Drill Exercise
ACCT5910 Business Analysis and Valuation
The University of New South Wales
School of Accounting

Lecturer
Dr Peter Vassallo

Optiscan is a relatively young Australian company that now produces endoscope instruments. Its products allow doctors and medical practitioners to undertake internal physical examination of their patients and to record visual imagery. The company has spent substantial amounts of money to research, develop and market its products. Yet, its balance sheet does not show much intellectual capital. As an analyst you form the view that the company’s past expenditures to launch its products have a future benefit. Hence, you decide to adjust the financial statements of Optiscan to allow you to better analyse the performance of the company. The table below gives the marketing and R&D expenditures for Optiscan for the period 2006 to the most recent Annual Report. 1. What accounting principles would you cite to guide your adjustment of Optiscan’s financial statements? 2. How would you argue the choice and value of parameters that you will employ to adjust the financial statements? 3. Detail the full procedure for adjusting Optiscan’s Financial statements for the year 2011 from the information provided.

Figures in $000's | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | R&D Expenses | 3,121 | 3,677 | 3,621 | 2,818 | 1,509 | 1,117 | Marketing Expenses | 181 | 398 | 808 | 774 | 101 | 0 |

Optiscan Ltd | | | | | | | | | | | | | | | | | | | | Parameters | | | | | | | | | | r | 0.15 | | | | | | | | | tax rate | 0.3 | | | | | | | | | R&D life (years) | 4 | | | | | | | | | Marketing life | 2 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $000's | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | | | |