Importance of Financial Information for Different Stakeholders

This document discusses the importance of presenting financial information for different stakeholders and its relevance in decision making. It also explores various microeconomic techniques of accounting and their benefits and drawbacks. The document is relevant to the subject of advance management and accounting.

Advance management
accounting
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Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1 Explanation of main purpose of presenting financial information for different stakeholders.
.....................................................................................................................................................3
M1 Evaluation of importance of presenting of financial information in decision making
process.........................................................................................................................................6
D1 Evaluation of financial information’s importance.................................................................6
TASK 2............................................................................................................................................6
P2 Use of various microeconomic techniques of accounting......................................................6
M2 Importance of management accounting technique with its benefits and drawbacks............8
TASK 3..........................................................................................................................................10
Explanation of concept of variance and its reliability in budgeting control..............................10
P4 Analysis of actual and standard cost....................................................................................10
M3 Advantage and disadvantage of various variances..............................................................10
D2 Use of variance and accounting techniques for organizations.............................................10
TASK4...........................................................................................................................................10
P5 Impact of environment factors on management accounting.................................................10
M4 Determination of impact of changes of factors...................................................................12
D3 Evaluation of effect of changes and recommendation regarding with future policies........12
CONCLUSION..............................................................................................................................13
REFRENCES.................................................................................................................................13
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INTRODUCTION
Management accounting the process of analysis, recording collecting and representing
information in front of internal as well as external stockholder. To understand this concept Alpha
Limited has been take. This report considers the importance of financial information for various
stakeholder as well as relevance of management accounting technique for decision making
purpose. It also include use of standard costing for managing asset of organization and
importance of modern management accounting technique for attaining business result .
TASK 1
P1 Explanation of main purpose of presenting financial information for different stakeholders.
Stakeholders: In business organizations they generate their capital source with the
investment of stakeholder. There will, be 2 types of stakeholder for every business corporation
Alpha Ltd define these below
Internal stakeholders: Theses consider as those personal which are directly linked and
connected in organization. They are employees, human resource and management department ,
owner and shareholders of the organization. They are directly conceded with organization thus
profitability rate and financial performance help them to recognize the balance of organization
and proves them future business security (Kar, Chakravorty, Sinha, and Gupta, 2018).
Investors: These consider as those personal who invest their capital within the
organisation they are willing to recognise the financial performance of organisation because of
on the basis of profit earning and organising financial performance of organisation investigate
secure the price or rate of dividend they get for their investment of capital as well as profit
organisation earn they are so building for the financial information because by using financial
information they can able to recognise price per share as well as identifying with their
organisation is in strong position or not on the basis of that they take the decision regarding
future investment of portfolio
Employees: personal who are liable for running business performance they formulate
effective business policies on the basis of that organisation Run their business by identifying
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financial information they get secure regarding their future as well as secure about their salaries
because if organisation suffers from losses then they are not able to provide salaries as well as
giving future securities to their employees does presenting financial information help employees
for their future business decisions (Dekker, 2016).
Senior management department: It includes all the members which are the reason of
formulating of effective business policies and take essential decision regarding business they are
person who hire others and deal with other business organisation financial information help them
recognising performance of organisation within given time period as well as they by using
financial information able to compare their performance with competitor Rival business
industries that presenting financial information helps senior management to formulate future
business policies
External stakeholders: Theses includes those personal or financial groups or social
groups whom not directly connect with organization or impact on their daily business routine
work however their preference and activities direct impact on their policies and profitability rate
of organization. They are most relevant stakeholders and it consider all the relevant personal.
Following are the external stakeholders of organizations
Creditors: they are consider as those personal which provide loan or capital on the basis
of a specified rate of return on the capital the provided to organisation during the time of
organisation face financial problems business organisations on the basis of their loan order
pliability formulate policies taken tab is essential for run business and take risk for investment
purposes creditor by recognising financial information able to take decisions that their
organisation is able of financially capable to payback they adapt liability or not on the basis of
identifying and analysing financial statement of organisations character take decision whether
they give them loan or not does presenting financial information essential for creditors
Banks: most essential stakeholders of organisation as they provide loan as well as
financial assistant at lower rate they are interested in financial performance and statement of
organisation because of on the basis of credit worthiness they give loan and charge interest rate
of particular organisation they also provide them securities and work for their on the behalf of
organisation regarding particular situations does bank on the basis of organising financial
statements and performance of organisation take decision for dealing with particular organisation
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Government: Government it is also interested in financial statement of Organisation on
the basis of representing financial information the charge tax as well as they are also analysed
that whatever business corporation work in ethical manner for fulfilling all the essential
accounting standard or not on the basis of that the take penalties does government interested in
financial information of organisations
Media: Financial Institutions help in providing financial help for assistant to particular
organisations they on the basis of recognising performance and financial statement of particular
business corporation enter into the agreement to provide assistant and expertise help for
particular organisation.
