BBA1143 Introduction to Accounting

ASSIGNMENT
SEPTEMBER 2020 SEMESTER
SUBJECT CODE : BBA1143
SUBJECT TITLE : INTRODUCTION TO ACCOUNTING
LEVEL : BBA
STUDENT’S NAME :
STUDENT NO. :
PROGRAMME : BBA
ACADEMIC :
FACILITATOR
LEARNING CENTRE : CAMBRIDGE COLLEGE
INSTRUCTIONS TO STUDENTS
1) Plagiarism in all forms is forbidden. Students who submit plagiarised
assignment will be penalised.
2) References MUST be included and taken from reliable sources. Please use the
Harvard Referencing Style and cite your work appropriately.
3) This assignment carries a 60% weightage toward final grade.
4) The submission date for this assignment is XXXXXX
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DECLARATION BY STUDENT
I certify that this assignment is my own work and is in my own words. All sources
have been acknowledged and the content has not been previously submitted for
assessment to Lincoln University College or elsewhere. I also confirm that I have kept
a copy of this assignment.
Signed: _________________________
2

Contents
PART A..................................................................................................................................................................4
Task One: Financial Ratios.....................................................................................................................................4
Historical performance of the company..............................................................................................................4
Ratio analysis of Dolphin Hotels PLC................................................................................................................5
Analyze the impact of COVID 19 on the company, the industry and the Sri Lankan economy..........................7
Task Two: Budgets...............................................................................................................................................11
Task Three: Compliance and record keeping........................................................................................................13
References............................................................................................................................................................17
3

PART A
Task One: Financial Ratios
Historical performance of the company
The PLC and Dolphin Hotels PLC Beruwala Resorts are listed on the Colombo Stock Exchange.
This assignment helps to get an idea of how these hotels performed. Ratio analysis is a process in
which a firm's financial strengths and weaknesses are identified and analyzed by establishing
meaningful relationships between the elements of financial statements. The Ratio analysis was
defined as one of those parameters for calculating efficiency. However, it is not advised to
calculate market success based solely on financial metrics, as non-financial considerations play a
crucial role in this too. (William.F,1999)1
It was located nestled in one of Sri Lanka's most historically important places. Dolphin Hotel has
a fun atmosphere to sell its visitors. The tranquility of the environment supports the traveler in a
relaxed atmosphere while the luxurious collection of facilities ensures absolute comfort. The
hotel is a sanctuary for residents as well as visitors, with convenient lodging to a variety of
leisure activities.
The hotel is situated about 169 km from Colombo and about 162 km from Katunayake
International Airport, Bandaranaike. Dolphin Hotel offers 79 superior rooms to its guests which
speak for their name. With relaxing colors and decor to help relax amid nature's wonders, these
guestrooms provide complete privacy and luxury at all times. Sri Lanka's warm climate is
making swimming outdoors a pleasurable pastime. (Gulpenko,K,2017)2The Dolphin Hotel’s
main restaurant, a pavilion-type air restaurant, serves tasty and gastronomic local and foreign
cuisine.
Other services at Dolphin Hotel include an Eco Center, an in-house pharmacy, physician on call,
and guest machine internet. In an extremely challenging climate, including lower than expected
occupancy levels due to severe competition and lack of demand formation, Dolphin Hotels PLC
reported top line growth during the year. (Gulpenko,K,2017) 3Total occupancy was 74 per cent
on average compared to 76 per cent in the previous financial year. The turnover was Rs.26Mn
1 (William.F,1999)
2 (Gulpenko,K,2017)
3 (Gulpenko,K,2017)
4

compared to Rs.333Mn when last year's operating profit was Rs.63Mn compared to Rs.83Mn.
The after-tax benefit was in Rs.67Mn from Rs.66Mn.
2018 2019
Profit Rs. Rs.
Accumulated profit at 67,108,395 66,529,146
end of the year
Stated Capital
The Company's reported capital as at 31 March 2017 was 97,650,000 (2016-97,650,000) split
into 5,859,000 (2016-5,859,000) common shares. (Vaitlingam.D,2005)4There was no
improvement to the Company's Reported Capital during the year under study.
