Worldcom Case

Normally at the end of each month, Worldcom would estimate the costs of using “Off-net” facilities and connections. Worldcom would accrue these liability estimates. Line cost accrual estimates were very difficult to estimate with precision, especially for international services.

Samuelson believes that the assets definition should concentrate upon property rights that are concerned with wealth, which provides a true balance sheet orientation, rather than being concerned with revenue generation, Samuelson’s definition may lead to an exit value orientation for assets. One of the key points about the property rights approach lies in exchangeability of the asset. Samuelson’s viewpoint would result in certain deferred charges being expensed immediately even though their incurrence may bring about future economic benefits.

6 which states, “Assets are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events”. However, as per GAAP, line costs must be reported as an expense in the company’s income statement as these are fundamentally, operating expenses. It was put in the Balance Sheet as an accrued liability rather than in the income statement as an accrued expense. This resulted in falsely projecting income and profits; and concealing huge losses by wrongly capitalizing the line costs.

Assets are things that a company owns that have value. This typically means they can either be sold or used by the company to make products or provide services that can be sold. Assets include physical property, such as plants, trucks, equipment and inventory. It also includes things that can’t be touched but nevertheless exist and have value, such as

eventual disposition of the asset (asset group). That assessment shall be based on the carrying amount

Assets are to be recorded and valued based of the type of asset there are.

b. The inventory write down recorded, as an expense by the company is $4.4 million. It is measured at lower of cost and net realizable value. Cost is measured by weighted average using standard cost method or

The current assets are those which are readily convertible into cash and cash equivalents due to their highly liquid nature and also form part of working capital of the company’s operations. However, the long term assets in contrast are not liquid because since they have a useful life of more than a year and hence their full value cannot be easily realized within

I learned some new things from the case article that were not mentioned in Cynthia Cooper’s book titled Extraordinary Circumstances. However, the gist of it was the same. I will focus my paragraphs based on the three questions.

The assets are fully used, subsequently in the maximum possible production. There is continuous flow of revenue for all.

It is an indicator of managerial capabilities to effectively and efficiently utilize company’s assets (Mathur 2000). It includes analyzing the average collection period,

To account for inventory, the company uses, first in first out policy. Property plant and equipment are recorded at cost less the accumulated depreciation amount. Depreciation is charged on straight line method

The intangible asset will generate probable future economic benefits for the organization which can either be in the form of costs reduction or in the form of increasing revenue in the future for the organization.

Furthermore, since depreciation is not really a cash outflow, it is added back to earnings before interest and taxes to calculate the operating cash flow.

1. The items which do not have any cost are ignored. Thus the knowledge and technical skill built inside the enterprise, a favorable location, brand name and reputation of the business as time goes would find no place in the assets of the business entity.