Operation Management Essay

Hard Rock uses these ten critical decisions of operational management; â€Å"Service and product design, Quality management, Process and capacity design, Location, Layout design/Job design, Supply-chain management, Inventory management, Scheduling and Maintenance†. These practices give the Hard Rock Cafe an edge in meeting new and growing needs of the restaurant, and entertainment industry. The service and product design Hard Rock sells is not just food, it’s a statement and a storied culture that has changed with time as we do as people. The â€Å"living on the edge† crowd of the 1980s can still live a little on the edge today in a Hard Rock restaurant, casino or even in a rock concert. The company is selling the feeling of still being a rebel. Hard Rock Cafe has grown into a successful industry that was once limited to a twenty something budget to grow with the wallets of the generation that gave birth to it. The quality management has been a key factor providing an environment that people want to continue to come back to. High quality products such as gourmet food, quality merchandise, and excellent service have kept the Hard Rock from dying. The individual sight managers alongside with the overall operation managers are responsible for maintaining the high quality products and environment that people expect to find there. Hard Rocks process and capacity design along with location selection are chosen based on high population areas with specific geographic requirements to ensure a large volume of customers. The location chosen requires a high capacity facility that is capable of serving its large number of customers. This is accomplished not just by size but by layout design and the efficient flow of  product and delivery of that product. That product flow along with a good human resources and job design are a crucial part of managing a Hard Rock. The management of the supply-chain and inventory/material is another essential part of Hard Rocks success. Managers have to purchase the correct equipment and supplies needed to efficiently produce the high quality products and take into account how much inventory is required and when to restock. This takes good data analysis and continually requires review to ensure proper inventory of supplies at all times. Lastly, managers need to take into account intermediate and short-term scheduling along with when to perform maintenance on equipment and facilities. Planning on high business times of the year managers can schedule preventative maintenance during the slower parts of the year. In the same way they can schedule part time employees to accommodate the influx of customers during busier parts of the year. Works Cited Professor Barry Render, J. H. (2013). Case Analysis on the Hard Rock Cafe. Trident University.

Kinesthetic Learning

When I first read this assignment, I wasn’t sure what to expect. I remembered back to when my children were in preschool, which was sixteen and eighteen years ago, and was struck by the realization that I couldn’t recall them learning kinesthetically. It seemed to me that the only time I really saw them moving was during designated play time. I was very pleased when I walked into my church preschool, for a day of observing and volunteering, and the first thing I saw was the children learning through movement.In an effort to learn their numbers, they were all standing in a large circle, with Teacher Karla standing in the center holding a stack of cards with a number printed on each. She passed a ball to one student and then held up a card with the number four (4) on it, and the little boy bounced the ball four times and then passed the ball to the next child, who looked to the teacher for his number, which was a seven (7). He had a little more trouble and only bounced th e ball six times because he forgot the number five.He passed the ball on to the little girl next to him, who looked to the teacher, who still held up the number seven (7), due to the mistake of the previous child. I wasn’t sure how that would work, but the little girl bounced the ball seven times, and the boy, responded with â€Å"Oh yeah, I forgot five. How come you didn’t tell me Teacher? † Teacher Karla responded to this by explaining that we don’t always just learn from the teacher and that we can learn from each other, as well.Later in the day, I was pleasantly surprised to see that teacher Karla was using the Letter Mats that I had created for her a few years ago when I helped out in the preschool. The Letter Mats are large laminated mats with big letters written on them. The letters are not in alphabetical order and each letter is written more than once on each mat. Because this was an activity that I had come up with, Teacher Karla asked me to lea d. I stood in front of the mats and called out a letter. Each child then jumped on that letter on the mat in front of them. I then called out another letter and they jumped from letter to letter.We continued this until they had jumped from A to Z, with a few mess ups in between, but for the most part, most of the children jumped to the right letters most of the time. Chapter 2, Question While volunteering at the preschool, I have a lot of opportunity to watch the way different music affects the children’s moods and behavior. I wasn’t too surprised by my observations because music has always been something I have loved and when I ran an in home childcare, I used different forms of music all of the time. While at the preschool, I observed teacher Karla change the music frequently, depending on the mood she was trying to create.When they were playing the number and ball game, there was lively music playing, with children singing strong and loud. This music seemed to energ ize the children. When it was art time, and the children were painting, she slowed the music down and, while the children still chatted while doing their painting, they were much calmer than they had been earlier. When we did the activity with the Letter Mats, we listened to children singing the alphabet. The children really enjoyed singing along and I think because it was an alphabet song and coincided with our activity, it helped them stay on focus.

Assessing The Network Systems And Services Information Technology Essay

Assessing The Network Systems And Services Information Technology Essay A Virtual machine is a software application to be run in its own operating system. It is not physically exist to execute it’s a program or operating system which should be create an another environment. It is an isolated duplicate of real machine. It should be exactly act like a normal computer and carries its own virtual i.e. software based. A virtual machine is a guest and runs inside in its operating system are called a host. It’s produced to execute an instruction set unlike of host environment. A multiple virtual machines are executed by a single host environment because of they are differ from the physical resources. Fig1:- virtual machine Virtual machines are categorized into two major categories according to their use of any real machine. A system virtual machine and a process virtual machine. A system virtual machine which bears the complete system platform of a complete operating system. The main purpose to design a process virtual machine is to execute the s ingle program in the single processor. Virtual machine is act like a virtual software and virtual hardware we can run the applications same as like an physical computer and we can use the virtual hardware same as like an physical hardware components exist, also virtual machines offered a lot of advantages while compared to general physical machine. 2.1 SYSTEM VIRTUAL MACHINE System virtual machine is as well addressed as hardware virtual machine is leave the sharing of real machine resources between virtual machines in physical computer a virtual machine is executed by its own operating system. a virtual machine monitor is run on top of an operating system, a virtual machine monitor is a virtualization provided by an software layer. http://www.ntpro.nl/blog/uploads/products_vmfs_diagram.gif Fig 2:- SYSTEM VIRTUAL MACHINE The advantages of virtual machines are: Multiple operating systems are existing in the same computer and strong isolation environment is there in between them. A vi rtual machine is also a software which executed by a set of instructions that is somewhat different from a physical machine. Maintenance, disaster recovery and high availability compared to real machine. Disadvantages of virtual machines are: A virtual machine approaches the hardware indirectly so it’s a less efficient. At the same time a multiple virtual machines are executing on the same host to get a chance of unstable performance like speed of execution, its depends on work load of other virtual machine to recover that a proper techniques are used. Multiple virtual machines are running in the same physical machine called guest operating system. In that real machine often used in server consolidation, different services are executed on individual virtual machines in order to avoid interference. The main motivation of the virtual machine is to run multiple operating systems, in a single physical machine and which allowed for time sharing in between the operating systems, di fferent tasks handled by operating systems. At the introduction stage virtual memory is one of the general considerations of system virtual machine. the single-user operating system of each user providing time sharing and full virtual machine of the first system implemented by IBM’s CP/CMS.

