MAY 2019 – JORD HOMES

SEC 1

1. Please outline the different options Jord has, to raise C$30 million of finance and advise on
the suitability of each, given our current situation?
Existing cash resources
 Significant levels of cash = 26 mil $ = cash is an asset = funded by Jord, through debt,
equity or two
 Working capital management = cash low ROI = low cost of capital = not good, but
eliminating the costs associated with raising finance.
 Raise for other purpose = raise additional cash in the future.
Debt
 Advantages = no existing debt or gearing = consistently profitable + number of assets
(property, plant, inventory and trade receivable) = security to a bank.
 cheapest debt with secured assets = option first
 Cash flow loan based on our historical profit/cash generation
 Disadvantages = lack of payment history = bank not evaluate = need to pay principal and
interest over several years + interest annually = tax liability.
Equity.
 new investors = affect the company = change % holding, but new SH = require a certain
level of control = sell the business in the future to realise their investment
 cheaper + more straightforward = rights issue for existing = no affect company, SH = retain
their relative share = cancelling a dividend or putting cash in amounts to the same thing =
stock dividends.
 Recommends:
2. How might expanding production affect our ability to continue with JIT systems in the short
and long term?
 JIT system = seamless working within + between an organd its suppliers.
 In ST, expanding by 25% = loss Efficiencies = new higher production levels.
 effectiveness of our management team = ordered and effective manner = choice? = via an
extension of the current site or expanding to a new distant location.
 existing site = minimise the impact = train new staff members = get up to speed + become
fully efficient = their ways of working, ordering systems and linkages between different
stages of production = remain similar.
 ST issues = preserving JIT working + unlikely to persist long-term.
 new site = geographically some distance, JIT working = more fundamentally impacted.
 Efficiency impact = higher = arising from the logistics = Which elements = located at the
distant site = communication between = workforce inefficiencies = operate at both sites EX,
= our quality control team.
 choose the current site = more efficient option = BUT investigate the details of this
expansion.
 Whichever site = impact on suppliers = how quickly they can meet higher levels of demand.
Some suppliers = easy to quickly flex, but for others = new levels of materials required.
  new machines = take time to order, implement them and train staff in their use = impact our
JIT approach = current site or further away.
 efficiency is improved = manage the expansion = JIT working resumes = minimise waste
and work fluidly = hope the impact ST, + over LT scale = return to levels of efficiency.
3. Please outline the risks of proceeding with each site. Particularly, interesting in
understanding the risks we face relating to the voles, quality assurance, and operating from
two sites?
 Site one – The voles
 Jord = care for the environment = Choosing = damage our reputation + brand.
 rehome the voles = caring and safe = experience bad publicity = our risk register, the
environment risk, after mitigation = medium level + increase if we pursue this site.
 our staff = disillusioned and demotivated = our caring approach to the environment =
perceived risk = our register = Losing key staff over this issue = add to this risk
 Planning laws are another risk = now low risk.
 longer to get agreement from the planning authorities = begin work
 prove = satisfactory method for rehoming the voles + bombarded with protests from
environmentalist groups = increase in risk to at least medium.
 Rehoming the voles = ROI.
 upside risks = our current operations = no additional costs of moving materials = maintain
target stock levels and efficiencies.
Site Two
Operating from two sites
 only 5 km apart = more difficult to use our current efficient approach = JIT.
 processes = duplication. Site Two = smaller replica of our main site = adversely impact on
the efficiency of our operating processes, although some of = mitigated over time.
 issues with logistics = how cut timber will be transported between the two sites and how =
impact on time schedules and quality.
Quality assurance
 By transporting = increases the risk = damaged or delayed in transit, all of which = impact
way Jord organises its work.
 QC team = new site are trained to the same level = original site as = fundamental part of =
produce a high quality, reliably luxurious house product.
 upside risk, = preserve or enhance our reputation by publicising = chosen this option + no
disturb the voles from their natural habitat.
4. Please to outline which stakeholders we will need to communicate with and how?
 interested in? = need to be communicated with.
 SH = most interested = communication with.
 Some = Larsson family = work in the business = already be aware of the plans.
 All SH = contacted with details of the planned expansion.
 Most effectively = done via SH meeting or letter, outlining the rationale behind
expansion + why management think = good for the business.
 Staff = extremely interested in = aware of the plans + how they are impacted upon at work.
  unable to fill in all the details of exactly = give staff an idea of their initial plans =
recruiting new staff and how training and managing those staff will be approached.
 Suppliers = informed of the plans = close relationship with suppliers, working JIT basis + =
seamless connections with suppliers = flow just right.
 Initial conversations = whether suppliers = meet demand at a higher level + early
discussions about how Jord and its suppliers = work closely together = excellent
systems of production at higher quantities.
 Environmentalist groups + local media = interested in + if pick Site One
 carefully explain how the impact on the environment will be managed
 how the Corvolan pine voles will be safely rehoused.
