Accounting for Managers

This assignment delves into the core principles of accounting for managers. It explores how financial statements are used to inform managerial decisions, emphasizing the importance of ratio analysis in evaluating a company's performance and financial health. The document provides comprehensive solutions to various problems related to financial statement interpretation and analysis, catering to students seeking guidance in understanding accounting concepts within a management context.

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Running head: ACCOUNTING FOR MANAGERS 1
Accounting for Managers
Student’s Name
Institution
Supervisor’s Name
Course

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Q.1 – Chapter 10 Problem 14
Profitability - ROE
Return on Equity is referred as the net income, which is returned as a shareholder equity
percentage. It is the difference between net income and shareholder equity, where net income is
taken for the full financial year, while amount of preference shares are excluded from the
shareholder equity (Tracey, 2012).
Net Income Shareholder Equity Excluding Preference shares 20X4 20X5 20X6
20000 150000 - 50000 = 100000 20%
11000 144000 – 50000 = 94000 11.70%
2500 143500 – 50000 = 93500 2.67%
Profitability - ROE
Table 1: ROE of Efficient Distributors Ltd
Profitability – ROA
ROA is the financial instrument for measuring net income obtained through total assets
for a particular period. The formula is net income by average total assets.
NOTE: ROA cannot be calculated for 20X4 due to lack of opening total assets.
Net Income Average Total Assets 20X5 20X6
11000 (266000 + 282000) / 2 = 274000 4.01%
2500 (282000 + 287000) / 2 = 284500 0.88%
Profitability - ROA
Table 2: ROA of Efficient Distributors Ltd
Comment Summary
The ROE ratios indicated downfall in the net income of the organization, where the ratio
have gradually decreased over the years due to low income. Considering the ROA, similar type

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of result was obtained, where company has failed to manage their assets, which has led to low
profits for the year 20X6.
Gross Margin
Gross margin is helpful for determining the percentage of revenue from total sales. Thus,
it the difference between direct expenses related to its production and selling (Tracey, 2012). The
formula of Gross margin is given below:
Total revenue from sales = Cost of goods sold (COGS) / total revenue from sales
Total Sales Revenue COGS 20X4 20X5 20X6
200000 90000 55%
180000 84000 53.33%
165000 75000 54.55%
Gross Margin
Table 3: Gross Margin of Efficient Distributors Ltd
Net Margin
Net margin helps in identifying the percentage of revenue, which is collected as a profit on
selling each product or service (Tracey, 2012). The formula is given below:
Net margin = net profit / revenue.
Net Profit Total Sales Revenue 20X4 20X5 20X6
20000 200000 10%
11000 180000 6.11%
2500 165000 1.52%
Net Margin
Table 4: Net Margin of Efficient Distributors Ltd
Selling Ratio
Selling ratio is also known as price-to-sales ratio, where the stock price of the organization
is compared with its revenues (Tracey, 2012). According to the question, $1 is the stock price of

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Efficient Distributors Ltd calculated as per share i.e. 75000/75000 = $1 and the total amount of
equity shares is 75000.
Total Sales Revenue Sales per Share 20X4 20X5 20X6
200000 200000/75000 = 2.67 $1/2.67 = 0.37
180000 180000/75000 = 2.4 $1/2.4 = 0.42
165000 165000/75000 = 2.2 $1/2.2 = 0.45
Selling Ratio / Price-to-Sales Ratio
Table 5: Selling Ratio of Efficient Distributors Ltd
Finance Ratio
Finance leverage Ratio is a kind of financial ratio, where total assets replace the debts in
debt-to-equity ratio. It is also known as equity multiplier, which focuses on showing the
difference between the average total assets and average amount of equity shares (Tracey, 2012).
NOTE: calculation of 20X4 cannot be done due to lack of opening total assets. Ordinary
share capital is assumed as equity share capital.
Total Assets Average amount of Equity shares 20X5 20X6
(266000 + 282000) / 2 = 274000 75000+75000/2 = 75000 3.65
(282000 + 287000) / 2 = 284500 75000+75000/2 = 75000 3.79
Finance Ratio / Financial Leverage Ratio
Table 6: Finance Ratio of Efficient Distributors Ltd
Comment Summary
Gross margin ratio indicates slight fluctuations of the past years, which indicates the
company retaining higher percentage on sales of each product, where they can meet their debt
obligations. Net margin ratio has provided the exact percentage of profit earned after cutting the
production, which resulted in greater decrease for the last two years. The price-to-sales ratio was
evident in providing a slight increase in the value from the previous years. Lastly, the finance