Methodologies used for determining the sustainability of residential Essay

Methodologies used for determining the sustainability of residential and commericial properties - Essay Example The criteria are the following: Management – provision of a home user guide concerning the operation and environmental performance of the home, a considerate constructors scheme, a commitment on construction site impacts and a security conscious design. For Civil Engineering design and projects, the United Kingdom industry uses the assessment and awards scheme CEEQUAL. Like the the Code for Sustainable Homes, the CEEQUAL also use a points-scoring assessment but instead of 9 criteria, CEEQUAL is made up of 200 exhaustive questions relating to environmental and social impacts of a project including resource usage, ecological impact, waste management, community relations, landscaping and even archaeology. Projects are graded as Pass (>25%), Good (>40%), Very Good (>60%) and Excellent (75%). A CEEQUAL assessment is undertaken by a CEEQUAL-trained project member whose evaluations are checked by a certified CEEQUAL verifier. As with all point-rating system, the assessment can be affected by biases thereby leading to inaccurate points assigned. For example, the criterion MATERIAL in the Code for Sustainable Homes calls for a range of 0.3 to 1.8 points for sourcing building materials responsibly. While there is a technical guidance manual to help the assessor, the points assigned can still be subjective. There is also the question of whether the items such as composting facilities and rain water collection will actually be used. The Code seems to check only for its presence as having a home-user guide seems to be enough to earn points and not its actual application. Essentially, the assessment methods provides no guarantee on the degree of sustainability that could occur. Department for Communities and Local Government, 2006. Code for Sustainable Homes: A step-change in sustainable home building practice.[pdf] West Yorkshire: Department for Communities and Local Government. Available at www.planningportal.gov.uk/uploads/code_for_sust_homes.pdf>

Home Buying Essay Example | Topics and Well Written Essays - 1750 words

Home Buying - Essay Example It possesses a momentous inheritance being built in the 1976 but comprise almost every benefit of a modern house. It has been built on a lot of acres as a 1,520 square foot condo with 3 bedrooms and 3 full baths (Weichert, â€Å"Condo for Sale in Northridge, CA†). A) The Area 1) Online Statistics a) Crime: According to the recent crime statistics presented by the Los Angeles Police Department the frequency of crimes have reduced significantly. However, in the current situation the property crimes such as, theft have increased to a certain extent (Lapdonline, â€Å"West Los Angeles Area Profile†; Los Angeles Times, â€Å"Northridge†). b) Sexual Offenders: There were ten sexual offences recorded in recent days in various parts of Northridge which can also be recognized as the neighborhood area of Rinaldi Street (Office of the Attorney General, â€Å"In Violation†). c) Density: According to the Census 2000, the neighborhood area of the selected house/condo is populated with a total number of 28,049 people (U.S. Census Bureau, â€Å"Fact Sheet†). Thus, the area is not densely populated.... According to the regulations prescribed the area is prohibited to be used for commercial purpose. The residents are also not allowed to have equine(s) in a lot area which is less than 20,000 square feet. Moreover, increasing the building over two storeys is also prohibited. However, the selected condo includes itself in the RD2 zone (American Legal Publishing Corporation, â€Å"Municipal Code, Chapter I (Planning And Zoning Code)†.). b) Walkability Ratings: On an average the area ranks 65 out of 100 in terms of Walkability. This depicts that the area is to certain extent walkable (Walk Score, â€Å"19551 Rinaldi Street Northridge CA 91326†). c) Rapid Transportation: The residents in the selected area enjoy rapid transport facilities with the transportation options available in terms of owned cars, rail roads, buses, taxis and others. The residents in the lot area also gain the benefit of various recreation centers in the walkable area (City Data, â€Å"91326 Zip Code D etailed Profile†). B) The House/Condo 1) Selling Price of Neighborhood Houses The houses/condos located in the lot area, i.e. Northridge, 91326 and possessing almost similar characteristics to that of 19551 has been recorded to have an average selling price of $300,000 (Home Insight, â€Å"Historical Sales Results†). The chart represented below shall unambiguously depict the sale prices of the neighborhood condos possessing similar features. Map Address Sale  Price Close  Date Bed Bath Sq.  Ft.    Yr.  Built 1 19547 Rinaldi St $360,000 04/07/2010 3 3 1520 1976 2 19561 Rinaldi St $320,000   03/02/2010 3 2 1404 1976 3 19569 Rinaldi St $445,770   02/04/2010 4 3 1637 1976 4 19527

William Faulkner's Barn Burning Essay Example | Topics and Well Written Essays - 1250 words