 Good communication = prevent protests + any damage to our reputation.
 One appropriate communication = press release.
5. Please to explain why, from a financial perspectives, Site two is the correct choice and
explains the relevance of each of the three measures Carla caculated?
 Concern = better NPV = poorer discounted payback and IRR.
 Problem = NPV = only criterion that directly = shareholder wealth = Site Two = higher NPV =
superior investment = based on IRR or DPB = confusing.
 IRR = return = earned on the funds invested. Any project = IRR > RRR = positive NPV.
 Jord = accept both projects if it can = But NOT = because mutually exclusive
investments. Acquiring one = no need for the other.
 Mutually exclusive, IRR = misleading results = ignores the scale of a project = amount
invested + duration of the project
 Site One = higher RR, but I0 = C$2 million smaller + Site Two = larger increase in
wealth because good return on a larger I0.
 DPB of Site One = shorter, but that not necessarily = better investment = offers a rapid
discounted payment = offer significant inflows = early years of the project = payback criterion
= aiming to manage their long-term cash flows.
 more rapid payback = not outweigh a larger NPV because discounted payback = not a direct
measure of the impact on shareholder wealth.
6. Explain project management tools and techniques the team can use to manage the
expansion?
 employ PM tools and techniques = ensure the project goes well.
 recruiting the right staff + brought together to action the expansion.
 current members of staff and external people = not enough expertise or manpower
alone = different skills and abilities = right balance to get the job done.
 beneficial = members of staff from all five divisions = impacted to some extent by the
expansion = type of work change,
 workload each division up to 25% compared = clearly recognised that additional
staff = recruited for each division.
 several tools = used to assist the process.
 Risks = assessed and managed = ‘TARA’ = probability and impact with plans = transfer,
avoid, reduce or accept the risks arising from operations.
  A work breakdown schedule = organise the work = more manageable sections + Gantt
chart = useful visual representation of the work schedule = elements of the project = inter-
dependent = aids clarity and makes complicated projects simpler to view and manage.
 Scenario planning = useful way to understand how uncertainties = impact on the final
project outcome + how high costs could go if certain circumstances arise. If certain
scenarios are very expensive = make sure they don’t arise.
 PM software = Jord = very comfortable and familiar with using software in house scheduling
= similar software systems adapted for this project = enhance collaborative working across =
document sharing, budget management, time scheduling, monitoring and communication all
useful roles = completed with effective software.
7. Whether it would be acceptable to account for our new machines through the statement of
profit and loss only, and not capitalise them in the statement of financial position with their
associated liability?
 capitalise the leased assets in BS + associated liability = by IFRS 16 Leases = take effective
1/1/2019 = makes it relevant to Jord.
 IFRS 16 = their economic substance rather than their legal form. Jord = no legal own, but
control = duration of the lease.
 PV of payments = at the start + PV = asset and a liability.
 Asset = PPE + liability = current and non-current liabilities = 12 months.
 Unlike IAS 17, IFRS 16 = NO permit any discretion over the interpretation of the lease
agreement = lease has been signed = value = capitalised + asset being depreciated over
the shorter of the lease term + asset’s useful life.
 Liability = adjusted for payments + interest accruing on the liability = categorical treatment
of all leases = same manner = eliminate opportunities for the distortion of the financial
statements through creative accounting.
 Historically, leases = misclassified by some companies = minimise their gearing ratios.
financial institutions = developed lease in the past = manipulate their FS + their gearing.
 If Jord = permitted lease flow through P&L = SH = misled as to the company’s true FS.
 Future lease payments = commitment as future payments + interest on a loan.
 Excluding PV of the payments = impression of a lean and efficient enterprise = way
of either PPE or debt.
8. Please advise how we can communicate with and train new members of staff to get to speed
with Jord ways of working?
 New members = 15% of our workforce = on board as efficiently as possible = minimise the
settling down process = costs are managed + our production schedules are not jeopardised.
 A programme to train new staff = staff involved in administering the training = the timings +
nature of what is required.
 Existing staff = help train + techniques = mentoring and teaching = on the job.
 BUT, NO conducted a training programme of this size before + HR = key role = training
required + additional training resource = finance department + run to budget and
implemented smoothly.
 Good communication = critical and presentations, team meetings and communication of
information by email = staff have the information that they need, when they need it.
  create an atmosphere = feel comfortable asking questions = people at the top + people
responsible for training new staff = approachable and helpful.
9. Please outline the factors we should consider when setting performance targets for Site Two
when it is operational?
 same or similar PMS after expansion = in ST + cause some demotivation amongst staff.
 Efficiency levels = drop in ST as people = new higher production levels = new members of
staff to train = no reach Jord’s high standards of effective working immediately.
 Both new and old members = discouraged = changing circumstances in the targets.
 Some operations = adversely affected by the fact = now working across two sites
 Ex, timber cutting at one = transportation between = scheduled into workflows =
increase the standard cycle time = movement of timber and other changes.
