BBA 2004

ACCOUNTING AND FINANCIAL MANAGEMENT

CHAI JIA NI

960411-14-5238

202409

SEPTEMBER 2015

Content

No Content Page

1.0 Introduction 2-3

2.0 Task 1 4-7

3.0 Task 2 8-11

4.0 Conclusion 12

5.0 Reference 13

6.0 Coursework 14-18

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Introduction

Every organization needs strong financial leadership, and our BA Accounting and

Financial Management will set you on the road to success.

Accounting is more than mathematical techniques. The experienced academic team at

Sheffield University Management School will help you see the bigger picture, so you

can take your career in any direction you choose.

This multi-disciplinary approach means that you learn practical skills to help you land

the right job, as well as gaining the rigorous academic knowledge that you require to

progress. We'll also put things into context - helping you to understand the role of

accounting and financial management within an organization is key to this course.

You'll learn how it affects everything, from budgeting and control to environmental

issues.

The first year gives you a broad understanding of accounting, built around core modules

such as Accounting Theory and Practice, as well as Introduction to Financial

Accounting and Introduction to Management Accounting. We’ll encourage you to start

thinking about life in the workplace with modules such as Introduction to Behaviors at

Work and Professional Self-Management. This structured, supportive process will help

you to reflect on your own learning, performance and achievement in preparation for

your first job. Our students quickly become familiar with the challenges faced by

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professional accountants. As your confidence grows, you'll develop your own views on

how to approach these challenges.

Financial management is a process which brings together planning, budgeting,

accounting, financial reporting, internal control, auditing, procurement, disbursement

and the physical performance of the project with the aim of managing project resources

properly and achieving the project's development objectives. Financial management is a

critical ingredient for a project success. Timely and relevant financial information

provides a basis for better decisions, thus speeding the physical progress of the project

and the availability of funds, and reducing delays and bottlenecks. This is why Bank

policy and procedures require good financial management in Bank-funded projects. 

The Financial Management Team has the overall responsibility for financial

management in operations in the respective regions. The financial specialists provide

professional leadership in ensuring high quality performance with respect to compliance

with Bank policies and procedures and efforts to build financial management capacity

in client countries. Financial Management specialists provide direct support to Task

Teams throughout the project cycle. Financial accounting is the branch of accountancy

concerned with the preparation of financial statements for external decision makers,

such as stockholders, suppliers, banks and government agencies. The fundamental need

for financial accounting is to reduce principal-agent problem by measuring and

monitoring agents' performance.

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Task 1

J plc supplies and fits car types, exhaust pipes and other components. The company has

branches throughout the country. Roughly 60 per cent of sales are for cash ( retail

sales). The remainders are credit sales made to car hire companies and large

organizations with fleets of company cars (business sales). Business sales tend to be

more profitable than retail and the company is keen to expand in this area. There is,

however, considerable competition. Branch managers are responsible for obtaining

business customers and have some discretion over terms of trade and discounts.

The company’s computerized accounting system has recently produced the following

report for the manager of the Eastown branch for the six month andded 30 September

20X5:

Eastown Average for Branch all branchesReturn on capital employed 22% 16%Gross profit 38% 45%Selling and promotion costs/sales 9% 6%Wages/sales 19% 14%Debtors turnover (based on credit sales only) 63 days 52 daysStock turnover 37days 49 days

The Eastown branch manager has only recently been appointed and is unsure whether

his branch appears well managed. he has asked for your advice.

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You are required to compare the performance of the Eastown branch with the average

for all branches. Suggest reasons for the differences you identify.

From the ratios provided, you can obtain venous indicators of whiner the Eastown

branch is being property managed:

Return on capital employed

Eastown has better return, it 6% more than overall average. This shows that it is being

managed well. However, as all the branches are in the same company, some caution is

needed in that analysis. While a consistent basis for the figures in the ratio is probable.

There is no guarantee that all have similar assets profiles, either in nature or in age. The

ratio will be distorted unless all the branches have similar asset profiles. Further

information will be needed.

Gross Profit

Over 7% lower than the overall average, which suggest that Eastown is not being well

managed and doing earning lower profit than average. However, Eastown branch are

competing locally and has to cut prices and offer incentives to retain and expand its

customer base, so this profit could be arisen. We will need more information.