Accounting Ratio Analysis
 Ratio analysis is a method in which a firm's financial assets and weaknesses are
identified and evaluated by creating clear relationships between the components of
financial statements.
 Five kinds of ratios are popularly used to measure a company's financial performance.
 Profitability Ratios-assess the viability of the company or the financial performance
 Liquidity Ratios-measure the financial state of the company in the short term
 Gearing Ratios-measure long-term financial performance and the company's role
 Productivity Ratios-measure how well organization has invested its money.
(Charles.P,2010)5
 Sector of buyers Ratios-measure quality of the investment Investors’ market Ratios -
evaluate the attractiveness of the investment and its return using both financial
statements and market-based information. (Vaitlingam.D,2005)6
Ratio analysis of Dolphin Hotels PLC
Profitability Ratios
Gross Profit Ratio = Gross Profit x 100
4 (Vaitlingam.D,2005)
5 (Charles.P,2010)
6 (Vaitlingam.D,2005)
5

Sales
Net Profit Ratio = Net Profit before Tax x 100
Sales
Year 2017 2018 2019
Gross Profit Ratio (Rs.) 204,169,931 / 258,287,530 x
100 = 79.0
268,666,925 / 333,028,739 x 100
= 80.67
242,583,874 / 325,263,132 x 100
= 74.58
Net Profit Ratio (Rs.) 63,930,106 / 258,287,530 x 100
= 24.75
86,120,462 / 258,287,530 x 100
= 33.34
69,572,745 / 258,287,530 x 100 =
29.93
Liquidity Ratios
Current Ratio = Current Assets
Current Liabilities
Year 2017 2018 2019
Current Ratio (Rs.) 84,365,707 / 52,344,216 = 1.6 139,859,503 / 58,796,645 = 2.4 128,808,574 / 77,284,750 = 1.67
Efficiency Ratios
Asset Turnover = Sales
Total Assets
Year 2017 2018 2019
Asset Turnover (Rs) 258,287,530 / 395,002,203 =
0.65
258,287,530 / 497,411,140 =
0.52
258,287,530 / 520,093,308 =
0.49
Investors’ market Ratios
Earning Per Share = Profit after Tax
Numbers of Ordinary Shares
Dividends Per Share = Dividend Paid
Numbers of Ordinary Shares
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Dividend Payout Ratio = Dividends Per Share x 100
Earning Per Share
Price Earning Ratio = Market Price per Share
Earning Per Share
Year 2017 2018 2019
Earning Per Share (Rs) 60,807,630 / 5,859,000 =
10.40
66,529,146 / 5,859,000 =
11.35
67,108,395 / 5,859,000 = 11.45
Dividends Per Share (Rs) 29,295,000 / 5,859,000 = 5 - 58,590,000 / 5,859,000 = 10
Dividend Payout Ratio
(Rs)
5 / 10.40 x 100 = 48.07 - 10 /11.45 x 100 = 7.3
Price Earning Ratio (Rs) 87.90 / 10.40 = 8.4 96.00 / 11.35 = 8.4 97.30 / 11.45 = 8.5
Analyze the impact of COVID 19 on the company, the industry and the Sri Lankan
economy
The 2019/20 financial year put the travel and leisure industry at a turning point and challenged
organizations to navigate the status quo armed with a resilient, innovative mindset and a market-
sensitive drive to pursue sustainable growth. In this context, Dolphin Hotels PLC persevered by
implementing timely and more effective tactics to overcome the existing problems in a cautious
manner and prepare for the future. (Maievskaia,2016)7The Government's attempts to boost the
sector by proposing a financial support plan comprising of a 12-month moratorium on loans and
interest repayments, a guaranteed soft-working capital credit program to be repaid within 24
months and a 15 per cent cut in VAT from 15% to 7%, were welcome. However, the COVID-19
pandemic brought these recovery attempts to a halt during the latter part of the financial year,
with subsequent worldwide sanctions and travel bans. Colombo airport was closed for tourist
arrivals in late March, and an island-wide curfew was imposed for nearly 2 months.
