http://www.reuters.com/article/idUSSGE61I0DR20100219
Summary:
Apollo Group, Inc. is a corporate base parent education group of South Phoenix and large higher-learning institution has recently launched their Quarter 2 financial report. In the Quarter 2 EPS, the estimated bad-debt expense was as high as 7.1%. This dragged the share prices down to 11%. This downfall in shares not only effects the company, Apollo Group Inc, but also other common education companies such as Strayer Education and ITT Education Services. The downfall of 6.8% to 7.1% is equivalent to $73-$76 million of the revenue. The main problem of decreased in revenue is explained by RBC Capital Marketer; Weak economy and shift in student degree programs result in increased bad-debt expense.
Connection:
In chapter 6, we learned about the direct write-off of bad debts. Bad debt expense is when the company decides part of the revenue amount is decided to be uncollectible. In the article, Apollo Group Inc. reported that it has an increase in bad debt expense and result in a share price loss. The article also mentioned about the decrease in share prices. This would be resulted from the company’s share buyback because the shareholders’ are does not have confident in the not yet collectible revenue in the company. An increase in bad debt expense and low share prices could also affect cash flow because if the company does not have sufficient cash flow to pay off its expenses then the company could face a lot of financial crisis.
Reflection:
The Apollo Group Inc. has faced the rise in bad debt expense because of the “weak economy and shift in student mix towards the two-year associate degree programs.” I agree with the education plan that Apollo has raised, they should offer the higher bachelor degree for students so they will continue their education in Apollo education centers so there would be lower bad debt rate. Also, Apollo Group Inc. was being optimistic that the economy is recovering so there would be more revenue coming in but they didn’t consider the fact that there is much unemployment in the business world. They should offer the co-op program that help student find potential jobs and financial foundation so they would be able to pay off their loans. This will definitely decrease their bad-debt expense.
Monday, June 14, 2010
Tuesday, April 13, 2010
Canwest's creditor protection extended
http://www.vancouversun.com/sports/Canwest+creditor+protection+extended/2877691/story.html
----- an extension to remain under court-protection from creditors
Summary:
In the early January of this year, one of Canada’s biggest newspaper publishers was forced to declare bankruptcy. The main reason that caused the bankruptcy was CanWest Company cannot pay off its debts. A letter was send to their creditors saying that the company “profoundly disagrees” if their newspaper chain is pushed against “early filing” then this could harm the relationship between the company and suppliers. CanWest suffered $40 million revenue loss for the past three months and no it is under the bankrupt protection plan held by the government. Their debts reach $1.4 billion as of the beginning of April. Realizing the company could not pay back their creditors, they reach toward the court for help. CanWest was given a deadline for them to sell their company to bidders to obtain cash so they can repay the creditors. The deadline was said to expire on Wednesday but the Court granted an extension for them to finish their sales process. The Bank of Nova Scotia took the lead and put in $950 million floor bid to acquire CanWest. The assets will then be change to a new entity and take the “new firm public”.
Connection:
In chapter 5, we were introduced to the Cash Flow Statement and its importance in the business. Using the Cash-to-cash-cycle, we are able to analyze why the company would encounter bankruptcy. One of the biggest problems that companies face bankruptcy is because lack of cash on hand. CanWest was a daily newspaper supplier so their revenues based on the subscription and sales of the newspaper. For subscription, before revenues are collected they are mostly recorded as accounts receivable. Therefore, the lead/lag relation comes into place. The company does not get money immediately through the purchase of the newspaper but instead they must wait for the newspaper to deliver and the transaction will go through. This creates a period of time where they do not have sufficient funds to buy inventory and repay their creditors (the process of Operating). Consequently, they will go to get a line of credit and procrastinate the interest payment to later day. After a period of time, the company’s revenues could no longer support the expense associated with it. This is what results in net loss and the loss of $40 million in revenues.