William Faulkner's Barn Burning - Essay Example Faulkner has used the plot, and the interactions between the characters, to explain the concept of mental and emotional slavery in man. However, what strikes most in Faulkner’s story is the use of symbolism. Through different symbols in the story, the author has described the internal conflict that a human being experiences before he succeeds in getting freedom. Hence, it is a story of spirit of freedom in human beings. In the short story, Faulkner has also explained how slavery is not just situational in nature, but also psychological. The author has made an excellent use of symbolism to explain the nature of freedom in people’s lives. According to Faulkner, the strongest obstacles in achieving freedom in life is not the external circumstances, but the internal demons of emotional and psychological attachment to destructive and negative people in life, and hence, the only way for human beings to get freedom in life is to win over the internal demons, because they are m ore dangerous than the external circumstances of slavery. Symbolism The story ‘Barn Burning’ is an excellent work by William Faulkner, where he has used symbolism to explain the purpose of his story. Symbolism is a method of describing the essence of a story ‘indirectly’ through objects, events and actions of the characters in the story. In case of the short story ‘Barn Burning’, the author William Faulkner has used interesting symbols to describe the conflict, spirit of freedom, rebellion, and courage in human beings. Right from the first paragraph of the story, the readers sense the use of symbols in the story. The author has used symbolism not only through objects but also through the actions of the characters. The symbols that he has used are blood, Sartoris’s actions and peculiar behavior patterns of characters in the story. Blood Right from the beginning of the story, the author grips the attention of the reader by introducing him to the complex idea of smell and its associations in life. Human beings have a tendency of developing mental associations with things related to sensory objects. For example, if a person listens to a song that was his favorite in the childhood, then the memories of childhood floods to his mind and he relives the good and bad experiences associated with that song. Faulkner has used the ‘sense of smell’ as a symbol of conflict in the mind of Sartoris Snopes, a ten year old protagonist of the story. The story begins with the description of the court proceedings against Sartoris’s father, who is accused of burning the barn of his owner. The proceedings take place in a store where the tins of cheese are kept. The boy is shown going through an internal conflict through the sensation of smells. Sarty (Sartoris) is found torn between the smell of cheese and the smell of ‘blood’. Sarty is sure that he smelt cheese even though he is unable to read the letters on the tin cans. The smell is pleasant and he likes it. However, he is unable to enjoy the smell of cheese as it is polluted with the smell of ‘blood’. Here, the author has used ‘blood’ as symbol of ‘loyalty and duty towards the family’. The smell of blood is not ‘real’ but is a psychological symbol of ‘family’. Interestingly, the smell of blood that Sarty senses is also joined by the sense of fear. It reminds Sarty of the despair and grief that he has experienced. Sadly, the smell of cheese that he senses is momentary and comes intermittently. However, the smell of blood is permanent and consistent in his mind. The words ‘fierce pull of blood’ shows that Sarty is somehow being forced to be loyal to his family, and particularly, towards his father. The word ‘

Case Study review on Metabolic Abnormalities in Early Psychosis Article

Case Study review on Metabolic Abnormalities in Early Psychosis - Article Example These side-effects pose a challenge because of the extra risk that they bring in as well as the possible non-compliance to prescription that may result when patients fear to take the medications because of their associated effects. The review looks at various research articles that seek to understand the effect of antipsychotics in order to understand their relative effects and possible side-effects. The article reviews are also used in making decisions with regard to a case study of a patient under first-episode psychosis treatment using atypical antipsychotics and already showing side-effects. Introduction Psychosis treatment has relied on antipsychotics for a very long time. The first generation antipsychotics (FGAs) fell out of favoured use due to less effectiveness and a number of associated side-effects. They were replaced by second generation antipsychotics (SGAs), which are more effective. The FGAs were linked to a number of side-effects including extrapyramidal reactions suc h as akathasia, tachycardia, tardive dyskinesia, impotence and seizures among many other. These side-effects have necessitated the use of other drugs such as anticholinergics in order to handle the resultant side-effects such as motor side effects. ... A number of researches have been conducted to determine the effects of atypical antipsychotics on abnormalities in lipid and glucose metabolism as well as weight gain, otherwise known as metabolic syndrome (MetS). The MetS denotes a combination of increased waist circumference and any of the following two abnormal conditions-a low high density lipoprotein level, hypertension, and high levels of serum triglycerides and/or fasting blood glucose. The fact that both generations of drugs present various side-effects poses greater challenge for practitioners trying to make decisions on which medication to apply in FPP cases. The dilemma on typical versus atypical antipsychotics; as well as whether to use atypical psychotics in FEP considering their potentially negative effects on diabetes and cardiovascular conditions makes this an interesting choice for review. The case study and articles’ review specifically reviews three research articles in relation to the case study in question . The first article reviews the development of metabolic abnormalities as a result of atypical antipsychotics on patients receiving these drugs for FEP through a cross sectional, naturalistic retrospective study. The article’s objective is to develop recognition of the impact of atypical antipsychotics in developing metabolic abnormalities in young patients under FEP treatment. The second article examines results from a naturalistic and prospective study in which the effects of antipsychotic drugs on the development of MetS are monitored through the measurement of weight and serum levels of insulin, glucose and lipids. The third article delves into the issue of providing evidence that can support or discredit the

Yamaha Business Strategy Analysis Research Paper

Yamaha Business Strategy Analysis - Research Paper Example When looking at the company of Yamaha, it can be seen that there are specific components which drive the business forward as a whole. However, the units of musical instruments and vehicle engines each have specific qualities that provide a different level of growth within the company. This paper will examine these two business units as well as the influences in both the internal and external environment. This examination will help to create a different set of ideologies of how the business should move forward, specifically with these two specialized units. Introduction Growth that is within a specific segment of a business is dependent on both internal and external variables that are noted among those within a given business. Today, the global marketplace is changing the way in which most corporations are working as well as the associations which are related to the businesses and the associations with the changes that are progressing and in demand. When looking at the business segmen ts of Yamaha, it can be seen that different segments require targets, positioning and new brand value to ensure the success of the products. Two of the segments which define this are the musical instruments and the vehicle engines that are defined by Yamaha. These two segments relate to the overall corporate strategy while creating an effective turn – around with the business and the way in which it is able to provide various components for the growth of the company. This paper will examine the current positioning of Yamaha, as well as the units which are located within the company. These two units will be further defined by the current position that Yamaha is in, specifically by analyzing both of the segments through various models. The components that are a part of the Yamaha segments will then be defined with strategies which should be approached to ensure continuous growth and success within the company while ensuring that there is the ability to create a stronger develop ment of the musical products and the vehicle engines. Changing the approach and focusing on the internal and external environment in a different manner ensures the success of the company while allowing for new approaches to redefine the needs within the corporation. Background of Yamaha The overall ideologies behind Yamaha began in 1887 as a forerunner to the industrial age. The company began in Japan with the focus on reed organs which could be mass produced. The ideology of Yamaha quickly expanded into musical instruments, audio – visual products, semiconductors, computer products, sporting goods, home appliances and specialty industrial tools. The growth within each of these corporations continues to segment into services and products that are a part of the main corporation and which have led to several branches which are supporting the main products offered by the company. The overall mission of the business is to provide innovative products and services with the various branches of service which are offered. The philosophy is known as kando together, which is based on enriching culture and technology with different products. This is combined with the vision of offering the products to households and businesses while providing services of the basic needs and entertainment that is associated with individuals in various societies. Today, each of the market divisions continue to create a strong presence with the general mission and vision while remaining at the cutting edge of new services and products that are related to the main products which Yamaha was founded from (Yamaha, 2011). Background of Yamaha Musical Instruments The musical instrum

