academic research articles. Concentrate on the
general results of the articles. You do not have to completely understand the econometric
models).
RELATION BETWEEN ANALYSTS AND MANAGERS – ETHICAL COMPONENT
Question Three (15 marks)
Assume that Biovail plans to undertake a significant share issue in the near future and is
considering either J.P. Morgan or Banc of America to handle this lucrative transaction.
Would you expect this to influence Mr Maris’ analysis of the truck accident and subsequent
stock recommendation? Justify your opinion discussing any ethical issues that may arise.
COMMUNICATION SKILLS – WRITTEN
(15 marks)
Marks will be allocated for presentation of the assignment, clarity of expression and
referencing.
Case Study Marking Criteria and Rubric
Task Mark Outstanding Very Good Good Meets Expectations Below
Expectations
Not
Attempted
Question 1(a)
Justification of
the choice of
timing
identified in
each cell in
the table
10 All Critical aspects of
accounting GAAP &
business terminology
have been applied
correctly in
determining the timing
of each transaction
Almost all critical aspects
of accounting GAAP &
business terminology
have been applied
correctly in determining
the timing of each
transaction
Most aspects of
accounting GAAP &
business terminology
have generally been
applied appropriately in
determining the timing
of most transactions
Some aspects of
accounting GAAP &
business terminology have
been applied reasonably in
determining the timing of
most transactions
Few key
accounting
GAAP or
business
terminology
areas
identified or
have been
applied
inappropriately
Not
attempted
Question 1(b)
Analysis of the
motivation(s)
underlying the
dissention
between
Biovail and its
Distributor
10 Highly relevant
information is taken
from reputable
academic sources with
insightful
interpretation/evaluati
on of a comprehensive
analysis of motives of
each party
Relevant information is
taken from appropriate
academic sources with
sufficient
interpretation/evaluation
to develop a coherent
analysis of motives of
each party
Useful information is
taken from mostly
appropriate academic
sources with adequate
interpretation/evaluation
to develop a generally
coherent analysis of
motives of each party
While some information is
useful or has been applied
to some useful
interpretation/evaluations,
more effort is needed to
develop a coherent
analysis of the motives of
each party
Information is
taken from
sources with
little relevance
or there has
been
insufficient
coverage of
motives of
each party
Not
attempted
Use of
literature to
support
conclusions
drawn
regarding the
dissention
5 Well developed and
justified own ideas and
opinions based on a
wide range of sources
which have been
analysed, applied and
discussed
Able to critically appraise
the literature and theory
gained from a variety of
sources, developing
some own ideas in the
process
Clear evidence and
application of readings
relevant to the topic.
Limited development of
own ideas
Literature is presented
uncritically, in a descriptive
way and indicates some
limitations of
understanding
Either limited
evidence of
literature, or
irrelevant to
the dissention
issue
Not
attempted
Case Study Marking Criteria and Rubric
Task Mark Outstanding Very Good Good Meets Expectations Below
Expectations
Not
Attempted
Question 2
Critical
reasoning of
earnings
quality of
Biovail
7.5 Comprehensively
demonstrates
application of critical
analysis well integrated
into all text arguments
Clear application of
theory through critical
analysis of the topic area
integrated into most text
arguments
Demonstrates
application of theory
through critical analysis
of the topic area
Some evidence of critical
thought/critical analysis
and rationale for work in
some areas of text
Lacks critical
thought,
analysis and
reference to
theory
No
attempt at
critical
analysis
Use of
research
literature to
support
conclusions
regarding
earnings
quality
5 Comprehensively
developed and justified
own ideas and opinions
based on a wide range
of sources which have
been analysed, applied
and discussed
Able to critically appraise
the literature and theory
gained from a variety of
sources, developing
some own ideas in the
process
Clear evidence and
application of readings
relevant to the topic in
forming conclusions
Literature is presented
uncritically, in a descriptive
way and indicates some
limitations of
understanding.
Either minimal
evidence of
literature
being
consulted or is
irrelevant to
the topic
No
evidence
of
research
literature
applied to
text
Evaluation of
the comments
of analysts
from JP
Morgan
regarding
Biovail
7.5 Can critically review
evidence supporting
conclusions including
its reliability, validity
and significance and
can identify reasons for
contradictions
Can select appropriate
techniques of evaluation
and can evaluate the
relevance and
significance of evidence
Can evaluate the
reliability of evidence
using defined techniques
Only partially accurate
evaluation of evidence
using defined techniques
Fails to
adequately
evaluate, or
evaluations are
primarily
invalid
No
attempt at
evaluation
of
comments
Case Study Marking Criteria and Rubric
Task Mark Outstanding Very Good Good Meets Expectations Below
Expectations
Not
Attempted
Question 3
Analysis of
potential
influences on
Mr Maris’
analysis of
accident &
subsequent
stock valuation
15 Consistently
demonstrates
application of critical
analysis well
integrated into text
Clear application of
theory through critical
analysis of the topic area
Demonstrates
application of theory
through critical analysis
of the topic area
Some evidence of critical
thought/critical analysis
and rationale for work
Lacks critical
thought and
analysis
Not
attempted
Presentation 5 Shows a polished,
professional
approach to the
topic. Written work is
logically sequenced
and paragraph
structure is without
error
Carefully and logically
organised, with a
consistently sound
paragraph structure
Shows organisation and
coherence, with mostly
minor errors in
paragraph structure
Although some errors
present, there has been a
genuine effort made to
organise work &
paragraph structure
Inconsistent
efforts to
organise work,
with consistent
errors in
paragraph
structure
Not
attempted
Clarity of
expression
5 Fluent writing style
appropriate to
report. Grammar and
spelling are accurate.
Language is fluent.
Grammar and spelling is
mostly accurate, with the
occasional minor error
Language is mainly
fluent. Some minor and
occasional major error
but meaning is still clear
Meaning is apparent, but
language not always
fluent. Grammar and/or
spelling errors sometimes
impede the reader
Meaning
unclear and/or
contains major
grammar
and/or spelling
errors, which
impact
readability
Not
attempted
Referencing 5 Referencing is
complete and
accurate
Referencing has only one
or two minor errors
Referencing has a few
errors
Referencing attempted but
with many errors
References
mostly missing
Not
attempted