Reflection:
Newspaper and magazines are becoming necessities for our lives. This is why newspaper publishers are making millions of dollars of consumers every year but why is CanWest bankrupt? I think that when they are not sure that the subscription system will or will not be able to bring them sufficient revenues they should start to reduce the accounts receivable and shorten the lead/lag period. Also, CanWest should try to slow down the growth rate because it is easier to play safe and earn the revenues in the long-run; rather than taking the risk and borrow money from the bank. This taught credit owner a lesson, interest payments will build up over time and if an individual only pay for the minimal payment the debt will continues to grow so it is the best to pay the creditors as soon as possible to limit the consequences of bankruptcy.
----- an extension to remain under court-protection from creditors
Summary:
In the early January of this year, one of Canada’s biggest newspaper publishers was forced to declare bankruptcy. The main reason that caused the bankruptcy was CanWest Company cannot pay off its debts. A letter was send to their creditors saying that the company “profoundly disagrees” if their newspaper chain is pushed against “early filing” then this could harm the relationship between the company and suppliers. CanWest suffered $40 million revenue loss for the past three months and no it is under the bankrupt protection plan held by the government. Their debts reach $1.4 billion as of the beginning of April. Realizing the company could not pay back their creditors, they reach toward the court for help. CanWest was given a deadline for them to sell their company to bidders to obtain cash so they can repay the creditors. The deadline was said to expire on Wednesday but the Court granted an extension for them to finish their sales process. The Bank of Nova Scotia took the lead and put in $950 million floor bid to acquire CanWest. The assets will then be change to a new entity and take the “new firm public”.
Connection:
In chapter 5, we were introduced to the Cash Flow Statement and its importance in the business. Using the Cash-to-cash-cycle, we are able to analyze why the company would encounter bankruptcy. One of the biggest problems that companies face bankruptcy is because lack of cash on hand. CanWest was a daily newspaper supplier so their revenues based on the subscription and sales of the newspaper. For subscription, before revenues are collected they are mostly recorded as accounts receivable. Therefore, the lead/lag relation comes into place. The company does not get money immediately through the purchase of the newspaper but instead they must wait for the newspaper to deliver and the transaction will go through. This creates a period of time where they do not have sufficient funds to buy inventory and repay their creditors (the process of Operating). Consequently, they will go to get a line of credit and procrastinate the interest payment to later day. After a period of time, the company’s revenues could no longer support the expense associated with it. This is what results in net loss and the loss of $40 million in revenues.
Reflection:
Newspaper and magazines are becoming necessities for our lives. This is why newspaper publishers are making millions of dollars of consumers every year but why is CanWest bankrupt? I think that when they are not sure that the subscription system will or will not be able to bring them sufficient revenues they should start to reduce the accounts receivable and shorten the lead/lag period. Also, CanWest should try to slow down the growth rate because it is easier to play safe and earn the revenues in the long-run; rather than taking the risk and borrow money from the bank. This taught credit owner a lesson, interest payments will build up over time and if an individual only pay for the minimal payment the debt will continues to grow so it is the best to pay the creditors as soon as possible to limit the consequences of bankruptcy.
Tuesday, March 2, 2010
CHAPTER 4: Toyota recall spreads to Prius and beyond
http://www.cbc.ca/world/story/2010/02/09/prius-recall-toyota.html
---- "I apologize for causing trouble and worries for many customers over the quality and safety of Toyota,"
Summary:
Toyota is the world’s largest automaker. Most of its consumers are located in North America and Japan. Recently, Toyota Vehicle Company recalled 2.3 million vehicles. There were insurance statements reporting that the safety procedures of brakes have not been met. Recall was made on Tuesday, February 9, 2010. At the Toyota conferences, spokesperson made apologies and carried out concerns from customers. This recall had led the U.S. National Highway Traffic Safety to investigate further into the safety situation due to the increase of crashes. Toyota also recalled the vehicles that they supply for government rental. The problem linked to the State Farm Insurance and they were not satisfied with the responsibilities they have to take up.
