ACCT11081 Introductory Financial Accounting : Essay Fountain

Question:

The owners of Coffee Supreme are Chris Dillon and Maggie Wells. Chris has been a national slotcar champion in his spare time and Maggie is a quite extraordinary woman with a range of interests, including a deep love for cats (and geese). I once had dinner with a few friends at arestaurant in Wellington, New Zealand. Chris Dillon was at the dinner and he had recently spent a few weeks skiing in Canada with a few long-term friends who he first met in his early twenties; and another friend at the dinner had recently spent four weeks cruising in Antarctica; and another friend had been on a road trip on his new 880cc bike, marking his return to motorbikes after a few decades off. I had spent a fair bit of my previous few weeks writing chapters in a study guide for accounting students, sitting alone but seeking to connect and talk to many people who I have not yet met through a few written words, while sitting in a café. I love doing this. And these asynchronistic interchanges I have with others about the essential ideas about accounting is an exciting and creative experience; yet for some reason, I spent a lot of time listening to others at that dinner.
 
What do Chris and Maggie do to manage this risk of Coffee Supreme? What do they do to manage the risk of having so much money owing to Coffee Supreme at any given time from so many cafés? Well, they would no doubt set limits for how much coffee they are prepared tosupply to different coffee shops ‘on credit’ (that is, before they are paid for it) and set limits on how long they are prepared to wait until they are paid for the coffee they sell to a particular coffee shop.
 
 

Answer:

Introducion:

As per the requirement I would like to express my viewpoints on recording transactions with parties and also state the importance and requirements of such transaction recording. The maintenance of records is important so that the accountants can have an overall understanding of the financial reporting process. The global financial crisis of 2008 showed that the trust in the business can be a major concern for the business. During the time of the global financial crisis, banks were unwilling to invest or lend money even to other banks as they were unable to effectively estimate the risks which were involved and therefore the lending by banks were completely stopped. In an accounting process, the major elements or classification of items are assets, liabilities, revenues or incomes, expenses or losses and equity (Bentley, Omer & Sharp, 2013). These are the items on the basis of which the whole of accounting entries and posting of journal are done. In accountancy, book keeping techniques are used for the purpose of recording transactions. In addition to this, the items of the financial statements such as assets, liabilities and equity should be measured considering the currency of the country for which the financial statements are prepared (Lim, 2013).

As per my belief, the changes in the marketplace across the world is due to the changes in business activities which also results in changes in value of firm. A business has a dual nature which takes into account the interest of the shareholders of the company as per business view which are constantly changing. The current value of the firms and the current value of the interest of the shareholders are to be considered.

The study of accounting which takes place in a university does not provide us with enough exposure which practical application of the same can provide. I am of the opinion that we can further develop skills and knowledge in accounting with practical application and application of the theories effectively. In classroom we only learn the topic and mug up the definitions even though we might not be able to understand the same. Another thing which is clear to me is that a business can only plan to reduce the risks which the business faces, to completely avoid the risk is not possible. The main purpose of a business is to manufacture or provide services is to add value to the products and meet the expectation of the customers, stakeholders and society at large.

The company which I have chosen for this part is Avon Rubber Plc. Avon Rubber Plc is engaged in the manufacture and engineering of respiratory protection equipment for military, law enforcements and fire personnel. The company also makes milking equipment for Dairy farmers. The company operates in England and has its headquarter situated in England (Avon Rubber p.l.c.. 2018). The company is engaged in core innovative activities which can further develop the process of the company. The business model of the company is to maximize shareholder values.

The blog which contains information about Avon Rubber Plc (https:// edisoninvestmentresearch.com/…blog/…/avon-rubber-plc-avon-uk-mod-general)

Avon Rubber plc has entered into a 5 years agreement with the UK’s Ministry of Defence (MOD) for the resupply of general service respirator. The company is likely to incur certain amount of capital expenditure which is estimated to be around £ 3 million which will be incurred in between the financial years 2018 and 2019. In addition to this, the contract is expected to generate revenues which will be up to £ 16 million over the five years period of operations (Avon Rubber p.l.c.. 2018). The company wants to further innovate its products so that the company is able to earn more revenues and further develop the company.

