Category: Accounting

How managers use accounting for decision making

How managers use accounting for decision making
How managers use accounting for decision making
How managers use accounting for decision making

How managers use accounting for decision making

Order Instructions:

In preparation, submit an annotated bibliography of 10 or more resources you related to the topic of your Final Paper.

My Topic : ” How can managers use accounting information to make better decisions ?”
****** Instructions: Please submit all 10 annotated bibliography as it pertains to my topic ( see above) !!!!!!!
Please review the General Format of an Annotated Bibliography document located in the Weeks 2–3 Learning Resources.
For each entry, be sure to do the following as a minimum:
Include the full APA citation.
Discuss the scope of the resource.
Discuss the purpose and philosophical approach or methodology.
Discuss the underlying assumptions.
Relate the resource to the body of resources you have consulted in this course.
Discuss any evident limitations and opportunities for further inquiry.
Your annotated bibliography is due Day 7 of Week 3.

SAMPLE ANSWER

Topic: How managers can use accounting information in making better decisions

Briciu, S., Scorţe, C., & Meşter, I. (2013). The impact of accounting information on managerial decisions – Empirical study conducted in the hospitality industry entities in Romania. Theoretical & Applied Economics, 20(9), 27-38.

Briciu, Scorte and Mester (2013) conducted an empirical research which is based upon a survey carried out from November 2012 to January 2013. They administered online questionnaires to managers of 91 organizations in the tourism and hospitality sector. The findings revealed that the managers surveyed can use accounting information to determine the company’s funding needs. The managers analyze revenue to determine the amount of funds that would be available to finance future projects (Briciu, Scorte & Mester, 2013). The study’s limitation is that the questionnaire contained so many questions totalling 38 questions which called for maximum concentration of the study subjects and some managers lost patience while completing the questionnaire.

Dumitrana, M., Radu, G., Dumitru., & Jinga, G. (2010). The use of the accounting information in decision making in the hospitality business. International Journal of Contemporary Hospitality Management, 17(1): 39-50

Accounting information, managerial accounting information in particular, has been utilized and analyzed extensively in the context of manufacturing firms. Few studies have been done on the utilization of managerial accounting information in aiding the process of decision making in the hospitality sector. Dumitrana et al. (2010) sought to fill this gap in existing knowledge. They discovered that accounting information could be utilized by managers in budgeting. Managers utilize the continuous flow of accounting information related to overhead, investments, purchases and income to create budget for the following year. The weakness of their study is that the research was conducted in only 2 hotel organizations hence the findings cannot be generalized in other organizations and organizational settings.

Florin, B. (2014). Development of decision making by managers with financial and accounting information. Annals Of The University Of Oradea, Economic Science Series, 23(1), 837-844.

As per the author of this article, accounting information is of great importance in improving the effectiveness of the fiscal function and assists managers in making managerial decisions. As used in manufacturing, accounting information is employed by managers in deciding whether to purchase or to make – in buy or make analysis – a particular component which the company requires in order to make its primary product (Florin, 2014).

Gheorghe, D. (2012). The accounting information quality concept. Economics, Management & Financial Markets, 7(4), 326-336.

Good accounting information is able to respond to the requirements of an organization and help in managerial decision making. Accounting information in the form of fiscal reports can be used by managers to guide the future of an organization. Balanced scorecards, fiscal statement projections, and budgeting are some of the ways in which managerial accounting information is employed in providing information to assist managers in guiding the future of the organization. When managers focus on this data, they are able to make decisions which aim for constant improvement and are justified basing upon intelligent analysis of the company’s data (Gheorghe, 2012).

Lengauer, V., Mayr, A., & Parasote, S. (2011). The impact of accounting information on management’s decision-making process. The Accounting Review, 12(67): 511-525

In their study, Lengauer, Mayr and Parasote (2011) examined the impact that accounting information has on the decision-making process of a company’s management. The managers of a particular company known as Wexiodisk AB, a manufacturer of dishwashing machines, were interviewed. Their findings demonstrated that managers at the company utilize accounting information for budgeting purposes and to determine the funding needs of the company’s upcoming ventures.

Miculescu, C., & Miculescu, M. N. (2012). Quality of accounting information to optimize the decisional process. Annals Of The University Of Oradea, Economic Science Series, 21(2), 694-699.

Accounting information is valuable when used in a decisional process. In their study, Miculescu and Miculescu (2012) found that managers can utilize accounting information in determining what needs to be sold and how it should be sold – using the process of relevant cost analysis – and in determining whether to stop operations or increase product lines. Moreover, managers utilize accounting information to decide which consumers are less or more profitable so that marketing efforts could be focused on customers that are most profitable (Miculescu & Miculescu, 2012).

Scorţe, C., & Farcaş, M. (2013). The impact of accounting information on managerial decisions – Theoretical approaches. Annals Of The University Of Oradea, Economic Science Series, 22(2), 692-702.

In this peer-reviewed journal article, Scorte and Farcas (2013) conducted a literature review on accounting information as it is applied within the hospitality sector. They also carried out literature review on the topic of management accounting in this particular industry. Scorte and Farcas (2013) learned that accounting provides the information which is essential for monitoring, for establishing the extent of liability and the result produced at different places of work, which facilitates the detection of internal reserves, of uneconomic and unnecessary spending and of losses. This way, accounting information contributes to the fulfilment of strategic objectives. Managers in the tourism and hospitality industry also use accounting information in making appropriate financial and economic decisions. Furthermore, accounting information acts as an advisor which aids managers in determining the conditions wherein the company is operating at both macro-economic and micro-economic levels (Carmen & Mariana, 2013).

Silviu-Virgil, C. (2014). The importance of the accounting information for the decisional process. Annals Of The University Of Oradea, Economic Science Series, 23(1), 593-603.

In his qualitative research study, Silviu-Virgil (2014) reviews a number of books and articles which have looked into the topic of accounting information from a managerial decision viewpoint. The author found that accounting information is in actual fact the raw material for the process of managerial decision making. Managers can utilize accounting information to help attain organizational goals. Moreover, accounting information could be employed to aid in budgeting and in analyzing whether to purchase or make a component in-house.

Socea, A. D. (2012). Managerial decision-making and financial accounting information. ScienceDirect, Elsevier. Procedia – Social and Behavioural Sciences, 58(12): 47-55

In this journal article, Socea (2012) looks into the role played by fiscal accounting information in managerial decision-making. The author states that for fiscal accounting information to be of use for decision making, it should be comparable, dependable, relevant and intangible. The results of his study indicate that managers utilize financial accounting information in knowing what took place previously and to know what is the organization’s present situation. Furthermore, managers utilize fiscal accounting information in making visible the events which are not noticeable by everyday activities. It also provides managers with a quantitative overview of the organization over and above helping managers in preparing for future decisions and activities (Socea, 2012).

Tunji, S. T. (2012). Accounting information as an aid to management decision making. International Journal of Management and Social Sciences Research, 1(3):29-34

In his study, Tunji (2012) analyzes how accounting information helps in management decision making. Using survey research design, the author enlisted 55 participants and data was gathered from them with the use of a questionnaire. A number of hypotheses were developed. The findings indicated that managers utilize both non-fiscal and fiscal accounting information in aiding business decision-making. In particular, they utilize accounting information to monitor the organization’s performance, and to monitor the process of decision making. Since accounting information provides more timely information, managers also use it in improving the efficiency of operations.

References

Briciu, S., Scorţe, C., & Meşter, I. (2013). The impact of accounting information on managerial decisions – Empirical study conducted in the hospitality industry entities in Romania. Theoretical & Applied Economics, 20(9), 27-38.

Dumitrana, M., Radu, G., Dumitru., & Jinga, G. (2010). The use of the accounting information in decision making in the hospitality business. International Journal of Contemporary Hospitality Management, 17(1): 39-50

Gheorghe, D. (2012). The accounting information quality concept. Economics, Management & Financial Markets, 7(4), 326-336.

Florin, B. (2014). Development of decision making by managers with financial and accounting information. Annals Of The University Of Oradea, Economic Science Series, 23(1), 837-844.

Lengauer, V., Mayr, A., & Parasote, S. (2011). The impact of accounting information on management’s decision-making process. The Accounting Review, 12(67): 511-525

Miculescu, C., & Miculescu, M. N. (2012). Quality of accounting information to optimize the decisional process. Annals Of The University Of Oradea, Economic Science Series, 21(2), 694-699.

Scorţe, C., & Farcaş, M. (2013). The impact of accounting information on managerial decisions – Theoretical approaches. Annals Of The University Of Oradea, Economic Science Series, 22(2), 692-702.

Silviu-Virgil, C. (2014). The importance of the accounting information for the decisional process. Annals Of The University Of Oradea, Economic Science Series, 23(1), 593-603.

Socea, A. D. (2012). Managerial decision-making and financial accounting information. ScienceDirect, Elsevier. Procedia – Social and Behavioural Sciences, 58(12): 47-55

Tunji, S. T. (2012). Accounting information as an aid to management decision making. International Journal of Management and Social Sciences Research, 1(3):29-34

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Managerial accounting Essay Paper

Managerial accounting
                   Managerial accounting

Managerial accounting

Order Instructions:

PART A: Individual Component (5%)
This is a research assignment and requires the use of independent, academic research. In your group assignment you have been asked to use Net Present Value analysis to analyse Beaver Tales Pty Ltd. Why would a financial manager feel more confident using NPV analysis than the discounted payback period method? Is there potentially a better method to undertake such an analysis?

