1.

Sundaram Home Furnishings

It seemed that the entire document has been sprayed with red ink. Neelima frowned. The
balance sheet and P & L statement of Sundaram Home Furnishings, along with their
application for loan has been returned by her boss at Continental Bank with numerous
comments in red ink on practically every page! Neelima was a Management Trainee in
the Credit (Loans) department of this multinational bank. Two months into her job, she
was trying hard to learn banking and credit appraisal. On her initiative, her boss Jayantallowed her to handle loan application of Sundaram Home Furnishings. To get an idea of
financial health and profitability of the client, he had asked her to annex the financial
statements of last three years along with the application to be sent to him with remarks.
Jayant rejected the application and sent it back with a number of comments.
Neelima, disappointed at the rejection of her first solo proposal, sighed. Ok, let me find
out what went wrong- she told herself. Then she set about going through each remark
carefully. The remarks were like this:
1. Depreciation method has been changed from straight line to written down value
without assigning any reasons.
2. Every year, bad debts were being charged to Profit and Loss account. There was no
provision made, however.
3. In the year 2013-14, Rs 600000 has been debited as Miscellaneous Expenses with no
other information about them. The Sales that year were Rs 7500000.
Concept Box
This case of Sundaram Home Furnishings illustrates the importance of following
Accounting Principles, Concepts and Conventions while preparing financial statements.
4. The value of Showroom building was shown at an increased amount in 2013-14 over
previous year on account of rise in the price of land.
5. There was a loss by fire in the year 2013 (January). However, no insurance exists.
6. It was learnt from banks other clients that M/s Sundaram was involved in a court case
with Tax department. If lost, Sundaram will need to pay Rs 500000. However, the
financial statements were silent on this.
7. The salary of security guards appointed in March 2013 was charged to Profit and Loss
account of 2013-14.
8. Sale of Rs 340000 on Approval Basis has been included to compute profits for year
2012-13.
9. The balance sheet of 2013-14 had the date in caption as on 30-04-2014 and that of
2012-13 had as on 31-03-2013.
10. School fee of owners kid was debited to Profit and Loss account in the year 2013-14.
Questions:
1. Who are the users of financial statements other than the promoters of a business?
2.
Can you help Neelima by discussing with reasons which of the accounting
concepts/principles are being violated in each of the 10 remarks?
3. How do you differentiate between accounting concepts/principles/conventions?
4. Why did Jayant reject the loan application with these remarks?
Course Reference: Concept Generally Accepted Accounting Principles/ Users of
Financial Statements/Unit-1/ Subject : Financial Accounting & Management
Source/References: Authors own work.
Other Key words: True and Fair View/Interpretation/ Errors
Hints:
1. Other users of financial statements may be investors, creditors, bankers, government,
trade unions, suppliers etc.

2. 1. Consistency Concept 2. Matching, Conservatism Concept 3. Materiality Concept 4.

Historical Cost Concept 5. Conservatism Concept 6. Full Disclosure Concept 7. Matching
Concept 8. Revenue Recognition Concept 9. Accounting Period Concept 10. Business
Entity Concept
3. Accounting principles are the rules, bases, conventions and procedures adopted by
management in preparing accounting records and presenting financial statements. They
can be categorized as, (i) Accounting Concepts/Assumptions, (ii) Accounting Conventions,
and (iii) Accounting Standards. Accounting concepts are based on logical considerations
and help in recording the business transactions. Accounting conventions are based on
what is practicable and include those customs and traditions, which guide the accountant
in the preparation of financial statements. Accounting Standards are the guidelines
issued by Accounting Standards Board of a country for financial reporting. Generally,
these standards are issued to bring uniformity in financial reporting in a particular
country.
4. With violation in accounting concepts/principles and conventions the financial
statements fail to project a true and fair view of profits and financial position of the
business, therefore making any decision based on them susceptible to error.

2.