 Failure to include = make the old targets unrealistic = ineffective drivers for staff.
 adjusting for the anticipated changes in ST efficiency = some different performance
measures = encourage smooth transition to higher levels of production.
 In LT = benefit from the learning curve effect = return to efficient state = targets can return to
their pre-expansion level once things have settled down.
 If no account of the new working situation + keeps efficiency and waste targets at the same
levels = significant impact on morale = further increase the challenges faced.

SEC 2

1. Whether we have the core competencies and resources that would be suitable for bidding for
and then completing Phase I of the Vorsan proposal?
 Core competences = actions and processes = able to do + very difficult or impossible for our
competitors to copy = key to our CA = based on our skills in designing and manufacturing
highly sustainable buildings = highest build quality = in designing unique products = Vorsan
golf resort proposal.
 This document = highest specification of quality and environmental sustainability = core
competencies here = leading industry expert = glass and timber-framed construction =
maximum efficiency and lower energy consumption than our competitors.
 Resource-based view = what makes our business unique and building strategy on that, =
any products or markets where it will work = undertaking the hotel construction in 2016.
 Our main concern = level of resources required = require significant investment in
production technology and HR, if our existing order book = rest of 2019 and into 2020 =
remain unaffected. A 150-room hotel = 30 or more 5-bedroomed houses (= production
capacity) = extra 30% on top of our existing order book.
 significantly larger > Saspa hotel construction = unfeasible to consider undertaking = without
necessary investment in additional resources.
 Several years, operated at full capacity + full order book = our ability to exploit our
core competences, but ineffective without investment = technology and manpower.
 strong cash position = undertaking of this size = certain amount of debt finance
 absence of any current loans + strong BS = secure finance for the project = access
to renewable sources of timber.
 only concern = whether or not sufficient quantities = large construction project
2. What would be the business risks for Jord of undertaking Phase I of this proposal?
 Upside risk = high-profile proposal = attract a great publicity = promotion of the hotel by its
prospective owners during its construction = TV coverage of major golf tournaments.
 Downside risk = Any delays or problems = during the construction = attract significant
adverse publicity.
 Vorsan = open the hotel on time + meet guest expectations.
 A major corporation = Vorsan = potential customers = bad publicity if it fails to open
its hotel on time or to meet the advertised standard.
 Vorsan = pass any blame onto Jord = damage our reputation = house customers.
 Construction process = raise a variety of risks vs. building homes
 major project = edge of a luxury golf course = access to the site to carry out the
build, having cranes and other equipment on site during tournaments = at busy
times = play without the noise = visual disturbance of a building site.
 Any slight delays.
 Product risk = our experience = building domestic houses. A large hotel = far more
constraints = building permits, fire safety + Any omissions due to our lack of experience =
badly on the business as a whole, harming house sales.
 Operational risks = delivery of this project = transportation of large sub-assemblies to Malia
+ significantly longer period of time = usual 5-10 days on-site build phase = risks of more
potential errors and delays = contract penalties.
 Price risk = large quantities of timber required = shortage of suitable materials, (=medium
risk in the risk register) = price charged by the suppliers may well increase.
 An upside risk = larger quantities = volume discount, bringing the unit cost down.
3. Outline ways in which we could raise the necessary funds for the new production technology
for this project and discuss any alternative there could be to purchasing the technology
outright?
 Fresh equity = difficult to arrange = Larsson family control 60% = diluting their control =
reluctant to upset the company’s stability = NEW push the company in a different direction.
 A rights issue = existing shareholders = subscribe to new shares = their current
shareholding = deal with concerns about dilution, but Jord is unlisted = unlikely shareholders
= able to invest a further C$6 million, Larsson family = C$3.6 million.
 Debt = sensible option, Jord’s financial history = no debt currently + its historic profitability =
ample opportunity to borrow from a bank = ‘tax shield’ = interest payments = cost interest
charges = repaid out of operating CF over the next few years.
 Use our cash balance to fund this project = sacrificing dividends payable + 2018 = cash
balance of C$26 million = payable are C$17 million = paid in July = reduce the cash balance
significantly. These dividends = unpaid + used to fund the project effectively achieving the
same result = fully subscribed rights issue.
 Lease the new technology = bank or leasing company = use of the assets = lease. Lessor
= retain ownership of the leased assets = no need to lodge separate collateral in support of
the lease liability. Lessor = repossess the assets if we do not keep up with payments.
 Leasing = same implications = debt. Lessor = unlikely to buy specialised assets to our
specification unless we committed ourselves to a lease term = made economic and
 commercial sense to both sides. Unlikely = return the assets = became surplus to our
requirements + maintain the lease payments even if Phase II = not take place.
 No real advantage to leasing = financial reporting. IFRS 16 Leases = capitalise the present
value of the lease payments + assets = based on PV = at the time the lease commences.
