ACCOUNTING

ACCOUNTING ASSESSMENT THREE

(Student Name)

(Institution Affiliation)

(Date)
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Question 1: define corporate governance

Corporate governance refers to the techniques and relations by which corporations are governed

and directed by (Shailer, G., 2004). These may include corporate principles and structures such

as the responsibilities and duties for the different corporate participants. Additionally, corporate

objectives are specifically set through processes set up by corporate governance regulations.

Question 2: four key elements of good governance

i. Rule of law – involves legal frameworks that are enforceable through a separate

regulatory agency which is impartial in enactment of rules and regulations. Equally

encompass legal frameworks that are fair to all stakeholders.

ii. Transparency – transparency in corporate governance includes measures that ensure

openness in communication and accountability in information systems. This also

ensures that information is readily available and easily assessable. All decisions made

should also be communicated in due time and in accordance to organizational

regulations.

iii. Social responsibility – social responsibility refers to the general responsibility for

every party in an organization to act in a way that benefits the entire society. All

employees and other participants in an organization should be responsible in a

manner that ensures a balance between the economical factors and those of the

ecosystems (Palmer, K., 1995).

iv. Equity and inclusiveness - an organization should not only invest in its profit making

processes, but should also provide opportunities such as seminars, workshops and
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research works to their stakeholders. This ensures that their talents, capabilities and

well being is improved over time.

Question 3: Four principles of corporate governance

I. Integrity and ethical standards - it is important to develop a code of conduct that ensures

everyone acts in a way that promotes ethical practices and responsibility in decision making

(Sarbanes, 2002). Integrity should be upheld whenever choosing employees, board of directors

and any other organizational practices.

II. Transparency and disclosure - all organizational roles and responsibilities should be made

publicly clear in order to avoid any confusion in role management. Disclosure of issues

concerning the organization should be timely and balanced to ensure that all investors have

access to clear, factual information, including the financial reports of every period (OCED

principles of corporate governance, 2004).

III. Equity and inclusiveness - each shareholder should be treated equal to all other shareholders

in a company. Additionally, organizations should educate shareholders about their rights and also

respect the same rights when put into practice. Shareholders rights could be encouraged through

welcoming them to join general organizational meetings (Sarbanes, 2002). Also, organizations

should provide opportunities such as seminars, workshops and research works that grow and

improve the skills of their stakeholders.

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IV. Accountability - policy statements should be incorporated to define who is responsible for

what in an organization. Companies are also accountable for whoever is affected by their rule of

law or the decisions and actions they take.

Question 4: Give 3 examples of perceived disadvantages to budgeting

I. Budgeting is disadvantageous in the time required in preparation. Creating a budget can be

extremely time consuming, especially when a large number of employees is involved or when

there is no previous budgetary constraints and processes.

II. In most cases, when budgetary goals are not achieved, there is blame for outcomes.

Departmental managers often blame any other departments that provide services to it for not

having adequately supported his department; and thus failing to achieve results.

III. The fact that budgets focus only on financial outcomes is equally disadvantageous. By

focusing primarily on allocating cash to specific activities, budgets fail to focus on more

subjective issues, like product performance. Despite the fact that these issues are a part of

budgetary constraints, they fail to have a deeper meaning other than achieving budgetary goals.

IV. Budgets are perfectly rigid. When budgets are created, they aim to focus on the targets

outlined in the budgetary goals. This makes it hard for any organizational changes during year;

especially if the market takes a shift towards a particular direction. It will be hard for an

organization to change into the other direction given the rigidity of the budgetary goals.

Question 5:
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Budgetary control is a term that is used to define the use of budgets to control, coordinate,

monitor and evaluate day to day operations in an accounting period to ensure that specific budget

goals are achieved.

Question 6:

A single entry is an accounting entry in book-keeping systems when only one element of

transaction is recorded either in the debit or credit side. Double entry however is a bookkeeping

system where both elements of a transition are recorded in both the debit and credit side of an

accounting statement.

