SKD Limited Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

SKD Limited Case Solution

Issues

Why does the adjustment for goodwill amortization increases the net income under Country A’s GAAP but decreases the net income under Country B’s GAAP?
Why does the goodwill adjustment increases stockholders' equity in Country A but decreases stockholders' equity in Country B?
Why are the adjustments to stockholders' equity larger than the adjustments to income?

Why are there two separate adjustments to income related to interest?

Facts

The financial statements given in the case are developed by SKD Limited. SKD Limited is a basically a biotechnology firm. The company uses the accounting rules, which are internally developed by the company itself in order to prepare the financial statement. The accounting rules internally developed by SKD Limited were renamed as SKD GAAP.

The analysts from the two countries have also developed an understanding for the financial statements of the SKD Limited in order to compare the financial statements of the SKD limited with the companies operating in their country. The financial statements analyzed by the financial analysts include the net income and stockholders’ equity for the current year of SKD Limited.

The adjustments made by the financial analysts are done by completely following the accounting rules and practices adapted by the several other biotechnology companies in both the countries (Country A and Country B). The financial analysts also provide a complete table of the adjustments made in the income statement and the statement for the shareholders’ equity. The table 1 in the Appendix includes the adjustments made by the financial analysts from each of the country.

A number of differences have been observed in the accounting rules of both the countries. However, the adjustments made by the two financial analysts from Country A and Country B in the Financial Statements have their main focus on goodwill, interest and the fixed assets of the company.

SKD Limited has a goodwill and it knows very well how to make most from its goodwill. However, SKD Limited has amortized the goodwill for a period of more than 20 years. The goodwill is treated as an asset in SKD Limited by the analysts in both the countries (Country A and Country B). Country B’s analyst has amortized the goodwill for a period of five years. On the other hand, Country A’s analysts have not been treated to be amortized but used as a replacement for the diminishing check for each year.

Country A and Country B’s financial analysts have also made adjustments in the interest data. Moreover, SKD has previously made all the interests as its expenses. However, the analysts from both the countries consider taking advantage of the interest relevant to the some of the assets, which are assumed as self-constructed, should be treated as the cost of the assets.

Lastly, the analysts from Country A and Country B differently made adjustments in the fixed assets in the financial statements of the SKD limited. The assets carried by SKD limited in its balance sheet have the old price of the asset including the deduction of the accumulated depreciation. Country A’s analyst has treated the fixed assets same as SKD limited. The companies in the Country B have different accounting rules for the treatment of the fixed assets and the depreciation on these assets. The Country B’s analyst has considered assets as the revalued amounts, and satisfying the value depreciation is also considered as the enhanced aggregate of the fixed assets.........................

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SKD Limited Harvard Case Solution & Analysis