Olam Corporation Case Analysis

Document Type:Case Study

Subject Area:Accounting

Document 1

GAAP. Accounting for biological assets is clearly set out in IAS 41 which deals with the Agriculture. The IAS 41 is structured in a way that it provides basis to be applied when dealing with the accounting that involves agriculture, the conversion of the same biological assets, that is both the living plants and animals, into an agronomic produce, this include products that are harvested by the entity. IAS 41 standard provides that biological assets be measured at their fair value less costs incurred in selling. The objectivity of IAS 41standard was to provide the basis and the guidelines on recording and reporting of agricultural activity, management of biological assets, their transformation into agricultural produce. However, in many aspects, both the FRS 41, and the US GAAP are both in consistent with the IAS 41 in all the material aspects on the accounting for biological assets.

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Describe the issues facing Olam Corporation contextually and financially. It was claimed that Olam was engaging in one of the most misleading and also dangerous accounting practices in valuing and reporting biological assets thus making the firm to be on the verge of bankruptcy. Also, the firm was engaging in aggressive use of non – cash gains which was from the inappropriate reporting of negative goodwill as well as the biological assets, in its profit and loss statement. After this disclosure, the firm’s shares dropped from a closing price of about $1. These two examples do motivates the management of Olam Corporation to use money to purchase assets, with both of them having a possibility of being another case of Enron Corp’s case.

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Another merit is that the asset quality of Olam company turned out to be less useful than the potential the company has in recognition of the gains made. Furthermore, these non-cash gains of the company cost the real cash. Also, the analysis shows that much of the firm’s trading profit is attached on the incentives offered by the government when the firm export goods to other countries who are its trading partner. Most of these incentives offered by the government are in most cases with political motive thus making this income generated to be unsustainable in going concern of the firm. Where they failed to estimate the value of the assets reliably, they used the cost method, and measured them at the cost less both any form of accumulated depreciation as well as any form accumulated losses resulting from the impairment.

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Also, the fair value was not reliable since they used fair value that was the default measure of the cost method was used when FV was not reliable. The company went ahead and used the IAS 41 with the aim of masking their poor financial performance, they defended themselves by claiming that they had applied Singapore standard in reporting the agriculture in accordance with the FRS/IAS 41. Snowballing Capital Expenditure of the Olam company give the impression of destroying significant value of the investor, and same time pushing the company toward the hedge of collapse. Concerning the soundness of the financial states of the firm, the company has proactively come up with appropriate capital structure as well as increasing the mandatory equity so as to obliged to the firm’s plans on investment.

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1 million. Olam management began implementing mergers and acquisition (M&A) in the year 2008. This was mainly meant to focus on the growth strategy which concentrated on production, processing, as well as distribution. In my opinion, this type of growth strategy will waste a substantial amount of the investor funds. This is supported by the fact that in case of any financial crisis, it will have a negative impact on the traders of agricultural commodity, thus causing the investors tie up more capital since the returns will be possibly be lower than it used to be. (2014), Bearer plants: Stakeholders’ view on the appropriate measurement model, Accounting and Management Information Systems, 13(4): 719-738. Olam International. Growing Responsibly: Doing Business in a Sustainable Way to Create Long - Term Value for All.

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