MODULE 3
Accounting Adjustments and
Constructing Financial Statements
DISCUSSION QUESTIONS
Q3-1.
The fiscal year is the annual accounting period that a firm adopts. A firm that uses
December 31 as its year-end is on a calendar-year basis. Traditionally, f

Module 6
Reporting and Analyzing Operating
Assets
DISCUSSION QUESTIONS
Q6-1.
When a company increases its allowance for uncollectible accounts, it also records
bad debt expense in the income statement. If a company overestimates the
allowance account, bad

Quiz #2 - ANSWER SHEET
Multiple Choice:
1. B
2. F
3. C
4. C
5. C
6. D
7. C
8. B
9. D
10. D
Problems:
2.
A. 10 units/$30
B. $80
C. $244
3.
A. 10 units/$26
B. $84
11. C
12. C
13. B
14. C
15. C
16. E
17. C
18. C
19. C
20. D

. v xlx = Dx + Dx+1 + . . . Dx = Nx Dx Remark If we require ax, use ax =
ax 1 or ax = Nx+1 Dx (since Nx+1 = Dx+1 + Dx+2 + . . .) The variance
of aK+1 . We use the formula Var aK+1 = Var 1 v K+1 d = 1 d
2 Var v K+1 = A x (Ax) 2 d 2 (4.2.9) where indicates

terms of an integral. Solution. Let b(t) = t, t 0. This gives g(T) = (Ia)T
, and we have ( Ia)x = M.P.V. of annuity to (x) with payment at rate t
p.a. at time t = Z 0 tvt tpx dt (4.7.4) An approximation. Let f(t) = tvt
tpx,(t 0). By Euler-Maclaurin, ( Ia)

Table 5.2.1 relates to a mortality table with select period 2 years, for
example A1967-70, and refers to policies in which premiums are
payable annually in advance. 5.3 The variance of the present value of
the profit on a policy. Consider again the policy

ultimate; 4% p.a. interest; expenses are 5% of each annual premium
including the first, with additional initial expenses of 1% of the sum
assured. Calculate the annual premium for each policy. 5.3 A 5-year
temporary assurance, issued to a woman aged 55, h

the following basis: (Note: at 3.75% per annum interest, the value of
A[45] is 0.34587). Solution. Let annual premium be P. Value of benefits
+ 12, 000(1 + i) 1 2 [1.01vq[45] + (1.01)2 v 2 1|q[45] + ] = 12, 000(1
+ i) 1 2 A [45] (see formula (3.10.11) whe

payable m times per annum We require the following formula from
numerical analysis: The Euler-Maclaurin formula: Z 0 f(t) dt + X
t=0 f(t) 1 2 f(0) + 1 12 f 0 (0) (4.5.1) Woolhouses formula may be
then deduced: 1 m X t=0 f t m + X t=0 f(t) m 1 2m f(0) +
m

Return No Interest, abbreviated to R.N.I.). If there are no expenses,
the equation of value for P is: Pax:n = 1000 Dx+n Dx | cfw_z survival
benefit + P(IA) 1 x:n | cfw_z return of premiums on death (5.6.1) This
may be solved for P. Note. If the premiums

10000 371.511 0.9 10449 = 395.06 5.4 Consider 1 p.a. of annuity.
The purchase price is a55 and the office will make a profit if death
occurs before time t, where a55 = at at 4% That is, 1 v t = a55, so
t = log [1 a55] log v i.e. t = log A 55 log v = log A

death of (x). The policy was issued t years ago by level annual
premiums payable continuously throughout life. Find a formula for the
net premium reserve tV (on a given mortality and interest basis). 6.3.
NET PREMIUM RESERVES 97 Solution. Let L be the net

Functions. Define Dx = v x lx (as stated in Chapter 3) (4.1.6) D x = Z 1 0
v x+t lx+t dt (4.1.7) N x = X t=0 D x+t (4.1.8) Example 4.1.2. Show
that ax = N x Dx (4.1.9) Solution. N x = X t=0 D x+t but (on change
of variable) D x+t = Z t+1 t v x+r lx+r dr f

the benefits may thus be written in the form B h an amincfw_T ,n i
(5.8.2) and hence their M.P.V. is B (an ax:n ) (5.8.3) Case 2.The
benefits made mthly in arrear, beginning at the end of the 1/m year of
death (measured from the issue date.) Consider the

