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22207 Accounting for Business Decision Notes

22207 - Accounting for Business Decisions B

53 Pages Complete Study Notes Year: Pre-2019

Contents FINANCIAL 1. NON-CURRENT ASSETS AND INTANGIBLE ASSETS ............................................................................................................... 6 a) RECORDING, EXPENSING AND REPORTING NON-CURRENT ASSETS...................................................................................... 6 i. RECORDING NON-CURRENT ASSETS ................................................................................................................................. 6 ii. EXPENSING NON-CURRENT ASSETS................................................................................................................................... 6 iii. REPORTING NON-CURRENT ASSETS .................................................................................................................................. 6 b) CALCULATING DEPRECIATION EXPENSE ................................................................................................................................ 7 iv. STRAIGHT-LINE METHOD ................................................................................................................................................... 7 v. REDUCING-BALANCE METHOD .......................................................................................................................................... 7 vi. UNITS-OF-ACTIVITY ............................................................................................................................................................ 7 c) ADJUSTMENTS MADE DURING A NON-CURRENT ASSET’S USEFUL LIFE................................................................................ 8 vii. CHANGES IN DEPRECIATION ESTIMATES ........................................................................................................................... 8 viii. EXPENDITURES AFTER ACQUISITION ................................................................................................................................. 8 ix. ASSET IMPAIRMENTS......................................................................................................................................................... 9 x. ASSET REVALUATIONS ....................................................................................................................................................... 9 d) DISPOSING OF NON-CURRENT ASSETS .................................................................................................................................. 9 xi. RULE FOR CALCULATING THE GAIN OR LOSS ON DISPOSAL .............................................................................................. 9 e) INTANGIBLE ASSETS ............................................................................................................................................................. 10 xii. RECORDING INTANGIBLE ASSETS .................................................................................................................................... 10 xiii. AMORTISING INTANGIBLE ASSETS................................................................................................................................... 10 2. PARTNERSHIPS.................................................................................................................................................................. 11 a) THE PARTNERSHIP FORM OF BUSINESS ............................................................................................................................... 11 b) COMMENCING A PARTNERSHIP .......................................................................................................................................... 11 i. CAPITAL ACCOUNT FOR EACH PARTNER ......................................................................................................................... 11 c) ALLOCATE PROFITS & LOSSES .............................................................................................................................................. 12 ii. SHARING PROFITS BASED ON A SET PERCENTAGE .......................................................................................................... 12 iii. SHARING PROFITS BASED ON CAPITAL BALANCES & ON SERVICES ................................................................................ 12 d) ADMISSION & WITHDRAWAL OF PARTNER ......................................................................................................................... 13 iv. PURCHASING A CURRENT PARTNER’S INTEREST ............................................................................................................. 13 v. INVESTING IN THE PARTNERSHIP .................................................................................................................................... 13 vi. INVESTING IN THE PARTNERSHIP: Bonus to the NEW partners ...................................................................................... 13 vii. INVESTING IN THE PARTNERSHIP: Bonus to EXISTING partners ..................................................................................... 14 viii. WITHDRAWAL OF A PARTNER ........................................................................................................................................ 14 ix. REVALUATION OF ASSETS BEFORE A WITHDRAWAL OF A PARTNER .............................................................................. 14 x. WITHDRAWAL OF A PARTNER AT CARRYING AMOUNT .................................................................................................. 15 xi. WITHDRAWAL OF A PARTNER AT MORE THAN THE CARRYING AMOUNT ..................................................................... 15 xii. WITHDRAWAL OF A PARTNER AT LESS THAN CARRYING AMOUNT ................................................................................ 15 2 | P a g e e) LIQUIDATION ....................................................................................................................................................................... 15 xiii. SALE OF ASSETS ............................................................................................................................................................... 15 xiv. PAYING LIABILITIES .......................................................................................................................................................... 16 xv. PARTNERS RECEIVE REMAINING CASH ............................................................................................................................ 16 3. SHAREHOLDERS’ EQUITY................................................................................................................................................... 17 a) THE CORPORATE FORM OF BUSINESS ................................................................................................................................. 17 b) ORDINARY SHARES ............................................................................................................................................................... 17 i. SHAREHOLDER RIGHTS .................................................................................................................................................... 