Financial institutions: also essential external stakeholders as on the basis of providing
promotional advertisement videos customer get influence and their perception getting changed
regarding particular organisation it is really essential for media that the only consider those
organisation which seriously provide customers goals as well as give them satisfaction making
dispute with media may become the reason of lower profitability and reduction in Goodwill rate
does media on the basis of recognising financial statement deal with other organisation for
promoting their business activities (Chow, Greatbatch, and Bracci, 2019).
Importance of financial statements
There are various way through which organizations able to represent financial information
Profit and loss: This statement is used to define particular profit an organization able to achieve
for specific time period. It consider all the expenses which incurred within particular time period.
Cash flow: This statement show value of cash inflow as well as cash outflow within
given time period. It also showcase how much did organization able to generate money by their
operating, investing and running financial business activities.
Balance sheet: It also show the value of asset and business liabilities as well as
shareholder worth for particular financial year.
Stakeholder on the basis of recognizing these statements take decision for future portfolio
.Management department of Alpha Limited also needs to focus on these stakeholder and on the
basis of that provides essential information regarding financial statement.
Advantages of presenting accounting information in systematic manner
Help in formulating financial statement
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Proved accurate information: Financial information useful in for provide based for
formulate financial statement which help in finding out best result. Systematic formulation of
information used in provide accurate as well as reliable information reading a financial
statement.
Decision making: Financial information useful in take decision on the basis of analysing
performance.
Control risk: These are also useful in controlling risk by analysing and interpreting
financial performance.
Disadvantage
Busied: It is not essential that financial information please provide accurate result as it
totally depends on the manager does it may be possible that the take by its decision to to
generate their financial gain.
Not provides accurate information: They are not provide accurate and reliable
information.
M1 Evaluation of importance of presenting of financial information in decision making process.
Management department of Alpha Ltd need to represent their financial statement for
showing essential financial information. Following are the impedance of these statement
Useful for take decision: Financial statement useful and take decisions regarding investment and
portfolios stakeholders on the basis of recognising performance and profitability the rate of
organisation take decisions for their future business activities as well as organisation of Alpha
Limited on the basis of these information
Analysis performance: On the basis of recognizing profit and loss statement value and
recognising balance sheet stakeholders able to understand the performance of organization
within given time period.
Help in competitor analysis: Financial statement help in identifying and evaluate whose
organization gain first position in market.
Future policies: With the use of information taken from financial statements organization or
stakeholder take decision and formulate future policies (Lu, and Xiao-qiang, 2017).
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D1 Evaluation of financial information’s importance
Management department of Alpha Limited need to recognize their financial statement
position and on the basis of that they formulate effected business policies which will help in
maintaining their business profit balance as well as useful in attaining future goals. Finance
information help in build trust for organization within the market.
TASK 2
P2 Use of various microeconomic techniques of accounting
Microeconomic techniques: Theses consider as techniques apply by organization when
they use management accounting Business organization use various technique and tools of
accounting which help in managing their financial assets as well as record every transaction in
systematic way. By using these tools organization able to evaluate value of profit and cost arising
for particular business activities as well as take decision regarding best business alternatives.
Absorption costing: It consider all the elements flexible as well as fixed absorption
costing help in evaluate every raw material effect for profit these technique useful for basically
manufacturing business organisations by using or applying this technique manager easily
understand per unit cost as well as cost incurred for manufacturing a required for fulfilling
demand of particular job order.
Marginal costing: This technique also known as variable costing method because of
only considering flexible elements which include direct material cost and labour variances it
does not consider the value of fixed cost while calculating profit marginal costing help in
recognise the impact of addition and subtraction of additional unit on generating of profit
marginal costing helpful in determining profit for organisations which use our formulate a
manufacture large range of units.
