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Manage Financial Resources

1. (a) The revenue principle – The principle of revenue is the important in the accrual accounting along with the matching principle. As per the stated principle, revenues have to be recognized when they are actually realized and when they are earned not when the cash is received. For example, a snow plowing service completes a company's parking lot of the plowing at its standard fee of $100.

(b) The expense principle – Expense recognition is the difference between accrual accounting and the cash accounting principle. On the cash principle of accounting, revenue is recognized or cost is recognized as soon as the cost is received or paid. For example, this principle states that the expense have to be recognized in the same period to which the revenue relates if the same is not the case expenses would likely be recognized.

(c) The matching principle – It is one of the accounting principles that recognize that the expenses incurred in the same time period in which the revenue related are earned. This principle states that businesses must incur expenses to earn revenues. For example A earns $10,000 of product sales in December, the company pays him $1,000 in commissions in January. The matching principle states that the $1,000 of commission should be recorded on the December statement along with the December product sales of $10,000.

(d) The cost principle – It is one of the principles of accounting that recognize that the assets to be recorded in the cash at the same time when the assets are acquired. It is also called a historical cost principle. For example, when the retailer purchases inventory from another seller, he records the purchase the cash which he has paid.

 (e) The objectivity principle - It is one of the accounting principles that recognize that the financials of an organization are based on evidences. Objectivity is a science which allows description of the questions which are scientific.

2) The 3 financial statements of the companies are the balance sheet, profit and loss account, and cash flow statement of the companies which provide unique details of the information and that all are interconnected to each other. The financial statements together give a comprehensive view of any company’s activities which are operating. The income statement provides the performance picture of the company that provides the sales, gross profit, cost of goods sold (COGS) and the net income after deducting all the expenses of the company. The key features of the income statement are as follows-

  • It presents the revenues and expenses of the business.
  • It uses principles of accounting for example matching and accrual principles to present the figures of the company.
  • Uses to access the profitability of the company.

The Balance sheet of the company shows the assets and liabilities and shareholder’s equity of the company. It also shows the changes in each bigger accounts. The net income from the p/l comes to the balance sheet as the changes in the retained earnings. The key features of the Balance sheet of the company are-

  • It presents the financial position of the company.
  • It expresses the summary of the company at a specific point of time where income statement shows the same over a period of time.
  • The balance sheet of the company is having three main sections i.e. assets, liabilities, and shareholders’ equity

The cash flow statements of the company show the net income of the company and adjust it non-cash expenses. Using changes in the balance sheet of cash usage and the cash receipts. The cash flow statements show the changes in cash in the period along with the starting of the cash balance and closing cash balance. The key features of cash flow statements of the company are –

  • It presents the increase and decrease in cash.
  • It represents over a period of time in an accounting period for say 1 year, 1 quarter, etc.
  • It is majorly having three sections i.e. cash from the operating activities, cash used in investing activities, and cash from the financing activities.

So these are the key feature of the 3 financial statements of the companies and these all are interlinked and dependent on each other as these all are the foundation of corporate accounting. These data are reviewed by the investors and the lenders for assessing the company information and through these only various kinds of financial ratios are calculated that provide the company's insights. Through these only one can understand and analyze the company's performance from various angles. Management is responsible for overseeing all the above so can provide the best of the company through these financial statements. So the income statements provide insights into operating activities which are core that generate earnings for the company but the balance sheet and cash flow statements (CFS) focus on the how to manage the capital of the company in terms of both assets and the structure of the company i.e. they all are interlinked and dependent on each other.

3) (a) Internal communication is responsible for effective communication in the organization. Verbal communication refers to the use of words but nonverbal means without the use of words such as body language, silence and gestures, and postures. Written communication includes social media magazines, books, and the internet. It is the most effective tool for communication. Verbal communication is more effective as it saves time and when one deals with the emotions it is more effective, it is economical and tone is easy that one can read that while Written communication is more effective when sender have to communicate complex information to the receiver and it serves as compared to the Verbal communication and having the same written data receiver can read as many time until it is not understood to them.