Adidas Merges with Reebok

On August 3, 2005, Adidas-Salomon AG (Adidas), Germanys largest sporting goods maker merged with the USbased Reebok International Limited (Reebok) for US$ 3.8 billion. With this merger, Adidas and Reebok aimed to
compete against American sports goods maker Nike International Inc. (Nike).
The companies felt that the major driving force behind the merger was greater sales growth rather than just cost
savings. The annual sales of the merged entity was predicted to be US$ 11.7 billion. The merger was expected to
give Adidas products a strong push in the US market because of the link with Reebok, while Reebok would
gain a large presence in Europe and Asia with the help of Adidas.

Analysts had varied opinions about the deal. However, a few analysts warned that repositioning the two brands
would be a difficult exercise. Analysts were concerned that Adidas would have to support two separate brand
identities while rival Nike was intensely focused on a single identity. Some analysts felt that Adidas could beat
Nike to become the industry leader while others opined that it was impossible to dislodge Nike from its No. 1
position. Nike was a preferred brand because of its fashion status, colors, and combinations.
Some analysts raised doubts over the success of the merger of the companies. They were of the view that the
merger would not generate much synergy because the individual brand identities would be maintained even after
the merger. Analysts also doubted the effectiveness of the merger as a strategy to beat Nike. They felt that the
combined entity would have to work really hard to further expand its market share in the US market and
globally.
Some instances of mergers and acquisitions include the November, 2012 acquisition of India-based United
Spirits Limited (USL), owned by the UB Group by the UK-based beverages company Diageo Plc (Diageo)
where Diageo acquired a 53.4 percent stake for US$ 2.1 billion. In another instance, on August 2, 2013, USbased Internet Corporation Yahoo! Inc. (Yahoo) acquired US-based social browsing startup Rockmelt, for a
reported US$ 6070 million. The amount was paid largely in cash along with some stock incentives to the
employees of Rockmelt. The acquisition was expected to bolster Yahoos mobile and social networking efforts.
In another instance, in September 2013, US-based computing major, Microsoft Corp. (Microsoft) and Finlandbased communications company, Nokia Corporation (Nokia), entered into a transaction where Microsoft
acquired Nokias Devices & Services segment, license Nokias patents, and license and use Nokias mapping
services, for US$ 7.2 billion.
The case of the Adidas-Reebok merger highlights the rationale for the merger and whether the merger would
be successful in the long run.
Sources: Laura Petrecca and Theresa Howard, Adidas-Reebok Merger Lets Rivals Nip at Nikes Heels,
www.usatoday.com, August 4, 2005.
News Snap, Adidas to Buy Reebok; 2Q Net Profit Rises 50%, www.news.morningstar.com, August 3,
2005.
Course Reference: Concept- Amalgamation/Merger of Companies/Unit 15-Company Management and
Winding up/Subject-Business Environment
Other Keywords: Mergers and Acquisitions, Integration
DISCUSSION QUESTIONS
1.

Discuss the rationale for the Adidas-Reebok merger.

2.

Discuss the pros and cons of the merger.

3. Facebook and its Organizational Culture

Facebook, an online social networking service, was headquartered at Menlo Park,
California. Facebook was founded by Mark Zuckerberg along with Eduardo Saverin, Chris
Hughes and Dustin Moskovitz in February 2004. The company was originally known as
The Facebook and was renamed Facebook.com in August 2005. The company held its
Initial Public Offering (IPO) in May 2012. It was one of the biggest IPOs in the history of
the Internet and technology sector with a market capitalization of more than $104 billion.
It had about 890 million daily active users and nearly 1.19 billion mobile monthly active
users by December 2014.
Facebooks growth and success was attributed to its organizational culture (Refer to
Chart 1 for Facebooks organizational culture)
Chart 1: Components of Facebooks Organizational Culture

Companys Beliefs
1. Empower people to share and make
the world more open and connected
2. Create and build a shared identity
and vision as the company grew

Facebooks
Mission

Companys Beliefs
1. Was not considered as the sole
responsibility of the HR department
2. New employee orientation was
regarded as a serious process