Cost volume profit analysis: This is also an essential tool of Management Accounting
by recognising profit volume ratio business cooperation able to understand impact of sales on
Profit and the value in ratio percentage of profit generation overall sales this also define the
relationship between profit in every element of income statement break even analysis and margin
of safety useful to determine for identification of Level where organisation generate no profit no
loss volume.
Budgeting: They will be me various methods through which this is corporation able to
formulate their budget by using applying activity based budgeting rolling based budgeting
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methods zero based budgeting or simple budgeting method business organisation and
management department formulate their budget this will help in providing or giving essential
information regarding future business profit budget also useful in defining risk as well as those
activities which require higher cost as compared to other business activities (Quattrone, 2016).
Cost variances: By calculating cost variances business cooperation able to understand
the reason of behind generating of variations arising between actual cost as well as budgeted cost
on the basis of calculating labour and material as well as overhead Business variances business
organisation take decision regarding how they can able to overcome from these of variances.
Capital budgeting techniques: There will be various techniques of capital budgeting
which help in taking decision regarding best alternative among others Management Accounting
useful in attaining business objective the managers of Alpha Limited need to apply these
techniques.
Payback period: This period is useful in identifying time required for or higher
payback period show that organisation need time for recover their cash amount on the other side
when organisations reduce the time of Payback period this means that it will help in generating
higher profitability rate.
Average rate of return: This is also considered as effective tool of capital budgeting
average rate of return help in defining or measuring average rate through which or which able to
attend profit for organisations within a given time period it is essential for every decision for
alternative business organisation take for their future business that it must be generate average
rate of return.
Net present value: This capital budgeting tool is useful as it consider time value net
present value is the difference between initial cost as deducted from present value of particular
cash flow this will useful in taking essential decision on the basis of that organisation able to
achieve their goals.
Internal rate of return: This is also known as time management rate of return as well as
capital rate of return it is also discounting cash flow technique which recognise returns rate
through which organisation able to attend their base alternative internal rate of return is among
the most useful alternative of capital budgeting techniques with useful and taken essential
business decision (Sledgianowski, Gomaa, and Tan, 2017).
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M2 Importance of management accounting technique with its benefits and drawbacks
Particular Importance Advantage Disadvantage
Absorption costing Alpha Limited used
this technique as it
helpful in identifying
value of cost by
considering all the
essential elements.
This method is useful
for manufacturing
business corporation.
It help in providing
accurate business
result.
Absorption costing is
useful for tracking all
the profits by using
absorption costing
management
department able to
recognise their
seasonal increment in
sales.
It is not essential that
result and value of
profit is accurate as
there will be many
factors which not
considering in
absorption costing.
Absorption costing is
not table to influence
operational business
efficiency as it is not
able to analyse
volume of cost
because of production
cost.
Marginal costing This technique is
consider the impact of
additional unit on
generation of business
profits.
This is easy technique
and method for
calculating profit .
Marginal costing is
useful as an easy
technique to analyse
profit as there will be
no need of allocation
as well as
apportionment of
resources.
Calculation of profit
has been recorded on
It required expertise
for calculating result
by using marginal
costing method.
Marginal costing not
able to calculate stock
value due to not using
accounting standards
policies.
t is really hard or
difficult to split
variable cost as well
as fixed cost this
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the basis of sales
volume not
production volume.
technique is not able
to recover all the
essential items of
production which help
in recognising profit.
Cost volume profit
analysis
This useful in defiling
relationship of profit
and sells for given
time period.
It useful in identifying
profit relationship
with other factor of
income statements.
This technique useful
in providing accurate
pricing analyses
This shoe rigid result
and value has been
changes with times.
It is not essential that
information it is
accurate as it required
expertise.
Budgeting This helpful in
providing guideline
for future business
policies of Alpha
Limited.
By using this
organization able to
formulate policies for
overcome risk.
It is time consuming
process. Zero based
budgeting require high
cost.
Cost variances Theses variance
useful for Alpha
Limited to identifying
reason of variation
aeries within
organization s.
Alpha Limited use
this for getting
accurate and reliable
business result which
useful for future
business policies
(McLeod, Payne, and
Evert, 2016).
This method is
required hiring of
experts which have
knowledge of all
standard.
