Discuss the methods of revenue recognition OfficeGopher is currently using and analyse them using IFRS critieria.

Prepare a brief analysis of OfficeGopher's profitability and discuss what you think are the implications for the future. Is there any other information the company could report that would be useful to have? Finally, analyse OfficeGopher's quality of earnings.

ACCT 354 Financial Statement Analysis Winter 2017 Homework 1 - 5% of final grade Due Tuesday January 23, 2:00 PM OfficeGopher Inc. You are a junior analyst with McGill Capital Corporation (MCC) and have been asked by your superior, S. James, to start the analysis of OfficeGopher Inc., a company MCC is considering adding to its equity portfolio. OfficeGopher, based in Waterloo Ontario, provides cloud-based financial and enterprise management computing systems to small and medium sized businesses. The applications allow companies to manage their core business operations in a single web-based platform. OfficeGopher describes their business model as follows: Research & development. The company maintains a team of IT personel that do general R&D to design and development products and general applications. The sales team contacts clients through referrals, web-based adverstising, trade shows etc. The sales team is located primarly in Waterloo, but with some staff situated in other countries. The sales process from initial contact to signing a contract can take between between 1 - 6 months. Once a client is obtained, the technical deparment works with the client to customize the products, implement the applications, and train the client's staff. These training services, and other consulting services provided by OfficeGolpher, are reported as Professional Services and normally consist of contracts between 1 - 6 months. The contract amount is determined before the services start and are billed and recognized as the services are provided. If additional costs are incurred they are billed at the end of the contract. OfficeGopher has had trouble collecting for the cost overages from several clients. Once the applications are operational the client then enters a subscription contract, that can vary in length from 1 - 3 years, with OfficeGopher for the on-going services. The fees for these contracts are billed and collected periodically over the contract life. The revenue is recognized pro-rata over the life of the contract. Collection has not been a problem thus far. If the client cancels the contract before the end of the service period the full amount of the remaining contract becomes due immediately. Sales staff are paid on commission and receive the full amount owed to them when the deal is closed, but OfficeGopher expenses the commission over the first term of the subscription contract (i.e 1 - 3 years). James reminds you OfficeGopher went public in 2012 and explains what she wants you to get started on: \"The growth in revenues has been strong, 64.7% alone in the past two years, and assets have more than doubled in that period, but the company has yet to turn a profit despite strong cash from operations. I would like you to prepare a brief report addressing the following: Discuss the methods of revenue recognition OfficeGopher is currently using and analyse them using IFRS critieria. Remember to consider the related balance sheet and expense accounts in your analysis. Prepare a brief analysis of OfficeGopher's profitability and discuss what you think are the implications for the future. Is there any other information the company could report that would be useful to have? Finally, analyse OfficeGopher's quality of earnings.\" Required. Prepare the report for James. The written portion should be a maximum of 2 pages and you may include 1 page of exhibits or calculations. Exhibit 1 OfficeGopher Inc Financial Information Statement of Income for the year-ended Dec 31, 2016 2015 (Dollars in thousands) Revenue: Subscription and support Professional services and other Total revenue Cost of revenue: Subscription and support Professional services and other Total cost of revenue Gross profit Operating expenses: Product development Sales and marketing General and administrative Total operating expenses Operating loss Other income / (expense), net: Interest income Interest expense Other expense, net Total other income / (expense), net Loss before income taxes Provision for income taxes Net loss Net loss per common share, basic and diluted Weighted average number of shares used in computing net loss per share 2014 328,600 81,200 409,800 248,300 56,100 304,400 199,500 36,200 235,700 55,800 79,800 135,600 274,200 42,200 55,400 97,600 206,800 33,900 37,100 71,000 164,700 78,300 210,200 51,700 340,200 (66,000) 52,700 154,500 38,500 245,700 (38,900) 43,500 118,500 31,900 193,900 (29,200) 65 (8,500) (400) (8,835) (74,835) 900 (75,735) (1.05) 155 (200) (400) (445) (39,345) 2,500 (41,845) (0.60) 165 (180) (50) (65) (29,265) 1,700 (30,965) (0.47) 72,000 70,000 66,000 Balance Sheets as at Dec 31, (Dollars in thousands) 2016 Assets Current assets: Cash and cash equivalents 384,620 Accounts receivable, net of allowances of $800, $700 and $400 as of December 31, 2016, December 31, 2015, and December 31, 2014, respectively 86,800 2015 2014 179,055 139,750 64,800 39,100 Deferred commissions Other current assets Total current assets Property and equipment, net Deferred commissions, non-current Goodwill Other intangible assets, net 38,100 23,000 532,520 48,200 8,400 84,500 20,500 27,000 9,000 279,855 27,200 4,800 35,600 12,400 22,900 8,600 210,350 21,800 3,600 27,500 12,200 Total assets Liabilities and total equity Current liabilities: Accounts payable Deferred revenue Accrued compensation Accrued expenses 694,120 359,855 275,450 4,800 211,700 24,500 21,700 3,500 154,000 18,800 12,000 1,900 105,800 17,750 8,300 16,700 10,000 7,800 279,400 198,300 141,550 254,000 12,900 7,400 5,600 15,800 5,400 5,700 282,700 562,100 12,800 211,100 11,300 152,850 396,600 193,000 (457,580) 132,020 694,120 409,600 121,000 (381,845) 148,755 359,855 393,600 69,000 (340,000) 122,600 275,450 Other current liabilities (including note payable to related party of $3,000, $1,600 and $2,100 as of December 31, 2016, December 31, 2015, and December 2014 respectively) Total current liabilities Long-term liabilities: Convertible senior notes, net Deferred revenue, non-current Other long-term liabilities (including note payable to related party of $8,700, $400 and $2,000 as of December 31, 2016, December 31, 2015 and December 31, 2014, respectively) Total long-term liabilities Total liabilities Total equity: Common stock Contributed Surplus (Stock compensation) Accumulated deficit Total equity Total liabilities and total equity Statement of Cash Flows, for the year-ended Dec 31, 2016 2015 Cash flows from operating activities: Net loss (75,735) (41,845) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation Amortization of other intangible assets Stock-based compensation Amortization of deferred commissions Changes in operating assets and liabilities Accounts receivable Deferred commissions (current and long-term) Other current assets Accounts payable Accrued compensation Accrued expenses Deferred revenue (current and long-term) Other current liabilities Net cash provided by operating activities Cash flows from investing activities: Purchases of property and equipment Capitalized development & Other intangibles Business acqusitions Net cash used in investing activities Cash flows from financing activities: Proceeds from issuance of convertible 0.25% senior note Repayment of convertible notes Other long-term liabilities Payments to repurchase common stock Proceeds from issuance of common stock Net cash provided by financing activities Net change in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 9,300 6,900 72,000 55,500 6,400 2,800 52,000 45,300 (22,000) (70,200) (14,000) 1,300 5,700 9,700 63,200 6,700 48,365 (25,700) (50,600) (400) 1,600 1,050 3,700 50,000 2,200 46,505 (30,300) (15,000) (48,900) (94,200) (11,800) (3,000) (8,100) (22,900) 310,000 (56,000) 10,400 (30,000) 17,000 251,400 205,565 179,055 384,620 (300) 16,000 15,700 39,305 139,750 179,055