Corporate integrated reporting

 

Question

Task:
Description / Requirements:  Over the past two decades, corporate social and environmental disclosures have increasingly been made in separate stand-alone reports in addition to a variety of other media such as web sites. These standalone social and environmental reports have become more complex (and long) as a greater range of issues has been disclosed to meet the supposed information needs of a range of stakeholders. More recently, possibly in response to the increased complexity and length of stand-alone reports, there have been moves to recombine some social and environmental disclosures with financial disclosures in single reports. In contrast to earlier social and environmental disclosures made within annual reports, where the social and environmental information was not integrated with the financial information, these recent moves have sought to integrate social, environmental, financial and governance information ( De Villiers et al. 2014*). This new reporting system is referred to as Integrated Reporting .  * De Villiers, C., Rinaldi, L., and Unerman, J. (2014), “Integrated Reporting: Insights, gaps and an agenda for future research”, Accounting, Auditing & Accountability Journal, Vol. 27 Iss 7 pp. 1042 – 1067.

Required: You are required to research information on the below issues, and then document the results of your research in an essay format with the following suggested sections: Introduction (suggesting 150-200 words); Body (suggesting 800-900 words); Conclusion (suggesting 150-200 words). 1. In line with the view of the above statement, critically analysis the purpose and necessity of corporate integrated reporting and the theory/ies supporting this type of report.  2. Write a conclusion for your research finding along your opinion on benefits (costs) of for society.    Additional information:  • You are expected to undertake research in order to complete this task. Review of the above-referred journal article can be a good point to start with. Your research should also include further primary source references i.e. peer-reviewed journal articles, professional publications and scholarly books (avoid Wikipedia type material).  • You are required to use a minimum of 6 references (minimum 4 academic journal articles and the other 2 can be from other types of resources e.g. professional publications) to support your discussion. Your references can be included the given article.  • Word Limit: 1200 words (excluding references), double-spaced, 12-point Ariel or Times New Roman font. A word count must be included. Students exceeding the word limit by more than 10% will incur a mark penalty.  Students must submit a properly referenced assignment that complies with the Harvard referencing style. This includes in-text citations and a reference list.

Answer

Introduction
Corporate Integrated Reporting is a step to make the reporting formats of the companies concise, clear, and more useful. Along with the disclosures in the Financial Statements, there are many other disclosures have been made mandatory for the companies such as social and environmental disclosures. These reports have been made until now in the form of standalone reports that in itself is a very tedious and time taking process. Hence, in order to simplify the reporting pattern of the companies, Corporate Integrated Reporting is being taken into consideration for its implementation (Druckman, 2013). Further, the main benefit that this kind of reporting seeks is that the users of financial statements and reports will understand and anathe lyze the position of the company more quickly and effectively. Corporate Integrated Reporting also was known, as CIR will be a very beneficial tool for every company in saving lots of time and efforts (Slaper & Hall, 2011).

Purpose and Necessity of Corporate Integrated Reporting
The main purposes and aims of Corporate Integrated Reporting are:
1. Providing quality information to the users of financial statements.
The main purpose of switching to Corporate Integrated Reporting is an effort to provide quality information to the users of financial statements. The users include providers of finance/ capital, government, shareholders, banks, creditors, investors, etc. These all are the stakeholders of the company and they have full right to verify the financial position of the company as they have their capital/ funds and reputation attached to the respective company. In addition, clearer the financial reports of the company will be, more will be the capital investment and allocation of capital in the most productive manner (Jorgensen & Soderstrom, 2012). The main purpose of Integrated Reporting included compiling the total information about the company in most useful manner.

2. Enhancement of accountability and answerability.
The integrated corporate reporting aims at enlarging the accountability and answerability through the reports presented by the companies to its users. It is not possible for each user and reader of the financial statement to ask questions from the company regarding the content in financial statements. Hence, the reporting format should be such that it is self-explanatory and clarifies the doubts of the users of financial statements (Eccles & Krzus, 2010). This purpose shall be met out through such integrated reports. For example- when a company seeks financial assistance from the financial institutions and banks, it presents all its reports to the banks. The financial analysts go through all the reports but it might be possible that the finance analyst may not be able to directly understand the financial position of the company and gets confused to the wide range of reports available. Hence, the company may not be able to present its actual financial and nonfinancial position (Pyo & Lee, 2013). Hence, the need of CIR emerges here through which the company can present the material data to the financial institutions and other users through CIR, which would be self-explanatory.

3. Uniformity in viewing and comparing the financial statement.The Integrated Reporting will help the users in comparing and bringing out comparative data that will help them in informed decision-making. The comparison might be of the same company from its preceding years or this might be a comparison with data of other companies in the industry. In case any company which does not use the CIR format will not be a good option when the financial statements of its competitors will be made available for analyzing.

4. Helpful in decision-making.

In case of acquisition or mergers and where CIR reporting is available, the investors and the stakeholders will be largely benefited by having all the financial data at one place and comparison and analysis will be easier because the investors need not consider more database, for example- Annual Reports, Social & Environmental, etc.

5. Non-Financial Data reporting.
Apart from the financial data, CIR will also help in analyzing the nonfinancial data as well as the Human Index and the corporate social rankings which otherwise is not available in the standalone financial statements (Hegarty et. al, 2014).

6. Detection of Key Risks and Key Performance Indicators.
The CIR will also help in finding out the key risks and key performance indicators in the company’s failures and achievements. Key risks may involve the high use of technology, high labor turnover, etc which have to be timely detected and rectified. This will only be possible when such material disclosures are made in the annual presentable reports. Moreover, where the company is aware of key performance indicators which are responsible for the company’s growth and development, the company shall be able to focus largely on those KPIs and invest their time, efforts and money on mainly those KPIs & divert their maximum resources from less productive areas to more productive and profitable avenues (IR, 2016). For example- if a company had 10 kinds of activity/ products out of which four products account for more than 70% of revenue or sales, the company may divert their resources from the remaining 6 products to those profitable products of the company which will help them in earning higher profits (Villiers & Rinaldi, 2014). This kind of material disclosures is expected through CIRs.

7. Display of Inter-Relationship between different reports.
The current corporate reporting formats that include Annual Reports, Financial reports, social and environmental reports, report to shareholders etc are prepared separately and do not show any inter-relationship between each other. The CIR aims to bring entire reporting formats under one roof so that the information that the company seeks to provide to the users may help in the easy understanding of the company operations. In addition, the investors are greatly benefitted because the company CIR format shall provide easy and informed presentable financial and nonfinancial data (Villiers & Rinaldi, 2014). This will allow them to understand the operations of the company easily and restore the faith in the company’s workings.

8. Capital Formation of the companies.
The stability of the stakeholders helps the company to enter into new businesses and it is easy for them to procure funds from the market in the form of bank finance, public offer, debentures, or short-term borrowings (Samaha & Dahaway, 2010). This all leads to steady share prices also.

Conclusion
Before implementing CIR framework, the companies should higher some experts that shall help them in implementing the CIR framework. The whole purpose of CIR reporting is to report and present the data at one place which shall help its users in decision making but it should not be done in a haphazard manner because it may lead to a total disaster because there will always be a possibility that entire data might not be captured or improperly captures by the company which may affect the company’s reputation and will also not help the users of financial statements report.

The CIR may be implemented on a parallel basis along with the standalone statements so that the companies can collect reviews about the same and smoothly convert their reporting process without losing any data and stakeholders faith in the company (Carol et. al, 2016). Therefore, to conclude, it may be said that CIR reporting may be the future of the Corporate Reporting framework and should be adopted by every company to reap the above said benefits of the CIR and pass on its benefits to its users of financial data including the society as a whole?

Reflective Learning Journal Assignment For Conceptual Framework Application In Accounting

 

Question

Reflective Learning Journal
The purpose of this reflective learning journal is to record and analyse your experiences of learning business accounting as both a process and a product. In your journal you will need to document your thoughts and provide information about what you are learning, how you are learning and your reflections on what you have learned about business accounting concepts and principles. You also need to demonstrate your understanding of the Australian Conceptual Framework for accounting standard setting and the implementation of accounting standard in business practices.

