Accounting assignment 1

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1 In a brief but comprehensive response, define the role of accounting. (You are required, amongst others, to address accounting information, users of financial information, the accounting process and the role of financial accounting vs. management accounting.)

Accounting is one of the fastest growing fields in the UAE. In today’s society, the demand for good accountants for exceeds the supply. As our country has expanded, business and industry have become more and more complex, so control here is very important. And control depends on a great deal of the bookkeepers and accountants who can analyze figues and advise management on what should be done. They are using more scientific ways changing money, figuring change, and collecting sales taxes. Moreover, department stores and other companies now have plants and offices widely scattered throughout the country. A new set of bookkeepers and accountants, is needed at each branch. I know there are many managements supervisory, and junior or senior executive positions are bing filled by people who started as accountants because accountants have the knowledge of methods and finance and comprehension of the fundamentals of business, and accounting is the foundation of sound business.

The two kinds of accountants, public accountants and private accountants serve different important functions in business organization. Business enterprises, government agencies, and nonprofit institutions, such as universities and churches more are more likely use public accountant. They offer their services to the general public on a fee basis in much the same way as do lawyers, doctors, and dentists. In addition, the larger firms have professional accountants on their staff who work for a salary, but are also considered public accountants. The two important areas, auditing and tax services are also the job for public accountants.

In a single business enterprise or nonprofit organization, the main job for private accounts in to handle the finanacial records. Manufacturing or other concerns are also need accountants, in that situation, they are often called industrial accountants. In addition, accountants are employeed by all branches of federal state, and local government, including government-owned corporations. Accountants in private and government work customarily specialize in the performance of a single type of accounting service, they may do any of the types of accounting service just described above. They also tend to become specialists in a narrow field of employment such as a particular branch of manufacturing, public utilities, or transportation.

2. In general, explain what the statement of comprehensive income (income statement) and statement of financial position (balance sheet) portray about a business entity and briefly discuss what is contained in each statement.

The balance sheet and income statements are used in financial accounting because they are regarded as the most important financial statements. The Balance sheet lists assets and liabilities of the organization in a given financial period or fiscal year. An income statement was also known as Profit and loss statement and it’s a report for income and expenses over a specific period of time maybe quartile year.

In regard to performance an income statement shows how a company has performed by listing sales and expenses and the resulting profit or loss. A balance sheet summarizes the company’s assets liabilities and shareholders’ equity at a specific point in time to analyze how a company pays for things (Weygandt, Kieso, 2008). Income statements report operating results such as, sales and expenses. This allows investors to evaluate company’s performance and gives a prospect on the way forward. The balance sheet on the other hand presents the strengths of a company which enables investors to factually calculate days of working capital. Balance sheets can also identify trends of how net profit is used, receivables and the payables.

Balance sheets

Balance sheet in organizations helps the managers to know what is in the business (assets) also to know what is not in the business (liabilities). The balance sheet, on the other hand, provides information to the managers on how debts should be paid, and to assess the operations to finance the business.

The balance sheet assists many managers of the business how to make right decisions in the business regarding equipment purchasing in the organization. Business managers also need the balance sheet for deciding on the best credit sources for business by showing accounting equations representations in a physical way.

For the investors, balance sheet is a document which is necessary for review learning to the company to know the total cash amount in hand, and how much does the company owes plus when the payments are to be done. Many investors tends to compare the company’s present balance sheet to find out whether that it has any increased debts, by building up the inventory, and depleting cash which might raise concern. Balance sheets helps government agencies in making sure that businesses are complying to the set laws. It provides information for all the potential lenders in businesses on credit worthiness in the business.

3. Briefly discuss the difference between the cash basis and accrual basis of accounting using the example of rent of 24000AED being paid in advance by Company A for 12 months from 1 September 2014. Company A has a December year end.

The major variance between cash and accrual basis accounting is the timing when revenue and expenses are to be recognized. The cash method of accounting is used revenue only when the money is received and for expenses only when money is paid out. The accrual method records the revenue when it is earned and expenses goods and services when they are incurred. The revenue is recorded even if money has not been received or if expenses have been incurred but no cash has been paid.

For the accrual method 24000AED is recorded even if it has not been paid while for the cash method, 24000AED will not be recorded till the amount is paid.

4.The CEO has described an item in the financial statements of Brave Brands Marketing as “…a present obligation, arising from a past event, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits.” Describe using accounting terms the above statements.

In finance, a liability can be explained as an obligation of an entity coming from past events or transactions, the settlement of which may come from transfer or use of assets, service provision or other economic future yielding.