17 ii. RECORDING ORDINARY SHARES ...................................................................................................................................... 18 iii. ISSUING SHARES BY INSTALMENT ................................................................................................................................... 18 c) DIVIDENDS ........................................................................................................................................................................... 19 iv. CASH DIVIDENDS ............................................................................................................................................................. 19 v. SHARE DIVIDENDS ........................................................................................................................................................... 19 vi. SHARE SPLITS ................................................................................................................................................................... 19 d) PREFERENCE SHARES ........................................................................................................................................................... 20 vii. CASH DIVIDENDS ON PREFERENCE SHARES .................................................................................................................... 20 e) SHARE BUYBACKS ................................................................................................................................................................ 20 4. STATEMENT OF CASH FLOWS ............................................................................................................................................ 21 a) THE STATEMENT OF CASH FLOWS ....................................................................................................................................... 21 b) PREPARING THE STATEMENT OF CASH FLOWS ................................................................................................................... 21 i. DIRECT OR INDIRECT METHODS OF OPERATING CASH FLOWS ....................................................................................... 21 c) Reporting Cash Flows from Operating Activities: DIRECT METHOD .................................................................................... 22 ii. OTHER REVENUES & EXPENSES ....................................................................................................................................... 22 d) Reporting Cash Flows from Operating Activities: INDIRECT METHOD ................................................................................ 23 e) CALCULATING CASH FLOWS FROM INVESTING ACTIVITIES ................................................................................................. 23 iii. INVESTING INFLOWS & OUTFLOWS OF CASH ................................................................................................................. 23 f) CALCULATING CASH FLOWS FROM FINANCING ACTIVITIES ................................................................................................ 23 iv. FINANCING INFLOWS & OUTFLOWS OF CASH ................................................................................................................ 23 5. FINANCIAL STATEMENT ANALYSIS .................................................................................................................................... 24 a) HORIZONTAL & VERTICAL ANALYSIS .................................................................................................................................... 24 b) PROFITABILITY ANALYSIS ..................................................................................................................................................... 25 i. PROFITABILITY RATIOS .................................................................................................................................................... 25 c) LIQUIDITY ANALYSIS ............................................................................................................................................................. 26 ii. SOLVENCY RATIOS ........................................................................................................................................................... 26 d) SOLVENCY ANALYSIS ............................................................................................................................................................ 27 iii. SOLVENCY RATIOS ........................................................................................................................................................... 27 e) DuPont ANALYSIS ................................................................................................................................................................. 27 3 | P a g e MANAGERIAL 6. ETHICS .............................................................................................................................................................................. 29 7. FIXED & ROLLING BUDGETS FOR PLANNING & DECISION MAKING ................................................................................... 30 a) THE BUDGET DEVELOPMENT PROCESS ............................................................................................................................... 30 i. PARTICIPATION IN THE BUDGET DEVELOPMENT PROCESS............................................................................................. 30 ii. BEHAVIOURAL IMPLICATIONS OF BUDGETING ............................................................................................................... 30 iii. ADVANTAGES OF BUDGETING ......................................................................................................................................... 30 iv. THE MASTER BUDGET ...................................................................................................................................................... 30 b) PRODUCTION BUDGET ......................................................................................................................................................... 31 c) MATERIAL, LABOUR, OVERHEAD & SELLING and ADMINISTRATIVE EXPENSE BUDGETS .................................................... 31 v. MATERIAL PURCHASES BUDGET ...................................................................................................................................... 31 vi. DIRECT LABOUR BUDGET ................................................................................................................................................ 32 vii. MANUFACTURING OVERHEAD BUDGET .......................................................................................................................... 32 viii. SELLING & ADMINISTRATIVE EXPENSE BUDGET ......................................................................................................... 33 d) CASH BUDGETS .................................................................................................................................................................... 33 ix. CASH RECEIPT BUDGETS .................................................................................................................................................. 33 x. CASH DISBURSEMENTS BUDGET ..................................................................................................................................... 