Assessment criteria: The reflective learning journal will be assessed based on the following criteria:

1. You need to demonstrate critical engagement with the subject matter including (but not limited to):
   • Progressively build up a list of definitions, equations, formulas etc. that need to be memorised and be aware of which will be helpful when recording day-to-day business operations. You can provide explanations of accounting concepts in your own words.
   • You can prepare a summary of the knowledge and skills you are developing from topic to topic. Your summary should demonstrate a degree of synthesis and integration rather than being just a list of points.
2. You should demonstrate active engagement in learning experiences and activities undertaken, demonstrating the application of accounting principles to practice and/or reinforcement of technical skills.
   • Evidence of self-evaluation through progressive assessment tasks (such as practice quiz, weekly exercises or other exercises) completed, how you could have improved your results in quizzes, and in the weekly exercises, and how you plan to make best use of feedback provided for future practices.
3. You can make meaningful reflections on the progressive learning experiences, showing how the results of your reflection on learning in earlier topics improved your learning in later topics. Self-evaluations can be a critical part of your learning journey. It is designed to give you the opportunity to reflect and comment on the way you approach assessments, such as quizzes and other tasks.
4. You thoughts and comments should be integrated and should be expressed clearly and concisely.

Content: You should focus on one week’s learning materials introduced in weeks 2-6. Please note: don’t try to cover every topic. You can choose to reflect on one particular topic that you are interested, such as cash management.

The topics covering in the reflective learning journal may include, but should not be limited to

double entry accounting, accounting equation, accounting cycle, adjusted trial balance, the use of special journals or subsidiary ledgers, sales and purchases transactions, perpetual and periodic inventory system, inventory costing methods, inventory valuation, internal control, cash management and budgeting, receivables and doubtful debts management.

Answer

Introduction: The character and the functioning of the firm’s function of accounting are defined by the board or the company’s conceptual framework. A conceptual framework is necessary for the ascertainment of the hypothetical and conceptual issues which are adjacent to the firm’s financial reporting system and hence will need a proper and logical foundation which will be helping the firm to strengthen the maturity of the accounting standards.

Conceptual framework prevails in many of the cases but it is specifically designed for financial reporting. It can be called as the statement that is used by the firm to keep data record and assess the philosophy of the firm’s past and maturity of the new ones. Thus the main and foremost function of the accounting is to supply useful information and the basis of the economic decision making.

Conceptual framework’s application
It helps to create benchmarks of concepts and objectives. A firm which is using the conceptual framework should always take into the consideration IASB or FASB standards in order to increase the functionality. The framework should also help to mould the minds of the statement users and make changes in the financial reporting. It should also help the company to compare data from the others. It also helps to solve the problems quickly by the use of the existing basic theories (Singleton-Green, 2016).

It was questioned by the accountants about the mobility of the conceptual framework in the production of financial statements. This was answered by the past history that how the use of conceptual framework has been used by the firm to grow. The accounting standards and the conceptual framework do not work together. They make affects on the income and financial statements of the firm which leads to a contradiction of the transaction details (Baluch et. al, 2011). The standards were made as a reaction to the disgrace or failure or by observing the environment. Their main focus was to improve the approach by introducing new policies.

It could have also been argued that the conceptual framework is having fewer rules and regulations. The management should be led with utmost care and the use of the conceptual framework is thus made necessary. This system will be more rigid and the magnetism of the financial statements will be much more similar compared to the others (IFRS Foundation, 2010).

Objective oriented
The main objective that is needed by the IASB can only be accomplished by the application of the conceptual frameworks thoroughly. These systems have been very useful to the people who are using the financial statements or the new start-ups which are trying to grow in the market. A better and more creative image of the accounting standards has been presented by the use of the conceptual framework. After analyzing the current position of the firm’s financial statements it has been seen that the individual should be provided with the necessary reports that can be utilized by them to ascertain the index of the conceptual framework of the firm (IFRS Foundation, 2013). All the data relating to the liabilities, assets, capital maintenance and expenses should be taken into account while assessing the conceptual framework.

Challenges of the conceptual framework
Conceptual framework proves to be a boon with many advantages but to have a limitation as well. It is well known that the pillars of the conceptual framework are fully based on mind thoughts and this may not seem very practical and successful to other people. For example, the statements of a company can be manipulated in such a way which seems theoretically correct in nature but is practically fraudulent. A conceptual framework has a complicated construction which may appear difficult to many and this can have an impact on the decisions made from person to person while analyzing the reports (Gibson, 2010). The foundations of the conceptual can be seen to depend indirectly on the monetary provisos. Concentration has to be equally divided between both financial and non-financial data by the accounting regulations but it is impossible for the economic apprehensions to impact the decisions of the people while standing alone. As a summary of all the earlier mentioned statements and facts, it is obvious now that one conceptual framework plan is not capable of taking over the market and different people have distinguished thinking and so they require different forms of a conceptual framework to be brought into action. Though Enron, Arthur Andersen were on-time in presenting their company’s financial statements then also they suffered a downfall. By this, it is clear that these companies used their financial statements in a fraudulent way and manipulated them for maintaining the reputation of the company and so it can be concluded from this that conceptual framework has certain limitations (Seilber, 2015). After these incidents, the IASB and FASB have planned to make the conceptual framework and the accounting standards stricter and sent all the rules for change and renovation with the gathered data which includes discrepancies also (Cooper et. al, 2011). These changes have caused the conceptual framework to maintain a higher level which summons the trade-off betwixt reliability, comparability, etc. A perfect sync between the accounting principles will be a boon to the world economy in many ways which are as follows:

• Promoting international transaction and to reduce exchange charges which can be done by delivering honest data.
• To set a level of the data and principles so it can be followed all over the world and is created by multinational policy-makers (Tysiac, 2015).
• By setting an advance system for government accountability.

If the above rules are implemented then it would be seen that international monetary results and money-related management decisions can be made with minimized threats. By setting the above standards it would be seen that the whole world has an equal platform for the accounting policies (Deegan, 2014). All the regulators and auditors will be delivered exactly similar data which would increase their work efficiency.

Conclusion
A conceptual framework has a wide range of advantages and has offered a stiff but precise platform. This platform can be thought of as one to classify and to safeguard social and economic status. Discrepancies which exist in the accounting standards can only be removed by the rules set up by conceptual framework. Easy maintenance of the accounting standard can be done as conceptual framework eliminates the misstatements of accounting standards. It has also been a boon to the preparers, auditors and also to the users of the financial statements.

References
Baluch, C., Cohen, R., Soto, H., Tucker, P., Volkan, A., and Wright, G. (2011) Fair Value Accounting: Current Status And A Proposal For Convergence. The International Business & Economics Research Journal. [onliine]. 10(4), p. 17-29. Available from: https://www.researchgate.net/publication/265411225_Fair_Value_Accounting_Current_Status_And_A_Proposal_For_Convergence [Accessed 27 April 2018]

Cooper, C, Coulson, A and Taylor, P. (2011) Accounting for human rights: Doxic health and safety practices – The accounting lesson from ICL. Critical Perspectives on Accounting. [online]. 22(8), p. 738-758. Available from https://pdfs.semanticscholar.org/29fe/f2147778ed83c4ee682b6e457a70b344a28a.pdf [Accessed 27 April 2018]

Deegan, C. (2014). Financial Accounting Theory (4th ed.). McGraw-Hill: Sydney. Everingham, G.K, Kleynhans, J.E & Posthumus, L.C. (2007) Principles of Generally Accepted Accounting Practice. Juta and Company Ltd.

Gibson, C. (2010) Financial Reporting and Analysis: Using Financial Accounting Information. Cengage Learning.

