BBA 2004

ACCOUNTING AND FINANCIAL MANAGEMENT

CHAI JIA NI
960411-14-5238
202409

SEPTEMBER 2015
Content
No

Content

Page

1.0

Introduction

2-3

2.0

Task 1

4-7

3.0

Task 2

8-11

4.0

Conclusion

12

5.0

Reference

13

6.0

Coursework

14-18

Introduction

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Every organization needs strong financial leadership, and our BA Accounting and
Financial Management will set you on the road to success.
Accounting is more than mathematical techniques. The experienced academic team at
Sheffield University Management School will help you see the bigger picture, so you
can take your career in any direction you choose.
This multi-disciplinary approach means that you learn practical skills to help you land
the right job, as well as gaining the rigorous academic knowledge that you require to
progress. We'll also put things into context - helping you to understand the role of
accounting and financial management within an organization is key to this course. You'll
learn how it affects everything, from budgeting and control to environmental issues.
The first year gives you a broad understanding of accounting, built around core modules
such as Accounting Theory and Practice, as well as Introduction to Financial
Accounting and Introduction to Management Accounting. Well encourage you to start
thinking about life in the workplace with modules such as Introduction to Behaviors at
Work and Professional Self-Management. This structured, supportive process will help
you to reflect on your own learning, performance and achievement in preparation for
your first job. Our students quickly become familiar with the challenges faced by
professional accountants. As your confidence grows, you'll develop your own views on
how to approach these challenges.

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

accounting, financial reporting, internal control, auditing, procurement, disbursement
and the physical performance of the project with the aim of managing project resources
properly and achieving the project's development objectives. Financial management is a
critical ingredient for a project success. Timely and relevant financial information
provides a basis for better decisions, thus speeding the physical progress of the project
and the availability of funds, and reducing delays and bottlenecks. This is why Bank
policy and procedures require good financial management in Bank-funded projects.
The Financial Management Team has the overall responsibility for financial
management in operations in the respective regions. The financial specialists provide
professional leadership in ensuring high quality performance with respect to compliance
with Bank policies and procedures and efforts to build financial management capacity in
client countries. Financial Management specialists provide direct support to Task Teams
throughout the project cycle. Financial accounting is the branch of accountancy
concerned with the preparation of financial statements for external decision makers,
such as stockholders, suppliers, banks and government agencies. The fundamental need
for financial accounting is to reduce principal-agent problem by measuring and
monitoring agents' performance.
Task 1

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J plc supplies and fits car types, exhaust pipes and other components. The company has
branches throughout the country. Roughly 60 per cent of sales are for cash ( retail sales).
The remainders are credit sales made to car hire companies and large organizations with
fleets of company cars (business sales). Business sales tend to be more profitable than
retail and the company is keen to expand in this area. There is, however, considerable
competition. Branch managers are responsible for obtaining business customers and
have some discretion over terms of trade and discounts.
The companys computerized accounting system has recently produced the following
report for the manager of the Eastown branch for the six month andded 30 September
20X5:

Return on capital employed

Gross profit
Selling and promotion costs/sales
Wages/sales
Debtors turnover (based on credit sales
only)
Stock turnover

Eastown
22%
38%
9%
19%

Average for Branch all branches

16%
45%
6%
14%

63 days
37days

52 days
49 days

The Eastown branch manager has only recently been appointed and is unsure whether
his branch appears well managed. he has asked for your advice.
You are required to compare the performance of the Eastown branch with the average
for all branches. Suggest reasons for the differences you identify.

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From the ratios provided, you can obtain venous indicators of whiner the Eastown
branch is being property managed:
Return on capital employed
Eastown has better return, it 6% more than overall average. This shows that it is being
managed well. However, as all the branches are in the same company, some caution is
needed in that analysis. While a consistent basis for the figures in the ratio is probable.
There is no guarantee that all have similar assets profiles, either in nature or in age. The
ratio will be distorted unless all the branches have similar asset profiles. Further
information will be needed.
Gross Profit
Over 7% lower than the overall average, which suggest that Eastown is not being well
managed and doing earning lower profit than average. However, Eastown branch are
competing locally and has to cut prices and offer incentives to retain and expand its
customer base, so this profit could be arisen. We will need more information.

