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ACT507 Accounting for Managers
A. This difference in accounting policy has huge impact and has affected the company’s financial statements over that period of time which will be studied as further. The basic difference between the straight line depreciation method and double declining depreciation method is of rate. The rate used in double declining depreciation method is double from the straight line depreciation method whereas the straight line depreciation method is having single or fixed depreciation rate. This will impact the profits which will be lesser for the Company B in comparison to Company A, which will result in reporting the lesser profits in the financial statements. This will also help them to save tax as the lesser profits will incur the less liability of taxes. Also the depreciation of the assets of the Company B assets as compare to the Company A assets will be depleted or depreciated more fast or in years as compare the useful life of 20 years because of the double declining depreciation method. The depreciation provision or the surplus funds will be thus utilized in the investments which will again beneficial for the business (Wong & Joshi, 2015).
Over all the financial statements of Company B will be understated with the profits assuming the profits and assets of equal value as compare to Company A. This will be maximizing the profits of Company A with incurred liability of taxes and depreciation period of 20 years for their assets.
B. The three types of financial statements with the depreciation information to the readers and viewers are discussed as below. These financial statements are discussed with their functions and utility to the depreciation. These are as follows:
1. Income Statement: The income statement is used to derive the net profit for the organization. It is a combination of all the expenses and receivables for the organization so that they can track at one place and get the actual amount for their profits and net profits. This will provide the adequacy to the financial statements and purpose for business development. The depreciation is a charge over asset and hence this is treated as expense and is undermined in the income statement where it is appropriated in the debit side of the statement (Kane, 2014).
2. Balance Sheet: The balance sheet is providing all the related figures of the assets and liabilities side where one can get evaluation of the financial statements properly and adequately. The depreciation charged in the income statement is deducted from the parent asset to write down the value which is the actual depreciated value for the year. This is done because every asset has its useful value where after that business will be needing one more substitute for that. Hence it is write down on a regular basis (Kane, 2014).
3. Notes to financial statements: In these notes the method of the depreciation, their charging pattern and their rates are disclosed to the readers or the viewers, so that they can make an understanding of the proper charge over asset by the depreciation method (Kane, 2014).
Considering the situation and analysis of the financial statements of the Kangaroo Express of the Marsipual family, there are many finances alternatives available in the market to raise the adequate funds. This is in the choice of the Marsipual family to adopt one or more from these. All the alternatives are equated with the returns and risks of each. These alternatives are as follows:
1. Issuing Equity shares: The ownership of the Marsipual family is 20% in the capital structure, this will allow them to issue the equity shares so that they can quickly raise the funds and can make the significant difference of not getting any external liabilities. This option is available with risks and returns both. The prime risks to the business are this option wills share the ownership which will share the decision making, share the profits and dividends and share the structure of the board. The returns of these options are it will not allow paying any interest; it will share the losses in case it occurs, very convenient option and will make a quick availability of the finance (Hörmann & Schabert, 2015).
2. Mortgage option: The mortgage option can be availed on the assets of the organization. This is also a convenient option where the organization can quickly arrange the funds on the asset value and can solve their purpose of arranging the funds. The mortgage option is also having risk factors which are it will mortgage the assets and in case of no payment that assets can be charged with the payments. But the benefits of this option are related with no ownership transfer; no interference in the decision making and the liability is limited to the asset which is mortgaged. This is also a convenient option for a business and easy to raise the funds quickly (Hörmann & Schabert, 2015).
3. Retained Earnings / Surplus funds: The capital structure is compiling of 20% of the portion in other funds which might be retained earnings. These funds can be utilized in the raising finance option to make the better development of the business. These funds are with risk factors that business will not be having any contingency fund after utilizing this fund. But the benefit in this is related with the no risk facility, no ownership or profits distribution and highly convenient option. This is the most exercisable option in the market which has zero interest or cost on it (Hörmann & Schabert, 2015).