You will be assessed on the following criteria:
1. Strength and relevance of arguments presented. This will include the persuasiveness (including breadth and depth) of the arguments presented. Any material needs to be structured in a logical manner to enhance your arguments. (3 marks)
2. Depth and Quality of research undertaken to support your arguments (1 marks)
3. Grammar, spelling and referencing style (1 Marks) Assignments should be succinct in their language and arguments.

You are required to submit the following:
1. You are required to submit an assignment of no more than 300 words by the due date. Any words beyond this limit will not be marked.
2. You are required to display the word count on the front page of your assignment.
3. You are expected to submit a file using 12-point double spaced Arial font.
4. You are encouraged to research this topic well in advance of preparing to write your submission.
5. You are required to reference using the Harvard Referencing style.
6. References should be from credible sources (Note: Wikipedia and Investopedia are not acceptable).

SAMPLE ANSWER

Introduction

The payback method is a capital budgeting process where the period taken to recover the initial amount is calculated. The discounted payback method differs from the payback method as it utilizes discounted cash flow system in its calculations.

The discounted payback system has limited relationship with wealth maximization concepts. Net Present Value estimates all the future cash inflows and outflows as it also discounted to the present value. Positive NPV adds real economic value to the cash flows in a company. NPV is one of the most reliable capital budgeting techniques presently (Hermanson, Edwards & Invacevich, 2011).

Beaver Tales Pty Ltd Beaver Tales Pty Ltd
Capital Budgeting Capital Budgeting
Discount rate 15.00000% Discount rate 15.00000%
Year Cash flow Year Expenses
0 -15,609,792 0 0
1 4,470,000 1 7,143,000
2 4,498,000 2 2,267,726
3 4,529,650 3 2,267,726
4 4,565,413 4 2,267,726
5 4,605,807 5 2,267,726
6 4,651,415 6 2,261,264
7 4,702,891 7 2,261,264
8 4,760,966 8 2,261,264
9 4,826,464 9 2,261,264
10 4,900,302 10 2,261,264
PV for future Earnings $23,085,154.42 PV for future Expenses $15,609,791.75
NPV $7,475,362.67

The above calculations indicate that the NPV is positive and the project would be profitable and viable. All positive NPVs represent projects that are viable but projects with negative NPVs should not be undertaken.

Discounted payback system

PV for Exp 33217430.05
        6,211,304.35    27,006,125.70
        1,714,726.62    25,291,399.08
        1,491,066.63    23,800,332.45
        1,296,579.68    22,503,752.77
        1,127,460.59    21,376,292.18
           977,607.01    20,398,685.17
           850,093.06    19,548,592.11
           739,211.35    18,809,380.76
           642,792.48    18,166,588.28
           558,949.98    17,607,638.30

The total expenses for the Beaver Tale Pty ltd amounted to 33,217,430 while the total earnings for the project for the next ten years would amount to   46,510,906.25. The figures when discounted at 15% for ten years periodically would amount to 17,607,638.30 as the negative balance under discounted payback period.

The discounted payback suggests that the project is unviable.

Reference

Hermanson, R.H., Edwards, J.D., & Invacevich, S.D. (2011) Accounting Principles: A Business Perspective. First Global Text Edition, Volume 2 Managerial Accounting, 37-73.

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Financial accounting Research Paper

Financial accounting
Financial accounting

Financial accounting

Order Instructions:

You are a financial consultant and your company has been asked to help with the following queries from a client who is considering investing in MDM plc, a medium sized quoted company.

a) Which ratios should the client use if he wanted to assess the profitability of the company? (Guide approx. 500 words)
b) Which ratios should the client use if he wanted to assess the riskiness of the company? (Guide approx. 500 words)
c) Your client knows that MDM are considering a project which will cost €200 million. Advise the client on the different possible ways of financing this project, clearly explaining the benefits or otherwise of each method.
(Guide approx. 1000 words)

State the word count at the end

The balance of the grade will come from the presentation and the use of proper referencing both in the text and bibliography.

Important note:
The coursework should be in essay format and must be structured, with separate sections and, preferably, headings.
Your essay should be 1600 – 2000 of your own words
Much of your source material may be more recent but you still must reference the newspaper, journal or website.
Any material that you quote or refer to in your work must be referenced fully giving details of its source, author etc. It is not sufficient merely to include a source in your bibliography, neither is it permissible to just use the name of a website on its own.
It is not acceptable to include large sections from such sources: the vast majority of the essay should be in your own words

SAMPLE ANSWER

Financial accounting

  Introduction

The sources of financing a business or an enterprise are all those avenues that funding for a business can be obtained from to finance a new project. Companies use the budgets to weigh the cost implications of all the different sources of funds and their sole benefit to the business. Some sources of financing are very suitable for short term financial periods while others are best for long term periods. Large capital investments require longer financial periods while  short term financing are suitable for short term investments and in acquisition of revenue expenditure and which are mostly repayable within the same financial year (Securities and Exchange Commission, n, d).

The following are the sources of finance;

Before deciding on any suitable source of funds, the business manager must consider the cost and the period of time that the funding is required. The cost of funding plays a critical role in determining the kind of funding. The total funding required and the amount of risk involved in the business or investment to be undertaken can also influence the source of funding that the business would go for.

Short Term Internal Source Financing

Bank Overdrafts

Bank overdrafts are short term loans that business men with current accounts qualify for. These loans are advanced when requested for but their interest rates depend on the type of bank and the amount required.

Retained Earnings

Retained earnings can be used as a source of funds depending on the amount of financing required. Retained earnings are reserves that a business sets aside from the profits for future use. These reserves can be used as a source of revenue. Retained earnings are retained in bank accounts as reserves and they mostly influence the payment of dividend in a company. Retained earnings are often utilized to finance new investments in most companies as they provide flexible sources of funding with no conditions attached (FAO, Corporate Document Repository, n, d). The major problem is that it reduces the reserves available to the business and it may also affect the company’s policy on dividend payment.

External Sources of Funds

Loan Stock

This is a long-term debt capital that is raised by a company and it attracts the payment of interests. Loan stock holders are mostly long-term company creditors (Gitman, 2000).

  1. Ordinary (equity) Shares

These shares are normally issued to the shareholders of the company. The nominal value of the shares is mostly $1 or even $0.5.The market value of the shares are not related to the nominal value of the shares. The only exception occurs when the shares are handed out for cash, then the price at which they were issued must be equal to the nominal value of the shares nominal value (FAO Corporate Document Repository, n, d). The company can offer new ordinary shares to the existing share holders or to new prospective investors. The following are ways of raising financing through the issue of shares;

Deferred ordinary shares

These shares are issued to any investor who may be interested but they carry limited voting rights and they are mostly limited to dividends only (FAO Corporate Document Repository, n, d).

Rights issue

Rights issue is a process where a company sells its shares to the existing shareholders in proportion to their holdings. For example, an offer maybe for one share for two held for all the shareholders. However a company may decide to issue shares directly to the public to raise financing plus also to float its shares on the stock exchange.

New Shares Issues

The issue of new shares to the public can provide a better way of raising financing for the company. The amount the company requires to fund its projects is very large and raising it through the public would be the best option. The company can apply to be listed at the stock exchange in order for it to float its shares for the public to buy.

Preference Shares

Preference shares can be issued to raise money for the company. These shares have no voting rights and they do not participant on the profits of the company but there interest rates are fixed. There interest must be paid notwithstanding whether the company makes losses or profits. Their profits are cumulative and all their interests must be paid first before the ordinary share holders are paid.

Since all preference share holders do not participating in voting exercises they mostly do not dilute the shareholders control rights in the company. If the company’s preference shares are redeemable, the frequent issue of the shares lowers the gearing ratio for the company as they are considered as debts for the business.

Loan Stock

Loan stock capital is a long term financing option for a business and it attracts interest payments. Loan stock holders are mostly long-term business creditors. The interest is mostly paid at a particular Coupon yield on the said amount.

For instance a business can issue 10% loan stock and where the coupon rate is 10% nominal value hence some $1000 worth of stock would earn a total interest of $100 per annum and without any taxes.

Debentures

It’s a type of loan stock that involves a written acknowledgement of debt that a company has incurred and it also involves provisions of interest payments and eventually the repayment of the initial capital. Debentures may be fixed or floating. Fixed charged debentures relate to specific charge that has been secured on a particular asset. The company is restricted from selling the asset until when the charge is removed after complete payment of the debt.

Floating charge applies to an overall or floating charge on some assets and the lenders charge is on whatever asset that is appropriate and which the company owns. The company can dispose of any asset even those which the floating charge is secured on but a restriction is placed upon payment default on payment by the company.

2). Profitability Ratios

These are ratios that indicate how profitable a business unit is. Profitability is a relative term and it’s mostly equated or compared to the company’s competitors or to industry’s average ratio rates. Profitability ratios indicate the rate of profit that a company is making compared to the industry’s average. The ratios also indicate whether the company’s market share is on the rise or if it’s falling

The following ratios are used to indicate the profitability of a business.

a). The Net Profit Margin = Profit after taxes/sales.