4. What actions do the leadership team need to take to ensure that we do not encounter the
same motivation problems on this project with our on-site construction team as we incurred
on the delivery of the Saspa hotel project?
 Some motivational problems = Saspa project = High levels of sickness, absenteeism and
more worryingly, accidents = poor morale = quality of the final delivery of the project.
 strive to achieve + encourage high performing teams = clear purpose and objectives +
commitment + Saspa project = lack of clear purpose = completely new type of construction =
on-site construction team.
 overall lack of understanding of the needs = by the leadership team = possible actions =
taken by the leadership team to improve motivation.
 Jord’s leadership = communicate the goals and objectives of the project = team, prior to
commencement = The construction team = understand the importance of their role in the
successful delivery of the project = Team building exercises = develop a strong sense of
team cohesion.
 Jord’s leaders = clear form of communication between the team = any issues can be
resolved quickly and efficiently. Communication = developing and encouraging problem
solving exercises = developed to build trust + encourage team commitment.
 The leaders’ visibility, availability and preparedness = discuss project related issues
= significant positive impact on staff morale.
 Sufficient training in health and safety = given to motivate staff = their own personal safety =
working overseas. Jord = consider team rotation.
 Length of time away from home = issue with motivation previously and = clearly
defined plan = teams know in advance where and for how long they will be away =
communicated well in advance.
 consider incentivisation = financial reward, = bonus payments = feel more valued
and committed to the project
 Consider social events and interactions = reduce any potential conflict + increase the
cohesion of the group.
 Formal teambuilding exercises + reinforce the individual identity of the on-site
construction team, strengthening team members’ sense of belonging and improving
the efficiency of the group.
 giving the team its own name or its own uniform.
5. Please could you explain to him why it is important to use the time value of money, and the
relevance of the measures I have used for this decision?.
 Incorporating TVM = investment involves committing funds = raised = cost of finance +
relatively short term projects = cost of capital = less of an impact than LT, but = making a
significant investment = C$7 million.
 TVM allows for is risk = cost of the funds + incurring a risk = project may fail. Using TVM =
whether the expected returns are sufficient to risks.
  Measure based on TVM = NPV = linking the project’s anticipated outcome to SH wealth =
accepting Phase 1 = increase SH wealth by C$2.501 million = cost of capital + risk.
 Any project IRR > RRR = positive NPV = accept Phase 1 if it 35% return on investment >
only 10% RRR = cost of capital + risk. High ROI = help the SH to understand risky project.
 DPB = Jord tying up funds for 1.5 years if it proceeds with Phase 1 = making strategic
forecasts of cash flows = need to raise finance for other projects or generally for expansion.
6. Explain to Vic how and when the sales revenue from this contract would be recognised in the
financial statements?.
 revenues’ = = included within the ‘Cash inflow’ category.
 our costs and revenues = posted to P/L as and when they occur = not always be occurring
within the same accounting period.
 accounting for Vorsan project = application of IFRS 15 – Revenues from Contracts with
Customers (formerly covered by IAS 18) = how we account for the revenues received =
ensure FS = close to reality as possible = matching concept.
 Nature of this project = different from house building projects = span more than one =
manufactured home = down payment when the contract is signed as a security = recorded
as liability BS = Costs and revenues = recorded in the period they occur.
 occurs with homes but much lesser extent than this contract.
 for Vorsan project = when the revenue and costs associated with LT contract = recognised.
 If estimate reliably = revenues and costs = recognised in P&L by reference to the
stage of completion = at the reporting date.
 to satisfy this = following criteria are met = amount of revenue can be measured
reliably; + probable that the economic benefits will flow to us; + stage of completion
at BS date can be measured reliably; + costs incurred, or to be incurred, in respect
of the project can be measured reliably.
 Phase I = less difficulty for us + able to simply account for Revenue as Total contract
revenue × % complete’ + cost of sales as ‘Total expected contract costs × % complete’ +
Gross profit as ‘Total expected profit × % complete’.
 ensure = current profitability of the project = fairly in FS.
 Phase II = contingent on factors outside of our control = prudent to not recognise this Phase
= until there is certainty that this will occur.
7. Outline for Jord our real options for the phases of this project?
 Real options = actual choices or opportunities = take advantage of or realize = whether to
abandon in Phase I of the project or continue + decide in Phase II = Champion’s Trophy be
awarded to Vorsan.
 account = real options into the decision making process = affect valuation = consider using
real options value analysis (ROV) = estimate the opportunity cost of continuing or
abandoning = project + make a decision accordingly
 EX, investing in a new manufacturing facility = real option of introducing new
products, or increasing the output of our bespoke houses.
 A real option = abandon both phases of the proposal = still in final negotiations with Mr.
Alvez + contract = not been signed = option not to take part in Phase = no significant
financial commitments have yet been made.
  decision to only commit to Phase I + abandon our involvement in Phase II, even if Vorsan
actually win the Champions Trophy bid.
 news article = point the losing bidder = Champions trophy = next round for the 2026
tournament = real option for Vorsan = consider delaying Phase II for two years.