Connections:
In chapter 4, we are introduced to the Cash-to-Cash-Cycle. One of the Cash-to-Cash-Cycle components includes Warranty Service; it stated that the seller is responsible, to some extent, for production replacement or repair. The Toyota recall had increased the expense for the company. Therefore, the company will be left with less cash to operate. To measure performance, the return on investment is calculated reflecting the market shares. Consequently, the recall of Toyota vehicles defeated the stockholders’’ confident to invest in Toyota. This would lead to the crash of market shares that the company owns; the projection of unearned revenues will decrease and so will the revenue itself. The recall will increase the expense of Toyota will increase due to net loss.
Reflections:
I think that Toyota did the right thing, recalling the automobiles, because buyers’ safety is very essential to the company. Luckily, they recalled the vehicles before any injuries occur. If there are concerns due to injuries that the vehicles outlaid that would be a big crash in the market shares and stocks. “Better be late than sorry”. I feel pity for those buy who acquired Toyota but after the recall it appeal to the consumers that they have brought a piece of worthless junk. Toyota Company was a profitable company because they were known to reduce their expenses and increase their market shares. But after these recalls, their share will be decreased drastically; Toyota is no longer an efficient company. However, it seems to consumers that Toyota’s priority interest is not customers; safety but MONEY. The company made cars and passed false safety to increase their market shares then a recall was made market shares went right down; they do care less about customers’ safety.
---- "I apologize for causing trouble and worries for many customers over the quality and safety of Toyota,"
Summary:
Toyota is the world’s largest automaker. Most of its consumers are located in North America and Japan. Recently, Toyota Vehicle Company recalled 2.3 million vehicles. There were insurance statements reporting that the safety procedures of brakes have not been met. Recall was made on Tuesday, February 9, 2010. At the Toyota conferences, spokesperson made apologies and carried out concerns from customers. This recall had led the U.S. National Highway Traffic Safety to investigate further into the safety situation due to the increase of crashes. Toyota also recalled the vehicles that they supply for government rental. The problem linked to the State Farm Insurance and they were not satisfied with the responsibilities they have to take up.
Connections:
In chapter 4, we are introduced to the Cash-to-Cash-Cycle. One of the Cash-to-Cash-Cycle components includes Warranty Service; it stated that the seller is responsible, to some extent, for production replacement or repair. The Toyota recall had increased the expense for the company. Therefore, the company will be left with less cash to operate. To measure performance, the return on investment is calculated reflecting the market shares. Consequently, the recall of Toyota vehicles defeated the stockholders’’ confident to invest in Toyota. This would lead to the crash of market shares that the company owns; the projection of unearned revenues will decrease and so will the revenue itself. The recall will increase the expense of Toyota will increase due to net loss.
Reflections:
I think that Toyota did the right thing, recalling the automobiles, because buyers’ safety is very essential to the company. Luckily, they recalled the vehicles before any injuries occur. If there are concerns due to injuries that the vehicles outlaid that would be a big crash in the market shares and stocks. “Better be late than sorry”. I feel pity for those buy who acquired Toyota but after the recall it appeal to the consumers that they have brought a piece of worthless junk. Toyota Company was a profitable company because they were known to reduce their expenses and increase their market shares. But after these recalls, their share will be decreased drastically; Toyota is no longer an efficient company. However, it seems to consumers that Toyota’s priority interest is not customers; safety but MONEY. The company made cars and passed false safety to increase their market shares then a recall was made market shares went right down; they do care less about customers’ safety.
Wednesday, January 20, 2010
Chapter 3: Interest Rate Revised.
http://www.cbc.ca/money/story/2010/01/11/bank-of-canada-housing-bubble-david-wolf.html
------- "Raising interest rates could hurt entire economy."
Summary:
As we head for the year 2010, many citizen of Canada predict that the economy will be better and some say we are still in the recession. However, housing have always been of the main concern of the economy. David Wolf, an adviser of banks, suggested that interest rates should be increased to decline the length of the mortgage loan. He thinks that housing prices are increasing and the interest rates should also do so. Wolf also suggested a few ways to cool the market. Some of them include: raising the down payment for houses, cutting back on the duration of the mortgage payments, and determining the ability of the house owners to pay off the amount they owe.
