This assessment provides the solution to the six practical problems each focusing on a specific aspect of the concept of accounting and budgeting, the first being assessment and interpretation of the fundamental concepts and principles which underpin internal operational decision within business. The second being the evaluation of the key aspects of the regulatory framework of accounting and finance, third being the assessment of the impact of the outcomes on budgets, . controls, cost behavior, profits and operation (Boghossian, 2017).The fourth being the critical appraisal of the principles and practices required at the strategic level long term decisions, fifth being analysis, assessment, interpretation and critical analysis of the financial information and viability of the capital expenditure proposals and the last being determination of the appropriate service and product costs, budget information and cost bases. The following section provides the detailed solution of each of these practical problems (Belton, 2017).
Calculation of the Cost of closing inventory cost of sales and the gross profit of the ABC Company Limited.
No of units of Closing stock =305
Price at which to be valued = $23 per unit
Value of closing inventory = 305*$23
=$7015
Value of cost of sales using FIFO
|
Units Value ($) |
|
170 3740 |
|
500 11500 |
|
400 8400 |
|
1000 24000 |
|
695 15985 |
Cost of sales $63625
Calculation of Gross profit using FIFO method
Gross Profit = sales –Cost of sales
=$105070-$63625
=$41445
No of units of Closing stock =305
Weighted Average price per unit =Total value of purchases and receipts in $/ Total quantity of receipts or purchases
=3740+1500+8400+24000+23000/170+500+400+1000+695
=$23.00977 per unit
Value of closing inventory= 305*$23.00977
=$7017.98
Cost of sales =2765*$23.00977
=$63622.02
Gross Profit= $105070-$63622.02
=$41447.98
The following section represents how the ABC Company Ltd. deals with the following accounting policies in accordance with the NZ Accounting framework
As per NZ IAS 1 an entity presentation of financial statement, the entities whose financial statement comply with the IFRS need to make an explicit and unreserved statement of compliance in the notes and it is only to be made by profit entities as per tier-1 IFRS (Borit & Olsen, 2012).
The NZ accounting standard framework use the International financial reporting standards for the profit entities for which there is statutory requirement to prepare their financial statement in accordance with the standards issued by the XRB and international public accounting standards which is the starting point for the public benefit entities for whom it is a statutory obligation to prepare their financial statement in accordance with the guidelines prescribed by the XRB (Abdullah & Said, 2017)
As per the NZ framework on inventories as prescribed by the XRB it is to be valued lower of cost and Net realizable value.
Flexible budget performance report of ABC Co. Ltd
( Figures in $)
|
Particulars |
Budget |
Actual |
Variance |
|
Revenue |
18000 |
18950 |
950(F) |
|
Variable expenses |
|||
|
Mobile lab operating expenses |
1750 |
1630 |
80(F) |
|
Office expenses |
100 |
450 |
350(A) |
|
Miscellaneous Expenses |
150 |
465 |
315(A) |
|
Total variable expenses |
2000 |
2615 |
615(A) |
|
Fixed expenses |
|||
|
Technical wages |
6400 |
6450 |
50(A) |
|
Mobile Lab operating expenses |
2900 |
2900 |
Nil |
|
Office expenses |
2600 |
2600 |
Nil |
|
Insurance |
1680 |
1680 |
Nil |
|
Miscellaneous expenses |
500 |
Nil |
500(F) |
|
Total Fixed expenses |
14080 |
13630 |
450(F) |
Calculation of the Activity, revenue and spending variances
Revenue variance
Sales Volume variance = Budget-actual
=$18000-$18950
=$950( Favorable)
Spending variance
Technical wages expenditure variance (Fixed)= Budgeted- Actual
=$6400-$6450
=$450(Adverse)
Advertisement Expenditure Variance = $995-$970