Question 7:

Particular Debit($) Credit($)

Car 8,800

Bank (loan) 8,800

Question 8:

Regression analysis is a statistical process that focuses on establishing the relationship between

variables. Mainly focuses on independent and dependent variables.

Benefits of regression analysis

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Regression analysis has the following benefits:

I. Helps in predicting future trends. Forecasting techniques could be used in corporation with

econometrics.

II. The analysis is also used in correcting errors especially in management thinking.

III. Regression analysis provides new information and insight on new opportunities to venture.

IV. In analyzing data, regression analysis is also useful for supporting data materials.

Question 9:

Classifying ratio Description

Liquidity ratios These types of ratios express the ability of a company to pay their liabilities

and debts. Includes cash ratios, current ratio and quick ratios.

Leverage ratios These demonstrates a company's ability to pay back their long-term debts.

Include debt ratio, debt to equity ratio and interest coverage.

Performance ratios They demonstrate how a business is doing in terms of profitability during

different accounting stages. An example is the gross profit margin and the

return to assets ratio.

Valuation ratios Demonstrates how the penny stock is good for investments. They include

the price to earnings ratio, the price to sales ratio and growth rates ratio,

among others.
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Question 10:

Operating return on assets Method used involves the use of earnings before interest and

taxes.

Return on assets The method used involves (net income) / (average total assets)

Return on total capital Method used is: (earnings before interest and taxes) / (total

capital)

Question 11:

Measures of variance is a statistical expectation obtained from squaring the deviation of a

random variables from its mean as used in probability statistics. It is calculated using the

following formula:
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Question 12:

Variance type Variance explanation

labor efficiency variance It is the difference between the actual price and the standard price of

an item, multiplied by the actual number of units purchased.

Purchase price variance The difference between the budgeted rates of spending and the actual

variable costs.

Fixed overheard spending variance Difference between the budgeted fixed overhead expense and the

actual fixed overheard expenses that have been incurred.

Selling price variance The difference between actual and the budgeted revenues.

Material yield variance Can be described with the following formula:

(Actual unit usage - Standard unit usage) x Standard cost per unit =
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Material yield variance

Question 13:

(a). reasons for a favourable market price variance

- Presence of fewer materials as compared to the standard quantity which was used in

production.

- Increased practices in efficient worker accountability and supervisory.

- Practices promoting high quality of materials that are purchased by organizations.

- Purchase and use of increasingly efficient machinery during production period

(b)reasons for adverse market price variance

- suppliers with higher commodity prices

- increase in market prices

- high overtime production costs

- insufficient market demand

- unskilled market labor

Question 14:
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An accrued expense would result from a situation where construction employees have finished

building a particular section but have not yet received payment for their labor because payment

has not yet been made.

If an expense is not accrued, a company obtains bad debts from expenses not paid for.

Question 15:

A pre - paid expense refers to payment of goods or services that will be received in the future

period. They are recorded as assets in the balance sheet. An example of pre - paid expenses is the

monthly payments of insurance premiums as pre-paid insurance.

Question 16:

Cost under estimation is unexpected costs incurred during a financial period as a result of under

stating the actual costs during financial budgeting. It results in incurring excess costs than those

previously budgeted for.

Cost underestimation may also be caused by technological, psychological and econo-political

factors.

Question 17:

Strategic misinterpretation is the systematic distortion or mis - statement of facts in response to

incentives in the budget process (Jones et al, 1991).

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Question 18:

Strategic misinterpretation can be controlled by ensuring that the required data and information

for a strategic budget is clearly communicated and supervised for thorough implementation.

Impartial bodies could also be engaged to over see budget creations.

Question 19:

Key purposes and objectives of using and creating budgets includes:

I. Measure for predicting future cash flows for an organization - companies that rely on seasonal

sales or that are rapidly growing may rely on budgetary information in order to forecast future

cash flows expected for success.

II. Budgets are used to ensure efficiency in resource allocation. This is done by determining what

resources will be assigned to the most important activities that will yield more profit.

