EMBA 32 October 14, 2011

The Baron Coburg Case Analysis

Financial Accounting The Baron Coburg Case

Goals 1. The illustrate financial reporting. 2. To illustrate the measurement of performance using accounting data. 3. To illustrate the use of accounting information to formulate strategy.

The Baron Coburg Case

Issues In The Case What is the reporting entity? What is the measurement period? What is the measurement unit?

The Baron Coburg Case

Issues In The Case (Cont.) Who the Baron would be in todays world? Who the Vassals would be in todays world?

The Baron Coburg Case

The Solution Process 1. Create balance sheets for the beginning of the period and the end of the period. 2. Create an income statement for the period 3. Explain the change in equity during the period
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The Baron Coburg Case

The Solution Process (Cont) 4. Decide on performance measures for the managers. 5. Analyze each managers performance. 6. Formulate strategy for the next two years.

The Baron Coburg Case

Balance Sheets Beginning of Season Ivan's farm Fredrick's Farm Assets Land Seeds Fertilizer Ox Total assets Liabilities Baron's equity

The Baron Coburg Case: Balance Sheets

End of Season Ivan's farm Fredrick's Farm Assets Land Wheat Plow Ox Total assets Liabilities Baron's equity

The Baron Coburg Case

Income statements for the season Ivan's farm Revenues=harvest Expenses Seeds used Fertilizer used Ox used Plow used Total expenses Net income Fredrick's Farm

The Baron Coburg Case

Statement of changes in Baron's equity Ivan's farm Beginning equity Add net income Subtract dividends Ending equity Fredrick's Farm

The Baron Coburg Case

Balance Sheets Beginning of Season Ivan's farm Fredrick's Farm Assets Land Seeds Fertilizer Ox Total assets Liabilities Baron's equity 100 20 2 40 162 0 162 End of Season 50 10 1 40 101 0 101

The Baron Coburg Case: Balance Sheets

End of Season Ivan's farm Fredrick's Farm Assets Land Wheat Plow Ox Total assets Liabilities Baron's equity 100 223 0 36 359 3 356 50 105 2 36 193 0 193

The Baron Coburg Case

Income statements for the season Ivan's farm Fredrick's Farm Revenues=harvest 243 138 Expenses Seeds used 20 10 Fertilizer used 2 1 Ox used 4 4 Plow used 3 1 Total expenses 29 16 Net income 214 122

The Baron Coburg Case

S ta te m e n t o f c h a n g e s in B a ro n 's e Iva n 's fa rm F re d ric k 's F a rm B e g in n in g e q u ity 162 101 A d d n e t in c o m e 214 122 S u b tra c t d ivid e n d s -2 0 -3 0 E n d in g e q u ity 356 193

The Baron Coburg Case So which vassal is the better manager?

Lets decide on performance measures! Based on that we will form a two year testable strategy.

The Basic Rules of Performance Evaluation

Strategy for the Next Two Seasons