Consumer Behaviour Term Paper - Company Analysis Essay

Consumer Behaviour Term Paper - Company Analysis - Essay Example BA is traded on the London Stock Exchange and the New York Stock Exchange.(LSE:BAY,NYSE:BAB)The current share price, as on 27th march is  £499.(with a 52 week high of  £579.5 and a low of  £277.0). The origin of British Airways corresponds to the origin of the civil aviation industry in the world. On Aug 25,1919 British Airways forerunner company Aircraft Transport and Travel(AT&T) introduced the world’s first daily international scheduled air service between London and Paris. On 31st March 1924, Britian’s four airlines-Instone, Handley Page, Daimler Airways and British Air Marine Navigation-were amalgamated to form Imperial Airways. In 1935 a number of small UK air transport companies merged to form the original privately owned British Airways Ltd.In 1939 Imperial Airways and British Airways were nationalized to form British Overseas Airways Corporation(BOAC).After the second world war BOAC continued to operate long-haul services while continental European and domestic flights were operated by a newly formed company-British European Airways(BEA).In 1972 BOAC and BEA were combined under the British Airways Board which lead to the creation of British Airways in 19 74. In 1981, a management team was instituted under the chairmanship of Lord King with the objective to run the corporation on more commercial lines turns around its financial performance and prepare it for potential privatization (which implied full transfer of ownership to the private sector rather than simply a sale of minority interest.)The new regime sought to re-organize the company in a number of ways including the following: BA continued to be a public corporation until 1984 when it became a public limited company (plc) in readiness for floatation. In early 1987 the Government sold the entirety of it’s stake in the airline,ie;no minority interest was retained and sales proceeds of  £900 million were realized. The company is enjoying robust financial health. For the year ending 31st March

International Trade and Tariff Essay Example for Free

International Trade and Tariff Essay Tariffs Explain the various impacts of an import tariff in small nations vs. large nations. The impact of an import tariff in a small nation is entirely unlike then an import tariff from a larger nation. When smaller nations imposes a tariff, it does not affect world prices, however the price of the importable commodity will start to rise, usually by the amount of the tariff for manufacturers and trade in the small nation. When large nations impose a tariff, it will reduce the volume of trade. Large nation tariffs also improve terms of the nation’s trade. Since the volume of trade is being reduced, it tends to lesson the nation’s welfare. However it also can improve the nation’s welfare. It depends on the welfare of the nation to if it actually rises or falls depending on the two conflicting forces. What are the three main reasons governments prefer using a tariff to restrict imports versus quotas? A few reasons why tariffs are better option than import quotas is because, tariffs can generate revenue for the Government, import quotas can lead to administrative corruption, and import quotas can cause smuggling. The reason the government can make money off of tariffs is because there can be a percentage put on imported goods that will generate extra money. There are millions of different things that are imported into a country and the small percentage of tariffs generates a lot of revenue that would be lost of the government unless their trade had an authorizing fee on goods being imported. This can lead to administrative corruption, if there are no restrictions on importing goods then the government has the ability to pick and choose who can import and who cannot. This can give the custom officials a lot of power since they would have the ability to favor and only allow certain corporations. Tariff system helps to rid the possibility of corruptions. This not just the price, but also the quantity sold through supply and demand. Smuggling can occur with an import quota when there are large shortages. A tariff cannot provide a set number on the goods or products that are coming into the country so the number of imports will increase when the demand for it goes up. Should our government use a weak dollar exchange rate policy to make imports more expensive in order to help our exporters? The weakening of the U. S. dollar means that the dollar has fallen in value compared other currency. The weak dollar is good for exports, but not good for importers. The value of currency will decrease when the demand for that specific currency is low, which will make importing goods more expensive. A weak dollar can make things difficult for exporters that are selling to the United States. If a foreign company wants to sell goods to the U. S. it either needs to up the price of the product or sell it at a lower price because of the exchange rate. What roles do the IMF and WTO play in trade and the use of tariffs? The IMF or International Monetary Fun is an global business of countries that strives to guarantee the constancy of the worldwide financial and economic system. The IMF tries to make sure that there is balanced growth to international trade, it promotes exchange constancy and helps to give countries a way to balance payment issues. Tariff rate data comes from the IMF database and the country’s authority figures. The WTO or World Trade Organization is a global company that works on the rules of trade between two countries. It helps to ensure that international trade moves smoothly and generously. It also gives countries a helpful and just outlet for dealing with arguments over importing issues. The WTO regulations permit a nation to defend certain businesses if the elimination of tariffs would have detrimental side effects, such as the loss of necessary national trade.

