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Principles of Financial Markets Group Assignment

Principles of Financial Markets Group Assignment  

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1. Executive Summary

The report concludes two companies i.e. Beega Cheese Limited and Blackmores Limited linked to the Consumer Staples Industry. Both companies are listed on Austalian Stock Exchange ASX. The report contains the brief introduction of all mentioned concepts with historical detail of both companies and financial overview of Consumer Staples Industry.

Report demonstrates the list of micro and macro factors that affect the share price of company. Along with this, report absorbs the discussion that how the changing forecasted economic factors affect the performance of businesses. And the key financial measures and financial ratios affecting the business performance is also included in the report. 

Table of Contents

1. Executive Summary. 2

2. Introduction. 4

4. Change in Forecasting of Economic Factors and it’s Affects on Companies Performance (Top Down Analysis) 5

5. Financial Analysis of Companies (Bottom Up Analysis) 8

6. Conclusion and Recommendations. 13

7. References. 14

2. Introduction

– Industry and Companies Targetted

– Industry Targetted

Consumer staples industry is being targetted to perform fundamental financial analysis. Consumer Staples Industry has been selected considering it a better choice for analysis as it is related to crucial needs of humans.

* Consumer Staples Industry

Consumer staples are those necessity goods that are crucial to cut down from the list of consumers beyond their financial condition. The goods related to this sector is always in demand. It absorbs food, beverages, tobacco and other household products.

Consumer staples industry is group of industries and busnisses that deal with necessity goods. All the producers and distributors of food, drugs, beverages, tobacco and non durable household goods and personal products along with retailers companies have been assembled under this sector.

* Overview of Financial Situation of Consumer Staples Industry

Price earning ratio             24.00

Enterprise value                $146.47

EPS                                   $3.47

Growth of EPS                  22.21%

Growth in Revenue           7.30%

Return on Equity               27.96%

Return on Investment        14.65%

Debt/Equity                       141.79

Dividend Yield                  2.71%

Market Capitalization        3.87 Trillion

Market Weight                   8.72%

– Companies Targetted

COMPANY                  INDUSTRY             MRKT CAPT.             WEIGHT

– Bega Cheese Limited           Consumer Staples       1,275,030,000             0.08

– Blackmores Limited             Consumer Staples       1,946,430,000             0.12

The companies are selected on the base of market value of shares of companies and their weightage on the Australian Stock Exchange ASX.

– Company Introduction

1. Bega Cheese Limited

Bega Cheese Limited Company is an Australian based dairy company located in town of Bega. It was founded as an agricultural cooperative. It became public in 2011 after being listed on ASX.

* History

Founded in 1850’s, and later became a cooperative company in 1899. Original factory opened in 1900. Bega cheese built processing and packaging facility in 1997 that serve as a value addes in cheese in Australia . After that in 2007,  company acquired 70% interest in Tatura Milk which is used to produce dairy products. With this, Bega cheese broadened their product range with cream cheesw, mikk powder and infant formula.

2. Blackmores Limited

An Australian based company founded in 1930s by Naturopath Maurice Blackmore, which provides with health supplements. Company first started with health store and now the operations of company have been spread over 250 product lines of vitamin, mineral and herbal supplements. Having 843 employees, company is selling it’s products across 17 different markets of world.

* History

Company made it’s initial activities in 1930 anf followed the opening of health food store in 1938. After that in 1960, initiated the laboratory business used to develop celloid therapy through help of naturopathic clinics. Became a private company in 1962, start following the code of production in 1972, achieved sales volume of $1 million in 1976 along with spreading the business activities in Malaysia and Singapore, accquired Vita Glow pvt. ltd in 1982, became a public company with new name in 1985 with being listed on ASX and initiated employee share plan in 1987.

* Mission Statement

Determined to deliver natural healthcare products and services with highest quality standards and according to the expectations of customers.

3. Change in Forecasting of Economic Factors and it’s Affects on Companies Performance (Top down Analysis)

– Economic Forecasting

Economic forecasting is a procedure to make predictions and anticipations about the economic condition of country. Economic factors include in the process of forecasting are GDP, inflation, unemployment, fiscal deficit and frim specific factors.

– Purpose of Economic Forecasting

Governments and business firms approach the economic forecast process for developing the strategies, budgets and plans for future. Stock Market forecasting is to determine the future value of company and it’s stock.

– Economic Forecast change and Business Performance

Forecast change in Economic factors affect the performance of the Companies in following manner.

* Confidence of Consumer

Consumers who are confident tend to buy the products more than the consumers who always lack confidence about the products of business. Buying and selling of consumers give business and opportunities to Bega Co. and Blackmore Co. towards growth and ultimately it affects the economy. Any change in this factor forecasting will impose  the impacts accordingly.

* Employment

One of the most crucial factor of economy is employment. With employment, purchasing power of people grow and Bega Co. and Blackmore Co. can earn more profits but it’s not possible in the time of recession of business where employee layoff is done. Any forecast change in employment will directly affect the profits of business. Due to low inflation of 1.5% in Australia, unemployment fall down by 20% in 15 months.

* Interest Rates

Interest rate on loans and borrowing is important part of almost all the businesses. Any forecast change in this respect will affect the profits of Bega Co. and Blackmore Co.  and even can force  the organization to liquidate. It also affects the purchasing power of person and thus demand of products. Interest rate impose bad effects on the share price of company and ultimately affect the profits of business badly (Al-Qenae, 2002).

* Inflation

Inflation is the rate at which the prices of goods and services of an economy is charged. Any increase in the inflation will decrease the profits of Bega Co. and Blackmore Co. business and decrease in profits will affect the share price also. Demand of goods decrease as people can’t buy them so it affects the profits of busienss ultimately. Large business respond fast to information related to inflation increase or decrease (Wang, 2009).

Australia has a problem with falling inflation and it has impacts on all from workers,  who cannot get a good pay to businesses, who cannot charge high prices for goods,  so rely on low profits. Australian economy’s monetary policy was calibrated for higher rates, because inflation was higher, will likely be cheering at a 2% cash rate.

* Economic outlook

If it is forecasted that economy will expand, then it will put good influence on the profits of Bega Co. and Blackmore Co. business and share price also. Increase in share price will also result in high profits of company.

* Deflation

Deflation in an economy is always dangerous and upsetting. Fall in prices will result in lower profits, low stock price, reduction in purchasing power of people, decresae  in investment and reduction in opportunities to expand for Bega Co. and Blackmore Co. .

* Political Issues

Political issues mostly worsen the economic condition of country and thus affect the business activities of country badly. It reduces the profits, investments, share price, opportunities to grow and many more for Bega Co. and Blackmore Co. and It is somewhat unforecasted but can be anticipated at a level.

* Gross Domestic Production

GDP is an economic measure to analyze the situation of the economy. Change in GDP  

has woderful impacts on the economy. And effects on economy always pass on the business of Bega Co. and Blackmore Co.and  Impcts can be good or bad according to change in GDP. Australian GDP fall dwon to AUD 1400 from AUD 1500 in 2015 and had bad impacts on economy like cut in jobs, low wages payout and firm hesitate to invest.

* Economic shock

Changes in any corner of the world has impacts on the economy of all the countries. It can be forecasted at some level as it can impose hilarious impacts on the economy and Bega Co. and Blackmore Co. businesses of country. Like rise in oil prices in Saudi Arabia will effect all the countries and will shake their economies and economies shake the businesses. The developed economies are more efficient and have more power to affect the other emerging economies that are less efficient and not capable to refrain the effects of developed economies change (Rahman, 2006).

The fall in prices of houses by 10% in year 2015 that cause the biggest recession in Australia since 1930s was one of the most important economic shock of Australia. The impact of recession on Australia were low growth, low inflation and negative environment for next many years.

* Economic Policy change

Sudden change in the economic policies always have hilarious affects on the Bega Co. and Blackmore Co. businesses of country. It mostly happens due to change in the political governing body. And these changes can be forecasted before upto a level. It is crucial to forecast as change in policy affect the local business as well as foreign direct investments in the country.

* Exchange rate

Businesses who mostly deal with imports and exports are highly influenced by the change in the exchange rates. Bega Co. and Blackmore Co. already consider this as a burden and any change specially increase in the exchange rates tend to increase the costs of businesses and low down their profits. National Australian Bank anticipated a fall of 20% in AUD in year 2015. The weakness in the AUD implied following impacts:

– the weakness in Australian economy and its major trading partner (China)

– the differential outlook for interest rates between the US (raising rates) and Australia (falling rates)

– lower commodity prices.

* Recession

Economic recession affect the purchasing power of people, demand of goods and profits of business. With decrease in the purchasing power of people, the demand of goods decrease and thus the profits ofBega Co. and Blackmore Co. also decrease. The prices of houses fell by 10% in year 2015 that cause the biggest recession in Australia since 1930s. The impact of recession on Australia were low growth, low inflation and negative environment for next many years.

4. Financial Analysis of Companies (Bottom Up Analysis)

Financial analysis of companies will be done by considering financial ratios and key financial measures of companies.

– Performance Measures and Accounting Ratios

Financial Ratio analysis and Performance measures are used to evaluate the relationship of Financial Statement items. Financial Statement Ratio Analysis absorbs three points  of business:

* Liquidity

Liquidity ratio describes the relationship of organization’s liquid assets and liabilities.

Current Ratio: The current ratio is a liquidity ratio that is used to measure  the company’s ability to pay short-term and long-term obligations. To measure this ratio, the current ratio considers the current total assets of a company relative to that company’s current total liabilities. Acceptable current ratio is between 1.5% and 3% for healthy business for both companies.

1. Bega Co. current ratio is decreasing from 2015 to 2016 due to burden of more short term liabilities in 2016.

2. Blackmore Co. current ratio is also decreasing from 2015 to 2016 due to burden of more short term liabilities in 2016.

3. Bega Co. and Blackmore Co. current ratio comparison with industry average ratio shows higher result than industry average in both years and that is good for boyh companies individually.

Quick Ratio: The quick ratio is a measure to know how well a company can meet its short-term financial liabilities. It is also known as the acid-test ratio. It can be calculated as follows: (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities.Quick ratio of 1.o show that a company is able to settle down all of  its current liabilities.

1. Bega Co. quick ratio remain same in both years due to no significant change in the liquid assets and liquid liabilities of company. Company ratio in both years is below 1 that shows unhealthy settling down of current liabilities.

2. Bkackmore Co. quick ratio is decreasing in 2016 from last year that show increase in liquid liabilities of company in 2016. Company ratio in  year 2016 is below 1 that shows unhealthy settling down of current liabilities.

3. Industry average of liquid ratio in comparison with both companies show that it’s higher in year 2015 but lower in year 2016 from the companies. But still itself it’s lower in both years from 1 that show bad situation of industry in terms of settling down the current liabilities.

* Profitability

Profitability ratio describes the ability of business to generate earnings in comparison with the expenses and other costs occured within a specofic time period.

Gross Profit Ratio: Gross profit margin is a financial measure to calculate the company’s financial health and business model by revealing the proportion of money left over from revenues after accounting for the cost of goods sold (COGS). Higher Gross profit margin is suitable for business.

1. Gross profit ratio of Bega co. is increasing in 2016 showing more profits with less expenses.

2. Gross profit ratio of Bkackmore Co. is also increasing in 2016 showing more profits and earnings with less expenses.

3. Industry average of gross profit ratio in comparison with both companies is quite higher than Bega co. but less than Blackmore co. in 2015 and 2016 both. But overall a good industry ratio show their favourable situation.

Operating Profit Ratio: The operating profit margin ratio measures profit a company makes after paying off variable costs of production such as wages, raw materials, etc. It is expressed as a percentage of sales and shows the efficiency of a company controlling the costs and expenses associated with business operations.Operating profit margin of approximately 25% or higher is considered that company is managing it’s cost properly.

1. Operating profit ratio of Bega co. is increasing in 2016 showing more revenues with less operating expenses.

2. Operating profit ratio of Bkackmore Co. is also increasing in 2016 showing more operating earnings with less expenses.

3. Industry average of operating profit ratio in comparison with both companies is quite higher than Bega co. but less than Blackmore co. in 2015 and 2016 both. But overall a good industry ratio show their favourable situation of profits.

Return on Assets: Return on assets (ROA) shows the percentage of profit a company earns in relation to its overall resources. It is commonly defined as net income divided by total assets. Net income is derived from the income statement of the company and is the profit after taxes. Higher ROA is a sign of solid financial and operational performance of company.

1.Return on assets ratio of Bega co. is increasing in 2016 showing more revenues being earned through assets used in business.

2. Return on assets ratio of Bkackmore Co. is also increasing in 2016 showing more earnings with busness assets.

3. Industry average of return on assets ratio in comparison with both companies is quite higher than Bega co. but less than Blackmore co. in 2015 but in 2016, less than  Bega co. and higher than Bkackmore co. But overall a good industry ratio show their favourable situation of earnings from assets.

Retrun on Equity: Return on equity (ROE) is used to  calculate how many dollars of profit a company generates with each dollar of shareholders’ equity. ROE = Net Income/Shareholders’ Equity. A return on equity of 17% or 18% is considered very good and shows that company is using shareholders’ money efficiently.

1.Return on equity ratio of Bega co. is increasing in 2016 showing more revenues being earned through capital accquired by the shareholders.

2. Return on equity ratio of Bkackmore Co. is also increasing in 2016 showing more  returns being earned through capital accquired by the shareholders.

3. Industry average of return on equity ratio in comparison with both companies is quite higher than Bega co. but less than Blackmore co. in 2015 and 2016 both, showing efficient use of capital accquired by the shareholders is being done. But overall a good industry ratio show their favourable situation of earnings through capital injection in the industry.

* Solvency

Solvency Ratios are measure to describe the company’s ability to payoff it’s long term expenses.

Debt Ratio:A financial ratio that measures the company’s debt. The debt ratio is absorbs all the debts of company. It is interpreted as the proportion of a company’s assets that are financed by debt. Ratio of 15% or lower is healthy for business.