Managerial accounting is an essential part of the accounting. The accounting in its own is just a theory and concepts practice, but together it is a whole organization dealing with these concepts and theories in benefitting the organization. The ethical practices in this management accounting are all together necessary to sustain the process and making the huge benefits related with the transparency and adequacy. The ethical practices allow the organization making the decisions justified in the favor of accounting and not getting bias with the owners, directors or any influences. These ethical practices are the so called reasons for the recognition and goodwill of the organization where they actually transform the organization in the way it looks convenient for the external parties and the clients of the business. The ethical practices not only satisfy the external parties of the business but also help the employees and internal parties of the business feeling safe and convenient to work with the organization (Drew & Dollery, 2015). The organization has high end roots and hence the employees and other operational members should feel secure while dealing with these targets. It is a mandatory fact, where the ethical practice is going on the efficiency and output of the workers are very high and their performance is developing day by day. Ethical behavior also helps the suppliers gaining confidence in the business and making the orders regular and clean. Hence, the ethical practice is a walk along thing and not a separate matter to the business (Drew & Dollery, 2015).
The financial statements are a high end key to determine the progress and stability of any party or related factor in the organization. The financial statements have all the related figures and fixtures which can be determined while developing the supplier’s net worth and the related transactions with the suppliers. The financial statements will also help us in determining the financial transactions related with the returns., outward, decline of payment in case of the suppliers not decent or trustworthy. Hence the financial statements should be taken a proper help in regard with the decision on the performance of the related parties with the business (Carey, Potter & Tanewski, 2014).
The limitations of the financial statements are related with the reporting patterns which cannot be readable or justified. This limitation is related with the principles of the accounting and the bodies like GAAP, AASB etc., which is not easy to understand for a common man. The financial statements are prepared with an expertise and a financial analyst or a CPA is the authorized person to approve the financial statements. In this relation the general people are little bit extravagant in attending and understating the requirements of the financial statements and utilize the information in the financial statements. This also provides a chance to the opportunist in meeting the gap with greed and doing forgeries (Carey, Potter & Tanewski, 2014). The meaning of the financial statements and the notes provided to the financial statements are also sometimes in the favor of the organization which provides difficulty to summarize the results and confusing with the interpretation as the output is something different and is written in something different purpose.
The judging criteria of the suppliers will be as follows:
Liquidity: The liquidity availability of the supplier is the most deciding factor of the performance for the supplier to employ him in the business or not.
Efficiency: The efficiency also plays an equal role in judging the supplier as the efficiency plays a great role in the performance of the supplier whether he is a competent person or not.
Profitability and gearing: These are the factors where the soundness and adequacy of the supplies will be tested and judged on the basis of the profitability. This will also provide the details of the repayment capacity and taking financial risks (Bushman & Smith, 2010).
Bushman, R.M. & Smith, A.J. 2010, "Financial accounting information and corporate governance", Journal of Accounting and Economics, vol. 32, no. 1, pp. 237-333.
Carey, P., Potter, B. & Tanewski, G. 2014, "Application of the Reporting Entity Concept in Australia", Abacus, vol. 50, no. 4, pp. 460-489.
Drew, J. & Dollery, B. 2015, "Inconsistent Depreciation Practice and Public Policymaking: Local Government Reform in New South Wales", Australian Accounting Review, vol. 25, no. 1, pp. 28-37.
Hörmann, M. & Schabert, A. 2015, "A Monetary Analysis of Balance Sheet Policies", The Economic Journal, vol. 125, no. 589, pp. 1888-1917
Kane, A. 2014, "Disarmament: The balance sheet", New Zealand International Review, vol. 39, no. 4, pp. 19-22.
Wong, K. & Joshi, M. 2015, "The Impact of Lease Capitalisation on Financial Statements and Key Ratios: Evidence from Australia", Australasian Accounting Business & Finance Journal, vol. 9, no. 3, pp. 27-44.