(Charles.P,2010)8
7
(Maievskaia,2016)
8 (Charles.P,2010)
7

The recent pandemic and the ensuing economic and health crises have created major obstacles
for the global tourism market. Even if the spread of the virus is kept under control in the
foreseeable future, global tourism and ultimately occupancy rates will be hit hard during 2020
and beyond in realistic terms. (Charles.P,2010)9However, this is also a chance to create a more
sustainable and robust industry. In the case of Sri Lanka, officials need to build a regulatory
framework that protects heritage sites, avoids unlicensed tourism activity and provides a
sustainable forum that centers around the conservation of wildlife and our natural resources. We
need to develop a system for saving endangered animals including elephants and whales. The
global recession presents us with an opportunity to re-examine our growth plans and create an
atmosphere that prioritizes sustainable development and protection of the country's natural
resources to support growth. Despite difficulties facing the industry, Dolphin Hotels PLC posted
operating profit revenues of Rs 728 million and Rs 40 million.
Risk Management
The Organization has introduced a mechanism to identify, analyze and handle any major risks
posed by the business, where the Community Risk & Control Department performs periodic risk
assessments. The Audit Committee reviews the key risks and mitigation activities on a quarterly
basis.
Going Concern
Having considered the financial situation, market circumstances, legal and other considerations
and the concerns to be resolved in the Corporate Governance Code, the Board has realistic hopes
that the Organization will have ample capital to sustain its activities in the near future. For that
reason, in planning the financial statements, the Organization tends to follow the 'Going Concern
Principle. (Gulpenko,K,2017)10
Owing to the considerable uncertainties stemming from the COVID-19 pandemic management, a
thorough ongoing analysis of the liquidity positions of the company has been carried out to
ensure that there is ample headroom to absorb negative cash flow impacts,
(Gulpenko,K,2017)11the company's success and the subsequent effects on the company taking
9 (Charles.P,2010)
10 (Gulpenko,K,2017)
11 (Gulpenko,K,2017)
8

into account the changing circumstances as outlined below. Following the outbreak of COVID-
19, the organization took necessary steps including high-quality medical and public health
guidance, social isolation, provision of protective equipment and home work to protect the
welfare of all our workers and ensure compliance with various recommendations provided by the
Governor. (Francis,1999)12
The Organization works through a comprehensive cash management strategy and cost control
strategy. In addition , the organization has also looked at the possible sources of financing that
can be used if necessary. Management is now focused on the Company's sound corporate
continuity strategy. The Company's current and expected effects of the pandemic has been
properly analyzed and discussed in several stress-tested conditions across a wide variety of
considerations. Was one of the sectors considerably impacted by the COVID-19 pandemic,
Owing to the imposed shutdown scenario, transport delays / limitations and quarantine
conditions from the outset of the lockout, the last 2 weeks of 2019/20 and the early part of
2020/21 finished with nil or minimal occupancy. (Francis,1999) 13However, with the
management taking effective steps to minimize the effect of the pandemic on the Company and
taking into account the resources available to the Company, the directors agreed that the usage of
the present issue is acceptable and that the Group has ample capital to sustain its activities in the
near future
Current income tax assets and liabilities are measured at the amount expected to be recovered
from or paid to the Commissioner General of Inland Revenue for the current and prior periods.
The tax rates and tax legislation used to measure the number are those enacted or partially
enacted in the country where the corporation resides and earns taxable revenue on the reporting
date. Present income tax in terms of products reported explicitly in equity is included in equity
and not in the benefit or loss statement
Impact of COVID-19 Pandemic
The Organization reassessed the valuation of its property , plant and equipment with COVID-19
outbreak and based on that appraisal, the fair value recorded as of 31 March 2019 was not
significantly changed. The said reassessment was carried out in accordance with the same
12 (Francis,1999)
13 (Francis,1999)
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objective professional values stated in note 11.8. Accordingly, the Organization did not identify
any disability with respect to land, plant and equipment at the reporting date due to the COVID-
19 outbreak and land functions under the respective business continuity plans thus adhering
strictly to the related steps and guidance issued by the Ministry of Health. (Black.J,2009)14
With COVID-19 outbreak the Company reassessed the net realizable worth of its inventories.
