ACCT7102 Individual Case Study Assignment: ‘Biovail Corporation: Revenue recognition and FOB Sales Accounting’

ACCT7102 Individual Case Study Assignment:
‘Biovail Corporation: Revenue recognition and FOB Sales Accounting’
(The case and questions are available for download from the ACCT7102 blackboard website,
‘Assessment’.
Weighting: 25% of final grade
Due Date: By 4:00pm, Thursday 26 May 2016 (week 12)
Length: 1500‐1800 words
Individual or Group Task: Individual
Task Description:
This financial reporting case study is designed to examine the specific application of case
scenarios involving principally Topic 5 (Managerial incentives for financial statement
management). The case will be used to examine your report writing skills, general
accounting knowledge, and ability to critically evaluate complex case scenarios.
NOTE: This case is to be undertaken individually, which means you are required to
independently prepare your assignment.
ADDITIONAL GUIDANCE
1. Criteria & Marking.
A full marking criteria sheet is available from TurnItIn and will be discussed in seminar 5. In
general, the case will assess your:
 accuracy of answer and interpretation of relevant accounting standards;
 presentation of a thoughtful and well supported answer;
 clarity of analysis; and
 professional presentation (which will take into account grammar, spelling and
punctuation).
Your submission will also be judged on it suitability for presentation to a fee paying client.
2. Plagiarism.
All cases will be reviewed for plagiarism and independent content. At the University of
Queensland, plagiarism is defined as follows:
Plagiarism is the act of misrepresenting as one’s own original work the ideas,
interpretations, words or creative works of another. These include published and
unpublished documents, designs, music, sounds, images, photographs, computer
codes and ideas gained through working in a group. These ideas, interpretations,
words or works may be found in print and/or electronic media.
You are encouraged to read the UQ Student Integrity and Misconduct policy
(http://ppl.app.uq.edu.au/content/3.60.04‐student‐integrity‐and‐misconduct) which makes
a comprehensive statement about the University’s approach to plagiarism, including the
approved use of plagiarism detection software, the consequences of plagiarism and the
principles associated with preventing plagiarism.
3. Late Submission.
An assignment (for which no extension has been granted) submitted after the due date and
time, will incur a late submission penalty. The penalty is at the rate of 5% (0.4 of a grade) of
the total available marks for that particular piece of assessment, for each calendar day or
part thereof that the item is overdue. Late assignments may be submitted through TurnItIn
since all assignments automatically have a time/date stamp of when they are submitted.
However, please contact the course coordinator if you are submitting a late assignment.
4. Length.
The word limit is strictly 1500‐1800 words (excluding a reference list). Any material
exceeding the word limit will not be read and the mark for the assignment will be based on
the material up to the point where the word limit was exceeded.
5. Referencing Style.
You are required to use an appropriate referencing style as found within any of the top
accounting journals such as the Accounting Review, Journal of Accounting Research, Journal
of Accounting and Economics, and Accounting, Organizations and Society. All of these
journals are available online through the UQ Library.
6. Format of Assignment
The assignment is to be prepared as a pdf document using 12 point font with 1.15 line
spacing. The questions may be included as headings and will not be included in the word
count. Please include your full name and student number as part of the file name e.g.
‘347185_Kathleen Herbohn’.
7. Submission
The assignment is to be submitted through TurnItIn which is available in a separate case
study assignment submission folder on the course’s blackboard website. If you experience
problems uploading your assignment before the due date please contact AskIT for help, and
continue to try to upload the assignment until you are successful. A link to the AskIT
instructions on TurnItIn is as follows: https://www.library.uq.edu.au/ask‐it/turnitinassignments.
Note that assignment submission is a three step process and it is your
responsibility to check the assignment preview and confirm that the assignment has been
successfully submitted. You will need to keep a copy of the Submission ID as proof you have
submitted the assignment.
Case Study Assignment Questions
ACCOUNTING ISSUE – REVENUE RECOGNITION, MANAGERIAL MOTIVATIONS AND
RESEARCH COMPONENT
Question One (Total marks: 9.5 marks)
(a) The following table provides a summary of the revenue recognition that would occur if
the company Biovail implemented (i) ‘free on board’ (FOB) Biovail; or (ii) FOB
destination. Justify the choice of timing selected for each cell in the table. (3.75 marks)
FOB Biovail FOB Destination
Ownership transfers: Upon shipment from
Biovail facility in
Manitoba, Canada
Upon delivery to North
Carolina facility of Distributor
Revenue is earned: Upon shipment from
Biovail
Upon delivery to North
Carolina facility of Distributor
Assuming that there was
no accident, the
associated revenue
would be earned:
30 September when the
truck left Biovail’s facility
in Manitoba
Either very late on 1 October,
or more likely 2 October given
that North Carolina is more
than 8 hours’ drive away
(b) There was dissention between the Distributor and Biovail over when title to the
shipment of WellbutrinR passed. Discuss why you think the disagreement occurred
between Biovail and Distributor. (Hint: Your answer should be supported by reference to
at least three academic research articles. Concentrate on the general results of the
articles. You do not have to completely understand the econometric models.) (5.75
marks)
ACCOUNTING ISSUE – EARNINGS QUALITY AND RESEARCH COMPONENT
Question Two (7.5 marks)
Following the truck accident, analysts from J.P. Morgan upheld their ‘overweight’ stock
rating for Biovail. In fact, representatives from J.P. Morgan noted that (case study, p. 3):
‘…its analysts had never argued with earlier claims that Biovail’s accounting might
have been aggressive. However, its analyst report concluded that Biovail’s current
accounting did not seem egregious and that the earnings impact of Wellbuetrin XL
was completely transparent.’
Evaluate these comments from J.P. Morgan. (Hint: Your answer should evaluate earnings
quality (i.e. aggressive accounting choices compared with egregious accounting choices) and
be supported by reference to at least two academic research articles. Concentrate on the
general results of the articles. You do not have to completely understand the econometric
models).
RELATION BETWEEN ANALYSTS AND MANAGERS – ETHICAL COMPONENT
Question Three (5 marks)
Assume that Biovail plans to undertake a significant share issue in the near future and is
considering either J.P. Morgan or Banc of America to handle this lucrative transaction.
Would you expect this to influence Mr Maris’ analysis of the truck accident and subsequent
stock recommendation? Justify your opinion discussing any ethical issues that may arise.
COMMUNICATION SKILLS ‐ WRITTEN
(3 marks)
Marks will be allocated for attention to purpose, presentation of the assignment, clarity of
expression and referencing.

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