It is not essential that
all the information is
accurate.
Capital budgeting
techniques
These are useful in
taken decision for
Alpha Limited.
Help in managing
business assets.
Preparation of budget
is considered as cost
generation activity,
Useful in finding out
Time consume
process .
Its kind time
consuming method of
accounting
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errors.
This will be useful in
present financial
information to
stakeholders
Pay back period
return
By using pay back
period Alpha Limited
able to recognize time
required for recover
invested money.
Easy calculation.
It is considered as
time saving method.
This method is not
proved relive business
result.
It does not include
time value.
Net present value Consider time value
and provides best
result for decision
making
This method is useful
in recognising wealth
of shareholders.
This technique also
useful as it will use all
the Essential elements
with related with
production line
It is difficult to
understand..
Internal rate of return Alpha Limited use
method for calculate
internal rate of each
project. Which useful
in managing their
portfolios.
Proved accurate
business result
regarding
organization.
Time consuming
method
TASK 3
P4 Analysis of actual and standard cost.
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Standard cost: This method is used to find out difference between standard and actual cost .
There will be many variance are used through which organization able to find out cause of
difference . On the basis of that they formulate strategies.
 Material price variance
Standard Price − Actual Price for Unit)× Actual Quantity used
Actual quantity purchased of material at actual price = 8000*11.50 = 92000
Actual quantity of material at standard price = 8000*12 = 96000
= 11.50-12*8000 = -4000
92000-96000 = 4000-
 Material Quantity Variance =
(Standard Quantity for Production − Actual Quantity used)
× Standard Price =
Actual quantity of material at standard price = 6000*12= 72000
Standard quantity at standard price = 4500*12 = 54000
=6000- 4500*12 = 18000
 Direct Labour Rate Variance
Actual hours worked at standard rate = 1680*5= 8000
Standard hour at standard rate = 1800*5 = 9000
1600-1800*5 = -1000
Actual direct labour hours worked at actual rate = 1600*25 = 40000
Actual direct labour hour worked at standard rate = 16*24 = 38400
(Actual rate − Standard rate Rate) × Actual Hours worked =
25-24*1600 = 1600
Direct labour rate variance = 40000-38400 = 1600
 Variable overhead efficiency variance
Actual hour worked at standard rate
Standard hours worked at standard rate =
Variable overhead efficiency variance = (AOH – SOH)* Sr
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1600-1800*5 = 1000F
 Variable Overhead Spending Variance = AH × (AR – SR) =
Actual hours worked at actual rate = 7200
Actual hour worked at standard rate = 8000
Variable overhead variance = 4.5-5*1600 = 800
 Direct labour efficiency variance=
Actual labour hours worked at standard rate = 1600*24 =38400
Standard hours for standard rate = (3000*0.6)*24 = 43200
Direct labour efficiency variance = (AH -SH) SR = 1600-1800*24 = 4800
M3 Advantage and disadvantage of various variances
Variance are directly impacted on organization. Labour material and overhead business
variance are useful in finding out difference of actual and standard budget cost which useful in
formulating business polices to overcome these differences. Following are the advantage and
disadvantages of variances
Advantages
1. Variance are useful for manager to take decision and theses are useful in proved base for
formulate budget.
2. They are useful in find out errors and cause of arise differences.
3. Manager formulate policies and strategies which help in reduce the differences. Thus
standard costing consider as essential part of management accounting.
Disadvantages
1. Theses are base of result come from financial statement which are formulated at the end
of financial year.
2. Amount calculated by using these variance are not revel as the-number of words has
fluctuate.
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D2 Use of variance and accounting techniques for organizations.
Variance help for management department of Alpha Limited to formulate toes policies sad
use strategies through which they are able to generate future economic benefit by controlling this
business cost.
TASK4
P5 Impact of environment factors on management accounting
Environmental factors directly impact on business organisation as well as practices of
Management Accounting before 21st century Tools and techniques used in management
accounting and now change with the changes of time in Technologies at present and customer
preferences as well as organisations need and environmental factors all these are changes with
the changes of these elements new modification and updating is coming within the management
accounting techniques before there will be internal external environmental factors which directly
impact on business organisation processes to analyse the impact of external an internal factors
environmental scanning technique has been used. (Zyoud, and Fuchs-Hanusch, 2017). With the
use of SWOT analysis organisation able to understand their strength weakness opportunity as
well as read Alpha Limited apply and SWOT analysis for recognising impact of internal
environment.
