Act507 Accounting For Managers & Assessment Answers
This task will generally be assessed in terms of the following criteria:
- Effectiveness of communication: readability, grammar, spelling, neatness, completeness and presentation.
- Demonstrated competency and understanding: This will be evidenced by the student's ability to be dialectical in the discussion of contentious issues. The marker will pay attention to the accuracy of the content, coverage of relevant issues, structure of argument, English expressions, absence of plagiarism, concise writing style, and referencing style.
- Evidence of research - This will be evidenced by the references used and the inclusion of a bibliography.
Assignment Requirements:
- The assignment requires you to form a new business and to write a brief introduction about it (name, services or products, legal form, merchandising or manufacturing, retail or wholesale, size, industry, etc…)
- In deciding on the legal form for your business, discuss the reasons for your choice.
- There are different financing options that are available to you to finance your business. Provide a list of at least 3 financing options that are suitable and relevant to your business.
- One of your financing options is to take a loan from the bank. Prepare a projected
Balance Sheet and a projected Income Statement that you will be required to lodge with your loan application to the bank. (Use arbitrary numbers that correspond with your business plan).
- Briefly define the role of accounting as it relates to your business (your answer should include accounting information, users of information, accounting process, financial accounting and management accounting, etc...)
- Discuss whether financial statement analysis would be useful for the managers of the business (include in your answer the types of analysis that can be used and how they are useful).
- Discuss the considerations that the management of your business would take into account in deciding on whether to distribute profits or to retain them in the business.
Answer:
Brief Introduction to Business
The preset report details the business plan required to be prepared for establishing a start-up business. In this context, the business plan is about opening a coffee shop in the Australia for meeting the daily need of coffee among the country’s population. The coffee shop is planned to be established in Queensland City of Australia and will be named as ‘Chit-Chat Coffee Shop’. The business is planned to be established in Australia for meeting the need of high-quality coffee among the population of the country. The coffee shop aims to provide to its customers the best in quality coffee along with complementary services of pastries and some other snack items. The coffee-industry in Australia has shown signs of positive growth in the past few years due to increasing demand of coffee among the Australians. It is estimated that the demand of coffee is expected to rise sharply over the coming fiver years in Australia Café or coffee shop, n.d).
Legal form of Business
The company needs to obtain licenses and permits for operating in the highly competitive coffee industry of Australia. The company must be legally ensured in the first place by obtaining legally approved form from the government. The business will be established in sole proprietorship and thus need to meet all the legal requirements regarding the same. As such, the legal form of the business will requires the compliance with Australia New Zealand Food Standards Code and also by other food and safety rules (Reynolds, 2011). Also, the business need to also appoint a food safety supervisor for inspecting the quality of coffee produced at regular intervals of time. This is necessary for obtaining license from the judicial authorities for opening up the business. In addition to this, the company also needs to effectively abide by all the legal rules and legislations regarding the environment protection so that the operational activities of the business do not deteriorate the environment in any way (Café or coffee shop, n.d).
Financing options available to finance the business
There are many sources of finance but looking at the size of the business, the sources are limited to few options. Sources of finance available for the small and medium scale size business are as follows:
- Venture Capitalist:Ventures are refers to the organizations that have interest in start up business and provide the finance help mostly up to $10 million. These organizations seek keen interest in the set up of the business and also control some of the main process. They also provide helps during the expansion plans of the business (Fridson and Alvarez, 2011).
- Loan from financial institutions: This source of finance is most easy way to get the finance to the start the business. Financial institutions are those who are willing to lend the required amount of money to the needy business organization at some interest rate. This source of finance bears fixed amount of charge on the business. Loans are given on the basis of business creditability and capability of owner to discharge the loan amount.
- Trade credit: This type of source of finance is available during the business operation and it depends upon the terms and conditions fixed with the suppliers in the business (Bull, 2007).
Documents to be submitted while applying for the bank Loan
There are various documents that need to be furnished along with the bank loan application. Among them projected income statement and balance sheet helps to better explain the business progress to the bank and easy the process of approval of loan.