Discuss Marx Concept Of Alienation Sociology Essay

Discuss Marx Concept Of Alienation Sociology Essay Alienation is the idea that a working class man is alienated from his essential nature and individuality, economic and spiritual being Churchich (1990).This essay will outline what alienation is and examples given by Marx and his view on who is to blame, the four main concepts of alienation will be discussed as well as support and criticism. Marx puts alienation down to the divide in labour and private property which is seen as dehumanizing society. Marx based his ideas on Hegel and Feuerback however also criticized their views. He agreed with Hegels idea that people can become alienated from themselves but doesnt believe people alienated themselves. Feuerbacks views from The Essence of Christianity 1814 were that people view of god is the means of how people view themselves and when people worship god they in fact worship themselves. He believes when people place something higher than themselves they consequently become alienated from their being. Marx believed religion tries to divert peoples attention away from the truth about alienation. Marxs view of alienation in labour can be interpreted as the way a worker feels a sense of foreignness to products of their own labour. This is experienced by working class people in factories who were put into long and awful conditions of work to survive. They were uneducated, in unfortunate positions, treated badly and poorly paid. Due to these conditions the workers started to underbid one another to get a days work in order to support their families. Marx thought the working class factory workers need to join hands to make an improvement on their working conditions. He suggests that workers need to obtain their rights and require more pay and better working conditions. Marx, in his  Estranged Labor from Economic and Philosophic Manuscripts believed a worker becomes similar to a alienated animal. He believes the workers labour belongs to someone else so a man only through his animal functions can freely express himself. These functions are everyday tasks in their own house, drin king and eating, reproducing and so on. Marx believes a worker feels more like an animal in his human functions so eventually animal functions become human functions and vice versa. Marx alienation notion is in theory quite influential and powerful because it gives an account of how human life is degraded however it makes clear that it is not expected or natural. It provides a detailed explanation of the experiences of labour. Marxs theory of alienation shows the results of capitalist production on the physical and psychological state of people and on the social situations they engage in or are part of. This was Marx method of seeing his contemporaries so he could understand and explain how they interact and relate to each other. Marx proposed 4 types of alienation based on a regular factory worker under capitalism. There are two divisions in the private ownership system; workers with no property and owners of property. Due to this divide in society workers not only are the workers poor but they also have to suffer alienation from the world. The first type of alienation is the concept of what a person produces or makes does not belong to them. The idea that everything produced by a person only benefits the world which they do not fit into. Rubin (1990) outlines a quantitative and a qualitative part to how goods are produced he said the worker doesnt really get paid for the amount of labour put in so is exploited This benefits capitalism as the more alienated the worker becomes the more work he does. Qualitatively, the worker puts creativity into the product he creates however is not given creative labour to replace it. He believes that with capitalism, work doesnt inspire or introduce workers to new things; i nstead it takes away a persons energy and wears them out. An individual helps to make all these objects that he does not own himself which makes them feel and look smaller compared to this world. They may help create an expensive car, build houses or make expensive clothes which they cannot afford. The second form of alienation is the work process. It is separation of the worker from the work itself for example the job performed does not belong to them instead it is a way of survival in the world. They are not doing the job for themselves but for someone else. This kind of work does not allow a person to become creative as it does not come from his own accord as they are following instructions from others, instead indicates a loss of self worth for the worker. For example when a person works at a call centre doesnt create anything, follows the same method, copies a script and doesnt get to make any important decisions. It becomes dull and automatic so the mind doesnt have to be used. The worker doesnt have control over the conditions and organization of work nor do they have any control on how it influences them psychologically or physically. This reduces a persons ability to be creative. The third type of alienation is the alienation from other humans. Instead of spending time with people you want you have to work with people whether you do or do not like them. In society there is some resentment or dislike between the different class structures which is partly to blame for this type of alienation. People become alienated from people who take advantage of their labour. According to Cox (1998) Marx said if the worker is tormented by his work then it must give delight to another. If a man views his activity as unfree and not something they wish to do then he views it as under the order, force or oppression of another person. Workers are linked to people through the products they produce however dont personally connect to them. Each day people may wear clothes, eat food, live in houses, use tools created by people who have worked to make them however they are not known personally instead they are known only through the products brought and consumed. Man doesnt see his f ellow man as equal instead as higher or lower than them in society. People dont know each other individually but as products of capitalism however the capitalist society is more individual and independent compared to the working class. According to Korkotsides (2007) People take things for their own use irrespective of how it was produced and under what conditions or circumstances. As Marx supposed that people in working class are generally the most alienated, the liberation from alienation will have to begin with liberating the working class. Marx believed production of goods frequently makes new desires to use human powers for money and benefit instead of improving the abilities of humans. People see each others as rivals and as inferior or senior to them. The fourth type of alienation is a persons alienation from species-being, or human individuality. Humans base their life around work it is an essential part of life for the working class. Human identity is formed by doing work without thinking for example when doing the same job day in day out a person becomes lifeless in terms of personality and identity and becomes more like a robot. In the private ownership system a worker is alienated from their purpose of life and individuality essential for a human being. What makes a human is the skill to shape the world around by thoughts, abilities and actions however under the capitalist society this is not always the case. Labour is pressured and forced and does not relate to a persons personal preference or interests. According to Cox (1998) Marx suggests workers benefits capitalism by constantly producing for them however even though he helped make them successful and wealthy doesnt get much recognition or benefit from it. In his manuscr ipt he said that capitalists make palaces for the rich but hovels for the working class. It throws some workers into cruel ways of labour and makes some workers into machines. It gives them brainpower but makes stupidity and cretinism at the same time. Humans have socials skills so they can work together to develop on their interests however capitalists divide humans and put all their effort and interests into labour. When a capitalist is bettering production in their factory, without knowing they can be reducing profit rates for their own class by slowing down the profit rate. A company may produce to accomplish a sharp demand, however when the products are in store they may find other companies have already done it first. Sometimes more than what is required is produced and is not needed. Recessions in capitalism means labourers consume less as more then whats required is produced this is down to their work being too productive. Marx view of a content person was not someone with many material possessions but someone who is happy in their life in terms of good emotional contact with other people, education, and a person who may not have many possessions but is not scared to say what he feels. An unproductive worker who dosent wants to contribute to political processes in Marx eyes is a victim of alienation. He highlights what a person can be and how they should be independent and not concentrate on what they possess. Marx view is supported by Kant and Fiche who thought workers should stop being inactive like the workers were in history and start becoming active producers of their own future. Marx alienation concept is influenced by Hegel therefore there are similarities with both theories. Hegel thinks self-alienation is to be conquered with the advance and development of history Sayers (2003). They both agree that the spiritual and social parts of alienation and their how they can be defeated are combined. On the other hand Hegel believed alienation is defeated in society at present which Marx disagreed with. According to Sean Sayers (2003) Kierkegaars also backed Marx view he believed man today is alienated from one self and in mankind due to prejudice and lack of individuality. According to Churchich (1990) alienation was seen as mainly religious and it had more of a psychological meaning linked to the soul however Marx disagreed believing alienation is down to man not nature or god. Marx disagreed with Hegels idea that alienation is originated in nature of human life and says he reduced history to just thoughts, observing real events and objects merely as manifestations of spirit. A Humans contentment and needs have to be linked to the forms of production in order to be measured. Humans are different to animals in terms of their needs because nature decides an animals natural needs are and a humans needs are essentially social and historically established by themselves. He believed creativity separated humans from animals. Marx argues a persons consciousness of the requirement for certain things is a product of concrete historical situations and cant be decided by just thoughts. Marx and Smith had a similar thought as they worked on putting an end to capitalists exploiting the working class and believed society and economy ought to centre their attention on making peoples lives better. Despite this they do differ on the means of economy. Both Smith and Marx see labour as divided and see it as the key feature of capitalism. According to Meek (1977) While Smith views capitalism as an advantage to not only society but on a person too. He believes a person sees power as a natural need; their wish is to stand out, elevate themselves and obtain a source of wealth. Marx sees capitalism purely as unnatural and a disadvantage to a worker. Marx believed capitalists have a strong social and economic foundation and the only way to conquer alienation is when this changes. Support for Marx idea that alienation is dividing a person from their labour is for example a person works to earn a living and will get paid but ultimately the company profits from this. The worker wont earn as much money compared to the amount of work put in therefore the company will get more profit by underpaying the worker causing the worker to disconnect. A criticism of Marxs alienation theory is its seen as not scientific and cant be used for experimental research. The problem with this criticism is Marxs alienation concept is centred on historical tests and it studies labour when it is not controlled by authority. Another criticism is Marx states that nearly all work is alienated and the worker does not benefit from their work however this may not always be the case for some. If a mechanic fixes a car he may not have one himself however he will learn a skill which can be useful for him in the future or may have personal satisfaction from doing the job to the best of their ability. Another example is that of a blacksmith may own a shop working the hours he wants, deciding any important decisions as well as setting his own working environment, creates his own product and makes the decision of how they sell. Most importantly the communication with customers is more of a personal nature than professional. There are many examples of modern alienation for example when a worker doesnt get enough from capitalist work he may take out loans from banks to buy the products they create, for example a big house or a car. They are exploited by mortgages and loans however if they become unemployed it is all taken away from them. The resolution to alienation isnt to look back at history but to recognize what can be done in todays society and how it can be transformed. A book by Oliver James describing the Affluenza virus supports Marx where he blames capitalism for creating alienation. The Affluenza virus is sets of principles that makes people more open to emotional distress. This is done by putting importance on obtaining wealth, goods and fame. He suggests changing the way people live their life to conquer this which isnt always easy for people to do. Alienation isnt that easy to solve when oppression and exploitation exist in society. To summarize Marx early works was influenced by Hegel and Feuerbach. His alienation theory is the debate that the life of work in a capitalistic society disadvantages them of enjoyment or creativeness of labour. He saw creativity as a vital aspect of living and this kind of labour not only alienates them from their work but also from their independency in effect causing dehumanization. The example of factory workers supports Marxs view that capitalists exploit the working class and the four concepts of alienation workers go through describe how they are alienated. According to Marx alienation will continue to exist along as capitalism is around. References Churchich, N, (1990). Marxism and Alienation. 1st ed. U.S: Associated University Presses. Sean Sayers. (2003). The Concept of Alienation in Existentialism and Marxism. [ONLINE] Available at: http://www.kent.ac.uk/secl/philosophy/articles/sayers/alienation.pdf. [Accessed 22 November 12]. Ronald L. Meek. (1977). Smith, Marx After. [ONLINE] Available at: http://cas.umkc.edu/econ/economics/faculty/henry/courses/Econ506/Readings/Meek.SmithMarx.pdf. [Accessed 23 November 12].

