International financial reporting standards is commonly represented with an acronym IFRS. These are well put international accounting standards that affirm how particular transactions including other events are reported in financial statement. These standards are put in place by the International Accounting Standards Board (ISAB) and they provide strict rule to which all accountants must report and sustain their accounts. The IFRS had an aim of establishing a similar language to all accounting activity thus allowing the understanding of all businesses, enterprises and accounts across the world (Weygandt 2010). GAAP which is an acronym of Generally Accepted Accounting Principles refers to a universal set of accounting values, principles and measures that organizations use while compiling their financial statement. GAAP is generally important to companies as it enables the financiers to have a minimal standard of uniformity in their financial statements. Transparency and consistency of financial reports from one company to another is enhanced through the use of GAAP (Flood 2015). However the application of GAAP rules is not enough in accounting as accountants may have a room to distort figures in the financial report as the GAAP standard are only set rule. IFRS is mostly recommended and widely used around the globe since they provide guidelines to which prepare and follow while disclosing their financial report. Different countries have different GAAP rules and this makes it hard for IFRS to make worldwide comparisons. Through the ISAB, it ensures that the IFRS is able to bring transparency, accountability among the financiers and efficiency in the economic markets globally. They are also able to offer advice to all financiers who fail to follow these practical guidelines.
IFRS permits the transfers of debt investment from fair value through profit and loss category to available for sale category but on rare cases as a result of financial crises the debt is held till maturity. This is mean that they fail to allow any debts to be categorized as non-current when businesses that have violated their agreement unless in situations where the lender has provided a waiver before the closing of the balance sheet. While GAAP permits transfers away from the trading security category but rare reclassifications are found under this category. This shows that the IFRS rarely allows bad debts as their guidelines are strict and hence it may enable the business to be able to evaluate their debt status clearly from the finance report with a quick glance of the unpaid debts (Shamrock 2012). The difference that occurs in terms of fair value option shows that the IFRS has more restrictions than GAAP when determining the time when the company is permitted to elect their fair value option as they do it specifically on specific circumstances. While in GAAP there exist fewer restrictions on fair value option where it states that the intention of the fair value option is to address specific circumstances which according to GAAP might not be in existence (Shamrock 2012).
It is as a result of these differences that some countries opt to implement either the IFRS or the GAAP rules. Most of the people however have evolved into adopting the IFRS into their business. In them converting into the IFRS system they will be able to present their financial statements on the same foundation as with that of their competitors thus enhancing easier comparison and while raising of capital in a foreign country (Hyūman et al 2009). However full acceptance of IFRS is not advisable as there will be loss of a certain level of quality while the cost of converting to IFRS will be high and might outweigh the advantages. This has therefore discouraged total acceptance of the company.
However, some have decided to try by partially agreeing through adaption of the IFRS to collaborate with the GAAP system. Businesses therefore should be aware of the IFRS shortcomings before fully adapting the system. They should be aware of the fact that the IFRS only provides selective information and is less extensive than that of GAAP on industry specific guidelines. Adoption of the IFRS will also require extensive professional comprehensive training so as to enable the accountants and other financiers to have knowledge on the use of the IFRS.
In conclusion it is important to note that each and every system between the two is important but insufficient in its operation. That’s why it’s important to incorporate the two and use them in the accounting discipline while producing the financial reports. Conversion of any system is not applicable in the short run but it can however be attained in the long-run. It is thus important for any business to consider first what they want and would like t achieve and measure on the cost needed for their conversion process so as to know the right decision that they ought to take. However collaboration of the two is the most appropriate accounting step that any business may take as they both have their advantages and disadvantages as well.
References
Flood, J. M. (2015). Wiley GAAP 2015: Interpretation and application of generally accepted accounting principles. Chichester, U.K: Wiley.
Hyūman Intafēsu Shinpojūmu. (2009). Human interface and the management of information: Symposium on Human Interface 2009, held as part of HCI International 2009, San Diego, CA, USA, July 19-24, 2009 : proceedings. Berlin: Springer.
Shamrock, S. E. (2012). IFRS and US GAAP: A comprehensive comparison. Hoboken, N.J: John Wiley.
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2010). Financial accounting: IFRS. Hoboken, N.J: Wiley.
U.S Treasury bond market: The 10-year Treasury note
As stated above, the 10-year Treasury note is basically a debt obligation which is mainly issued by the government of the United States. Although it matures after 10 years, it usually pays a fixed rate of interest once every 6 months with a face value to the holder after the end of 10 years (F.I, 2016). This is to imply that the main advantage that comes from investing in the 10-years Treasury note as well as other national government is that there is the exemption of the interest payment from the state and the local income tax (F.I, 2016).
Moreover, it is true that it has been outperforming other indexes. The reason for this is because the since it is one of the government bonds, it remains to be the security issued by the central government dominated in the state’s own currency (Investopedia, 2014). On the other hand, since they are typically auctioned, it is termed as being risk-free. This is to mean that government can easily devaluate their currency or just opt to raise taxes for the need of redeeming the bond at maturity. In the long-run, the yield to be required by investors so as to be in the position of loaning funds to the government will reflect inflation expectations as well as the likelihood that such a debt will be repaid (Y.F, 2016).
Conversely, as much as the bonds are the interest bearing security, it then means that it will force the issuer to pay its holder a specified sum of money especially at specified intervals. The reason for this is because always the bond market is perceived as being volatile or unpredictable thus making them to bear the interest rate risks (Investopedia, 2015). In the long-run, in case there is the increase in the rate of interest, there will be a corresponding decreases in bond prices and vice versa. Such effect ends up becoming more pronounced for all the long-term securities. In the similar way, fixed income securities, carry various risks for instance inflation, default and credit risks for the counterparts and the issuers themselves.
Nonetheless, some non-investment or high yield grade securities mostly entail not only price unpredictability but also risk default as compared to the investment grade bonds. As a result of this, fixed income securities which will be redeemed or sold before it matures may be subjected to loss. In the long-run, asset allocation and diversification does not guarantee or ensure profit against loss. At the end, what will be noted is that in case credit spreads gives a good impression of the credit risks associated with it compared to another security that will not be the only factor to be represented (Market Realist, 2014).
After buying a corporate bond, what it means is that the holder has the capacity of benefiting from the declining interest rates as well as from the narrowing of its credit spread. This in the long-run will contribute to the lessening returns to maturity of the newly issued bonds. In return this is what drives up the price of the bondholder. In other words, since rising interest rates as well as widening of the credit spread, there is the need of evaluating its outcome first. Consequently, since narrowing of its spread provides less ongoing yield and since its widening will hurt the bond price, it is important for investors be wary of them without abnormally narrowing credit spreads (Investopedia, 2014). This is to imply that, in case the risks mentioned above are to be acceptable, the high credit spreads will offer a prospect which narrows that spread thus creating a price appreciation.
In addition to that, the interest rates of this bond usually don’t change gradually because of the uncertainty in the bond market. This makes the investors to park their cash in the super-safe U.S. Treasuries thus causing its outcome to drop as well as its price to rise considerably. During this period, it is expected that higher returns from high yield bonds will be the one which will assist on compensating for the increased risk hence making its return to rise as well as the prices to drop significantly (F.I, 2016). With this, it means that even if the treasury returns are declining, the credit spreading for the high-yield bond will be getting wider. The suggestion from this is that the credit spreading has the capacity of giving investors an idea on how cheap or expensive the bond market for a certain bond category will be.