IFRS Foundation. (2010) Conceptual Framework for Financial Reporting 2010 [online]. Available from http://www.ifrs.org/News/Press-Releases/Documents/ConceptualFW2010vb.pdf [Accessed 27 April 2018]

IFRS Foundation. (2013) A Review of the Conceptual Framework for Financial Reporting: Discussion Paper DP/2013/1. Available from: http://www.ifrs.org/Current-Projects/IASB-Projects/Conceptual-Framework/Discussion-Paper-July-2013/Documents/Discussion-Paper-Conceptual-Framework-July-2013.pdf [Accessed 27 April 2018]

Seilber J. (2015) FASB removes concept of extraordinary, retains guidance on unusual item [online]. Available from: http://www.pwc.com/us/en/cfodirect/assets/pdf/in-brief/us2015-01-fasb-extraordinary-unusual-items.pdf [Accessed 27 April 2018]

Singleton-Green, B. (2016) Discussion of “articulating accounting principles: Classical accounting theory as the pursuit of ‘explanation by embodiment. Journal of Applied Accounting Research. [online]. 17(2), p. 136-138. Available from https://www.emeraldinsight.com/doi/abs/10.1108/JAAR-03-2016-0028 [Accessed 27 April 2018]

Tysiac K. (2015) No more extraordinary items: FASB simplifies GAAP [online]. Available from: http://www.journalofaccountancy.com/news/2015/jan/gaap-extraordinary-items-201511630.html [Accessed 27 April 2018]

Management Accounting Assignment detailing bookkeeping procedures used by Pacific Telemet Ltd and Go-Go-Grow Ltd

 

Question

Question 1: Pacific Telemet Ltd. manufactures a high end smart phone with dual sim cards that is popular with business executives who travel overseas frequently. Related financial data for this product for the last year is as follows:

Sales                                     12,000 units
Selling price                      $460 per unit
Variable manufacturing cost    $184 per unit
Fixed manufacturing costs     $360,000
Variable selling and administrative costs     $36 per unit
Fixed selling and administrative costs     $600,000

The CEO is under pressure from the Board of Directors to increase the profitability of the phones and has asked executives from different departments for suggestions. Three managers have responded with the following ideas:

1. The production manager, David Groate, suggests making improvements to the quality of the product. These quality improvements would increase the variable costs by $36 per unit. This would be accompanied by a $60,000 national advertising campaign which he expects would boost sales volume by 30%.
2. The sales manager, Kirsten Arnold, believes that the product is unique, but not yet well known enough. Based on her market research, she feels that advertising should be increased by $120,000 and that the product would also be able to bear an increase in price of $60 with sales volume reduced by 12% from the current levels.
3. The marketing director, Jess Sutherland, wants to undertake a promotion campaign where a $40 rebate is offered to the first 2,500 phones sold. She expects that the rebate program would boost sales by an additional 2,000 units if spending on advertising was increased by $50,000.

You have been asked by the CEO, Sherri Watkins, to comment on each of these three proposals before she presents them to the Board of Directors. Draft a report in response to this request. You are not asked to make one particular choice or recommendation, but rather to explore the potential strengths and weaknesses that includes discussion on the breakeven, potential profits and, where possible, the margin of safety related to each proposal. Keep in mind that the sales volumes should be treated as estimates only and your report should consider potential variations in actual sales and their effects. Give both qualitative and quantitative support to your comments.

Question 2: You are the accountant for Go-Go-Grow Ltd, a children’s electric toy car manufacturer that is located in Geelong and has customers in Australia and the USA. Their estimated current sales volume is 5,000 units per month and based on this level of production, the company has budgeted the following costs and prices per unit:

Manufacturing Costs per unit (Based on production of 5,000 units per month)

Direct Material Cost $150.00
Direct Labour Cost 75.00
Variable Factory Overhead 35.00
Fixed Factory Overhead 40.00
Total Manufacturing Cost 300.00
Selling & Administrative Costs Variable Selling and Administrative Cost 35.00
Fixed Selling and Administrative Cost 25.00 60.00
Total Cost Per Unit 360.00
Selling Price Per Unit $720.00

Mantel Ltd is an overseas company that sells toy cars all over the world, with the majority of their market to wealthy new parents in China and India. They have approached Go-Go-Grow about obtaining a quote for a special one-off order as they would like to purchase 20,000 toy cars. As this will be a special order sale, there will be no costs incurred for variable selling and administrative costs and no additional fixed costs will be incurred.

This order is because their existing supplier has suffered substantial earthquake damage to their premises, but the CEO of Mantel Ltd also hinted to your CEO that if they are satisfied with the product, this might not be the last deal between the two businesses.

Required:Given this knowledge, what amount should Go-Go-Grow Ltd. bid for this contract in each of the following circumstances:

1. The Go-Go-Grow’s annual factory capacity is 90,000 units.
2. The Go-Go-Grow’s annual factory capacity is 75,000 units. (To fulfil the order, you may have to pull the product from your regular production)

Assuming that the annual factory capacity is 90,000 units, prepare a report for your CEO explaining your justification for the bid price that you came up with in 1 a). Discuss the possible opportunities and potential disadvantages with accepting this contract with Mantel. Give both quantitative and qualitative support to your discussion.

Question 3 : Describe your own background before you came to do your MBA at Southern Cross University.

How has your earlier educational background influenced your understanding of this subject so far?

When you complete ACC00724, which accounting tools in either Financial or Management accounting do you think will be most useful for your future career? Why?

Answer

Answer 1- Pacific Telemet Ltd.
Specific Telemet Limited is a business organization producing smartphones with dual SIM cards and this product of the company is very popular among the executives that are traveling overseas on a frequent basis. According to the current pricing strategy of the company profits made by the company are as follows-

Board of director has pressurized chief executive officer of the company to increase the sales in an incoming financial year. For this purpose, three managers have proposed two different kinds of strategies. Evaluation of these strategies is as follows-

The strategy of production manager David Groate : Production manager has suggested increasing the overall advertisement expenses by $60,000 along with increasing the quality of products. Increasing the quality of the product will also increase the variable cost by $36 per unit. After this strategy the profitability of the company will increase and revised the statement of profitability is as follows-

On the basis of this profitability statement, it can be said that overall profit generated by the company has increased by 10% as compared to the original profitability of the company. Contribution margin in the given scenario is 52% and total fixed expenses are $1020000, therefore break-even sales would be $1961538. Break-even sales in this given scenario is substantially lower as compared to sales made by the company in the last financial year i.e. $5520000 (Weygandt, Kimmel & Kieso 2015). On the basis of this analysis, it can be said that this proposal is very positive when it is expected to have a positive impact on the overall profitability of the company. There are some weaknesses that should be considered by the chief executive officer before the execution of this strategy. It is important for the company to find an effective method of advertisement so that 30% increase in sales unit can be achieved. It is very difficult for a business organization to increase 30% of its sales within a period of one year only through advertisement expenses (Noreen, Brewer & Garrison 2014).

The strategy of sales manager Kirsten Arnold: The sales manager of the company has read market research and proposed to increase the overall advertisement expense by $120000. This expenses expected to increase the overall price of the mobile phone by $60 but it will also decrease the overall sales unit by 12%. Profitability of the company in this given scenario would be as follows-

It can be seen that the overall profitability of the company has increased by 8.75% if the proposed strategy of the sales manager is implemented. In this case break, even sales would be $2076923 (1080000/52%) which is also substantially lower as compared to current sales of the company. Therefore it can be said that the strategy will also have a positive impact on the profitability of the company. The main problem of the strategies that overall sales unit will decrease substantially i.e. by 12%. This means that the market share of the company will decrease by 12% if this strategy is adopted due to the increase in overall sales price of the mobile phones. Shifting of customers from our business organization to our competitors can have a negative impact on long term existence of the company in the market (Kaplan & Atkinson 2015). It is proposed that this strategy should not be adopted as it would result in a decrease in market share and the increasing profitability is not very substantial as compared to the previous option.

Strategy offered by marketing director Jess Sutherland: According to the marketing director, a new campaign should be started to wear selling price of the product should be lowered by $40 for the first 2500 phones. In addition to that, there will be an advertisement expense of 50,000 towards this campaign and this campaign is expected to increase the overall sales unit by 2000 units. Profitability of the company according to this strategy would be as follows

If this is strategy is successful than the overall profitability of the company is expected to increase by 17.18%. The rate of increasing profitability is hired in this strategy if all the three strategies proposed by the different managers is compared. In addition to that additional expenditure on advertisement campaign is also lowest in the case of this strategy. One factor that should be considered by a chief executive officer of the company is the effectiveness of this campaign. Market research can be conducted by the company on whether this strategy expected to have a positive impact on overall sales units of the company or not.

After evaluating all the three strategies it can be said that all of these strategies have a positive impact on the profitability of the company. It is recommended that the management of the company should accept the strategy proposed by the marketing director or production manager (Collier 2015). The strategy proposed by the sales manager should not be accepted by the company as it will result in decreased market share in the industry which will have a negative long term impact on the company. Out of the other two strategies, it is recommended that strategy proposed by marketing director should be accepted because it has increased overall market share of the company by selling 2000 additional mobile units and overall marketing expenditure, in this case, is also comparatively lower.

Answer 2- Go-Go-Grow Ltd
Go-Go-Grow Ltd is in the business of producing children’s electronic toy cars and has customers in Australia and USA. Total demand for these products is around 5000 per month i.e. 60000 units can be easily sold by the company in a particular financial year. Mental Limited is an Overseas company that has a proposed to purchase an order of 20000 toys directly from the company listen to the current demand of products produced by Go-Go-Grow Ltd. this is a special order and there will be no requirement of spending variable selling and administrative cost and the additional fixed cost will also be nil.