A liability has the following characteristics;

A liability is any borrowing type that a person takes from another person or bank for the aim of bettering his project and is always payable within a set period of time. It is also the responsibility to other people that comprise settlement by future transfer or assets use, service provision, and other transaction yielding an economic advantage. Assets = Liabilities + Owner’s Equity.

5. You received the following chart:

You need to:

Arrange these costs in a table that lists factory overhead costs for the year.

Advertising expense 85000

Amortization expense 16000

Bad debt expense 28000

Depreciation expense-office equipment 37000

Depreciation expense-factory building 133000

Depreciation expense-factory equipment 78000

Factory insurance expired 62000

Factory supplies used 21000

Factory utilities 115000

Income taxes 53400

Property taxes on factory equipment 14000

Finished goods inventory Dec 31 15000

Finished goods inventory, Dec 31 2011 12500

Goods in progress inventory Dec 31, 2010 8000

Goods in progress inventory Dec 31, 2011 9000

Repair expense- Factory equipment 31000

2- Analyze the remaining costs and select those related to production activity for the year; selected costs should include the materials and goods in process inventories and direct labour

Factory supervision 74000

Factory supplies used 21000

Interest expense 25000

Miscellaneous expense 55000

Raw material inventory, Dec 31, 2010 60000

Raw material inventory, Dec 31, 2011 78000

Raw material purchases 313000

Salaries expense 150,000

Sales 1,630,000

Part 2:

Instructions:

 This is a group assignments. Students should form groups of 2- 4 members

 Please note that groups of more than 4 people can’t be accepted and their work will not be graded

 All students in a group can produce the same answers

 Each student should provide a reflective paragraph on the challenges and problems they faced in the report and how they overcame it. (This shouldn’t be more than 100 words per student)

 Answer the following three cases:

Case 1:

A Dubai factory manufactures garden huts. The production process is classified into two production departments, Assembly and Joinery. There is one service department, the canteen. The relevant forecast information for the year ahead is as follows:

Indirect costs for all three departments in total as well as the apportionment methods are as follows:

The following information is available for each department: REQUIRED

REQUIRED

1. Allocate production overhead costs to the Assembly, Joinery and Canteen departments using the apportionment methods provided. Use the format below to answer the question.

Total (R) Assembly (R) Joinery (R) Canteen (R)

Indirect labor 90 000 48000 36000 6000

Indirect material 81 000 43740 37260 Heating and lightening 25 000 10000 12000 3000

Rent and rates 30 000 12000 14400 3600

Depreciation 56 000 30000 24000 2000

Supervision 45 000 24000 18000 3000

Power 36 000 18000 16000 2000

total 363 000 185740 157660 19600

2. For each production department, calculate an overhead cost rate, based on labour hours, which may be used to absorb production overhead cost to jobs (correct to two decimal places).

Total (R) Assembly (R) Joinery (R) Canteen (R)

Indirect labor 90 000 48000 36000 6000

Cost rates 53.33% 40% 6.67%

3. Find the overhead cost of a job which spends three labour hours in the Assembly department and four labour hours in the Joinery department (correct to two decimal places).

  Total (R) Assembly (R) Joinery (R) Canteen (R)

Per hour   48000 36000  

3 hours   144000 108000 252000

Case 2:

The following planned results are available for ABC Company with a single product:

REQUIRED

1 Calculate the break-even point in units.

Break-even Sales Units = FC

p − v

p is the price per unit,v is variable cost per unit andFC is total fixed cost.

Break-even Sales Units = 7200

201600-120960

Break-even point = 0.803 2 Calculate the margin of safety in units.

MOS =  72000 – 0.8*224000

72000

Margin of safety is 2.49

3 What would be the required sales volume to earn a profit of 10 000?

Profit = total sales – variable costs

10,000 = Sales – 120960

Sales = 130,960

Case 3:

XYZ Company has a single product and the following information for the period has been provided:

1 – What sales revenue is required to break even (rounded to the nearest whole cent) using the contribution margin %?

Breakeven is at this stage 0.

Break-even = FC

p − v

0 = FC

p − v

p-v=FC

600 00*S – 442,500*60000 = 262,500*600000

S – 442,500 = 262, 500

S = 180000

Briefly explain what happens to the breakeven point and the margin of safety in the following circumstances:

An increase in the selling price of a product

An increase in sales increases the break-even point and increases margin of safety

A decrease in variable costs per unit

A decrease in variable costs decreases the break-even point and decreases margin of safety

An increase in fixed costs

Increases break-even point and decreases margin of safety.