However, there was no need to change the carrying value of the inventory to reflect its net
realizable worth as the business agreed either to sell the perishable goods to vendors with limited
shelf life or to use them for internal requirements. (Black.J,2009)15
The Business was given a one-year loan moratorium ending March 31, 2020 for the above two
loans as the Sri Lankan tourism industry was seriously impacted by the Easter Sunday terrorist
attack. The said moratorium was prolonged with the COVID-19 outbreak for a further six
months, as the tourism industry is currently critical. The Organization is currently accruing debt
interest on the two bonds, and with the expiry of the debt moratorium, the aforementioned
accumulated interest will be transferred to two new loans. As a policy decision taken to keep the
economic system stable by enhanced liquidity during the outbreak of COVID-19, CBSL has
relaxed its policy rates by allowing the country's financial sector to lower lending rates.
Therefore, interest rate exposure attributable to the COVID-19 outbreak was not adversely
altered. With the COVID-19 outbreak in March 2020, the Sri Lankan Rupee witnessed a steep
decline against the US Dollar. However, the exposure of the Company to foreign currency risk
has not been adversely altered with the aforementioned currency depreciation, as the Company
has ample foreign currency reserves to fulfill its foreign currency obligations. With the COVID-
19 pandemic, the organization has placed in motion more solid frameworks to track its debtors'
recoverability closely and on a continuing basis. However, there has been no substantial increase
in credit risk as the Firm deals only with known, creditworthy third parties.
14 (Black.J,2009)
15 (Black.J,2009)
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Task Two: Budgets
A hotel manager who is responsible for the day-to-day administration of a hotel and its
employees, they provide operational responsibility for budgeting and financial control,
arranging, coordinating and overseeing all hotel facilities, including front-of-house (reception,
concierge and reservations), food and drink operations and housekeeping. Managers also have
particular roles in bigger hotels (guest services, accounting, and marketing)
(Vaitlingam.D,2005)16and form a general management committee. When providing a strategic
analysis and looking ahead to optimize revenues, the boss often has to pay attention to specifics,
setting a precedent for workers to provide a quality of operation and performance that satisfies
the needs and desires of customers. Equally relevant are business and people management.
The manager of a large hotel may have less make contact with guests but will have regular
meetings with heads of department to coordinate and monitor the progress of business strategies.
In a smaller establishment, the manager is much more involved in the hands-on day-to-day
running of the hotel, which may include carrying out reception duties or serving meals if the
need arises(Vaitlingam.D,2005)17
The hotel sector is developing rapidly, whatever the political changes taking place. The training
of human resources is done by rapidly increasing hotel schools in the country and sometimes
foreign institutes. Business development is more essential in this sector to be in par with the
physical and employee capacity. Therefore CRM plays a crucial role in building and sustaining
client bases for the leaders of hotel industry are looking for a new age of strong leadership
backed by consistent tourism policies. Many are expecting that the current administration will
put greater focus on tourism policy, encourage fresh construction and have stronger coordination
around the industry with Whitehall policies.
Customer Relationship Management Customer Relationship Management (CRM) is described as
a 'strategic strategy that allows companies to use internal tools (technology, personnel, processes)
to manage customer interactions during their life cycle to build a competitive edge and enhance
organizational efficiency.
16 (Vaitlingam.D,2005)
17 (Vaitlingam.D,2005)
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Hotel Industry customer relationship management Many advertisers described consumers as the
center of their business. They feel they need to attract consumers to meet all of their corporate
goals. (Gulpenko,K,2017)18CRM programs is launched with the growing need to handle
customers well. CRM is not limited to a specific industry with CRM is not limited to a particular
industry, it is applicable for all the industries. The service industry is really significant in these
multiple sectors, so it's not like the goods sector. Satisfying consumers with the service is very
challenging when there is a strong propensity for service disruptions to occur. Avoiding these
disruptions by standard of operation is also a problem (Azmian, Nasrinahr & Foroughi, 2012).