(A) When annual factory capacity is 90000 Units

Total demand of the product in the market is 60000 to units and capacity of the company is 90000 units, therefore there is a spare capacity of 30000 unit which can be made by a company without increasing the capacity of the company. Therefore the price charged for every unit of toy car sold to Mantel Limited will be as follows-

Total contract price would be 260*20000= $5200000

Note- there will be no variable selling and distribution cost because this is a direct offer and selling and advertisement is not required (Nagle & Müller 2017).

(B) When annual capacity is 75000 units
Total annual capacity of the company is 75000 unit whereas the total demand in the open market is 60000 units. The remaining capacity of the company is 15000 and company has to fulfill an order of 20000 units to Mantel Limited. For fulfillment of this order, company has to reduce the total number of products sold in open market to 55000 units only and the cost of 5,000 units will be recorded as an opportunity cost in the price charged from Mantel Limited (Langfield-Smith et.al. 2017).

The contract price for 20000 unit will remain the same i.e. $5200000 but the opportunity cost of 5000 units will be added to this contract price. The opportunity cost would be as follows-

Total contract price= $5200000+ (425*5000) = 7325000
Number of units= 20000
Price per unit= $366.25

Business report
12-01-2019
Chef Executive officer
Go-Go-Grow Ltd
Geelong, Australia

This business report is prepared to explain the price that is determined for the one-off contract offered by Mantel Limited for production of 20000 to units of toy cars in the coming financial year. Currently the annual capacity of the company is around 90000 units and total demand for products in the open market is 60000 units. Therefore there is a spare capacity of 30000 unit which is not currently being used by the company. This is their capacity can be used in order to fulfill the demand of 20000 units by Mantel Limited. Acceptance of this contract will definitely have a positive impact on the profitability of the company and it will also increase possible contracts in the future by this organization.

In the given case, the contract price is established in the same manner as compared to the normal pricing strategy of the company. The only difference, in this case, is that expenses in relation to variable selling and administrative cost are excluded from the product price. This is due to the fact that our business organization is not required to conduct any type of selling and administration cost of these 20,000 units because it will be directly sold to Mantel Limited (Lavia López & Hiebl 2014).

Different business opportunities might arise out of accepting this contract as other business organizations might come with one-off contracts which will be helpful in utilizing the spare capacity of the company. On the other hand the disadvantages of this company is that it might distract out business organization from gaining a substantial amount of market share in the company if these type of contract increases in the future.
Accountant
Go-Go-Grow Ltd

Answer 3- Educational background
My educational background has enables my experience and understanding of the MBA course as Southern Cross University. I have completed the bachelors of commerce degree in the year 2012. This degree of taken from Gujarat University in India and my passing percentage at this course was 64%. In addition to that I have also worked as room attendant in Hotel the Grand Bhagvati and my responsibilities during this job was to assist housekeeping and maintenance department. This experience has provided me knowledge in relation to the manner in which actual business organization operates.

I have studies business administration, accounting and finance during my bachelor of commerce degree. Knowledge acquired from studying these subjects helped me in understanding the MBA course at the university as these subjects are explained in details in MBA course. Combined knowledge of MBA and bachelors of commerce will help me in understanding the financial and management accounting concepts that are being used in actual business organizations. My bachelors of degree will also help in developing an effective and efficient resume after I have completed the MBA. Combination of these degree will help in getting better job opportunities.

Management accounting tool
After completing the assignment ACC00724, it can be said that pricing and costing tools of Management Accounting will be very useful in career development for the future. This is due to the fact that the majority of business organizations struggle to assign proper pricing to the product and services offered by them. By use of these pricing and costing tools, proper direction can be provided to the business organization and it will also very helpful in career development.

Reference
Collier, P.M 2015. Accounting for managers: Interpreting accounting information for decision making. John Wiley & Sons.

Kaplan, R.S. and Atkinson, A.A 2015. Advanced management accounting. PHI Learning.

Langfield-Smith, K., Smith, D., Andon, P., Hilton, R. and Thorne, H 2017. Management accounting: Information for creating and managing value. McGraw-Hill Education Australia.

Lavia López, O. and Hiebl, M.R 2014. Management accounting in small and medium-sized enterprises: current knowledge and avenues for further research. Journal of Management Accounting Research, 27(1), pp.81-119.

Nagle, T.T. and Müller, G 2017. The strategy and tactics of pricing: A guide to growing more profitably. Routledge.

Noreen, E. W., Brewer, P. C., & Garrison, R. H 2014. Managerial accounting for managers. New York: McGraw-Hill/Irwin.

Weygandt, J.J., Kimmel, P.D. and Kieso, D.E 2015. Financial & managerial accounting. John Wiley & Sons.

Corporate Accounting Assignment Analysis For Seafarm Group And Woolworths Ltd

 

Question

Assessment task
Select two public limited companies listed on the Australian Securities Exchange (ASX) that are in the same industry. Go to the website of your selected companies. Then go to the Investor Relations section of the website. This section may be called, “Investors”, “Shareholder Information” or similar name.

In this section, go to your companies’ annual reports and save to your computer your firms’ latest annual reports consecutively for last three years. Do not use your companies’ interim financial statements or their concise financial statements. Please read the financial statements (balance sheet, income statement, statement of changes in owner’s equity, cash flow statement) very carefully. Also please read the relevant footnotes of your companies’ financial statements carefully and include information from these footnotes in your answer.
You need to do the following tasks:

OWNERS EQUITY

• From your companies’ financial statements, list each item of equity and write your understanding of each item. Discuss any changes in each item of equity for your firms over the past year articulating the reasons for the change.
• Provide a comparative analysis of the debt and equity position of the two firms that you have selected.

CASH FLOWS STATEMENT

• From the financial statement of your chosen companies, list each item reported in the cash flows statement and write your understanding of each item. Discuss any changes in each item of cash flows statement for your companies over the past years articulating the reasons for the change.
• Provide a comparative analysis of your companies’ three broad categories of cash flows (operating activities, investing activities, financing activities) and make a comparative evaluation for three years.
• Also provide a comparative analysis of the two companies that you have selected explaining the insights that you can get from the comparative analysis.

OTHER COMPREHENSIVE INCOME STATEMENT

• What items have been reported in the other comprehensive income statement for each company?
• Why have these items not been reported in Income Statement/Profit and Loss Statements?
• Provide a comparative analysis of the items shown in the other comprehensive income statement section for the two companies. If these items were included in the income statement / profit and loss statements of each company, how would the profit attributable to shareholders of the company be affected?
• Should other comprehensive income be included in evaluating the performance of managers of the company?

ACCOUNTING FOR CROPORATE INCOME TAX

• What are the tax expenses shown in the latest financial statements of the two companies that you have selected?
• Calculate the effective tax rate for both companies that you have selected. Effective tax rate is calculated as (income tax expense / earnings before tax). Which one of the companies has the higher effective tax rate?
• Comment on deferred tax assets/liabilities that is reported in the balance sheet articulating the possible reasons why they have been recorded.
• Was there any increase or decrease in the deferred tax assets or in the deferred tax liability reported by each of your selected companies?
• Please calculate the cash tax amount for both companies using the book tax amount, changes in the deferred tax assets and deferred tax liability (please do your own research for your better understanding of these concepts and the method of calculating the cash tax amount the book tax amount.)
• Calculate the cash tax rate for both companies. Which company has higher cash tax rate? (Please do your own research to familiarise yourself with how to calculate cash tax rate).
• Why is the cash tax rate different from the book tax rate?

Please remember some aspects of your companies’ treatment of tax can be a very complicated area, particularly for some companies. For a better understanding of the concepts included in the assignment that has not been introduced in the class, please do your own research.

Answer

Executive summary
This report intends to evaluate the financials of two different companies namely Seafarm Group and Woolworths Ltd respectively. The report sheds light on the equity component of the company followed by the income statement, cash flow and other income tax accounting matter. The report further discusses the information about these companies’ equity, comprehensive income statement, statement of cash flow, and corporate income tax accounting tax. To analyse these details thoroughly, the annual report of these companies has been taken into account, and the financials are assessed to observe any variations or alterations in these previously mentioned books of accounts. In addition to these factors, the notes and footnotes to the financial statements of the company have also been taken into due consideration for better understanding. Overall, this report can assist in reflecting enhanced information and comparison betwixt the companies.

