FM-BINUS-AA-FPU-78/V2R0

Name: Firda Arfianti

NIM: 2301949596
Code – Course: ACCT6043 – International Accounting
Class: LA53
Lecturer Code & Name: D5893 – Silvia Dewiyanti, S.E., M.Si., Ak., CA., CSRA

BINUS University

Academic Career: Class Program:

Undergraduate / Master / Doctoral *) International/Regular/Smart Program/Global Class*)

 Mid Exam √ Final Exam Term : Odd/Even/Short *)

 Short Term Exam  Others Exam :

√ Kemanggisan √ Alam Sutera √ Bekasi Academic Year :

 Senayan  Bandung  Malang 2020 / 2021

Faculty / Dept. : Economics and Communication Deadline Day / Date : Saturday / 20 Feb 2021
/ Accounting and Finance Time : 17:00:00

Code - Course : ACCT6043 - International Accounting Class : LA53, LB53

(Delivery In English)
Lecturer : Team Exam Type : Online

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CASE I (20%) Strategic Accounting Issues in Multinational Corporations

Refer to Exhibit 13.6 from your textbook.
Required:
Briefly explain the operating environment of a developing country of your choice (except
Indonesia) using the framework that identifies the social, political, economic, and
technological influences.
Try to use an Internet search engine, such as Google and Yahoo, or any other source. The
source(s) used should be clearly acknowledged. Information should be structured under
social influence, political influence, economic influence, and technological influence.
Answer:
The operating environment of India & Thailand:
Some important factors influencing the operating environment of a country are:
1) The availability of raw material
2) Technologies
3) Health & safety regulations
4) Administrative controls
5) Inflation rates
6) Employment level
7) The availability of capital

 India
1. Political Influence : Unstable Environment
The country’s been in turmoil over the government’s new citizenship law and
protests against the legislation have claimed at least two dozen lives. In the
closing days of 2019, police went on the rampage in Jamia Millia University.
India: Government effectiveness index (-2.5 weak; 2.5 strong), 1996 – 2019. The
average value for India during that period was -0.03 points with a minimum of
-0.21 points in 2014 and a maximum of 0.28 points in 2018. Regulatory controls
in India has evolved as one of the most complex laws in the world. This leads to
reduction in productivity of work as well as unnecessary work compliance.

2. Economic influence:
The availability of raw material at every location of the business is pre-requisite
for the working of the company. In India, where resources are underutilized i tis
difficult to provide timely delivery of raw materials. The availability of capital in
India has always been very rare. Thus, the innovation and growth of the
company stops that is major set off in the process of development.
3. Social influence:
The Indian caste system describes the system of social stratification and
social restrictions in which social classes are defined by thousands of
endogamous hereditary groups, often termed jātis or castes. There are four
main stratas –Brahmins, Kshatriyas, Vaishyas and Shudras, Dalits comprise the
fifth strata. This can led to segregation of the Indian Society in terms of many
castes but less Indians. Caste is one among the major factors in politics of
India.

4. Technological influence:
The technologies has always been a bit stagnant in India as compared to the
rest of the world and become a major drawback has been for the companies
that are multinational. Because of the stagnant in technology
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 Thailand
1. Political influence: Political stability index (-2.5 weak; 2.5 strong) from 1996 to
2019 showing the average value for Thailand during that period was -0.7 points
with a minimum of -1.44 points in 2010 and a maximum of 0.64 points in 1998.
The latest value from 2019 is -0.54 points. Thus, made Thailand rank on 142 in
world political stability index.

2. Social influence: Population growth, percent, 1960 - 2018. The average value
for Thailand during that period was 1.63 percent with a minimum of 0.32
percent in 2018 and a maximum of 3.01 percent in 1964. Thus, made Thailand
rank on 159 in world population growth.

3. Economic influence: Fiscal freedom index (0-100), 1995 - 2020. The average
value for Thailand during that period was 77 points with a minimum of 74
points in 1997 and a maximum of 82 points in 2015. Thus, made Thailand rank
on 71 world fiscal freedom index.

4. Technological influence: International Internet bandwidth per Internet user,

kb/s, 2012 - 2016: The average value for Thailand during that period was 30.85
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kilobits per second with a minimum of 10.83 kilobits per second in 2012 and a
maximum of 54.79 kilobits per second in 2016. Thus, made Thailand rank on 48
on international internet bandwidth per user.

Reference:
Doupnik, T. S., Finn, M., Gotti, G., & Perera, H. (2020). International accounting.
New York: McGraw Education.

Sharma, M. K., & Singh, M. K. (2015). Impact of Changing Socio-Economic

Environment on Business in India. International Journal of Research, 21.

https://www.thehindubusinessline.com/opinion/columns/is-india-a-stable-
place-to-do-business/article30505131.ece

https://www.theglobaleconomy.com/Thailand/

CASE II (25%) International Corporate Social Reporting

Exhibit 15.10 from your textbook provide an example of a company, Toyota, which has
clearly stated its CSR policy in its annual report of 2010.

