Applied Accounting and Budgeting

This document provides information on applied accounting and budgeting, including financial statements, inventory accounting, and cost of debt and equity.

Running head: APPLIED ACCOUNTING AND BUDGETING
Applied Accounting and Budgeting
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1APPLIED ACCOUNTING AND BUDGETING
Table of Contents
Question 1:.......................................................................................................................................3
Requirement a:.............................................................................................................................3
Requirement b:.............................................................................................................................3
Question 2:.......................................................................................................................................4
Requirement a:.............................................................................................................................4
Requirement b:.............................................................................................................................4
Requirement c:.............................................................................................................................5
Question 3:.......................................................................................................................................5
Question 4:.......................................................................................................................................8
Requirement a:.............................................................................................................................8
Requirement b:...........................................................................................................................10
Part 1:.....................................................................................................................................10
Part 2:.....................................................................................................................................11
Part 3:.....................................................................................................................................11
Question 5:.....................................................................................................................................11
Requirement 1:...........................................................................................................................11
Requirement 2:...........................................................................................................................12
Question 6:.....................................................................................................................................13

2APPLIED ACCOUNTING AND BUDGETING
Requirement a:...........................................................................................................................13
Requirement b:...........................................................................................................................14
References:....................................................................................................................................16

3APPLIED ACCOUNTING AND BUDGETING
Question 1:
Requirement a:
Requirement b:
Weighted average method = $70,640/(170+500+400+1,000+1,000) = $23.01

4APPLIED ACCOUNTING AND BUDGETING
Question 2:
Requirement a:
In order to prepare financial statements, ABC Company Limited needs to adhere to the
terms and conditions mentioned in the Public Finance Act 1989 and other standards mentioned in
generally accepted accounting practices and treasury instructions in New Zealand. The
accounting policies need to be implemented and chosen in a manner, which ensures that the
financial information results meet the relevance and reliability concepts (Budding, Grossi &
Tagesson, 2014). Finally, the statements prepared have to be in accordance with International
Financial Reporting Standards (IFRS).
Requirement b:
ABC Company Limited is required to present its financial statements by complying with
NZ IFRS. This standard describes the basis for preparing financial statements so that
comparability could be ensured with the financial statements of the prior periods of the
organisation along with comparison with the financial reports of other organisations (Henderson

5APPLIED ACCOUNTING AND BUDGETING
et al., 2015). The statements need to provide necessary information regarding overall financial
condition of the organisation, which would be beneficial to a number of users for undertaking
economic decisions. In addition, they need to disclose information regarding assets, liabilities,
income, expenses and equity of the concerned organisation. Therefore, the financial reports of
ABC Company Limited would include the income statement, balance sheet statement, statement
of changes in equity, cash flow statement and notes to accounts of the financial statements.
Finally, the firm needs to disclose all material classes distinctively of identical items. Thus, it
need not offset assets, expenses, income and liabilities unless needed or permitted by NZ IFRS.
Requirement c:
ABC Company Limited is needed to comply with NZ IAS 2 in order to conduct
accounting processes for inventories. The main issue related to inventory accounting is that there
is recognition of cost amount in the form of asset and until there is ascertainment of associated
revenues, the same is carried forward (Wahlen, Baginski & Bradshaw, 2014). For valuation of
inventory, the organisation needs to choose from either cost or net realisable value, whichever is
lower. The buying cost of inventories mainly comprises of buying price, import duties, transport,
handling charges and others. The cost needs to be computed by using either weighted average or
standard costing methods. If standard costing method is chosen, it is necessary to review the
standard costs regularly and they need to be revised for reflecting actual costs, when required.

6APPLIED ACCOUNTING AND BUDGETING
Question 3:
Question 4:
Requirement a:
Before-tax cost of debt:

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After-tax cost of debt:

8APPLIED ACCOUNTING AND BUDGETING
Cost of preferred stock:
Cost of common stock equity:

9APPLIED ACCOUNTING AND BUDGETING
Cost of retained earnings:

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Requirement b:
Part 1:
Part 2:
Part 3:

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Question 5:
Requirement 1:

12APPLIED ACCOUNTING AND BUDGETING
Requirement 2:
From the above table, it is inherent that the NPV of the device is computed as ($85,999).
NPV helps in ascertaining the profitability of a project after deducting the initial investment from
the overall future cash flows (Andor, Mohanty & Toth, 2015). A positive NPV is always
favourable and it indicates the viability of a project or investment and vice-versa. In this case, the
NPV computed for the device is found to be negative. Hence, investing in this device would lead
to significant losses for ABC Company Limited.

13APPLIED ACCOUNTING AND BUDGETING
Question 6:
Requirement a:
Requirement b:

14APPLIED ACCOUNTING AND BUDGETING

15APPLIED ACCOUNTING AND BUDGETING
References:
Andor, G., Mohanty, S. K., & Toth, T. (2015). Capital budgeting practices: A survey of Central
and Eastern European firms. Emerging Markets Review, 23, 148-172.
Budding, T., Grossi, G., & Tagesson, T. (Eds.). (2014). Public sector accounting. Routledge.
Henderson, S., Peirson, G., Herbohn, K., & Howieson, B. (2015). Issues in financial accounting.
Pearson Higher Education AU.
Wahlen, J., Baginski, S., & Bradshaw, M. (2014). Financial reporting, financial statement
analysis and valuation. Nelson Education.