Introduction
This report plays a primary role in assessing the details of Seafarm Group and Woolworths Ltd respectively. To Woolworths Ltd, the company has a diversified range of affairs and is also listed on the Australian Stock Exchange. It is a significant player in the Australian retail industry. The reach and availability of the market is high in several segments like gaming pokers, hotel, and liquor.

Nevertheless, the base of customers has been stretched to more than three thousand, and therefore, the company is also regarded as the second largest about revenue. In contrast to this, Seafarm Ltd is primarily an agriculture-based company that is associated with the selling of high-quality seafood and is also registered as a public company of Australia. Furthermore, the company has been involved in several kinds of aquaculture affairs, and it has segregated its issues into three primary segments (Seafarms Group Limited, 2017). Further, last part of the organization is linked to prawn production like black tigers and banana that is sold in the name of Crystal Bay Prawns.?

Owners’ equity
i.) It can be seen from the annual report of Woolworths Ltd that its net equity for 2018 reported at $10849 million when compared to $9876 million in the year 2017. The reason behind this can be attributed to the fact that there are several equity constituents in the company’s financials and the same can be observed from the following table extracted from the annual report. Besides, the company’s contributed equity has also witnessed an increment owing to the issue of fresh shares by it under the program of long-term employee incentives and reinvestment strategies. Moreover, it can also be seen that the reserves have witnessed a decline because of share-based payment costs. Lastly, the alterations in non-controlling interests and retained earnings can be because of enhancement in the company’s net profits even after the dividend payment that was facilitated or undertaken for the shareholders.

In contrast to this, when it comes to Seafarm Ltd, it can be observed that the company’s net equity has witnessed a decline from $327,186,20 in the year 2017 to $158,428,03 in the year 2018 that is a massive deterioration and a negative indicator as well (Seafarms Group Limited, 2017). The fall is observed owing to the alterations in the segment of equity and is further portrayed in the extract from the annual report. Moreover, it can be observed that there has been an increment in the contributed equity and the reason behind this can be attributed to the fact that there was issue of share capital. Furthermore, the retained earnings have depicted a negative figure because of accumulated losses from the past tenures. Besides, there has been an increment in accrued losses that was $199,472,83 that paved a path for the creation of additional retained losses. Lastly, in relation to reserves, the company has witnessed an increment from the last year owing to performance rights that were issued to the employees. This also included lapsed options, share-based payments, etc in the reserves.

ii.) Based on the above analysis, it can be observed that Woolworths is experiencing a better scenario in comparison to Seafarm ltd when it comes to equity and debt position of the companies. This is because Woolworths has better owned capital resources than the latter and is also additionally funded by more of equity and lesser of debt. In addition to this fact, it can be also observed that the company’s investments have enhanced in comparison to the last year. In contrast to this, even though Seafarm is also financed equivalently by debt and equity, yet its ownership has witnessed a tremendous decline in comparison to the last year (Seafarms Group Limited, 2017). In addition, the company’s debt obligations have also witnessed an increment in comparison to the previous tenure that is a negative indicator. Therefore, the company is not in a better position than Woolworths when it comes to equity and debt position.

Statement of cash flow
i) It can be seen from the annual report of Woolworths that the company comprises of the following in the cash flow. Firstly, the company’s cash flow from operating affairs comprise of its income and other routine costs that have been incurred during the year. Moreover, this segment has witnessed a decline when compared to the last year and the reason behind this can be attributed to the fact that there have been immense payments to the employees and suppliers in the present year. Secondly, the net cash that have been utilized in the investing activities has witnessed an increment in comparison to the last year. The reason behind this can be attributed to bigger purchases, lesser returns from sale of PPE, etc. Thirdly, the cash utilized in financing activities have been lesser in nature when compared to the last year. Even though there has been dividend increment, yet there has been lesser repayment of obligations in comparison to the last year (Vaitilingam, 2014).

In contrast to the above, when it comes to Seafarm Ltd, it can be seen that there are following segments forming part of its statement of cash flow. Firstly, the company’s cash flow from operating affairs comprise of income and routine expenses that have been incurred during the year (Seafarms Group Limited, 2017). Besides, there has been outflow of net cash and that has enhanced when compared to the last year. Nevertheless, the reason behind this can be attributed to more employee and supplier payments on the company’s part in comparison to customer receipts. Secondly, the company has witnessed an increment in its net cash used in investing activities. The reason behind this is bigger payments for purchase of PPE and nil returns from other financial assets when compared to the last year. Lastly, when it comes to financing activities, the company has witnessed a decline in cash inflow from the same. Even though there has been an immense increase in the liabilities or debts in the present year, yet there has been lesser increase in the returns from the issue of securities and shares. Overall, the net outcome of these activities is that the company has witnessed a decline in its cash and cash equivalent that is a negative indicator.

ii). Comparative analysis
Woolsworth Group Limited: The net cash from operating activities has declined owing to the large payment made to the suppliers and the employees. The reason can be cited owing to huge payment for the business, low proceeds from the PPE in contrast to the last year. When it comes to cash used in financing activities, the cash utilized is low.

Seafarms Group Limited: Cash outflow is observed from the operating activities of the company that enhanced in comparison to the last year due to payments made to supplier and employees. The reasons are due to higher payments for PPE and zero proceeds from other financial assets.

The borrowings has increased to a considerable extent and a small increase in the proceeds from the shares and securities has been noted.

iii). Insight of comparative analysis
Woolworths – Overall, it can be seen that there has been increment in the company’s cash and cash equivalent that indicates better performance and growth in the current year.

Seafarm – Overall, the net outcome of these activities is that the company has witnessed a decline in its cash and cash equivalent that is a negative indicator.

Comprehensive statement of income
i) vi. There are various items that have been depicted by Woolworths Ltd in its comprehensive statement of income. Firstly, there is movement in equity instrument reserves, secondly there is movement in fair value of income taxes and hedges of cash flows, thirdly there is income tax and translation of foreign currencies thereon, and lastly there is explained superannuation plans losses or gains (Woolworths limited, 2017).

ii) In contrast to the above, Seafarm have not disclosed any details regarding its comprehensive statement of income for the present tenure. This is the reason why nothing is disclosed or reflected in the company’s comprehensive income statement (Seafarms Group Limited, 2017).

iii). The statement of comprehensive income consists of expenses and revenues that have not been realized by the company. Thus, once such transactions are attained, the losses or gains related to the same are identified as realized losses or gains and thereafter, reflected in the income statement. Therefore, the comprehensive statement of income has been alternatively prepared for the sales that have been unrealized in nature (Ross et. al, 2014). Nevertheless, if such income has been reflected in the statement of income, it will reflect that such income which has not been attained has also been depicted in the company’s financials. Moreover, based on the principles of GAAP and IFRS, the total salaries must also be separately disclosed to depict that there are feasibilities of income that can be incurred in the upcoming tenure. However, these must be reflected not inside and instead, outside the statement of income and the reason behind this can be attributed to the fact that such income has not been attained in the present year. In the case of Seafarm Ltd, it can be observed that the company has not prepared or disclosed its comprehensive statement of income during the years. Thus, comparative evaluation betwixt both companies is not feasible in nature.

Moreover, the following items have formed part in the statement of comprehensive income of Woolworths Ltd. Firstly, there is equity instrument reserve that has incurred owing to the revaluation of invested equity securities. In addition, on the disposal of these, the losses or gains attained must be transferred to equity (Power, 2017). Secondly, the company has identified the actuarial losses or gains on the liability of net-defined benefit as and when they occur (Woolworths limited, 2017). Thereafter, these are depicted in the comprehensive statement of income of the company and are not reclassified to such statement of income. Thirdly, the hedge of cash flow is depicted in relation to losses or gains attained based on derivative financial instruments (Porter & Norton, 2014). Lastly, in relation to the variations in foreign currency exchange that has incurred owing to translation of global affairs, planning for the settlement of these transactions have not been made and therefore, have been depicted outside the statement of income.

iv). In relation to the previously mentioned items, if this formed part of the company’s income statement, the attributable profits to the shareholders would decline as a result. The reason behind this can be attributed to the fact that the aggregate impact of such transactions of the company has generated losses and therefore, the shareholders will be the one who are bound to bear such losses. Nevertheless, this would have been an improper treatment because the gains or losses from extraordinary transactions are not so particular as their occurrence. Thus, it is appropriate to reflect these transactions outside the ambit of Statement of Income and instead, report the same in comprehensive statement of income.