The
Onboarding
Process

Companys Beliefs
1. Employees were allowed to pose a
question directly to the companys
leadership
2. Employees were allowed to even ask
controversial or sensitive questions in

Conducted
Weekly Allhands
Meetings

Companys Beliefs
1. Culture was of significance to an
organization
2. Culture grew only if tended to

Companys Beliefs
Employees were encouraged to
participate in social activities

Companys Beliefs
1. Fewer hierarchies and greater
collaboration
2. Focused on 2 aspects:
How did the company want to be known
as it grew?
What was communicated to the outside
world about working at Facebook?

Adapted from various sources

Conscious
Attention to
Culture

Encouraged
Social
Activities

Employed
Unique HR
Strategies

How was it Achieved?

Worked on the principle of move fast and break things
which allowed the company to surpass competitors in the
social-networking arena
Employees were encouraged to act quickly and take risks
irrespective of its consequences
How was it Achieved?
The new recruits directly learnt about the culture from the
companys longest-tenured employees from various
departments. These employees interacted with every new
recruit to ensure that the companys purpose and meaning
were thoroughly understood.
All employees underwent the same extensive onboarding
How was it Achieved?
Zuckerberg and the management team hosted an honest
and open Q&A session for employees
Every employee had direct access to the CEO
Employees openly expressed their frustrations or concerns
which were addressed in this public forum
How was it Achieved?
Before opening a new office, a landing team was sent to
help set up key aspects of the companys existing culture
into the new location
Created a uniform work environment. For instance, at its
India office, one of the initial activities undertaken by the
team included painting their own walls with Facebooks
How was it Achieved?
Facebook organized activities like clubs, an annual Game
Day (outdoor field day for all employees)
Introduced policies like a $600 rent subsidy per month to
those who lived within 1 mile of the office in order to
encourage a close community living culture
Had a mailing list titled social, dedicated to non-work
How was it Achieved?
Less emphasis was laid on titles to ensure unobstructed
flow of ideas .Open offices spaces were created to allow
employees to sit and interact
In 2014, Facebook offered an incentive of about $20,000 to
its top women employees in a bid to help them balance
their personal and professional lives.
Employees were eligible for nearly $4,000 as a cash
incentive whenever they became parents-biologically or by

Despite its contribution to the company, experts have raised certain concerns over
Facbooks organizational culture:
1. Incentives like paid paternal leaves for parents were often unclaimed. The
company had not revealed the proportion of employees who fully claimed the
allotted paternal leave
2. Policies like egg-freezing were viewed as incentives to discourage employee
poaching

Organizational Culture referred to a system of shared values, assumptions, beliefs and

norms that united the members of an organization. Facebook focused on fostering an
employee-friendly culture by encouraging open communication, reducing hierarchies
and encouraging
social, non-work related interactions etc. which contributed to the
Discussion
Questions
1.
Discuss
the
importance
of organizational culture.
companys growth.

(Hints: Impact on the companys revenue-Impact on the growth of the company

in the log-run)
2. What elements of Facebooks organizational culture were critical in its success?
(Hints: The onboarding process-Conscious attention to culture- Unique HR
strategies-Encouraged social activities
Sources:
Kevin Colleran, Lessons From Facebook: How Culture Leads to Growth, www.blogs.wsj.com, February 5, 2013
Joshua Brustein, Facebooks Egg Freezing Policy Isnt an Evil Plot,www.bloomberg.com, October 15, 2014
Samantha Nielson, Why Did Facebooks Shares Fall After its Initial Public Offering,www.marketrealist.com, Jan
14, 2014
Ami Sedghi, Facebook: 10 Years of Social Networking, in Numbers, www.thegaurdian.com, February 4, 2014
Course Reference: Concept- Organizational Culture /Unit 11 Effective Organizing and Organizational
Culture/Subject-Principles of Management
Other Keywords: HRM, Organizational Behavior