The bottom line of this is that in case the extra returns ends up becoming more and more affordable, its investors will be bothered with both its future credit spread and interest rates. Additionally, as much as the bond market is concerned, the credit spread might remain to be constant or narrow down. Since the width of the credit spread is perceived to be the main determiner of the bond price, it is essential to ensure that evaluation have been made so as to determine whether such a spread is too narrow (Market Realist, 2014). The companies with wider credit spread should also be taken into consideration.
Reference
Fidelity Investment (2016). Investment grade bond funds. Retrieved from https://www.fidelity.com/fund-screener/evaluator.shtml#!&ft=TBND_GI%2CTBND_GL%2CTBND_GS%2CTBND_IP%2CTBND_CI%2CTBND_CL%2CTBND_CS%2CTBND_UB&ntf=Y&expand=%24FundType
Fidelity Investments (2016). How high and how fast? Retrieved from https://www.fidelity.com: https://www.fidelity.com/viewpoints/investing-ideas/bond-market-outlook-2016
Fidelity Investments. (2016). New life for money markes. Retrieved from:
Yahoo Finance. (2016). Bond ticker.Retrieved from http://finance.yahoo.com/bonds/market_summary/article/200001/bond_ticker
Investopedia (2014). What causes bond prices to rise? Retrieved from http://www.investopedia.com/ask/answers/111414/what-causes-bonds-price-rise.asp
By investopedia (2015). How safe are high yield bonds? Retrieved from http://www.investopedia.com/ask/answers/070615/how-safe-are-high-yield-bonds.asp
Market Realist (2014). Credit spreads: A fixed income investor’s must-know guide. Retrieved from http://marketrealist.com/2014/03/must-know-credit-spreads-represent-credit-risk/
My perfect career would be working as personal career advisors. This will provide a platform for me to expand my knowledge and skills apart from offering investment advices. With bachelor’s degree qualification I would be entitled to median pay of $89,160.
Less 25% for tax
25%/100 = 0.25%
89,160 * 0.25= 22,290
89,160 – 22,290
= $66,870 as monthly income
In five years’ time $66,870 * 5
= $ 334,350
I would love to live in New York, Brooklyn. A home worth range from $170,000 in less than 1 acre having a complete three bedrooms with two to three bathrooms hosted in a 1420 square feet. The crime rate is 20 per one thousand people in Brooklyn which it will also the school district and preferably I would like to live in an apartment build not later than year 2014.
Type of cost accumulation system that was used at Shen’s Art Printing Co. Ltd (Taiwan)
The company uses job costing system to allocate its overhead for the purpose of setting the price. Job order costing is a system where by manufacturing costs are assigned to individual product or the batches of the product. It is normally used when products being manufactured differ from each other. This costing used by Shen is a historical cost method that is used to assign actual costs to job on the basis of realised cost rather than cost and operating data that are predetermined.
Job costing system is used and how overhead is allocated
The company accumulated printing costs of operation in eight costs pools in the following manner: the direct labour which includes the salary, bonus for press assistant and operators. The indirect labour that includes the bonus to printing management staff and their salaries. Supplies that include printing materials and ink. Costs related to equipment that include depreciation on plant and machinery, repairs, maintenance and insurance. Quality assurance and control of production, miscellaneous cost that include travelling, telephone, transportation, mail and newspaper. Since customers are billed separately for direct materials like paper and costs for preparing printing plate, this system puts focus on conversion cost only. The company employed an allocation system that involved two stages, where the costs accumulated in the pools were allocated to operation centres. Every printing machine is viewed as an operation centre. A different overhead rate is then established for each operation centre such that costs were allocated to jobs in the other stage.
Benefits to the firm.
The use of job order cost helped the company to easily allocate the overheads across the operation centres. Comparing the prices for magazines with old cost showed that magazines appeared to be more profitable.
What qualities of IAF components i.e. competence and objectivity are found to deter management misconduct?
Private accounting regular setters believe that elevated excellent internal audit role act as a key source that is used to audit board for verifying leading supervision in the administration. However, IAF qualities are not enforced by the regulators but rather a complex assess of IAF value is unconstructively linked by the possibility of managing misconduct yet after scheming for board, audit working group and exterior auditor eminence. Integrity, due respect and competence are important components in any professional accounting organization. Integrity deals with the act of an employee to maintain high standards of achievement and conduct. However with the current changes in our organizations the conduct is largely affected by bribery misconduct which hinders one from upholding integrity. Competence deals with the ability of an employee to have the required level of education qualification, skills and intelligence to allow him to add worthiness to his work. Objectivity in the other hand makes certain that biased assessments, decisions and judgments are not made in the course of work. Due care deals with the ability of an employee to give attention to the nature of his/her work and the manner in which he/she provides the services. All these are IAF qualities that are so important and are largely affected by misconducts such as misleading disclosure put into practice, fraud in financial reports, carelessness and bribery (Ege 2015).
Explain in your opinion one component deters management misconduct but the other doesn’t.
It is practical to say that one component of IAF can deter management misconduct independently but not affecting the other components. For instance one may have the competence that is needed in the profession be it education skills or even intelligence. But then again he might have inadequate ability to make the right judgments and he might be biased in making decisions since he/she has been corrupted. Thus he/she ends up making decisions that would favor the corruptor and thus failing to uphold objectivity and integrity.
Can one predict management misconduct based on the quality of its IAF
It is quite easy to identify management misconduct based on the quality of the quality of its IAF. This is because one can be abler to evaluate each component of the IAF at a time thus being able to identify management misconduct. For instance as financial reports on auditing are taken, fraud instances can be easily noticed and the achievement status can be measured by the level of competence in management (Ege 2015).
Give and explain at least three reasons, discussed in the paper, as to why there are regulatory requirement to disclosure the quality of IAF.
The core reason as to why there should be regulatory requirements is to ensure that the right employees with adequate and high competence are employed and the already employed ones are still competent in the business.
Another reason is to ensure that integrity amongst auditors and external auditors and the entire management is accountable for their tasks. Another reason for regulation is to ensure that the objectivity of the company that is achievement and success are attained (Ege 2015).
What are the major steps involved in the closing process?
The process starts with the closing of the revenue account to a special account (income summary), then one closes the expense account into income summary, later one closes the returns summary report into retained income and finally one closes the dividends report to retained income.
As a management accountant, how and when will you use flash reports?
Since flash reports represents a quick and fast picture of critical business operating and financial statistics that are used to enhance the continuing operations of the business, I would be carrying out the flash reports on a daily basis or rather weekly if the workload is large. I would ensure that I capture all types of data on client traffic stage, labor operation rates from the same source of the information coming from similar transaction base (Kuppapally 2010).