1. Debt ratio of Bega co. is decreasing in 2016 showing less debt being accquired by the company in 2016 that is quite favourable for the company.

2. Debt ratio of Blackmore Co. is also decreasing in 2016 showing less debt being accquired by the company in 2016 that is quite favourable for the company.

3. Industry average of debt ratio in compariosn with both companies is quite lower than Bega co. but higher than Blackmore co. in 2015 and higher than both companies in 2016 showing the level of debt being circulatee in the industry. But overall a good industry ratio show their favourable situation of businesses of industry as  low level of debt is accquired by the industry.  

Debt to equity Ratio: Debt/Equity Ratio is calculated by dividing a company’s total liabilities by its stockholders’ equity. The D/E ratio indicates how much debt a company is using to finance its assets in relation to the amount of value represented in shareholders’ equity. Lower debt ratio i.e. 0.4 or lower is considered healthy for business.

1. Debt to equity ratio of Bega co. is decreasing in 2016 showing minimization in  the volume of debt accquired in relation to equity of company. Minimizing the debt to equity ratio is quite favourable for the company.

2. Debt to equity ratio of Blackmore Co. is also decreasing in 2016 showing minimization in  the volume of debt accquired in relation to equity of company. Minimizing the debt to equity ratio is quite favourable for the company.

3. Industry average of debt to equity ratio in compariosn with both companies is quite higher than Bega co. and Blackmore co. in 2015 and in 2016, it’s higher than Bega co. but lower than Blackmore Co. showing the level of debt being circulated in the industry in relation to equity accquired. But overall a good industry ratio show their favourable situation of businesses of industry as low level of debt is accquired by the industry.  

Time Interest Earned Ratio:Times interest earned ratio or interest coverage ratio is a measure of a company’s ability to honor its debt payments. It may be calculated as either EBIT or EBITDA divided by the total interest payable. A higher times interest earned ratio is favorable for business. It means that company is managing to pay off   debts efficiently. But ratio that is far above the industry average shows the misappropriation of earnings by the companies.

1. Time interest earned ratio of Bega co. is increasing with quite good figure in 2016 showing maximization in the capacity of company to pay off it’s debts. Maximization in the ratio is quite favourable for the company as it increase the capability to pay off.

2. Time earned intetest ratio of Blackmore Co. is also increasing immensely in 2016 showing showing maximization in the capacity of company to pay off it’s debts. Maximization in the ratio is quite favourable for the company as it increase the capability to pay off.

3. Industry average ratio of time interest earned ratio in compariosn with both companies is quite higher than Bega co. but lower than Blackmore co. in 2015 as well  as in 2016 showing the industry’s capability to pay off the debts efficiently. But overall a good industry ratio show their favourable situation of businesses of industry with good capacity to pay off debts effectively.   

5. Conclusion and Recommendations

The report concludes two companies i.e. Beega Cheese Limited and Blackmores Limited linked to the Consumer Staples Industry. Both companies are listed on Austalian Stock Exchange ASX. The report contains the brief introduction of all mentioned concepts with historical detail of both companies and financial overview of Consumer Staples Industry. Report demonstrates the list of micro and macro factors that affect the share price of company. Along with this, report absorbs the discussion that how the changing forecasted economic factors affect the performance of businesses. And the key financial measures and financial ratios affecting the business performance is also included in the report.  Bega Cheese Limited Company is performing quite well in terms of financial position and other relevant operations. Company is expanding the operations widely along maintenance of quality. Having good financial position and growing well. But company need to decrease the debt ratio in order to obtain more profits and  increase the acid test ratio as it is very low , it must be minimum 1.  The ROA and ROE of company is also not too much high along with time interest earned ratio. These ratios also need to be increased. Bkackmores Limited company is also a widespread company having it’s operations in many geographical areas with maintained quality. Company is enjoying good financial health along with satisfaction of shareholders and refine corporate social responsibility towards society. Company needs to increse it’s acid test ratio upto 1 and maintain the working capital wiyh high figures. Company need to increase the return on assets as it is a source of earning of company.

6. References

Kurihara, U. (2006). The Relationship between Exchange Rate and Stock Prices during the Quantitative Easing Policy in Japan. International Journal of Business ,  11(4), 375-386.

Docking, S. (2005). Sensitivity of Investor Reaction to Market Direction and Volatility: Dividend Change Announcements. Journal of Financial Research, 28 (1), 21-41.

Al-Qenae, (2002).The Information Co Earnings on Stock Prices: The Kuwait Stock Exchange. Multinational Finance Journal , 6(3&4),197-221.

Ilyas, S. (2014). Macroeconomic factors do influencing stock price: A case study on Karachi Stock Exchange . Journal of Economics and Sustainable Development , 5(7).

http://www.asx.com.au/listings/listing-with-asx/listing-requirements.html
https://www.asx200list.com
https://eresearch.fidelity.com/eresearch/markets_sectors/sectors/sectors_in_market.jhtml?tab=investments&sector=30
https://www.begacheese.com.au/investors/
https://www.blackmores.com.au/about-us/company-information/about-blackmores
http://yourbusiness.azcentral.com/economic-factors-affecting-businesses-4557.html
http://www.theaustralian.com.au/business/economics/house-borrowing-splurge-to-fuel-economic-shock/news-story/74b050768de079d8c000bf23ba6daab5
http://www.smh.com.au/business/markets/currencies/australian-dollar-explainer-why-is-it-falling-20150708-gi7ida.html
https://www.businessinsider.com.au/australia-low-inflation-2015-12
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Accounting Information System Assignment Help

Accounting Information System

Student NameStudent No

Contents

Introduction 4

1. Defining the processes of business of B Bakery 5

a. Work that Baker does 5

Discussion of the activity of B Bakery 6

2. Developing the requirement of business 7

b) Processes those are requisite to be executed? 7

c) Outcomes that are required from discussed processes to gain business objectives 7

3. Determining the requirements of system 8

d) Possible features of software that B Bakery should think about achieving their objective in IT investment 9

4. Selection of Software 11

e) Category that need to be chosen as accounting software with justifications 11

5. Selection of Vendor 12

f) Compare and contrast the feature of two accounting software package offered by accounting software package vendor of selected software 12

g) The most suitable vendor 14

Conclusion 15

Reference 16

Exclusive Summary

This is a report about investing in accounting sector for software. This report is about selecting the best accounting software for a selected company comparing some problems the company recently facing. This report is will show its reader that there are too many software companies in the market and which one to choose for bakery type business. This report would clarify its readers thinking of buying any accounting software. The researcher completed many online researches to know about the software and the best use of it. The readers of this research are welcome to know about suitable accounting software in details.

Introduction

First of all it is to be said that accounting is plays the key role to know the financial condition of the business. It is always said that accounting is an art as well as science. So the use of modern science in accounting is must to do fact. To make accounting more correct and to keep it safe, developers invented accounting software. By using this kind of software, accountants can keep record of thousands of transactions and also more than that. In this report the reader will get to know about a company named B Bakery. This company currently thought of investing some money in buying software that could help the accountant to do his work with fewer mistakes. In this report the researcher has discussed about some basic problems of accounting the selected business facing and suggested that software could do the best work for them.

1. Defining the processes of business of B Bakery

  1. Work that Baker does

Baker is a person can bake as well sells breads and other products sometimes in addition they use oven or any other source that are rigorous in providing heat. The place of working of bakers is known as bakery. Bakers are skilled in making the appetizing breads as well as pastries by which people will be able to enjoy anywhere like bakeshops, stores of grocery item as well as restaurants. They usually are centered in task of amalgamation ingredients as well as follow the recipes mainly to get a hold of baked goods. They are also able to work as mercantile bakers in the facilities of manufacturing as well as vend bakers in own or other’s bakeshops in addition to grocery stores. The vital difference among commercial bakers and retail bakers are that first one bake goods with the need of large extent in addition to follow the specific set recipes strictly at the same time as other vend bakers make baked goods with the need of smaller extent but in various diversity. The last one also has the chance to do experiment to get a hold of products that could be unique.

Discussion of the activity of B Bakery

Bakery usually does produce baked goods, sell the goods, keep record of regular customers, recognize new customers, keep record of their employees, and give salary to them and many other works. Like every bakery B Bakery have the same activity.  B Bakery is an organization that is doing business for about fifty years. It’s a business owned by family. Brigit’s Bakery is called as B Bakery. B Bakery has seventy workers to work for them. They have to pay for the salary of the employee. Though they are doing business for so many years and it’s a half century, they might have so many permanent customers. And they have to notice in price determining, what other competitors are offering at the same or in less price. B Bakers have other businesses like bus service. B Baker offers various types of tea to their customers. They also offer afternoon tea that is known as L’afternoon tea. They do provide various types of cup cakes to their customers. Their place of working is known as B bakery. B Bakery are skilled in making the appetizing breads as well as pastries by which people will be able to enjoy anywhere like bakeshops, stores of grocery item as well as restaurants. They usually are centered in task of amalgamation ingredients as well as follow the recipes mainly to get a hold of baked goods. They are also able to work as mercantile bakers in the facilities of manufacturing as well as vend bakers in own or other’s bakeshops in addition to grocery stores. They are direct seller of their baked goods. This company currently thought of investing some money in buying software that could help the accountant to do his work with fewer mistakes. In this report the researcher has discussed about some basic problems of accounting the selected business facing and suggested that software could do the best work for them. The researcher would find out suitable software for B Bakers to ensure the safe investment.

2. Developing the requirement of business

b) Processes those are requisite to be executed?

Many businesses are still keeping record by writing on paper. B Bakery used to do that and they lose their active customers for making some mistakes.​ At the same time as there is no regulation to make use of accounting software, but one should change the way of working though people can feel the difference. The reason for adopting accounting software instead of paper and pen are discussed below.

1. Organization: There are no businesses that do not have the demand of having strong clutch in every financial condition the business face. This task is so easy with the help of software that always shows the stand every time. Taxpaying time is also available to see in this software, so it helps to pay the taxes in time. It also makes available the service of payroll.

2. Easy input: It takes much more time to put an entry by hand. But with the software it is much easier to write an entry. Time is called the money. So if time is not wasted than it can save and make more money as well.

3. Accurate history: To know the proper improvement of the business, the profit and losses are to be compared expertly. So with the software it is easier to search and match the improvement of the company by a glance. This software can also answer some questions of its user need to know. Exact financial history of the company could be observed by this software.

c) Outcomes that are required from discussed processes to gain business objectives

Businesses have to fetch effectiveness in their progression to diminish the cost of procedure and making revenue. Most effective way for making the process proficient is by making use of automated technology that diminish the time of working of any process in addition to diminish number of mistakes in the structure. B Bakery are skilled in making the appetizing breads as well as pastries by which people will be able to enjoy anywhere like bakeshops, stores of grocery item as well as restaurants. They are also able to work as mercantile bakers in the facilities of manufacturing as well as vend bakers in own or other’s bakeshops in addition to grocery stores. The vital difference among commercial bakers and retail bakers are that first one bake goods with the need of large extent in addition to follow the specific set recipes strictly at the same time as other vend bakers make baked goods with the need of smaller extent but in various diversity. They usually are centered in task of amalgamation ingredients as well as follow the recipes mainly to get a hold of baked goods. They are also able to work as mercantile bakers in the facilities of manufacturing as well as vend bakers in own or other’s bakeshops in addition to grocery stores. They are direct seller of their baked goods. This company currently thought of investing some money in buying software that could help the accountant to do his work with fewer mistakes. In this report the researcher has discussed about some basic problems of accounting the selected business facing and suggested that software could do the best work for them. This provides the control of workflow that could be supervise in keeping with the demand of the time.  With the intention of improving the system of finance, businesses make use of the perception of Accounting in addition to Reporting.  The sub grouping of these proceed are the accounts of Receivables as well as the Management of account Payables. 

3. Determining the requirements of system

d) Possible features of software that B Bakery should think about achieving their objective in IT investment

Mostly the owners of small business are concern about the need of applying accounting software. Many businesses are still keeping record by writing on paper. B Bakery used to do that and they lose their active customers for making some mistakes.​ At the same time as there is no regulation to make use of accounting software, but one should change the way of working though people can feel the difference. The reason for adopting accounting software instead of paper and pen are discussed below.

1. Organization: There are no businesses that do not have the demand of having strong clutch in every financial condition the business face. This task is so easy with the help of software that always shows the stand every time. Taxpaying time is also available to see in this software, so it helps to pay the taxes in time. It also makes available the service of payroll.

2. Easy input: It takes much more time to put an entry by hand. But with the software it is much easier to write an entry. Time is called the money. So if time is not wasted than it can save and make more money as well.

3. Accurate history: To know the proper improvement of the business, the profit and losses are to be compared expertly. So with the software it is easier to search and match the improvement of the company by a glance. This software can also answer some questions of its user need to know. Exact financial history of the company could be observed by this software.

They have to pay for the salary of the employee. Though they are doing business for so many years and it’s a half century, they might have so many permanent customers. And they have to notice in price determining, what other competitors are offering at the same or in less price. B Bakers have other businesses like bus service. B Baker offers various types of tea to their customers. They do provide various types of cup cakes to their customers. Their place of working is known as B bakery. B Bakery are skilled in making the appetizing breads as well as pastries by which people will be able to enjoy anywhere like bakeshops, stores of grocery item as well as restaurants. They usually are centered in task of amalgamation ingredients as well as follow the recipes mainly to get a hold of baked goods. They are also able to work as mercantile bakers in the facilities of manufacturing as well as vend bakers in own or other’s bakeshops in addition to grocery stores. They are direct seller of their baked goods. This company currently thought of investing some money in buying software that could help the accountant to do his work with fewer mistakes. In this report the researcher has discussed about some basic problems of accounting the selected business facing and suggested that software could do the best work for them. The researcher would find out suitable software for B Bakers to ensure the safe investment. So with the software it is easier to search and match the improvement of the company by a glance. This software can also answer some questions of its user need to know. Exact financial history of the company could be observed by this software.

