Consolidated Balance Sheets

March 31, 2008 and 2007 Nippon Corporation:

	Fiscal 2008	Fiscal 2007
	JPY	JPY
Assets
I. Current assets:
1. Cash and bank deposits	74,758	65,778
2. Notes and accounts receivable	188,605	205,639
3. Short-term investments		—
4. Inventories	71,860	84,942
5. Short-term loans receivable	3,153	5,145
6. Deferred tax assets	5,573	4,655
7. Other	39,348	41,709
Allowance for doubtful accounts	(1,007)	(1,280)
Total current assets	382,307	406,590
II. Fixed assets:
1. Tangible fixed assets
1) Leased property	9,380	9,519
Accumulated depreciation	(4,090) 5,289	(3,907) 5,611
2) Buildings and structures	14,461	16,722
Accumulated depreciation	(9,047) 5,414	(10,357) 6,365
3) Machinery, equipment, vehicles and tools	26,950	31,945
Accumulated depreciation	(20,225) 6,725	(24,160) 7,784
4) Land	17,575	20,820
5) Construction in progress	47	19
Total tangible fixed assets	35,052	40,601
2. Intangible fixed assets
1) Goodwill
2) Other	2,781	3,265
Total intangible fixed assets	2,939	3,549
3. Investments and other assets
1) Investments in securities	47,521	71,616
2) Long-term loans receivable	14,280	14,231
3) Doubtful accounts	20,332	23,809
4) Deferred tax assets	17,208	19,595
5) Other	10,919	12,402
Allowance for doubtful accounts	(27,104)	(29,221)
Total investments and other assets	83,156	112,435
Total fixed assets	121,149	156,586
Total assets	503,456	563,176
Liabilities
I. Current liabilities:
1. Notes and accounts payable	131,594	153,283
2. Import bills payable	25,205	23,374
3. Short-term borrowings	89,080	143,527
4. Accrued income taxes	2,381	3,424
5. Deferred tax liabilities	—
6. Other	43,062	43,882
Total current liabilities	291,323	367,493
II. Non-current liabilities:
1. Long-term borrowings	134,622	127,151
2. Deferred tax liabilities
3. Accrued retirement benefits	4,329	5,441
4. Allowance for loss on guarantees		4,189
5. Allowance for loss on lawsuits
6. Allowance for retirement benefits to directors and statutory auditors		—
7. Other	9,442	9,510
Total non-current liabilities	149,894	146,916
Total liabilities	441,217	514,409
Net assets
I. Shareholders’ equity:
1. Common stock	27,781	27,781
2. Capital surplus	27,644	27,646
3. Retained earnings (Deficit)	9,556	(9,496)
4. Treasury stock	(645)	(627)
Total shareholders’ equity	64,336	45,303
II. Valuation and translation adjustments:
1. Net unrealized gains on securities, net of tax	1,576	3,853
2. Net gains (losses) on deferred hedges, net of tax	(912)
3. Revaluation reserves for land
4. Foreign currency translation adjustments	2,819	(561)
Total valuation and translation adjustments	(2,097)	3,462
Total net assets	62,239	48,765
Total liabilities and net assets	503,456	563,176

Consolidated Statements of Income

For the years ended March 31, 2008 and 2007 Nippon Corporation

	Fiscal 2008	Fiscal 2007
	JPY	JPY
I. Net sales	1,244,020	1,281,331
II. Cost of sales	1,153,692	1,177,619
Gross trading profit	90,327	103,711
III. Selling, general and administrative expenses :	67,721	81,997
Operating income	22,605	21,713
IV. Non-operating income:	5,145	5,320
V. Non-operating expenses:	9,004	9,778
Ordinary income	18,747	17,255
VI. Extraordinary gains:	16,006	8,779
VII. Extraordinary losses:	5,778	11,420
Income before income taxes	28,975	14,615
Income taxes	8,344	6,332
Net income	20,630	8,282

Notes: The consolidated financial statements of Nippon Corporation are prepared in accordance with the “Regulations Concerning Terminology, Forms and Preparation Methods of Consolidated Financial Statements” (Ministry of Finance Ordinance No. 28, 1976). The Company and its domestic consolidated subsidiaries maintain their accounts and records in accordance with the provisions set forth in the Companies Act of Japan and the Financial Instruments and Exchange Law of Japan, and in conformity with accounting principles generally accepted in Japan, which are different in certain respects as to application and disclosure requirements from International Financial Reporting Standards.

Required:

a) Calculate the following ratios for Nippon Corporation for 2007 and 2008

i) Return on total capital employed

ii) Return on equity employed

iii) Gross profit margin

iv) Gearing ratio

v) Dividend cover (40 marks)

b) Using the information calculated in (a) discuss Nippon’s performance in the two years ended 31 March 2007 and 2008. (20 marks)

c) In your opinion, what further information is required before a final acquisition decision can be made? (20 marks)

d) What type of additional information might be provided in cash-flow statements which cannot be obtained from the above comparative balance sheets or income statements?

(20 marks)

SECTION B

Candidates may answer one question from this section

3. a) Outline and discuss the factors that have resulted in different financial reporting practices in different countries. (40 marks)

b) In recent decades, the International Accounting Standards Board has been regarded as the leading international organization in the promotion of international accounting harmonisation. Their efforts has been particularly prominent in recent years because the companies listed in Europe have had to comply with IFRSs for consolidation purposes since 2005. Moreover, the SEC has announced that foreign companies listed in the U.S. market are permitted to use IFRSs with no reconciliation.

Discuss whether attempts to harmonize accounting are desirable (30 marks) and assess the success made by the International Accounting Standards Board (30 marks).

4. What are the measures that can be used to assess the performance of a foreign subsidiary’s managers? You should discuss the advantages and disadvantages of each of the method(s) included in your answer. (100 marks)

QUIZ 2

SECTION A