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leverage ratio pointed that debt owns a part of company’s assets and then equity holds
approximately 3.79 parts, which has gradually increased from 3.65.
Current Ratio
Currents ratio is difference between current assets by total current liabilities, which helps
in indicating the relation between them (Tracey, 2012). The calculation is done below.
Financial Ratio Formula 20X4 20X5 20X6
Current Assets / Current liabilities
20X4 = 69000 / 41000
20X5 = 77000 / 42000
20X6 = 87000 / 34000
Current Ratio
Current Ratio 1.68 1.83 2.56
Table 7: Current Ratio of Efficient Distributors Ltd
Quick Ratio
Quick is also known as acid test ratio, where the company’s ability to pay off the liabilities
through quickly turning those current assets available excepting inventories, prepaid expenses
and supplies.
Financial Ratio Formula 20X4 20X5 20X6
(Current Assets – (Inventories + prepaid
expenses + Supplies) / Current Liabilities : 1
20X4 = (69000 – 40000)/ 41000 : 1
20X5 = (77000 – 42000)/ 42000 : 1
20X6 = (87000 – 48000)/ 34000 : 1
Quick Ratio
Quick Ratio 0.71 : 1 0.83: 1 1.15: 1
Table 8: Current Ratio of Efficient Distributors Ltd
Comment Summary
After calculating the current ratio, it was evident that the percentage has increased over
years, which indicates a stronger relationship between current assets and current liabilities with
adequate working capital. As per the quick ratio, the ratio calculated also indicates betterment

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over the years, where the company can quickly turn the assets into cash for paying out the
current liabilities. In the current year 20X6, company could have easily payout the liabilities,
keeping the balance amount in hand as the ratio has exceeded the value of 1:1, i.e. 1.15: 1.
Inventory / Stock Turnover Ratio
Inventory turnover ratio or stock turnover ratio is used to determine the quantity of stock
sold during a time period in the organization (Tracey, 2012). The formula is given below:
Stock Turnover Ratio = COGS / Average Inventory.
NOTE: Opening inventory for 20X4 is note provided, hence calculation not possible for
the particular year.
COGS Average Inventory 20X5 20X6
84000 (41000 + 44000) / 2 = 42500 1.98
75000 (44000 + 49000) / 2 = 46500 1.61
Inventory / Stock Turnover Ratio
Table 9: Current Ratio of Efficient Distributors Ltd
Considering the Days Inventory, the formula is 365 days / Inventory turnover
20X5 = 365/ 1.98 = 184 days
20X6 = 365/ 1.61= 227 days
Comments Summary
Considering the stock turnover, it was evident that the company had a poor performance,
as they required nearly half a year to sell its entire inventory in 20X5 i.e. 185 days, which
increased to 227 days in 20X6, which was additionally disastrous for the company.

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Accounts Receivable Turnover Ratio
Accounts receivable turnover ratio is the difference between the amount of total credit
sales and average amount of accounts receivable. It is able to measure the number of periods at
which turnover of accounts receivable take place (Tracey, 2012). The calculation is provided
below.
NOTE: Since in the balance sheet, credit sales are not mentioned, hence total sales are
assumed as credit sales for calculating the accounts receivable turnover ratio. Moreover, 20X4
opening accounts receivable not mentioned and hence it cannot be calculated.
Total Credit sales Average Accounts Receivable 20X5 20X6
180000 26000 + 31000 / 2 = 28500 6.32
165000 31000 + 37000 / 2 = 34000 4.85
Accounts Receivable Turnover ratio
Table 9: Current Ratio of Efficient Distributors Ltd
Considering the Days sales considering Accounts Receivable, the formula is provided
below:
Accounts Receivable Turnover Ratio = 365 days / Inventory turnover
20X5 = 365 / 6.32 = 58 days
20X6 = 365 / 4.85 = 75 days
Comments Summary
The results indicated that turnover of accounts receivable at every 58 days in 20X5 and 75
days for 20X6, which displays that company requires nearly 2 and a half month to collect the
credit amount on total sales, which is considered to be a long time for a business. The lesser the
amount of days will be, the better will be the results.