Some other reasons are:
– On-screen entry and sales invoices printout
– Automatic bring up to date of accounts of customer in the ledger of sales
– Recording the invoices of suppliers
– Automatic update of the accounts of suppliers in the ledger of purchases as well as listing as  bank receipts 
– Giving payments to the suppliers as well as for expenses 
– Instinctive update of the general journal and ledger 
– Instinctive adjustment of the records of stock 
– Incorporation of the database of business with the program of accounting
– Automatic computation of payroll as well as related entries 

4. Selection of Software

e) Category that need to be chosen as accounting software with justifications


Reasons to choose this category of the accounting system are discussed below:

  • Speed – entry of data in the computer is with formatted screens as well as integrated databases of consumers as well as details of supplier and their stock records could be carried out a long way more swiftly than any handbook processing.
  • Automatic production of document – fast and exact invoices, notes of credit, and orders of purchase, printing report and documents of payroll are can be done automatically. 
  • Accurateness – there is fewer chance for miscalculation and the reason of the need of listing one accounting entry only for each transaction to a certain extent than two or more manual structure. 
  • Updated data – the records of accounting are updated automatically and the account balances as well  
  • Availability of data – the information is immediately available and could be made obtainable to various users in various places at the same time. 
  • Management data – reports could be produced that would help the management keep an eye on as well as to control the process of business
  • VAT return or GST– software automatic creates the figures of payable VAT amounts.
  • Efficiency – best use of resources as well as time need to be ensured and it is confirmed with the accounting software. Flow of Cash should get better through better collection of debt in addition to control inventory. 
  • Motivating Staff– the system would have need of staff to be skilled to use any new aptitude that could make them having the feel of motivation. 
  • Cost savings – computerized programs of accounting minimize time doing accounts of staff and minimize expenses of audit as records are neat as well as accurate. 

5. Selection of Vendor

f) Compare and contrast the feature of two accounting software package offered by accounting software package vendor of selected software

Below discussed is about the Assessment among SAP and MYOB. Let’s know which one is much better. There are numerous digital systems of accounting are available now a days to operate business maneuver. Two of them are MYOB and SAP. These two systems lend a hand in arranging in a line the actions in various purposes and link up the entire task within the business. These enterprise systems of solution supervise the information from all branches, updates of data in every department that are interlinked. This report contends with a association between the functions with revere to the Accounting sector of SAP & MYOB.

MYOB (Mind Your Own Business)

This has completed the procedure of the management of inventory, and easier billing, thus diminishing wastage and charge. This software helps to keep track also of the flows of cash as well thus keeping an eye on the revenue as well as losses. This software could be entrance by people from various functional responsibilities within the business as well as many others in overseas locations in addition. As a consequence, this solution of accounting of MYOB is best software that also is used far and wide by various businesses. Another comprehensive attribute of the application of multi user is more than like one person could work on same relevance at the same time. This lend a hand in solving inconsequential queries immediately that might come to pass at the same time as working with the software as well as also diminution the processing time. This software furthermore has a function where data of the billing amount as well as other transaction that is financial could be catch a glimpse in various currencies. As a result, this software is fitting to accomplish for global level activities.

SAP

Various functions of SAP are parallel to the functions of MYOB. A like MYOB, SAP has some functions that also can be handled by a person at the same time. Secondly, the structure is available also in different language as well as that is global respectively good. Thirdly, the structure of gain obtainable in numerous currencies and in this way transactions transmit by the foreign branch of business and that could be well investigated and trace even by the main branch of the business. SAP gives combine reports on accounting and finance that could be tracked any time without difficulty as well as in this manner the business could be carried out further proactively. In view of the fact that all the progression in various managing departments could be interlinked, an assortment of risk factors as well as probability of catastrophe could also be estimated through it. As a consequence, SAP show the way to new and better along with well managed procedure that are incorporated with every the subdivision leading to effective use of sources, good organization in processes and greater than before revenue. In conjunction with these major contributions, SAP also lends a hand to services that are supplementary and that undertaking as a foundation to these foremost offerings. The supplementary benefit of SAP is about that customer will be able to choose the kinds and the digit of supporting services that is required anchored in raised area of services keep up by that user’s company.

SAP as well as MYOB might have numerous similar functions to perform, but SAP beyond doubt is more efficient and beneficial as it makes more as well as useful services available in comparison to MYOB. Also SAP show the way to better stream of data within the included departments, most important to competent utilization of sources that increase the revenue.

g) The most suitable vendor

Though we found SAP is better than MYOB but as for bakery business the researcher prefer to recommend the MYOB software to use for B Bakery. This has completed the procedure of the management of inventory, and easier billing, thus diminishing wastage and charge. This software helps to keep track also of the flows of cash as well thus keeping an eye on the revenue as well as losses. This software could be entrance by people from various functional responsibilities within the business as well as many others in overseas locations in addition. As a consequence, this solution of accounting of MYOB is best software that also is used far and wide by various businesses. Another comprehensive attribute of the application of multi user is more than like one person could work on same relevance at the same time. This lend a hand in solving inconsequential queries immediately that might come to pass at the same time as working with the software as well as also diminution the processing time. Some reasons of selecting this software are listed below:

  • On-screen entry and sales invoices printout
  • Automatic bring up to date of accounts of customer in the ledger of sales
  • Recording the invoices of suppliers
  • Automatic update of the accounts of suppliers in the ledger of purchases as well as listing as  bank receipts 
  • Giving payments to the suppliers as well as for expenses 
  • Instinctive update of the general journal and ledger 
  • Instinctive adjustment of the records of stock 
  • Incorporation of the database of business with the program of accounting
  • Automatic computation of payroll as well as related entries

This software furthermore has a function where data of the billing amount as well as other transaction that is financial could be catch a glimpse in various currencies. As a result, this software is fitting to accomplish for global level activities. This is the reason the researcher would like to suggest B Baker to have a try on this software as a trial period of 30 days that is totally free of charge. If the accountant feel remarkable to use this software than the authority can invest money to buy this software.

Conclusion

B Bakery are skilled in making the appetizing breads as well as pastries by which people will be able to enjoy anywhere like bakeshops, stores of grocery item as well as restaurants. They usually are centered in task of amalgamation ingredients as well as follow the recipes mainly to get a hold of baked goods. They are also able to work as mercantile bakers in the facilities of manufacturing as well as vend bakers in own or other’s bakeshops in addition to grocery stores. They are direct seller of their baked goods. This company currently thought of investing some money in buying software that could help the accountant to do his work with fewer mistakes. In this report the researcher has discussed about some basic problems of accounting the selected business facing and suggested that software could do the best work for them.

Reference

Accounting software in Australia 1994. (1994). [Sydney]: Prentice Hall of Australia.

Albright, T., Baldwin, B., Hill, J. and Ingram, R. (2005). Accounting. Mason, Ohio [u.a.]: Thomsom/South-Western.

Australia, C., Dull, R. and Gelinas, U. (2014). Accounting Information Systems. Melbourne: Cengage Learning Australia.

Belloc, H. (1967). On. Freeport, N.Y.: Books for Libraries Press.

Hall, J. (n.d.). Accounting information systems.

Horngren, C., Harrison, W. and Bamber, L. (1999). Accounting. Upper Saddle River, N.J.: Prentice-Hall.

McNeill, I. (1974). Financial accounting. Pacific Palisades, Calif.: Goodyear Pub. Co.

Romney, M. and Steinbart, P. (n.d.). Accounting information systems.

Schiff, A. and Mersha, T. (n.d.). An innovative adaptation of general purpose accounting software for a municipal social services agency. Hershey, PA: Idea Group Pub.

Soll, J. (2009). The information master. Ann Arbor: University of Michigan Press.

(Accounting software in Australia 1994, 1994)

(Albright et al., 2005)

(Australia, Dull and Gelinas, 2014)

(Belloc, 1967)

(Hall, n.d.)

(Horngren, Harrison and Bamber, 1999)

(McNeill, 1974)

(Romney and Steinbart, n.d.)

(Schiff and Mersha, n.d.)

(Soll, 2009)

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ACCOUNTING INFORMATION SYSTEM ASSIGNMENT HELP ANSWER

ACCOUNTING INFORMATION SYSTEM

Executive Summary

Cloud accounting is a concept where software takes over the accounting functions of a business entity in accordance of providing accounting help to the business management. In this report, Goodie Gumdrops is a business organization deals with the wholesale business of confectionery items. Accounting transactions and financial statements has been recorded as per the information of the Goodie Gumdrops. The difference between traditional accounting system and cloud accounting system has been observed and drawn in this report. This is done for making a justified decision for choosing one of the accounting methods among these two methods of accounting system. Workings of the financial statements show that the Goodie Gumdrops has limited transactions in its business organization which can be easily carried out with the help of Xero accounting software system. Therefore, it is lastly recommended to adopt the cloud accounting software system for Goodie Gumdrops which will enable the business to grow faster.

Table of Content

Part A.. 4

Part B.. 9

Reference list 13

Part A

M/s Goodie Gumdrops

Profit and Loss A/c for July, 2017

Expenditure Amount (Dr) Income Amount (Cr)
To office furniture 6,050 By gross profit b/d 17000
To salaries and wages 3,900    
To rent 1,925    
To advertising 3,850    
To Net profit transferred to capital a/c 1,275 By Net loss transferred to capital a/c
Total 17,000 Total 17,000

Trial Balance for M/s Goodie Gumdrops

July 31st, 2017

Account Debit Credit
Capital   18000
Cash 4,900  
Furniture 6,050  
Other expenses (Rent, Advertisement, Wages) 9,675  
Inventory 1,665  
Creditors   6,760
Debtors 2,470  
Total 23095 23095

Balance Sheet for the year ended on March 2018

Liabilities Amount
Capital a/c + Net profit/ – Net loss – Drawings 18000 +1275   19275
Bills payable 2,470
Total 21745
Assets Amount
Furniture 6,050
Bills receivable 6,760
Cash in Hand 4,900
By closing stock (31.08.2017) 4035
Total 21745

Account Payable A/c

Particulars Amount
Glucose and Colour 500
Seriously Fine Chocolate 200
Glucose and Colour 500
Seriously Fine Chocolate 150
Glucose and Colour 220
Seriously Fine Chocolate 700
Seriously Fine Chocolate 200
Total 2,470

Account Receivables A/c

Particulars Amount
Nut Meg’s Nook 800
Love-lee Lollies 200
Love-lee Lollies 250
Nut Meg’s Nook 1000
Nut Meg’s Nook 950
Kandy Krush 500
Love-lee Lollies 520
Kandy Krush 440
Love-lee Lollies 600
Kandy Krush 1500
Total 6760

Inventory Summary

Stock Purchased

Date Particulars Dealers Amount
03.07.17 150 x Milk Bottles, 50 x Red Frogs Glucose and Colour $ 500
03.07.17 100 x Dark Frogs, 100 x Milk Frogs, 100 x Freckles Seriously Fine Chocolate $ 200
03.07.17 100 x Red Frogs, 100 x Jelly Babies, 100 x Snakes Glucose and Colour  $ 500
07.07.17 100 x Dark Frogs, 100 x Milk Frogs, 100 x Freckles Seriously Fine Chocolate $  150
10.07.17 100 x Red Frogs, 100 x Jelly Babies, 100 x Snakes Glucose and Colour $  220
18.07.17 250 x Dark Frogs, 150 x Milk Frogs, 50 x Freckles Seriously Fine Chocolate $  700
24.07.17 100 x Dark Frogs, 100 x Milk Frogs, 100 x Freckles Seriously Fine Chocolate $  200

Stock Sold

Date Particulars Dealers Amount
05.07.17 25 x Freckles, 30 x Milk Frogs Nut Meg’s Nook $ 800
06.07.17 50 x Jelly Babies Love-lee Lollies $  200
07.07.17 20 x Red Frogs, 20 x Snakes Love-lee Lollies $  250
10.07.17 50 x Dark Frogs, 50 x Milk Frogs, 50 x Freckles Nut Meg’s Nook $  1,000
11.07.17 80 x Red Frogs, 20 x Jelly Babies, 100 x Snakes Nut Meg’s Nook $  950
13.07.17 10 x Dark Frogs, 50 x Milk Frogs, 50 x Freckles Kandy Krush $  500  
19.07.17 100 x Freckles, 300 x Dark Frogs, 50 x Milk Frogs Love-lee Lollies $  520
21.07.17 20 x Dark Frogs, 25 x Red Frogs, 20 x Jelly Babies, 20 x Snakes Kandy Krush $  440
27.07.17 20 x Dark Frogs, 30 x Milk Frogs, 25 x Red Frogs Love-lee Lollies $  600
31.07.17 130 x Dark Frogs, 20 x Red Frogs, 50 x Freckles, 10 x Milk Bottles Kandy Krush $ 1,500

Part B

Cloud based Accounting System

Cloud based accounting system refers to a system where accounting calculations and fundamentals are followed by an automatic system with the help of information technology. Cloud accounting system can be simply explained as the accounting done by the accounting software using cloud system of information technology (Kumar & Gupta, 2014). Cloud accounting system is for making easy entering the transactions and keeping records. It helps in saving the accounting information of a business in a software bifurcated in respected accounts (Chou, 2015). Cloud based systems are involved with processing, storage and use of data to be accessed over the internet. This accounting cloud system allows an entity to keep its accounting and financial data saved and processed as per their requirements. Cloud computing is a system where several functions take place for processing data and information is done for business entities or anybody who have requirement of data processing or saving. The interdependence of the business entities increases on the reliable accounting software which helps in processing the data the of accounts related information (Bharathan et al. 2015). The tangible benefits and advantages of cloud accounting system aid business entities in processing accounting calculations according the accounting standards. The software has preloaded accounting standards and principles which help in processing the accounts related data in it. It is similar to traditional, on- premises, or self-install accounting software which is mostly hosted by remote servers.

