Contains Caselets

1. 1. Sundaram Home Furnishings
It seemed that the entire document has been sprayed with red ink. Neelima frowned. The balance sheet and P
& L statement of Sundaram Home Furnishings, along with their application for loan has been returned by her
boss at Continental Bank with numerous comments in red ink on practically every page! Neelima was a
Management Trainee in the Credit (Loans) department of this multinational bank. Two months into her job,
she was trying hard to learn banking and credit appraisal. On her initiative, her boss –Jayant- allowed her to
handle loan application of Sundaram Home Furnishings. To get an idea of financial health and profitability of
the client, he had asked her to annex the financial statements of last three years along with the application to
be sent to him with remarks.
Jayant rejected the application and sent it back with a number of comments. Neelima, disappointed
at the rejection of her first solo proposal, sighed. Ok, let me find out what went wrong- she told herself. Then
she set about going through each remark carefully. The remarks were like this:
1. Depreciation method has been changed from straight line to written down value without assigning any
reasons.
2. Every year, bad debts were being charged to Profit and Loss account. There was no provision made,
however.
3. In the year 2013-14, Rs 600000 has been debited as “Miscellaneous Expenses” with no other information
about them. The Sales that year were Rs 7500000.
4. The value of Showroom building was shown at an increased amount in 2013-14 over previous year on
account of rise in the price of land.
5. There was a loss by fire in the year 2013 (January). However, no insurance exists.
6. It was learnt from bank’s other clients that M/s Sundaram was involved in a court case with Tax department.
If lost, Sundaram will need to pay Rs 500000. However, the financial statements were silent on this.
7. The salary of security guards appointed in March 2013 was charged to Profit and Loss account of 2013-14.
8. Sale of Rs 340000 on Approval Basis has been included to compute profits for year 2012-13.
9. The balance sheet of 2013-14 had the date in caption “as on 30-04-2014” and that of 2012-13 had “as on 31-
03-2013.”
10. School fee of owner’s kid was debited to Profit and Loss account in the year 2013-14.
Questions:
1. Who are the users of financial statements other than the promoters of a business?
2. Can you help Neelima by discussing with reasons which of the accounting concepts/principles are being
violated in each of the 10 remarks?
3. How do you differentiate between accounting concepts/principles/conventions?
4. Why did Jayant reject the loan application with these remarks?
Other Key words: True and Fair View/Interpretation/ Errors
Hints:
1. Other users of financial statements may be investors, creditors, bankers, government, trade unions,
suppliers etc.
2. 1. Consistency Concept 2. Matching, Conservatism Concept 3. Materiality Concept 4. Historical Cost Concept
5. Conservatism Concept 6. Full Disclosure Concept 7. Matching Concept 8. Revenue Recognition Concept 9.
Accounting Period Concept 10. Business Entity Concept
Course Reference: Concept – Generally Accepted Accounting Principles/ Users of Financial Statements/Unit-1/
Subject : Financial Accounting & Management
Source/References: Author’s own work.
Concept Box
This case of Sundaram Home Furnishings illustrates the importance of following Accounting Principles,
Concepts and Conventions while preparing financial statements.

2. 3. Accounting principles are the rules, bases, conventions and procedures adopted by management in
preparing accounting records and presenting financial statements. They can be categorized as, (i) Accounting
Concepts/Assumptions, (ii) Accounting Conventions, and (iii) Accounting Standards. Accounting concepts are
based on logical considerations and help in recording the business transactions. Accounting conventions are
based on what is practicable and include those customs and traditions, which guide the accountant in the
preparation of financial statements. Accounting Standards are the guidelines issued by Accounting Standards
Board of a country for financial reporting. Generally, these standards are issued to bring uniformity in financial
reporting in a particular country.
4. With violation in accounting concepts/principles and conventions the financial statements fail to project a
true and fair view of profits and financial position of the business, therefore making any decision based on
them susceptible to error.