Must Christians Chose Between Evolution and Creationism? Essay

Must Christians Chose Between Evolution and Creationism? The debate of evolution and creationism has extended since the beginning of time. In fact, it is not even as simple as these two opposing views. Each person seems to have formed their own theory which has a unique list of beliefs and dimensions. This makes a complex and difficult task when trying to find agreement between each of these unique theories. However, many Christians are finding it necessary to discover an alternative to the extremist views of evolution and creationism. An article on the world wide web entitled the "Theory of evolution vs. creation," summarizes the debate between evolution and creationism. According to this article, the controversy between these theories began because of two differing beliefs on the meaning of life. It states that, "Evolutionists use the scientific method which assumes that everything happens as a result of natural forces, not by the command of a deity. They will usually trace origins back to the `big bang.' And when skeptics ask what happened before the big bang, scientists may offer some guesses, but will usually admit that they don't know." On the other side of the debate, the creation scientists believe that, "God created the universe, including the earth and its life forms. And when scientific skeptics ask who created God, creationists will usually reply that God has always existed and was not created."(OCRT,1996) A battle between the two theories erupts because evolution and creationism delve deeply into philo sophical and theological conceptions. More likely than not, the evolution and creationism debate is an issue of religion. On religious grounds such as these, science is not prepared or adept to resolve the exi... ...tion Controversy. Boston, Massachusetts: Beacon Press. Myers, Jesse. (1996). Biology Senior Seminar Student Papers: A Look at Scientific Creationism. Wright, Richard T. (1989). Biology: Through the eyes of faith. New York, New York: HarperSanFrancisco. Zabilka, Ivan L. (1992). Scientific Malpractice: The Creation/Evolution Debate. Lexington, KY: Bristol Books. Zook, Marc E. (1987). Biology Senior Seminar Student Papers: Origins:A Collection of Thoughts. Web Resources: What are Evolution and Creation Science? [Online] Available: www.religioustolerance.org/ev_evol.htm [November 1996] History of the Conflict of Evolution vs. Creation Science. [Online] Available: www.religioustolerance.org/ev_hist.htm [November 1996] Theory of Evolution vs. Creation Science. [Online] Available: www.religioustolerance.org/evolution.htm#menu [November 1996]

The Problem of Power in Shakespeares Macbeth :: GCSE English Literature Coursework