Exercises 3.1 Evaluate (a) A 60 and (b) A60 on the bases: (i) A1967-70
ultimate, 4% p.a. interest; (ii) E.L.T. No.12 - Males, 4% p.a. interest. 3.2
(i) Show that Ax = vqx + vpxAx+1 (ii) Given that p60 = 0.985, p61 =
0.98, i = 0.05 and A62 = 0.6 , evaluate

assured of 1, 000 to male lives aged 45. Guaranteed simple
reversionary bonuses at the rate of 2.25% of the current sum assured
vest on payment of each annual premium. Alternatively, at the outset
of a policy, a life assured may elect that compound revers

tp65dt 1.6129n = v n v n np65 1.6129 = v n np65 1.6129 < 0,
since, for n > 0, v n np65 < 1 f(n) decreases, so f(n) = 0 has a unique
solution. 5.8. FAMILY INCOME BENEFITS 89 Try n = 7 f(n) = 6.12136 + 1,
289.7567 2, 144.171 7.772 11.2903 < 0 Try n = 6 f(n)

ignored Solution. Let C be available at age 65. The equation of value is
1000a[45]:20 = C D65 D[45] + 1000(IA) 1 [45]:20 C = 1000 (N[45]
N65) (1.02)(R[45] R65 20M65) D65 = 1000[76, 722.7 1.02
7, 407.24] 2144.1713 = 32, 258 5.7 Annuities with guarantees

payment of later premiums). There may also be expenses of payment
of benefits (especially for pensions and annuities) and the expenses of
maintaining records of policies with continuing benefits after
premiums have ceased. Expenses may also be divided int

1. Compute the following ratios for PepsiCo for 2014 and 2013 and answer the
question(s) posted:
Ratio
ROE
RNOA
NOPM
COGS/Sales
SG&A/Sales
NOAT
Accounts Receivable
Turnover
Inventory Turnover
PP&E Turnover
Accounts Payable
Turnover
2014 Ratio
31.02
17.28

Module 4
Analyzing and Interpreting
Financial Statements
DISCUSSION QUESTIONS
Q4-1.
Return on investment measures profitability in relation to the amount of investment
that has been made in the business. A company can always increase dollar profit by
incr

The Accounting Information System
BASIC ACCOUNTING REVIEW
Double-entry accounting system:
Debit
Credit
Basic accounting equation:
ELEMENTS OF FINANCIAL STATEMENTS
(as defined in the Conceptual Framework)
ASSETS- probable future benefits obtained or cont

PROFESSIONAL MBA PROGRAM
JANUARY 2016
THE CASE OF THE RED-BEARDED BARON1
Once upon a time many, many years ago, a feudal landlord lived in a small province of
central Europe. The landlord, called the Red-Bearded Baron, lived in a castle high on a
hill. Th

term. The sum assured is payable immediately on death, if death
occurs within the term of the policy. 92 CHAPTER 5. PREMIUMS
Assuming that the office will earn 4% interest per annum, that the
future lifetime of the lives may be described statistically in

Set i = 0 in example 4.5.1. This gives ex + ex + 1 2 1 12 x (4.5.5) The
final term is usually omitted, giving ex + ex + 1 2 (4.5.6) The symbols
a (m) x and a (m) x refer to the expected present values of an annuity
of 1 per annum payable monthly in advanc

() holds for t = 0, 1, 2, 3, . . . by McCutcheon and Scott, formula
3.6.6. It may be proved for general t 0 by letting t = n + r ( n integer, 0
r < 1) and observing that (Ia) t = (Ia)n + Z n+r n v s (n + 1) ds = an
nvn + (n + 1)v n 1 v r = an+1 (n + 1)v

present value of the benefits (regarded as a random variable) is g(K) =
X K t=0 v t b(t) (4.7.8) since the last payment is made at time K. (If b(0)
> 0, this is a variable annuity-due). The M.P.V. of the varying annuity is
thus E[g(K)] = X k=0 g(k)k|qx =

B|ax 0). It follows that f(B) = 0 has a unique solution 88 CHAPTER
5. PREMIUMS Note. The purchase price of an annuity with this
guarantee may be considerably larger than for an ordinary annuity. If
the annuity instalments are paid annually in arrear we mu