 Vorsan = bid for the 2026 tournament if = lose the 2024 bid
 consequences = writing off of costs incurred to this stage + passing up on the
opportunity of the potential profit = earned from the project.
 if abandon either Phase of the project = consequences = greater, contract = include
punitive financial repercussions of us not seeing the project through to completion.
 One real option = not available = delay/defer Phase I or Phase II = delivery of Phase I and II
= time contingent = any delay = loss of the opportunity on both project phases.
 One real option = option to redeploy the new technology = abandon Phase II.
 new technology = flexible enough = manufacture any type of prefabricated building
= possible to use the new technology for the manufacture of more high-quality
bespoke houses.
 have a waiting list of 12 months = free up this waiting list + opportunity to expand
productio = impact on quality standards + reputation we have established in the
market for exclusivity.
8. What actions we should take to maintain our ethical stance when making the decision to
progress or not with the Vorsan Golf project, and how should we explain the final decision to
our key stakeholders?
Maintaining our ethical stance
 maintain the highest standards = making process + following = set for ourselves + expected
of ethical organisations.
 main threat = offer to the Board of all expenses paid holidays to the golf resort = commit to
undertaking the project = our decision + challenges our integrity and objectivity.
 no point = accept such offers + communicated immediately to Mr. Alvez.
 decide to proceed = not the type of business = act unethically in any way.
 set the tone of the business relationship from the very start.
 reassessing our position in whole project = not acting unethically + business decision =
made rationally + due professional competence.
 evaluate all of our potential options = all of the related stakeholders = using our full
professional judgement in making this decision.
 Theo’s insistence = keep the discussions confidential = viewed either way.
 made confidentially by the Board + no need to involve Mr. Alvez.
 However = decide to withdraw at this late stage = unethical = leave the Vorsan Golf
resort with no one to deliver the contract.
Communication to key stakeholders
 ethical to inform Mr. Alvez of our considerable concerns = our commitment to the project in
advance of our Board discussions + be re-considering our position.
 Once our final decision = inform Mr. Alvez.
 best achieved in a face to face meeting or phone conversation with Theo.
  inform our SH of our decision = our SH are family investors and employees = communicate
this internally, through email or some face to face communications
 Any decision = clearly explained = its impact on SH investment and on business
 committed to involving our staff in the decision-making process = early on in this proposal =
expecting a decision soon = inform them as soon = those staff directly affected, = production
staff and on-site construction staff.
 Communication = open and honest + two-way communication = senior managers
and staff.
 our key suppliers = supply the timber = very large order quantities = whatever decision we
reach = extra quantities or not = significant impact on their businesses.

SEC 3

1. Please advice whether you think the addition of luxury garden design and construction
service would add to the competitive advantages of Jord?
 differentiator = premium end of the prefabricated housing market + charging a high price +
This strategy = clearly working well = highly profitable + long customer waiting list.
 CA = very high-quality offering with exacting standards, excellent levels of customer
service + unique product offering = sustainable and ethically sound.
 undertake discreet market research = establish whether a graded design service = enhance
CA.
 If customers = presented with a completed house + finished garden = further
differentiate itself by adding this service
 prefer the greater simplicity = house and garden managed by a single entity = many
house buyers = find and brief a garden consultant = understands and shares their
vision = little interest in any consultancy that Jord acquires.
 Garden consultant = not experience of the different climates and soil types = builds homes
in different countries = harm Jord’s reputation if not thrive = use of plants = unsuited to local
conditions.
 No particular synergies = house construction + creation of the garden = customer to
envisage what the garden design would look like until after the house had been built.
 inconvenient for the garden work = undertaken during the house construction,
housebuilders = access the site with cranes and other equipment.
 Jord = operate housebuilding and garden design = two very separate businesses,
even if providing both services to the same customers.
 Some indications = product offering = an excellent fit, Garden Art = described potential to
distract management time.
2. Please preapre me a summary, outlining whether you think Garden Art looks like a financially
healthy organization.
 little direct interest in Garden Art’s financial health = independent entity = potential
subsidiary of the Jord Group
 Garden Art’s revenue = fallen from + modest growth from + sales fell by 17% from =
level over E$1 million lower than that achieved in 2016.
  potentially worrying sign = imply reputational problems = poor quality work, leading
to declining sales. If Jord’s interest = acquiring a consultancy = service
housebuilding clients.
 Declining revenues = availability of resources = skilled labour and consultants, to
start immediately on Jord’s projects.
 Operating profit margin = disappointing = struggling to cover costs = making a loss = cost
base reflects high quality work = enhance Garden Art’s revenues through obtaining
commissions from housebuilding clients = Garden Art’s profits are sensitive to revenues.
 Garden Art’s average salary = very high = skilled staff = considerable market demand =
reinforces the need to generate revenues.