The Problem of Power in Macbeth      Ã‚   "Power poisons every man who covets it for himself" (Chute 126). In the Shakespeare's play, Macbeth, the character, Macbeth, kills the respected King Duncan in his quest for power. However, during his rule, Macbeth demonstrates that he is incapable of mastering the power and responsibilities of being a king. His drive for power and maintaining his power is the source of his downfall. Macbeth is not meant to have authority beyond Thane of Cawdor. When Macbeth is king, he does not use his authority judiciously.    Macbeth's eventual demise is by virtue of his obsession for power and retaining his power. Before he desired the power of being king, Macbeth was a respected noble. He was labeled, "brave Macbeth" (Act I, scene, ii, line 16) for his actions in battle. During a conversation between Duncan and the Captain, the Captain describes how Macbeth brutally slew the rebel Macdonwald:    Disdaining fortune, with his brandished steel, Which smoked with bloody execution, ... Till he unseamed him from the nave to th' chops, And fixed his head upon our battlements (act I, scene, ii, lines 17- 23).    In his speech, the Captain describes Macbeth's violence to indicate what a good warrior he is thus showing that he has respect for Macbeth. Once Macbeth became king, he became overpowered with keeping his authority. Macbeth realized that he was being used just so that Banquo's sons can inherit the throne:       They hailed him father to a line of kings. Upon my head they placed a fruitless crown, And put a barren sceptre in my gripe, Thence to be wrenched with an unlineal hand, No son of mine succeeding (act III, scene 1, lines 60-64).    Macbeth feeling this way convinces a pair of men to kill Banquo and his son Fleance. By having Banquo and Fleance murdered, Macbeth believes that it will prevent Banquo's sons from becoming king. Macbeth also hires the murderers to kill Macduff's family. This demonstrates Macbeth's obsession because it indicates that Macbeth values his power over his friends. His obsession with power causes Macbeth to feel guilty and lose his sanity. Macbeth's guilt and loss of sanity is indicated in the hallucinations he experiences. His first hallucination occurs just before killing King Duncan. Macbeth sees "A dagger of the mind, a false creation" (act II, scene I, line 38). The Problem of Power in Shakespeare's Macbeth :: GCSE English Literature Coursework The Problem of Power in Macbeth      Ã‚   "Power poisons every man who covets it for himself" (Chute 126). In the Shakespeare's play, Macbeth, the character, Macbeth, kills the respected King Duncan in his quest for power. However, during his rule, Macbeth demonstrates that he is incapable of mastering the power and responsibilities of being a king. His drive for power and maintaining his power is the source of his downfall. Macbeth is not meant to have authority beyond Thane of Cawdor. When Macbeth is king, he does not use his authority judiciously.    Macbeth's eventual demise is by virtue of his obsession for power and retaining his power. Before he desired the power of being king, Macbeth was a respected noble. He was labeled, "brave Macbeth" (Act I, scene, ii, line 16) for his actions in battle. During a conversation between Duncan and the Captain, the Captain describes how Macbeth brutally slew the rebel Macdonwald:    Disdaining fortune, with his brandished steel, Which smoked with bloody execution, ... Till he unseamed him from the nave to th' chops, And fixed his head upon our battlements (act I, scene, ii, lines 17- 23).    In his speech, the Captain describes Macbeth's violence to indicate what a good warrior he is thus showing that he has respect for Macbeth. Once Macbeth became king, he became overpowered with keeping his authority. Macbeth realized that he was being used just so that Banquo's sons can inherit the throne:       They hailed him father to a line of kings. Upon my head they placed a fruitless crown, And put a barren sceptre in my gripe, Thence to be wrenched with an unlineal hand, No son of mine succeeding (act III, scene 1, lines 60-64).    Macbeth feeling this way convinces a pair of men to kill Banquo and his son Fleance. By having Banquo and Fleance murdered, Macbeth believes that it will prevent Banquo's sons from becoming king. Macbeth also hires the murderers to kill Macduff's family. This demonstrates Macbeth's obsession because it indicates that Macbeth values his power over his friends. His obsession with power causes Macbeth to feel guilty and lose his sanity. Macbeth's guilt and loss of sanity is indicated in the hallucinations he experiences. His first hallucination occurs just before killing King Duncan. Macbeth sees "A dagger of the mind, a false creation" (act II, scene I, line 38).

Bulima Nervosa Essay -- Research Eating Disorder Essays

Bulimia Nervosa Bulimia nervosa is a disease that predominately affects young females. Since the origination of its medical definition various studies have been implemented to examine the cause of onset and effects of bulimia nervosa. There have also been studies surveying the long-term outcome of bulimia nervosa. These long-term studies have analyzed such relationships as age, employment status, social status and marital status and bulimia nervosa. By using three scientific studies of long-term outcome of bulimia nervosa, this paper will try and evaluate the research obtained and offer critical suggestions to help further studies on this topic. The first study, "Bulimia nervosa: a 5-year follow-up study," uses a follow up sample of thirty-six patients, which consisted of 72%of the original sample. The original sample was comprised of fifty patients who were consistently referred to the Academic Department of Psychiatry at the Royal Free Hospital. Of the fifty patients, one was male. All of the patients were diagnosed with bulimia nervosa during their initial visit and met DSM-III criteria for bulimia. The ages of the sample ranged from 14 to 40 years with a mean age of 23.5. Also the onset of the disease ranged from 10 to 36 years of age with a mean of 19 years. The follow-up study began no less than five years after their initial visit with an average duration of 5.10 years. The patients were contacted through the mail, and of these fifty patients, 41 were traced, one had died, 5 were unable or refused to participate and 36agreed to participate. The study evaluated the general outcome of each patient, which consisted of th ree categories: Good outcome, Intermediate outcome and Poor outcome. The poor behavioral outcome g... ...er to be cured of the disease through support of a relationship and satisfactory social outcome. This study gives a general association. Again, I also find it hard to distinguish treatment programs since each case is individual. Yet, perhaps with more long-term studies in the future bulimia nervosa will be thoroughly understood, and the difficulties I mentioned will be obsolete. Works Cited: Dayson, D., Johnson-Sabine, E. & Reiss, D.(1992). Bulimia Nervosa: A 5-Year Follow-Up Study. Psychological Medicine, 22(4), 951-959. Johnson-Sabine, E. & Reiss, D.(1995). Bulimia Nervosa: 5-year Social Outcome and Relationship to Eating Pathology. International Journal of Eating Disorders,18(2),127-133. Keel, P.K., Mitchell, J.E., Miller, K.B., Davis, T.L. & Crow, S.J. (1999). Long-term Outcome of Bulimia Nervosa. Archives of General Psychiatry, 56(1), 63-69.

