Profit Distribution Strategy for Tyre Manufacturing Company

This assignment focuses on distributing profits among shareholders of a tyre manufacturing company, Jackson Pvt Ltd. It involves analyzing financial statements, income statements, and various profit distribution methods to motivate members and competitors alike. The task is to conclude the most effective strategy based on accounting principles and business expansion goals.

Accounting for Managers

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Q1. Forming a new business and writing a brief introduction...............................................1
Q2. Legal form for business...................................................................................................1
Q3. Financing options............................................................................................................2
Q4. Projected Balance Sheet and a Projected Income Statement...........................................3
Q5. Defining the role of accounting in relation to business...................................................6
Q6. Discussing whether financial statement analysis would be useful for the managers of
business or not........................................................................................................................7
Q7. Management should distribute profit or retain in the business:.......................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Accounting is the main task which is used in business in order to make them sustainable
and prosperous. This is the core branch which is essentially required to consider business
operations in the most effective manner so that the firm's long term objectives can be attained.
With the help of accounting entries, company can know about each activity so that they could
frame policies accordingly (Ball, 2013). In the present report, entrepreneur is going to form a
private limited company of which proposed name is Jackson private limited company whose
main business is in manufacturing tyres. With respect to the scenario, various concepts related to
accounting will be discussed in the report.
Q1. Forming a new business and writing a brief introduction
Before going to make a plan of a business, the entrepreneur needs to opt the plan about
kind of business entity that he needs to form. Also, he will be required to decide that whether it
would be a company or sole proprietorship or partnership firm. However, sole proprietorship
firm is the easiest way to form and run business smoothly instead of other activities. But, there
are some drawbacks for operating a business under sole proprietorship firm. The entrepreneur
plans to operate the business of manufacturing of tyres (Wengle, 2012). Proposed company name
is Jackson tyre. For that, such entrepreneur needs to opt so many formalities such as
environmental clearance and much more. So that he could run his operations in an effective
manner. The licensing procedures are also required so that the business could run effectively.
The foremost legal requirement for forming a firm is to contact the secretary of the state which is
accountable for registering companies in entrepreneur's state. The first and foremost aim of the
incorporation is to make a certificate or article of incorporation, under which the proposed
company's terms and conditions are mentioned.
Q2. Legal form for business
To incorporate the private limited company, there are certain terms and conditions which
are required to be followed. As this is the more complex procedures than others. But there are
certain advantages which might take it worth considering as a firm form. A company is known as
a distinct legal corporation; due to this, the company and its owners are the different and they are
not accountable for the losses of the firm. To run a business as a corporate entity, there is a need
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to comply with the formal requirements of state laws to frame the company. The owner of the
business must agree on the following to frame a corporation:
 The proposed name of the company.
 Number of shares, proposed company wish to issue.
 No. of shares of stock each of the owners will buy.
 The firm under which company will engage.
 Who is going to control the company?
Q3. Financing options
There are basically so much tools which can used in order to finance the business. While
the major financing tool in the business is the traditional bank loan. But, there are some other
tools as well which are used for funding the Jackson tyre private limited. Most of them are
favourable than others.
1. Bank loan: This is the major tool for financing the business. As, many of the firms uses
this technique in order to meet out their requirements. However, if business uses this tool,
then they will have to render higher interest rates to the banks. Which will ultimately
affect the products price of the company. Now, this is not as practical as it was earlier.
However, bank loans is provided after having extensive research about the company and
then approve it,
2. Self-financing: This comes after bank loan. This is the company's own capital that are
used in order to have the business operations effective and efficient. This is the most
famous method for financing the business. By using this financing method, company can
use their assets for their financing needs so that it could gain their assets in a most
effective manner.
3. Venture capital and or Angel investor: This is the great option to raise the funding for
business operations. But this is not available for the each of the business. These groups
provides the assistance if company is having uniqueness in their operations (Cullinan and
et. al., 2012). They are ready to assist the new business operations, they only work with
the businesses which could establish that they have regular revenue pouring in.
4. Raise money from relatives: In start- up business friends and family are helpful in order
to manage its financial resources. If there is a personal interaction among any financial
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decision it is mostly risky to organise its finance. To avoid it company need to supply
financial projection in front of personal department.