Date

Amount ($)

Transaction Details

Category in Chart of Accounts

01-01-2018

7500

Payment to Metcalfe Life Insurance

6.1

Insurance Expenses

04-01-2018

1750

Payment to Howard Cars

6.3

Travelling Expenses

06-01-2018

8750

Payment to Tony Parker

6.2

Purchase

09-01-2018

5600

Payment to Bucky Stark

6.2

Purchase

12-01-2018

18600

Deposit from Steve Banner

4.1

Revenue from Sales

16-01-2018

3000

Payment to Highsky Real Estates

6.4

Lease Expenses

18-01-2018

25800

Deposit from Nick Rogers

4.1

Revenue from Sales

22-01-2018

9950

Payment to Bucky Stark

6.2

Purchase

31-01-2018

15

Bank Charges

6.5

Bank Fees

31-01-2018

10300

Deposit from Bruce Lane

4.2

Revenue from Service

31-01-2018

8000

Payment to Carole King

6.2

Purchase

31-01-2018

3150

Payment to Eve

6.6

Wages

31-01-2018

2800

Payment to Adams

6.6

Wages

31-01-2018

6400

Payment to Hydro Power

6.7

Power & Electricity

31-01-2018

2180

Payment to Dalton

6.8

Fuel Charges

31-01-2018

550

Payment to CBN Bank

6.9

Interest on Loan

31-01-2018

16400

Deposit from Henry Carter

4.2

Revenue from Services

Student Name:

 

Income Statement

 

for the month ended 31 January 2018

 

INCOME  

 

Revenue from Sales

44400

Revenue from Service

26700

TOTAL INCOME

71100

EXPENSES

 

Insurance Expenses

1750

Purchase

32300

Wages

5950

Lease Expenses

3000

Bank Fees

15

Power & Electricity

6400

Fuel Charges

2180

Travelling Expenses

2180

Interest on Loan

550

Insurance Expenses

7500

TOTAL EXPENSES

61825

Profit/(Loss) for the period

9275

Avon Rubber Plc.

WORKSHEET

30-Sep-17

ACCOUNT

TRIAL BALANCE

INCOME STATEMENT

BALANCE SHEET

Debit (DR)

Credit (CR)

Debit (DR)

Credit (CR)

Debit (DR)

Credit (CR)

£’m

£’m

£’m

£’m

£’m

£’m

Assets

 

 

 

 

 

 

Intangible Assets

40.4

 

 

 

40.4

 

Property, Plant & equipment

26.3

 

 

 

26.3

 

Deferred Tax Assets

8.2

 

 

 

8.2

 

Inventories

21.8

 

 

 

21.8

 

Trade & Other Receivables

23.8

 

 

 

23.8

 

Derivative Financial Instruments

0.2

 

 

 

0.2

 

Cash & Cash equivalents

26.5

 

 

 

26.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Borrowings

 

1.8

 

 

 

1.8

Trade & other Payables

 

30.1

 

 

 

30.1

Current Derivative Financial Instruments

 

 

 

 

 

0

Current Provisions for liabilities and charges

 

0.3

 

 

 

0.3

Current tax Liabilities

 

6.8

 

 

 

6.8

Deferred Tax Liabilities

 

6.8

 

 

 

6.8

Retirement benefit obligation

 

44.1

 

 

 

44.1

Non-Current Provisions for liabilities and charges

 

1.7

 

 

 

1.7

Equity

 

 

 

 

 

 

Ordinary Shares

 

31

 

 

 

31

Share Premium account

 

34.7

 

 

 

34.7

Capital redemption reserve

 

9.1

 

2.1

2.1

9.1

Accumulated Losses

32.8

 

19.4

 

32.8

19.4

Dividends paid

3.2

 

 

 

3.2

 

Movement in shares held by the employee benefit trust

1

 

 

 

1

 

Movement in respect of employee shares schemes

 

0.9

 

 

 

0.9

Deferred tax relating to employee share schemes

0.4

 

 

 

0.4

 

Revenue

 

 

 

 

 

 

Revenue

 

163.2

 

163.2

 

 

Finance Income

 

0.1

 

0.1

 

 

Expenses

 

 

 

 

 

 

Cost of Sales

101.5

 

101.5

 

 

 

Selling & Distribution Costs

20

 

20

 

 

 

General & Administration Expense

21.9

 

21.9

 

 

 

Finance Costs

0.3

 

0.3

 

 

 

Other finance expense

1

 

1

 

 

 

Taxation

 

2.9

 

2.9

 

 

Other Comprehensive Income

 

 

 

 

 