The items forming part of the comprehensive income statement are the ones that have not witnessed realization. In other words, it signifies that the company is not aware when such transactions are more likely to incur (Ferris et. al, 2010). However, these transactions can also assist in assessing the future profitability of the company together with its statement of income. For instance, evaluation of comprehensive statement of income can assist in depicting the investment position of the company and how they are able to generate revenues or losses. Therefore, it can be stated that such comprehensive statement of income depicted by the company can play a key role in assessing the company’s performance on a whole but not of the company’s managers.

Accounting for tax associated to corporate income

i) x. The tax costs depicted in the company’s financials in the present year are as follows. Firstly, in relation to Woolworths Ltd, the company has depicted its expenses of income tax in its consolidated profit and loss account. Moreover, the same has been reported at $718 million for the current year and in the past year, the same stood at $651 million respectively. Nevertheless, these expenses of income tax have been reflected on the company’s profits from its continuing affairs (Woolworths limited, 2017). In contrast to this, the tax costs on all discontinued affairs profits stood at $74 million for the current year.

In contrast to Woolworths Ltd, when it comes to the latter company, it can be seen that it has also reflected its expenses associated to income tax in the consolidated profit and loss account (Deegan, 2011). Moreover, the same stood at $3576 as observable from the current year’s annual report.

ii) . Computation of effective rate of tax: The computation of the effective tax rate should be done by dividing the expensed linked with the income tax with the earnings or profit before tax. In relation to Woolworths, its income tax costs stood at $718 million and its profit before tax reported at $2394 million. Thus, its effective tax rate amounts to $718/$2394*100 that gives 30% (Woolworths limited, 2017).

In relation to Seafarm Ltd, its expenses associated to income tax reported at $3576 and its profit before tax cannot be ascertained because there are losses for the year 2018. Therefore, the effective tax rate comes at 30% respectively (Woolworths limited, 2017).
Therefore, it can be concluded that both the companies pursue an equivalent effective rate of taxes.

iii). Deferred assets: In relation to Woolworths Ltd, it can be observed that the company’s net deferred assets reported an amount of $271 million in the year 2018. However, the same was $372 million in the last year that means decline in deferred assets in comparison to the last year (Woolworths limited, 2017). Moreover, the computation of deferred tax is done to trace the variations that are temporary in nature between the carrying value of t he assets and liabilities of the company.

In contrast to this, when it comes to Seafarm Ltd, it can be seen that the deferred assets reported by the company stands at zero in the current year. Besides, the same was nil in the previous years as well. Hence, in relation to the same, it is notable that the differences in such amount have been set off by the company in the same tenure itself (Carmichael & Graham, 2012).

iv). Based on the above discussion, it can be noticed that in relation to Woolworths ltd, the company witnessed a decline in its deferred tax assets when compared to the last year. Such decline in deferred tax assets can be because of variations in the permanent and timing differences in relation to both liabilities and assets (Brigham & Daves, 2012). However, in relation to Seafarm Ltd, it can be noted that there has been no variation in its deferred tax assets and the reason behind this can be attributed to the fact that the same was nil in both the years. Nevertheless, in relation to computation of amount of cash tax by utilizing the book tax value, variations in deferred tax assets and liabilities, the following aspects must be taken into consideration:

v). Woolworths Ltd: Total tax provision as reported in the statement of income is ($718million)

Decline in deferred tax assets reported at                              $90 million

Less- accruals and provisions in DTA                                    ($44million)

Decline in deferred tax liability                                              $11 million

Thus, the amount of cash tax comes at                                   $661m

Seafarm Ltd:

Total tax provision as reported in the statement of income is ($3576)

Decline in deferred tax assets reported at                              Nil

Less- accruals and provisions in DTA                                    Nil

Decline in deferred tax liability                                              Nil

Thus, the amount of cash tax comes at                                   $3576

vi) Cash rate of tax can be computed by dividing the previously mentioned cash tax by profit before tax. Sea farms will be having the same rate as 30%. However, Woolworths will have an effective tax rate of 27.61% that is attained by dividing cash tax by profit before tax ($661/$2394) *100. Hence, Sea farms has better cash tax rate in comparison to the former.

vii). xvi. Cash tax is primarily paid to government by organizations and is the value that must be reported in the company’s income tax return (Bodie et. al, 2014). Further, book tax is the value of tax that organizations must report in their financials. Besides, these financials are utilized by every stakeholder including lenders, customers, etc to evaluate the company’s performance. In addition, the deferred tax liabilities and assets also form part of a company’s financials that play a key role in the determination of actual payable tax on the company’s part. Overall, for reflecting the true financial position, the company has depicted its liability of income tax in its statements even if the same can be expended in the upcoming tenure. The difference between the book and cash tax arises as the liabilities and the deferred tax assets in combination with the provisions have been framed for the liabilities of income tax that is reported in the financial statements.

Conclusion
Based on the previously mentioned analysis, it can be seen that Woolworths has been performing better than Seafarm and the reason behind the same can be because of its better effectiveness in balancing the debt-equity ratio and other factors as well. Furthermore, since Sea farms has been incurring major losses from the past few years, it is not performing well in its segment and if remedial measures are not implemented soon, it can witness a disintegration path. Moreover, since the company is primarily dependant on debt obligations instead of equity financing, it is negative for the company to thrive in such competitive environment as it can result in hampering the smooth flow of operations. In contrast to this, Woolworths has been relying less on debt and more on equity financing.

References
Bodie, Z., Kane, A. and Marcus, A. J. (2014) Investments. McGraw Hill

Brigham, E. & Daves, P. (2012) Intermediate Financial Management. USA: Cengage Learning.

Carmichael, D.R. and Graham, L. (2012) Accountants Handbook. Financial Accounting and General Topics, John Wiley & Sons.

Deegan, C. M. (2011) In Financial accounting theory. North Ryde, N.S.W: McGraw-Hill

Ferris, S.P., Noronha, G. & Unlu, E. (2010) The more, merrier: an international analysis of the frequency of dividend payment. Journal of Business Finance and Accounting. [online]. 37(1), pp. 148–70. Available from https://doi.org/10.1111/j.1468-5957.2009.02174.x [7 April 2018]

Fundamentals of Corporate Finance, 7th ed. North Ryde: McGraw-Hill Australia Pty Ltd.

Porter, G. and Norton, C. (2014) Financial Accounting: The Impact on Decision Maker. Texas: Cengage Learning

Power, T. (2017) Fund choice: Comparing super funds in 8 steps [online]. Available at: https://www.superguide.com.au/boost-your-superannuation/comparing-super-funds-in-8-steps [Accessed 11 May 2018]

Ross, S., Christensen, M., Drew, M., Bianchi, R., Westerfield, R. And Jordan, B.(2014)

Seafarms Group Limited. (2017) Seafarms Group Limited Annual Report and accounts 2017. [online] Available from: https://seafarms.com.au/wp-content/uploads/2015/02/FY17-Financial-Statements.pdf [Accessed 17 September 2018]

Vaitilingam, R. (2014) The Financial Times Guide to Using the Financial Pages. London: FT Prentice Hall.

Woolworths limited. (2017) Woolworths limited Annual Report and accounts 2017. [online] Available from: http://www.woolworthslimited.com.au/icms_docs/182381_Annual_Report_2015.pdf [Accessed 17 September 2018]

Management Accounting Assignment: UCK Furniture Management And Reporting Strategies

 

Question

Assignment Brief and Guidance

Task 1: Apply a range of management accounting techniques You must answer the following:

1.1 Calculate costs using appropriate techniques of cost analysis to prepare an income statement using marginal and absorption costs.

UCK Furniture produce one product – desks.

Each desk is budgeted to require 4 kg of wood at £3 per kg, 4 hours of labour at £2 per hour, and variable production overheads of £5 per unit.

Fixed production overheads are budgeted at £20,000 per month and average production is estimated to be 10,000 units per month.

The selling price is fixed at £35 per unit. There is also a variable selling cost of £1 per unit and fixed selling cost of £2,000 per month.

During the first two months X plc expects the following levels of activity:

(a) Prepare a cost card using absorption costing and marginal costing

1.2 Accurately apply a range of management accounting techniques and produce a financial reporting document.

1.3 Produce financial reports that accurately apply and interpret data for a range of business activities. Make the interpretation of the both costing methods and explain the potential merits and demerits of the both methods.

Task 2: Explain the use of planning tools used in management accounting. You must answer the following

The UCK Furniture has noticed considerable fluctuation in its amount of time spent and expenses incurred, as shown below:

You must answer the following:
2.2 Using the high-low method estimate the expenses if the number of hours required for July and August is 650 and 750 respectively.