5. Get a microloan: It is indirect or the inability to secure a loan through bank it does not
means that it will contribute to you. They are often too small that commercial banks can
easily provide funds to them.
Q4. Projected Balance Sheet and a Projected Income Statement
Projected Balance Sheet
Jackson tyre private limited
Historical Projected
as of 31/03/2017 as of 31/03/2018
Assets
Current Assets
Cash in bank $2,32,900 $2,86,467
Accounts receivable 4,34,325 5,16,847
Inventory 23,34,323 27,31,158
Total Current Assets $30,01,548 $35,34,472
Fixed Assets
Machinery & equipment $3,42,32,343 $3,83,40,224
Furniture & fixtures 12,34,342 12,34,342
Land & buildings 4,42,32,334 4,42,32,334
Other fixed assets 12,34,232 14,93,421
(LESS accumulated
depreciation on all fixed
assets) 6,45,563 7,23,031
Total Fixed Assets (net of
depreciation) $8,15,78,814 $8,60,23,351
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Other Assets
Intangibles $2,33,445 $2,52,121
Deposits 1,25,687 1,35,742
Goodwill 75,645 75,645
Total Other Assets $4,34,777 $4,63,508
TOTAL Assets $8,20,13,591 $8,64,86,859
Liabilities and Equity
Current Liabilities
Accounts payable $2,45,345 $2,72,333
Interest payable 2,34,342 2,01,855
Taxes payable 9,03,423 10,47,473
Current part, long-term debt 2,34,322 1,47,347
Other current liabilities 1,54,524 1,45,773
Total Current Liabilities $17,71,956 $18,14,781
Long-term Debt
Bank loans payable $32,49,731 $32,49,731
Other long term debt 54,32,312 66,84,646
Total Long-term Debt $86,82,043 $99,34,377
Total Liabilities $1,04,53,999 $1,17,49,158
Owners' Equity
Invested capital $5,63,43,456 $5,63,43,456
Retained earnings - beginning 1,24,46,434 23,34,925
Retained earnings - current 23,34,925 1,60,59,320
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Total Owners' Equity $7,11,24,815 $7,47,37,701
Total Liabilities & Equity $8,15,78,814 $8,64,86,859
The Jackson private limited
Projected Income Statement Template
For the year ending March 31, 2017
Sales
revenues
2568453
4
Less-
cost of
goods
sold
1978745
7
Gross
profit
58,97,07
7
Operatin
g
expenses
Salaries 1,23,348
Rent 4,35,676
Payroll
tax 2,33,445
Advertisi
ng 7,64,523
Depreciat
ion 1,22,334
Insurance 211
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Supplies 3,43,122
Interest 2,01,855
Telephon
e 45,643
Total
operatin
g
expenses
22,70,15
7
Income
from
operatio
ns
36,26,92
0
Corporat
e income
tax @30%
10,88,07
6
Net
income
25,38,84
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Q5. Defining the role of accounting in relation to business
Accounting is a tool through which the transactions are recorded, reflect them in financial
results of the activities of a firm. However, accountants and accounting profession have
preserved their fundamental roles which they have emerged into so many branches of the
profession that have emerged their own uniqueness and obligation (Ball, 2013). This department
is used within the firm in order to explain double entry, and how data are emerged, recorded and
conferred as information in a ways needed by the users of financial information. Accountants not
only assist in providing the reliable and accurate information to the firm but also to ensure that it
is concerned for the aim for which this is rendered, fixed for comparability, and well understood.
Financial information which is prepared by taking the accounting data must be:
Accurate- such information are error free from content or principle.
Reliable: Information must be reliable so that the effective decisions can be taken.
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Timely: Information must be available on time in order to support the decisions.
Consistent: The information must be consistent.
Clear: the accounting information must be easily understood for whom such information is
made.
However, there are various users of the accounting (Christensen and Nikolaev, 2013).
These are further categorised into management accounting and financial accounting. The
management accounting helps to co-ordinate various department works more effectively so that
the business can run effectively. This covers financial and non- financial information which can
be used by the firm for their growth and development. It is the procedure of knowing, assessing,
measuring, interpreting and communicating relevant information which are used for meet out the
organisational goals and objectives. But financial accounting helps the firm to keep up entire
firm's financial transactions. With the help of standard accounting guidelines, the company's
firm's transactions are recorded, summarised and presented within the financial statements.
