Barclays Bank Case Study Solution

1. “Throw out” a problem child (Real):

A multinational bank or any Global company can sell the subsidiary which is not performing well (the problem child) in order to increase the earnings of the future. For example, Othman & Jonathan (2016) reported that Barclays Bank wanted to sell off the African Subsidiary worth 100,000,000 shares and focus on only Britain and the US. So if this sale by Barclays is finally made possible, Barclays can manage earnings through sale of the subsidiary by exchanging the stock in an equity method subsidiary and spin off the subsidiary. A gain or loss is reported in the current period statement when a subsidiary is sold. What is done here is the existing shareholders just exchange or distribute the shares of the subsidiary (problem child) with the current shareholders. As a result, no gain or loss is normally reported on a spin off.

2. “Big Bet on the Future” technique (Cosmetic):

For any acquisition, the company acquiring the other is said to have made a big bet on the future. Under GAAP regulations, the acquisition should be reported as a purchase. For example the acquisition of Fina Bank (EA) Ltd by Guaranty Trust Bank Plc (GTBank)

When a new accounting standard is adopted it takes two to three years to adopt the standard though a window is put for early adoption. Such as the 1985 's standard, which allowed companies whose pension assets exceeded their pension liabilities to count the difference as income (Lev 1989). Also, there are a number of Accounting Standards that have been updated ever since especially on revenue recognition for example Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842). Managers can therefore decide to volunteer to adopt these Standards early and get better and improved expense and revenue recognition thus managing