2.3 Explain the purpose of budget and prepare a cash budget with the given information for coming months.

I. The cash balance at the beginning of September is £ 9,000

ii. Actual sales for July and August and expected sales for September are as follows:

iii. Sales on account are collected over a three-month period as follows: 10% collected in the month of sale, 80% collected in the following sale, and 7% collected in the second month following sale. The remaining 3% is uncollectible.

iv. Purchases of inventory will total £ 24,000 for September. 20% of month’s inventory purchases are paid for during the month of purchase. The accounts payable remaining from Augusts’ inventory purchases total £ 15,000, all of which will be paid in September.

v. Selling and administrative expenses are budgeted at £ 13,000 for September. Of this amount £ 4,000 is for depreciation.

vii. The company maintains a minimum cash balance of £ 5,000. An open line of credit is available from the company’s bank to bolster the cash position as needed.

Required:
(1) Prepare a schedule of expected cash collections for September

(2) Prepare a schedule of expected cash disbursements for merchandise inventory purchases in September.

(3) Prepare a cash budget for September. Indicate in the financing section any borrowing that will be needed during September.

Task 3: Compare ways in which organisations could use management accounting to respond to financial problems.

3.1 Compare how organisations are adapting management accounting systems to respond to financial problems

The UCK Furniture is trading its two divisions the Table Division and Drawer Division. UCK Woodworks manufactures components and parts used in desks. UCK Woodworks sells the components to UCK Furniture and the rest of the world. Both companies are part of a group named as UCK group of companies

The financial results for the two companies for the year ended 31 May 2015 are as follows

Compare the Performance of UCK Woodworks and each division of UCK Furniture, calculating and using the following three performance measures:

(i) Return on capital employed (ROCE)
(ii) Asset turnover
(iii) Operating profit margin

3.2 Analyse how management accounting can help improve the financial performance of both companies to achieve the sustainable success.

3.3 Evaluate the planning tools used in management accounting to reduce the financial problems to achieve the success. (Guide lines learner should evaluated the use of the following techniques. E.g. budgeting, budgetary control, Project Appraisal or Evaluation, Standard costing and Analysis of Cost Variances, Ratio analysis)

Answer

Executive Summary
Management accounting is an essential component of the organisation as it helps in attainment of the goals of the organisation. Management accounting does not pertain to the old data rather it is in the form of creation of new reports and budgets that helps the management to perform with precision. The story will shed light upon the organisation name UCK Furniture and the manner in which the management accounting helps the undertaking in the attainment of the goals. Different ranges of techniques are applied where a cost card is prepared using the absorption and marginal costing. Furthermore, different types of planning tools are utilised for the case of budgetary control. As the UCK furniture has witnessed major fluctuations, therefore, various devices have been used in consideration for the same.

Introduction
When it comes to the business, it is imperative that every dollar matters and hence, it is pivotal that every penny should be treated with utmost concern. Managerial reports will enable UK Accountants and managers to be well versed with the latest news and hence will lead to cost reduction, the reward will be provided to people who work strongly, elimination of the lines of product and ensure investment in the goods that provides the highest return for the business (Emmanuel, 2014). With the aid of different reports, UCK Furniture can gather a strong response as the story will shed light upon the differences if any noted. The reports can be created quarterly, weekly, monthly or even daily reports.

Application of management accounting technique

Application of management techniques

The above is a financial reporting document. Management accounting techniques are strategies used for business analysis purposes and thereby enabling management to make sound and ground business decisions. These techniques help in getting a holistic view of business and developing the forward plan of business. There are numerous techniques used for management forecast. Following are the various management accounting techniques:

1. Cost reporting- A cost report involves details of all direct, indirect, variable, and fixed and semi-fixed costs.

It incorporates all costs involved in bringing the product to a saleable condition, however, subjective to valuation method of values which depends from organisation to organisation.

It details the prime cost, the selling, administrative, and all costs and also shows the profit for each product. It describes the excellent value, the sale, administrative, and all costs and also shows the gain for each product.

2. Budgeting- A budget lays a benchmark for organisations as the minimum achievable target. Budgets can be for different cost elements. They can be for purchases, sales, cash, and credit and so on, the list goes on. Budgets help in better planning and enforcement of plans. Budgets help in forecasting of costs and revenues; they also contribute as a cushion to sudden business shocks (Becker et. al, 2010).

3. Ageing reporting. Receivables, and payables, these are the two significant elements of a business that runs the show mostly. An ageing report of both of these elements helps a lot in management decisions (Becker et. al, 2010). These reports assist in understanding the various profitable areas, the loss areas of the business and a massive shock to market can be prevented using these reports.

4. Project Decision Making- The accounting reports are used for management decision making project wise.

Production of financial reports

2.1. Advantages & disadvantages of planning tool
Planning tools and techniques include forecasting, budgeting, performance measurement, decision making, developing charts and graphs for a pictorial analysis to name a few out of an exhaustive list. Budgeting and budgetary controls are steps taken to create an effective management plan and fiscal plan (Drury, 2011). The tools used for fiscal planning and control helps in the measurement of organisational performance, and it’s potential to grow. Deep business analysis can be done using these planning tools involved in budgeting. The various advantages and disadvantages of these tools are as follows:

1. Where on the one hand, budgeting helps in planning, and effectively controlling the activities, they may also result in chasing short-term goals and thereby neglecting the long-term organisational goals and may hamper the corporate goal chasing (Emmanuel, 2014).

2. They are very elaborate processes and take a lot of time effort and resource. But once they are formulated properly using all the tolls of planning in place, they can act as great coordination catalysts.

3. Where on the one hand, they provide a way forward to proceed in the path of efficiency, it to a great deal also block the path for innovation.

2.2. High low method estimate

2.3. Preparation of cash Budget

3.1. Organization comparison that adapt to management accounting systems to answer the problem of finance
Organisations are adapting management accounting systems like marginal costing, standard costing, absorption costing, budgeting, budgetary controls, etc., in order to better respond to financial problems (Merchant, 2012). Without using management accounting techniques, it becomes difficult to identify financial problems. Naturally, when problems itself can’t be identified, it is not possible to come up with solutions to financial problems (Drury, 2011). On utilizing the management accounting techniques, a business is able to precisely and correctly identify areas of concern due to which financial problems are arising. Not only this, management accounting also helps in solving those problems effectively, efficiently and economically (Witherite & Kim, 2006).

3.2 The manner in which the management accounting can influence the performance of companies to head towards sustainable success
ROCE measures the profitability of the company concerning the capital invested in the company. In another way, it shows the profits of the company as a percentage of the capital employed. The greater this percentage, the better it is for the company (Henderson et. al, 2015). Here, UCK Furniture Design Division and GearBox Divison have ROCE of 25.49% and 11.27% respectively while UCK Woodworks has a ROCE of 8.56% only. This means that UCK Furniture Design Division earns the maximum profits per pound of capital invested in it followed by UCK Furniture GearBox Divison and UCK Woodworks. Assets turnover ratio indicates the revenue that a company is being able to generate per unit of total assets (Deegan, 2011). Here, UCK Furniture GearBox Divison has the best Assets turnover ratio at 0.7798 followed by UCK Furniture Design Division at 0.5627 and UCK Woodworks at 0.1918. This means that UCK Furniture GearBox Divison can generate maximum revenue per unit of its assets.

Operating profit margin is the percentage of profit that a company earns on its sales. The greater this percentage, the better it is for the company. Here, UCK Woodworks has the best Operating profit margin at 44.64% followed by UCK Furniture Design Division (45.30%) and UCK Furniture GearBox Divison (14.46%). This means that UCK Woodworks can earn the maximum amount of profit from its sales.

Thus, the study of management accounting can help improve the financial performance of any company as it reveals important facts and figures relating to business which when improved upon can prove beneficial for the company.

3.3. Evaluation of the planning tools
Planning techniques that are present in management accounting like budgeting, budgetary control, Project appraisal, standard costing, evaluation of the variance of cost and ratio analysis helps in reduction of the financial issue to attain sustainable success.

Budgeting is a technique in which budgets, i.e., estimated statements are prepared for various items such as sales, cash, expenses, production, purchase, etc. This helps in estimating the desired levels of activities. It also helps in comparing the estimates with the actual performance (Almeida & Cunha, 2017).

Budgetary control refers to the process by which managers compare the budgetary goals with the actual performance and then analyse and try to reduce disparities between the estimates and the actuals (if any). This helps in fixing problems due to which the differences (between actuals and estimates) are arising (Emmanuel, 2014).