 Wasted materials = imply a tendency towards achieving high quality, even if financial cost =
considered before making an investment because curtailing waste = impairment of the
quality of work.
 Garden Art’s gearing = relatively high and rising = volatile cash flows = dangerous
combination + Garden Art = part of the Jord Group = receive greater support = not be in any
great danger.
 motivate the present owners = whether they wish to bear the risks associated with
continuing to operate independently.
 motivated to accept a relatively low purchase price if Jord = offer to buy them out.
3. Please explains the potential impact of consolidating a foreign subsidiary into our accounts,
detailing whether there may be foreign exchange G/L to deal with in the next reporting
period?
 Acquisition (date of acquisition)
 assets acquired = using rate at date of the transaction. Goodwill = created =
difference between the amount paid + value of net assets acquired
 no foreign exchange G/L = at that stage.
 Ongoing trading (subsequent reporting period)
 At each subsequent reporting period, Jord = translate subsidiary into Corvolan dollars, =
presentation currency for Jord = translated numbers = consolidated in the group accounts.
 The translation = FX differences = dealt with in Jord accounts.
 BS = Garden Art balances = translated at the reporting date. If FX rate has changed since
the previous year end (and, going forward, from the last reporting date) = translated value of
assets and liabilities = changed giving rise to exchange G/L on translation = recognised
within OCI = separate reserve held within equity in BS.
 The Garden Art IS = translated to Corvolan dollars = average rate of exchange during.
 Overall exchange difference (= retranslation of the prior year A&L, and from the difference
between CI at average and closing rate) = OCI.
 A further exchange difference = arises upon consolidation for goodwill, = recognised at the
closing rate, = retranslated from opening to closing rate.
 However, any impairment = taken care of before translating the balance.
 Jord = acquiring 100% of the subsidiary = no have any noncontrolling interests (NCI) to
worry about. If any NCI’s, then the exchange differences = split between Jord + NCI’s based
on a pro rata basis.
4. Please explain what “TARA” is and how we could use it to manage the risks I have
highlighted in my reports?
 TARA = framework for classifying risks = both their likelihood and impact = two factors gives
some insight into how best to manage any given risk.
 simplest form = likelihood and impart on a two-point scale = high and low for each = 2x2
matrix. Each cell = approach to managing risks.
 Transfer – high impact, low likelihood
 Avoid – high impact, high likelihood
 Reduce - low impact, high likelihood
 Accept – low impact, low probability
 EX, risk of legal problems = hopefully low impact, but the nature of our business involves
contracts = high probability = risk = reduced by hiring a local lawyer to advice.
 If exchange rates = unlikely to be volatile = FX differences = potentially high impact, but low
probability = transferred by hedging against on AR or AP in Etrovian dollars.
 Cultural differences = unlikely to create problems because the two aspects of the business
will operate independently = low likelihood and low impact = accepted.
 The problems with trading performance = high likelihood and high impact because of the
current position = best avoided by developing a new business model.
 Risks associated = differences between the operations of Jord and Garden Art = high impact
and high likelihood = avoided, but the only way = abandon the investment.
 Given = invest has been made, the most appropriate response = reduce the risk by
= hiring a manager with the necessary expertise to supervise Garden Art’s
operations on Jord’s behalf = customers not wanting to use Garden Art’s service.
 probably high risk and high impact, but the risk = reduced by promoting the service.
 The financial problems associated with gearing = high impact and high likelihood, but
accepted on the basis that Garden Art = part of the Jord Group, and the group = support the
company through any difficult periods.
5. What are the advantages and disadvantages of the transfer price between Garden Art and
Jord being set at 10% less than market value?
 Transfer pricing system = move profit from Garden Art to Jord = benefit from a better tax rate
in Corvola than Ertovia = the recognition of more profit in the country with the lower tax rate
= benefit Jord as a whole.
 Such behaviour = unlikely to be acceptable to the tax authorities in Ertovia =
unacceptable from a tax perspective.
 If Jord went ahead = investigations and demands for additional tax payments in
Ertovia.
 Cases recently = major multinational corporations = accused of trying to artificially reduce
their tax bills = manipulation of transfer prices = bad publicity for the companies concerned.
Directors = accused of unethical behaviour = caused reputational damage + penalty
payments.
 Nothing to prevent Jord = for internal management purposes = reported earnings to cancel
the 10% reduction = lead to behavioural consequences = whether the benefit gained by
 lowering the tax bill, particularly as Garden Art is currently barely profit making = potential
issues = caused within the group.
 Transfer pricing = impact on the morale and motivations of staff at Garden Art + some spare
capacity + attract work at market value = more beneficial to staff’s revenue-based bonus
system than performing the 10% discounted work for Jord.
 received complaints from Saffron Svoboda = letter written on behalf of the whole
management team = their annoyance at the transfer pricing = have affected their results,
reducing the self-esteem of the team + impacting the bonuses they can achieve.
 Whether the bonus system = appropriate is a matter for separate consideration but
this transfer pricing system = caused disgruntlement at the subsidiary.