Cloud accounting v/s Traditional accounting software

Cloud accounting is software which can be accessed from any device which has an internet connection or cloud facility available around the user. Whereas, the traditional accounting software deals with the calculation information and data related to accounts of a business entity just to process the calculations without internet connection. Cloud accounting system does not require any kind of update as it automatically updates its system as it is connected to the internet all the time (Bento et al. 2015). On the other hand, traditional accounting software needs to be updated its software manually time to time so as to any update of accounting principles are being fed into it. Cloud accounting software is now used by most of the business entities to ease the accounting processes within the companies to minimize the errors. Cloud accounting system provides real time financial reports regarding accounting transactions and calculations. Traditional accounting system is passé trend of software which is slowly getting eliminated as it requires timely updates and errors are relatively more as compared to cloud accounting system (Kumar et al. 2014). Traditional accounting and cloud accounting system are the two accounting systems which allow a business entity to process their accounting data into their software system (Ionescu  et al. 2013). Maintenance of the accounting data is safer and easier in cloud accounting system.

Risks related to cloud accounting system

Benefits do come with certain risks that have to be faced and cope up with. Similarly, cloud accounting system comes with risks and threats along with benefits. Cloud accounting software system is the result of advanced information technology system that has been witnessed over the period of time (Jain, 2013). It has few risks like leaking out of the information and hacking of accounts that will result in stolen information that are confidential for a business organization. Security of the informational data has to be the top most priority that has to be looked after by the cloud accounting software system. Trusting the cloud system is the most risky factor involved in the cloud accounting software system usage (Kansal, Joshi & Batra, 2014). It is risky to enter the informational data of a business into software which is built and processed by a third party. This cloud accounting software is handled and monitored by a third party who takes responsibility of this information. This creates a high risk of stolen data and misuse of it in order to make loss to the respective business organization (Mohammadi, Mohammadi & Mehmandoost, 2015). There are basically two issues arising related to cloud accounting as follows. Firstly, the data backups and security of the data is a vital issue. Secondly, the data storage place where the data is being processed or stored. These two major risks are creating threats for the business organizations that are restraining the use of cloud accounting.

Approach of Goodie Gumdrops towards cloud accounting

It is observed that the Goodie Gumdrops deals with confectioneries and has dealing related to the confectionery items. This report consist information related to the cloud accounting of Goodie Gumdrops. The financial statements of Goodie Gumdrops have been observed in the above part of the report where the accounting transactions are recorded and processed and represented in traditional way. It is seen that the calculations done for Goodie Gumdrops are simple and accessible enough for traditional accounting system though it would be a better option to approach the cloud accounting system software to provide the accounting department smoothness of the accounting transaction recordance. Goodie Gumdrops has the transactions with the dealers who provide it with the wholesale stock of confectionery items on wholesale rate. Therefore, it is observed that bulk stock of inventories are maintained and kept record of within the organization. It is being marked that the cloud based accounting will be helpful of Goodie Gumdrops that will ease the accounting transactions and processes. Traditional accounting system is already being taken care of in their head office which is carried out in traditional system of computer. Looking at the situation and workings done above, it is believed that cloud based accounting system is a better approach for Goodie Gumdrops when compared to a traditional accounting system located on a computer at their head office. Cloud accounting system requires no updates or new software purchase every time. Therefore, savings are assured if cloud accounting system software is adapted by the Goodie Gumdrops. Companies who used the cloud accounting system software require less of server initial infrastructure for storing data. In addition to this, the staff required for IT department who looks after the IT issues is not required as the updating systems is not required. This will less the expenses of the Goodie Gumdrops and save money.

Cloud accounting is easy and accessible through xero.com which is a cloud accounting software system available online for processing accounting transactions of any business entities.

Advantages of Xero cloud accounting software for Goodie Gumdrops

Xero cloud accounting software provides proficient accounting software support for a business and will be helpful for Goodie Gumdrops. It is obvious that Goodie Gumdrops will be able to access the Xero accounting software system for its business because the entity is quite suitable for the transactions that are taken place within the entity. Xero facilitates the automated daily bank feeds facility which allows the bank statements to be updated according to the daily transactions within the business that takes place (Srivastava & Hasan, 2016). This ensures the updated bank and account books transactions which help getting timely updates about the financial statements. Xero software has the specialty of accessing it from anywhere the person wants to access it. The access is time boundless and location boundless. The only thing is required for accessing the Xero accounting software is a system and internet connection. It is being observed that the Xero software has various accounting system facility like ease of invoicing. The growing business requires such facility because the accounting functions witness many such transactions related to invoicing. It is fast and simple method of entering the invoice details in the Xero software so that the minute details of the transactions are recorded and kept secured in the cloud system. It is noticed in the above discussion that there is no maintenance charge or requirement of maintenance for cloud accounting software. It is same for the Xero accounting software. It requires no maintenance or any installation expenses to be done. It is simple process of setting up username and password and getting started with the required accounting functions and facilities.

Recommendation

Examining the traditional accounting system working and cloud accounting system working of the Goodie Gumdrops, it is recommendable to use cloud accounting system. This recommendation is based on the working done in the previous part which calculates the transactions made in the July, 2017. The transactions has been recorded and done based on the traditional accounting method which does not minimize the errors of the calculations and accounting principles. Xero gives the maximum benefit of the accounting transactions to a business like Goodie Gumdrops. Goodie Gumdrops, however, will benefit the most from the cloud accounting system software as it is a new upcoming business organization with the concept of wholesale dealer. Moreover, the accounting dealings will be limited as it is a wholesale supplier of confectionery items. The selling and buying business has limited transaction of things related to the business. Therefore, it will be easy to access accounting system with the help of cloud accounting system software.

Reference list

Bento, R., Bento, A., Bento, A., & ISTM, M. (2015). How fast are enterprise resource planning (ERP) systems moving to the cloud?. Journal of Information Technology Management26(4), 35.

Bharathan, V., Joseph, R., Thomas, P., & Sambasivan, E. (2015). Analysis of perceptions of auditors/chartered accountants’ on selected Indian accounting standards. International Journal of Basic and Applied Sciences4(4), 340.

Chou, D. C. (2015). Cloud computing risk and audit issues. Computer Standards & Interfaces42, 137-142.

Ionescu, B., Ionescu, I., Tudoran, L., & Bendovschi, A. (2013, June). Traditional accounting vs. Cloud accounting. In Proceedings of the 8th International Conference ACCOUNTING AND MANAGEMENT INFORMATION SYSTEMS, AMIS (pp. 106-125).

Jain, P. (2013). Fair Value Accounting: Adoptability in Indian Corporate Financial Reporting Scenario. International Journal of Accounting and Business Management (IJABM)1(1), 24-32.

Kansal, M., Joshi, M., & Batra, G. S. (2014). Determinants of corporate social responsibility disclosures: Evidence from India. Advances in Accounting30(1), 217-229.

Kumar, R., & Gupta, S. (2014). Open source infrastructure for cloud computing platform using eucalyptus. Global Journal of Computers & Technology Vol1(2), 44-50.

Kumar, R., Jain, K., Maharwal, H., Jain, N., & Dadhich, A. (2014). Apache cloudstack: Open source infrastructure as a service cloud computing platform. Proceedings of the International Journal of advancement in Engineering technology, Management and Applied Science, 111-116.

Mohammadi, S., Mohammadi, A., & Mehmandoost, M. (2015). Check cloud computing profession in comparison with traditional brands. International Journal of Accounting and Economics Studies3(1), 29-35.

Srivastava, A. I., & Hasan, A. (2016). Bridging the Skill Gap in India: Challenges and Solutions. JIMS8M: The Journal of Indian Management & Strategy21(1), 45-54.

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TAXATION LAW Assignment Help – Answer

HA3042 TAXATION LAW: INDIVIDUAL ASSIGNMENT 2

Name

Course

Tutor

University

City/State

Date

Contents

Question 1. 3

a). 4

b). 5

c). 5

Question 2. 6

References. 9

Question 1

Most of the benefits offered by an employer to an employee other than salary are subject to Fringe Benefit Tax or FBT. The benefit also must be part of a compensation package. Interesting thing is that the FBT is payable by the employer not by the employee. (www.ato.gov.au, Types of fringe benefits, 2015) Moreover, there is no effect on FBT liability whether the benefits are provided to employee directly or provided to an associate of the employee. (www.ato.gov.au, Types of fringe benefits, 2015)

There are different types of fringe benefit which are provided by an employer to employee which are liable for tax assessment under FBT. However, there are different rules for valuation of different types of fringe benefits. (www.ato.gov.au, Types of fringe benefits, 2015) As discussed, there will be no difference if benefits are provided to a third party or to an associate of the employee under an agreement with the employee. (www.ato.gov.au, Types of fringe benefits, 2015) Key fringe benefits which are subject to FBT include but not limited to; car fringe benefits, car parking fringe benefits, entertainment fringe benefits, expense payment fringe benefits, loan fringe benefits, debt waiver fringe benefits, housing fringe benefits, board fringe benefits, fringe benefit on account of home allowance for living away, property fringe benefit, and residual fringe benefit. (www.ato.gov.au, Types of fringe benefits, 2015)  

After taking a brief overview of fringe benefits subject to FBT, let’s briefly take an overview of FBT exemptions and concessions. (www.ato.gov.au, Types of fringe benefits, 2015) There are certain benefits which are exempt from FBT. However, there are certain benefits which are fully exempt from FBT and there are others which get concessional treatments. (www.ato.gov.au, Types of fringe benefits, 2015) For example, home allowance fringe benefit on account of living away from home is subject to concessional treatments. Moreover, certain benefits are allowable only to non-profit organizations. (www.ato.gov.au, Types of fringe benefits, 2015) The fringe benefits which are exempt or subject to concessional treatments broadly can be categorized as; work related items, minor benefits exemption, taxi travel     expenses, small business car parking, concessions for non-profit organizations, and allowance for living away from home. (www.ato.gov.au, Types of fringe benefits, 2015)

The payments or allowance provided to an employee are not subject to FBT which include but not limited to; salary payments; wage payments; the share purchases made under share acquisition approved schemes; contributions made by employer for compliance of super funds; payments made for employment termination (e.g. on termination employee give or sold a car); payments which are made deeming dividends; and certain benefits provided for religious practices by the religious institutions. (www.ato.gov.au, Types of fringe benefits, 2015)

Work related items which are exempt from FBT include but not limited to; computer software, protective clothing, briefcase, and tools of trade. (www.ato.gov.au, Types of fringe benefits, 2015) The minor benefits which are not subject to FBT include but not limited to; notional value (is the value if the value was taxable) less than $ 3 0 0 and a benefit provided to employee but not any reason to consider it as a fringe benefit. (www.ato.gov.au, Types of fringe benefits, 2015) The taxi travel expenses exemptions include but not limited to; a result of injury or sickness to the employee; the travelling is wholly or partially between; workplace of the employee; residence of the employee; or any travelling which resulted due to injury or sickness of the employee. (www.ato.gov.au, Types of fringe benefits, 2015) On the other hand, concessions include but not limited to; some benefits which are provided to employees in remote areas; some travel benefits which are provided to employee on account of their posting overseas; and any benefits which are provided to employee on account of using personal car for relocation. (www.ato.gov.au, Types of fringe benefits, 2015)

FBT is separate from Income Tax and it is calculated on cost of fringe benefit at a specific rate. Year for FBT starts from April 1st and end on March 31st. FBT rate for tax year 2 0 1 7 is 49%. (www.ato.gov.au, Types of fringe benefits, 2015) FBT liability for ABC Pty Ltd will be as below according to three different situations:

a)

It has been discussed previously in this report that FBT is not applicable on salary however; cost of mobile phone handset, mobile phone bill, and dinner cost will be liable to FBT which will be calculated as below:

Cost of Mobile Phone Handset

= mobile phone handset cost x FBT rate

= $ 2,0 0 0 x 4 9 %

= $ 9 8 0

Mobile Phone bill

=monthly bill x total months in year x FBT rate

= $ 2 2 0 x 1 2 x 4 9 %

= $ 1,2 9 4

Cost of Dinner

= Cost of dinner x FBT rate

= $ 6,6 0 0 x 4 9 %

= $ 3,2 3 4

Total FBT liability for ABC Ltd on account of fringe benefits provided to Alan for year ending March 3 1, 2 0 1 6 will be:

= FBT on (cost of mobile phone handset + mobile phone bill + dinner cost)

= $(1,2 9 4 + 9 8 0 + 3,2 3 4)

=$ 5,5 0 8

b)

In case ABC had only 5 employees then there would have been less people attended dinner which would have decreased dinner cost and ultimately FBT liability. (www.ato.gov.au, Types of fringe benefits, 2015)

c)

If, clients of ABC also had attended the dinner then there would have been no effect on FBT liability of ABC because FBT does not apply to benefits provided to customers, FBT is only applicable to benefits provided to employees. (www.ato.gov.au, Types of fringe benefits, 2015)

Question 2

This question is related to ordinary income, therefore, let’s discuss about ordinary income in general terms. Normally, income derived against salary, wage, bond’s interest income, and commission is considered as ordinary income and is taxable against rates specified for ordinary income. Ordinary income and capital gains are different from each other. To offset capital gains, there must be capital losses. On the other hand, ordinary income can only be reset against standard tax deductions. (www.dlsweb.rmit.edu.au, 2015)

Income is the money which most of the people or businesses receive against providing goods and services or through investing funds. Mostly the individuals under age of retirement from their salaries and wages, on the other hand, the retired people receive income from pensions and investment. In tax language, the income is termed either as ordinary income or capital gains. There are two forms of ordinary income. One is personal income and the other one is business income. The income which arises from a business’s daily operations is considered ordinary business income. However, income arises from sale of any capital asset does not form part of ordinary business income such as sale of long-term equipment and sale of land. On the other hand, the personal ordinary income is one which is outlined under section 6-5 which will be discussed later on in this report. (www.dlsweb.rmit.edu.au, 2015)

For understanding, let’s discuss two examples:

The pretax profit arising from sale of any service or product is considered ordinary business income. For example, for a company, the total revenues from sale of products were around eighty million; CGS fifty million and operating expense fifteen million then the ordinary income of the business will be fifteen million. Fifteen million will be liable for tax assessment under prevailing ordinary income tax rates.