A particular task/ project should be evaluated at reasonable intervals of time to find out whether everything is proceeding as per pre-determined goals and estimates. This process of evaluating the project at reasonable intervals of time is known as project appraisal or evaluation (Kieso et. al, 2010). This helps in maximising efficiency and ensuring that the pre-decided objectives are met on time and the actual results are as per desired standards (Askarany et. al, 2007).

At reasonable intervals of time, the cost incurred on the project in the particular period is compared with the standard pre-decided cost to find out the variances (if any). The cost variances are then studied and analysed to find out the causes for the variances and to determine the remedial measures needed to be taken to fix them (Almeida & Cunha, 2017).

Analysis of financial ratios is another very useful technique of management accounting. Key financial ratios like current ratio, quick ratio, proprietary ratio, assets turnover ratio, debt coverage ratio, etc., are calculated and analysed to judge the performance of the business and to determine the remedial measures (if needed) to be taken to fix poor ratios (Horngren, 2011).

Thus every tool of planning utilized in management accounting enables to enhance financial performance and to reduce financial problems to achieve success.

Conclusion
On a concluding note, the observation that is made is that the role of management accounting plays a pivotal role in shaping the destiny of the organization. The above study done on UCK furniture is a glaring example of the powerful tools and technique of UCK furniture. Managerial accounting is the area that deals with the planning, as well as controlling of money. Hence, managerial accounting system enables the organization to consider the future course of action and leads to potential benefits. Beyond question, it is a resource planning tool and helps to predict the future course of activities. The managerial accounting surpasses the process that is essentially needed to control and plan the operation that leads to n effective decision making.

Bibliography

Almeida, A., & Cunha, J. (2017) The implementation of an Activity-Based Costing (ABC) system in a manufacturing company. Procedia manufacturing. [Online]. 13(932-939). Doi: https://doi.org/10.1016/j.promfg.2017.09.162

Askarany, D., Smith, M. & Yazdifar, H. (2007) Technological innovations, activity based costing and satisfaction. Journal of Accounting Business & Management. [Online]. (14), 53-63. Retrieved from http://eprints.gla.ac.uk/64626/

Becker J., Bergener, P. and Räckers, M. (2010) Activity-Based Costing in Public Administrations: A Business Process Modelling Approach. International Journal of E-Services and Mobile Applications, 2 (4), pp. 1-10. Available from https://www.researchgate.net/profile/Emmanuel_Oseifuah/publication/286721232_Activity_based_costing_ABC _in_the_public_sector_Benefits_and_challenges/links/5b43731b458515f71cb66618/Activity-based-costing-ABC-in-the-public-sector-Benefits-and-challenges.pdf?origin=publication_detail

Deegan, C. M. (2011) Financial accounting theory. North Ryde, N.S.W: McGraw-Hill

Drury, C. (2011) Cost and management accounting. Andover, Hampshire, UK: South

Emmanuel K. O (2014) Activity based costing (ABC) in the public sector: benefits and challenges. Problems and Perspectives in Management. [Online]. 12(4). Available from https://businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/6179/PPM_2014_ 04cont2_Oseifuah.pdf

Henderson, S., Peirson, G., Herbohn, K., & Howieson, B. (2015) Issues in financial accounting, Pearson Higher Education AU.

Horngren, C. (2011) Cost accounting. Frenchs Forest, N.S.W.: Pearson Australia.

Kieso, D., Weygandt, J., Warfield, T; Young, N., & Wiecek, I. (2010) Intermediate accounting. Toronto: John Wiley & Sons Canada.

Merchant, K. A. (2012). Making Management Accounting Research More Useful. Pacific Accounting Review. [Online]. 24(3), 1-34. Available from https://pdfs.semanticscholar.org/6ccf/f78a452763f17ed5e4f4ddc6b96703801403.pdf

Witherite, J. and Kim, I.W., (2006). Implementing activity-based costing in the banking industry: benefits include the proper costing of transactions, the ability to trace specific costs to bank customers and the ability to measure customer and product profitability. Bank Accounting & Finance, 19(3), pp.29-35.

Accounting Assignment: Managing Earnings Forecasts, Incentives, And Risk-Taking

 

Question

Task: Students need to choose 1 topic from Topics 1 – 4 AND choose 1 topic from Topics 5 – 7:

Topics 1 – 4: any time until noon Monday 13 August (Week 7)

Topics 5 – 7: any time until noon Monday 10 September (Week 11)

You are required to do two (2) things as an individual student for this Assignment:

1. Choose & identify a relevant article for EACH of your two chosen Topics;
2. Contribute a 500-word post to a Discussion Forum (DF) explaining the relevance of the article.

Make sure you PAY ATTENTION to the details below about each of these two things!

NOTE: there will also be a short recording made available in week 5 explaining this in the Assessment Details section and some good and poor examples are provided in the Assessment Details section.

• Topic 1 Theories of accounting
• Topic 2 Measurement in accounting
• Topic 3 Accounting policy choice
• Topic 4 Regulation of accounting
• Topic 5 Corporate governance
• Topic 6 CSR
• Topic 7 Critical Accounting theory

Answer

Management earnings forecasts, managerial incentives, and risk-taking
This Accounting Assignment investigates the vital concept of financial reporting because the entire disclosure rests upon this concept. With the due passage of time, there has been the great development in the measurement in accounting. For example, the introduction of Sarbanes-Oxley Act 2002 stressed greater disclosure and helped the disclosures to get more meaningful information. When the disclosure policy is effective, it lessens the information disadvantage of investors who are not informed (Susan & Xiaolu, 2018). This happens by dint of reduction of the information asymmetry between the investors who are informed and who are uninformed. Hence, measurement in accounting has enhanced over a period of time so that evaluation is better and automatically helps the investors of the firms at large. The major initiative of measurement in accounting lies in the fact that the management needs to be consistent with the earnings prediction, managerial incentives, and risk-taking (Laux, 2014). It is imperative that the process can lead to a better cash flow. Further, it is a common parlance that the disclosure leads to a reduction of managerial actions that are opposite to the interest of the shareholder. The firm’s environment is vastly enhanced owing to the accounting measurement. The Accounting Assignment explores challenges in regard to this concept and it is emphasized that the disclosures are costly to the shareholders. While discussing the concept of measurement in accounting it is clear that management earnings forecasts, incentives, and risk-taking forms a vital part. The article stresses the fact that disclosures are the primary need of the stakeholders and the measurements in accounting emphasize this fact (Susan & Xiaolu, 2018). The article highlights the fact that disclosures lead to the major attraction of the stakeholders. Disclosure and risk-taking have been clearly projected in the article. Disclosure tends to be costly in nature but leads to minimal risk-taking (Carmichael & Graham, 2012). Hence, when accounting conventions and measurement of accounting are used it is directed towards a higher level of disclosure and ultimately leads to a lower level of risk-taking.

It needs to be noted that the managers are more directed towards the goals of the organization and stresses upon the short-term earnings at the expense of the investments that are foregoing. This enhances the long-term value of the firm. Moreover, the negative link between the voluntary disclosure and risk-taking is lessened due to the managerial activities (Susan & Xiaolu, 2018). It is important to note that the policy of disclosures is associated with higher costs. However, earnings management is one of the important discussions in the article that has been dealt with by the author. Long-term firm value can be enhanced with the aid of measurement in accounting (Brigham & Daves, 2012). Overall, the updates and the amendments that happen in the accounting conventions are directed towards bringing a sense of clarity and smooth work. The Accounting Assignment coins the fact that risk-taking can be lessened when the managers are in tune with the activities of the company. A price based managerial incentive measure is important and the same has been discussed in the journal. In totality, the disclosure is important that will help the firm to flourish but requires higher costs. Therefore, measurement in accounting tends to be updated with the due passage of time.

References
Brigham, E. & Daves, P. (2012) Intermediate Financial Management. USA: Cengage Learning.

Brigham, E. & Daves, P. (2012) Intermediate Financial Management. USA: Cengage Learning.

Laux, B. (2014) Discussion of The role of revenue recognition in performance reporting. Accounting and Business Research. [online]. 44(4), 380-382. Available from: http://www.ccsenet.org/journal/index.php/ijbm/article/viewFile/4235/3672 [Accessed 9 August 2018]

Susan M.A., & Xiaolu, Xu. (2018) Management earnings forecasts, managerial incentives, and risk-taking. Advances in accounting. [online]. Doi: https://doi.org/10.1016/j.adiac.2018.07.006