 Disgruntlement = behaviours that cause problems at Jord. If Garden Art behave badly on
Jord jobs reputation + if they continue to fill their order book with external work, instead of
prioritising Jord work = affect the scheduling of jobs and reputation overall. Jord = enforce
upon Garden Art how they schedule Jord work in, but further steps = manage these people
= received causing further problems.
 Beneficial = revisit the transfer pricing system = address the issues raised by Garden Art, =
part of an exercise to look again = whole working relationship between Jord and Garden Art.
A dual pricing system where Garden Art records one price and Jord records another price =
some yearend adjustments = potentially keep both parties happy.
6. What approach could we take to managing the conflict more effectively?
 significant problems occurring = conflict between Jord and Garden Art + Jord = attempted to
make a start on cost management at Garden Art + impose Jord ways of working and
scheduling + previously discussed transfer pricing system.
 Garden Art = come into line with Jord = 100% owned by Jord = not unreasonable for Jord to
require Garden Art to work in certain ways + follow the rules of operation of Jord as a
company.
 Don’t want a ‘riot’ on their hands = look for a way to resolve the conflict more collaboratively,
rather than = laying down rules about how things should work.
 Good communication = good start point for such efforts. Explaining to the team at Garden
Art why Jord works + why it is important for good performance + why Jord would now like
Garden Art to work in that way.
 Jord = higher profitability = beneficial to everyone at Garden Art + difficult to accept
compromises and changes in the shot-term, the long-term benefits = quite positive for staff
at Garden Art. Jord = set up a bonus system for Garden Art staff based on group profitability
= more goal congruence across the organisation.
 worth Jord spending some time with the team at Garden Art = allow them to identify any
members of staff at Garden Art = assist with their efforts to tighten things up at Garden Art.
 Identifying people = driving force for change, keeping the peace and working collaboratively
= allowing them to work from the inside to resolve conflicts + improvements overall.
7. Please outline the advantages and disadvantages to Jord if we implement a business
process re-engineering at Garden Art?
  Business process reengineering (BPR) programme at Garden Art could = opportunity to
identify and remove non-value adding activities + company = reporting poor results = aim to
improve its approach to operations.
 making significant changes to processes and procedures to improve operations at Garden
Art + advantages = lead to improvements in the performance at Garden Art = their results
are far from ideal, particularly waste = room for significant gains if they use some of Jord’s
approach = drive out waste and improve efficiency.
 danger = Jord = not understand how the process of meeting customer needs actually works.
The timesheet = some time is spent doing activities = not budgeted for, but Jord = some
gardening contracts require additional inputs to tweak plans. Garden Art = upper end of the
market = judged on results. Any interference by Jord = false economies.
 not all the activities = waste of time. Although ‘getting a feel for the garden’ sounds vague =
important step in the process of designing and constructing a garden. Individual activities
listed on the timesheet, a BPRE programme = help to identify other activities = not be
adding value = no come to light given the level of granularity of the timesheet + stepping
through the process.
 Potential disadvantages = time consuming + difficult to implement if the staff at Garden Art
are not on board. Although some compromises = reached regarding old areas of conflict, =
aggravate old arguments = problems re-engineering processes effectively at this time.
8. Please suggest and adjustify three performance measures that you think would be
appropriate to measure and drive the performance of garden constructions workers?
 garden construction workers = bonus based on revenue = inappropriate = not an area they
have much control of = controllable area = quality of the construction build and waste
incurred in construction = far better areas to incentivise.
 Time spent on construction vs budget = identify where more time = on construction than
was anticipated + reasons why. If staff = bonus based on this = work to keep time within
budget. Care = be taken that quality wasn’t compromised but, if the time budgeted is correct
= not be an issue.
 Wastage of materials in construction vs budget = identify more accurately where waste
is occurring in the system. If staff = bonus on this area, they will be motivated to reduce =
benefit the organisation as waste is currently too high.
 Customer rating on quality of garden construction = monitoring of the quality of the garden
build work = quality of house building = incentivise builders to strive for quality = better
product and customer service overall.
 New PMS embraced by staff = any results set against a budgeted figure are compared to a
budget = compiled in a fair way + include workers in the budget setting process = buy in to
the target + debates about whether the budget is fair or not.
9. Please outline how changing the performance measurement system may affect the behaviour
of these workers?
 Changing PMS = concern the construction workers = different from the current system
 changing PMS = get better performance out of the workers so, if managed well, in LT =
better worker behaviour occurring as a result.
  Appropriate PMS = goal congruence across the organisation + workers = improve things
control vs. no influence over.
 Recent history with Garden Art = not entirely positive and new PMS = not be well received.
Workers = offended that their time, wastage and quality = further issues with motivation.
 Less in bonus payments = new system + their bonus payments may suffer. Bonus scheme =
not just be based on revenue. Non-financial measures = used as well.
 Harder for the staff to understand at first + skeptical of them.