Personal Philosophy of Supervision Essay

In order to meet the needs of their students, administrators must practice effective supervisory practices. School leaders must be knowledgeable on the most recent research of supervisory practices. Principals must also be knowledgeable of professional development in order to enhance their teachers’ knowledge and skills. An administrator’s will be able to use diversified supervision to be able to provide support and guidance where it is needed most. Good connection between knowledge, skills and effectiveness! Professional development is essential in providing opportunities for educational staff members to learn about the latest topics in education. The purpose of this professional development is to continually educate educators to improve the quality of instruction in their classrooms (Glickman, Gordon, & Ross Gordon, 2008). As an educational leader I must build and support a community of learners. I must set the expectation that all members of our school community are learners and highly capable of achieving great things. I believe every member of our community is gifted in some way and can contribute to the success of the school (Sullivan, 2009). By valuing each staff member, parent and learner I am able to lead a culture of inquiry where there is an open and easy exchange of ideas and members are able to live what they really feel and care about. As a teacher I care deeply about my students and their beautiful, unique and interesting development as human beings. As a principal that will change to the entire school community–the teachers and their passions, the parents and their hopes and concerns, the lunch crew and their desire to do the best they can. The physical image of an ache, a yearning felt deeply, is something I hope to engender in our school community. When a community aches with caring personal agendas are set aside and a shared vision and purpose is embra ced. Wow!!! What a strong paragraph! I can see from this that you will be a passionate leader. When a community cares they embrace their responsibility  to keep learning and they thrive on moving ahead and away from status quo. As the leader of this community I must take the time to know our needs and challenges and skillfully manage tasks and resources to support our efforts. I believe a strong school leader builds a community of leaders. As a leader, always learning, I have the experience and confidence to share leadership with my staff and school community. Through relationships I have built I recognize and utilize opportunities for shared leadership. Involving all members of our school community results in shared ownership and investment in our end goal–the education of children. I must have courage to share leadership with my community by modeling risk taking and trust and turn over some decisions (Lipton, 2007). I also must be careful to follow-up and support those who take on leadership roles so I can be accountable for the actions of our community and the end results. As an educational leader I will commit my heart and soul to the success of our school and I will ask the same of our staff, parents and learners. Working together we will create a school community that is warm, safe, challenging and stimulating for all. I recognize leaders run up against hurdles in fulfilling the vision of a program. Leaders live with unpredictable days and under stress and in conflict. Leading with strength and perseverance while remaining connected to the community will navigate the challenges and lead to reaching our goals. My personal philosophy of school leadership continues to emerge as I grow my learning and experience. Each school community I am fortunate to serve wi ll affect me and add to the hue and texture of the tapestry of my life and my career as an administrator. Of the four supervisory approaches I identify myself with the collaborative approach most. Directive control involves the supervisor taking over an educator’s issue, identifying the problem and instructing the teacher to what he or she thinks needs to be done (Glickman& Gordon, Ross-Gordon, 2008). This approach ensures that teachers will use strategies in their classrooms approved by administrators, but is halts teacher creativity and educators will be less likely to take risks without supervisor approval. I feel that this supervisory method should be used as a last resort if a teacher truly cannot make an important decision for themself. The directive informational approach is a method best used for inexperienced teachers (Tschannen-Moran, 2004). With this supervision theory, supervisors identity goals and activities for teacher improvement plans. The supervisor is a source of information and receives quality feedback from teachers. One positive aspect of this method is the amount of feedback given to the teacher from the supervision. One negative, is that the teacher is then not taking full responsibility for teaching practices (Glickman& Gordon, Ross-Gordon, 2008). Nondirective supervision involves the teacher being an essential part of the decision making process. While the teacher is reflecting and thinking through his actions for instructional improvement, the supervisor assists in this thinking and reflection process (Glickman& Gordon, Ross-Gordon, 2008). The positive aspect of this type of supervision includes the teacher feeling comfortable enough to ask their administrator for help when needed and feeling comfortable enough to take risks in their classrooms (Rettig, Lampe, and Garcia, 2000). The negative includes teacher depending too much on supervisors when making decisions. I feel my personal philosophy on supervision aligns most closely with the collaborative style. Collaborative supervision involves the supervisor and the teacher both presenting their ideas and agreeing on a solution to a singular problem (Glickman& Gordon, Ross-Gordon, 2008). This supervisory style allows teachers to participate in the decision making process for their schools. This style will only work however, if teachers are on board to work collaboratively with each other as well as administration. Administrators that use a collaborative style of supervision posses the skills necessary to be a high performing principal. If one can collaborate with others, they have great interpersonal skills, competency and they have enough knowledge to know that if they don’t know all the answers, they are not afraid to seek out others to help solve school issues. All students can learn, the trick is discovering what learning style works best for each students. Leaders work in the same way. They have to discover  what type of leadership style will motivate teachers the best. In turn, it is up to the teacher to get to know the students needs and provide them with the tools to be successful. With this educational belief, I am inclined to use collaborative supervision to ensure teachers feel important and a part of the decision making process of the school. Teachers are essential to the school, and should feel that they are as well. I believe all the supervisory styles will be needed at different times and with different teachers, but I connect best with the collaborative supervision belief. Lauren- Your paper examines the reasons for the selection of your philosophy and it is well supported with logic and examples. The philosophy you best identify yourself with is the collaborative approach. You have explained how your supervisory approach aligns with this philosophy. Your examples like the importance of community involvement and passion do a nice job of supporting your thoughts. You have incorporated good supporting research and your paper is written at an appropriate level for a college paper but you do have a few errors that a proofreading should eliminate. Good job! References Glickman, C.D., Gordon, S.P., Ross-Gordon, J.M. (2014). Supervision and instructional leadership: a developmental approach (9th ed.). Upper Saddle River, NJ: Pearson. Rettig, P.R., Lampe and Garcia, P. (2000). â€Å"Supervising Your Faculty with a Differentiated Model.† The Department Chair 11(2) Lipton, L. (2007). Learning-focused supervision. Training and Education in Professional Phycology, 8(3), 143-148. Sullivan, S. & Glanz, J. (2009). Supervision that improves teaching and learning. Thousand Oaks, CA: Corwin. Tschannen-Moran, M. (2004). Trust matters: leadership for successful schools. San Francisco, CA: Jossey-Bass.

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.