For a person who is employed, his ordinary income will be the amount of wage or salary he or she receives from the employers. For example, a person who works for a company in customer service department and his income is about three thousand dollars; his annual ordinary income will be (12 x 3000) dollars. If the person does not have any income from any other source then the thirty-six thousand dollars will be his total ordinary income which will be liable for tax assessment under prevailing ordinary income tax rates. However, if the person has additional income such as rent from a property then the additional income will be included in total ordinary income. Suppose, he earns two thousand dollars from rent monthly then the annual rental income will be twenty-four thousand dollars and there will be increase in his total annual ordinary income for the year equal to annual rental income.

On the other hand, when there is an increase in value of a given asset, it is considered as capital gain. The capital gain results in higher value for a given asset in comparison to its purchase price. However, as per taxation rules and regulations, until an asset is not sold, capital gains can’t be considered as realized. (finance.zacks.com, 2014)

If discuss what is the motive of government behind ordinary income rules, the government wants its citizens to be a long-term investors rather than a short-term speculator. This is the reason tax rates on ordinary income are higher than the tax rates on capital gains. This is also the reason why the tax rates on dividends are almost equal at all times to the tax rates on ordinary income. (www.ato.gov.au, What to include in your assessable income, 2015)

Before addressing the question related to receipt of $ 6 0 0,0 0 0, it is important to understand what is ordinary loss. A loss which is not a capital loss and sustained by the taxpayer is called ordinary loss. There is no limitation for ordinary loss, it can be any amount. A person who owns a private business, in case the person sustains loss in his business, the person can claim the ordinary loss in his tax returns. But, ordinary loss can only be settled against ordinary income that is to be taxed at the highest marginal rates of tax. This is the reason, the ordinary loss are more beneficial for tax saving purpose in comparison to ordinary losses. (www.ato.gov.au, What to include in your assessable income, 2015)

As per the requirements of the question, there is need of discussion whether receipt of $ 6 0 0,0 0 0 is ordinary income by ignoring capital gains. Let’s discuss the receipt under section 6-5.

Under section 6 – 5 ( 2 ), if the concerned person is an Australian resident then all of the income derived directly or indirectly from source inside Australia or from outside Australia will be considered as ordinary income. If, Peta is considered an Australian resident then the receipt of $ 6 0 0,0 0 0 will be considered as ordinary income because it has been derived directly from source within Australia.

Under section 6 – 5 ( 3 ) ( a ), if the concerned person is a foreign resident but derives income directly or indirectly from an Australian sources then the income will be considered as ordinary income. Even though Peta is not a foreign resident but yet, if assumed she is a foreign resident, even then the receipt of $ 6 0 0,0 0 0 will be considered as ordinary income under section 6 – 5 because the income has been derived directly from a source inside Australia. (www.iknow.cch.com.au, 2016)

There is no effect of residency status on nature of the receipt in case of Peta because in both cases under section 6 – 5 ( 2 ) & 6 – 5 ( 2 ) ( a ) if an income is derived directly or indirectly from a source inside Australia, the income will be considered as ordinary income. Peta has derived $ 600,000 directly from a source inside Australia; therefore, the receipt of $ 6 0 0,0 0 0 will be an ordinary income under section 6-5 ignoring capital gains tax. (www.iknow.cch.com.au, 2016)

References

finance.zacks.com. (2014). Difference Between Assessable Income & Taxable Income. Retrieved 05 25, 2017, from finance.zacks.com: http://finance.zacks.com/difference-between-assessable-income-taxable-income-9940.html

www.ato.gov.au. (2015). Types of fringe benefits. Retrieved 05 25, 2017, from www.ato.gov.au: https://www.ato.gov.au/General/fringe-benefits-tax-(fbt)/types-of-fringe-benefits/

www.ato.gov.au. (2015). What to include in your assessable income. Retrieved 05 25, 2016, from www.ato.gov.au: https://www.ato.gov.au/Business/Income-and-deductions-for-business/Assessable-income/What-to-include-in-your-assessable-income/

www.dlsweb.rmit.edu.au. (2015). Ordinary Income. Retrieved 05 25, 2017, from www.dlsweb.rmit.edu.au: https://www.dlsweb.rmit.edu.au/toolbox/finance/fnbacc02a/preparetax/keyprinciple/ordinaryi.htm

www.iknow.cch.com.au. (2016). INCOME TAX ASSESSMENT ACT 1997, SECTION 6-5 Income according to ordinary concepts ( ordinary income). Retrieved 05 25, 2017, from www.iknow.cch.com.au: http://www.iknow.cch.com.au/topic/tlp703/document/atagUio694795sl24352032/legislation/residency/section-6-5-income-according-to-ordinary-concepts-ordinary-income

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Accounting Information System Business Report Assignment Help Answer

Introduction

In recent years, organizations are using financial accounting as a professional or formal and an extensive source of information. (Chapellier, 1994) As per the standards accounting rules, the financial situation of the company is provided by the representation of the financial accounting. Financial representation is offered through financial statements of the company at the end of each fiscal year within tax regulations and legal requirements. An accounting information system is used by the organization to store, collect and process accounting and financial data made by higher authorities of the company. It is the computer-based technology to track accounting data jointly with IT resources. ERP technology is the largest, complex and highly demanding accounting information system employed by small and big organizations. Every organization requires such kind of system or software which can easily provide the important data of any division or department on time. An accounting information system offers a variety of software to track or control account ting data. The objective of accounting information system now has changed from providing formal or official and financial information of the company to provide a wider range of information. In this concern, organizations are using enterprise resource planning (ERP) system as facilitation the modernization of accounting information system. (Chenhall, 2003)

An Enterprise Resource Planning is software comprises a complex set of applications in the computer. ERP is designed to incorporate the functions and processes within the same organization. By sharing integrated and common information or database, ERP system presents the holistic vision of the organization’s business. ERP has taken the account information system (AIS) to the new heights of success and it made AIS richer. The data maintaining and controlling has become the most important function in the company. Updating Data or information of the organization has become necessary. The use of new technology in accounting information system of managing, presenting data or information which meets the organizational needs has increased extensively. Hence, the Accounting information system provides both forecasting and historical accounting information which covers management control, financial accounting and financial evaluations or analysis. This information system has the ability to enhance the business performance. Accounting information system ERP helps various small business and big business organization.  Integration of information across the organization ensures that the organization has the greater visibility in all regions, from operation to marketing department and from lower level division to top management, of their business. AIS provides the insight of the financial information, inventory and production of the company which helps in identifying opportunities and scope for saving costs and improving efficiency. A top level view of fundamental business indicators helps the organization to make the decision faster and more accurate. An accounting information system interface provides all of the relevant data instantly whenever company requires. An ERP has combined with powerful and useful features and it is very easy to use and implement. An ERP system is very flexible and modular, totally secure incredibly robust and fully customizable.

The case study of LG electronics Inc. is one of the good examples to understand the successful implementation of an ERP system in the organization.

Business process-

LG electronics Inc. is Korean based multinational company in the electronics sector. The company’s headquarter is located in Yeouido-dong, Seoul, South Korea. Around 82000 people are employed in LG Company. And the company has 119 local subsidiaries across the world. As per the end of 2014, LG group has reported sales of around USD 55.91 billion (KRW 59.04 trillion) globally. LG group has four business units. These four units are: Mobile Communications, Home Entertainment, Vehicle Components and Air Solution & Home Appliance. The chief executive officer of LG group is Bon-Joon Koo. In 2011, the LG Electronics has ranked second in the largest television manufacturer. LG Electronics has an integrated management structure related to the environment, energy, safety, and health concerns.

Business requirement-

It is very necessary to have an effective team of management in Human Resource department. And it is the key to success of the business of any organization. LG business is very extensive and it has employee every corner of the world. A manual process or any old-fashioned accounting system was not enough to business accounting. There was the need of a high profile accounting system in order to manage such wide network. There was the need of reducing high maintenance expenses. They had to overcome the problem of lack of transparency in the business. Also, due to unavailability of a proper accounting system, the problem of incorrect occurred many times in business which resulted as inefficient decisions made in the company. The company management had to utilize the assets or resource properly and for this they had t have a proper database which could be possible through a system like ERP.  Initially, the company was relying on manual processes or most of its business decisions and activities. As time passed requirement of advanced accounting system has raised. These were the problem which made LG run or operate business as a multinational company. These requirements made LG implement an ERP system.

The challenges occurred in Implementation of ERP system

There are various reasons which made LG adopt the advanced level of the accounting system. LG had multiple accounting systems for different operation system at different locations due to which there was unclear reporting to top-level management. And because of it, the management was unable to utilize the resources properly or optimistically. LG had the location specific procedures and due to this there was the lack of transparency. As the company was working on the global platform, there was the need of an automation system in order to make the reporting system at such global level. ERP is the system which enhances the employee engagement. So at this kind of large workgroup, there was the need of a system which can improve the employees’ engagement. Initially, the LG Company was managing the all accounting information or data in a limited and traditional outlook system. There was the need of a system through which information and best practices relevant to business could be shared among management. There was the challenge of employee training and learning as the resources were limited and localized. There were the challenges of finding factors which were impacting the business positively and negatively and the system which was responsible for making the decision was not up to the mark. (LG Networks, Inc., 2017)

Selection of vendor

There was the need of an ERP system which could correlate the with present business practices of the organization. LG had to choose such accounting information system in which all best practices are embedded in one universal set.  LG had to select such vendor company of accounting information system which could make LG overcome the various challenges in the accounting system. LG selected the ORACLE technology for new accounting information system. LG group was familiar with ORACLE as they had worked with ORACLE earlier. This made LG make use of ERP system easily. LG chose Oracle for its offering of best accounting solution. Oracle with its Enterprise Resource Planning (ERP) Cloud offers a comprehensive and innovative solution of accounting for small, medium and big organizations. Oracle offers the sustainable platform which can help organization to succeed in the digital economy.  Oracle helps organizations to maintain the industry standards and modern trends.  Oracle as the one cloud handles the entire business of an organization. Oracle provides the best solution to manage accountings, revenue recognition, financial analysis and planning and governance compliances. With providing best accounting solutions, it helps in managing risk or challenges and offers procurement, tax reporting, project planning and financial close. The accounting information system/ERP technology that Oracle offers is made to host large information of data of the organization. It helps in modifying or optimizing the old data. Oracle makes scalability easier in the organization. Its system of multiple modules provides the control on the accounting data at very large scale. LG chose accounting information system from Oracle and consulted to make a single centralized or consolidated or system. Adoption of Oracle was aimed to replace dependency on location specific model or system.

Ways to utilize AIS/ERP to improve business efficiency

1.    There are two patterns of implementing ERP system which are: strategic execution and functional integration (Luftman, 1996). Strategic execution refers to the process reform for accomplishing business planning and strategy followed by applying ERP system as an observable or visible tool. After reforming the processes, the organization performs plotting (mapping) them to the utilities that ERP system offers. Another one is service level arrangement which involves outsourcing ERP utilities or functions. This course of action refers to the employing best practices in ERP system and reforming the processes and firms to make effective use of ERP functions in order to achieve business objectives.

2.    In the organization, executive support is the fundamental success factor for any step the organization takes. There is need of executive support while implementing ERP in the accounting information system in the company as the executive are the responsible for any change occurs in the organization (Umble, Haft, R. R., & Umble, 2003).  Implementation of the ERP system is more than the just installing software package into the system.  ERP changes the model of the business in the organization. There is the contribution of change management while implementing ERP system. The involvement of the management is very necessary for implementation of ERP system. The management should be involved in observing or monitoring the process and directing the system involved in the implementation process. The information technology (IT) department should not be only responsible for ERP implementation process Management of other division should also participate to make implementation successful so that they can utilize ERP functions effectively in future. ERP implementation examines accountability, communication and responsibility (Koch et al. 1999). And these factors should be tied and formalized directly to performance plans made by the management.

3.    According to project management body of Knowledge (2000), a project refers to the temporary course of action to create a new specific item or service. Program and projects are two different aspects of work. This is the matter of thinking, most of the organizations do not think about that whether ERP implementation should be considered as the project or a program. The project is the process which has beginning and ending. On the other hand, programs consist of a set of projects and it has the wider range than a project. Programs are the ongoing efforts including modifications and optimizations n the system. The organization should take implementation as the program rather the project. ERP should be considered as the program as considering as the ongoing process could be helpful in optimization in the strategy in the system. However, there are companies which treat the ERP implementation project as normal other projects. In the project, after installation, management view the work is complete. The organization should not get ambitious too early. By utilizing ERP as the ongoing process or program, the organization can improve the business efficiency.  There are various firms which installed this accounting information system thinking that his standardized software would be the able standardized process of business. Overall, to improve business efficiency, it is recommended to organizations to make use of ERP technology as the program rather than project or they should consider ERP technology as an ongoing action.

Evaluate the level of efficiency of technology implementation

The major problems in ERP system implementation occurs when it comes to describing what are purposes of this system or for what it is implementing. Most complication in implementation of enterprise resources are related to defining what to do in the system. The complication is that people don’t know exactly about ERP. However, it is difficult to understand as sometimes employees unable to understand what they are doing, why they doing and why they are doing in a specific manner. Functional requirement of organization should explain the process relationship work flows and data associations

Potential security risk with ERP system

The name of ERP itself des ribs the purpose of this technology and how this system is helpful for the organizations. Mainly the ERP system is aimed to manage financials of the organization. However, the purpose of the implementing ERP system may vary with organization. The functionality of this system is changed from company to company. The ambition of software to offer as complete solution in managing and controlling wide range of operational and financial tasks is the common key that resembles to the ERP system. Comprehensiveness in the solution of the problems in the operational and financial tasks is main advantage of using this accounting information system. Also, its benefits include reducing expensive and difficulty in maintaining integrations, sharing information data efficiently across the organization and improving organization efficiencies. With several advantages of this advanced technology, there are some potential threats and risk associated with this technology. Wider the scope of ERP technology the more essential to determine all possible threats or risk associated with security. There can be the risk of running unsupported and outdated software due to which issues of integration and crashes can occur. It may be possible that old or outdated version of this software is not compatible and not integrating with modern products. There can be negative impact of older version of the software on browsers and servers. The system should be of newer version as with older version organization reduces the scope of improving business efficiency (Allen & Kern, 2001). The risk management of the organizations mainly focuses on external risks and threats in data or information centre and security of end-user. There is the need of study of direct access of software developer in to the system. The organizations are required to deploy risk management very effectively (Aloini, 2007). The information technology team of the organization should be able to make changes in program and manage them efficiently. There could be the risk of any unauthorized access and updates to business data in the production system.  As the ERP work has the functionality at the wider range in the organization, it requires management to be more conscious about its security. And, it is not an easy job. ERP is a single system which controls and manages the whole data and information of an organization and it makes the security as the essential function of the organization. There are numbers of mobile users in the system which includes various mobile devices such as printers and scanners. The connectivity between the various mobiles, smartphones and other devices builds a complex to access of ERP security access and it was independent to device few years ago. The cloud based technology of the ERP is increasingly popular today. ERP is the accounting information system and it is the place where the whole system including all the data or information and software of an organization are kept. It is like organization all reports information and software govern and control by a third party agency. So it develops the risk of giving all the information and data of the business to a third party vendor. There are various examples where ERP has failed to achieve the organization objectives and desired results. The research shows that ERP system failed due to high level of complexity in the system (Christian Vogt, 2002).