Reference
Ege, M. S. (2015). Does Internal Audit Function Quality Deter Management Misconduct?. Accounting Review, 90(2), 495-527. doi:10.2308/accr-50871
Kuppapally, J. J. (2010). Accounting for managers. India: PHI Learning
Implementation of Kepner Tregoe Method in SAP with Cost Estimations
Kepner Tregoe method provides an efficient procedure in troubleshooting. In solving the issues of services quality I suggest the utilization of the KT project management procedure. This process is essential as it provides practical and guided methodological steps which lead to the success of projects regardless of the complexity and the size (Chang, 2010). In order to deliver quality services, good plans and implementations must be in existence. Therefore, KT management project is beneficial as it teaches individuals on defining logics, plans as well as projects implementation. This provides a language which is characterized with ease which helps in making the communication of projects effective which helps in covering the needs, management of the project as well as solving the projects issues. This, therefore, ensures that the generated products are of high quality which in turn facilitates the organization delivering quality services (Chang, 2010).
KT method is additionally crucial in solving service quality issues because it is characterized by simplicity as it helps in identifying different issues as well as establishing possible solutions (Lussier, 2008). This helps in developing a mutual understand in the whole organization because the approach helps in explaining the existing issues. Moreover, KT approach is essential in improving service quality because it helps in clearing communication between the organization, customers, suppliers, customer service, production quality and the individuals involved in repairs and also in maintenance (Lussier, 2008). This, therefore, ensures that the service quality of the organization is highly influenced to ensure that quality is sustained. KT management project helps the organization in solving service quality problems by increasing its ability to complete projects on god time and attain the desired results. This is therefore achieved by developing the objectives of projects by breaking down the work structure (Lussier, 2008).
Additionally, this procedure helps in identifying the requirements of projects which increases project's effectiveness as the organization is fully able to complete projects assignments and responsibility on time, estimates costs as well as to develop desired plans (Lussier, 2008). This procedure is also effective as it helps the organization in monitoring the progress of tasks in order to ensure that quality is achieved in production which helps in identifying issues thus make plans to overcome or avoid them. KT project management can, therefore, help an organization in solving the issues of quality services as it helps in achieving quality (Lussier, 2008).
In solving the issues of reputation the KT problem management procedure is an effective way of ensuring that an organization is able to reduce costs through cost estimation while increasing customer services quality. This helps in building the brand image as well as the reputation of the organization which fully depends on the public and the clients (Lussier, 2008). Reactive management of problems helps in ensuring that quality is achieved via high-quality analysis of issues RCA procedure. In addition, the procedure also utilizes appraisal of the rigorous situation in ensuring that high-quality results are achieved. Brand improvement and reputation issues are solved KT problem management procedure which analyses the causes of different issues. This helps the organization in resolving those issues and developing a competitive advantage thus building a desirable image. The problem management procedure, therefore, helps the organization in solving the issues completely for long-term periods, increase its efficiency, quality and decline cost utilization (Mislick, & Nussbaum, 2015).
Reputation issues are solved by the problem management procedure because it helps in increasing client’s satisfaction while decreasing the operational costs (Mislick, & Nussbaum, 2015). This, therefore, helps the organization in trading in favorable prices which helps in maintaining a competitive advantage and improving its reputation in the market. The rate of rework issue is additionally solved because KT leverages are the leading troubleshooting methodologies in the world and they help in reducing the times of resolution, reduce costs per the provided issues and increase the satisfaction of its clients. This, therefore, ensures that the rate of work is shortening as efficiency and effectiveness are achieved (Mislick, & Nussbaum, 2015).
In reference to the issue of employee turn over the KT, procedure helps the organization in ensuring that the turnover level is reduced. This is because the organization issues of re work are solved and therefore employees do not have to move to the better working organization (Chang, 2010). Additionally, the employee’s needs are catered for as the KT procedure helps the organization in gathering information on the issues facing the employees and how best the issues can be solved. KT additionally helps the organization in managing and developing the skills of the employee’s thus increasing employee’s satisfaction. KT permits the organization mangers to develop solutions which are aimed at increasing commitment and ownership (Chang, 2010). This helps in developing a plan of employee’s responsibilities that making their tasks easier as they are allowed to develop critical thinking traits which are lasting traits that can be applied even in the future. This, therefore, results in higher performance because the procedure helps in ensuring that the employees are highly motivated. The procedure helps in balancing financial and nonmonetary motivations as the employees highly require it. KT is, therefore, effective in reducing the rate of turnover of the workers as it incorporates all the involved individuals’ needs (Chang, 2010).
References
Chang, C. M. (2010). Service systems management and engineering: Creating strategic differentiation and operational excellence. Hoboken, N.J: John Wiley & Sons.
Lussier, R. N. (2008). Management fundamentals: Concepts, applications, skill development. Mason, OH: South-Western/Cengage Learning
Mislick, G. K., & Nussbaum, D. A. (2015). Cost estimation: Methods and tools.
Every individual in Texas was born in equal stipulations of rights that are inalienable such as dignity and freedom but this has not been accomplished through income and the distribution of wealth. Wealth redistribution is, therefore, essential to any nation or government to ensure that every individual acquires equality as they are entitled to a better share (Zhiyong, 19). Texas government is necessitated to aid the poor individuals who are thus unable to access important services due to their wealth and income conditions. In order to achieve this government is therefore required to redistribute wealth and income equally among all individuals. Wealth redistribution is defined as the transfer of physical properties which involves wealthy and income from so e individuals in the society to others by utilization of social mechanisms like welfare, monetary policies, confiscation and land reforms. This process, therefore, involves redistribution of the wide basis of the economy rather than the existing distribution among few individuals (Zhiyong, 21). This, therefore, involves the transfer from the rich to the poor in order to achieve equity and economic progress. Distribution of wealth among several individuals leads to an increase of the poverty level in Texas which thus drags behind the economic, political and social development (Zhiyong, 22). Texas government is therefore required to do more of the redistribution activities to ensure that wealth is fully redistributed from the rich to aid the poor, this will thus help in attaining developments in political, social and economic status.
Policymakers in Texas should design and implement fiscal measures which have greater dependency and reliance on property taxes and wealth which will thus benefit the poor citizens. This should, therefore, involve elimination of tax reliefs which is placed on capital gains, carried interests and stock options which favor the increase of income and wealth equally (Grinberg, 936). These measures are essential because they will permit a growth and improvement cut in labor margins tax income rates in the region. According to the IMF study failure to address wealth and income distribution inequality with proper measures may lead to a repercussion against prompt measures and linearization which would that affects the economy greatly. Therefore in order to prevent the occurrence of the situation the government is necessitated to develop policies to reduce poverty. This is by implementing reforms in different sectors such as education, health, and taxation policies to be made more progressive (Grinberg, 938).
The government may, therefore, accomplish this by reforming taxation system and adopt progressive taxation (Grinberg, 932). The major issue that Texas is facing is in regard to income class and taxation is a threshold. This is in that, the citizens, as well as the policy makers, mutually agree that the middle-class citizens cannot pay higher taxes. Everybody tend to think that they are a middle class which then reduces the amount of tax that is generated. There is a great need to adopt progressive taxation because of the demographic challenges that exist. This challenge reveals that the federal government requires more revenue as time progresses in order to sustain the challenges without deficits that are unsustainable. The progressive taxation system is effective because it aims at ensuring that the higher earns are taxed in large percentage while the low earners are taxed less. This form of taxation is essential because it aims at developing equality by taxing properties such as luxurious cars (Grinberg, 929).