Connections:
At the start of a business, a down payment is required to be paid to inquire a building. If the government decides to increase the down payments, it is hard for businesses to start up. Also, this will effect their cash flow; now that they have less money to invest. For example, if a company starts out with $1000, back then, the down payment is 30%, so they will only pay $300 and now the down payment is 50%, their starting cost is $500. Therefore, the business will have less money to start with.
In Chapter 3, we learned about the differences between multi-step and single-step income statements. Increasing the Interest Rate will affect on the income statements of the business. In a single-step income statement, Interest Expense is recorded under the the Expense and Loss category. But in a multi-step income statement, Interest Expense is recorded under Income from non-operating revenues.
Reflections:
I think the increase of interest rates will make life brutal for low income family. For low income families, it had been hard for them to pay off their mortgages for their houses, but now the interest rate is rising, making it impossible for them to pay off their loans in their life time. I agree to the proposal for increasing the down payment for house, this could help people reconsider if they really want to buy houses and make sure that they have the ability to repay the loans. Also, it is important for families to think about paying the minimum payment of interest is not a smart move because it would be hard to keep up the payments if the interest rates increase. It is also important to not take on too many debts if we could not pay it off, now that we also have to consider the high interest rates associated to it. Paying interest rates are just like paying for this that we didn't want to purchase. I really suggest the government to keep their interest rates but also decrease the period of amortization because this would help the owner's end their loans efficiently.
------- "Raising interest rates could hurt entire economy."
Summary:
As we head for the year 2010, many citizen of Canada predict that the economy will be better and some say we are still in the recession. However, housing have always been of the main concern of the economy. David Wolf, an adviser of banks, suggested that interest rates should be increased to decline the length of the mortgage loan. He thinks that housing prices are increasing and the interest rates should also do so. Wolf also suggested a few ways to cool the market. Some of them include: raising the down payment for houses, cutting back on the duration of the mortgage payments, and determining the ability of the house owners to pay off the amount they owe.
Connections:
At the start of a business, a down payment is required to be paid to inquire a building. If the government decides to increase the down payments, it is hard for businesses to start up. Also, this will effect their cash flow; now that they have less money to invest. For example, if a company starts out with $1000, back then, the down payment is 30%, so they will only pay $300 and now the down payment is 50%, their starting cost is $500. Therefore, the business will have less money to start with.
In Chapter 3, we learned about the differences between multi-step and single-step income statements. Increasing the Interest Rate will affect on the income statements of the business. In a single-step income statement, Interest Expense is recorded under the the Expense and Loss category. But in a multi-step income statement, Interest Expense is recorded under Income from non-operating revenues.
Reflections:
I think the increase of interest rates will make life brutal for low income family. For low income families, it had been hard for them to pay off their mortgages for their houses, but now the interest rate is rising, making it impossible for them to pay off their loans in their life time. I agree to the proposal for increasing the down payment for house, this could help people reconsider if they really want to buy houses and make sure that they have the ability to repay the loans. Also, it is important for families to think about paying the minimum payment of interest is not a smart move because it would be hard to keep up the payments if the interest rates increase. It is also important to not take on too many debts if we could not pay it off, now that we also have to consider the high interest rates associated to it. Paying interest rates are just like paying for this that we didn't want to purchase. I really suggest the government to keep their interest rates but also decrease the period of amortization because this would help the owner's end their loans efficiently.
Thursday, January 14, 2010
Bank of Canada backs off housing bubble talk
http://www.cbc.ca/money/story/2010/01/11/bank-of-canada-housing-bubble-david-wolf.html
------- "Raising interest rates could hurt entire economy."
Summary:
As we head for the year 2010, many plebeian of Canada predict that the economy will be better and some say we are still in the recession. However, housing have always been of the main concern of the economy. David Wolf, an adviser of banks, suggested that interest rates should be increase to decline the mortgage loan. He thinks that house prices are getting crazier and increasing the interest rates would be keen to do so, this is how the economy will continue to aplomb. Wolf also suggested a few ways to cool the market. Some of them include: raising the down payment for houses, cut back on the on the duration of the house payments, and planning out the ability of the house owners to pay off the amount they owe.