III. They are also used to measure employees performance through setting up objectives that

need to be achieved within a specified period of time. The use of variances in this case is used

for efficiency in performance evaluation.

IV. Budgets equally provide organizations with guidance and directional control by use of

budgetary goals. It encourages employees to attain the expectations outlined in the budgetary

policies; and equally act as a planning tool.

Question 20:
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Forcasts aim to improve organizational performance by providing better estimations. It also

invests in minimizing errors involved in making future estimations and provide accuracy and

consistency of results.

Question 21:

The importance of using milestones and KPIs in budgetary includes:

I. Measurement of targets - they are indicators of how close a company is from achieving their

budgetary goals or expectations. This is important in ensuring that a company works towards

achieving their objectives.

II. Both KPIs and milestones are important because they offer the encouragement needed

towards being accountable in their budgetary responsibilities. By providing important statistical

analysis, they help make both employees and employers accountable for their actions.

Question 22:

To make accurate forcasts, the information required from a business includes current and previos

data on company's incomes and expenses, different organization accounts important in

assessment of revenues and expenses and a technical tool relevant to analyze the information

provided.

Question 23:

I. Revenues expenditure
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II. Capital expenditure

III. Dividend revenues

IV. Sales revenues

V. Interest revenues

VI. Rent revenues

VII. Cash expenditure

VIII. Depreciation expenses

IX. Bad debt expenses

Question 24:

Forecasting technique Description

Time series forcast Forecasting technique that uses indexed data points in the order of time

periods. It is equally a sequence of data in a disrete time format that is

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plotted and used to decifer important statistical analyses. Time series

forcasting thus uses the model of time series to predict future trends by

using past information.

The delphi method This forcasting method uses a pannel of experts in order to develop a

future expectation. The experts ideologies are summarized into a concrete

forcast that is perceived as the expectatative judgement.

Executive opinions This method uses a composite prediction that has been prepared by

forcasting different experts who work individually to provide accurate expectations.

Question 25:

I. The accuarcy of a forcast will decrease as the period taken under forcasting increases.

II. The forcasts done in a group of individuals tends to be more accurate than forcasts done by

individual personalities simply because group forcasts have a cancelling effect on proposed

errors.
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III. Forcasting assumes that the trends observed in the past will continuously continue to show

even in future evaluations.

Question 26:

Step 1: setting goals and objectives for spending money resources.

Step 2: Identify organizational expenses and revenue sources.

Step 3: acknowledge the organizational wants and needs.

Step 4: create and design the budget required.

Step 5: implementation of the budget plan.

Step 6: monitor and evaluate your process.

REFERENCES

Fisher, R.A. (1922). "The goodness of fit of regression formulae, and the distribution of

regression coefficients". Journal of the Royal Statistical Society. Blackwell Publishing. 85 (4):

597–612. doi:10.2307/2341124. JSTOR 2341124.

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Haynes, T. (n.d.). Social Responsibility and Organizational Ethics. Retrieved May 8, 2010, from

Answers.com: http://www.answers.com/topic/social-responsibility-and-organizational-ethics

L. R. Jones and K. J. Euske, (1991). Strategic Misrepresentation in Budgeting. Journal of Public

Administration Research and Theory: J-PART. Vol. 1, No. 4, pp. 437-460. Published by: Oxford

University Press on behalf of the Public Management Research Association

Lin, Jessica; Keogh, Eamonn; Lonardi, Stefano; Chiu, Bill (2003). "A symbolic representation of

time series, with implications for streaming algorithms". Proceedings of the 8th ACM SIGMOD

workshop on Research issues in data mining and knowledge discovery. New York: ACM Press.

doi:10.1145/882082.882086.

Shailer, Greg. An Introduction to Corporate Governance in Australia, Pearson Education

Australia, Sydney, 2004.

OECD Principles of Corporate Governance, 2004, Preamble and Article IV" (PDF). OECD.

Retrieved 2011-07-24.
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OECD Principles of Corporate Governance, 2004, Article VI" (PDF). OECD. Retrieved 2011-

07-24.