3. 2. Adidas Merges with Reebok
On August 3, 2005, Adidas-Salomon AG (Adidas), Germany’s largest sporting goods maker merged with the US-
based Reebok International Limited (Reebok) for US$ 3.8 billion. With this merger, Adidas and Reebok aimed to
compete against American sports goods maker Nike International Inc. (Nike).
The companies felt that the major driving force behind the merger was greater sales growth rather than just cost
savings. The annual sales of the merged entity was predicted to be US$ 11.7 billion. The merger was expected
to give Adidas’ products a strong push in the US market because of the link with Reebok, while Reebok would
gain a large presence in Europe and Asia with the help of Adidas.
Analysts had varied opinions about the deal. However, a few analysts warned that repositioning the two brands
would be a difficult exercise. Analysts were concerned that Adidas would have to support two separate brand
identities while rival Nike was intensely focused on a single identity. Some analysts felt that Adidas could beat
Nike to become the industry leader while others opined that it was impossible to dislodge Nike from its No. 1
position. Nike was a preferred brand because of its fashion status, colors, and combinations.
Some analysts raised doubts over the success of the merger of the companies. They were of the view that the
merger would not generate much synergy because the individual brand identities would be maintained even
after the merger. Analysts also doubted the effectiveness of the merger as a strategy to beat Nike. They felt that
the combined entity would have to work really hard to further expand its market share in the US market and
globally.
Some instances of mergers and acquisitions include the November, 2012 acquisition of India-based United
Spirits Limited (USL), owned by the UB Group by the UK-based beverages company Diageo Plc (Diageo)
where Diageo acquired a 53.4 percent stake for US$ 2.1 billion. In another instance, on August 2, 2013, US-
based Internet Corporation Yahoo! Inc. (Yahoo) acquired US-based social browsing startup Rockmelt, for a
reported US$ 60–70 million. The amount was paid largely in cash along with some stock incentives to the
employees of Rockmelt. The acquisition was expected to bolster Yahoo’s mobile and social networking efforts.
In another instance, in September 2013, US-based computing major, Microsoft Corp. (Microsoft) and Finland-
based communications company, Nokia Corporation (Nokia), entered into a transaction where Microsoft
acquired Nokia’s Devices & Services segment, license Nokia’s patents, and license and use Nokia’s mapping
services, for US$ 7.2 billion.
The case of the Adidas-Reebok merger highlights the rationale for the merger and whether the merger would
be successful in the long run.
Sources: Laura Petrecca and Theresa Howard, “Adidas-Reebok Merger Lets Rivals Nip at Nike’s Heels,”
www.usatoday.com, August 4, 2005.
News Snap, “Adidas to Buy Reebok; 2Q Net Profit Rises 50%”, www.news.morningstar.com, August 3,
2005.
Course Reference: Concept- Amalgamation/Merger of Companies/Unit 15-Company Management and
Winding up/Subject-Business Environment
Other Keywords: Mergers and Acquisitions, Integration
DISCUSSION QUESTIONS
1. Discuss the rationale for the Adidas-Reebok merger.
2. Discuss the pros and cons of the merger.

