FIM601 ASSESSMENT 3 – Research and questioning (verbal)

FIM601 ASSESSMENT 3 – Research and questioning (verbal)

1. In your own words, describe responsibility accounting?

Responsibility accounting refers to a system that entails the identification of responsibility centers and their objectives, development of measurement schemes, and the preparation and analysis at the report centers. Responsibility accounting involves compiling and reporting profits from the areas of responsibility (Sari and Mekar 2019). Responsibility accounting devolves responsibility to respective centers, promoting management by objectives.

2. Detail 4 different types of budgets, and their purposes.

There are different types of budgeting in accounting, they include; zero-based budgeting which commences with the assumption that each department’s budget is zero and shall be initialized from scratch. The type of budgeting aims to avoid any types of expenditures not considered significant to the company. The budget is implemented during urgency in cost reduction for instance when there is an economic downturn. Value-position budgets are budgets designed by an organization to ensure that each task budgeted for has to account for some value. The budget aims to cut out unnecessary expenditures that in non-valuable. The budget aims to establish if the values outshine the costs incurred. Thirdly, activity-based budgets in organizations are designed to determine the amount of input required to arrive at certain output results. The purpose of the budget is to aid the company analyzes the amount of expenditure required to meet the sales target (Types of Budgets 2020). Lastly, the incremental budget takes the previous year’s budgets and subtracts or adds a certain percentage to arrive at the current year’s budget. Incremental budgets are used where yearly cost drivers are constant.

3. What information would you require to plan and prepare a budget for a new business? Detail where this information would come from.

Creating a budget for a new business requires one to know the time frame of the budget; the information is from the needs of the business, for instance, periodical outcomes. One needs to know the total fixed expenses of the businesses (How to Create a Budget, 2020). The total expenses are arrived by the summation of expenses such as rent, salary, and insurance costs. Variable costs are essential for budgeting and they include utilities, staff wages, and raw materials. The information is usually estimated but always assumed as fixed costs to save costs. Finally, budgeting has to provide the income details, arrived by looking at the business trends in the same marketplace, and predicting the income.

4. Describe what external factors should be taken into consideration when planning and preparing a budget.

Social external factors influence such as the norms, tradition, and cultures of the business environment greatly affects budget preparation. Political and legal influences including statutory fees, legal implications, and influence from the political realm. Additionally, economic factors largely influence budget preparation (Gulpenko and Tumashik 2017). This includes marketplace factors such as demand, supply, and competition. Moreover, economic trends in the marketplace greatly determine the budget preparation phases.

5. What are the financial reporting cycles relevant to your Industry?

Warehousing and Inventory cycle

This shall involve analyzing if the inventory in the balance sheet tallies with the cost of sold goods. The cost of goods sold and inventory journals should be accurate in the balance sheet (Reporting Cycle, 2020). Journals applicable include the sales journal, acquisition journal, and general records.

Sale and Collection cycle

In this cycle, accounting personnel shall look at the cash receipts records, sales records, and the organization’s general records. Accounting is done to ascertain whether payments from customers through sales are deposited to a bank account and uncollected debts are recorded from the balance sheet.

Payment and acquisition cycle

In this cycle, the acquisition records, cash disbursement records, and general records will be the source for information needed for the payment and acquisition cycle (Norwalk, 2018). Auditors ensure that bills are paid form the bank and recorded together with expense records.

6. Describe 2 different capital investment evaluation techniques

Budgeting requires constant evaluation to analyze the rationale of decisions. Techniques for capital investment evaluations include the net present value; the process includes the difference between the present mission’s benefits and the present organizational costs. The second technique is the internal rate of return that business people use to evaluate the rate of returns anticipated from a certain project.

7. What steps would you take to effectively implement the budget into a team environment?

There are four steps an organization representative takes to implement the budget into the team environment. They include;

Determining the forecasting needs of an organization;

Establishing the costs of a particular project;

Determining the total revenues, and

Review, monitoring, and evaluating the deviations in the business cycle.