A higher ratio indicates how profitable a company’s position is while a lower ratio shows a weak company. However, some company’s prefer to invest their funds in investments hence retain low levels of profit margins.

b). Return on Assets (ROA) = Profit after taxes/Total Assets

The returns on asset also reveal the rate of profitability of the company. The higher the ratio the more profitable the company is.

c). Return on Equity (ROE) = Profit after taxes/shareholders equity

The returns on equity also reveal the rate of profitability of the company. The higher the ratio the more profitable the company is. This ratio is more frequently used to reflect a company’s financial position.

d). Earnings per common share (EPS) = profits after –Preferred dividend/(the number of common shares outstanding.

This ratio is very critical to investors as it indicates the company’s ability to earn income for the investor. A Company with higher rates of earnings per share have greater demand and their shares are more expensive.

5). Payout Ratio = cash dividends/Net income

The payout ratio is also critical for the investor as it reveals the rate of dividend payments compared to the net income. The higher the rate the better it is for investors. However, a company may be paying most of earnings as cash dividends at the expense of other investments or the company maybe making less profit hence the ratio should be used in comparison to the rate of profits the company is making.

3). Ratios that assesses how risky a business are;

Liquidity Ratios

Liquid assets are those assets that can be quickly converted to cash. Short term liquidity ratios indicate a company’s ability to honor its short term commitments. A higher ratio indicates greater financial liquidity and consequently lower risk susceptibility for the short term borrower or lender. Most standard ratios are 2:1 for current ratios and 1:1 for quick ratios.

Higher liquidity reflects a financially sound company that cannot literally default on all its short term commitments. However, maintaining large assets as cash collaterals may tied capital on unproductive assets when investment on valuable projects would have generated far much more income for the company. Cash generates no return if not invested but one can benefit in future if the money is invested wisely. The following are the ratios for liquidity ratios.

The current and quick ratios are commonly used to assess the liquidity and riskiness of a business. Current ratio is obtained by dividing the current assets with current liabilities while the quick ratio is obtained by dividing the current asset less the closing stock and dividing the balance by the current liabilities.

Leverage Ratios

Leverage ratios reveal the rate at which a company relies on debt to finance its projects and investments. If a company cannot pay its debts then it would mean that it would be declared bankrupt. Such positions are very risky for any kind of business hence when the leverage ratios reflect a negative trend for the business it indicates the nature of risk that the business is exposed to. The following are the ratios that indicate the rate of leverage that a company posses.

a). Debt to Equity Ratio = Total Debt/Total Equity

This ratio indicates the company’s degree of leverage or the rate at which the business is relying on external debts in its operations. The higher the ratio the more risky is the business. When the debts of a company exceed its total equity, the company’s financial position would be threatened as lack of funds to repay back the debts would mean the closure of business.

b). Debt to Asset Ratio = Total Debts/ Total Assets

This ratio also indicates the company’s degree of leverage. The higher the ratio the more risky is the business. When the debts of a company exceeds the businesses total asset then the company would not be in a position to repay back the debt as the total value of the assets are less than the total debts owed. The risk of insolvency would be very high.

Most industry average indicates that the total debt of a company should not exceed 50% of either its total assets value or its equity.

Interest Coverage Ratio = Earnings before Interest & Taxes (EBIT)/Annual Interest Expense.

This ratio indicates the company’s ability to pay its fixed interest rates using its current earnings. A company with a very high margin would reflect a company that is more risky as it would mean the ratio of interest payable are higher than the earnings of the company.

Conclusion

Finally, the business can opt for a long term bank loan because of the large financing required. Long term financing have favorable payment terms and the interest rate are affordable than for short term lending. The interest rates depend on the purpose of the loan, the duration, the amount involved and whether there is security (Garber, C. (1997)

References

FAO Corporate Document Repository (n, d) Basic Finance for marketers, ACP, Retrieved July 29, 2015 from http://www.fao.org/docrep/W4343E/w4343e08.htm

Gitman, L.J., 2000, Principles of managerial finance (9th ed.). Menlo Park, Calif.: Addison Wesley.

Garber, C. (1997) Private Investment as a Financing Source for Microcredit. The North-South Center, University of Miami retrieved In July 2015 from http://www.gdrc.org/icm/ppp/private-funds.html

Harrison, W.T. & Hongren, C.T., 2001, Financial accounting (4th Ed). Englewood Cliffs, NJ: Prentice Hall.

Securities and Exchange Commission (n, d) retrieved on July 29, 2015 from www.sec.gov

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Finance and accounting Term Paper

Finance and accounting
Finance and accounting

Finance and accounting

Order Instructions:

Dear Admin,

Address the following issues/questions:

Many businesses around the world still fail because their capital investment decisions are based upon a calculation on the back of an envelope and do not take any of the correct factors into account. Even larger businesses often get this wrong. This is a true sign of poor resource management.

Do you agree or disagree? Discuss the alternative methods of investment appraisal and describe the limitations of these to help justify your arguments. How do you think that capital budgeting decisions should ideally be made by different types of organisations?

Also,

1) The answer must raise appropriate critical questions.

2) Do include all your references, as per the Harvard Referencing System,

3) Please don’t use Wikipedia web site.

4) I need examples from peer reviewed articles or researches.

5) Turnitin.com copy percentage must be 10% or less.

Appreciate each single moment you spend in writing my paper

Best regards

SAMPLE ANSWER

Finance and accounting

Concept Exercise Week 6 PART B

I am in agreement with the statement. Many companies fail given that their capital investment decisions do not consider the appropriate factors. This is an indication of poor resource management. Capital investment decision basically mixes several aspects of finance and accounting. Many business factors mix to make business investment arguably the most significant fiscal management decision. Capital investment decisions are made to allocate the capital funds of the company most effectively to ensure the best return possible (Goodman et al. 2014). The most vital facets of capital investment decisions are assessing the projects and allocating capital depending on the project’s requirements. It is therefore of major importance to take correct factors into consideration when making capital investment decisions.

Alternative methods of investment appraisal: Internal Rate of Return – the IRR of a project is understood as the cost of capital or the discount rate which makes the project’s NPV zero. In essence, the IRR could be found through trial and error; the net present value is calculated at dissimilar discount rates until a discount rate is found which makes the net present value zero, or adequately close to zero (Kida, Moreno & Smith 2010). IRR limitations: firstly, does not consider the cost of capital and therefore should not be employed to compare projects of dissimilar length. Moreover, as an investment tool, the IRR must not be utilized in rating projects that are mutually exclusive. It should only be utilized in deciding whether or not one particular project is worth investing in (Kida, Moreno & Smith 2010). When it is compared to the NPV, the IRR method could sometimes give answers that are contradictory.

Net Present Value: a project’s NPV represents the absolute increase in shareholder wealth that is created by a given project. This investment appraisal technique supposes that every cash flow produced by a given investment would be reinvested at the organization’s cost of capital. Gupta and Banga (2009) noted that this is realistic given that the firm’s cost of capital actually matches up to the rates available in the marketplace, or the return which could be attained by investing in other projects. Limitations: the limitation of this investment appraisal technique is that it does not measure the size of the project. In addition, the NPV is based upon future cash flows as well as discount rate, both of which cannot be estimated with absolute 100% accurateness. In addition, there is always an opportunity cost to making an investment but the calculation of NPV does not consider this.

Payback period method: payback period is understood as the amount of time that it would take for the cash flows that are generated by a given project to pay back the original cash outflows – for initial costs, working capital, and capital investment – at the beginning of the project. This technique is based upon cash flows and not profits and disregards non-cash items like depreciation. Limitations: it overlooks the time value of money; it does not consider cash flows which are beyond the periods of payback thereby overlooking a project’s profitability (Farrant et al., 2009).

Ideally, capital budgeting decisions should be made to increase the value of the company by taking on a good project at the ideal time. In making the decision, the manager or owner should ensure that the company’s limited resources are allocated to the project that would best attain the company’s strategic goals. Capital budgeting decision should seek to maximize shareholder’s wealth by getting assets and generating profit.

References

Farrant, K, Inkinen, M, Rutkowska, M, & Theodoridis, K 2013, ‘What can company data tell us about financing and investment decisions?’, Bank Of England Quarterly Bulletin, 53, 4, pp. 361-370, Business Source Complete, EBSCOhost, viewed 2 July 2015.

Goodman, T, Neamtiu, M, Shroff, N, & White, H 2014, ‘Management Forecast Quality and Capital Investment Decisions’, Accounting Review, 89, 1, pp. 331-365, Business Source Complete, EBSCOhost, viewed 2 July 2015.

Gupta, A, & Banga, C 2009, ‘Capital Expenditure Decisions and the Market Value of the Firm’, IUP Journal Of Applied Finance, 15, 12, pp. 5-17, Business Source Complete, EBSCOhost, viewed 2 July 2015.

Kida, T, Moreno, K, & Smith, J 2010, ‘The Influence of Affect on Managers’ Capital-Budgeting Decisions’, Contemporary Accounting Research, 18, 3, pp. 477-494, Business Source Complete, EBSCOhost, viewed 2 July 2015.

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The use of budgeting in an organisation

The use of budgeting in an organisation
The use of budgeting in an organisation

The use of budgeting in an organisation

Order Instructions:

Dear Admin,

This essay is intended to get you thinking about the use of budgeting in an organisation. There are many different types of budgets. This week, you will consider different budgeting approaches such as flexible, zero-based and rolling budgets in organisations.

Consider the following questions:

•Consider the value of budgeting for an organisation.

•Consider the different budgeting approaches.