In addition, the government should, therefore, ensure that the higher earning individuals are not highly taxed because this may encourage them to move their assets to foreign nations. This is because most individuals feel that the taxation is too high for them and in order for them to run from taxation they move their wealth and earnings (Burrows, 43). This, therefore, leads to money removal from the government which thus eliminates higher taxation benefits. The government should, therefore, develop favorable monetary measures which will ensure that every individual is fairly accommodated into the system. This allows better wealth spread with richer individuals generating more revenue than the poor ones. This, therefore, eliminates burdens that are placed on those that holds lesser abilities to sustain activities and huge taxes. Monetary measures which are aimed at reducing the disparity of wealth should be implemented (Burrows, 45). This should involve disproportioning upper incomes then redistributing the generated revenue through welfare proceeds. This will, therefore, ensure that social equality is achieved because the welfare activities for the poor individuals will be catered for by the government.
The existing taxation system is regressive. This is because the taxation system involves taking larger taxation percentage from low income earning individuals than from those individuals who earns higher (Formby, Hoseong, and Malone, 98). This form of taxation in Texas is uniformly applied as it hits those individuals that earn low harder than the higher earning ones. This form of taxation is preferred by the government because it is more convenient, it is effective in increasing taxes and it has no evasion cases. This form of taxation is, however, inappropriate in Texas because it is unproductive, unjust and not favorable for the equal growth of the economy (Formby, Hoseong, and Malone, 103).
Regressive taxation is not fair because it does not offer a favorable environment for the development of the economy. This is because those individuals that are not financially stable to pay higher taxes are subjected to higher taxes that those that can afford (Zhiyong, 17). This therefore means that the collected taxes are lower than the taxes that are collected by utilization of progressive taxation. This is because in progressive tax those that ran more pay higher taxes as their income increases while in regressive tax those with lower taxes cannot pay much higher taxes because they are limited.
In addition regressive taxation does not favor the economic growth because it results in higher unemployment rates (Zhiyong, 19). This is because it encourages the poverty level to grow rapidly as most individuals leave their jobs to evade taxes and others transfer their businesses to other counties. The taxation system is thus not favorable for the growth of the economy because fewer finances are left to develop the economy because even the generated revenue fails in meeting the needs of the citizens. This form of taxation also does not favor redistribution of funds which permits the improvement of the good fare of beings. This, therefore, means that individuals have to spend much in education, health, and other social programs as the cost of living are much higher under regressive taxation (Zhiyong, 20). Therefore, there is a great need for the Texas government to implement favorable monetary measures under the progressive taxation which will ensure that economic development is achieved (Grinberg, 932). This will thus be achieved by the redistribution of wealth from the richer citizens to the poor to ensure that the poverty level is decreased.
Work Cited
Burrows, Alan. "School Finance and Tax Reform In Texas." Journal Of State Taxation 33.2 (2015): 41-51. Business Source Complete. Web. 3 May 2016.
Formby, John P., Hoseong Kim, and Keith D. Malone. "How Regressive Are State And Local Taxes?." Journal Of Business, Economics & Finance 2.1 (2013): 90-106. Business Source Complete. Web. 3 May 2016.
Grinberg, Itai. "Implementing A Progressive Consumption Tax: Advantages Of Adopting The VAT Credit-Method System." National Tax Journal 59.4 (2006): 929-954. Business Source Complete. Web. 3 May 2016.
Zhiyong, An. "Regressive State Tax Systems: Facts, Several Possible Explanations, and Empirical Evidence." Proceedings Of The Annual Conference On Taxation (2008): 14- 23. Business Source Complete. Web. 3 May 2016.
Pension plans basically refers to the strategies put in place by an organization to provide retirement benefits to their employees who have already attained the age for retirement. This plan is implemented by several organizations while others have reduced the funds allocated for pension plans but others have totally closed this pension plan program in their companies. The pension plan has thus shifted from the generous provision of the retirement profit which were initially provided in the 1970’s and in 1980’s into an arrangement that involved a defined contribution (Munnell and Soto 2007). However as the different organizations are changing their pension plans there are retirees whose retirement appreciations are sheltered from the changes experienced in the plan. Growth in pension plans has been extensively evidenced from the time when the Second World War took place and this has led to the great concern by managers, the government and finance regulators. The pension plan system is very crucial as it has an influence on the cash flow and income. Therefore there is need for investors to critically examine the pension plans before implementing them and before coming up with a conclusion.
Literature review
The pension plan funded condition over time.
The condition of the pension plan is referred to as the reasonable value of retirement arrangement assets minus the estimated liability or the projected profit obligation. The projected profit obligations are the actuarial current value of prospect retirement advantages given as a result of service offered to the last date and the profit given should base on assessed future occurrences such as revenue, death and compensation increase (Financial Accounting Standards Board (FASB) 1985). The current economic status usually determines the funded condition of pension plans since they devote their expenses on stocks and bonds. Hence with increase or reduction in the stock markets, results to either profit or loss in the pension plans material goods (FASB 1985).
Pension plan payment determinants
Factors such as the economic condition, organizations actual incentives and the regulatory constraint may influence an organization to either fund their pension plans fully or partially (Munnell and Soto 2007). There has been introduction of the defined contribution plans for instance the 401k plan which is a substitute of the definite pension profit in the 1980’s. Superior and big companies mostly has the defined pension plans as they have a more established workforce which requires them to even contribute to their older plans so as to cover up the benefits to the retirees (Munnell and Soto 2007).
The cost of the plan is determined by the organization of the employees as organized labor has unions which act as their spokesmen and they negotiate about the pension benefit on behalf of the employees. Thus it is difficult for any company with such kind of employees with their unions to manipulate the benefits by reducing the profits or freezing those benefits (Munnell and Soto 2007; Atanasova and Hrazdil 2010; Comprix and Muller 2011). The number of workers directly determines the cost of the pension plan, for instance the higher the number the higher the rate of pension payment. The financial limitation such as the level of power of an organization, determines the pension plan financial support (Duke and Hunt 1990; Press and Weintrop 1990; Asquith et al. 2005).
The relationships between changes in pension plan accounting principles and improved market valuation.
The work efficient market is found in economic literature and it refers to the market which changes rapidly with the advancement in information and technology. Markets are incompetent in incorporating the pension plan information as the market overvalues organizations with harsh underfunded pension strategy (Franzoni and Marín 2006). There exists a stronger relationship between pension plan funding intensity and the capital plan for an organization (Phillips and Moody 2003).
Hypothesis development
Three hypotheses are developed in pension plan which are tested to either be accepted or rejected.
Pension plan funding status changes with time.
There exist determinants which determine the pension plan contribution.
There are relationships between changes in pension plan accounting principles and improved market valuation
Conclusion
It is quite evident that most companies are struggling with ways to provide retirement profits to their workers and how to source for funds for their pension plans. However, the grown up companies, those whose workers have unions, companies with expensive plans and those that with underfunding strategies usually contributes more to the pension plans. Organizations also contribute more when there are tax inducement and debt treaty incentives.