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Selling and promotion costs/sales:

The Eastown is spending 3% more than average on promotion. Actually this could be an

indicator of poor management as it is consistent with the above suggestion. As the

branch may have been competing locally, this is made above under gross profit. Of

course, promotion costs do not directly impact gross profit. Further information will be

needed.

Wages/Sales:

Eastown is spending 5% more on wages than average, this is another possible indicator

of poor management. However, as a result of employing more staff, it is also consistent

with an attempt to retain and expand its customer base through an increased level of

service. Further information will be required.

Accounts receivable turnover:

Eastown allows its customers 11 more days to settle their accounts than the average.

This is another possible indicator of poor management. However, it is also consistent

with an attempt to retain and expand its customer base through an increased level of

service. This is a result of employing more staff. Further information will be needed.

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Inventory turnover

Turning over the stock virtually will be quicker than the average. Eastown give a lesser

time, which is 12 days earlier. This suggest that the management is doing a good job.

This suggests a good management of this aspect of working capital. However, it may be

caused by inefficient buying policies. This are causing inventory shortages and

indirectly loss of customers. More information will be needed.

Overall:

Compared to the average from above, the ratios of comparison shows that Eastown is

doing a higher cost and lower profit. This could have high possibilities that Eastown is

having a poorer management. However, the major reason for this conditions may due to

the environment in which the branch is operating. For instant, it may face some

competition, it may face some price-cutting competitor. Maybe a competitors need to

control over debtors appears weak. The lower inventory turnover period is the only

positive result. This could also be an indication that mismanagement is occurring.

Regarding the quality of management of the branch, the ratios in themselves are not

sufficient to make conclusion to any firm. However, they do indicate questions that

should be asked and points that should be raised if an objective view on the quality of

the branch’s management is to be reached.

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Task 2

You are presented with the following information relating to the following information

relating to Messier plc

Year to 31 December 2011 2012$000 $000

Income statementTurnover, all on credit terms 1,300 1,400Cost of sales 650 770Gross profits 650 630Profit before taxation 115 130

Balance sheet 31 December :Non-current assets at cost 850 850Less Accumulated depreciation 510 595Net book value 340 255Inventory at cost 105 135Trade account receivables 142 190

Required:

(a) Using the historical cost financial statements and stating the formula you use.

Calculate the following accounting ratios for both 2011 and 2012:

(i) Gross profit percentage;

(ii) Net profit percentage;

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(iii) Inventory turnover, stared in day;

(iv)Trade account receivable collection period, stated in days; an

(v) Non-current assets turnover.

(b) Using the following additional information:

(i) Restate the turnover for 2011 and 2012 incorporating the following average retail

price indices:

Year to 31.12.2011 85

Year to 31.12.2012 111

(ii) Calculate the additional depreciation charge required to finance the replacement of

non-current assets at their replacement cost. The company’s depreciation policy is to

provide 10% per annum on original cost, assuming no residual cost. The replacement

cost of not current assets at 31 December was as follow;

2011 $1,140 millions

2012 $1,200 millions

(iii) Based upon these two inflation adjustments, why may it be misleading to compare a

company’s result for one year with that of another without adjusting for changes in

general (RPI) or specific inflation?

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(a)

Historical cost ratio 2011 2012

(i) Gross profit:

Gross profitRevenue x 100%

6501300 x 100%

=50%

6301400 x 100%

=45%(ii) Net profit:

Profit before taxRevenue x 100%

1151300 x 100%

=8.8%

1301400 x 100%

=9.3%(iii) Inventory turnover:

InventoryCost of sales x 365

105650 x 365

=59days

135770 x 365

= 64days(iv) Accounts receivable collection period:

Accounts receivableTurnover x 365

1421300 x 365

= 40days

1901400 x 365

= 50days

(v) Non-current assets revenue:

RevenueNon−current assets at net book value

1300340

=3.8times

1400255

=5.5times

(b) (i)

Revenue (millions) 2011 2012

Historical cost 1300 x 11185

=1698

1400 x 111111

=1400

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(ii)

Additional adjustment for depreciation

Replacement cost (10%)

Less historical cost depreciation

Additional depreciation

1140 x 10

100

=114millions

85millions

114 - 85 =

29millions

1200 x 10

100

=120millions

85millions

120 – 85 =

29millions

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Conclusion

International Accounting Standards Board (IASB). IFRS becoming more widespread on

the international scene, consistency in financial reporting has become more prevalent

between global organizations. While financial accounting is used to prepare accounting

information for people outside the organization or not involved in the day-to-day

running of the company, management accounting provides accounting information to

help managers make decisions to manage the business.