Connections:
In chapter 3, we had a review on the Amortization Expense. In addition, we learned about a new contra account, Accumulated Amortization, an account that records a portion of the assets has been eliminated. According to this article, David Wolf says that increasing the interest rates now would help the Canadian economy. But that means when we do the accounting analysis, we have to keep in mind that the interest rates increase and the amortization period would take longer to finish than planned. For example, if a company planned to have the building paid off in 40 years; but now the bank decides to increase the interest rates. This could be cumbersome for the company because they now have to extend the amortization period of the building (also an increase for interest expense). There would also be hard to do the contra assets for the building because the building will lose its value as time goes by (depreciation). This effects the accumulated amortization for the company. Offering low mortgage rates for the houses will also effect the starting of the business.
Reflections:
I think the increase of interest rates will make life brutal for low income family. For low income families, it had been hard for them to pay off their mortgages for their houses, but now with the interest rates rising, this makes it impossible for them to pay off their loans in their life time. I agree to the proposal for increasing the down payment for house, this could help people reconsider if they really want to buy houses and make sure that they have the ability to repay the loans. Also, it is important for families to think about paying the minimum payment of interest is not a smart move because it would be hard to keep up the payments if the interest rates increase. It is also important to not take on too many debts if we could not pay it off, now that we also have to consider the interest rates associative to it. Paying interest rates are just like paying for this that we didn't want to purchase. I really suggest the government to keep their interest rates but also decrease the period of amortization because this would help the owner's end their loans efficiently.
------- "Raising interest rates could hurt entire economy."
Summary:
As we head for the year 2010, many plebeian of Canada predict that the economy will be better and some say we are still in the recession. However, housing have always been of the main concern of the economy. David Wolf, an adviser of banks, suggested that interest rates should be increase to decline the mortgage loan. He thinks that house prices are getting crazier and increasing the interest rates would be keen to do so, this is how the economy will continue to aplomb. Wolf also suggested a few ways to cool the market. Some of them include: raising the down payment for houses, cut back on the on the duration of the house payments, and planning out the ability of the house owners to pay off the amount they owe.
Connections:
In chapter 3, we had a review on the Amortization Expense. In addition, we learned about a new contra account, Accumulated Amortization, an account that records a portion of the assets has been eliminated. According to this article, David Wolf says that increasing the interest rates now would help the Canadian economy. But that means when we do the accounting analysis, we have to keep in mind that the interest rates increase and the amortization period would take longer to finish than planned. For example, if a company planned to have the building paid off in 40 years; but now the bank decides to increase the interest rates. This could be cumbersome for the company because they now have to extend the amortization period of the building (also an increase for interest expense). There would also be hard to do the contra assets for the building because the building will lose its value as time goes by (depreciation). This effects the accumulated amortization for the company. Offering low mortgage rates for the houses will also effect the starting of the business.
Reflections:
I think the increase of interest rates will make life brutal for low income family. For low income families, it had been hard for them to pay off their mortgages for their houses, but now with the interest rates rising, this makes it impossible for them to pay off their loans in their life time. I agree to the proposal for increasing the down payment for house, this could help people reconsider if they really want to buy houses and make sure that they have the ability to repay the loans. Also, it is important for families to think about paying the minimum payment of interest is not a smart move because it would be hard to keep up the payments if the interest rates increase. It is also important to not take on too many debts if we could not pay it off, now that we also have to consider the interest rates associative to it. Paying interest rates are just like paying for this that we didn't want to purchase. I really suggest the government to keep their interest rates but also decrease the period of amortization because this would help the owner's end their loans efficiently.
Sunday, October 11, 2009
.: Canadians forgetting to review insurance :.
http://www.cbc.ca/cp/Money/091009/J100902AU.html
Canadians forgetting to review insurance
Summary:
We are all living in the recent economic recession, and the article talks about Canadian forgetting to review and evaluate their insurances. The vice-president of the Investors Group Insurance suggested that people must evaluate their insurance needs and make their own plans that are suitable for them in the future. Different types of insurances are introduced throughout the article that shows different insurance plans that vary for different individuals.