4. 3. Facebook and its Organizational Culture
Facebook, an online social networking service, was headquartered at Menlo Park, California. Facebook was
founded by Mark Zuckerberg along with Eduardo Saverin, Chris Hughes and Dustin Moskovitz in February
2004. The company was originally known as ‘The Facebook’ and was renamed Facebook.com in August 2005.
The company held its Initial Public Offering (IPO) in May 2012. It was one of the biggest IPOs in the history of
the Internet and technology sector with a market capitalization of more than $104 billion. It had about 890
million daily active users and nearly 1.19 billion mobile monthly active users by December 2014.
Facebook’s growth and success was attributed to its organizational culture (Refer to Chart 1 for Facebook’s
organizational culture)
Chart 1: Components of Facebook’s Organizational Culture
Adapted from various sources
Despite its contribution to the company, experts have raised certain concerns over Facbook’s organizational
culture:
1. Incentives like paid paternal leaves for parents were often unclaimed. The company had not revealed
the proportion of employees who fully claimed the allotted paternal leave
2. Policies like egg-freezing were viewed as incentives to discourage employee poaching
Discussion Questions
1. Discuss the importance of organizational culture.
(Hints: Impact on the company’s revenue-Impact on the growth of the company in the log-run)
2. What elements of Facebook’s organizational culture were critical in its success?
(Hints: The onboarding process-Conscious attention to culture- Unique HR strategies-Encouraged
social activities
‘Organizational Culture’ referred to a system of shared values, assumptions, beliefs and norms that united the
members of an organization. Facebook focused on fostering an employee-friendly culture by encouraging
open communication, reducing hierarchies and encouraging social, non-work related interactions etc. which
contributed to the company’s growth.
Facebook’s Mission
The Onboarding
Process
Company’s Beliefs
1. Empower people to share and make the world more
open and connected
2. Create and build a shared identity and vision as the
company grew
How was it Achieved?
• Worked on the principle of ‘move fast and break things’ which allowed the
company to surpass competitors in the social-networking arena
• Employees were encouraged to act quickly and take risks irrespective of its
consequences
3.
Conscious Attention
to Culture
Company’s Beliefs
1. Was not considered as the sole responsibility of the
HR department
2. New employee orientation was regarded as a
serious process
Conducted Weekly
All-hands Meetings
How was it Achieved?
• The new recruits directly learnt about the culture from the company’s longest-
tenured employees from various departments. These employees interacted with
every new recruit to ensure that the company’s purpose and meaning were
thoroughly understood.
• All employees underwent the same extensive onboarding process
Company’s Beliefs
1. Employees were allowed to pose a question directly
to the company’s leadership
2. Employees were allowed to even ask controversial
or sensitive questions in these meetings
How was it Achieved?
• Zuckerberg and the management team hosted an honest and open Q&A session
for employees
• Every employee had direct access to the CEO
• Employees openly expressed their frustrations or concerns which were addressed
in this public forum
Company’s Beliefs
1. Culture was of significance to an organization
2. Culture grew only if tended to
How was it Achieved?
• Before opening a new office, a ‘landing team’ was sent to help set up key aspects
of the company’s existing culture into the new location
• Created a uniform work environment. For instance, at its India office, one of the
initial activities undertaken by the team included painting their own walls with
Facebook’s values inked on the walls
Encouraged Social
Activities
Company’s Beliefs
Employees were encouraged to participate in social
activities
How was it Achieved?
• Facebook organized activities like clubs, an annual Game Day (outdoor field
day for all employees)
• Introduced policies like a $600 rent subsidy per month to those who lived
within 1 mile of the office in order to encourage a close community living culture
• Had a mailing list titled ‘social’, dedicated to non-work related discussions
Employed Unique
HR Strategies
How was it Achieved?
• Less emphasis was laid on ‘titles’ to ensure unobstructed flow of ideas .Open
offices spaces were created to allow employees to sit and interact
• In 2014, Facebook offered an incentive of about $20,000 to its top women
employees in a bid to help them balance their personal and professional lives.
• Employees were eligible for nearly $4,000 as a cash incentive whenever they
became parents-biologically or by means of adoption
• The company offered 4 months of paid paternal leave with considerable flexibility
Company’s Beliefs
1. Fewer hierarchies and greater collaboration
2. Focused on 2 aspects:
‘How did the company want to be known as it grew?’
‘What was communicated to the outside world about
working at Facebook?’

5. Sources:
Kevin Colleran, “Lessons From Facebook: How Culture Leads to Growth,” www.blogs.wsj.com, February 5, 2013
Joshua Brustein, “Facebook’s Egg Freezing Policy Isn’t an Evil Plot,”www.bloomberg.com, October 15, 2014
Samantha Nielson, “Why Did Facebook’s Shares Fall After its Initial Public Offering,”www.marketrealist.com, Jan 14, 2014
Ami Sedghi, “Facebook: 10 Years of Social Networking, in Numbers,” www.thegaurdian.com, February 4, 2014
Course Reference: Concept- Organizational Culture /Unit 11 –Effective Organizing and Organizational Culture/Subject-Principles of
Management
Other Keywords: HRM, Organizational Behavior

6. Sources:
Kevin Colleran, “Lessons From Facebook: How Culture Leads to Growth,” www.blogs.wsj.com, February 5, 2013
Joshua Brustein, “Facebook’s Egg Freezing Policy Isn’t an Evil Plot,”www.bloomberg.com, October 15, 2014
Samantha Nielson, “Why Did Facebook’s Shares Fall After its Initial Public Offering,”www.marketrealist.com, Jan 14, 2014
Ami Sedghi, “Facebook: 10 Years of Social Networking, in Numbers,” www.thegaurdian.com, February 4, 2014
Course Reference: Concept- Organizational Culture /Unit 11 –Effective Organizing and Organizational Culture/Subject-Principles of
Management
Other Keywords: HRM, Organizational Behavior