|
Expenses that has to be done at start up | |
|
Initial period Expenses | |
|
Particulars |
Amount (in $) |
|
Kitchen and Fixtures |
$ 64,800.00 |
|
Furniture and Interior |
$ 49,500.00 |
|
Legal |
$ 9,000.00 |
|
Rent |
$ 45,000.00 |
|
Packaging and Stationary |
$ 25,500.00 |
|
Other requirements |
$ 12,600.00 |
|
Total expenses at Start up |
$ 206,400.00 |
|
Assets required for the business | |
|
Particulars |
Amount (in $) |
|
Cash Required |
$ 150,000.00 |
|
Current Assets (Inventory) |
$ 30,000.00 |
|
Non-Current Assets |
$ 120,000.00 |
|
Total Assets |
$ 300,000.00 |
|
Total Requirements |
$ 506,400.00 |
|
Capital Furnished at owner's end |
$ 86,400.00 |
|
Loan from Bank |
$ 420,000.00 |
Below is the projected income statement and projected balance sheet for 3 years
|
PRO FORMA PROFIT AND LOSS | |||
|
YEAR 1 |
YEAR 2 |
YEAR 3 | |
|
Sales |
$837,489 |
$1,674,981 |
$3,349,962 |
|
Other income |
$0 |
$4,500 |
$6,500 |
|
Total Revenue |
$837,489 |
$1,679,481 |
$3,356,462 |
|
Direct Cost of Sales |
$185,871 |
$371,742 |
$743,481 |
|
Other Costs of Sales |
$0 |
$0 |
$0 |
|
TOTAL COST OF SALES |
$185,871 |
$371,742 |
$743,481 |
|
Gross Margin |
$651,618 |
$1,307,739 |
$2,612,981 |
|
Gross Margin % |
77.81% |
77.87% |
77.85% |
|
Expenses | |||
|
Payroll |
$154,350 |
$458,500 |
$786,800 |
|
Marketing/Promotion |
$17,500 |
$17,500 |
$17,500 |
|
Depreciation @ 10 % |
$12,000 |
$12,000 |
$12,000 |
|
Rent |
$304,500 |
$434,000 |
$521,500 |
|
Utilities |
$4,463 |
$8,750 |
$14,000 |
|
New location setup |
$43,750 |
$87,500 |
$87,500 |
|
Total Operating Expenses |
$536,563 |
$1,018,250 |
$1,439,300 |
|
Profit Before Interest and Taxes |
$115,056 |
$289,489 |
$1,173,681 |
|
EBITDA |
$115,056 |
$289,489 |
$1,173,681 |
|
Interest Expense @ 10% |
$42,000 |
$42,000 |
$42,000 |
|
EBT |
$73,056 |
$247,489 |
$1,131,681 |
|
Taxes Incurred @25% |
$18,264 |
$61,872 |
$282,920 |
|
Net Profit |
$54,792 |
$185,617 |
$848,761 |
|
Net Profit/Sales |
6.54% |
11.05% |
25.29% |
(Fridson and Alvarez, 2011)
|
PRO FORMA BALANCE SHEET | |||
|
YEAR 1 |
YEAR 2 |
YEAR 3 | |
|
Assets | |||
|
Current Assets | |||
|
Cash |
$ 245,299.60 |
$ 222,842.03 |
$ 402,092.18 |
|
Accounts Receivable |
$ 502,493.40 |
$ 1,004,988.60 |
$ 2,009,977.20 |
|
Inventory |
$ 45,600.00 |
$ 95,800.00 |
$ 246,000.00 |
|
TOTAL CURRENT ASSETS |
$ 793,393.00 |
$ 1,323,630.63 |
$ 2,658,069.38 |
|
Long-term Assets | |||
|
Long-term Assets |
$ 120,000.00 |
$ 120,000.00 |
$ 120,000.00 |
|
Accumulated Depreciation |
$ (12,000.00) |
$ (24,000.00) |
$ (36,000.00) |
|
TOTAL LONG-TERM ASSETS |
$ 108,000.00 |
$ 96,000.00 |
$ 84,000.00 |
|
TOTAL ASSETS |
$ 901,393.00 |
$ 1,419,630.63 |
$ 2,742,069.38 |
|
Liabilities and Capital |
Year 1 |
Year 2 |
Year 3 |
|
Current Liabilities | |||
|
Accounts Payable |
$ 321,937.50 |
$ 610,950.00 |
$ 863,580.00 |
|
Current Borrowing |
$ - |
$ - |
$ - |
|
Tax Payable |
$ 18,263.88 |
$ 61,872.25 |
$ 282,920.25 |
|
SUBTOTAL CURRENT LIABILITIES |
$ 340,201.38 |
$ 672,822.25 |
$ 1,146,500.25 |
|
Long-term Liabilities |
$ 420,000.00 |
$ 420,000.00 |
$ 420,000.00 |
|
TOTAL LIABILITIES |
$ 760,201.38 |
$ 1,092,822.25 |
$ 1,566,500.25 |
|
Paid-in Capital |
$ 86,400.00 |
$ 86,400.00 |
$ 86,400.00 |
|
Retained Earnings |
$ 54,791.63 |
$ 240,408.38 |
$ 1,089,169.13 |
|
TOTAL CAPITAL |
$ 141,191.63 |
$ 326,808.38 |
$ 1,175,569.13 |
|
TOTAL LIABILITIES AND CAPITAL |
$ 901,393.00 |
$ 1,419,630.63 |
$ 2,742,069.38 |
|
Net Worth |
$ 141,191.63 |
$ 326,808.38 |
$ 1,175,569.13 |
Accounting Role in Newly Established Business
The successful establishment of the coffee shop highly depends on its accounting department for effective management of financial resources. The accounting department is responsible for predicting the total amount of expenditure that will be incurred by the business operations and the estimated revenue to be realized. The accounting information needs to be communicated to each and every department of the company for making effective decisions. The accounting information is required at every stage of business establishment for making decisions regarding production, marketing, human resources and other strategic decisions. The development of effective strategic decisions relies on adequate monitoring and controlling of the financial resources. The coffee industry of Australia is highly competitive and thus the company needs to attain a competitive edge by right pricing of its products and services (Dagwell, Wines and Lambert, 2015). The determination of right price for products and services in the coffee shop depends on the accounting departments and therefore it can be said that their role is very crucial for the success of the company. The accounting process of the company will include bookkeeping, determining the accounting methods for valuing the assets and liabilities, managing all the financial resources, developing the financial results of the company and disclosing them publically at the end of each reporting period. The accounting process will help in developing proper financial plan for achieving the pre-determined business goals and objectives.