Selling and promotion costs/sales:

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The Eastown is spending 3% more than average on promotion. Actually this could be an
indicator of poor management as it is consistent with the above suggestion. As the
branch may have been competing locally, this is made above under gross profit. Of
course, promotion costs do not directly impact gross profit. Further information will be
needed.
Wages/Sales:
Eastown is spending 5% more on wages than average, this is another possible indicator
of poor management. However, as a result of employing more staff, it is also consistent
with an attempt to retain and expand its customer base through an increased level of
service. Further information will be required.
Accounts receivable turnover:
Eastown allows its customers 11 more days to settle their accounts than the average.
This is another possible indicator of poor management. However, it is also consistent
with an attempt to retain and expand its customer base through an increased level of
service. This is a result of employing more staff. Further information will be needed.

Inventory turnover

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Turning over the stock virtually will be quicker than the average. Eastown give a lesser
time, which is 12 days earlier. This suggest that the management is doing a good job.
This suggests a good management of this aspect of working capital. However, it may be
caused by inefficient buying policies. This are causing inventory shortages and
indirectly loss of customers. More information will be needed.
Overall:
Compared to the average from above, the ratios of comparison shows that Eastown is
doing a higher cost and lower profit. This could have high possibilities that Eastown is
having a poorer management. However, the major reason for this conditions may due to
the environment in which the branch is operating. For instant, it may face some
competition, it may face some price-cutting competitor. Maybe a competitors need to
control over debtors appears weak. The lower inventory turnover period is the only
positive result. This could also be an indication that mismanagement is occurring.
Regarding the quality of management of the branch, the ratios in themselves are not
sufficient to make conclusion to any firm. However, they do indicate questions that
should be asked and points that should be raised if an objective view on the quality of
the branchs management is to be reached.

Task 2

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You are presented with the following information relating to the following information
relating to Messier plc
Year to 31 December
Income statement
Turnover, all on credit terms
Cost of sales
Gross profits
Profit before taxation
Balance sheet 31 December :
Non-current assets at cost
Less Accumulated depreciation
Net book value
Inventory at cost
Trade account receivables

2011
$000

2012
$000

1,300
650
650
115

1,400
770
630
130

850
510
340
105
142

850
595
255
135
190

Required:
(a) Using the historical cost financial statements and stating the formula you use.
Calculate the following accounting ratios for both 2011 and 2012:
(i) Gross profit percentage;
(ii) Net profit percentage;
(iii) Inventory turnover, stared in day;

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

(v) Non-current assets turnover.
(b) Using the following additional information:
(i) Restate the turnover for 2011 and 2012 incorporating the following average retail
price indices:
Year to 31.12.2011

85

Year to 31.12.2012

111

(ii) Calculate the additional depreciation charge required to finance the replacement of
non-current assets at their replacement cost. The companys depreciation policy is to
provide 10% per annum on original cost, assuming no residual cost. The replacement
cost of not current assets at 31 December was as follow;
2011 $1,140 millions
2012

$1,200 millions

(iii) Based upon these two inflation adjustments, why may it be misleading to compare a
companys result for one year with that of another without adjusting for changes in
general (RPI) or specific inflation?
(a)

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2011

Historical cost ratio

650
1300

(i) Gross profit:

Gross profit
Revenue

x 100%

630
1400

x 100%

=45%
130
1400

x 100%

x 100%

=50%
115
1300

(ii) Net profit:

Profit before tax

Revenue

x 100%

x 100%

(iii) Inventory turnover:

Inventory
Cost of sales

2012

=8.8%
105
650 x 365

=9.3%
135
770 x 365

=59days
142
1300 x 365

= 64days
190
1400 x 365

= 40days

= 50days

x 365

(iv) Accounts receivable

collection period:
Accounts receivable
Turnover

x 365

(v) Non-current assets revenue:

1300
340

1400
255

Revenue
Noncurrent assets at net book value
=3.8times

=5.5times

(b) (i)
Revenue (millions)
Historical cost

2011
1300 x
=1698

2012
111
85

1400 x

111
111

=1400

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(ii)
Additional adjustment for depreciation

1140 x

10
100

1200 x

10
100

Replacement cost (10%)