The pension plan funding condition is very crucial to the shifting market status, thus making it hard for organizations to manage the financial support of their plans even when they are careful about producing contributions. However there exist legal pension funding rules such as allowing the organization time to make up for funding underperformance.
Variation in the accounting averages as needed by the detained benefits pension plan strategy does not result in an improved evaluation by the company’s investors valuation as seen in the stock prices during the accounting average period. Inefficiencies in the implementation of pension plans is as a result of inability of market to put together information and to recognize future consequences associated with long-term obligations. Therefore markets are not at all efficient incorporating pension strategy information.
References
Atanasova, C. and K. Hrazdil (2010) “Why do Healthy Firms Freeze their Defined Benefit Pension Plans?” Global Finance Journal, vol. 21(3), p. 293-303.
Comprix, J. and K. Muller (2011) “Pension Plan Accounting Estimates and the Freezing of Defined Benefit Pension Plans,” Journal of Accounting and Economics, vol. 51(1-2), p. 115-133.
Financial Accounting Standards Board (FASB) (1985) Statement of Financial Accounting Standards No. 87: Employers’ Accounting for Pensions. Norwalk, CT: FASB.
Munnell, A. and M. Soto (2007) “Why are Companies Freezing their Pension Plans?” Center for Retirement Research at Boston College.
Phillips, A.L., and Moody, S.M. (2003) “The Relationship between Pension Plan Funding Levels and Capital Structure: Further Evidence of a Pecking Order,” Journal of the Academy of Business and Economics, January 2003
Financial report as a formal record has the advantage of showing all the financial activities undertaken by the company within the trading period as well as its financial position. Thus the relevant financial information is presented in a form which is easy to understand and it comprises of the balance sheet, income statement, statement of change in equity, and cash inflow statement (Fridson & Alvarez, 2002). In analyzing the financial health of the company, all these parameters will be used in determining the owner/s’ equity income, profits, losses, investing and financing activities and so on.
On the other hand, financial statement, for instance quick ratio, current ration, stock turnover ratio, profitability ratio, will be used in analyzing its current financial health as compared to the previous years. Additionally, it is this ratios which will assist in coming up with financial comparisons between 2014 and 2013. The following are the financial ratios which can be calculated from the company’s 2014 financial data together with its implication to the daily operating activities;
Profitability ratio = Considering the financial status of the company, profitability ratio will be important in that it will assist in measuring the general use of the assets of the company as well as the general control of its expenses in generating acceptable rate of return.
This is a relatively low operating ratio. Then what this means is that the company has more cash for settling its daily operating expenses for instance rent, utilities and employees wages and salaries. Since this ration is used for measuring the profits of the company from selling its inventory, it can also be used for measuring the sales which are in return used for funding other parts or activities of the business (Troy, 2008).
Operating margin = operating income/net sales
=176.2/876.7
=0.2009 or 20.09%
This then implies that a higher operating margin, as the one obtained in this case, will be more favorable unlike a lower operating ratio. This is advantageous in the sense that it indicates that the company is in the position of making enough money from its initial ongoing operations. It is this cash which will be used in the long-run for settling it’s fixed as well as variable costs. Therefore, this means that it is a key indicator for the potential investors as well as creditors to see the extent at which the firm is operating or handling its activities which assists in supporting its operations (Leach, 2010). Moreover, in case the firm will have the capacity of making adequate money for such operations which are aimed at supporting the business, it them means that the firm will be considered as being more stable. In contrary to that, in case the firm will end up acquiring operating and non-operating income for covering its operational expenses, it will indicate that the firm’s operating activities are not much sustainable as expected.
Stock turnover = Cost of goods sold/average inventory
= 566.6/876.7
=0.6463 or 64.63%
This ration is essential because the total turnover to be realized largely depends on two components of the company’s performance. One of these components is the purchasing of stock. For instance, in case huge amounts of inventory were ultimately purchased during that year, it then means that the firm will be forced to sell huge volumes of its inventory so as to be able to improve its turnover (Gibson, 2009). On the other hand, in case the firm will not manage to sell a considerable amount of inventory, it will be burdened with both storage costs and other forms of holding expenses.
The second component to be relied upon for this turnover is the volume of sales. For the company to realize profitable turnover ratio, sales record for that trading period should at least match with the inventory purchases (Robinson et al, 2015). If that will not be the case, it means that the inventory will not end up turning effectively as desired. This suggests that the sales department and the purchasing department ought to be in tune or harmony with each other.
Return on assets = net income/total assets
=121540/1238153
=0.0982 or 9.82%
9.82% is a relatively higher return on asset ratio. This is a good indicator for the firm because in indicates the amount of cents earned by the firm on each dollar of assets. Therefore, the higher the value becomes, the more the firm becomes profitable. This ration will be used by the management of the firm to compare the performance of rival companies in the industry. This because companies in that industry can be asset-insensitive i.e. they will be forced to have relatively expensive plant and equipments which will give them the capacity of generating more income as compared to their competitors (Gibson, 2009). Their return on assets (ROA) will ultimately remain to be lower as compared to that of other competitors with low asset-insensitive. As the firm will continue experiencing an increase in its ROA, it will mean that its profitability will also continue improving and vice versa.
Current ratio = current assets/ current liabilities
=562325/146261
=3.8447
Current ratio basically measures the liquidity of the company at a particular date. Since a more profitable current ratio should be at least 1, it then means the above ratio is desirable. In most cases, business organizations do desire to maintain a current ratio of 1. The reason for that is to ensure that the company’s value of the current assets is in the position of covering its short term obligations (Bull, 2008). For this case, we can say the company has the capacity of providing additional cushion against any form of unforeseeable contingencies that can arise in the short term.
Therefore, the firm should analyze its working capital requirements as well as any form of risk they might be willing to encounter.
Debt ratio= total liabilities/total assets
=834337/1238153
=0.7639 or 76.39%
This ratio is used for measuring the total liabilities of the firm as a percentage of the total assets available. Since the debt ratio is above 0.5, it hen means that the firm is not that much stable as it can perceived to be. Thus the company has a higher overall debt.
Return on equity = net income/average shareholders’ equity
=121540/403816
=0.3009 or 30.9%
Return on equity ratio assists in measuring the capacity of the firm in generating profits from the investment s of the shareholders. Since the ROA is less than 1, it implies that every dollar of the equity of the common shareholders cannot manage to generate an equivalent of 1 dollar of its net income. This is an essential measure because it will be used by the investors in analyzing how efficient the company will be using their money in generating net income (Bull, 2008).
This then means that all the company’s forwarding looking statement is basically subjected to uncertainties and risks which might cause its actual results to differ materially from the expected ones. Some of them include; demand fluctuation in commercial silica, the cyclical nature of its customers, the level of activity in both the natural gas and the oil industries and the operating risks which are beyond the control of its managers (Fridson & Alvarez, 2002).
