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ACCT7102IndividualCaseStudyAssignment:

BiovailCorporation:RevenuerecognitionandFOBSalesAccounting

TaskDescription:
The financial reporting case study is a comprehensive case study which examines the
specificapplicationofcasescenariosinvolvingprincipallyTopic5(Managerialincentivesfor
financial statement management).The case will also be used to examine student report
writing skills, general accounting knowledge, and ability to critically evaluate complex case
scenarios.

Thecaseistobeundertakenindividuallyandstudentsshouldindependentlypreparetheir
assignment. All cases will be reviewed for plagiarism and independent content. The
Universityhasadoptedthefollowingdefinitionofplagiarism:
Plagiarism is the act of misrepresenting as one's own original work the ideas,
interpretations, words or creative works of another. These include published and
unpublished documents, designs, music, sounds, images, photographs, computer
codes and ideas gained through working in a group. These ideas, interpretations,
wordsorworksmaybefoundinprintand/orelectronicmedia.
Students are encouraged to read the UQ Student Integrity and Misconduct policy
(http://ppl.app.uq.edu.au/content/3.60.04studentintegrityandmisconduct) which makes
a comprehensive statement about the University's approach to plagiarism, including the
approved use of plagiarism detection software, the consequences of plagiarism and the
principlesassociatedwithpreventingplagiarism.

Criteria&Marking:
Afullmarkingcriteriasheetisattached.Ingeneral,thecasewillbeassessedbasedon:
accuracyofanswerandinterpretationofrelevantaccountingstandards;
presentationofathoughtfulandwellsupportedanswer;
clarityofanalysis;and
professional presentation including grammar, spelling, punctuation. This will also be
judgedbasedonitsuitabilitytobepresentedtoafeepayingclient.

Weighting:25%offinalgrade.

DueDate:By4:00pm,Thursday29May2014.
Items (for which no extension has been granted) submitted after the due date and time,
incur a late submission penalty. The penalty is at the rate of 5% (0.4 of a grade) of the total
availablemarksforthatparticularpieceofassessment,foreachcalendardayorpartthereof
thattheitemisoverdue.

Length:Thewordlimitisstrictly15001800words(excludingareferencelist).Anymaterial
exceedingthewordlimitwillnotbereadandthemarkfortheassignmentwillbebasedon
thematerialuptothepointwherethewordlimitwasexceeded.

Referencing style: The appropriate referencing style is that used within any of the top
accountingjournalssuchastheAccountingReview,JournalofAccountingResearch,Journalof
Accounting and Economics, and Accounting, Organizations and Society. All of these journals
areavailableonlinethroughtheUQLibrary.

CaseStudyAssignmentQuestions
ACCOUNTINGISSUESANDRESEARCHCOMPONENT
REVENUERECOGNITION
QuestionOne(Totalmarks:24)
(a) How should the company recognise revenue based on the two possible Free on
Board(FOB)contractstructuresmentionedinthecase?Explain.
(9marks)

(b) There was dissention between the Distributor and Biovail over when title to the
shipment of Wellbutrin
R
passed. How does the accident affect the stated revenue
under the two different FOB contract structures? Explain. (Hint: As part of your
answer,completethefollowingtable).
(6marks)
FOBBiovail FOBDestination
Ownershiptransfers?
(e.g.upondelivery)

Revenueisearned?
(e.g.uponshipment)

Assumingthattherewas
noaccident,onwhich
datewouldrevenuebe
earned?
(e.g.1August)

Whatwasthestatusof
therevenuewhenthe
truckaccidentoccurred?
(e.g.notearnedbecause
titlehadnotpassed)

Whatwastheeffectof
thetruckaccidenton
quarter3revenue?
(e.g.decreased)


(c) Inlightofyouranswerto(b)above,inyouropinion,whywasBiovailfocussedonthe
amountofrevenueimpactofthetruckaccident?Explain.(Hint:Youranswershould
be supported by reference to at least two to three academic research articles.
Concentrate on the general results of the articles. You do not have to completely
understandthestatistical/econometricmodels).
(9marks)

THERELATIONBETWEENANALYSTSANDCORPORATEMANAGERS
QuestionTwo(Totalmarks:18)
(a) How would you describe the Biovale Corporations treatment of Mr Treppel, the
analystwhoissuedthreedowngraderecommendations?Explain.
(3marks)

(b) DoyouthinkthistreatmentofMrTreppelisactuallyrepresentativeofthebehaviour
of Biovail and its executives toward other analysts who cover the stock? Explain.
(Hint:ConsiderthelikelyreasonsforMrTreppelstreatment).
(6marks)

(c) AnalystsfromJPMorgannotedthat(casestudy,p.3):
(ii)Biovailslowqualityearningsinthepastshouldnotbenewstothosefamiliar
withBiovailand(iii)poorearningsqualitydoesnotequalbadaccounting.

Explainwhatismeantbythiscomment.(Hint:Youranswershouldbesupportedby
referencetoatleasttwotothreeacademicresearcharticles.Concentrateonthe
generalresultsofthearticles.Youdonothavetocompletelyunderstandthe
statistical/econometricmodels).
(9marks)

ETHICAL
Question3(Totalmarks:6)
What should management of Biovail have done differently? Explain, including a
considerationofthepossibleconsequencesofthealternateactions.