(b) There are 5 principles which organization should follow while communicating with the employees. They are-

  • Data-driven and measurable – The employees should obtain information that allows him to make assertions and the improvements to the tactics.
  • Personal, specific, and actionable- employees are exposed to communication and this principle entails them that what they have to do.
  • Sensitivity to employee's time- So employee's respect is a must for the organization. As there is interruption amongst the employees then there will be a reduction in the net productivity of the organization.
  • Collaborating – Organization has to be entrepreneurial if it has to measure the impact of the organization and it has to collaborate with the employees.
  • Creatively designed- As the communicators, one needs to be able to design good designs and designs that means luxury.

(c) The 3 effects of poor organizational communication are- 

  • Increased employee turnover- Employee retention is having significant importance for the company as it is not only costly for the company but impacts the company's ability to serve its customers. It has been researched that around 3 times the cost the company has to incur while replacing the employee.
  • Lower Shareholders return- It has been researched that the companies which are having good communication with the employees are having more shareholders return as compared to the companies which are having the least communication.
  • Poor customer service – If the organization is having the poor communication in the workplace than the customer service is impacted as the employees don't have the information which they needed to have to do quality work so they face problem in serving the customers and the lower employee's morale will impact and creates the negative experiences.

(4)(a) The 5 additional documents as per requirements of the Corporations Act 2001 are as follows-

Document

Section of the Corporations Act

1. The financial position statements as at the end of the year (if consolidated accounts is not the requirement by the Accounting Standards)

295(2) & 296(1)

2. The cash flows Statement for the year (if consolidated accounts is not the requirement by the Accounting Standards)

295(2) & 296(1)

3. The changes in equity Statement ( if consolidated accounts are not required by Accounting Standards)

295(2) & 296(1)

4. Notes appended with the financial statements (disclosure if it is requirements of the regulation, requirements of notes by the accounting standards)

295(3)

5. The Income statement and other comprehensive income for the year (consolidated if required by the accounting standards)

295(2) and 296(1)

6. Consolidated financial statements if it is the requirements of accounting standards and may include parent entity financial statements where Class Order [CO 10/654]included of parent company financials in the report requirements are met.

295(2) and 296(1)

7. Declaration from the Director’s that the financial statements are complying with accounting standards that gives a true and fair view, there are reasonable grounds to believe the company can pay its debts.

295(4)

8. Auditor's report

301 and 308

9. Directors' report, which includes the independence declaration from the auditors.

298–300A

(b) As per the ATO (Australian Tax Officer), the reporting of GST and the payment cycle will be as follows –

  • It would be monthly if the GST turnover is equal to $20 million or more.
  • It would be quarterly if the GST turnover is less than $20 million and when the ATO has not told the person to file monthly returns then he can file quarterly return.
  • It would be annually if one is voluntarily registered under the GST and if the one is registered under GST than the GST turnover should be less than $75000 and it would be ($150000 if it is not for profit organization).

It depends on the circumstances of the individual, one can change the reporting cycle according to him and can pay the GST and the same will occur when the one's GST turnover changes and he wants to report and pay using different reporting cycles. If one elects to change his reporting and payment cycle early in the lodgement period i.e monthly, quarterly and at the starting of the financial year then he can commence the new cycle else he has to take the new cycle from the start the year. The GST turnover figures to determine GST reporting methods can be obtained from the ATO (Australian Tax Officer) records. The GST reporting methods can be rolled over at the end of every financial year as per the organization's GST turnover. If one's GST turnover gets reduced below $0 million than he can move to simple BAS reporting from the next reporting period.

( c) If an organization is having a GST turnover of over $20million than the organization will remain compliant if it reports monthly and can lodge his activity statements through electronically. The ATO will send the statements of paper activity regardless of what is the turnover of the organization. Moreover, it will not stop the liability to switch to electronic reporting for the organizations having turnover above $20million.

If one is having the AUS key than he can log in the portal can lodge the business statements or one is not having the AUS key than he can register for the same or another option is that on can use standard business reporting in which it is automatically created and send safely ATO selected forms online from our payroll or accounting software. If the organization does not switch to electronic mode if has turnover is more than $20million than the organization has to levy the penalty of $850per event.

5) (a) The company’s cost of capital is the cost of fund (debt and equity) and from the investor’s point of view it is the required rate of return (ROE) on existing securities portfolio of the company and it is the significant variable for every company as it determines the capital structure of the company's, it is important as it is used as the discounted rate for the company's free cash flows as per the discounting cash flow analysis. As based on this the company will make decisions that were to deploy the capital and to maximize the profits.