8. What are INCOTERMS? Describe the following INCOTERMS codes.

INCOTERMS are “International Commercial Terms” published by the International Chamber of Commerce (ICC) and used by international and domestic trade missions. INCOTERMS make trade easier by making traders understand each other easily in different geographical locations.

• Departure (Group E)

    FCA – Free Carrier

FCA is a trade term in trade entailing that the seller of certain goods or services is responsible for the delivery of the services. Destinations agreed upon by the buyer and seller are in transport nodes such as airports, railway stations where the carrier operates from.

• Main Carriage Paid By Seller (Group C)

                 CIF – Cost, Insurance And Freight

CIF is a term used in trade implying that the seller has to procure on behalf of the buyer and pay for the insurance of the product. CIF only applies to Maritime transport.

• Arrival (Group D) 

                DAF – Delivered At Frontier

DAF, as the term suggests, implies that the seller needs to deliver the goods at a certain location, preferably at a border point. Transactions mainly occur through the land, the seller pays for transport whereas the buyer ensures custom clearance is done on his benefit.

9. What is the trades practice Act?

The trade practice Act is a trade law which its main objectives are to encourage competition and efficiency in business and secure the interests of consumers and welfares by ensuring they are adequately protected when transacting with sellers and buyers.

10. What is the Warsaw Convention?

The Warsaw Convention is an international convention that regulates the burden of air carries that cross international borders (Hodgkinson and Johnstone 2016). It is a civil aviation treaty entailing a legal framework of all air carries defining potential liability of air carriers, avail requirements for air transport documentation, and gives general procedures and guidelines in air transport. It was founded in (Warsaw) Poland in 1929 and has evolved over many nations.

11. What is the World Trade Organization?

World Trade Organization is an international organization that is concerned with the regulation of trade among different nations. It is the sole organization that deals with the global regulations of trade. If assures train flows smoothly and free. The majority of Trading Nations have signed agreements with the organization in helping businesses easily export, import, and manage their enterprises (Baldwin, 2016). However, other nations believe the organization undermines trade democracy and increase the wealth gap among nations.

12. What is Bilateral and Regional Free Trade Agreements?

Bilateral and Regional Free Agreements are conventions (between two nations in the bilateral agreement and more nations in a ‘region’) to promote commerce and trade by eliminating certain trade barriers for instance tariffs, import levies, and constraints to exports by seeking to encourage investments and partnerships within the region (Lester and Mercurio 2016).

13. What is meant by financial probity?

Financial probity refers to strict adherence to the code of ethics with a focus on integrity and realism in commerce issues in an organization.

14. What records need to be kept for the ATO for a small business with an annual turnover of less than $2million (cash basis)

Small business enterprises can access various concessions such as the tax concession from The ATO. In confirming the business has a turnover of less than $2 million, the owner has to avail of the gross income for the year. This should include additional annual turnover for affiliate companies or connections, excluding tax charges on goods.

15. Consider the following information.

As an accountant to a large production firm, John looks at a proposal to purchase a $900,000 stamping machine to increase output.  He determines the following information: • The new machine can do 100 more units per hour • The 4 workers currently doing the stamping can be replaced • The units will be higher quality because they are more uniform

John calculates the selling price of the 100 units per hour multiplied by the number of production hours per month, plus adding the 3% that aren’t rejected due to the increased quality of the machine output vs. manual stamping.  He adds the monthly wages of the workers that are no longer required and in the end, you have a healthy benefit calculated.

John then calculates the monthly cost of the machine by dividing the purchase price by 12 months per year and divides that by 10 years the machine should last.  The manufacturer’s specs state the power consumption of the machine and John calculates the cost of that as well.  He subtracts the total cost figure from the total benefit figure and this shows a healthy benefit calculated.

1. Consider the above example of cost-benefit analysis. Do you think John has done a good job of calculating the benefit of the machine? Has he used the information at his disposal correctly?