Term insurance and permanent insurance are the two most common types of insurance offer by most insurance companies. Choosing the appropriate type of insurance that is suitable for you is a very important essential in the financial plans. Financial are also associated with their values that ranges from $10000 to $2 million.
Connection:
“Many Canadians assume they’re financial assets are their insurance.”
In this chapter, we learn about the accrual-based accounting, which states that costs can be classified as assets (balance sheet) and expenses (income statement). Every company needs to purchase their insurance for their long-life assets such as equipments, so we record the equipment in assets and the insurance in the expenses (as insurance expenses). However, if insurance was prepaid insurance then this would locate under assets. As fiscal periods pass by, the value of the prepaid insurance would decrease which equivalent to the increase of insurance expense. Besides these, taxes are also associated with the value of insurances. This could increase the tax expense that is being collected by tax authorities at the end of a fiscal period (result in an increase under expense). Each insurance package has different premiums that are integrated along with it. This requires funds from the shareholder’s of the company to provide funds to cover it up.
Reflection:
Insurances are infrastructures of life. Being able to manage our own financial plans, we must learn how to pick out a suitable package of insurance that could best benefit us. Living in a market downturn environment we must prepare ourselves for the future and investments in insurances are needed. Products are pricey at this time of the recession, and as the value of goods increase, the insurance company would also uses this chance to introduce better plans for people to advise. This helps people to increase their actuation to buy insurance. Car insurance, house insurance, and health insurance are the most common ones that people are using. We try to lower our lavish spending of money, so choosing a plan that has the right amount of coverage we need is important. Appreciating there are many financial experts who offers help to help us pick out our adequate insurance choices. Insurance plays very important roles in our everyday life, both mentally and substantially.
Canadians forgetting to review insurance
Summary:
We are all living in the recent economic recession, and the article talks about Canadian forgetting to review and evaluate their insurances. The vice-president of the Investors Group Insurance suggested that people must evaluate their insurance needs and make their own plans that are suitable for them in the future. Different types of insurances are introduced throughout the article that shows different insurance plans that vary for different individuals.
Term insurance and permanent insurance are the two most common types of insurance offer by most insurance companies. Choosing the appropriate type of insurance that is suitable for you is a very important essential in the financial plans. Financial are also associated with their values that ranges from $10000 to $2 million.
Connection:
“Many Canadians assume they’re financial assets are their insurance.”
In this chapter, we learn about the accrual-based accounting, which states that costs can be classified as assets (balance sheet) and expenses (income statement). Every company needs to purchase their insurance for their long-life assets such as equipments, so we record the equipment in assets and the insurance in the expenses (as insurance expenses). However, if insurance was prepaid insurance then this would locate under assets. As fiscal periods pass by, the value of the prepaid insurance would decrease which equivalent to the increase of insurance expense. Besides these, taxes are also associated with the value of insurances. This could increase the tax expense that is being collected by tax authorities at the end of a fiscal period (result in an increase under expense). Each insurance package has different premiums that are integrated along with it. This requires funds from the shareholder’s of the company to provide funds to cover it up.
Reflection:
Insurances are infrastructures of life. Being able to manage our own financial plans, we must learn how to pick out a suitable package of insurance that could best benefit us. Living in a market downturn environment we must prepare ourselves for the future and investments in insurances are needed. Products are pricey at this time of the recession, and as the value of goods increase, the insurance company would also uses this chance to introduce better plans for people to advise. This helps people to increase their actuation to buy insurance. Car insurance, house insurance, and health insurance are the most common ones that people are using. We try to lower our lavish spending of money, so choosing a plan that has the right amount of coverage we need is important. Appreciating there are many financial experts who offers help to help us pick out our adequate insurance choices. Insurance plays very important roles in our everyday life, both mentally and substantially.