In addition to that, there are issues which deal with the company’s ability of succeeding in the present competitive markets, the decrease, or loss of business from its largest base of customers and the ability of the company to be able to implement extra expansion plans within its current budget and timetable hence securing demand for its increased production capacity (Fridson et al, 2011). The reason for this consideration is because the company’s actual operating costs are the one which will determine the extent of its expansion. This what will keep on attracting and retaining their key personnel or potential investors.
Regardless of the fact that in the recent years a huge number of attractive new end markets have been developed for the company’s high profit margin, its segment remained to be complimentary. This is due to its ability of selling their product to a wide range of customers thus enabling its management to maximize its recovery rates in all of its mining operations, optimization of its asset utilization as well as reducing the cyclicality of its earning (Fridson et al, 2011). Typically, as from the financial statement of the company in 2014, the company obtained an approximate of $876.7 million from sales, $246.2 million from adjusted EBITDA and $121.5 million as its net income. A clear analysis of the this data this results represents an increase of 61%, 53% and 62% as compared to the previous year 2013.
Key business strategy
As a means of maintaining their portfolio, it then means that the company will try and maintain its financial strength as well as flexibility. The reason for this is because it is the one which will the management to pursue the acquisition and other new opportunities as the business continue to rise (Robinson et al, 2015). From the above financial data, this then implies that the sale of ground silica products amounted for approximately 8% in 2014, 12% in 2013, and 14% in 2012. This shows a continuous decline it the sales return.
Conclusion
With respect to the above financial statements, various stakeholders will be dependent on them for various reasons. Typically, as to any business organization, managers, and owners of the company will require the financial ratios require it for the purpose of making important business decisions which affects its daily operations. Financial analysis is done also so as to provide more detailed understanding of the figure by the management. They are in turn used as part of the annual report of the management to the stockholders.
Nonetheless, this report is the one will enables the employees to make collective bargaining agreement (CBA) with their management authority, when it comes to discussing their promotion, ranking, and compensation through their labor unions (Fridson et al, 2011). Prospective investors cannot also be left out. With the statement, they use it in assessing the viability of investing in the company. This then provides a clear or strong basis of making relevant investment decisions. Various financial institutions for example banks as well as other money lending institutions will depend on it for the purpose of determining whether it will be in the position of granting the company with fresh working capital or just extending its debt securities.
Reference
Fridson, M. S., & Alvarez, F. (2002). Financial statement analysis: A practitioner's guide. New York: John Wiley & Sons.
Troy, L. (2008). Almanac of business and industrial financial ratios. Chicago, IL: CCH.
Leach, R. (2010). Ratios made simple: A beginner's guide to the key financial ratios. Petersfield, Hampshire: Harriman House
Gibson, C. H. (2009). Financial reporting & analysis: Using financial accounting information. Mason, OH: South-Western Cengage Learning.
Bull, R. (2008). Financial ratios: How to use financial ratios to maximise value and success for your business. Amsterdam: Elsevier/CIMA Pub.
Fridson, M. S., Fridson, M. S., & Alvarez, F. (2011). Financial statement analysis: A practitioner's guide. Hoboken, N.J: Wiley.
Robinson, T. R., Henry, E., Pirie, W. L., & Broihahn, M. A. (2015). International financial statement analysis.
Payroll fringe benefits for workers in the Shipping Department
Packing supplies
Electricity for the Assembly Department
Cost of hiring new employees
Cost of repairing parts improperly manufactured in the Machining Department
Heat, light, and power for the factory
Paint for the Assembly Department
Leasing of computer equipment for the Accounting Department
(a) Unit-level activities = Paint for the Assembly Department, and Cost of repairing parts improperly manufactured in the Machining Department
Cost drivers= machine hours or direct labor hours
(b) Product-level activities = Electricity for the Assembly Department, Supplies for the sales office, Leasing of computer equipment for the Accounting Department and Direct labor in the Assembly Department
Cost drivers= number of designs or number of product designs
(c) Batch-level activities = Payroll fringe benefits for workers in the Shipping Department, Lost materials (scrap) in a Machining Department, Salespersons' salaries, Assembly foreman's salary and Advertising manager's salary, Salespersons' travel expenses and Sales commissions
Cost drivers = inspection time or number of purchase orders or setup time
(d) Facility-level activities = Depreciation on factory equipment, Depreciation on office equipment, Depreciation on factory building, Supplies for the Machining Department, Advertising supplies used, Supplies for Production Scheduling, Packing supplies, Cost of hiring new employees and Heat, light, and power for the factory
Cost drivers= number of employees managed or square footage
(Weygandt et al, 2010).
As illustrated in this case, all these costs will be used in planning as well as controlling decision making rather than evaluation of inventory. Moreover, the activity-based costing system will be in the position of providing efficient reallocation of the Glaser’s overhead costs unlike a system for looking at either all the activities which their associated overhead costs comprises or the cost drivers. Therefore, the general structure of the Glaser’s activity based costing model should comprise of cost of activities, consumption of resources and objects.
Nonetheless, activity-based costing model has the ability of changing the rule of the game. This is because it ends up changing some of the key measures which are used by the managers during decision making as well as evaluation of an individual’s performance (Kaplan & Anderson, 2007). For as to ensure that the company has managed to implement a successful activity-based costing model, it management should first examine their overhead costs. The next thing is justifying whether or not such costs have sufficient overhead to worry them. Although we cannot estimate the company’s monetary value, it them implies that they have numerous divisions with a relatively large amount of costs categories that its management ought to take into consideration (Kaplan & Anderson, 2007). Operations, administrative and sales will then be the three main divisions of Glaser Health Products. The cost categories which have been sub-divided under each division will assist the management in determining where they belong.
Primary Stage Cost Drivers
The significance of the primary stage cost driver is that it assists in linking costs in an activity directly with their associated products. Facility level costs will first be subject to several cost pools before they are to be assigned to the primary stage cost driver. The same will apply to the product level costs. Unit level costs and the batch level costs will also be linked directly to the product. The can also be grouped via various activities before they will be assigned to their constituent products at the primary stage (Kimmel et al, 2008).
Preliminary and Primary Stage Cost Drivers
In the process of implementing the activity based costing system; the significance of the preliminary and primary stage cost drivers is that both will be used in taking the products through all the steps required for assigning the correct product (Kaplan & Anderson, 2007). For instance, in the preliminary stage, all the costs which will be assigned to the activities at every period can be associated with other activities. In addition to that, during the primary stage, the costs will be systematically linked to the product. In case the costs are to be assigned directly to the products, then it means that the will be certain costs which will not be allocated based on the initial preliminary stage.
Conclusion
To sum up, it is essential to ensure that each cost has been placed in its appropriate level. The reason for this because it will ensure that financially each individual product is used to its best ability. Since initially, the activity costs cannot be easily noticed, it then means that they will be required for breaking down the company’s costs for service products. This is what will ensure it has gained profit as well as limiting excess funds which will be used for other unnecessary activities. Finally, by finding the correct cost which fits each category, it then means that the company will be given the capacity of getting the accurate cost which will be used for producing a product.
Reference
Kaplan, R. S., & Anderson, S. R. (2007). Time-driven activity-based costing: A simpler and more powerful path to higher profits. Boston: Harvard Business School Press.