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Recommendations
After analyzing the entire financial statement through numerous calculations including
financial ratios, it was evident that the net revenue of Efficient Distributors Ltd in 20X6 was less
as compared to the previous years, which resulted in downfall in the financial ratios calculated
on net revenues. Gross profit of the company in the current year was comparatively beneficial in
comparison with previous years. The key flaw identified in the trading and P&L statement was
additional cost of indirect expenses including selling as well as distribution expenses along with
administration expenses. This led to low generation of the net income at the end of the year.
Hence, the company might look forward to lower its indirect expenses in the future, which will
lead to better income in upcoming years. Additionally, the amount of sales was quite less
comparatively to the previous years, 20X4 and 20X5, which is also an area of concern for the
company. Efficient Distributors Ltd should put additional efforts in selling, which will lead to
extra income in the future, for which they need to strategize their productions, operations,
marketing, selling along with optimum usage of finance.
Limitations
The financial calculations considering the balance sheets have few limitations, as it follows
the accounting principles excluding the physical processes of the organization. The data
calculated through determining the accounting ratios are correct as per the financial segments.
This is due to the fact that the failure of the company may be due to physical processes of poor
raw material handling, inefficient team effort, inadequate marketing as well as advertising
processes and ineffective selling procedures. Hence, the result obtained through accounting
ratios may not be accurate based on the above mentioned physical factors (Tracey, 2012).

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Additional Information Required
Considering additional information, opening balances of few accounts including account
receivable, inventory as well as total assets were not available, where the calculation was undone
for the year 20X4. Apart from this, the information provided was adequate enough, which helped
to create the income statement given below.
Particulars 20X4 20X5 20X6 20X4 20X5 20X6 20X5 20X6
Sales 200000 180000 165000 100.00% 100.00% 100.00% -10.00% -8.33%
Cost of Goods Sold 90000 84000 75000 45.00% 46.67% 45.45% -6.67% -10.71%
Gross Profit 110000 96000 90000 55.00% 53.33% 54.55% -12.73% -6.25%
Selling and Distribution
Expenses 40000 40000 46000 20.00% 22.22% 27.88% 0.00% 15.00%
General and
Administration
Expenses
20000 20000 18000 10.00% 11.11% 10.91% 0.00% -10.00%
Financial Expenses 15000 16000 20000 7.50% 8.89% 12.12% 6.67% 25.00%
Total Operating
Expense 75000 76000 84000 37.50% 42.22% 50.91% 1.33% 10.53%
Earnings Before Tax 35000 20000 6000 17.50% 11.11% 3.64% -42.86% -70.00%
Income Tax Expenses 15000 9000 2500 7.50% 5.00% 1.52% -40.00% -72.22%
Loss on Sale of
Investment 1000 0.00% 0.00% 0.61% 0.00% 0.00%
Earnings After Tax 20000 11000 2500 10.00% 6.11% 1.52% -45.00% -77.27%
Efficient Distributor's statement of
comprehensive income for the year ended 30
June 20X6
Vertical Analysis With Sales Horizontal Analysis
Table 10: Income Statement

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Question 2: Chapter 10 Ethics Case Study
Facts
The given case study was based on a company named ‘Allandale Ltd’, which manufactures
small luxury boats and it had been about 10 years since it had started its operations. The
company was expanding its business, but in the recent years, it faced difficulties, when the tariffs
on small boats were removed. As per the current financial results that were observed by its
accountant, Tom Lyons highlighted that current ratio of the company was 2.1:1 and the return on
its assets was11%.
Stakeholders
The stakeholders of Allandale Ltd as per the provided details, was prominent to be its
customers, 500 employees and the bank from which the company had taken the mortgage loan
being the debtor. Other key stakeholder of the company was its competitors in local market as
well as overseas along with its suppliers.
Problems
The ethical problems that Tom was facing was the removal of 10% tariffs on the small
luxury boats, which was perceived to be a great concern for the company, as it was facing
difficulties in performing with the competitors in the overseas markets. In response to this
problem, the company had to reduce its profit margin. Another problem was that one of the boats
unsold was overvalued in the balance sheet. In addition, the customers were also unable to pay
half of its debt.
Values and Principles
The values and principles that was related in this particular case was that Tom, being the
accountant of the company should display its true facts and figures showcasing the fundamental

