In: Accounting
Task 1
You have been recently appointed as the financial consultant of Tesco Plc a UK incorporated retail company that is facing rapid growth. Tesco Plc has opened a new branch in Manchester, and this branch requires the implementation of financial controls that match with the already existing operations. The management team is looking to employ an accountant for this new branch. Before taking this step they need to understand the reasons for recording and reporting financial information, the legal responsibilities they have in this respect and the usefulness of financial information. They also require some specific help in relation to working capital and in respect of a new project which they are considering. Your answers should be based on law and regulations in the UK. You are required to produce a written document for the board of directors that answers their questions about accounting and financial control and to produce some calculations in respect of figures they have provided. Your answer should include a brief introduction of the company to indicate the financial performance of the company. Your answer should include a presentation covering the purpose and requirements for keeping financial records. You have been recently appointed as the financial consultant of Tesco Plc a UK incorporated retail company that is facing rapid growth. Tesco Plc has opened a new branch in Manchester, and this branch requires the implementation of financial controls that match with the already existing operations. The management team is looking to employ an accountant for this new branch. Before taking this step they need to understand the reasons for recording and reporting financial information, the legal responsibilities they have in this respect and the usefulness of financial information. They also require some specific help in relation to working capital and in respect of a new project which they are considering. Your answers should be based on law and regulations in the UK. You are required to produce a written document for the board of directors that answers their questions about accounting and financial control and to produce some calculations in respect of figures they have provided. Your answer should include a brief introduction of the company to indicate the financial performance of the company. Your answer should include a presentation covering the purpose and requirements for keeping financial records.
Required : Produce a written document for the board of directors that ( 1500 - 200 Words , Please do not Copy and Paste )
1- Explains the purpose and requirements for keeping financial records
2- Analyses the techniques for recording financial information
3- Analyses the legal and organisational requirements of financial reporting
4- Evaluates the usefulness of financial statements to stakeholders
5- Explains the difference between management and financial accounting
6- Explains the budgetary control process
7- Describe different costing methods that are used to determine product pricing
1) Purpose and Requirements of Financial Records are -
1 The reasons for and objectives of financial reporting (a)
Define financial reporting – recording, analysing and summarising
financial data. (b) Identify and define types of business entity –
sole trader, partnership, limited liability company. (c) Recognise
the legal differences between a sole trader, partnership and a
limited liability company. (d) Identify the advantages and
disadvantages of operating as a limited liability company, sole
trader or partnership. (e) Understand the nature, principles and
scope of financial reporting.
2 Users’ and stakeholders’ needs
(a) Identify the users of financial statements and state and differentiate between their information needs.
3 The main elements of financial reports
(a) Understand and identify the purpose of each of the main financial statements.
(b) Define and identify assets, liabilities, equity, revenue and
expenses.
4 The regulatory framework
(a) Understand the role of the regulatory system including the roles of the International Accounting Standards Committee Foundation (IASCF), the International Accounting Standards Board (IASB), the Standards Advisory Council (SAC) and the International Financial Reporting Interpretations Committee (IFRIC).
(b) Understand the role of International Financial Reporting
Standards.
2) the Methods are as follows -
Cash Basis - Transactions are recorded on cash basis that is when the transaction has taken place with cash and not when the liabilty of payment or receiving money arises. Eg - Rent for the year 20000$ would be recorded only if the actual payment has been made..
Accrual Basis- Transactions are recorded on accrual basis that is when the liability of payment or receiving payment arises irrespective whether cash has been recieved or not. Eg - Taking the same rent example - Rent of 20000$ would be recorded irrespective of the fact that payment has been made or not .
Periodic basis- A periodic inventory system records all finished goods or products when placedin inventory and the amounts remain in the inventory account until a physical inventory count is taken.
3) The legal and Organizational Requirements of Financial Information is as follows -
a) To Report to the society that the entity is working ethically.
b) Goverment licenses are issued on the basis of financial information provided to them.
c) Management requires this info to ensure that their decisions are taken effectively and efficiently.
d) Financial reporting is required to comply with various laws and regulations.
4) The uses of financial Information to stakeholders are as follows -
Investors
They need information that will help them to make investment decisions. In the case of shareholders in a company, these decisions will often involve whether to buy, hold or sell shares in the company. Their decision might be based on an analysis of the past financial performance of the company and its financial position, and trying to predict from the past what might happen to the company in the future
Employees
Employees need information about the financial stability and profitability of their employer. An assessment of profitability can help employees to reach a view on the ability of the employer to pay higher wages, or provide more job opportunities in the future.
Lenders
Lenders, such as banks, are interested in financial information about businesses that borrow from them. Financial statements can help lenders to assess the continuing ability of the borrower to pay interest, and its ability to repay the loan principal at maturity.
Customers
Customers might be interested in the financial strength of an
entity, especially if they rely on that entity for the long-term
supply of key goods or services.
Government
The government and government agencies are interested in the financial statements of business entities. They might use this information for the purpose of business regulation or deciding taxation policies.
The public
In some cases, members of the general public might have an interest in the financial statements of a company. The IASB Framework comments: ‘For example, entities may make a substantial contribution to the local economy in many ways including the number of people they employ and their patronage of local suppliers.
5) The Difference B/W management and Financial Accounts is as follows -
Financial accounts | Management accounts | |
Financial accounts detail
the performance of an organisation over a defined period and the state of affairs at the end of that period. |
Management accounts are used to aid management record, plan and control the organisation's activities and to help the decisionmaking process. |
|
Limited liability companies
must, by law, prepare financial accounts |
There is no legal requirement to prepare management accounts |
|
The format of published
financial accounts is determined by local law, by International Accounting Standards and International Financial Reporting Standards. In principle the accounts of different organisations can therefore be easily compared |
The format of management accounts is entirely at management discretion: no strict rules govern the way they are prepared or presented. Each organisation can devise its own management accounting system and format of reports |
|
Financial accounts
concentrate on the business as a whole, aggregating revenues and costs from different operations, and are an end in themselves. |
Management accounts can focus on
specific areas of an organisation's activities. Information may be produced to aid a decision rather than to be an end product of a decision. |
|
Most financial accounting
information is of a monetary nature |
Management accounts incorporate
non-monetary measures. Management may need to know, for example, tons of aluminium produced, monthly machine hours, or miles travelled by salesmen |
|
Financial accounts present
an essentially historic picture of past operations. |
Management accounts are both an historical record and a future planning tool. |
6) Budgetary Control Process-
A) Establish a plan or target of performance, which coordinates all the activities of the business.
B). Record the actual performance.
C). Compare the actual performance with that planned.
D) Calculate the differences, or variances and the reasons for them.
e). Act immediately, if necessary, to remedy the situation.
7 ) Different Costing Methods to determine Product Price Are as follows -
a) Cost Plus Pricing - A certain Profit is added to the total costs incurred to manufacture the product.
b) Marginal Cost Pricing Marginal cost is the increase or decrease in total productioncost if output is increased by one more unit. The formula to obtain the marginal cost is change in costs/change in quantity. If the price you charge per unit is greater than themarginal cost of producing one more unit, then you should produce that unit.
c) Absorbtion Costing - Costs are absorbed to the product on the basis of a predetermined rate machine hour or labour hour. All Expenses are divided by an estimated total number of machine hours or labour hours
D) Activity Based Costing - Costs are absorbed on the basis of Activity which is performed to manufacture the product and the costs incurred to conduct such an activity. This method id considered more appropriate since costs are divided on the basis of every activity.
E)On going Rate Pricing - The ongoing Market price is used to determine the product price.