There are various guidelines to reduce potential risk of security in ERP system

It is very essential to have planning before implementing ERP in the system. Organization need to anticipate the threats in implementing ERP system by making decision for cybersecurity budget.  Organization need to prioritize their needs. While using third party ERP agency which uses the cloud based technology, it is very necessary to check whether the steps or strategies the agency or vendor applies to control, manage and secure the data or information are compliant with organization standards or norms. Also these steps to secure data should also compliant with security laws set by the national government of the organizations’ industry. Organization should choose an honest ERP vendor. The vendor company should be transparent in their policies and processes and the organization should ensure that the vendor’s security measures support the organization’s security goals and objectives. Hence, there should be process of verification for compliance (It.toolbox.com, 2017). The use of ERP system increases as the size of the organization grows. If there will be the large number of the employees, contracted workers and additional partners then there will more usage of ERP system in the organization. It makes the system weak and risk of data breaches increases in the system. Organization should make aware their employees and contacted workers that the ERP system is vulnerable. Organization should conduct the training session for its employees in order to teach them best practice to inhibit data leaks.  The training session should also include the teaching how to use static and dynamic encryption keys while installing ERP, resetting default passwords to customized or unique one and avoiding the use of needless services running in the background. Reducing weak leaks helps in keeping ERP system safe and secure. The risks or challenges in implementing ERP system in the organization should not prevent team of the organization from leveraging the capabilities which the ERP system has and can improve the business efficiency. So by having a strategy and planning in mind, ensuring compliancy of the systems and educating software team and other employees or partners helps in mitigating vulnerabilities to threats or risks.

Referencing

 “LG Aims to Boost Television Market Share With 3-D, Web-Connected Models”. Bloomberg. 2011-02-16. Retrieved 2013-07-11

Allen, D., & Kern, T. (2001). Enterprise resource planning implementation: Stories of power, politics, and resistance. Proceedings of the IFIP TC8/WG8. 2 Working Conference on Realigning Research and Practice in Information Systems Development: The Social and Organizational Perspective, 149-162.

Aloini, D, Dulmin, R and Mininno, V. 2007. Risk management in ERP project introduction: review of the literature. Information and management, 44: 547–557.

CHAPELLIER, P. (1994): “Comptabilités et Système d’Information du Dirigeantde PME –Essai d’observation et d’interprétation des pratiques”, PhD in Management Science, Montpellier II University.

CHENHALL, R.H. (2003): “Management control systems design within organisational context: findings from contingency-based research and directions for the future”, Accounting, Organisation and Society, vol. 28: 127–168. http://dx.doi.org/10.1108/18347641011023270

Christian Vogt (2002), Intractable ERP: a comprehensive analysis of failed enterprise-resource-planning projects. Access from: http://dl.acm.org.ezproxy.wales.ac.uk:2048/ft_gateway.cfm?id=511163&type=pdf&coll=DL&dl=ACM&CFID=53545748&CFTOKEN=52291637. Last Access on: 26/10/2011.

It.toolbox.com. (2017). Is There a Need for Better ERP Security?. [online] Available at: http://it.toolbox.com/blogs/inside-erp/is-there-a-need-for-better-erp-security-75646 [Accessed 20 May 2017].

LG Networks, Inc. (2017). Improve project success and profits with ERP | LG Networks, Inc.. [online] Available at:

Improve project success and profits with ERP
[Accessed 22 May 2017].

Luftman, JN (1996), Competing in the Information Age, Oxford University Press, New York, NY.

Umble, E. J., Haft, R. R., & Umble, M. M. (2003). Enterprise resource planning: Implementation procedures and critical success factors. European Journal of Operational Research, 146(2), 241-257.

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Article Review-Half a Defence of Positive Accounting Research

Article Review-Half a Defence of Positive Accounting Research

 Contents

INTRODUCTION.. 3

SUMMARY OF THE ARTICLE. 3

RESEARCH QUESTION.. 5

THEORETICAL FRAMEWORK. 6

THE SIGNIFICANCE AND LIMITATION OF THE ARTICLE. 7

CONCLUSION.. 8

REFERENCES. 10

INTRODUCTION

“Half a Defense of Positive Accounting Research” has been chosen as the article for review which has been written by Paul V Dunmore. In his article, Dunmore has talked about the significance and commonsense ramifications of positive accounting theory. Generally speaking, the article talked about the significance of positive accounting for the corporate world and in what ways it has an incentive as far as enhancing efficiency and productivity of the associations.

The primary target of undertaking this basic review is to fundamentally investigate the contentions of Dunmore in the protection of positive accounting. By and large, the basic review is gone for recognizing negative focuses, which would be done in this basic review too.

There is a specific arrangement of basic review which has been taken after. In the first place there would be summary of the chose article. At that point there would be examination of the research questions given in the chose article. At that point there would be examination of the theoretical framework. After that there would be talk and investigation of the significance and limitation of the article. Toward the end there would be conclusion.

SUMMARY OF THE ARTICLE

Overall real world predictions are base for the article selected for review. There are too many serious complications in financial and capital markets which work as hurdle for prediction for the markets. However, for predictions the importance of Behavioral Finance has been highlighted by the author. Normally, Efficient Market Hypothesis Theory EMH is used for predictions about the financial and capital markets but in the article selected for review, there is criticism on the theory. The author has compared and is in favor of Positive Accounting Theory or PAT. In the selected article, there is argument that the PAT is able to make beneficial predictions. Moreover, there are positive implications for accounting transactions. Identification of reason why a specific accounting event has happen is more important than what should be done. Moreover, predictions can be made better with PAT in comparison to EMH.

In case there is need to predict about an organization in today’s highly competitive business environment in terms of sustainability, there is need to utilize PAT rather EMH. Moreover, for longer sustainability of organization there is need for particular accounting rules and standards where again PAT comes to rescue. In case there are favorable and better accounting policies and standards then there would better results in terms of long term sustainability of the organizations which is again in favor of PAT. The selected article has argument are against profitability of the firms in comparison to their sustainability. The article has argument that PAT is in more favor of sustainability in comparison to profitability of the firms. Moreover, the selected article has argument that successful firms take mega projects and contracts in order to earn fame and recognition in comparison to increasing their profitability. Even though such practices don’t increase profits of the firms but it really help them achieving long term sustainability which should be the main purpose of the organization.

The selected article has argument that even though without profits, it is not possible for firms to achieve long term sustainability. However, higher profits also do not guarantee long term sustainability. Therefore, firms should have focus on both, profitability and recognition but more on recognition. Such practice helps firms earning sufficient profits to meet their expense and the expectations of all the stakeholders and it also helps in achieving long terms sustainability. The article has argument that with the help of PAT the firms are able to select those projects which not only help in increasing their profitability to a certain extent and also controlling their costs. Overall, the selected article is in favor of PAT in comparison to EMH as it enables organizations to earn sufficient profits as well as increase chances of their long term sustainability.

RESEARCH QUESTION

The research questions included in the article were; what is the role of PAT in terms of improvement of financial structure of the organizations? What s the role of PAT in terms of improvement in strategic structure of the firms? How best firms can use PAT in order to improve their efficiency? Why recognition and acceptance of PAT concept is increasing all over the world? And what is the relationship between accounting policies management and PAT?

This article review is limited in its scope; therefore it is not possible to have a detailed analysis of the research questions here. The main focus of the research questions of the selected article is on PAT and the accounting policies and standards related to PAT. It can be said that in relation to research topic, the formulated research questions are appropriate. The researchers and practitioners of PAT has a good argument in favor of PAT that it is helpful for organizations in order to increase chances of their long terms sustainability as PAT has such accounting standards and policies which have key role in achievement of long term sustainability. The selected article has also pointed out why such people are against GAAP. They have argument that there was a key role of GAAP in recent global financial crises. Such people are in favor of IFRS as IFRS is consisted on such accounting policies and standards which are in more favor of long term sustainability in comparison to their profitability.

THEORETICAL FRAMEWORK

For sheer examination and reason for the review, theoretical framework function as support or hold for a particular theory, the theoretical work can recognize and assess a specific research issue. In the chose article there was assessment of the PAT’s significance regarding reinforcing structure of associations deliberately and additionally financially. The article under review concentrated on how could be PAT useful in today’s profoundly focused markets.

Despite the fact that the above chart would not speak to the genuine theoretical framework of the chose article in any case, the theoretical framework was about a similar setting. Generally speaking, PAT’s effect was dissected in vital and financial terms. In the chose article, there was restricted dialog about the theoretical framework which was a shortcoming. There were various speculation, there was need adequate word check so that the perusers can comprehend the idea in detail anyway it was not the situation.

The primary concentration of the theoretical work of the chose article was that the PAT is more productive for association in contrast with EMH. In a related article Cheng and Warfiled (2015) has concurred that so as to anticipate all the more adequately, it is imperative that the concerned back director must have finish and solid thought regarding the correct ability of the association so that the fund administrator can foresee absolutely about the development of their association. Be that as it may, there is resistance from Chen et al. (2014). They have restricted the PAT can make predication about the market which is so much powerless. They have accentuated their call attention to indicating out an advanced strategy, for example, Atman A-Score can’t foresee accurately about the efficiency of an organization or the market.

 

In any case, without a doubt basic leadership has a key part in achievement and supportability of the associations which likewise works out if there should arise an occurrence of PAT as talked about in the chose article for review. Keeping in mind the end goal to prevail in long keep running, there is need of clear and straightforward basic leadership.

THE SIGNIFICANCE AND LIMITATION OF THE ARTICLE

The selected article and study were very important in relation to the chosen topic. In relations to accounting management, PAT is one of the most crucial topics (Subramanyam, 2010). There a number of things which can be written about the significance of the selected article for review; the selected article and study is especially importance for such firms which are not sure about the fruits of PAT therefore, those are hesitant in terms of acceptance and applications of PAT standards and policies. Moreover, the selected study is important for researchers as well as for the students who are looking to study or research about PAT.

However, there is limitation of the selected article and the study. The selected study focused too much on long terms sustainability in comparison to profitability. However, in real world this situation does not exist. Firms are in the business with the help of funds and investments they receive fro investors. Majority of the investors look for higher profits. There are only a limited number of investors who look for minimum profits and focus more on sustainability of the selected firm. Therefore, it is not right to argue that long terms sustainability is more important than profitability (Kasanen, Kinnunen, & Niskanen, 2016). Moreover, the other limitation of the selected study is that firms don’t significant profits and sales are not a source of recognition for the firms instead of only mega projects and contracts are a source of recognition for the firms. However, other researchers have found that their research that when firms are able to achieve higher growth, control their expenses and are able to increase their profits, they are able to achieve fame among its most of the stakeholders and in the business world also (Milne, 2012). They have argument that mega projects or contracts are not undertaken to earn fame only as the basis aim of the companies is to maximize wealth of their shareholders. Moreover, when there are not enough profits in a specific project or contract then there would be Non profits organizations which would be ready to take such projects, there would be not really a company from business world which would take such project.

Overall, the selected study for review was related to accounting therefore, the study was rightly conducted with the help of quantitative research methodology. But the research design was not appreciable. The researchers focused on exploratory research design. The study was conducted on the assumption that the study would be unique as such studies have not been conducted before. However, in reality it is not the case as the selected topic is one of the most popular topics in accounting management among the researchers therefore, there already have been studies conducted on the topic.

CONCLUSION

The picked article is general in light of genuine predications. The creator has battled that there are such an extraordinary measure of burdens in the capital markets and financial markets which can’t be expected. As to, the creator highlighted the significance of Behavioral Finance. In any case, the creator examined EMH (Efficient Market Hypothesis) theory. The creator has fought for Positive Accounting Theory conversely with EMH.

The creator has found that the positive accounting speculation (PAT) can make beneficial predications and it moreover has positive repercussions towards accounting exchanges. What should be done is not as much basic in accounting conversely with recognizing the rule thought or reason for a specific occasion. Also, exceptional occasion, related with a particular firm can likely be foreseen better with accounting theory.

Generally speaking, this article review has found that the chose article was about PAT’s significance and how it could be used by the associations. There were numerous critical focuses about PAT and its center skills. The review has presumed that PAT would be a useful instrument for associations to build their benefit and enhance their manageability shots. Research additionally has worried on associations to embrace activities and contracts to enhance their acknowledgment. Generally speaking, larger part of the focuses brought up in the chose article are sponsored by different researchers and the truth. Be that as it may, there are contentions against PAT from hostile to PAT.

 

REFERENCES

BENEISH, M.D. 2011. Earnings management: A perspective. Managerial Finance., pp.3-17.

BURGSTAHLER, D. and I. DICHEV. 2007. Earnings management to avoid earnings decreases and losses. Journal of accounting and economics., pp.99-126.

CHENG, Q. and T.D. WARFIELD. 2015. Equity incentives and earnings management. The accounting review., pp.441-476.