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2008). Accounting: Tools for business decision making. Chichester: John Wiley
Kaplan, R. S., & Anderson, S. R. (2007). Time-driven activity-based costing: A simpler and more powerful path to higher profits. Boston: Harvard Business School Press
Weygandt, J. J., Kieso, D. E., & Kimmel, P. D. (2010). Managerial accounting: Tools for business decision making. Hoboken, NJ: Wiley.
Project financing systems are designed to minimize risk and increase investor returns.
Project finance involves the long-term financing of industrial projects and infrastructures that are based on projected cash flows of the intended project like in the power sector (Gupta & Sravat, 1998). The funds used are received through sponsorship which includes investors and the lending institution which grant the loans for the operation. These funds are mostly secured by the project assets which are entirely paid through the cash flows generated. For this cash flow to be generated there is the need to make the project worthy (Gupta & Sravat, 1998).
Generally, to add value to the project, demand must out-strip supply. For example in the case study of Dabhol Power Company, they were set to be responsible for developing and operating all the phases of the power station and its fuel facility. Having a superior ability to access reserves which are difficult to find helps in creating value (Gupta & Sravat, 1998). By using economies of scale and its scope facilitates lowering cost per unit thus creating value. Having a relatively lower cost of the external source of financing for large projects creates value. Risk identification is a way of adding value to the project and allocation of key components (Gupta & Sravat, 1998). This involves the number of technical experts involved, environmental risks as well as political and economic risks. Identification of the risk type and whether it is inherent to the project development and whether it is unfinanceable. Joint ownership and concession agreements such as pre-emption and disposal rights, injection of share capital and resolution of force and disposal policy create value since it deter opportunistic behavior and aligns incentive to the parties involved. Project delivery methods play a great role in creating the value for the project. This involves pattern implementation of financing resources to the involved parties. This is the distribution of risk that is associated with the project meanwhile simultaneously ensuring returns to the involved parties (Gupta & Sravat, 1998). This ensures each member involved in the project performs to their best in order to make better returns.
Given the immensity of long-term financing risk, share prices and cash- flows are more often affected. The volatility of the project associated with the long-scale financing has an effect on the share prices. The less the volatility the market return on shares is considered to be high. Due to the financing structure of the project that comprises of debt and equity is likely to affect the price of the shares (Lucy, 2015). Different shares will be affected differently. The gearing ratio level is determined by the level of debt. The higher the risk the higher the returns and the share price increases. Debt financing is cheap and through the long- term financing the share prices may fluctuate. Debt financing does not dilute the earnings per share but has a financial risk to the project. The addition of equity financing by investors the share is diluted hence the shares value reduce (Betty & Russell 2013).
Projected cash flows determine the project value and the liquidity of the project .The project is expected to be gained in the project is subject to the long-term financing. The impact may result to the investors sacrificing some of their control and ownership since debt and interest have to be paid upon maturity (Betty & Russell 2013). The impact of large-scale on cash flows may affect the operating cash flow and the terminal cash flow. This depends on how the project is performing. The cash flows realized varies from one period to another depending on the factors in each period. The Large- scale is subjected to unpredictable economic factors and some risks may arise due to the changes affecting the realization of the projected cash flows (Betty & Russell 2013).
Reference
Betty .S & Russell .S & Kolb WR (2013); Energy Finance and Economics: Analysis and Valuation, Risk Management, and the Future of Energy. ProQuest ebrary.
Lucy B (2015) The evolving role of finance in South Africa’s renewable energy sector
School of Global Studies, University of Sussex, Brighton BN1 9RH, UK. Elsevier Ltd
Gupta J.P & Sravat A.K (1998); Private power projects in developing countries. School of management. Asian institute of management Bangkok Thailand SSGSSJSJSSSNJSC
Under the provision of ASC 606-10, when a contact between a client and a customers is being incepted, the entity should take an assessment of goods and services that are promised in the contract with that particular contract and should recognise as performance obligation every promise that is to be transferred to the customer as either (Delloite,1)
As good or service or (their bundles) that is distinct. A situation where each unique good or service promised to be transferred by the entity becomes a performance obligation (PwC, 57).
AS a series of separate goods or services. This would be a situation where an entity will provide these goods or services repeatedly over a period of time. These items will then become one performance obligation if they form similar transfer pattern to the customer (PwC, 57).
Hence there exist the two scenarios in this contract and thus forming two performance obligations. One obligation involves the entity promise to transfer the assembly line system to the customer. The assembly line consists of a mixture segment, the moulding segment and the packaging segment. In this situation the customer will not benefit from the delivery of mixer and moulding components without the packaging component thus making this a single performance obligation part of the contract -ASC 606-10-25-19- (PwC,67). That, is each segment of the assembly cannot provide stand-alone benefit to the customer. The other performance obligation is where the entity promise to install the whole system for the customer. It is a separate performance obligation because, in the case EWI company is not able to install the whole system, and CRL Company can source the installation service from other companies but at a cost.
Question 2
FASB ASC 606-10-32-32 provides that the standalone price is the selling price at which a given entity would sell goods or services to a customer separately. The determination of standalone price must be done at the outset of the performance obligation of the contract and should not include an update of that will reflect changes happening between the inception of the contract and the completion of the performance, the only exception being contract modifications. The management should consider all available information, for example competitors pricing, and then maximize noticeable inputs while determining the approach to be used. The method to be used is supposed to be applied consistently in similar circumstances and should consist of all available information that is reasonable, including the conditions in the market and the specific factors that relate to the entity and the customer (PWC, 67).
EWI does not provide the installation service and thus it needs to make an estimate of standalone price of installation. However, the price of $36,000 cannot be used to determine this estimation since the competitors pricing keeps changing, considering that the pricing without installation fluctuate between $270,000 and $294,000. There is the possibility of the entity recognising more revenue if the market factors allow the standalone price to be revised upward, such as technicians’ charges and the overall economy. The standalone price can, on the other hand be determined by adjusted market assessment technique, where the estimation is made of the price that would be paid by customers for the good or service from the entity. The other approach to estimate the standalone price is through adding a margin to the expected cost that will cater for performance obligation. The third one is the residual approach, where the price estimation is done by adding up the observable standalone selling price from the transaction price of the system (Delloite, 1).
Question 3
FASB ASC 606-10-32-36 provides that the allocation of transaction price to each performance obligation by an entity is done on the basis of relative standalone selling prices for every unique good or service promised in a contract. A customer may receive a discount for buying a bundle of goods and services if the total of standalone selling prices of the promised goods or services as per the contract is more than the contract’s promised consideration. The allocation of the discount to all performance obligations is arranged based on obligation’s relative standalone selling prices, such that the allocation of discounts to all performance obligation is done proportionately (Delloite, 1). In this case the customer does not receive any discount. Therefore the transaction price is allocated to the assembly line service and the installation service given $36,000 as the standalone selling price for installation service and the standalone price of the assembly line system being $285,000.