33 xi. SUMMARY CASH BUDGET ............................................................................................................................................... 34 e) STATIC vs. FLEXIBLE BUDGETS ............................................................................................................................................. 35 f) PREPARING A FLEXIBLE BUDGET .......................................................................................................................................... 35 xii. WHAT IS A FLEXIBLE BUDGET? ........................................................................................................................................ 35 xiii. WHY FLEXIBLE BUDGETS? ................................................................................................................................................ 35 xiv. FLEXIBLE BUDGETING WITH STANDARD COSTS ............................................................................................................... 36 8. MANAGEMENT ACCOUNTING FOR COST CONTROL & PERFORMANCE EVALUATION – Flexible Budgets & Variance Analysis 38 a) FLEXIBLE BUDGET VARIANCE ............................................................................................................................................... 38 i. SALES PRICE VARIANCE.................................................................................................................................................... 38 ii. SELLING & ADMINISTRATIVE EXPENSE VARIANCE .......................................................................................................... 38 b) VARIABLE MANUFACTURING COST VARIANCES .................................................................................................................. 39 iii. THE VARIANCE ANALYSIS MODEL .................................................................................................................................... 39 c) DIRECT MATERIAL VARIANCES ............................................................................................................................................. 40 iv. DIRECT MATERIAL PRICE VARIANCE ................................................................................................................................ 40 v. DIRECT MATIERAL USAGE VARIANCE .............................................................................................................................. 40 vi. DIRECT MATERIAL VARIANCES WHEN AMOUNT PURCHASED DIFFERS FROM AMOUNT USED ..................................... 40 d) DIRECT LABOUR VARIANCES ................................................................................................................................................ 40 e) INTERPRETING AND USING VARIANCE ANALYSIS ................................................................................................................ 41 vii. MANAGEMENT BY EXCEPTION ........................................................................................................................................ 41 viii. INTERPRETING FAVOURABLE & UNFAVOURABLE VARIANCES ........................................................................................ 41 4 | P a g e 9. DECENTRALISATION & MODERN PERFORMANCE MANAGEMENT SYSTEMS – the balanced scorecard ............................. 42 a) MANAGEMENT OF DECENTRALISED ORGANISATIONS ........................................................................................................ 42 b) RESPONSIBILITY & SEGMENT REPORTING ........................................................................................................................... 42 c) COST, REVENUE, PROFIT & INVESTMENT CENTRES ............................................................................................................. 43 d) PROFIT CENTRE PERFORMANCE & SEGMENTED PROFIT & LOSS STATEMENTS .................................................................. 43 i. DIVISIONS ........................................................................................................................................................................ 43 e) INVESTMENT CENTRES & MEASURES OF PERFORMANCE ................................................................................................... 45 ii. RETURN ON INVESTMENT ............................................................................................................................................... 45 iii. RESIDUAL INCOME .......................................................................................................................................................... 45 iv. ROI vs. RESIDUAL INCOME .............................................................................................................................................. 45 v. DECENTRALISATION & PERFORMANCE EVALUATION IN A MULTINATIONAL COMPANY ............................................... 45 f) PERFORMANCE EVALUATION USING THE BALANCED SCORECARD ..................................................................................... 46 g) MEASURING & CONTROLLING QUALITY COSTS ................................................................................................................... 46 vi. THE COSTS OF QUALITY ................................................................................................................................................... 46 h) PERFORMANCE & MANAGEMENT COMPENSATION DECISIONS ......................................................................................... 47 vii. CASH COMPENSATION .................................................................................................................................................... 47 viii. STOCK-BASED COMPENSATION ....................................................................................................................................... 47 ix. NON-CASH BENEFITS & PERKS ........................................................................................................................................ 47 10. ACCOUNTING FOR SUSTAINABILITY – Social & Environmental Reporting & Management Accounting ............................. 48 a) MANAGEMENT ACCOUNTING & SUSTAINABILITY PRACTICES ............................................................................................ 48 b) CONCEPTUALISING EXTERNAL COSTS .................................................................................................................................. 49 c) SUSTAINABILITY VALUE CHAINS & MANAGEMENT ACCOUNTING ...................................................................................... 49 d) SUSTAINABILITY PERFORMANCE INDICATORS & TRIPLE BOTTOM LINE.............................................................................. 50 i. SUSTAINABILITY KEY PERFORMANCE INDICATORS (KPIs) ............................................................................................... 50 ii. TRIPLE BOTTOM LINE ...................................................................................................................................................... 50 e) ENVIRONMENATAL COSTS ................................................................................................................................................... 51 a) IS THERE AN IDEAL ENVIRONMENT COST MIX? ...................................................................................................................


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