With reference to the above literature, CRM is often considered to be better suited for the hotel
industry due to higher transaction costs, raised consumer demands, price volatility, volatile
demand and reduced brand loyalty
The novel Corona's global pandemic has not only brought full socio-economic systems to a halt,
but has also threatened business globalization and global operations. Paradoxically, there are also
unpredictable future consequences and possible routes out. However, a sustainable and fresh start
in most of the worsened economic sectors is necessary for a speedy recovery and recovery of the
economy, employment and business functions. Conventionally, a virus used to target
disadvantaged communities with food, instability in their environment, and they were usually the
weak in society. (William.F,1999)19Ironically, the novel Corona infection first attacked
international travelers and caused the pandemic through travel and thus confronted the affluent
social class worldwide in particular. Since tourism is one of the world's largest and fastest
growing industries; after the Covid 19 pandemic, it is expected to play a significant role in
restoring socio-economic stability. It is a major contributor to the economies of the Island and
one of the most important industries in the Sri Lankan economy that generates much needed
foreign currency. (Gulpenko,K,2017)20
The hotel will be built by Mr I.T.H. Gamage and Mr E. Bojang with equal share as a joint
partnership business venture, and it is proposed to be called 'Budget Hotel Sri Lanka.' After
extensive market research the business opportunity was identified to venture a small budget hotel
18 (Gulpenko,K,2017)
19 (William.F,1999)
20 (Gulpenko,K,2017)
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in Colombo City, Sri Lanka. As part of the strategy, it was decided that the hotel would offer
customers a simple but comfortable, safe and secure place for an exceptional experience.
The hotel would attract both domestic and foreign visitors visiting Colombo and intending to
stay in it. This area is the most sought-after night spot as one of the official sources states that
there were 982362 international visitors and 380251 local visitors who selected this area in 2007
for their night stay (Appendix 04). The hotel focuses primarily on low-profile business travelers
as well as those who visit the country for recreation, sport and sightseeing purposes (Appendix
13). The SWOT and PEST analysis notes that although there is a sufficient number of hotels and
other locally generated accommodation in the area, the rivalry can be mitigated to a large extent
by the cost leadership strategy(William.F,1999)21
Task Three: Compliance and record keeping
Asset allocation is a dull term for market fluctuations that goes viral. But this should not be so, as
asset allocation and annual rebalancing control portfolio risk and maintain long-term return
consistency. It is not just a theory-rebalancing that functions necessarily. We tallied and found
that if an investor had stored 60 percent, fixed income 30 percent, and gold 10 percent in 2006
and had not entered the fund, his portfolio would have received a cumulative return of 10.1
percent. If, however, he had rebalanced the portfolio in January last year, his returns would have
been 12 per cent higher(William.F,1999)22
1. The rebalanced portfolio briefly dropped below the static portfolio, though stocks produced
very high returns in 2006 and 2007. (Charles.P,2010)23
2. But 2008's deep recession saw the stagnant portfolio fall tougher than the rebalanced one.
After that it has never tried to get ahead.
3. The returns from the two portfolios have a gap of 190 basis points over 10 years. The gap is
only widening over the years.
Rebalancing is important as the returns will vary from various asset groups. In 2014, the Nifty
went up 31 per cent, then ended 2015 with a drop of 4 per cent. Although profits from fixed
21 (William.F,1999)
22 (William.F,1999)
23
(Charles.P,2010)
13

income remain relatively steady, gold has yielded unpredictable returns over the past 10 years.
Differential returns will alter the asset balance of your portfolio considerably over time.
Rebalancing restores the portfolio to the initial distribution of assets and thereby monitors the
cost and returns it would produce
1. You need to know the distribution of various asset groups of rebalance the balance. These
Worth Analysis portfolio trackers can be very helpful.
2. Investors don't need to rebalance in managed funds and risk allocation systems. The
Investment Manager will do the basics automatically.
Deciding the distribution of assets may sound straightforward, but is in reality a dynamic process
that takes into account your income profile, risk tolerance and financial objectives.
1. You need to know the distribution of various asset groups of rebalance the balance. These
Worth Analysis portfolio trackers can be very helpful.
2. Investors don't need to rebalance in managed funds and risk allocation systems. The
Investment Manager will do the basics automatically.
Deciding the distribution of assets may sound straightforward, but is in reality a dynamic process
that takes into account your income profile, risk tolerance and financial objectives. You need to
know the distribution of various asset groups of rebalance the balance. Quality Analysis Portfolio
trackers like that can be very helpful.
2. Investors don't need to rebalance in managed funds and risk allocation systems. The
Investment Manager will do the basics automatically.