•Consider the behavioural aspects of budgeting.

•Consider different budgeting approaches in an organisation.

•Consider how the budgeting approaches may differ among various organisations, such as a Fortune 500 company, a small business or a non-profit.

•What are the characteristics of a budgeting system among the various organisations?

•What are some of the ethical issues related to budgeting and the successful implementation of a budget?

Address the following issues/questions:

‘I don’t need a budget; I run my own business so it’s all in my head. Bothering with a budget would just be a waste of time and money!’
Do you agree or disagree with this point of view? Discuss the value of budgeting for organisations of all sizes and types in terms of effective resource management. Explain what characteristics of a budgeting system are most likely to contribute towards its successful implementation and how a lack of these might result in ethical problems.

Also,

1)The answer must raise appropriate critical questions.

2) Do include all your references, as per the Harvard Referencing System,

3)Please don’t use Wikipedia web site.

4)I need examples from peer reviewed articles or researches.

5) Turnitin.com copy percentage must be 10% or less.

Note: To prepare for this essay please read the required articles that is attached or sent by email.

Appreciate each single moment you spend in writing my paper

Best regards

SAMPLE ANSWER

MFR.COLL.W5

Budgets are among the most important tools for business success and therefore I do not agree with the statement construing that there is no need for a business owner to have a budget. Even where the owner knows everything about his business, budgets promote proper planning and documentation of organizational income and expenditure. They ensure that the business expenditure is optimal through an analysis of all budget items and that the business is making the best possible profit out of the resources invested. Besides this, budgets create other forms of value for the business as discussed in this paper.

A budget is a planning tool and having one ensures that the business can effectively manage its income to cater for expenditure in order to realize desired profitability. Herrmann-Nehdi (2011, p. 97) notes that a budget gives an overview of the company’s income and expenditure and that through budget analysis, the business can choose priority areas to focus on to improve returns.

A budget to a large extent informs decision making in organizations. Herrmann-Nehdi (2011, p. 104) argues that it is easier to make a decision based on a budget because the budget consists details of all the financial resources of the organization and how they will be spent. Accordingly, the management is always aware of what the business is capable of at any particular time in terms of finances. In addition, the management can easily revise the budget to accommodate new developments by determining various courses of action meant to free some financial resources; such as cost cutting, outsourcing and utilizing credit facilities among others. This can only be accomplished if there was initially a budget detailing the cost of various activities.

Budgets are useful in designing business focus by identifying products that are profitable for the business and comparing them against unprofitable ones. This way, the business can choose the product that provides maximum benefits and whose budget is sustainable.

Budgets play the role of keeping expenditure within the limits specified by the business. This means that the likelihood of overspending or allocating excessive resources to a product are eliminated; thus saving business owners a significant amount of cash (Hollensen, 2011, p. 87). Without a budget, there are high chances of unplanned expenditure which often impact the organization’s profitability potential.

Effective budget implementation is to a large extent enhanced by various characteristics of a budgeting system. The budgeting process is however impacted by ethical issues as established in the section below.

Budgets create some form of certainty for the business; which helps managers to predict and control future operations. Hollensen (2011, p. 90) notes that since budgets are prepared at the beginning of the financial period, they  guide the organization and employees   on what to expect during the year. Ethical issues emerge from poor budget management which may lead to significant errors, which often mislead employees and may be detrimental to the organization. This is especially so when companies engage management consultants who may not take the budget making seriously. Some are even known for duplicating previous budgets they have developed for other companies and giving them to others without considering the strategic objectives of the organization.

A budget is meant to create a sense of ownership in the business process by allowing employees to share the management’s goals. This way, employees can effectively implement the budget to promote the organization’s overall objectives. Ethical issues often arise when budgets appear restricting or when the management imposes a budget that is overbearing on the implementers (Lafley and Roger, 2013, p. 63). This will not only lead to poor execution but the employees may also feel like the management has no concern for their welfare. This is especially so in the modern work place where the organization is expected to promote employee welfare as part of their ethical obligations (Hollensen, 2011, p. 9).

Budgets should always represent what is anticipated to happen in the correct manner in order to ensure that the implementers do not find themselves in a compromising position when budget estimates do not align with the estimates. Carreras, Mujtaba and Cavico (2011, P. 8) notes that an inaccurate budget can lead to ethical issues as they encourage managers to fabricate budgets to align it with the forecasts; leading to budgetary slack. An example would be a situation in which managers budget higher expenditure and lower revenues. This results in unfair rewarding of the managers for apparently exceeding their targets, which is considered inappropriate for any business (Santosuosso, 2013, p. 4). This therefore calls for accuracy as a budgeting system characteristic in order to promote effective implementation.

Finally, a budget should flexible in order to accommodate business uncertainties and therefore allow an organization to go ahead with plans that are considered strategically important. Where budgets are not flexible, ethical issues are likely to emerge as executors use the rigidity of the budget as an excuse not to execute strategy (Carreras, Mujtaba and Cavico, 2011, p. 9-10). This not only impacts the organization but it could also lead to poor business reputation and loss of confidence of customers.

References

Carreras, A., Mujtaba, B. G., & Cavico, F. J. (2011). Don’t Blame The Budget Process: An Exploration Of Efficiency, Effectiveness, And Ethics. Business and Management Review Vol. 1(3), 05 – 13. Retrieved from http://www.businessjournalz.org/articlepdf/BMR_1304.pdf

Herrmann-Nehdi, A. (2011). Creativity and strategic thinking: The coming competencies. Lake Lure, NC: Herrmann International, Hollensen, S 2011, Global Marketing. A Decision-Oriented Approach, 5th Edition, FT Prentice Hall, London.

Lafley, A.G. & Roger M. (2013). Playing to Win: How Strategy Really Works. Harvard Business

Press. Retrieved from https://books.google.co.ke/books?id=qJFQqVa_p3YC&printsec=frontcover&dq=Lafley,+A.G.+%26+Roger+M.+(2013).+Playing+to+Win:+How+Strategy+Really+Works&hl=en&sa=X&ei=b7kBVeyoKKqx7Qb7-oHgDA&redir_esc=y#v=onepage&q&f=false

Santosuosso, P. (2013). Integration of ethical values into Activity-Based Budgeting. International Journal of Business Management , 8(20), p. 1-13.

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Cost-volume-profit (CVP) analysis

Cost-volume-profit (CVP) analysis
Cost-volume-profit (CVP) analysis

Benefits and potential problems associated with cost-volume-profit (CVP) analysis

Order Instructions:

Dear Admin,

A friend has asked you for some advice: ‘My small business now makes a profit; I am only too aware of this, as I now face a big tax bill each year, when my tax accountant has prepared my annual accounts. However, I don’t feel much better off personally, so this is not quite what I had expected when I took the risk of resigning my job and setting up my own firm. The accountant is now trying to persuade me to pay her even higher fees, by letting her prepare monthly “management accounts” for me. She says that I would also benefit from something called CVP analysis on my various product lines. I know that you are now doing an MSc. What does she mean here, and is this likely to be worth my paying her for?’
In formulating your Key Concept Exercise, consider the following questions:

•What is the difference between financial reporting and management accounting?

•What are the benefits and potential problems associated with cost-volume-profit (CVP) analysis?

•What advice would you give your friend?

Outline the difference between financial reporting and management accounting information and explain the benefits and potential problems associated with cost-volume-profit (CVP) analysis. How might the technique that you have discussed assist your friend in the effective management of his business resources? What advice would you give him? Base your answer on research, your readings and your own experiences. Please cite all references.

Also,
1) The answer must raise appropriate critical questions.
2) Do include all your references, as per the Harvard Referencing System,
3) Please don’t use Wikipedia web site.
4) I need examples from peer reviewed articles or researches.
5) Turnitin.com copy percentage must be 10% or less.

Note: To prepare for this essay please read the required articles that is attached

Appreciate each single moment you spend in writing my paper

Best regards

SAMPLE ANSWER

Cost-volume-profit (CVP) analysis

MFR.COLL.W4

As a business grows and continually becomes complex, the need to adopt more sophisticated accounting practices is inevitable in order to effectively manage profitability. Management financing has gained increased popularity among contemporary businesses because of its usefulness in decision making, budget and profit prediction. Managing costs is also a core activity for any organization with an aim of promoting profitability; hence the need to consider Cost Volume Profit (CVP) Analysis. Having acquired a significant level of knowledge on accounting, I would advise you to consider your accountant’s suggestion to include management accounting and CVP analysis besides the normal financial accounting. While this may seem expensive it is of great benefit in the long-run because you will have greater control of your business and thus identify better profit making strategies. How then do the above concepts work? What does one need to know before embarking on them? These are discussed as follows.

Management versus Financial Accounting

The obvious question that would arise from an individual with limited accounting knowledge would be “why do we need management accounts while we are already preparing financial statements? Is financial accounting not adequate to provide the management with information for decision making purposes? The only way to address such sentiments would be to do a comparison between management accounting and financial accounting in order to show the importance of management accounting.

Fotache et al (2011, p. 48) notes that one of the most significant difference between financial and management accounting is that while financial accounting is more about reporting a company’s performance for a particular accounting period, management accounting focuses on development reports for specific areas of the business, to track performance, identify any underlying problems and provide solutions necessary to address them in order to promote profitability. Financial accounting is generally undertaken for the external audience in a bid to report the organization’s profitability and financial position while management accounting is meant for internal stakeholders (Stoicea, Dinu and Stoian, 2011, p. 260 – 262). Essentially, financial accounting is mostly done for compliance purposes while management accounting is for internal use and the purpose of reports may therefore vary. This means that it can be more detailed and more specific to areas of the business that need to be addressed including pricing, cost and profitability of single items.