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principles of the ethical code of the business. Failure to do so can be regarded as a misstatement
or misrepresentation of disclosures. As per the Australian standards of accounting, there are
certain values and principles that the professional accountants must follow under APES 110
Code of Ethics and has three parts. Part A included the fundamental principles, which are to be
followed as per the professional ethics such as identifying treats against fundamental principles
along with its importance and taking safety measures complying with the conceptual framework.
Part B and C consisted of the details of applying the conceptual framework at various situations.
Furthermore, the fundamental principles included integrity, objectivity, professional competence
& behavior and confidentiality (APESB, 2010).
Possible Courses of Action
The possible course of action according to the case would be, in one hand Tom can identify
the misstatements complying with the code of conduct, which depicts that the accountant must
adhere or overlook the issues. Non-compliance of the rules and regulations will be considered
unethical.
Evaluation of Each of the Courses of Action
As per the ethical course of action, if Tom recognizes the decrease in the net realizable
amount and the excess of the provision for the uncollectable account, it can lead the company to
face the problem of bankruptcy. Furthermore, it would be liable for the company to repay its
mortgage loan of $20 million to the bank and identify its realizable value of $150,000 and excess
provision of uncollected account of $200,000. Another course of action would be to select the
unethical way that focuses on not revealing the true facts and figures for which the company
would face the consequences sooner or later. It will be acting as a misstatement of data and

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information and the accountant or the company would be charged for misrepresentation, thereby
depicting unethical activity.
Selected Plan of Action
The appropriate plan of action must be the ethical consideration, which focuses on
performing the activities to safeguard the unethical behavior, as per the accounting profession. In
such further cases, it would be the duty of the accountant to report the breaches that has been
observed as per the ethical requirements (APESB, 2010).
Question 3: Chapter 12 Problem 10
3. a. Accounting and Reporting Information System
As per the provided case study, Giggling Brothers were the wholesalers of fine wines,
whose operations were observed to be profitable. They were performing accounting system
manually for a long time. However, the company was facing cash flow problems frequently. The
primary reason for such issues was reported to be improper feedback from the accounting
department, which was often viewed as a guidance to take crucial decisions. Therefore, to
address these problems, it can be suggested that computerized system of accounting and
reporting should be implemented in the company. A computerized record keeping can enable the
organization to collect the relevant information in an easier way. Furthermore, with the support
this approach, information regarding taxes and other legal requirements can be appropriately
addressed (The State of Queensland, 2017). For maximum utilization of information, especially
for the company, ‘Computerized Accounting Information System’ (CAIS) must be used, as a
signifiantly process the events and financial transactions complying with the Generally Accepted
Accounting Principles (GAAP), thereby producing required reports. Thus, it can assure enhanced
performance, transparency, accuracy, efficiency, speed and real-time user interface production of

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MIS, which can assist in producing high quality reports for the small sized companies like
Giggling Brothers’ company (Appiah, Agyemang Agyei, Nketiah & Mensah, 2014).
3. b. Benefits of CAIS
In an overall basis, the usage of information system in the accounting and reporting
processes enables the company with various benefits. The basic advantage of CAIS is that it
provides support to the management of a company to facilitate better decision-making and
enhance its business operations. Thus, generating reports requires financial information, which is
reliable for the management and is illustrated in the Figure 1 below:
Figure 1: A General Model for Accounting Information System (AIS)
(Source: Lim, 2013)
Thus, a computerized system has various advantages such as quick recording of the
transactions, detailed listing can be done and reviewed form time to time. In addition, it can also
be internally controlled through which errors can be easily detected and edited accordingly (Lim,
2013). Apart from these, there are various other advantages of using CIAS. It is simple and easy
to use, as it can automatically prepare the GST returns with greater productivity. Therefore, as a