A rebalancing strategy’s primary objective is to minimize risk compared to an allocation of
target assets, rather than optimize returns. Asset distribution of a portfolio is the main
determinant of the risk-and-return characteristics of a portfolio1. Yet, asset types generate
differing returns over time, so the asset distribution of the portfolio varies. Therefore, the
portfolio should be rebalanced to recapture the original risk-and-return characteristics of the
portfolio.
Dolphin Hotels PLC claims that the decision to assign assets – which takes into consideration the
risk profile, time frame and financial targets of each investor – is the most critical decision in the
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fund-building process.2 This is because asset allocation is the main determinant of risk and
return for a particular portfolio. However, over time, when investments in a portfolio deliver
varying returns, the portfolio is likely to vary from its intended asset distribution, gaining risk-
and return features that may be conflicting with the interests and desires of an investor.
(Charles.P,2010)24
The rebalancing of portfolios is highly necessary because it allows investors to control their
distribution of target assets.
Investors will mitigate the 'portfolio drift' effect by regularly rebalancing, and thereby
theoretically reduce their risk exposure compared to their target asset allocation.
Therefore, as part of the portfolio-building phase, it is necessary for investors to create a re-
balancing plan that systematically discusses 'how long, how much and how much': that is, how
often the portfolio should be monitored; how much an asset allocation should be allowed to
deviate from its target until it is re-balanced and whether a portfolio should be re-balanced
periodically. All each of these decisions affects the risk-and-return dynamics of a portfolio; the
variations in outcomes between the strategies are not very important. But how long, how much,
and how many investor preferences are all questions. The only real benefit for both of these
strategies, as well as retaining a portfolio's risk-and-return features, even without factoring in
rebalancing costs, is that a rebalanced portfolio more closely aligns with the characteristics of the
target asset allocation than a portfolio that is never rebalanced
It is necessary to note that the aim of portfolio rebalancing is not to optimize returns, but to
mitigate risk (tracking error) relative to a target asset allocation. If the portfolio of an investor
may reasonably contain only stocks or bonds, and the primary goal is to optimize return
regardless of risk, then the investor can choose a portfolio of 100 percent shares. But this is not
the case for other companies. An investor is usually more concerned with downside possibility
(or the possibility of the portfolio falling in value) than with the ability to gain an extra 0.50
percentage point to 0.75 percentage point for each 10 percent rise in stock allocation, as shown in
market risk data for various hypothetical asset allocations. Not only are periods of turmoil in
financial markets where investors are hesitant to rebalance their investments.
24
(Charles.P,2010)
15

(Francis,1999)25Despite their propensity towards loss-aversion, many buyers are similarly
reluctant to rebalance equity during bull markets. They tend to fall victim to 'this time it's
different,' and they refuse to sell asset classes that have had extraordinary performance to buy
assets that have 'normal' or 'anticipated' performance.
However, these investors may end up with a portfolio that is over weighted against equities and
thus more vulnerable to equity-market declines, placing the portfolios of investors at risk of
greater losses relative to their target portfolios. We will then address the trade-off between
rebalancing decisions and the risk-and-return characteristics of a portfolio
Dolphin Hotels PLC maintains its holistic approach to risk management guarantees the diligent
detection, evaluation and reaction to main risks. Our current appraisal process takes into account
the probability of an incident, its future effects on the company and contingency needs. During
the year under study, the company's core operation running a luxury hotel remained unchanged.
104 rooms and 50 cottages are owned and run by the organization at its residence, Club
Residence Dolphin in Waikkal. The directors affirm to the best of their experience and
confidence that the Company has not participated in any operation that breaches laws and
regulations
25 (Francis,1999)
16

References
1. M Chinazzi, J T Davis, M Ajelli, C Gioannini, M Litvinova, S Merler, . . Viboud, C
The effect of travel restrictions on the spread of the Posted: 2019
2. Congrex Team Disruption in the business events industry; Rising to the
challenges of Covid-19 Posted: 2020-04
3. F T Daily Tourism industry meets to assess COVID-19 impact, way forward
Posted: 2020
4. Daily Ft Tourism industry meets to assess COVID-19 impact, way forward
Posted: 2020
17