Question 2 a) Consider each of the scenarios below independently. Scenario 1 Great Move Resources is a business of renting a luxury car in Kuala Lumpur. It has a fleet of 200 luxury cars. It owns great cars that they rent, and keeps them on average for five years. In Year 3. Great Move Resources showed a loss on the sale amounted to RM5,000. The two previous year, the company has reported a loss on sale of RM2,000 and RM1,000 respectively. From the case, determine whether the gains and losses on the sale of the luxury cars should be ignored when determining earnings persistence or not. [2 marks] Scenario 2 . Turnaround Corporation has just hired new top management. In the new management's first year they take a huge restructuring charge (looks as though they are taking a "big bath"). Included in the restructuring charge are: Recognition of a contingent liability for probable environmental clean-up Write-down of assets (which amounted to a 50% write-down of all assets) A charge for a future upgrade of its computer system For each of the items above, propose the possible impact on future recorded income by taking Into account the management's possibility towards motivation of "big bath". [9 marks] b) There are many ways in which the management of a company can manage the reported eamings. Evaluate with example THREE (3) management motives in manipulating the company's earnings. [9 marks] [Total: 20 marks] Question 2 a) Consider each of the scenarios below independently. Scenario 1 Great Move Resources is a business of renting a luxury car in Kuala Lumpur. It has a fleet of 200 luxury cars. It owns great cars that they rent, and keeps them on average for five years. In Year 3. Great Move Resources showed a loss on the sale amounted to RM5,000. The two previous year, the company has reported a loss on sale of RM2,000 and RM1,000 respectively. From the case, determine whether the gains and losses on the sale of the luxury cars should be ignored when determining earnings persistence or not. [2 marks] Scenario 2 . Turnaround Corporation has just hired new top management. In the new management's first year they take a huge restructuring charge (looks as though they are taking a "big bath"). Included in the restructuring charge are: Recognition of a contingent liability for probable environmental clean-up Write-down of assets (which amounted to a 50% write-down of all assets) A charge for a future upgrade of its computer system For each of the items above, propose the possible impact on future recorded income by taking Into account the management's possibility towards motivation of "big bath". [9 marks] b) There are many ways in which the management of a company can manage the reported eamings. Evaluate with example THREE (3) management motives in manipulating the company's earnings. [9 marks] [Total: 20 marks]
