Hoescht Marion Roussel (HMR) is one of the world’s largest research-based pharmaceutical companies. It is headquartered in Frankfurt, Germany. It conducts research in Germany, France, and the United States. Its financial statements are based on the International Accounting Standards of the International Accounting Standards Committee.

Instructions Answer each of the following questions.
1. The statement of cash flows reports interest paid during 1998 of $344 million, while the income statement reports interest expense of $721 million. What might explain this difference? Give an example of the journal entry that you would expect to see that would cause this difference (ignore amounts).
2. Among its liabilities, the company reports provisions for litigation and environmental protection. What types of litigation and environmental protection costs might this company incur? What are the possible points in time that litigation costs might be expensed? At what point do you think these costs should be expensed on the income statement in order to provide proper matching of revenues and expenses? What challenges to matching does litigation present?
3. The notes to the company’s financial statements state that the company records revenues “at the time of shipment of products or performance of services.” Is this consistent with the revenue recognition practices described in this chapter? What considerations might you want to take into account in determining whether this is the appropriate approach to recognize revenues?
FINANCIAL ANALYSIS ON THE WEB