Financial accounting data is historical and often a representation of the organization’s past performance. Management accounting on the other hand may consist of both past and projected financial information. Examples of future data include cost budgets and profit approximations. Due to its level of detail, management accounting is an effective tool for promoting decision making within the organization and is often associated with timeliness, accuracy and integration (Odar, 2005, p. 85).

Cost-Volume-Profit (CVP) analysis

By definition, this refers to the process of determining how a shift in costs and volume of a company’s products can have on its operating income (Kee, 2007, p. 478). The results of CVP analysis are then used in developing budgets and other purposes such as determining the selling price and cost estimations necessary to ensure profitability. CVP analysis is therefore important for future projections and decision making. What should be expected by businesses which consider the use of CVP analysis? The best approach would be to compare its benefits versus its limitations as below.

Given its ability to project information on product costs, volume and profitability, CVP analysis is a vital tool for decision making. Underwood, Bush and Heath (2009, p. 14) notes that CVP analysis is highly detailed and is likely to answer most of the questions that may be raised concerning future profitability of products. CVP analysis is of great significance in terms of decision making at the management level. Using the detailed information derived from the CVP analysis, the management can easily make decisions on costs and effectively determine the best prices for their products; with an assurance that most important factors affecting these variables have been addressed during the CVP analysis (Răvaş, 2013, p. 103). Effective budgeting and profit planning is often associated with CVP analysis and as noted by Răvaş (2013, p. 104), CVP analysis results inform the best combinations between cost, volume and selling price which will lead to the best possible profit levels and is thus an important tool for business.

CVP analysis however has its own limitations. Among the limitations is the fact that CVP analysis is based on estimations. This means that despite relying heavily on factual data, the results of a CVP analysis is not usually the true representation of the situation but rather a tentative result (Kee, 2007, 481). It is however notable that determining actual figures when projecting just like in budgeting can be difficult and CVP is merely a tool necessary to give an idea of what to expect when costs and volume change. According to Chan and Yuan, 1990, p. 83), CVP has traditionally been known for not being able to deal with risk and uncertainty. CVP analysis also limits usage for companies with multiple products due to the cumbersome exercise which must be performed on each product individually. Kee (2007, p. 482-483) notes that in the presence of a different variable cost for each product such as in the case of a restaurant business, this may pose difficulties for companies with multi products.

The discussion above generally covers information necessary in making a decision on whether to adopt management accounting and CVP analysis or not. It is however apparent that upgrading your accounting practices would be of great benefit to your company through more informed and proactive decision making, more accurate projections and less miscalculations. I would therefore advise you to consider your accountant’s suggestions in order to benefit from these accounting concepts.

Reference list

Fotache, G, Fotache, M, Bucşă, R, & Ocneanu, L 2011, ‘The Changing Role of Managerial Accounting in Decision Making Process Research on Managing Costs’, Economy Transdisciplinarity Cognition, 14, 2, pp. 45-55, Business Source Complete, EBSCOhost, viewed 19 June 2015. Retrieved from http://eds.a.ebscohost.com/ehost/pdfviewer/pdfviewer?sid=e05bd091-96aa-4974-9850-996cee79f7cd%40sessionmgr4002&vid=0&hid=4113

Kee, R 2007, ‘Cost-Volume-Profit Analysis Incorporating the Cost of Capital’, Journal Of Managerial Issues, 19, 4, pp. 478-493, Business Source Complete, EBSCOhost, viewed 20 June 2015. Retrieved from http://eds.a.ebscohost.com/ehost/pdfviewer/pdfviewer?sid=40a26d48-4e3f-4dd9-8bfd-10de071c6b91%40sessionmgr4001&vid=0&hid=4113

Odar, M, Kavcic, S, & Jerman, M 2015, ‘The Role of a Management Accounting System in the Decision-Making Process: Evidence from a Post-Transition Economy’, Engineering Economics, 26, 1, pp. 84-92, Business Source Complete, EBSCOhost, viewed 20 June 2015. Retrieved from http://eds.a.ebscohost.com/ehost/pdfviewer/pdfviewer?sid=db3f7ae5-d41a-4c85-97e1-3321b0dfe707%40sessionmgr4004&vid=0&hid=4113

Răvaş, B 2013, ‘The Classic Cost-Volume-Profit, A Possible Useful Tool In Providing Performance For The Tourism Units’, Young Economists Journal / Revista Tinerilor Economisti, 10, 20, pp. 102-107, Business Source Complete, EBSCOhost, viewed 20 June 2015. Retrieved from http://eds.a.ebscohost.com/ehost/pdfviewer/pdfviewer?sid=33db2295-c7ae-46d8-8943-b6b166682c80%40sessionmgr4001&vid=0&hid=4113

Stoicea, P, Dinu, T, & Stoian, E 2011, ‘Management Accounting Opossite Financial Accounting In Agricultural Companies’, Agricultural Management / Lucrari Stiintifice Seria I, Management Agricol, 13, 3, pp. 259-266, Business Source Complete, EBSCOhost, viewed 20 June 2015. Retrieved from http://eds.a.ebscohost.com/ehost/pdfviewer/pdfviewer?sid=d2e5a42c-217c-453c-9d4d-ac9b7eb8c5a7%40sessionmgr4004&vid=0&hid=4113

Underwood III, J, Bush, R, & Heath, W 2009, ‘Picture The Numbers: A Conceptual Illustration Of Linking Marginal Reasoning, Marketing Actions, And Pro Forma Cvp Analysis With A Spreadsheet Picture’, Journal For Advancement Of Marketing Education, 14, Pp. 13-22, Business Source Complete, Ebscohost, Viewed 20 June 2015. Retrieved From Http://Eds.A.Ebscohost.Com/Ehost/Pdfviewer/Pdfviewer?Sid=06186262-E7a8-4cfe-Bba5-5382b2626519%40sessionmgr4003&vid=0&hid=4113

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Cash flow forecasts and projected financial statements

Cash flow forecasts and projected financial statements
Cash flow forecasts and projected financial statements

Cash flow forecasts and projected financial statements

Order Instructions:

Please read the attached file for the full details

Week 3 Individual Case Study Assignment 1

Cash flow forecasts and projected financial statements

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For the following Individual Case Study, you assume the role of someone who has been asked to provide a Business Report for a group of friends who have invested in an organisation, Fashion Clothing. They had heard you are taking an Accounting and Finance Module and have asked for your advice.

The scenario

A group of friends have formed a new business called Fashion Clothing, an online and mail-order clothing business, in which they have invested £200,000 of their own capital. They intend to manufacture and sell quality clothes. They have set up the business and are selling direct to the final consumer, using a combination of aggressive marketing across a range of different media and also with the use of an automated Web site that accepts online orders. To support this, they also have a department of telephone sales and support staff ready to help customers. The sales staff work in teams and receive a basic salary plus commission for each successful sale. By the start of July 20X5, they have spent £150,000 on tangible non-current assets, and they currently have the remaining £50,000 in their business bank account.

They provide you with the following forecasted figures for their first 6 months of trading:

£
Sales for the next 6 months 1,350,000
Cost of the materials used up in sales 390,000
Labour costs for the 6 months 480,000
Other expenses for the 6 months, including marketing costs and £15,000 depreciation of tangible non-current assets 345,000
Materials purchased during the 6 months 520,000

Their projected cash receipts and payments are estimated to be as follows:

Month (20X5) Sales Receipts Payments for Materials Labour and Other Expenses
£ £ £
July 150,000 120,000 These payments are divided equally over each of the 6 months.
August 120,000 100,000
September 150,000 60,000
October 210,000 60,000
November 260,000 60,000
December 285,000 60,000
Totals 1,175,000 460,000

In addition to the above, they expect to have to pay a tax bill of £20,000 in December 20X5 and also plan to buy (and pay for) £30,000 additional tangible non-current assets in that same month. All transactions will go through their business bank account.

Required

You are asked to provide a Business Report (1,000 words for the main body of the report) for the friends who have invested in Fashion Clothing, commenting on the business’ prospects and including the following five financial statements:

Since none of the investors have a background in accounting and finance, you should also explain what each of these statements means as a part of your report.

  1. An opening statement of financial position at the start of July 20X5.
  2. A monthly cash flow forecast, showing the bank balance at the end of each of the 6 months and indicating what level of overdraft facilities the friends need to negotiate with their bank manager. Explain what additional expense they should take into account as a result of needing this financial assistance (overdraft).
  3. A projected income statement for the first 6 months of trading.
  4. A projected statement of financial position for Fashion Clothing at the end of its first 6 months of operations.
  5. A projected statement of cash flows for the first 6 months of trading and using the indirect method.