=$25
Mobile Lab operating expenses variance = Budgeted- Actual
=($2900+$1700)-$4530
=$70(F)
Office exp variance = Budgeted- Actual
=($2600+$100)-$3050
=$350(Adv)
Miscellaneous expenses variance =($500+$150)-$465
=$185(F)
Calculation of the Activity variance
Mobile operating exp Activity Variance = $2900-$4600
=$1700
Office expenses activity variance =$2700-$2600
=$100
Miscellaneous expenses activity variance =$650-$500
=$150
Before tax Cost of Debt = $80+($1000-$940)/20/$1000+.72($960-$1000)
=$83/$1000-$28.8
=8.55%
After tax cost of debt =8.55%(1-TC)
=6.39%
Cost of preferred stock=$8/$90
=8.89%
Cost of common stock= D1/P0+g
=$7/$90+6%
=6.08%
b.Let the total capital of the firm before addition to capital structure be $100000
=$100000/50%
=$200000
Hence New capital structure
Equity=$100000
Debt=$60000
Preference stock=$40000
=6.39*.3+8.89*.2+6.08*.5
=6.74%
=6.52%
Let the additional fund raised be $100000
New capital strucuture
Debt-$60000
Preference=$40000
Equity=$200000
Computation of the net cash flow for the next 12 years
Year
1=6000*$35-$15*6000-$110000-$180000= ($170000)
2=12000*$35–$15*120000–$110000–$180000= ($50000)
3=15000*$35-$15*150000—$110000-$150000=$40000
4=18000*$35—-$15*18000—$110000-$120000=$130000
5=18000*$35—-$15*18000—$110000-$120000=$130000
618000*$35—-$15*18000—$110000-$120000=$130000
718000*$35—-$15*18000—$110000-$120000=$130000
818000*$35—-$15*18000—$110000-$120000=$130000
918000*$35—-$15*18000—$110000-$120000=$130000
1018000*$35—-$15*18000—$110000-$120000=$130000
1118000*$35—-$15*18000—$110000-$120000=$130000
1218000*$35—-$15*18000—$110000-$120000+$60000+$15000=$205000
= Present value of cash inflows- present value of cash outflows
=($170000)/1.14+($50000)/(1.14)^2+$40000/1.14^3+$130000/1.146^4+$13000/1.14^5+$130000/1.14^6+$130000/1.14^7+$130000/1.14^8+$130000/1.14^9+$130000/1.14^10+$130000/1.14^11+$130000/1.14^12+$15000/1.14^12+$60000/1.14^12-$315000-$60000
|
Particulars |
Quartet 1 |
Quartet 2 |
Quartet 3 |
Quartet 4 |
|
Sales |
8000 |
7000 |
6000 |
7000 |
|
Add: Closing stock |
1400 |
1200 |
1400 |
1700 |
|
Less: Opening inventory |
1600 |
1400 |
1200 |
1400 |
|
Production Qty |
7800 |
6800 |
6200 |
7300 |
Preparation of the Direct Material Budget
|
Particulars |
Quartet 1 |
Quartet 2 |
Quartet 3 |
Quartet 4 |
|
Total Qty required |
15600 |
13600 |
12400 |
14600 |
|
Add : Closing stock |
2720 |
2480 |
2920 |
3140 |
|
Less : Opening inventory |
3120 |
2720 |
2480 |
2920 |
|
Purchase to be made |
15200 |
13360 |
12840 |
14820 |
|
Particulars |
Quartet 1 |
Quartet 2 |
Quartet 3 |
Quartet 4 |
|
Required amount of cash disbursement ( (See below the workings) |
$49305 |
$55280 |
$51880 |
$57300 |
|
Total |
$49305 |
$55280 |
$51880 |
$57300 |
Working:
=$49305
=$55280
=$51880
=$57300
First quarter purchase value=15200*$4
=$60800
Second quarter purchase value = 13360*$4
=$53440
Third Quarter purchase value=12840*$4
=$51360
Fourth quarter purchase value = 14820*$4
=$59280
Conclusion
From the above calculation it is quite evident that in accounting and in terms of budget preparation it is inevitable to have the in-depth core knowledge of the principles and practices commonly applicable for them.
References
Abdullah, W., & Said, R. (2017). Religious, Educational Background and Corporate Crime Tolerance by Accounting Professionals. State-of-the-Art Theories and Empirical Evidence, 129-149.
Belton, P. (2017). Competitive Strategy: Creating and Sustaining Superior Performance. London: Macat International ltd.
Boghossian, P. (2017). The Socratic method, defeasibility, and doxastic responsibility. Educational Philosophy and Theory, 50(3), 244-253.
Borit, M., & Olsen, P. (2012). Evaluation framework for regulatory requirements related to data recording and traceability designed to prevent illegal, unreported and unregulated fishing. Marine Policy, 36(1), 96-102.
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