 

Actuarial loss recognised on retirement benefit scheme

3.8

 

3.8

 

 

 

Deferred Tax relating to retirement benefit scheme

 

0.6

 

0.6

 

 

Net Exchange differences offset in reserves

2.3

 

2.3

 

 

 

Cash Flow hedges

 

1.1

 

1.1

 

 

Tax relating to exchange differences offset in reserve

 

0.2

 

0.2

 

 

 

 

 

 

 

 

 

TOTAL

335.4

335.4

170.2

170.2

186.7

186.7

After the completion of the first five steps, the important aspect of the practical approach in accounting can be clearly understood. I would like to provide my feedback to students so that it can help them to under the practical aspect of accounting and grasp the concept (Chambers, 2014). The units which are taught in the university has importance in the practical life and also are significant at the same time. Therefore, it is important for students to pay proper attention to class room lectures and practical sum presentation in order to learn and develop practical skills necessary (Macve, 2015). In accountancy, it is an accepted fact that if a student has his basics of accountancy clear such as journal, ledgers and trail balance clear then his overall practical approach will be appropriate. I would like to provide feedbacks to three students about what I have learned. Accounting is one of those subjects which has a wide range application and it will be used by us when we are pursuing our career as an accounting professional. In addition to this, everyone should have a basic knowledge of accounting (Weygandt, Kimmel & Kieso, 2015). I would like the students to follow always practical approach when it comes to subjects like accounts as there is wide difference between what is taught in class and the real application of the knowledge which is taught in class. When applying for an accounting job profile, students will be asked questions related to accounts in interview rounds and also about our ability to handle different situations. In a classroom environment the course we need to complete is vast and therefore most of the students look at the vastness and not the learning aspect of the course or its application. However, in a working environment where practical application is necessary, both learning of the concepts and practical application can be achieved as it is basic requirement of the work (Adejare, 2014). In order to help other students, I would like to post my feedbacks in social networking sites which are popular among the students so that their common problems and approach towards accounting can be rectified.

I have examined the financial statements of Avon Rubber plc for the purpose of understanding the inventory practices of the company which forms a significant part of the business (Shen et al., 2013). The valuation of inventory is shown in the statement of financial position of the company and treatment of the same and full disclosure is provided in the notes to accounts of the company. It is also seen in the financial statement that the inventory is subdivided into raw materials, finished goods and work in progress which is clearly shown in the notes to accounts of the company. The inventory value of Avon Rubber plc is shown in the balance sheet as £ 21.8 million in 2017 and the same is shown as £ 20.6 million in 2016. The provision for write down of inventory is shown as £ 3.7 million in 2017. The provision has reduced from the previous year’s estimate which was £4.2 million. The value of inventory which is shown in the balance sheet of the country shows that the value of inventory has increased from previous year results (Reineking et al., 2013).

 

The company has not disclosed the method of inventory valuation in the notes to account in the financial statements. In addition to this, in the principle risks and risk management section which is shown in the financial statements of the company, shows that the company has poor inventory management system (Collier, 2015). Therefore, it is difficult for the users of the financial statement to understand in what method the valuation of inventory is used by the business. It can be suggested to the management of the company that improvement is necessary to be made in the inventory management system. Due to the omission of inventory valuation method, I cannot effective determine the management of inventory system.

Recording of journal entries is the first step towards preparation of financial statements of any company. As the transaction take place journal entries are recorded and thereafter the same are posted in respective ledger accounts (Beams, Brozovsky & Shoulders, 2017). The balances of such ledger accounts are posted in the financial statements. Therefore, it can be said that the whole process of accounting starts at journalizing the transactions of the business. Any manipulations in the journal or ledger balances can affect the whole of financial statements of the company. Any wrong entries which might be posted intentionally or by mistake will affect the financial statements and the results which are obtained by such statements would be misleading.

As per the depreciation policy of the Avon Rubber ltd, the depreciation which is charged by the business has increased from previous year’s analysis. The depreciation of plant, property and equipment is bifurcated into two parts which are dairy products equipment and respiratory products equipment (Bahadir & Tolga, 2013). The amount of depreciation charged has increased from previous year which is £ 5.9 million in 2016 and this increase to £ 6 million in 2017. This signifies that the company has made certain additions to the assets.

