Octavan Construction Inc - Case Study Example

Octavans reporting policies are pretty acceptable and would be beneficial to the company in the long term so the only suggestion to make here is that they should stick with these policies even if they are trouble some at the beginning The working capital and the debt to equity ratio has been on the decline which shows that that company is not doing so good on the assets front, the debt to equity ratio has declined and that is not a good sign because the value of the assets has been on the decline and liabilities have grown considerably which is not a good sign for any company, even creditors such as Broadmoor County Bank have started to believe that the company is in trouble and are trying to secure there loans against securities that were not deemed necessary before.

Since the company has changed its depreciation method the company will now experience a total change in the depreciation expense and accumulated depreciation, which would definitely have a good effect on the assets because the current method which was employed by the company was depreciating the assets too quickly and was unrealistic for the company to use and hence it is a good move to change the depreciation method of the company and this will reap positive out come for the company. The second change that is being implemented by the company is that they have changed the method of long term billing from absolute method to the percentage-of-completed project which initially increases costs but in the long term would help the company build on steadily because there would be a better matching of the costs and revenues which would lead to a better financial report in the bigger picture. Ans 2. Octavans reporting policies are pretty acceptable and would be beneficial to the company in the long term so the only suggestion to make here is that they should stick with these policies even if they are trouble some at the beginning because they would definitely lead to an improvement in the company's financial books.

The company shouldn't have placed as collateral its current assets because these assets are the blood line of the company and since octavan is already facing a declining working capital and a debt to equity ratio it is not advisable that this step be taken. Ans 3, The Company has changed the depreciation method due to the non effectiveness of the previous (MACRS) method due to which the company had to face considerable reporting problems but now the company has switched to a more effective and a reporting friendly method, known as the double depreciation method.

For long term contracts the company will now be using the percentage-of-completed work to match the expenses and revenues in a better manner. American Physical and Social Programs For Children Inc. Ans1. The implications of such a policy are very clear, because the operations of the company are focused primarily on children activities and as the case points out that the major business period for the company was from September to June it is a good policy to have a June 30th as the end of all financial activities because by then the company would have had completed one major cycle on the business front, plus all the major expenses and liabilities have been realized by that period and the company knows what exactly is expected of it since the major part of its revenue has been earned during that period it can easily match the expenses against the revenues using the matching principle, it is also an excellent policy to do so because companies need to make their financial statement when they consider they would come out the best and given the circumstances that the company operates in it has clearly realized what the best period for preparing financial statements is.

Also, using June the 30th as the basis for making the financial reports gives the advantage of having a summer camp during the summer vacations, but more importantly this gives them the time to incorporate the revenues of the summer into the financial books because people have to pay in advance (march) for the summer camp and this is an added advantage of havi