question archive Solve the case and answer the following questions- B

Solve the case and answer the following questions- B

Subject:AccountingPrice: Bought3

Solve the case and answer the following questions-

B .Lee ,CFA ,is a value expert for the U.S. speculation the executives firm Dumas Freres. Dumas Freres stands firm on a generous footing in Skylark Industries, a U.S.- based organization. In investigating the position, Lee chooses to take a gander at how worker advantages and investment opportunity remuneration have influenced the monetary proclamations. In 2006, Skylark embraced SFAS No. 158 the 2006 norm on annuity bookkeeping. First he gathers data with respect to Skylark's annuity plan (Exhibit 1) and annuity plan presumptions (Exhibit 2). Lee explicitly needs to think about whether Skylark is utilizing sure suppositions to limit its:

1. Extended Benefit Obligation (PBO) at year-end 2008, or, 

2. benefits related remuneration cost for 2008. 

 

 

Show 1 

Chosen Skylark Pension Plan Data 

starting at 31 December (U.S.$ millions) 

Financed Status of the Plan 2008 2007 

Advantage commitment at year's end (PBO) 972 902 

Reasonable estimation of plan resources at start of the year 514 430 

Genuine profit from plan resources 56 54 

Manager/Employee commitments 78 72 

Advantages paid - 44 - 42 

Different changes to design resources 

Reasonable estimation of plan resources at year's end 604 514 

Financed status - 368 - 388 

Unrecognized overal deficit 200 224 

Unrecognized earlier help cost 7 10 

Segments of net occasional advantage cost 

Administration cost 60 45 

Interest cost 54 47 

Anticipated profit from plan resources - 51 - 43 

Different sums perceived 27 13 

Net occasional advantage cost $90 $62 

 

 

Show 2 

Chosen Skylark Pension Plan Assumptions 

Annuity plan suppositions and other 

data 2008 2007 

Expected profit from resources 10.0% 

Rebate rate for commitments 6.0% 5.5% 

Expected pace of pay increments 3.0% 2.5% 

Real profit from resources 10.9% 12.6% 

Vesting Period 4 years 3 years 

Then, Lee gathers the accompanying data about Skylark's leader investment opportunity 

remuneration plan: 

1. On 1 January every year, Skylark awards senior heads 1,200,000 choices with a 

vesting time of four years. 

2. The activity cost of the choices is set at 140% of the end stock cost on the award date.

Lee is thinking about whether Skylark is utilizing sure presumptions (Exhibits 3 and 4) to limit 

its stock remuneration cost in 2008. 

Show 3 

Chosen Skylark Stock Option Data 

2008 

Reasonable estimation of choices at award 

date, 1 January 2008 $3.25 

Exercise cost of alternatives 140% of shutting stock cost on award date 

# of choices allowed 1,200,000 

Vesting period 4 years 

Time to expiry 10 years 

Premise of choice valuation Black-Scholes model 

Show 4 

Chosen Share Price Information and Option Valuation Assumptions 

as at 1 January, 

 

2008 2007 

Offer Price $11.15 $10.00 

Profit yield 1.85% 1.25% 

Instability 34% 32% 

Danger free rate 5% 4% 

 

 

7. With respect to his anxiety about the PBO presumptions toward the finish of 2008 

(Show 2), Lee should zero in on the divulgences identified with the: 

A. markdown rate. 

B. anticipated profit from plan resources. 

C. expected pace of pay increments. 

 

 

8. Under SFAS No.158, the benefits obligation perceived on the accounting report 

($ millions) at 31 December 2008 is nearest to: 

A. 161. 

B. 368. 

C. 972. 

 

9. Which of the accompanying would best help Lee's anxiety about the benefits 

related pay cost in 2008? The adjustment in the: 

A. rebate rate. 

B. vesting period. 

C. real profit from resources. 

 

 

10. The 2008 financial benefits cost ($ millions) is nearest to: 

A. 58. 

B. 63. 

C. 85. 

 

 

11. The 2008 remuneration cost ($ millions) identified with the investment opportunities 

given in 2008 is nearest to: 

A. 0.390 

B. 0.975. 

C. 1.338. 

12. Which of the accompanying would best help Lee's anxiety about the stock 

related pay cost in 2008? 

A. The danger free rate. 

B. The profit yield. 

C. The offer value unpredictability

 

Give correct answers

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