The financial accounting involves the development of financial reports by the company as pre the standard accounting principles and conventions. The general purpose financial statements of the company includes balance sheet, income statement and the cash flows statements that need to be developed by the company as per the financial accounting guidelines. The development of financial reports is essential for the company to promote goodwill in the market that will in strengthening of its brand image. In addition to this, the company needs to adopt the managerial accounting practices for interpreting and analyzing the useful information relating to income and expenses from the financial reports for making decisions regarding the long-term growth and development (Press, 2015).
Interpretation of the financial statements
Analysis of financial statements provides the profitability performance of the company in the current year and also compares with the previous years. Liquidity performance can also be evaluated through use of financial statements analysis (Werner and Stoner, 2010). So it can be said that analysis of financial statements is very useful to the managers due to its decision usefulness in various categories of operation such as inventory control and sales volume control etc. Different types of financial analysis are given as under:
- Ratio analysis: In this analysis financial statements are evaluated through use of different ratios such profitability ratios, liquidity ratio, capital structure ratio, and market performance ratios. These ratios will provide the detail analysis of performance of the financial statements in current years and also helps to compare with previous year (Sagner, 2010).
- Horizontal analysis: This analysis is also known as trend analysis as it calculates the change in value of each item of financial statements corresponding to base year. It means it provides percentage change in values of income statement and balance in the current years as compare to previous years (Drake and Fabozzi, 2012).
- Vertical Analysis: It is same as horizontal analysis but only difference is that it provides percentage of each item in financial statements to their corresponding base values in the same year. The base value of income statement is net revenue and in balance sheet it is total assets or total of liabilities and capital.
Management Considerations for either Retaining or Distributing Profits
The decision regarding the retaining or profit distribution relies solely on the discretion power of management. The management can decide to retain profit for maximizing the value of the firms. This needs to be done by forecasting the future cash flows that are expected to be realized by the business operations if it retains profit. The retained profit can be used as operating capital in the next accounting cycle for realizing more gains. Thus, on the basis of forecasted results, if there exists chances of realizing larger profits in the coming accounting period by retaining profits rather than distribution then it should be retained. As the business is a start-up, it has minimum number of shareholders and therefore the decision of profit retention is less likely to impact the shareholder’s wealth. However, the mutual consent of all the shareholders of the company should be taken at the time of making such decisions (Dagwell, Wines and Lambert, 2015).
References
Bull, R. 2007. Financial Ratios: How to use financial ratios to maximise value and success for your business'. Elsevier.
Café or coffee shop. n.d. [Online]. Available at: https://ablisui.business.gov.au/QLD/resource/Cafe%20or%20coffee%20shop%20business%20start-up%20guide.pdf [Accessed on: 22 September 2017].
Dagwell, R., Wines, G. and Lambert, C. 2015. Corporate Accounting in Australia. Pearson Higher Education AU.
Drake, P. P. and Fabozzi, F. J. 2012. Analysis of Financial Statements. John Wiley & Sons.
Fridson, M. S. and Alvarez, F. 2011. Financial Statement Analysis: A Practitioner's Guide. John Wiley & Sons.
Press, T. 2015. Accounting for Small Business Owners. Callisto Media Inc.
Reynolds, C. 2011. Public Health and Environment Law. Federation Press.
Sagner, J. 2010. Essentials of Working Capital Management. USA: John Wiley & Sons.
Werner and Stoner 2010. Modern Financial Managing; Continuity and Change. Freeload Press, Inc.
Buy Act507 Accounting For Managers & Assessment Answers Online
Talk to our expert to get the help with Act507 Accounting For Managers & Assessment Answers to complete your assessment on time and boost your grades now
The main aim/motive of the management assignment help services is to get connect with a greater number of students, and effectively help, and support them in getting completing their assignments the students also get find this a wonderful opportunity where they could effectively learn more about their topics, as the experts also have the best team members with them in which all the members effectively support each other to get complete their diploma assignments. They complete the assessments of the students in an appropriate manner and deliver them back to the students before the due date of the assignment so that the students could timely submit this, and can score higher marks. The experts of the assignment help services at urgenthomework.com are so much skilled, capable, talented, and experienced in their field of programming homework help writing assignments, so, for this, they can effectively write the best economics assignment help services.