Financial accounting (or financial accountancy) is the field of accounting concerned

with the summary, analysis and reporting of financial transactions pertaining to a

business. This involves the preparation of statements available for public

consumption. Stockholders, suppliers, banks, employees, government, business owners,

and other stakeholders are examples of people interested in receiving such information

for decision making purposes.

Accounting is facilitated by accounting organizations such as standard-setters,

accounting and professional bodies. Financial statements are usually audited

by accounting firms, and are prepared in accordance with generally accepted accounting

principles (GAAP). GAAP is set by various standard-setting organizations such as

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the Financial Accounting Standards Board (FASB) in the United States and the

Financial Reporting Council in the United Kingdom.

Reference

Textbook BBA 2004

http://www.shef.ac.uk/management/study/undergraduate/

accounting_financial_management

https://uwaterloo.ca/find-out-more/programs/accounting-and-financial-

management

https://en.wikipedia.org/wiki/Accounting

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BBA 2004

COURSEWORK

ACCOUNTING AND FINANCIAL MANAGEMENT

CHAI JIA NI

960411-14-5238

202409

Page 14 of 18

SEPTEMBER 2015

1. Please describe the characteristics of useful information.

From the various reports which have appeared since 1975 the following characteristics

have been noted.

1 Relevance. This is regarded as one of the two main qualities. The information

supplied should be that which will satisfy the needs of its users.

2 Reliability. This is regarded as the other main quality. Obviously, if such information

is also subject to an independent check, such as that of the auditor, this will

considerably enhance the reliance people can place on the information.

3 Objectivity. Information which is free from bias will increase the reliance people

place on it. It is, therefore, essential that the information is prepared as objectively as

possible. Management may often tend to give a better picture of its own performance

than is warranted, and is therefore subjective. It is the auditor's task to counter this view,

and to ensure objectivity in the financial statements.

4 Ability to be understood. Information is not much use to a recipient if it is presented

in such a manner that no one can understand it. This is not necessarily the same as

simplicity.

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5 Comparability. Recipients of financial statements will want to compare them both

with previous financial statements of that company and with the results of other

companies. Without comparability the financial statements would be of little use.

6 Realism. This can be largely covered by the fact that financial statements should show

a `true and fair' view. It has also been contended that financial statements should not

give a sense of absolute precision when such precision cannot exist.

7 Consistency. This is one of the basic concepts, but it is not to be followed slavishly if

new and improved accounting techniques indicate a change in methods.

8 Timeliness. Up-to-date information is of more use to recipients than outdated news.

9 Economy of presentation. Too much detail can obscure the important factors in

financial statements and cause difficulties in understanding them.

10 Completeness. A rounded picture of the company's activities is needed.

You will recall that many of these featured prominently in the IASB Framework.

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2. Please describe conflict between shareholder’s interests and social considerations.

Obviously, an organization has to come to a compromise about how far it should look

after the interests of its shareholders and how far it should bother about social

considerations. For instance, a company could treat its employees so well in terms of

pay, pensions and welfare that the extra costs would mean very low profits or even

losses.

On the other hand, there must be instances where, no matter what the effects on

profits, the expenses just have to be incurred. If the company has a chemical plant

which could easily explode, causing widespread destruction and danger to people, then

there cannot be any justification for not spending the money either to keep the plant safe

or to demolish it. The full severity of the law must bear down on transgressors of the

law in such cases of willful neglect.

All the facts of the particular case must be brought into account. Let us look at a

typical case where the answer may seem obvious, but perhaps there may be other

factors which may make the answer not so obvious. Workers in underdeveloped

countries are usually paid far lower wages than those in the developed countries. What

happens if a large multinational company pays its workers in a given country three or

four times as much as home-based companies? Immediately everyone wants to work for

the multinational company, which can afford high wages, and leave the home-based

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companies which cannot. Is that sensible? What chance is there for the development of

the country's own home-based industries if the outside companies constantly take all the

best brains and most able people?

In such a case it would probably make more sense for the multinational

company to pay wages more in keeping with the particular economy, and to help that

country in other ways such as by improving the health care generally for all, better

education for all, and so on. Obviously, a topic such as this will engender discussions

and arguments for some considerable time.

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