11. [Acquisitions and stock prices] The following extracts are taken from a story in the Financial Times on March 29, 2001. page 15 Cnco Puts New Acquisitions on Hold Cisco Systems, the largest networking equipment com- pany, has put an informal hold on making any more ac- quisitions as a result of the dan in the high-tech market and Cisco's own share price The decision is expected to last until the high-tech market starts to recover, according to executives Cisco's share price has fallen by more than 40 per cent this year partly because of a steep decime in the order book. Cisco typically acquires companies by issuing new shares.9. Immediate write-off of goodwill] On October 11. 2000. China Mobile [941] announced that it would write off HKS242 billion of goodwill resulting from the acquisition of seven wire- less networks. The total purchase price of the acquisitions was HK$256 billion.

a. Compare the impact of the immediate write-off of goodwill with the treatment under both U.S. GAAP and IASB GAAP. Your answer should include the impact on each of the follow- ing in the periods following the acquisitions. (i) Shareholders' equity (ii) Asset turnover (iii) Return on equity (iv) Earnings per share (v) Cash from operations

b. Based on your answers to part

a, discuss the advantages of immediate write-off from the perspective of China Mobile

c. Describe the adjustments to China Mobile's financial state- ments that you would make when comparing the company with another firm that uses (i) U.S. GAAP (ii) IASB GAAP 10. [Goodwill impairment] Safeco [SAFC | is a large U.S.-based insurance company whose eamings were depressed by heavy competition and disappointing results from a major acquisition. Iffective March 31, 2001. Safeco elected to change its account- ing policy for assessing goodwill from one based on undiscounted cash flows to one based on a market-value method. As a result, Safeco recorded a one-time write-off of $916.9 million after tax.

a. Explain why the change in accounting policy would be likely to result in a goodwill write-off.

b. Describe the effect of the write-off on the following subse- quent to the write-off (i) Return on equity (ii) Debt-to-equity ratio (iii) Cash from operations.