However, financial statements are made after keeping in mind the accounting guidelines and this
reports is useful for various stakeholders for making the investment decisions.
Q6. Discussing whether financial statement analysis would be useful for the managers of
business or not
Financial statement is a tool of reviewing and examine a firm's accounting reports for
knowing it past, current and future performance (Jha and Chen, 2014). Such reviewing of
financial statements enables for effective decision making. The main aim of financial statement
is to apply information about the historical performance of the firm in order to forecast how this
will fare in the near future. Other main aim of financial statements is to assess the potential
issues and resolve those. Usually, there are various individuals of financial statements. Such can
be segregated into internal and external users. Internal users are the management of the cited
company who assess financial statements for making decisions which are connected to the
operations of the firm. While, external users are those who does not have relation with the
company but have some kind of financial interest. These covers general public, consumers,
employees, investors, government, owners and other interested group (Chen, TAN and Wang,
2013). The managers of the cited implement their financial statement to frame their brilliant
decisions about their performance. For example, they might measure cost per dispersion channel,
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or how much cash they have remained, from their accounting reports and frame the decisions
from these analysis results (Finance and Accounting for Managers, 2017).
Q7. Considerations that management of business would take into account
As it has been found that corporation which is looking for new international market can
have an option to transform as emerging market through its limited resources. Sustainability in
growth is the important challenges among any business those are facing new problems. There are
various aspects which are required to be considered by the company before making any decision
regarding it use of profit (Finance and Accounting for Managers, 2017). If company is well
recognised brand in a country it will need to find out most effective ways through which they are
going expand their business with effective motive to earn maximum profit inn coming future.
According to the financial statement evaluated by the Jackson tyres company which are
in healthy position. From analysis of income statements it has been seen that company have
enough profit to manage its operations (Collier, 2015). There are only two are aspect are taken
into consideration by the company. If they want to make expansion in more than one country of
their business, they need to retain those profit as retained earnings that would help to increase
profitability and growth of company in the coming future. On the other hand, if they are going to
distribute those profits among each member of company, value of shareholders can increase and
other member of the company will feel motivated to perform their activities. The above option is
the most effective for other competitors that are already in the same businesses of tyres
manufacturing company.
CONCLUSION
From the above report, it has been concluded that accounting managers are the important
aspect of any business which are used by the company in most effective manner in order to
manager there business operations. The project report consist of various financial statements and
income statements of Jackson pvt Ltd which is associated in tyre making company. It consists of
various decision which are used by company in order to expand their business with profit they
are getting from the business. Also, it involves various considerations which are associated with
distribution of profit.
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REFERENCES
Books and Journals
Collier, P.M., 2015. Accounting for managers: Interpreting accounting information for decision
making. John Wiley & Sons.Collier, P.M., 2015. Accounting for managers: Interpreting
accounting information for decision making. John Wiley & Sons.
Chen, W., TAN, H.T. and Wang, E.Y., 2013. Fair value accounting and managers' hedging
decisions. Journal of Accounting Research. 51(1). pp.67-103.
Christensen, H.B. and Nikolaev, V.V., 2013. Does fair value accounting for non-financial assets
pass the market test?. Review of Accounting Studies. 18(3). pp.734-775.
Jha, A. and Chen, Y., 2014. Audit fees and social capital. The Accounting Review. 90(2). pp.611-
639.
Ball, R., 2013. Accounting informs investors and earnings management is rife: Two questionable
beliefs. Accounting Horizons. 27(4). pp.847-853.
Cullinan, C.P., Wang, F., Wang, P. and Zhang, J., 2012. Ownership structure and accounting
conservatism in China. Journal of International Accounting, Auditing and Taxation.
21(1). pp.1-16.
Wengle, S.A., 2012. Engineers versus managers: experts, market-making and state-building in
Putin's Russia. Economy and Society. 41(3). pp.435-467.
Online
Finance and Accounting for Managers. 2017. [Online]. Available through:
<https://www.cranfield.ac.uk/SOM/Open-Executive-Programmes/Finance-for-Non-
Financial-Executives/Finance-and-Accounting-for-Managers>. [Accessed on 31st August,
2017]
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