(b) Investor A wants to invest in the company X in which the cost of capital of the company is 10% and he getting the return of 9% he should not invest in such company as the company's cost is more than the return it will provide as the shareholder always wants to maximize his return on his investment and if the company's cost is more than his expected returns than he will invest that money somewhere another company which will provide him the better return than this company. So if the company's return should be more than the cost, than its better to invest in that else it should not invest in the same company. Hence we can say that the Investor should not invest in company X as the company is not providing the expected return to the shareholder. 

(c) Working capital of the company means the money which is required by the company for the short term investments. It focuses on the short term rather than the long term investments in fixed assets and R&D. Working capital refers to the differentiation between current assets and the current liabilities and the net working capital is different from the capital expenditures as its focus on the liquidity of the company and whereas the capital expenditure focuses on the long term investments of the company and the networking capital is related to the capital expenditures indirectly. The working capital is needed to finance the short term operations and hence it is different from the long term investments in fixed assets and R&D.

6) The company has three types of activities so through the table, the following activities are classified in the investing or financing decisions -

Activity

Financing/Investment Decision

(a) Analysing of that the resources which are adapted to the size of the company.

Investment decision

(b) Decision of the company’s “financing mix”.

Financing

(c) Defining the optimal size of the company.

Investment

(d) Analysing the types of assets that the company must acquire, or otherwise sell or get rid of, to achieve efficient management.

Investment

(e) Ensuring business continuity over a long period.

Financing

(f) Maintains a constant inflow of capital.

Financing

(g) Studying the sources willing to offer credit to the organization and define the best financing options for operations.

Financing

7) (a) The goal of profit maximization is one of the major goals in the financing, as according to this the activities which increase the profits of the company should be undertaken and activities which decrease the profits should be avoided. It refers to the use of efficient utilization of the resources which are scared and increases the economic efficiency of the company. So it is considered to be the best criterion for financial decision making.

(b) The goal of shareholder wealth maximization is another major goal of the financing decisions as through this goal company is trying to increase the stock prices of the company as the stock prices increase, the value of the firm increases and hence the shareholder's wealth increases. So it is the main goal of the firm/ company to increases its shareholder's wealth at any cost.

(c) The three difference among the 2 above is –

  • Wealth maximization focuses on the long term objective to increase the value of the stock of the company hence increases shareholders' wealth whereas profit maximization only increases the earning profit capacity in the short run to make the company survive and grow in the competitive market.
  • Wealth maximization focuses on a set of activities that manage financial resources which increase shareholder's value but profit maximization consists of such activities that manage financial resources and which increases the profitability of the company.
  • Wealth maximization focuses on the shareholders and profit maximization focuses on the profits of the company.

8) (a) Principles of risk and return, and their correlation – It refers to that there is always a positive correlation between the risk and the return, the high will be the risk the greater will be the profits of the company and vice –versa. The diversification will help in reducing the risk of the portfolios without compromising with the return on the portfolios.

(b) The time value of money principle states that the money that we own today is having more worth than the amount we hold in the future due to earning capacity. It is also called a present discounted value method.

( c) The cash flow principle states that liquid assets of the company are increasing which enables them to settle debts, invest their money, return the money to his shareholders according to their holding and pay expenses and maintain some retained earnings for future challenges. Ascertaining of the proper cash flows by the organizations is one of the objectives of the financial reporting of the organization.

References for Financial Policy and Procedure Manual

Geiger. M.A. and Taylor III.P.L. 2003. CEO and CFO Certifications of Financial Information. Accounting Horizons.17 (4).pp357-358. Retrieved from https://www.researchgate.net/profile/Marshall_Geiger/publication/228389391_CEO_and_CFO_Certifications_of_Financial_Information/links/00b7d51ea96823fc05000000.pdf

Government. n.d. Petty cash. The University of Vermont. [Online]. Available at https://www.uvm.edu/sites/default/files/Division-of-Finance/UserGuides/pettycash.pdf [Accessed on August 18, 2020]

Osisioma. B.C. 2013. BUDGETING, AUDITING, AND GOVERNANCE: IMPLEMENTING THE ACCOUNTABILITY FRAMEWORK.
Conference: ANAN Mandatory Continuing Professional Development Programme. Retrieved from https://www.researchgate.net/publication/282095554_

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Management Assignment Help

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