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wine wholesaling business, Giggling Brothers can produce all financial statements, reports and
related information accurately. Thus, CIAS can be perceived as a better solution for the company
as compared to calculating and preparing reports manually (Walker Wayland, 2010). However, it
can initially be costlier for the company to adapt to the changes right from installation of the
system. The cost will also increase as the employees of the company will need training to use the
newly installed accounting system within the organization. Complying with these changes, the
company can enhance flexibility and safety with respect to storing, assessing and reviewing of
relevant information, thereby facilitates in the overall decision-making and future planning
(Ndubuisi, Chidoziem & Chinyere, 2017).
3. c. Cost Evaluation for Implementation of CAIS
For the initial phase, the company can implement a mix system, so that the changes can
take place gradually to become a fully computerized system organization. This will enable the
company to manage the costs to be incurred. The employees can also be acquainted with the
changes in a systematic and gradual manner. However, there was also some software, which
required low investments. This could help in implementing software and computers having low
price, which could be more cost-effective thereby reducing the financial commitment for such
changes. Having an understanding of the benefits of CAIS, the company can better evaluate the
costs through various techniques such as user information satisfaction. This is a technique in
which the feedback from employees, who use the system, can be generated along with examining
the performance of the system (Nejati, 2011). Thus, with the usage of low cost information
system and availing training to the employees can help in increasing the efficiency and overall
performance of the company, which can be highly profitable.
3. d. Involvement in Design and Development of operations of CAIS

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In order to design and develop the operating specification for CAIS, there are various
factors that must be involved in the implementation of the new accounting system. This includes
people, internal control, data, infrastructure of the information technology and procedures.
People comprises the users of the system i.e. accountants, business analysts, auditors, chief
financial officers and managers. Procedures include the way in which the data will be collected
and implemented for future planning. Moreover, infrastructure was the hardware used to operate
the system. On the other hand, and internal control was the security system that the company
used for the protection of generated information and data (Accounting EDU, n.d.; Saeidi, Prasad
& Saremi, 2015). Therefore, CAIS is an accounting system that helps various people involved in
accounting and finances specifically the employees of different departments to work
collaboratively towards the achievement of the goals and objectives of the company with more
accuracy and efficiency. Thus, proper implementation of this system with employees adapted to
the changes can yield the company higher profitability and error-free decision making.
3. e. Examination and Evaluation of the Approaches Used by the Competitors
It would be very beneficial, if the company examines and evaluates the approaches used by
its competitors. This will enable Giggling Brothers to compare and contrast the approaches and
integrate profitable methods and implement them in order to have a competitive advantage in the
market. Thus, by analyzing the factors influencing operations of the competitors and the entire
industry, the company can better plan the future operations. For expanding into the international
market, it should conduct market research, sector policies, resources, infrastructural usage and
marketing relationships (FAO, 2017).
Therefore, it must indentify its competitors, determine areas of competitiveness, create
competition matrix and then determine the gaps. Thus, with the help of competitive analysis, the

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company can use an analytical tool to offer best value to the targeted customers (DM Resource
Center, 2017). Thus, in this context the company should follow the above steps for competitive
analysis in the wholesaling wine industry. For instance, in Australian market, the companies such
as Wesfarmers and Woolworths acted as retailers, wholesalers as well as the producers
(SRRTRC, 2016). For international analysis of some wine producing countries including France,
Italy, US, South Africa are detailed in the below Table 1 (Castaldi, Cholette, & Hussain, 2006).
Table 11: Country-wise Wine Production and Consumption
(Source: Castaldi, Cholette, & Hussain, 2006)

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2017, from http://www.accountingedu.org/accounting-information-systems.html
APESB. (2010). APES 110 code of ethics for professional accountants. Accounting Professional
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Castaldi, R., Cholette, S., & Hussain, M. (2006). A country-level analysis of competitive
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DM Resource Center, 2017. Unit 2: Chapter 6 Competitive Analysis: A Six-Step Approach.
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