Submitted by: Submitted by mirecho
Views: 349
Words: 351
Pages: 2
Category: Business and Industry
Date Submitted: 03/01/2011 09:51 PM
HUNG CASE: CROUCHING CELLPHONES, HIDDEN RECEIVABLES
Crouching Cellphones, Hidden Receivables
China Telecom Corp Limited (henceforth “China Telecom”) is a Hong Kong-based subsidiary of a large Chinese Company known as China Telecommunications Company. China Telecom provides wireline telecommunication services in a number of provinces in China and is listed on the New York Stock Exchange (NYSE) and the Hong Kong Stock Exchange (HKST). China Telecom uses International Financial Reporting Standards (IFRS), and as such has reasonable transparent disclosures relating to it’s accounts receivables. Use the attached China Telecom’s financial statements to answer the following questions on its accounting receivable and cash collections. NOTE: USE ONLY THE INFORMATION IN THE ATTACHED FINANCIAL STATEMENTS AND THE INFORMATION GIVEN IN THE QUESTIONS TO ADDRESS THIS CASE. For purposes of this analysis, assume the following: - All “Operating revenues” in the income statement consist of sales “on account” (i.e., “credit sales”). - “Accounts receivable” in the balance sheet represent the uncollected Operating revenues at the end of the year - Bad Debt Expense recorded in year 2004 is RMB 1,121 million. Required: 1. Compute the (a) accounts receivable turnover and (b) Days outstanding for receivable (i.e. average days to collect receivables) for 2004. Do these statistics indicate that China Telecom’s management is doing a good job or a poor job with respect to managing its receivables? Why? For your reference, use the following formula to calculate accounts receivable turnover and days outstanding for receivable: Accounts receivable turnover = Sales Average accounts receivable 365 days Accounts receivable turnover
Days outstanding for receivables =
2. Determine the write-off of bad debts (referred to as “doubtful accounts”) during year 2004. Use the attached T-accounts to compute this amount.
3. Determine the amount of cash that must have been collected during year 2004....