The notes to accounts of the company contains all information which is related to depreciation which is charged on every category of assets of the company. I can deduce from the analysis of the financial statement of the company that the management charges straight line method of depreciation in the case of assets of the company (Bhasin, 2016). The notes to accounts section shows that the in case of property, plant and equipment, the useful life of the assets are considered after deducting the residual value from the cost of the assets in order to get equal depreciation amount.

In addition to this, I am of the opinion that the users of the financial statements should be provided with clear information about any change in the methods of charging depreciation if any and also whether the method of charging depreciation is consistent in relation to every year. The disclosure requirement of depreciation has been appropriately provided by the management of the company which the users of the financial statements can understand. The company has accumulated depreciation which is shown in the statement of profit and loss of the company. The accumulated depreciation for all the fixed asset is totaled and shown in the notes to accounts as £ 41.5 million.

The journal entries which are related to depreciation are affect the depreciation treatment of the business and also impact the value of assets if such amount is misrepresented. It will affect the whole of financial statements (Edwards, 2013). The impact will also be on the net profit of the business. Such journal entries can be manipulated if the management changes the method of charging depreciation suddenly with genuine reasons. This will misstate the financial statements.

As per the analysis of the financial report which was conducted by me on Avon Rubber ltd showed that there are certain problems which are associated with the disclosure requirements for inventory. The company needs to report the valuation technique which it has used for the purpose of valuation of inventory. In such a situation it is clear to me that the users of the financial statements of Avon Rubber plc will not have a clear understanding about the inventory management practices of the company. In addition to this I came across the software application MYOB which assisted me in preparing trial balance of the financial statements. I would like to advice students to have a clear understanding of MYOB application as it is a useful tool for overall development of accounting skills. The application allows financial statements to be automatically reconciled and also file GST returns without making a separate statement. The application software is also user friendly. I would also like to advise students to have a through knowledge of the accounting standards and principles which are used by businesses to prepare financial statements (Nobes & Stadler, 2015). In my opinion with appropriate knowledge of the relevant accounting standards students will not be able to interpret any financial information or recognize significant accounting treatments.

 

Reference

Adejare, A. T. (2014). The analysis of the impact of accounting records keeping on the performance of the small scale enterprises. International Journal of Academic Research in Business and Social Sciences, 4(1), 1.

Avon Rubber p.l.c.. (2018). Avon-rubber.com. Retrieved 28 April 2018, from https://www.avon-rubber.com

Bahadir, O., & Tolga, B. (2013). Accounting policy options under IFRS: Evidence from turkey. Accounting and Management Information Systems, 12(3), 388.

Beams, F. A., Brozovsky, J. A., & Shoulders, C. D. (2017). Advanced accounting. Pearson.

Bentley, K. A., Omer, T. C., & Sharp, N. Y. (2013). Business strategy, financial reporting irregularities, and audit effort. Contemporary Accounting Research, 30(2), 780-817.

Bhasin, M. L. (2016). Survey of Creative Accounting Practices: An Empirical Study. Wulfenia Journal KLAGENFURT, 23(1), 143-162.

Chambers, R. L. (Ed.). (2014). An accounting thesaurus: 500 years of accounting. Elsevier.

Collier, P. M. (2015). Accounting for managers: Interpreting accounting information for decision making. John Wiley & Sons.

Edwards, J. R. (2013). A history of financial accounting (RLE Accounting) (Vol. 29). Routledge.

Lim, F. P. C. (2013). Impact of information technology on accounting systems. Asia-Pasific Jornal of Multimedia Services Convergent with Art, Humanities and Socialgy, 3(2), 93-106.

Macve, R. (2015). A Conceptual Framework for Financial Accounting and Reporting: Vision, Tool, Or Threat?. Routledge.

Nobes, C. W., & Stadler, C. (2015). The qualitative characteristics of financial information, and managers’ accounting decisions: evidence from IFRS policy changes. Accounting and Business Research, 45(5), 572-601.

Reineking, C., Chamberlain, D. H., Rudolph, H. R., & Smith, L. M. (2013). An examination of inventory costing convergence under generally accepted accounting principles and International Financial Reporting Standards. Journal of International Business Research, 12(2), 17.

Shen, L., Govindan, K., Borade, A. B., Diabat, A., & Kannan, D. (2013). An evaluation of vendor managed inventory practices from small and medium indian enterprises. Journal of Business Economics and Management, 14(sup1), S76-S95.

Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Financial & managerial accounting. John Wiley & Sons.

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