Keep the following in mind:

  1. Using a spreadsheet may help you to produce your cash flow forecast. Remember here that £150,000 of the initial £200,000 has already been spent. Hence, your opening bank balance should be £50,000. Your closing bank balance should be included in your statement of financial position as at 31.12.20X5.
  2. Think carefully about the £15,000 depreciation charge when working out your monthly cash outflows for labour and other expenses.
  3. Also think carefully about the figures for closing stocks (inventories), creditors (payables) and debtors (receivables).
  4. Please remember that your qualitative analysis and explanation of your five statements are just as important as the calculations themselves. These, together with your presentation of a professional report, will contribute towards your grade for this assignment.
  5. Please be sure to re-visit the Key Concept Overviews for Weeks 1 and 2, as well as Week 3. These should serve as a reminder of the accruals concept, plus the difference between a cash flow forecast and a statement of cash flows. They also include detailed numerical examples that should assist with your calculations for your financial statements.

Ideally a business report should be produced with a suitable structure and quality of discussion around the following key areas:

Executive summary

Table of contents

List of figures

  1. Introduction
  2. Main financial findings.

2.1 Summary of the first 6 months business operations

2.2 Financial accounting statements

  1. Analysis

3.1 Initial analysis in context of the three financial statements.

3.2 Investigations to increase efficiency

  1. Conclusion
  2. References

ANNEX I: Statement of financial position Fashion Clothing – 01.07.20X5 and 31.12.20X5

ANNEX II: Income statement Fashion Clothing – 6 months to 31.12.20X5

ANNEX III: Statement of cash flows Fashion Clothing – 6 months to 31.12.20X5

ANNEX IV: Projected cash flow forecast for the first 6 months of trading

To complete the assignment:

  • By Day 7, submit your Individual Assignment to the Turnitin link provided.
  • Be sure to read over your Individual Assignment before submitting it to your Instructor. Make sure the spelling and grammar are correct and the language, citing and referencing you use when providing your opinion are appropriate for academic writing.

SAMPLE ANSWER

Executive Summary

Fashion clothing targets to sell trendy fashion clothing to clients who prefer to buy expensive garments at a price slightly above the average market price. With an initial capital of $200,000, the company has its goal on an average daily turnover of the same amount. The business in fashion clothing industry requires heavy investment in stock as most customers have different sizes and preferences and they require a large variety made up of different sizes and designs.

The objective of Fashion clothing is sell unique products that are appealing to clients and which have been designed with utmost accuracy and according to the clients exact details. The apparels are meant to be custom made per the client’s requests.

The mission of the company is to allow many potential clients to place orders that that they are assured of good quality and timely delivery.

Fashion clothing is a company that intends to take advantage of the delays in deliveries of orders that is common in the apparel industry. The company plans to sell most of its custom made designer clothes through the internet hence its strategy is to stock a few items for display only while the materials for the major orders that have been placed by customers can be obtained directly from the supplier’s shops and delivered to the business premises directly before they are manufactured according to the sizes and designs requested by the clients.

The main component of the internet based sales is timely delivery of the finished product to the client. The company must has already strategized to have an efficient delivery system to maintain its potential clients.

Contents                                                                                                                      Pages

  1. Introduction………………………………………………………………………………4
  2. Main financial findings………………………………………………………………..4

2.1 Summary of the first 6 months business operations…………………………..5

2.2 Financial accounting statements………………………………………………6

  1. Analysis

3.1 Initial analysis in context of the three financial statements…………………..6

3.2 Investigations to increase efficiency………………………………………….7

  1. Conclusion………………………………………………………………………………7
  2. References………………………………………………………………………………8
  3. Appendices………………………………………………………………………………9

List of Figures

ANNEX I: Statement of financial position Fashion clothing – 01.07.20X5 and 31.12.20X5…9

ANNEX II: Income statement Fashion Clothing – 6 months to 31.12.20X5

ANNEX III: Statement of cash flows Fashion Clothing – 6 months to 31.12.20 X5

ANNEX IV: Projected cash flow forecast for the first six months of trading
1. Introduction

Fashion Clothing is a new company in the market. Its initial investment amounts to $200,000 and

75% has already been invested in the business while the balance is in the bank.

The company has forecasted its initial sales for the first six months of trading and it hopes to breakeven in the third and final quarter of 20X5.

The major products that the company intends to manufacture are fashionable and trendy dresses for women and gentlemen suits for men. Shirts and ties for men will be introduced after the first phase of the projection.

Ladies designs seem to be more prevalent in the market than men’s original suits and ties. Fashion Clothing intends to provide a wide array of Ladies clothing for display together with matching huts, belts and shoes which will be obtained from the market to enhance the sale of matching items.

For children, fashion clothing intends to have a retail section that has been franchised from other larger apparel manufacturers to boost its sales for the first two years of trading. This strategy would make it possible for the company to decide if it’s profitable enough to introduce their own manufacturing line for children clothing.

  1. Main financial findings

The projected cash flow statement indicates that the company will incur losses throughout its trading periods in the next six months

 

2.1 Summary of the first 6 months business operations

Jul Aug Sep Oct Nov Dec
Sales  £  150,000.0  £  120,000.0  £  150,000.0  £  210,000.0  £  260,000.0  £  285,000.0
Total expenses  £  276,667.0  £  276,667.0  £  276,667.0  £  276,667.0  £  279,666.0  £  341,666.0
Loss -£ 126,667.0 -£ 156,667.0 -£ 126,667.0 -£   66,667.0 -£   19,666.0 -£   56,666.0
Balance C/fwd -£   76,667.0 -£ 233,334.0 -£ 360,001.0 -£ 426,668.0 -£ 446,334.0 -£ 503,000.0

 

For the first six months the company will register losses as the sales are not enough to honor all the financial obligations and commitments that the company has entered into, in July for instance the total sales would amount to £150,000 while the total expenses would amount to £276,667 pounds. In august, the sales would amount to £120,000 while the total expenses would be the same as in the month of July hence a loss of £126,667 and £156,667 would be incurred for July and August respectively. The cash at bank that was brought forward would subsidize the loss in July to £76,667 but the remaining loss would be carried over to August which will result in a total loss of £233,334. The trend is the same till December where the grand loss would amount to £503,000. The total sales for the whole period would amount to£1,175,000 while the total expenses for the same period would be £1,728,000. The difference is a loss of 553,000 while the balance at the bank reduces the loss to £503,000 (Hermanson, Edwards & Invacevich, 2011, p.70).

2.2 Financial accounting statements

The income statement registered a loss of £523,000. The assets are like cash at bank and the assets acquired during the financial year are not entered in this account. However, the depreciation charged on the asset is entered in this account. A provision for depreciation is normally created to ensure that the asset is replaced when it wears out but in this case it has not been provided for. The tax incurred for the period has also been paid (Garrison, Noreen & Brewer, 2009, pg. 68)

The balance sheet indicates that the total equity is £323,000 while the current liabilities have amounted to £664,000 while the current liabilities are £503,000. The debtors could also be responsible for the problems that Fashion Clothing may be facing but s not mention in any part of the projections. The cash flow also indicates that the net cash flow from investing and financing activities amounted to £592,000.

  1. Analysis

3.1 Initial analysis in context of the three financial statements

The three statements indicate that the projected financial results would mean that the company is incapable of meeting its financial obligations and it’s insolvent. The sales revenues are not enough to meet the primary obligations or expenses and it has to rely on bank overdraft or another source of income to finance its activities. The total amount paid as expenses exceeds the amounts earned as sales. The extra amount spent must have been received most likely from the bank or from creditors. But it’s not clear as the projected figures don’t include any creditors or may be debtors who are yet to pay for the gods received. The liquidity ratios for the company are also very discouraging. The current ratio for 20X5 for Fashion Clothing is 1.3. The current assets can only repay the total assets 1.3 times only instead of the ideal standards of for current ratios is supposed to be 2. That’s for every current liability the current assets should be able to cover it twice. The quick ratio or the acid test ratio fashion clothing is not even applicable as the current assets are made up of stocks only. To calculate the quick ratio the inventory is subtracted from the current assets and divided by the current liabilities. Hence Fashion Clothing liquidity status is zero. It’s bankrupt unless its directors look for a way to bail it out. The company needs long term financing in order for its liquidity to improve (Williams, Haka, Bettner & Carcello, 2008, p.40).

3.2 Investigations to increase efficiency

The sales department must be able to strategize on the best strategy to improve its sales. The company must increase its efficiency in production and maybe reduce its prices to boost sales. The liquidity ratios are not favorable and it should focus on obtaining long term debts to finance its operations.

  1. Conclusion

To conclude, the directors of the company must work out a way to increase sales and marketing activities to boost its revenues. In the meantime, the directors should also look for ways of financing the company’s operations before it stabilizes. The company has a good strategy of using the internet to get clients on the market and it can be successful as the market is large and it’s yet to be exploited fully.

References

Garrison, H., Noreen, E., Brewer, C., (2009) Managerial Accounting, McGraw-Hill Irwin, pg 68 -75.

Hermanson, R.H., Edwards, J.D., & Invacevich, S.D. (2011) Accounting Principles: A Business Perspective. First Global Text Edition, Volume 2 Managerial Accounting, 37-73.

Williams, J. R., Haka, S.F., Bettner, M.S. & Carcello, J.V. (2008). Financial & Managerial Accounting, McGraw-Hill Irwin, p. 40.