CHEN, Q., T. HEMMER, and Y. ZHANG. 2014. On the relation between conservatism in accounting standards and incentives for earnings management. Journal of Accounting Research., pp.541-565.

JIRAPORN, P., G.A. MILLER, S.S. YOON, and Y.S. KIM. 2014. Is earnings management opportunistic or beneficial? An agency theory perspective. International Review of Financial Analysis., pp.622-634.

KASANEN, E., J. KINNUNEN, and J. NISKANEN. 2016. Dividend-based earnings management: Empirical evidence from Finland. Journal of Accounting and Economics., pp.283-312.

KOH, P.S. 2013. On the association between institutional ownership and aggressive corporate earnings management in Australia. The British Accounting Review., pp.105-128.

LEUZ, C., O. NANDA, and P.D. WYSOCKI. 2013. Earnings management and investor protection: an international comparison. Journal of financial economics., pp.505-527.

MILNE, M. J. 2012. Positive accounting theory, political costs and social disclosure analyses: A critical look. Critical perspectives on accounting., pp.369-395.

SUBRAMANYAM, K. R. 2010. The pricing of discretionary accruals. Journal of accounting and economics., pp.249-281.

VAN, Tendeloo B. and A. VANSTRAELEN. 2014. Earnings management under German GAAP versus IFRS. European Accounting Review., pp.155-180.

 

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Audit, Assurance and Compliance: Assignment Help

Audit, Assurance and Compliance: Individual Assignment 1

 

Table of Contents

QUESTION 1. 3

(a) Identification and Evaluation Related to Auditor Independence. 3

(b) Identification of Safeguards for Threat 4

QUESTION 2. 4

(a) Threats related to purchase of Spare parts and Equipments. 4

(b) Audit risks specific to above business risks. 5

BIBLIOGRAPHY.. 5

QUESTION 1

(a) Identification and Evaluation Related to Auditor Independence

Excerpt 1: Discussion with Chris

Chris who is CEO of LTH, his message contains a threat. According to the message, BOD of LTH wants Geoff my partner to give a speech at next travel agency. As in role of an audit firm it contains an advocacy threat. We are going to conduct audit of the firm for June, therefore LTH’s suggested role is biased one which has the capacity to negatively impact our independence as auditor. Moreover, the excerpt 1 also contains a second threat, intimidation threat because Chris stated replacement of auditing services of CJ and Geoff in case there is refusal for the speech. In this case if we are going to accept this intimidation threat then it will also affect our independence while we will conduct audit of the firm.

 

Excerpt 2: Discussion with Chris

If the specific offer given by Chris to Geoff and CJ is analyzed on the basis of audit threat then it is clearly threat of Self-Interest. Chris offered 14 days holiday to Geoff and to our firm. There is no ambiguity that our independence is clearly threatened with this offer as it shows undue interest in our audit team. Moreover, the period of the offer is before the audit period. This shows that there is conflict of interest among the BOD of LTH and they are looking for favour from our audit team while we conduct audit of their firm for June 2015. If the offer is accepted then it would really threat our independence as auditor while conducting audit of year 2015 financial statements of the firm.

 

Excerpt: Conversation with Michael 

Father of Michael is financial controller of LTH. By knowing this, if we include Michael in the audit team which will conduct audit of LTH, it will create familiarity threat for our independence as auditor. There is clear familiarity threat for independence of our audit in case Michael is included in the team for LTH audit.

 

Excerpt: Conversation with Annette

Annette, another member of our audit firm; she has worked in LTH a month ago while he was on a temporary assignment. While she was on a temporary assignment in LTH, she helped LTH in tax calculations as well as in preparation of accounting entries. In this case Annette will be going to review her own work. In case Annette is still made part of the audit team which will conduct audit of LTH then it will create self review threat

(b) Identification of Safeguards for Threat

In order to safeguard against the advocacy and Intimidation threats which have been posed by BOD of LTH and Chris, our firm needs to refer to procedures and policies formulated for audit firms in IAS regulations. The IAS regulations have restrictions for audit firms for accounting services in case there are any threats from management.

The safeguard against Familiarity threat is to eliminate Michael from the audit team as there will be no threat of influencing auditor’s independence since financial control of LTH is father of Michael.

As for the safeguard against self review threat is concerned there is no need for our audit firm to go beyond. The best safeguard is that Annette must be excluded from the audit team which is going to conduct audit of LTH. In this case, there will no person in the audit team who has any sort of participation in preparation of financial statements of LTH, hence there will be no such threat for our independence of our audit team. However, if Annette can’t be excluded from the audit team then it is better to reject such audit which attracts compromise of independence.

QUESTION 2

(a) Threats related to purchase of Spare parts and Equipments

  1. i) Betraying of Orders of Clients and Manipulation of Financial Threats

There is manipulation risk while making purchase of spare parts on account of betrayal of orders of customers. Specifically there are following risk attached with it:

First, accounting records as well as supporting documentation can be forged or altered which ultimately will become part of the financial statements which will be audited.

Second, transactions and events can be omitted or misrepresented intentionally during process of making purchase which again will form part of the financial statements to be audited.

  1. ii) Assets’ misappropriation in warehouses

Following are some situations which could cause misappropriation of assets at warehouses.

First, receipts can be embezzled such as; receipts can be diverted to personal bank accounts. Second, assets can be steal physically which could include inventory consisted on spare parts. Moreover, other assets such as intellectual property can be misappropriated by selling trade secrets to other competing countries like China. Third, by creating such suppliers which do not exist could cause MSL to pay for such goods and spare parts which really does not have been received at warehouses or dispatched to customers. Moreover, the assets can be misappropriated by using those for personal use.

(b) Audit risks specific to above business risks

The main risk arising from the above business risk such as misappropriation of assets is control risk. Let’s analyze what are other key risks which are going to impact accounts and ultimately audit of financial statement of MSL.

The financial statements which are highly dependent on estimation are seriously risky in nature. Financial statements of MSL will be subject o misstatement especially those accounts which is consisted on estimation related to purchase. There is also serious risk of fraud with the accounts of MSL as its majority of the assets are liquid in shape of case or inventory. Manipulation and fraud risks with the financial statements of MSL can be termed as inherent risk. Moreover, there is risk of misstatement on account of omission, error, or fraud. The main accounts which will be mostly impacted with these risks and should be looked deeply while conducting audit will be cash account, accounts receivable, and inventory account.

BIBLIOGRAPHY

FAQ — Application of the Commission’s Rules on Auditor Independence (December 13, 2011)

FAQ — Application of the January 2003 Rules on Auditor Independence (August 13, 2003)

Strengthening the Commission’s Requirements Regarding Auditor Independence; Release Nos. 33-8183; 34-47265; 35-27642; IC-25915; IA-2103, FR-68 (January 28, 2003)

 

 

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Internal Audit Assignment Help in Australia- Answer

Internal Audit Assignment Help in Australia

Question No. 8:

Re-Write Environmental policy of Ethical Trading Group:

The Ethical Trading Group should obey the laws, rules and regulations regarding the environment and also should consider the environmental risks and challenges that are associated with the performance of the organization as well as that have impact on the operations of the business. The environmental rules should be strictly followed to continuously monitor and improve the environmental performance and management.

To increase the environmental performance employee involvement is crucial. The employee and other stakeholders’ engagement in the environmental strategies can improve the environmental standards and the key metrics greenhouse gas emissions, energy use, water use, use of recycled material, landfill waste, community contributions and safety incidents should be considered to improve the overall performance and to cope with the environmental risks.

Question No. 9:

The charts are developed to analyze the key performance indicators KPIs that are given in the attachment and are helpful to check the performance and effectiveness of the planned objectives of the ETG organization for the use of recycled material and landfill waste, based on an improvement of 1% p.a.

The use of recycled material in 2014 was 94,000 kg per $1 million revenue and in the above chart it is shown that the targeted use of recycled material in the first quarter of the 2015 is 95,000 kg per $1 million revenue, in second quarter             96,000 kg per $1 million revenue, in third quarter      97,000 and in fourth quarter 98,000 kg per $1 million revenue.

The landfill waste in 2014 was 1450 kg per $1 million revenue. In the above chart it is shown that the key performance indicators targeted for landfill waste in the first quarter of 2015 is 1440 kg per $1 million revenue, in second quarter of 2015 is 1430 kg per $1 million revenue, in third quarter 1420 and in fourth quarter 1410 kg per $1 million revenue.

Question No. 10:

The actual performance of the Ethical trading group for the use of the recycled material and the landfill waste for the year 2015 is compared with the key performance indicators and shown in the following graphs.

The Actual performance of the use of the recycled material for the year 2015 is shown in the above chart. There is a minor difference between the actual data and the key performance indicators that are targeted for as increase 1% per annum.

The Actual performance of landfill waste for the year 2015 is shown in the above chart. There is a minor difference between the actual data and the key performance indicators that are targeted for as increase 1% per annum.

The management should be develop and maintain a comprehensive internal audit control program necessary to ensure compliance with accounting standards, policies, and procedures, as well as environmental improved performance, necessary to properly utilize the resources and increase the actual performance of the organization.

The management of the organization, as well as the CFO is responsible for establishing and maintaining controls to discourage perpetuation of fraud, dishonesty, and non-compliance. The Internal Audit and Compliance team is responsible for examining and evaluating the adequacy and effectiveness of those controls.

The new process should be implemented as soon as possible. The process should include the proper monitoring and controlling of the performance for the use of the recycled material and landfill waste within the timeframe of the 2 months after the implementation of the process to meet the actual performance with the targeted KPIs.

Question No. 11:

Strategic agenda to staff to reduce their environmental footprint:

The shortfall in the actual performance as compare to the KPIs in the use of recycled material and landfill waste indicates that employees are not engaged to support the organization in practical ways to reduce environmental footprints. To involve the employees in the performance metrics and gain their intention it is necessary that the employees and all the other internal and external staff should be motivated so that their interest is developed to increase the overall performance of the organization. Motivation can be given through the financial as well as non financial benefits provision to the staff. Horizontal communication is one of the best ways to monitor the performance and strategic agenda of staff. Moreover, internal control and audit is also a best way to monitor the practical ways of staff.

 

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Taxation Assignment Help- Answer

  • Nick Addison is employed by Lazarus Holdings Ltd. His net weekly wages totalled $78,000 for the year. Total PAYG tax withheld from Nick’s weekly wages from Lazarus and forwarded to the ATO amounted to $19,000.

Answer 1:

Net weekly wages totalled for the year = $78,000

The amount as total PAYG tax form Nick’s weekly wages forwarded to the   ATO = $19,000

Assessable income – allowable deductions = taxable income (the amount you pay tax on).

Because, Nick didn’t claim for any deduction so assessable income would be same as net weekly wages which is equal to $78000

  • Additional wages paid to Nick as a Christmas bonus of $6,000 (net of $4,200 PAYG tax withheld.)

Answer 2–

Net weekly wages totalled- $78000

As bonus is also a part of assessable income so the total assessable income for this case would be= $78,000+$6000= $84,000.

 

  • Reimbursement of out-of-pocket travel costs of $1,200 that Nick incurred during his employment.

Answer 3 –

Net weekly wages totalled- $78,000

If Nick would claim for his out of pocket travel cost than it will be included in his assemble income. So the assemble income would be = $78,000+$12,000= $90,000

 

  • A travel allowance totalling $2,800. No PAYG was withheld from this amount.

Answer 4 – 

Travel allowance is supposed to include in assessable income so assessable income would be the same $78,000

 

  • Lazarus paid health insurance premiums for Nick and his wife to the value of $2,750.

Answer 5- Personal health insurance policy is a non-taxable money so this $2,750 can’t be included as assessable income.

 

  • $10,000 superannuation contribution to Lazarus Holdings Superannuation Fund on behalf of Nick.

Answer 6- $10,000 superannuation contribution will be deducted from existing assessable income. Hence, assessable income after contribution would be = $78000-$10000= $68000

 

  • Chris receives casual wages as a freelance journalist. On 4 July 2016 Chris was seriously injured when he fell down seven flights of stairs whilst jogging one morning. He received $50,000 during the year from his sickness and accident insurance policy for loss of income.

Answer 7- Money from personal insurance policy would not be included as assessable income because it is non-taxable money.

 

  • Chris also received $8,000 from his health insurance policy towards various operations and rehabilitation that he required.

Answer 8-

Health insurance money is not a part of taxable income. It would not be included as assessable income.

 

  • Chris received a $70,000 lump sum under a trauma insurance policy for his right foot, which eventually required amputation.

This money will also not be included as assessable income.

 

  • Chris received a cheque for $5,400, which represented long service leave that he had accrued from several years as a part-time copywriter. This amount is net of $1,600 PAYG tax withheld.

Answer 10:

This amount of money will be included as assessable income because it is subjected to PAYG tax withheld.

So, assessable income would be $5,400

 

  • Quentin conducts business as a general medical practitioner. During the year, he received $79,000 in fees direct from patients, and $154,000 in receipts from Medicare.

Answer 11-   According to Australian taxation office’ personal service income rule, personal income of any professional practitioner would also be included as assessable income.

So the total assessable income would be = $79,000+$154,000= $233000

 

  • Warren derives business income as a removalist. During the year, due to an error by his mechanic, Warren’s truck was off the road for 4 weeks and eventually written off as irreparable. All figures are exclusive of GST where applicable. He received the following amounts from his insurance company:

Reimbursement of deductible truck repairs $ 14,000

Demurrage (compensation for loss of income) 16,000

Proceeds for disposal of Truck (equal to book value) 75,000

 

Answer 12- According to Australian taxation office rules, a person can’t include payout from his personal income policy, so in this case the money he is getting from insurance policy would not be included as assessable income.

 

  • Sandy operates a general food store. During the year, his store was subject to two armed robberies. He received the following amounts from his insurance company (exclusive of GST):

Loss of cash sales from robberies $ 21,000

Loss of Trading Stock 7,800

Reimbursement of deductible shop repairs 3,200

Reimbursement of Medical Expenses 2,000

Answer 13- As per Australian taxation office rules, all payout from personal insurance policy will not be added as assessable income, so these given figures of money would not be included as assessable income.