 John has calculated the cost-benefit analysis properly but has left out details about the assumptions in the marketplace compared to the anticipated returns. Assumptions may include inflation and change in market trends due to technology.

1. Consider the costs of the new machine. Has John factored in all associated costs? If not, what has he left out? John has not factored in all costs for the machine.  John has left out maintenance costs could have realized a finer cost-benefit analysis. Additionally, setting the machine and training of staff would incur some significant costs.
2. Calculate the Equivalent Annual Cost of the following 2 machine purchases to determine which would be the better investment.

Machine 1:

• Investment Cost: $50,000
• Expected Lifespan: 3 years
• Annual Maintenance: $13,000

Machine 2:

• Investment Cost: $150,000
• Expected Lifespan: 8 years
• Annual Maintenance: $13,000

Machine 1 Annual Cost shall be ((50,000)/3)) + 13,000 = 29,669

Machine 2 Annual Cost shall be ((150,000/8)) + 13,000 = 31,750

Therefore machine 2 would be a better investment.

17. Identify and compare a minimum of 3 commercially available financial management software for its appropriateness within their current employer or projected business. You need to consider their

• Price
• Usability
• Features and functions
• Compatibility with other programs
• Compatibility with other specialists

Sage Intact

Sage Intact is financial software that is suitable for small and mid-sized companies in the general management of ledger, accounts payable, accounts receivable order, and cash management.  The software has an API structure that enables integration with other commerce-based applications such as payroll systems. The software is a costly program with up to $ 5,000 per year.

Zero Finance Plus

It is effective software that offers breakdown reports on departments and integrates various capabilities such as invoicing, accounting, tax-compliance, and inventory. The package is flexible by easily integrating it with other accounting applications. Additionally, it allows for seamless app-accessibility from a remote location. The number of users can be configured as per the company’s wish. The software is suitable for small to medium entities with minimal expertise needed. Pricing is relatively low, charging $149 per organization.

QuickBooks

This is an elementary financial software adopted by small and mid-sized companies. The software is easily used by accountants in tasks such as invoicing, payroll tasks, and reporting. Business entities have the option of choosing between cloud and on-premise alternatives. It is usually recommended for performing high volume tasks with minimal expertise (Financial Software, 2020). The software is compatible with simple programs such as MS Excel and MS Access. The software has multiple payment packages starting from $10 per month.

References

Baldwin, R., 2016. The World Trade Organization and the future of multilateralism. Journal of Economic Perspectives, 30(1), pp.95-116.

Financial software | All you need to know about finance management software (2019). Available at: https://kissflow.com/finance/finance-management-software/ (Accessed: 9 June 2020).

How to create a budget | business.gov.au (2020). Available at: https://www.business.gov.au/Finance/Accounting/How-to-create-a-budget (Accessed: 9 June 2020).

Lester, S., Mercurio, B., and Bartels, L. eds., 2016. Bilateral and regional trade agreements: Commentary and analysis (Vol. 1). Cambridge University Press.

No, A.S., 2018. The Conceptual framework for financial reporting. Norwalk, CT: FASB.

Reporting Cycle – Overview, Regulations, and Benefits (2020). Available at: https://corporatefinanceinstitute.com/resources/knowledge/accounting/reporting-cycle/#:~:text=The%20reporting%20cycle%20involves%20the,the%20planning%20and%20budgeting%20cycles.&text=Correctly%20identifying%20and%20classifying%20assets,specifically%20its%20solvency%20and%20risk. (Accessed: 9 June 2020)

Sari, Asmara Arum, and Mekar Meilisa Amalia. “The Effect of Responsibility Accounting and Strategy Implementation on Organizational Performance.” Sustainable Business Accounting and Management Review 1, no. 1 (2019): 9-18.

Types of Budgets – The Four Most Common Budgeting Methods (2020). Available at: https://corporatefinanceinstitute.com/resources/knowledge/accounting/types-of-budgets-budgeting-methods/#:~:text=There%20are%20four%20common%20types,more%20detail%20in%20this%20guide. (Accessed: 9 June 2020).