Financial Accounting and Business Decisions

This assignment analyzes the role of financial accounting in decision-making at Youtus Enterprise. It examines how increasing liability affects dividend payouts and control, discusses the company's lease agreement for machinery and its potential capitalization, and highlights the importance of financial accounting systems for business efficiency. The analysis also touches on the cost implications of raising funds through debt and the influence of corporate intervention on public policy.

Advance Financial
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
QUESTION 1...................................................................................................................................1
QUESTION 2...................................................................................................................................2
QUESTION 3...................................................................................................................................2
QUESTION 4...................................................................................................................................2
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
Financial accounting is the specialized branch of accounting which keeps track of the
company's transactions. It plays an important role in the decision making process as it shows the
actual position of the companies performance (Basheikh, 2012). Business transaction which are
recorded in financial accounting concept are recorded using the standardized guidelines and are
recorded, presented and summarized in the financial reports which includes income statement,
balance sheet and cash flow statement. The following report contains the reasons which are
required to change companies accounting information system of Youtus Enterprise, it also
contains the reason that why a company should raise its capital using debts or by raising equity
shares.
QUESTION 1
Youtus Enterprise needs to change their accounting information system as it is necessary
for the companies to timely upgrade their system in order to maintain and improve the efficiency
of its production process. Following are the three possible reasons due to which Youtus
Enterprise need to change their system:
 Multiple Business Units: When the companies have multiple business units it need to
change their accounting information system, as in the above given case Youtus Enterprise
currently own ten warehouses and three retail stores in Australia and it also started its
new online store which states that company has many business units and if the accounting
information system is not upgraded the information can be complex.
 Multiple Products: when the product line of company increase it should change its
system (Smaili and Sinclair-Desgagné, 2014). As in the given case Youtus Enterprise is
in to manufacturing of shoe their product range varies from running shoes, soccer boots
and many other shoes for elite athletics they are also introducing two new ranges which
are Youtus light and Youtus flex.
 Increased regulatory reporting: As there is a possibility in the change of some
regulations by the Australian parliament which may increase the cost for the company
and also the reporting to these regulatory authorities will be increased.
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QUESTION 2
The cost of funding through debts option is considered to be more expensive than the cost
of funding through equity because if the funds are raised through debts the company has to pay
interest on those debts every year where as if the company issue equity shares in the company
then it is not compulsory for the company to pay dividend every year companies can retain the
earnings and give the dividends when ever they want (Van Deventer, Imai and Mesler, 2013).
The rate of return in the case of debts is usually fixed and company has to pay the interest if the
company is facing losses where as in the case of equity shares no rate of return is fixed,
companies can sometime pay higher rate of return or some time it does not pay dividend at all. In
the case of equity share they does not create a liability to pay back the amount as the equity
shareholders get the ownership in the company whereas in the case of debts company has to
return the amount invested by the debenture holders.
QUESTION 3
a) The Youtus Enterprise has decided to acquire a new machinery which will help the
company to produce its goods with the territorial boundaries of the country. In order to over
come the proposed regulation relating to the foreign sub contracting by the Australian firms
company has decided to acquire a new machinery on lease which is specialised in design making
process and will reduce the five stage designing process to three stage designing process. This
acquisition of machinery will help the company to reduce the cost of production and improve its
design and quality of shoes.
b) Corporate intervention has a direct impact on the public policy formulation, as when the
law makers make impose any new law on the taxable income the tax liability of the company
may increase or decrease (Weil, Schipper and Francis, 2013). The companies influence these law
makers to provide certain relaxation in the laws through which they can operate their business.
QUESTION 4
a) If the liability of Youtus Enterprise increase the company has the obligation to pay of
their debts first which will result in the lesser amount of the dividend which is paid to the equity
share holders. If the debts increase it will increase the amount interest which is to be paid to the
debenture holders the leverage will also be transferred to the debt holders and the control of the
equity share holders will be less as compared to the debenture holders.
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b) Youtus Enterprise will not consider the option of capitalizing this lease agreement as the
company has taken the machinery on lease for five years and the total life of this machine is only
6 years company will be paying $45,000 as advance payment for the machinery and subsequent
annual payments of $85,000 for the five year. They option to purchase the machinery after the
lease agreement at a price below its market value. As the useful life of machinery is to be just six
years than there is benefit in purchasing the machinery.
CONCLUSION
From the above file it can be concluded that financial accounting is an important part of a
company as it shows the various transaction of a business and keep a proper record in order to
prepare the financial statements. It can also be established that the company is required to
change the accounting information system in order to improve the efficiency of its business
operations. With the help of the above report it can be established that the cost of raising funds
from the debts can increase the expense for the company as they have to pay the regular interest
on the capital borrowed from these debts. It also states the importance of financial accounting
system.
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REFERENCES
Books and Journals
Basheikh, A. M. A., 2012. Prediction of financial failure of Saudi listed companies. International
Journal of Managerial and Financial Accounting. 4(2). pp.195-213.
Smaili, N. and Sinclair-Desgagné, B., 2014. Corporate governance and financial authority
sanctions. International Journal of Managerial and Financial Accounting.6(1). pp.27-
48.
Van Deventer, D. R., Imai, K. and Mesler, M., 2013. Advanced financial risk management: tools
and techniques for integrated credit risk and interest rate risk management. John Wiley
& Sons.
Weil, R. L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to
concepts, methods and uses. Cengage Learning.
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