Appendices

ANNEXTURES

ANNEX I: Statement of financial position Fashion clothing – 01.07.20X5 and 31.12.20X5

01.07.20X5

Fashion Clothing

Statement of Financial Position as at 01.07.20X5

DR CR
Bank 50,000
Assets 150,000
capital 200000

 

Fashion Clothing

Statement of Financial Position as at 31.12.20X5

Cost Dep NBV
Non-current assets 180,000 18,000 162,000
Current assets
Inventory 664000
664000
Total Assets 826,000
Current liabilities
Bank o/d 503000
503,000
Net Assets 323,000
Share holders equity 200,000
Retained loss 523,000
Total equity 323,000

ANNEX II: Income statement Fashion Clothing – 6 months to 31.12.20X5

Fashion Clothing

Income Statement for the year ending 31.12.20X5

Sales 1,175,000
Cost of sales mate 390,000
GP 785,000
Less Exp
Labor 480,000
Other expenses 330,000
Depreciation 18,000
Material purchases 460,000
Total Exp 1,288,000
EBIT -503,000
Tax payment 20,000
Total loss -523,000

ANNEX III: Statement of cash flows Fashion Clothing – 6 months to 31.12.20 X5

Fashion Clothing

Income Statement for the year ending 31.12.20X5

Cash generated from operations -523,000
Add depreciation 18,000
Increase in stock 664000
Cash generated from operations 159,000
Less tax paid 20,000
139,000
Add bank overdraft 503000
Net cash from operations 642,000
Net Financing and investments 592,000
Net cash flow 50,000

ANNEX IV: Projected cash flow forecast for the first six months of trading

Fashion Clothing

Projected cash flow forecast for the first six months of trading

Jul Aug Sep Oct Nov Dec
Balance B/fwd  £    50,000.0 -£   76,667.0 -£ 233,334.0 -£ 360,001.0 -£ 426,668.0 -£ 446,334.0
Sales  £  150,000.0  £  120,000.0  £  150,000.0  £  210,000.0  £  260,000.0  £  285,000.0
Cost of sales mate  £    65,000.0  £    65,000.0  £    65,000.0  £    65,000.0  £    65,000.0  £    65,000.0
Labor  £    80,000.0  £    80,000.0  £    80,000.0  £    80,000.0  £    80,000.0  £    80,000.0
Other expenses  £    55,000.0  £    55,000.0  £    55,000.0  £    55,000.0  £    55,000.0  £    55,000.0
Depreciation  £                 –  £                 –  £                 –  £      3,000.0  £    15,000.0
Material purchases  £    76,667.0  £    76,667.0  £    76,667.0  £    76,667.0  £    76,666.0  £    76,666.0
Non Current asset  £                 –  £                 –  £                 –  £                 –  £                 –  £    30,000.0
Tax payment  £                 –  £                 –  £                 –  £                 –  £                 –  £    20,000.0
Total expenses  £  276,667.0  £  276,667.0  £  276,667.0  £  276,667.0  £  279,666.0  £  341,666.0
Profit -£ 126,667.0 -£ 156,667.0 -£ 126,667.0 -£   66,667.0 -£   19,666.0 -£   56,666.0
Balance C/fwd -£   76,667.0 -£ 233,334.0 -£ 360,001.0 -£ 426,668.0 -£ 446,334.0 -£ 503,000.0

References

Flynn, D., 2003, Understanding finance and accounting (rev. 2nd Ed). Durban: Butterworths.

Gitman, L.J., 2000, Principles of managerial finance (9th ed.). Menlo Park, Calif.: Addison Wesley.

Harrison, W.T. & Hongren, C.T., 2001, Financial accounting (4th Ed). Englewood Cliffs, NJ: Prentice Hall.

Vance, D., 2003, Financial analysis and decision making: tools and techniques to solve

financial problems and make effective business decisions. New York: McGraw-Hill.

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Human capital value in financial accounting

Human capital value in financial accounting
    Human capital value in financial                                   accounting

Human capital value in financial accounting

Should human capital value should be included in financial accounting

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Note: To prepare for this essay please read the required articles that is attached then answer the following questions:
A perplexing issue, particularly for many human resource management and marketing professionals, is the absence of a valuation in the traditional financial statements relating to human capital and other internally generated intangible assets, such as brands. Often these value drivers of an organisation form a critical key success factor. Goodwill does appear in many financial statements and this includes intangible assets acquired by another organisation, which are often subject to large impairments losses. However, this raises questions about the sustainability and volatility relating to goodwill valuations. It is against this background that accountants have decided to be cautious in respect of recognising intangible assets in the financial statements.

To prepare for this essay:

•Consider the controversy of whether human capital should be included in the financial statements.

•Consider how human capital could be defined and quantified in financial statements.

•How do you define human capital?

•What is the importance of human capital?

•What are the reasons to measure or not measure human capital?

In an approximately 550-word response, address the following issues/questions:

With the rise of the ‘knowledge economy’, the traditional valuation of an enterprise as consisting solely of measurable assets, such as buildings, equipment and inventory, is increasingly being questioned. Human capital, although widely recognised as an important component of an enterprise’s total value, does not appear on a statement of financial position (balance sheet).

•Discuss whether or not you believe human capital should be included in the financial statements. Identify how you are defining human capital. What are some of the difficulties that may be encountered in attempting to quantify and record this (these) asset(s)? If recorded, would such values remain constant or be subject to change?

Also,

1) The answer must raise appropriate critical questions.

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SAMPLE  ANSWER

There has been much debate concerning whether human capital value should be included in financial accounting. Many professional accountants who are of the opinion that human capital should not be included in the balance sheet base their views on the limitations associated with this factor. As it is widely known, financial accounting has many limitations and there is no single aspect of it that has no complications. According to Ionel, Alina & Dumitru (2010) the limitations associated with human capital accounting, or inclusion of it in balance sheet, should not be used as a factor to eliminate human capital from the balance sheet. This view emanates from recognition of human capital as an asset in a business organization which is at times of more value than the tangible assets of an organization. What is crucial therefore, is the proper analysis of the value of the available human capital so as to come up with the right value. In consideration of human capital as an asset of an organization in the sense that it adds to productivity (in great ways than most of the other assets) it is crucial that it is included in the financial statements. Akintoye (2012) maintains that; inclusion of human capital in the balance sheet is a crucial aspect that could serve the purpose indented in the seeking the financial statements. For instance, if an investor is interested in buying stock from the organization or lending funds. Such moves would be more guided when the financial statements include the human capital values.

However, it is crucial to note that, inclusion of human capital in the financial statement is tinged with myriads of limitations. It is paramount to note that the limitations should not in any way bar accountants from including this crucial aspect in financial statement. What is crucial is to look for means of overcoming the difficulties.  Corrêa Dalbem, de Lamare Bastian-Pinto & de Andrade (2014) note that; such limitations include difficulties of recognizing the value of certain human capital. This aspect may be very much limiting but utilization of some accounting baselines such as ratio comparison would shed lights in the value of a human capital ingredient. Ratios are compared with past periods, similar businesses as well as planned performance. In the case of human capital, past performance of the given personnel, the expected performance in similar business as well as the planned performance would be of much importance I gaining insight in o the value. Performance of the human capital must also be in the interest of the organization for the human capital to be recognized as of (positive) value to financial statement. This idea points to the example of directors in an organization, who although they are not the real owners of the organization, they are supposed to work for the interest of the organization like a real owner would do. The position on this should be captured in the financial statement so as to make it more guiding and meaningful.

It is crucial to note that; although human capital needs to be included in financial statement, the values do not remain constant. For instance, some personnel may add up their education level, and this brings change to the records. This is very much unlike most of the other assets included in balance sheet, but this still should not bar accountants from including it in the financial statement.

References

Akintoye, IR 2012, ‘The Relevance of Human Resource Accounting to Effective Financial Reporting’, International Journal Of Business Management & Economic Research, 3, 4, pp. 566-572, Business Source Complete, EBSCOhost, viewed 10 June 2015.

Corrêa Dalbem, M, de Lamare Bastian-Pinto, C, & de Andrade, A 2014, ‘The financial value of human capital and the challenge of retaining it’, Brazilian Business Review (English Edition), 11, 1, pp. 46-68, Business Source Complete, EBSCOhost, viewed 10 June 2015.

Ionel, V, Alina, C, & Dumitru, M 2010, ‘HUMAN RESOURCES ACCOUNTING — ACCOUNTING FOR THE MOST VALUABLE ASSET OF AN ENTERPRISE’, Annals Of The University Of Oradea, Economic Science Series, 19, 2, pp. 925-931, Business Source Complete, EBSCOhost, viewed 10 June 2015.     https://ideas.repec.org/a/ora/journl/v1y2010i2p925-931.html

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Statement of Cash Flows and Effects of Liquidity Changes

Statement of Cash Flows and Effects of Liquidity Changes Order Instructions: Consider the need for the statement of cash flows and how changes in liquidity can affect an organisation.

Statement of Cash Flows and Effects of Liquidity Changes
Statement of Cash Flows and Effects of Liquidity Changes

Also,

1) The answer must raise appropriate critical questions.
2) Do include all your references, as per the Harvard Referencing System,
3) Please don’t use Wikipedia web site.
4) I need examples from peer reviewed articles or researches.
5) Turnitin.com copy percentage must be 10% or less.

Note: To prepare for this essay please read the required articles that is attached

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Statement of Cash Flows and Effects of Liquidity Changes Sample Answer

Introduction

Cash in most businesses is generated through sale of goods or services from the companies. These are referred to as cash inflows while the payment for labour, raw materials, transport or other expenses are basically the cash outflows and the difference between the two is the net cash flow. The statement of cash flow breaks down and analyzes the cash flows from different operations by categorizing them into three major processes, operating, investing and financing.