 If the workers are involved = setting PMS = good understanding of why the new system is
being put + how it can be of benefit to themselves + business = accepting of it + work
towards achieving PMS set = important to = open and two-way communication process.
 But timing is carefully assessed = drives the optimal behavioural outcome in workers.

SEC 4

1. I need you advise Linus on whether this is true or whether this programme is consistent with
our current vision and mission?
 whether we will remain true to our vision = build for government’s programme = standard,
rather than state of the art. Also, need to strive to achieve a high quality = not achieve the
levels of quality = with our existing houses = lower price + greater volumes.
 The government’s = build standard designed = solve Corvola’s housing problems = main
issues = this proposals’ suitability vs. our small volumes of bespoke designs + level of
quality.
 Our vision = industry leader = design and construction of state-of-the-art = highest quality,
cost effective and environmentally sustainable’ = no reason = our involvement in this
proposal = use our expertise and industry experience = develop standard = still meet our
levels of quality and sustainability + greater volumes.
 governments drive forincreasing sustainability of its housing stock = industry leaders =
opportunity to use this expertise in this way. Our cost-effectivefocus = consistent with the
outcomes of the proposal, as customers = cost effective and efficient.
 more concern = proposal’s suitability with our mission statement to our customers. Our
current customers = its high quality, its environmentalsustainability = truly unique product. If
involved = threat to our claim to offering unique homes = de-value our CA = seriously
consider = not want to lose our existing customer base.
 customer = contractor rather than the individual homeowner.
 our people = NO affected by this potential contract = secure employment and career
progression = enhanced due to the extra work that the contract will bring.
 communities = enhanced by this programme = actively contributing to the communities =
provide an environmentally and sustainable living environment for our community.
2. Please advise Linus on the possible downside and upside risks for Jord of participarting in a
programme to deliver standard housing units in greater volume?
 product reputation risk = impact on our reputation = provider of high-quality bespoke homes.
Our current customers = bespoke designs = certain degree of ‘kudos’ in owning a Jord
home = adversely affected if we decide to manufacture large numbers.
 upside risk = our product reputation may enhanced If ensure that we produce high-quality,
albeit standard designed houses = our availability to a much wider market and our brand =
wider known.
 Our expertise = exploited in a much larger marketplace= more prominent in the industry.
 Downside product risk = not deliver what is expected or needed by the end customer or the
Government. Mass produced, standard housing = completely new concept = large housing
estates are not normal practice + government is keen to solve = end customers themselves
= not be interested in buying standard designed = impact on the reputation of our product, if
= unsold and in lowdemand.
 Operational risk of working with customers (i.e. the land developers) = not worked with
before = challenges in our ability to deliver the product required = not used to working with
large businesses = land developers or with the Government = hinder our own productivity.
 Operational risk = lose focus on our core customer base + lose our CA = high-
qualitybespoke houses. If customers perceive = no longer an ‘exclusive’ = severely impact
on our core business + no guarantee = standard house production = LT prospect but ST,
damage our LT CA = change some of our processes and systems = incorporate the new
work = NO want to unduly affect our existing operations. An upside risk = end up with better
processes and systems than we currently have.
 if the project is unsuccessful, or runs into problems, Jord’s brand image = damaged + even if
the problems = not within our control = knock-on effect on our other, morer profitable
customers. An upside risk if the project does go well = significantly enhance Jord’s
reputation = further projects = Corvolan government + outer governments.
 
3. Idenitfy the impact that this potential acquisition would have on the preparation of the
financial statement of Jord Homes, post-acquisition?

4. Explains the factors that we need to consider when devising a performance measurement system to
enable us to effectively manage MobPod as a investment centre.
5. Use the datasheet give to me by Pep, explain how the data would be used to calculate the labour
cost of the 200 houses and also whether learning curves are useful for us.
6. Explain any benefits or drawbacks of reporting and analysing the financial performance of Jord
Modular as a separate business segment.
7. I need you to outline for the benefit of the selected project manager, the key activities we would
expect to see in such a plan and the importance of each activity.
8. Explain how the constrains of time, cost, and quality could impact on our performance throughout
the project, and identify each constraint, one appropriate key performance indicator, which could use
to assist in monitoring our management of these constrains.

SEC 5

1. How importance is it for us to understand the levels of competition that we may face in Ustaria,
before we make a decision to build more houses in this market?
2. What are the potential business risks for Jord of building more houses in Ustaria?
3. Outline whether a right issues would be appropriate for Jord and what alternative funding options we
have?
4. Please explain whether we should continue to use premium pricing in Ustaria market or consider a
alternative approach to pricing.
5. Why would we need to make additional disclosures if we rent my brother’s showroom, and what kind
of disclosures will be required?
6. What extent will these organizational cultural differences matter, and how can we manage them to
ensure the new showroom runs smoothly when open?
7. The results of KPI for Ustaria sales showroom, suggesting the reasons why these