Strength: it includes effect of internal element of factors employees are the biggest
strength of any organisation as well as capital structure ability of financial assets and
organisational policies and management department of Alpha Limited recruit skilled personnel
which help in providing a manufacturing best product however due to the past some years they
are not able to give their best result due to internal issues.
Weakness: Alpha limited has suffered from financial losses of financial management
issues does they always offers on liquidity position their assets are not sufficient to fulfil their
debt liabilities to become the reason of losing the position of within the organisation within the
competitive market environment.
Opportunities: Alpha limited by using effective tools of Management Accounting able
to maintain their financial position within the market for this purpose they just need to apply
these techniques in effective manner.
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Threat : Alpha Limited Phase risk as due to the impact of COVID-19 and logged on
period they are not able to produce their products which directly reduce reduce their profitability
rate.
External factors are related with political social economic and environmental elements following
are the factors impact on Alpha Limited
Political: these are include government policies procedures and all the rules like
monetary policies fiscal policies which directly impact on business policies of Alpha Limited
this organisation belongs from UK does adversely political authority environment impact on this
organisation (Lana, Del Ser, Velez, and Vlahogianni, 2018).
Economical: It includes those factors which directly related with demand and supply factors: At
present time due to the impact of Brixit agreement as well as pandemic the economic cycle goes
down thus bank rate for taken loan and investing in global market is high.
Social: This element related with relationship of various social groups. M these are
include government policies procedures and all the rules like monetary policies fiscal policies
which directly impact on business policies of Alpha Limited this organisation belongs from UK
does adversely political authority environment impact on this organisation needs to follow social
responsibility to maintain their posting in market.
Technological factor: Using advance technologies and software useful in attaining
business result. Management department of these are include government policies procedures
and all the rules like monetary policies fiscal policies which directly impact on business policies
of Alpha Limited this organisation belongs from UK does adversely political authority
environment impact on this organisation need to apply these software for recording acquitting
information in effected way to find out accurate information.
There will be many technique which changes and it direct impact on using management
accounting techniques. Following are the difference between new and old management
accoutring technique
Modern management accounting technique: This consider those techniques which do
not use accounting methods more over the use technical as well as mathematical methods for
statically stools for recognising differences between budget 8 as well as actual outcomes It
consider all the benchmarking financial governance key performance indicator linear
programming operational management Matrix as well as financial planning these tools are
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directly impact on the environmental effect for formulating and effectively work for internal
organisation for human resources they need to use benchmarking as well as key performance
indicator which help in recognising performance of organisation as well as taking decision
regarding rewards and providing promotion and incentives on the basis of using financial
governance policy organisation of Alpha Limited able to work in ethical manner and managing
financial assets in moral and ethical way by fulfilling accounting standard rules the use and
programming as well as Matrix this will help in managing their cost as well as take a decision
regarding the most effective alternative which help in providing future business earnings modern
management techniques applied by organisation as with the changes of time and impact of
external internal environmental elements.
M4 Determination of impact of changes of factors
Management department needs to change or update their techniques old techniques of
Management Accounting may provide information that however these are not useful for present
time environment as to attend competitive disadvantage and effectively for formulate on enhance
motivation between work from they need to use modern Management Accounting techniques
(Passetti, and Tenucci, 2016).
D3 Evaluation of effect of changes and recommendation regarding with future policies.
Modern management accounting technique direly impact on organization. Management
department of management department needs to change or update their techniques old techniques
of Management Accounting may provide the libraries that however these are not useful for
present time environment as to attend competitive disadvantage and effectively for formulate on
enhance motivation between work from they need to use modern Management Accounting
techniques need to use benchmarking, financial governance and liner programming as well as
standard costing technique for their organization’s these are useful for provides economic
benefits and manage assets of organization.
CONCLUSION
From the above analysis it has been identified that organization for running their business in
successful manner and attain position in market need to use tools of advance management
accounting. They need to proved accurate financial information for their stakeholder which
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essential. By using marginal, standard costing and capital budgeting managing department able
to take decision. But with changes of tie to maintain sustainability in market they need to use
benchmarking, financial governance liner programming technique to attain business goals.
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