The cash flow statement indicates the cash balances and the flow of cash in and also out of business.

The need for cash flow can be illustrated in different aspects. The accountants in most companies would be interested in confirming if a company can afford to pay all its expenses like salaries, rent and other utilities. Potential investors would be interested in confirming from the cash flow if the company they are interested in can be able to generate enough profits to pay back the invested amounts while creditors would be interested in a company’s ability to pay back the advanced loan. The shareholders of a company would need the cash flow to determine the financial and investing activities that the company has engaged in the past financial year.

These activities may include the payment of dividends, purchase of shares or the purchase or sale of assets. The cash flow indicates the net cash flow for the business (Atrill & McLaney, 2013).

Cash flow is required to reveal the changes in the financial operations of a business and whether the changes were positive or negative. A positive cash-flow reflects a position where a company earns more money than it actually spends while a negative cash-flow the amount of cash received is less than the amounts spent in a company in a given financial period (Vance, 2003)

When budgeting, a company needs to confirm the company’s actual balances at the end of every financial period. This information is obtained from the cash flow statement (Garrison, Noreen, & Brewer, 2009)

Liquidity refers to the ability of a company to convert an asset quickly into cash and its mostly obtained by calculating a company’s liquidity ratios that are given by the current and quick ratio. The current ratio is obtained by dividing the current assets and the current liabilities. It measures the ability of a company to repay its current liabilities. The standard for current ratios for an average promising company is mostly 2: 1. The current assets should exceed the current liabilities by at least 2 to 1 while for quick ratios its 1:1 (Bodie, Kane & Marcus, 2008).

The cash flow supplements the other two financial statements. The income statement and the statement of financial position are prepared in accrual accounting system. Under accrual system, transactions are recognized when they occur and not when cash has been paid or received hence it’s possible for a company to register some profits in its books when actually it has no extra cash (Bowen, Burgstahler & Daley, 1987).

This condition is only recognizable when a cash flow statement has been prepared. The difference between the current assets and the current liabilities represent the working capital for a business. For a business to operate, it must have adequate working capital.

A company suffering from liquidity problems finds it difficult to honor most of its obligation hence the normal operations of the business is interrupted. For example, lack of operating cash can lead to the inadequate provision of transport facilities that are required to transport manufactured products to various retail shops across the country. Hence businesses would be affected as a result of a shortage of products in the market (Bodie, Kane & Marcus, 2008)

A company that has more liabilities than current assets would find it difficult to repay its creditors on time as the resources are not adequate. If the company does not seek external financing then it finally sinks into insolvency, a situation where a company cannot honor its financial obligations and commitments (Vance, 2003)

Liquidity status of a company may or may not attract visitors. When a company is liquid more customers are interested in the company and the demand for its shares increases hence the share prices increase. The value of a company’s share depends on the company’s ability to distribute dividends out of the company’s.

Cash flow analysis enables proper planning on stock levels, payment procedures for all outstanding debts and also working out the cash flows to sustainable levels.

To conclude, liquidity and profitability are quite different; profitability refers to the profits as reflected in the income and expenditure and also in the statement of financial position while liquidity is the availability of cash. A company that is making profits may not be automatically liquid. Cash flow is important to a company especially during hard economic times when financing is difficult to arrange, companies face hard times, cash flow reveals the business activities that are least profitable and which ones should be discarded.
References

Atrill, P. & McLaney, E., 2013, Accounting and finance for non-specialists. 8th Ed. Harlow, UK: Pearson Publishing. (Chapters 3 & 5)

Bowen, M., Burgstahler, D. & Daley, L.A., 1987, ‘The incremental information content of accrual versus cash flows’, The Accounting Review, 62 (4), pp. 1–26.

Bodie, Z., Kane, A., & Marcus, A. J., 2008, Investments (7th International Ed.) Boston: McGraw-Hill. 303

Garrison, R., Noreen, W. & Brewer, P., 2009, Managerial Accounting, New York, NY: McGraw-Hill Irwin. 65 -70

Vance, D., 2003, Financial analysis and decision making: tools and techniques to solve financial problems and make effective business decisions. New York, NY: McGraw-Hill.

 

Network solutions Case study Paper Available

Network solutions
Network solutions

Network solutions case study

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Dear Admin,

Note: To prepare for this essay please read the required articles that is attached then answer the following questions:

Which features of the system implemented at Network Solutions correspond to what were described in the selected weekly reading as ideal characteristics?

Identify characteristics that are missing from the system at Network Solutions.

Also,
1) The answer must raise appropriate critical questions.

2) Do include all your references, as per the Harvard Referencing System,

3) Please don’t use Wikipedia web site.

4) I need examples from peer reviewed articles or researches.

5) Turnitin.com copy percentage must be 10% or less.

Note: To prepare for this essay please read the required articles that is attached

Appreciate each single moment you spend in writing my paper

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SAMPLE ANSWER

Introduction

The choice of the methods to be adopted in performance measures that would be used to evaluate the performance of employees is critical to the management as it affects the attitude of the employee when perceiving issues of fairness, job satisfaction and also organizational commitment. Non financial rewards systems have over the years resulted in more positive response from employees. These include improved attitude, job satisfaction and increased productivity.

  1. Ten are present while four are not.
  2. a) Inclusiveness – Employees participate in the process of creating the system by providing input on how performance should be measured.

Employees should be allowed to have an alternative on the performance rating that should be allowed to apply in their evaluation processes. Some systems maybe perceived to be biased and may result in reduced staff morale and high staff turnover. The major purpose of performance evaluation is to increase individual employee production and create an environment for optimal performance.

Lack of participation in the process of creating a performance system may result in staff apathy for the system as what the management may take as motivation may be considered by the employees as beyond their reach and the management is set out to get rid of them. The expectancy theory clarifies that motivation is mostly affected by three factors. The first factor is the perception that the management efforts are directly correlated with performance. The other is instrumentality which is concern with employee expectation that all the rewards are also connected with performance. The third factor is called valence and it involves how much the employees value the rewards offered. The only way that the management can give the highest reward according to employees is if they are consulted during the formation stages so that their views are also included in the reward system for the performance based system (Sloof and Praag, 2005). Hence imperfect performance measurement remains one of the greatest reasons that result in dis enchantments of employees.

  1. b) Correctability – There is an appeals process, through which employees can challenge unjust or incorrect decisions.

The appeal process creates an environment of fairness among the employees. Those who have been evaluated and failed in performance measurements should be allowed to appeal in the processes that they may feel was unfair and unjust. Employees should be allowed to appeal for their cases to be reviewed again.

  1. Strategic Congruence – Individual goals are aligned with unit and organizational goals. When individual employee goals are aligned with individual goals it results in high performance. Most individual goals target financial rewards while most companies target performance and production rates. When the company decided to align individual employee goals with their own then it must have also considered that majority of employee goals is also to achieve financial satisfaction while also attaining the requisite training and vertical growth in the company’s organization structure. According to Kaplan and Norton (2004) the most effective linkage in high level strategy in performance management in individual reward programs especially where the Balanced Scorecard is involved. The major goal of this linkage is that it focuses the attention of the employee to the organization’s strategic priorities hence providing extrinsic motivation when rewarding employees after the organization has achieved its target. The company gains when employees have been rewarded hence it provides motivation on both sides.

 

  1. Strategic Congruence – Individual goals are aligned with unit and organizational goals. Majority of employee goals is also to achieve financial satisfaction through attainment of requisite training and consequently achieve vertical growth in the company’s organization structure. Network Inc is silently on the exact rewards of the employees and the process of rewarding the best performancers. Lately, there has been an increased emphasis on the application of non-financial performance measures in accounting for rewards due to the inadequacies of the financial measuring systems (Ittner and Larcker, 2001). Most financial performance measures that are applied in accounting are considered as late or take time to be made, are too aggregated, back-ward looking, inadequate and incomplete (Mia and Alam, 2001).

Due to these shortcomings and deficiencies in financial performance measurement most companies have shifted focus to non-financial measures that are literally broader, reflect on different aspects of long-term perspectives that also reflect on different dimensions of the performance by management. Hence the use of incentives systems that has non financial rewards result in more positive response and behavior from employees. These processes are perceived as fair and they offer better terms that increase job satisfaction and organizational commitment.

The company needs to understand how the various aspects of reward systems affect its employees. The reactions generated by the employees on non financial measures should be weighed against those that are generated from financial rewards and the appropriate system adopted.

To conclude, each company is unique and the performance measures that work successfully I one company may achieve different results when implemented in another company. Each company should adopt a system that works best for each individual case.

References

Hoque, Z., Mia, L., Alam, M. (2001), “Market competition, computer-aided manufacturing and use of multiple performance measures: An empirical study”, British Accounting Review, 33(1):pp. 23-45.

Ittner, C.D. and Larcker, D.F. (2001), “Assessing empirical research in managerial accounting. A value-based management perspective”, Journal of Accounting and Economics, 32(1-3):pp. 349-410

Kaplan, R. S. and Norton, D. P. (2001) “Transforming the Balanced Scorecard from Performance Measurement to Strategic Management: Part I”, American Accounting Association, Vol. 15, No. 1, pp. 87-104

Sloof, R. and Praag, M. V. (2005) “Performance Measurement, Expectancy and Agency Theory”, Tinbergen Institute, Discussion Paper, No.026/1.

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