Required:
Identify another company from Bursa Efek Indonesia which has stated its CSR policy in its
2019 annual report, and compare the main points highlighted by the two companies.
Answer:

Unilever CSR Report

Unilever Compass Strategy: Purpose-Led, Future-Fit is built on the USLP achievement which is
now incorporated in it. USLP comprises of three main goals which will be achieved through nine
initiative pillars with social, environment, and economy performance targets throughout value
chains of Unilever, then the pillars of USLP will be part of the implementation of Unilever
Compass.

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Key Issues (Materiality):

Improving Health and Well-Being • Health and Hygiene
• Improving Nutrition

Reduce Environmental Impact • Greenhouse Gases

• Water Use
• Waste & Packaging
• Sustainable Sourcing

Enhancing Livelihoods • Fairness in the Workplace

• Opportunities for Women
• Inclusive Business

Comparison between Toyota and Unilever Indonesia in CSR provisions as follows:

The Toyota company emphasizes on social responsibility. The Company interacts with its stakeholders
(shareholders, creditors, etc.) to maintain good relations with stakeholders. However, it does not regulate
the provisions in improving the health and well-being of the community. Unilever, meanwhile, emphasizes
social and environmental responsibility.

Unilever makes rules on improving people's health and well-being through health and hygiene and improving
nutritional quality. This is mentioned in the company's CSR provisions. In reaching out to the public to take
action that can improve health and hygiene, Unilever Indonesia takes three approaches, namely school-based
programs, communities, and professional institutions as well as educating the public about a balanced
nutritious diet and promoting new types of food that have sustainable added value through leading brands
such as Bango, Royco, Paddle Pop, and Hellman's. Meanwhile, Toyota company is not reported or shown in its
CSR report.

Reference:
Doupnik, T. S., Finn, M., Gotti, G., & Perera, H. (2020). International accounting. New York:
McGraw Education.

Unilever Sustainability Report (2019)

https://www.unilever.co.id/investor-relations/publikasi-perusahaan/sustainability-report.html

CASE III (30%) International Transfer Pricing

ABC Company has subsidiaries in Countries X, Y, and Z. Each subsidiary manufactures one product
at a cost of $10 per unit that it sells to each of its sister subsidiaries. Each buyer then distributes the
product in its local market at a price of $15 per unit. The following information applies:

Country X Country Y Country Z

Income tax rate 20% 30% 40%
Importduties
Import 20% price and are deductible
duty are levied on the invoice 10% for income tax purposes.
0%

Required:
Formulate a transfer pricing strategy for each of the six intercompany sales between the three
subsidiaries, X, Y, and Z, that would minimize the amount of income taxes and import duties
paid by ABC Company. This problem can be solved by determining the relative amount of
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income taxes and import duties that will be paid at a low, e.g., $10.00, and a high, e.g.,
$13.00, transfer price for each of the six intercompany transactions.
Answer:
Low price: $10 Low price: $13
X Y Total X Y Total
Sales $10.00 $15.00 Sales $13.00 $15.00
Production cost $10.00 $10.00 Production cost $10.00 $13.00
Import rate 10% Import rate 10%
Import duty $1.00 $1.00 Import duty $1.30 $1.30
Income before $0.00 $4.00 Income before $3.00 $0.70
tax tax
Tax rate 20% 30% Tax rate 20% 30%
Tax $0.00 $1.20 $1.20 Tax $0.60 $0.21 $0.81

Total Import and $2.20 Total Import $2.11

Tax and Tax

Low price: $10 Low price: $13

X Z Total X Z Total
Sales $10.00 $15.00 Sales $13.00 $15.00
Production cost $10.00 $10.00 Production cost $10.00 $13.00
Import rate 0% Import rate 0%
Import duty $0.00 $0.00 Import duty $0.00 $0.00
Income before $0.00 $5.00 Income before $3.00 $2.00
tax tax
Tax rate 20% 40% Tax rate 20% 40%
Tax $0.00 $2.00 $2.00 Tax $0.60 $0.80 $1.40

Total Import and $2.00 Total Import $1.40

Tax and Tax

Low price: $10 Low price: $13

Z X Total Z X Total
Sales $10.00 $15.00 Sales $13.00 $15.00
Production cost $10.00 $10.00 Production cost $10.00 $13.00
Import rate 20% Import rate 20%
Import duty $2.00 $2.00 Import duty $2.60 $2.60
Income before $0.00 $3.00 Income before $3.00 -$0.60
tax tax
Tax rate 40% 20% Tax rate 40% 20%
Tax $0.00 $0.60 $0.60 Tax $1.20 -$0.12 $1.08

Total Import and $2.60 Total Import 3.68

Tax and Tax

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Low price: $10 Low price: $13

Y X Total Y X Total
Sales $10.00 $15.00 Sales $13.00 $15.00
Production cost $10.00 $10.00 Production cost $10.00 $13.00
Import rate 20% Import rate 20%
Import duty $2.00 $2.00 Import duty $2.60 $2.60
Income before $0.00 $3.00 Income before $3.00 -$0.60
tax tax
Tax rate 30% 20% Tax rate 30% 20%
Tax $0.00 $0.60 $0.60 Tax $0.90 -$0.12 $0.78