Wednesday, September 16, 2009
:: How low will house prices go in 2009? ::
Reference: http://news.bbc.co.uk/2/hi/business/7727893.stm
Summary:
Recession started in the end of 2008 has continues to drag house prices down. Side effects such as laid-offs and abandoned building sites are becoming world-wide issues. According to professional predictions and statistics, house prices in 2009 are going to be the lowest in the record of these past few years. Looking at the market today, financial specialists said that making short-term predictions are useless. Due to unemployment, banks are not willing to take the risks of lending money to corporations during this recession period making it even more difficult to build houses. This resulted in mortgage clogs being the follow-up problems. Therefore, it is a big challenge to house prices that are trying to climb up the grid during these hard periods. The prediction for this year end (2009) would be 15-20% down fall.
Connections:
As mentioned in the first chapter of our textbook, amortization; delay recognition of fixed assets are distributed over fiscal periods. If the prices of houses continue to fall, that meant the value of houses do not worth as much and this could result in an increase in "write-off of fixed assets". Not only these, taxes also play an important role. Taxes are being charged on lands, and interests are charged by the banks at the same time. According to the characteristics of accounting information, conservatism is very important while recording fixed-assets-like information. Conservatism also will be affected because the land price could only be written down when the price is lower than what it was purchased at. As part of the financing activities purchasing properties and paying the expenses for them is necessary. But when the company is not earning from the investments then this would results in a net loss.
Reflection:
The recession has been causing many crises for the economy. One of them was the built-up of unused lands. These lands could not be sold because of the prices were low; however, keeping them would also cause trouble because they require high payment of rents. As their value decreases, the companies that owe them would also result in a loss of assets and hope. If this continues the banks would also face bankruptcy because they could not take the risks of lending money out. By earning interests, they would not be able to maintain their businesses. On the other hand, I think that if the house prices are low as this, they might come to a degree that they could become attractive to investors to buy at this time and sell them later when the economy recovers. Also, the coming Vancouver Olympics 2010 will attract more business people to buy lands and built houses in Vancouver. I learned that the house prices reflect economical ties to accounting concepts and this could change the way of recording information based on GAAP concepts.
Summary:
Recession started in the end of 2008 has continues to drag house prices down. Side effects such as laid-offs and abandoned building sites are becoming world-wide issues. According to professional predictions and statistics, house prices in 2009 are going to be the lowest in the record of these past few years. Looking at the market today, financial specialists said that making short-term predictions are useless. Due to unemployment, banks are not willing to take the risks of lending money to corporations during this recession period making it even more difficult to build houses. This resulted in mortgage clogs being the follow-up problems. Therefore, it is a big challenge to house prices that are trying to climb up the grid during these hard periods. The prediction for this year end (2009) would be 15-20% down fall.
Connections:
As mentioned in the first chapter of our textbook, amortization; delay recognition of fixed assets are distributed over fiscal periods. If the prices of houses continue to fall, that meant the value of houses do not worth as much and this could result in an increase in "write-off of fixed assets". Not only these, taxes also play an important role. Taxes are being charged on lands, and interests are charged by the banks at the same time. According to the characteristics of accounting information, conservatism is very important while recording fixed-assets-like information. Conservatism also will be affected because the land price could only be written down when the price is lower than what it was purchased at. As part of the financing activities purchasing properties and paying the expenses for them is necessary. But when the company is not earning from the investments then this would results in a net loss.
Reflection:
The recession has been causing many crises for the economy. One of them was the built-up of unused lands. These lands could not be sold because of the prices were low; however, keeping them would also cause trouble because they require high payment of rents. As their value decreases, the companies that owe them would also result in a loss of assets and hope. If this continues the banks would also face bankruptcy because they could not take the risks of lending money out. By earning interests, they would not be able to maintain their businesses. On the other hand, I think that if the house prices are low as this, they might come to a degree that they could become attractive to investors to buy at this time and sell them later when the economy recovers. Also, the coming Vancouver Olympics 2010 will attract more business people to buy lands and built houses in Vancouver. I learned that the house prices reflect economical ties to accounting concepts and this could change the way of recording information based on GAAP concepts.
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