Question 190.04 (Case Analysis) Part A-Leasing (CLO 2) Part B - Financial Reporting (CLO 4) Students have the option to answer either Part A or Part B. *DO NOT ATTEMPT BOTH PARTS* Part A Based on the FASB and the IASB capitalization criteria under accounting for leases, The Japanese Heavy Company and Parker Drilling Company have signed a leasing contract for Heavy Oil Drilling Machine of 7 years economic life. The lease contract is for 0.714 time of its economic life under 100% fair value which is around $25,000,000 and 10% residual value. Based on the right lease amount equation, $6,500,000 as a rental payment have to be honored at the beginning of each year. In line with the term of agreement, the lessee has to pay all the executory cost which is estimated to be $310,000. Coping with the government regulation, SLM will be adopted. The interest rate (6%) equals 60% of the RRR. Required: 1. Compute the present value of the minimum lease payment from the leaser and the lessee perspective. 2. Develop lease amortization schedule on annuity-due basis for the leaser and the lessee. Part B The following information was derived from the records of a manufacturing company operating business in the North Africa. ($ 000's) Year 1 Year 2 Year 3 Fixed Assets (Gross) 1,315 1,490 2,600 Fixed Assets (Net) 1,210 1,300 1,950 Current Assets 1,664 1.720 1.998 Intangible Assets 211414 625 Accounts Receivable 0.12 CA 0.21 CA 0.15 CA Inventories 0.10 CA 0.20 CA 0.34 CA Cash 400 670 760 Marketable Securities 180 190 170 Other CA Total Assets Current Liabilities 40% TL 42% TL 62% TL Financial Leverage 60% 52% 48% ROTA 14% 16% 12% ROE Net Operating Cashflow 60% Cash 72% Cash 62% Cash Asset Turnover 1.60 1.52 1.50 Gross Profit % 29% 28% 26% The manufacturing company is planning to raise fund from the Abu Dhabi Commercial Bank with an Equity of $5,450,000,000, Total Financial Reserves of $51,000,000,000 and Lending Capacity of $49,000,000. Required: 1. You have been requested to provide full recap analysis of the performance of the manufacturing company for the period Year 1, Year 2 and Year 3. 2. Based on the performance of the company, you have been asked to give opinion on its intention to raise funds from the Abu Dhabi Commercial Bank. Question 190.04 (Case Analysis) Part A-Leasing (CLO 2) Part B - Financial Reporting (CLO 4) Students have the option to answer either Part A or Part B. *DO NOT ATTEMPT BOTH PARTS* Part A Based on the FASB and the IASB capitalization criteria under accounting for leases, The Japanese Heavy Company and Parker Drilling Company have signed a leasing contract for Heavy Oil Drilling Machine of 7 years economic life. The lease contract is for 0.714 time of its economic life under 100% fair value which is around $25,000,000 and 10% residual value. Based on the right lease amount equation, $6,500,000 as a rental payment have to be honored at the beginning of each year. In line with the term of agreement, the lessee has to pay all the executory cost which is estimated to be $310,000. Coping with the government regulation, SLM will be adopted. The interest rate (6%) equals 60% of the RRR. Required: 1. Compute the present value of the minimum lease payment from the leaser and the lessee perspective. 2. Develop lease amortization schedule on annuity-due basis for the leaser and the lessee. Part B The following information was derived from the records of a manufacturing company operating business in the North Africa. ($ 000's) Year 1 Year 2 Year 3 Fixed Assets (Gross) 1,315 1,490 2,600 Fixed Assets (Net) 1,210 1,300 1,950 Current Assets 1,664 1.720 1.998 Intangible Assets 211414 625 Accounts Receivable 0.12 CA 0.21 CA 0.15 CA Inventories 0.10 CA 0.20 CA 0.34 CA Cash 400 670 760 Marketable Securities 180 190 170 Other CA Total Assets Current Liabilities 40% TL 42% TL 62% TL Financial Leverage 60% 52% 48% ROTA 14% 16% 12% ROE Net Operating Cashflow 60% Cash 72% Cash 62% Cash Asset Turnover 1.60 1.52 1.50 Gross Profit % 29% 28% 26% The manufacturing company is planning to raise fund from the Abu Dhabi Commercial Bank with an Equity of $5,450,000,000, Total Financial Reserves of $51,000,000,000 and Lending Capacity of $49,000,000. Required: 1. You have been requested to provide full recap analysis of the performance of the manufacturing company for the period Year 1, Year 2 and Year 3. 2. Based on the performance of the company, you have been asked to give opinion on its intention to raise funds from the Abu Dhabi Commercial Bank