Total Import and $2.60 Total Import $3.38

Tax and Tax

Low price: $10 Low price: $13

Y Z Total Y Z Total
Sales $10.00 $15.00 Sales $13.00 $15.00
Production cost $10.00 $10.00 Production cost $10.00 $13.00
Import rate 0% Import rate 0%
Import duty $0.00 $0.00 Import duty $0.00 $0.00
Income before $0.00 $5.00 Income before $3.00 $2.00
tax tax
Tax rate 30% 40% Tax rate 30% 40%
Tax $0.00 $2.00 $2.00 Tax $0.90 $0.80 $1.70

Total Import and $2.00 Total Import $1.70

Tax and Tax

Low price: $10 Low price: $13

Z Y Total Z Y Total
Sales $10.00 $15.00 Sales $13.00 $15.00
Production cost $10.00 $10.00 Production cost $10.00 $13.00
Import rate 10% Import rate 10%
Import duty $1.00 $1.00 Import duty $1.00 $1.30
Income before $0.00 $4.00 Income before $3.00 $0.70
tax tax
Tax rate 40% 30% Tax rate 40% 30%
Tax $0.00 $1.20 $1.20 Tax $1.20 $0.21 $1.41

Total Import and $2.20 Total Import $2.71

Tax and Tax

Reference:
Doupnik, T. S., Finn, M., Gotti, G., & Perera, H. (2020). International accounting. New York: McGraw
Education.

CASE IV (25%) Translation of Foreign Currency Financial Statements

Access the 2019 annual report for a U.S.-based multinational company to complete the
requirements of this case.
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Required:
a. Determine whether the company’s foreign operations have a predominant functional
currency.
Answer:
In 2019, Exxon Mobil disclosed in its summary of accounting policies:
The “functional currency” for translating the accounts of the majority of Downstream and
Chemical operations outside the United States is the local currency. The local currency is
also used for Upstream operations that are relatively self-contained and integrated within
a particular country. The U.S. dollar is used for operations in countries with a history of
high inflation and certain other countries. Thus, a substantial number of ExxonMobil’s
foreign operations have the local currency as functional currency.

In contrast, Chevron indicated that the U.S. dollar is the functional currency for
substantially all of the company’s consolidated operations and those of its equity affiliates.
The cumulative translation effects for those few entities, both consolidated and
affiliated,using functional currencies other than the U.S. dollar are included in “Currency
translation adjustment” on the Consolidated Statement of Equity.

This difference in predominant functional currency presents two kinds of comparability

problems. Chevron uses the temporal method of translation, ExxonMobil uses the current
rate method.

b. If possible, determine the amount of remeasurement gain or loss, if any, reported in

net income in each of the 2018 and 2019 years.
Answer:
For ExxonMobil, the all operations, gains or losses from remeasuring foreign currency
transactions into the functional currency are included in income.
In 2019, 2018, net income included gains of $523 million and $107 million, and a loss of
$10 million, respectively.

For Chevron, those operations, all gains and losses from currency remeasurement are
included in current period income. In 2019, 2018, net income included loss of $ 2,924
million and $14,824 million, respectively from the attributable to Chevron Corporation.

c. Determine the amount of translation adjustment, if any, reported in other

comprehensive income in each of the 2018 and 2019 years. Explain the sign (positive
or negative) of the translation adjustment in each of the 2018 and 2019 years.
Answer:
In 2019, ExxonMobil reported translation adjustments (in other comprehensive income) of
-$5,077 millions in 2018 and $1,735 millions in 2019. Chevron reported translation
adjustments of $0 in 2019 and $0 in 2018. The negative translation adjustments on
liabilities in 2018 offset positive (negative) translation adjustments on assets when the
foreign currency appreciates.

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d. Determine whether the company hedges net investments in foreign operations. If

so, determine the type(s) of hedging instrument(s) used.
Answer:
ExxonMobil designs derivatives as fair value or cash flow hedging. For fair hedging, profits
or losses from derivative instruments and offset gains or losses from hedging items are
recognized in earnings. For cash flow hedging, gains or losses from derivative instruments
are initially reported as components of other comprehensive income and then reclassified
into deep earnings that are estimated to affect revenue.

Meanwhile, Chevron conducts interest rate swaps from time to time as part of its overall
strategy to manage interest rate risk on debt. If there is an interest rate exchange related
to a portion of the company's fixed interest rate debt can be accounted for as a
reasonable hedge.

Reference for Case IV:

ExxonMobil Annual Report (2019):

https://corporate.exxonmobil.com/Investors/Annual-Report

Chevron Annual Report (2019):

https://docoh.com/filing/93410/0000093410-20-000010/CVX-10K-
2019FY#sD629F6358A645300BA5FA7C1F205E52F

== Education is the most powerful weapon which you can use to change the world (Nelson Mandela) ==

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