Insurance money is non-taxable.

 

  • Troy operates an advertising agency. During the year, he has a “contra” transaction with his solicitor to the value of $25,000.

Answer 14:

As this money is also taxable, so this money would also be included as assessable income.

Assessable income would be = x+$25,000

If x is total assessable income for the year

 

  • Harrison derives business income as a barrister. He instructs one of his clients to pay his fee of $19,000 direct to Commonwealth Bank with whom his wife has a mortgage.

Answer 15:

This money will not be included as assessable income because Harrison has asked his client for transaction for mortgage of his wife.

 

  • Karl conducts business as a contract plumber. He completes a subcontract job for a large construction company in return for airfares and accommodation to the value of $8,000 rather than a cash fee.

Answer 16:

In this case, there is no assessable income, because Karl is working in return for his fares and accommodation and this money can’t show as income until unless he is not getting money in cash or in bank account.

  • Rob conducts business as a lawyer. He drafts some changes to a Will for one of his clients and does not charge a fee but receives a $250 pair of cufflinks.

Answer 17:

According to the rules determined by Australian taxation office, gift is not supposed to add in assessable income.

This $250 would not be included as his assessable income.

 

  • Petros conducts business as a property developer. As a result of extensive travel throughout the year, Petros receives 178,000 frequent flyer points which he is able to redeem in the form of air tickets to the value of $3,280.

Answer 18This $3,280 would also not be included as assessable income because Petros is not paying tax for this money.

 

  • Len trades as a carpet retailer. During the year, he receives cash subsidies and incentives from a supplier for selling over 2 kilometres of their carpet. This amounted to $36,000.

Answer 19: As per the Australian tax rules and regulations, all the bonuses and incentives will be included in assessable income. $36,000 would also be included as assessable income of Len.

 

  • Shelley operates a coffee shop. Fiasca, a coffee supplier gives her an espresso machine as an incentive to use their coffee. The machine is worth $12,000. They also provide her with some outdoor umbrellas and furniture with the name of their coffee. These are valued at $8,000 but must be returned to Fiasca if she ceases to buy their coffee.

Answer 20- If we see in other way than we may find that Fiasca is having these things as borrowed ones. So the borrowed money can’t be included as assessable income.

$12000+$8000= $20000 would not be included as assessable income.

 

    Source –

 

  • https://www.ato.gov.au/Business/Income-and-deductions-for-business/Working-out-your-assessable-income/What-to-include-in-your-assessable-income/

 

  • https://www.ato.gov.au/Business/Income-and-deductions-for-business/Working-out-your-assessable-income/

 

  • http://blog.mytaxzone.com.au/2008/10/what-is-assessable-income.html

 

  • http://blog.mytaxzone.com.au/2013/06/claiming-travel-allowance-for-2013.html

 

 

 

 

 

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Positive Accounting Theory- Answer

Positive Accounting Theory

Introduction:

Early research considering share price reactions to accounting information relied on various assumptions about the efficiency of the capital market and assumed that capital market participants could ‘undo’ the effects of organizations using different accounting methods. It also assumed the absence of transaction costs. Accepting these assumptions, and to the extent that the selection of accounting method did not affect taxation, then the choice of accounting method would have limited implications for the firm and hence managers should be indifferent when choosing between alternative accounting methods (Canziani, 2014). However, evidence indicates that managers are not indifferent.

 

The development of agency theory suggested that where there is a delegation of decision making within an organization there can be inefficiencies because agents will not necessarily work in the interests of the organization, but rather will work in their own interests. However, the principals will anticipate the opportunistic actions of the agents and will reduce their payments accordingly (that is, the principals will price protect). To minimize the agency costs, and to align the interests of principles and agents, numerous contractual arrangements will be put in place.

 

Accepting the perspectives provided by Agency Theory, Watts and Zimmerman (1978) showed how accounting-based contractual arrangements can act to minimize the transaction costs that might arise within an organization. The choice of one method of accounting in preference to another was deemed to be important in maximizing the value of an organization. For the reason that there are many uncertainties when investing or lending funds to an organization, managers will agree to provide investors and lenders with financial statements. This reduced risk associated with being able to monitor the performance of the entity will be expected to reduce the costs associated with attracting funds to the entity. Since some methods of accounting are able to better reflect the performance of an entity, managers will select some methods in preference to others (the efficiency perspective). This will have direct implications for the cost of attracting funds into the organizations.

Further, accepting that managers might not always work in the interests of the owners, it is common to find accounting-based bonus plans. Again, some methods of accounting might be more relevant in some organizations than alternative methods of accounting and again, PAT provides an explanation for why certain accounting methods might be selected in preference to others.

 

Summary of the Article:

It is predicted by Positive Accounting Theory (PAT) that on an ex ante basis (that is, upfront) mechanisms will be put in place that align the interests of the managers (agents) with those of the owners (as principals). As the evidence provided in the chapter indicates, such mechanisms will include offering management a bonus which is tied to reported profits. Assuming self-interest, such mechanisms will lead to a reduction in agency costs (they will encourage the self-interested manager to work harder) and hence can be explained from an efficiency perspective.

However, maintaining the assumption of self-interest, it is assumed that once a profit-sharing bonus scheme is put in place then management will seek to undertake actions to increase the size of the bonus and hence their own financial rewards. One way is to work harder, but another way is to manipulate reported profits by selecting accounting methods that lead to an increase in reported profits (the opportunistic perspective).

Within PAT it is assumed that principals expect managers to be opportunistic and unless managers can demonstrate that they have not been opportunistic principals will assume that they have been and accordingly, the principal will pay the managers a lower salary (this is called ‘price protection’). The lower salary compensates the principals for the expected opportunistic behaviour of the agents. To reduce this ability to be opportunistic (with consequent implications for increasing the managers’ bonuses) contractual agreements will be put in place up front to reduce the ability of the managers to manipulate accounting profits (but this ability can never be fully removed). Such agreements may include a clause which restricts the choice management has when selecting between alternative accounting methods or it may include a requirement that the financial statements be audited by an independent third party who will attest to whether appropriate accounting methods have been selected by the manager (Hope, 2013).

 

Research Question:

According to Watts and Zimmerman (1990, p.139) the political cost hypothesis predicts that large firms rather than small firms are more likely to use accounting choices that reduce reported profits. Size is deemed to be a proxy variable for political attention – that is, the larger the organisation the more likely it is assumed to be subject to political scrutiny.

If it is assumed that an entity is subject to a high degree of political scrutiny, and if it is assumed that high profits will attract unwanted political attention, the entity would expense an item of expenditure rather than capitalising it.

 

Theoretical Framework:

Managers are often rewarded in terms of accounting-based bonus plans. Such plans are introduced to align the interests of the managers of the firm with those of the owners. The establishment of management bonus plans can be explained from an efficiency perspective. The management bonus plan hypothesis predicts that managers who are rewarded in terms of accounting numbers are more likely to select accounting methods that increase income to the extent that this will lead to an increase in the size of the bonus. This is an opportunistic perspective. (The efficiency perspective relates to the initial establishment of the bonus scheme and the opportunistic perspective relates to the subsequent efforts to manipulate profits and hence, the bonus.)

The debt hypothesis (also called the debt/equity hypothesis) predicts that firms with higher debt/equity or debt/assets ratios are more likely to adopt accounting methods which increase income (and assets and residual equity) than firms with lower ratios. This prediction is made on the basis of an assumption that firms will have entered into debt contracts with external lenders (with the purpose of reducing agency costs and hence explained from an efficiency perspective) and these debt contracts will rely upon accounting numbers. The incentive to adopt income increasing methods will increase the closer the firm comes to breaching the accounting-based debt covenant (Watts & Zimmerman, 1990). While debt contracts will initially be entered into in an endeavor to reduce the costs of borrowing (the efficiency perspective), the view that management will subsequently choose ‘favorable’ methods to loosen the restrictions imposed by debt-related contractual covenants is considered to represent an opportunistic perspective.

Political costs are those costs that particular groups external to the firm may be able to impose on the firm as a result of various actions. For example, the costs associated with the community lobbying the government to decrease the subsidy support for an organization, the costs associated with labor unions taking actions to increase the wages of their members or the costs associated with consumer boycotts associated with the firm’s products.

 

The political cost hypothesis predicts that those organizations under political scrutiny (usually assumed to be larger firms) will undertake actions to minimize the possibility of adverse cash flows associated with the scrutiny. For example, if a company is being scrutinized in a particular period because of its perceived monopoly powers and those external parties undertaking the scrutiny claim that these monopoly powers enable it to generate excessive profits, then in such periods the entity may elect to adopt accounting methods which reduce its reported profits, and hence, its susceptibility to actions to reduce the wealth of the organization (perhaps, in the form of increased taxes). Watts and Zimmerman provide the following explanation of the political cost hypothesis:

The political cost hypothesis predicts that large firms rather than small firms are more likely to use accounting choices that reduce reported profits. Size is a proxy variable for political attention. Underlying this hypothesis is the assumption that it is costly for individuals to become informed about whether accounting profits really represent monopoly profits and to ‘contract’ with others in the political process to enact laws and regulations that enhance their welfare. Thus rational individuals are less than fully informed. The political process is no different from the market process in that respect. Given the cost of information and monitoring, managers have incentive to exercise discretion over accounting profits and the parties in the political process settle for a rational amount of ex post opportunism.

As reflected in the above quote, the political cost hypothesis assumes that various parties will simply react to the quantum of reported profits and will not necessarily focus on which accounting methods were used to generate these profits.

According to Watts and Zimmerman (1990, p.139) the political cost hypothesis predicts that large firms rather than small firms are more likely to use accounting choices that reduce reported profits. Size is deemed to be a proxy variable for political attention – that is, the larger the organisation the more likely it is assumed to be subject to political scrutiny.

If we assume that an entity is subject to a high degree of political scrutiny, and if we assume that high profits will attract unwanted political attention, the entity would expense an item of expenditure rather than capitalising it.

 

The Significance and Limitations of the Article:

The management compensation (or bonus plan) hypothesis predicts that managers of firms with bonus plans (tied to reported income) are more likely to use accounting methods that increase current period reported income. To determine whether the act of undertaking an upward asset revaluation is consistent with the management compensation hypothesis we need to establish whether an upward revaluation has the implication of increasing reported profits.

If it is undertaken an upward revaluation and the assets are depreciable, then this will increase the depreciable base of the assets leading to an increase in depreciation expense and therefore a reduction in profits. Further, the upward revaluation will result in a credit to revaluation surplus, rather than being treated as part of profits. Also, any gain on sale of a non-current asset will be reduced as a result of a revaluation increment (the gain on sale being the difference between the fair values of the consideration less the carrying amount of the asset). Hence, the effect of an upward revaluation is to decrease reported profits despite the fact that the revaluation acts to increase the net assets of the entity.

Where an accounting-based contractual arrangement is to be calculated according to the accounting rules in place at reporting date (and these rules may change as new accounting standards are issued), then such agreements are considered to be relying on ‘rolling GAAP’ (also called ‘floating GAAP’). By contrast, if a contractual arrangement stipulates that accounting-based agreements are to rely on those accounting rules in place at the time the contract was negotiated then this is referred to as relying upon ‘frozen GAAP’.

We would expect that managers who have negotiated debt contracts with accounting-based covenants based around ‘rolling-GAAP’ will be relatively more likely to lobby an accounting standard-setter about a proposed accounting standard than would a manager who has negotiated accounting-based debt contracts that use frozen GAAP (Unegbu, 2014). The reason for this is because if the contracts rely upon accounting methods in place at reporting date, and if these change perhaps as a result of the release of a new or revised accounting standard, then this could have direct implications for the cash flows associated with the contractual arrangements. For example, if an organization has negotiated a debt to asset constraint, and if it was otherwise close to breaching the covenant, then a change in accounting standards may change total assets or liabilities and this in turn may place the organization in technical default of the debt agreement and this could have direct implications for the cash flows, and hence the value of the organization.

Conclusions:

Therefore, an upward revaluation cannot be explained by the management compensation hypothesis. If we accept that PAT provides sound predictions or explanation of accounting choices then perhaps the firm was close to breaching a debt covenant and the benefits to managers of avoiding the breach more than offset the potentially negative impacts on management compensation (also, the firm may have been subject to political costs and an upward revaluation may have been part of a portfolio of accounting choices used to reduce reported income and therefore the possibility of political costs being imposed).

Reference:

  1. Canziani, A. (2014). Accounting revolutionary.Twentieth century accounting thinkers, 142. Retrieved from: https://www.pwc.com/ng/en/pdf/revolutionary-world-in-accounting-ifrs.pdf
  2. Hope, O. K. (2013). Large shareholders and accounting research.China Journal of Accounting Research6(1), 3-20. Retrieved from: http://www.sciencedirect.com/science/article/pii/S1755309112000445
  3. Li, J. (2013). Accounting conservatism and debt contracts: Efficient liquidation and covenant renegotiation.Contemporary Accounting Research30(3), 1082-1098. Retrieved from: http://onlinelibrary.wiley.com/doi/10.1111/j.1911-3846.2012.1181.x/abstract?deniedAccessCustomisedMessage=&userIsAuthenticated=false
  4. Watts, R. L., & Zimmerman, J. L. (1990). Positive accounting theory: a ten year perspective.Accounting review, 131-156. Retrieved from: http://www.jstor.org/discover/10.2307/247880?uid=2&uid=4&sid=21106497807633
  5. Von Alberti-Alhtaybat, L., Hutaibat, K., & Al-Htaybat, K. (2012). Mapping corporate disclosure theories.Journal of Financial Reporting and Accounting,10(1), 73-94. http://www.emeraldinsight.com/doi/abs/10.1108/19852511211237453
  6. Unegbu, A. O. (2014). Theories of Accounting: Evolution & Developments, Income- Determination and Diversities in Use. arXiv preprint arXiv:1411.4633. Retrieved from: http://arxiv.org/abs/1411.4633