Transaction
Price
Total
Assembly
285000
(285,000/321,000)x 300,000=266355.14
Installation
36000
(36,000/321,000)x300000=33644.86
Total
321000
300000
Question 4
In accordance with FASB ASC 606-10-25-23, recognition of revenue occurs when the control of a good or service moves from the entity to the customer or rather when the entity transfers the promised good or service- an asset- to the customer and thus satisfying the performance obligation. This theory of transferring the control of goods and services is in line with authoritative guidance in the asset definition. It might seem to refer only to transfer of goods but it also refers to the transfer of the service to the customer even if the service is immediately consumed. A customer gains the control of the good or service if they are capable of directing the use of such and gets almost all the remaining benefits from the goods or service. A customer may have the right in future to direct the use the goods and services and also obtain almost all the benefits arising from such but they should have actually obtained those rights for transfer of control to have taken place. Directing the use means a customer’s right to deploy good, allowing its deployment by another entity or putting restrictions for another entity not to use it (PwC, 67).
For revenue to be recognized and thus the entity to have satisfied the performance obligation, the criteria to be met include: the customer receiving and consuming the benefits arising from the entity’s performance process at the same time; the performance of the entity creating or enhancing an asset already in the customer’s control or the performance of the entity does not create an asset which has an alternative use to the entity and the entity has a right to be paid for the performance completed (PwC,67). The above two performance obligations do not meet the criteria and therefore they both do not recognise revenue at some point in time. The EWI entity delivers the assembly line systems at separate points in time. It first delivers the mixer and the moulding segments and plans to deliver the packaging component in future. However, the customer cannot put into use the other segments without the packaging segment and as such the control of the asset has not fully passed from the entity to the customer and hence no revenue has been recognised. Thus until the entity delivers the whole system to the customer it will not recognise any revenue. In the second obligation of delivering the installation service to the customer, the entity has not yet recognised revenue and it will do so after it has performed the obligation of the contract and therefore pass on the control of the service to the customer. This simply means that the customer is not able to receive and consume the benefits of the delivery service at the same time and the service deliver does not meet the above mentioned criteria.
Question 5
a) During the quarter ending March 31, 2016, EWI has received $210,000 as unearned revenue for moulding and mixing segments. It is unearned revenue because at that time though the entity had delivered the two segments of the assembly line, that is, the moulding and the mixing segment, it has not has not yet delivered the packaging segment. The segments cannot be used separately and thus until the packaging has been delivered the control of the asset has not been passed on from the entity to the customer, thus the received payment is a liability.
Journal entry
March 20, 2016
Amount
Amount
Cash
210,000
Unearned revenue
210,000
b) For the quarter ending June 30, 2016, EWI has received $ 60,000 from the customer on May 26, 2016 which is an unearned revenue since the entity has not delivered the packaging segment of the system. This is thus a liability to the entity.
Journal entry
May 26, 2016
Amount
Amount
Cash
60,000
Unearned revenue
60,000
Cash
266370
Sales revenue
266370
Cash
33630
Unearned revenue
33630
c) In the quarter ending September 30, 2016 the installation service has been delivered by the entity to the customer on July 1, 2016 as promised. Thus the entity has satisfied the performance obligation as per the promise which means that it has recognized revenue.
Journal entries
July1, 2016
Cash
30,000
Sales revenue
30,000
Question 6
The other approach to use in estimating the standalone price is the residue approach. According to ASC 606-10-32, while using this approach, the estimation of standalone price should be done by subtracting the sum of all standalone selling price of the other promised goods and services from the price of transaction. For this approach to be used, the following criteria has to be met (Delloite, 1).
There should exist a wide-ranging current selling prices to some other customers , meaning that a representative standalone selling price is not available
There is no specific price for goods and services and the sale of such goods and services has never been done (Delloite, 1).
In this case, the entity has not previously sold the installation service separately on the basis of a standalone selling price. This means that the stand alone price unknown or uncertain. Thus, the stand alone selling price will be determined as follows.
Total price 300000
Standalone price of transaction- Assembly line (285,000)
Standalone installation service price $ 15,000
For quarter ending March 31, 2016, CRL had actually paid $210 000 for the mixture and moulding segment but the performance obligation had not been satisfied because the packaging was not delivered. This means that no revenue had been recognized and thus $210,000 will still be a liability. The revenue should have been recognized if all segments were delivered by 31st
The quarter ending June 30, 2016, the entity had delivered the packaging segment to CRL which had paid $60,000 for it. Thus all the system’s segments had been delivered thereby satisfying the performance obligation. EWI recognised a revenue of $285,000 by the end of that quarter, but only received $270,000 (210,000+60,000) and the remaining $15,000 (285,000-270,000) is debited to the account receivable.
June 30,2016
Amount
Amount
Cash
60,000
Unearned revenue
210,000
Account receivable
15,000
Sales
285,000
For the quarter ending September 30, 2016, CRL had paid $30,000 for installation on 1st July, and EWI had promised to deliver the installation service on the same day. Thus EWI had satisfied the performance obligation and thus recognised a revenue of $15,000 by the end of the quarter.
How Is The Purpose Of Managerial Accounting Different From Financial Accounting?
Financial and managerial accounting are similarly vital tools intended for a business to run smoothly, however both of them deal with diverse purposes. Managerial accounting discovers problems causing down fall in a business and come up with procedure to rectify those problems while financial account s details on the complete activities carried out in a business that involves money. Another difference between the two accounts is that managerial accounts makes its financial reports only when they need to do so arise while financial accounts reports are needed after every end month and also at the end of every year(Boyd et al, 2014).
Are More Accountants Involved In The Financial Or Managerial Function Today?
Accountants are equally involved in both financial and managerial function of an organization, since they assist concerned parties both inside and outside to make a good business choice. They also calculate and outline business activities as well as understanding financial information, in addition they converse the outcome of a business to the management and other decision makers (Harshbarger,2013).
Use of Variable Costing Approach vs. Absorption Income Statement.
Almost all flourishing business in the world use both variable and absorption costing techniques despite their advantages and limitation being different. Variable costing technique is frequently used by interior management for making resolution while absorption costing gives information to be used by both internal as well as external management (Holtzman, 2013).
How Is The Concept Of "Cost Of Goods Sold" Different From "Contribution Margin"? Business proprietor requires recognizing the distinction between cost of goods sold and the contribution margin so as to be able to rate their assets and services efficiently. Cost of goods sold include calculation of both variable and fixed costs manufacturing production associated with the company while contribution margin relies on the variable costs and expenses to help disclose how much income is available to cover for company‘s expenses that occurs even when there is no production (Boyd et al, 2014).
Explain The Contribution Margin Concept/Computation And When To Use The Information.
Contribution margin measures how competently businesses can create product s as well as uphold low standards of variable costs. Contribution margin is calculated by deducting overall variable cost from the total sale income in a business. Through understanding of this concept managers are able to make better resolution duh ring preparation of sales and cost since it explain how different factors in the company such as sales price, sales volume, variable costs and fixed costs cooperate (Holtzman, 2013).
References
Holtzman,M.P.(2013).managerial accounting for dummies.Hoboken,N.J:Wiley
Harshbarger, R. J. (2013). Mathematical applications for the management, life, and social sciences.
Boyd, K., Epstein, L., Holtzman, M. P., Kass-Shraibman, F., Loughran, M., Sampath, V. S., Tracy, J. A., ... Welytok, J. G. (2014). Accounting all-in-one for dummies.
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