=114millions

=120millions

85millions

85millions

114 - 85 =

120 85 =

29millions

29millions

Less historical cost depreciation

Additional depreciation

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Conclusion
International Accounting Standards Board (IASB). IFRS becoming more widespread on
the international scene, consistency in financial reporting has become more prevalent
between global organizations. While financial accounting is used to prepare accounting
information for people outside the organization or not involved in the day-to-day
running of the company, management accounting provides accounting information to
help managers make decisions to manage the business.
Financial accounting (or financial accountancy) is the field of accounting concerned
with the summary, analysis and reporting of financial transactions pertaining to a
business. This involves the preparation of statements available for public
consumption. Stockholders, suppliers, banks, employees, government, business owners,
and other stakeholders are examples of people interested in receiving such information
for decision making purposes.
Accounting is facilitated by accounting organizations such as standard-setters,
accounting and professional bodies. Financial statements are usually audited
by accounting firms, and are prepared in accordance with generally accepted accounting
principles (GAAP). GAAP is set by various standard-setting organizations such as

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the Financial Accounting Standards Board (FASB) in the United States and the
Financial Reporting Council in the United Kingdom.
Reference

Textbook BBA 2004

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

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

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

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BBA 2004
COURSEWORK
ACCOUNTING AND FINANCIAL MANAGEMENT

CHAI JIA NI
960411-14-5238
202409

SEPTEMBER 2015

Page 14 of 18

1. Please describe the characteristics of useful information.

From the various reports which have appeared since 1975 the following characteristics
have been noted.
1 Relevance. This is regarded as one of the two main qualities. The information
supplied should be that which will satisfy the needs of its users.
2 Reliability. This is regarded as the other main quality. Obviously, if such information
is also subject to an independent check, such as that of the auditor, this will considerably
enhance the reliance people can place on the information.
3 Objectivity. Information which is free from bias will increase the reliance people place
on it. It is, therefore, essential that the information is prepared as objectively as possible.
Management may often tend to give a better picture of its own performance than is
warranted, and is therefore subjective. It is the auditor's task to counter this view, and to
ensure objectivity in the financial statements.
4 Ability to be understood. Information is not much use to a recipient if it is presented
in such a manner that no one can understand it. This is not necessarily the same as
simplicity.

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

with previous financial statements of that company and with the results of other
companies. Without comparability the financial statements would be of little use.
6 Realism. This can be largely covered by the fact that financial statements should show
a `true and fair' view. It has also been contended that financial statements should not
give a sense of absolute precision when such precision cannot exist.
7 Consistency. This is one of the basic concepts, but it is not to be followed slavishly if
new and improved accounting techniques indicate a change in methods.
8 Timeliness. Up-to-date information is of more use to recipients than outdated news.
9 Economy of presentation. Too much detail can obscure the important factors in
financial statements and cause difficulties in understanding them.
10 Completeness. A rounded picture of the company's activities is needed.
You will recall that many of these featured prominently in the IASB Framework.

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2. Please describe conflict between shareholders interests and social considerations.

Obviously, an organization has to come to a compromise about how far it should look
after the interests of its shareholders and how far it should bother about social
considerations. For instance, a company could treat its employees so well in terms of
pay, pensions and welfare that the extra costs would mean very low profits or even
losses.
On the other hand, there must be instances where, no matter what the effects on
profits, the expenses just have to be incurred. If the company has a chemical plant
which could easily explode, causing widespread destruction and danger to people, then
there cannot be any justification for not spending the money either to keep the plant safe
or to demolish it. The full severity of the law must bear down on transgressors of the
law in such cases of willful neglect.
All the facts of the particular case must be brought into account. Let us look at a
typical case where the answer may seem obvious, but perhaps there may be other
factors which may make the answer not so obvious. Workers in underdeveloped
countries are usually paid far lower wages than those in the developed countries. What
happens if a large multinational company pays its workers in a given country three or
four times as much as home-based companies? Immediately everyone wants to work for
the multinational company, which can afford high wages, and leave the home-based

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companies which cannot. Is that sensible? What chance is there for the development of
the country's own home-based industries if the outside companies constantly take all the
best brains and most able people?
In such a case it would probably make more sense for the multinational
company to pay wages more in keeping with the particular economy, and to help that
country in other ways such as by improving the health care generally for all, better
education for all, and so on. Obviously, a topic such as this will engender discussions
and arguments for some considerable time.

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