Dollar General - Hbs Essay

Dollars General - Hbs

Dollar General Case

1 . Consider the $13. 4 mil of shipping costs. What is the correct (GAAP) method of accounting for these? Just how did Money General in reality originally take into account these costs? (Include within your answer a table from the effects on income in different years influenced, both before and after tax, of the correct accounting and the accounting they actually used.

The proper GAAP method to account for shipment costs is just as an expense of Cost of Products Sold (COGS) that arise at the time providers are performed and accomplished. This is a cost of conducting on-going businesses (in-bound materials, distribution and re-distribution). The freight costs should be expensed as took place which will be at that time invoice is received and approved to get payment. The approval of these bills concurs that services have been performed.

Dollar General should accrue for people expenses as payables liabilities, of which, they are going to pay by means of their money asset bank account at the time the payable is due. The payment will be a decrease to cash and future liability.

How in fact would Dollar Standard handle freight charges?

Money General states financial benefits for the end of January [through and including the 28th]. The freight expenses in question happened on January 28, 2150 and should have already been reported fully during this money year [2000].

Dollar General taken care of (SEC stated) freight charges as follows:

(1)Expense $4M in the next fiscal season [2001] on a monthly basis (2)$1. 3M moved to Buck General's Misc. Accrued Debts Account (3)$2. 7M to bank eradicating account

Total Reduction in COGS (from 1-3 above):

The result of the above handling of freight charges would have reduced the COGS and increased Net gain. The effects of this kind of are the following:

YE2000

First NI219. 4

Restated NI186. 7

Results on the COGS, irregardless of tax, are a straight pass-through and have immediate increase on NI.

ILLUSTRATIVE:

YE2000 OriginalCorrect Freight Cost Reporting

Total Revenue ----

Total Cost ***8 Increase in COGS

GP

Operating Income/Loss: 8 Decline in Operating Income

NI coming from Continuing Procedures: 219. 5 211. some

*** Total Cost / COGS less $8M from improper revealing

TAX:

With all the proper reporting of Gets Costs Operating Income / Loss will decrease by $8M (mis-allocated) assuming all other operating costs remained frequent. Income Prior to Tax will decrease, along with, the tax exposure (Income Tax Expense) due to a lesser taxable basic.

2 . Comparing EPS formerly reported over for each season, with restated EPS. Why is the restatement for the year ended January 29, 2001 so much bigger than for the other two years? Is the much larger size a direct result of the restatement or a " secondary impact? "

Year2/3/20061/28/20051/30/20041/31/20032/1/20022/2/20011/28/20001/31/19991/29/19981/31/1997

EPS Diluted from Cont. Operations1. 081. 040. 890. 790. 620. 210. 600. 540. 430. 34 While Reported EPS1. 081. 040. 890. 790. 620. 210. 650. 540. 430. 34 EPS Just before Restating *0. 620. 650. 54

*Note: The EPS must have recently been restated again after 2002, since the EPS above and taken from the newest Morningstar data, do not correspond to the beliefs given in the Dollar Basic handout, aside from 2001.

Solution: As we observe above around the 10 Year Income Table the year 2001 had an expense in the " Other" line. This $162 million was obviously a pre-tax price to settle you’re able to send restatement-related lawsuits, described in the Dollar Standard handout. This amount considerably reduced the Operating Income. Also inside the 2001 steering column, notice that the Income Taxes happen to be significantly lower by about $80 Mil than they would have been without the pre-tax expense for lawsuit. In addition there is an increase of the Net Int Inc & Other of approximately $40 , 000, 000 for 2001, similar to those of 2002 and 2003, but more than...