Financial Management in Almarai: Stakeholders, PEST Analysis, Accounting Treatment, Revenue Recognition and Financial Condition

This article discusses the financial management practices in Almarai, including stakeholders, PEST analysis, accounting treatment, revenue recognition, and financial condition. It also covers AS 16 Property, Plant and Equipment and IAS 8 Accounting Policies.

Running head: FINANCIAL MANAGEMENT
Financial Management
Name of the Student:
Name of University:
Author’s note:

1FINANCIAL MANAGEMENT
Table of Contents
Answer to Question 1.................................................................................................................2
Answer to Question 2.................................................................................................................2
Answer to Question 3.................................................................................................................3
Answer to Question 4.................................................................................................................4
Answer to Question 5.................................................................................................................4
Answer to Question 6.................................................................................................................5
Answer to Question 7.................................................................................................................6
Answer to Question 8.................................................................................................................6
Answer to Question 9.................................................................................................................6
Answer to Question 10...............................................................................................................6
References..................................................................................................................................7

2FINANCIAL MANAGEMENT
Answer to Question 1
Stakeholders refers to as an individual, an assembly or an organization that has
common concern or inters in the organisation. They can influence or get influenced by the
actions, objectives and policies of the organization. The stakeholders may include
shareholders, creditors, employees, directors, government, unions, suppliers, and other
sources from which the business draws its resources (Alhumoudi 2016). The actions taken by
any business impact those individual who are related with them. In the given company of
Almarai, the basic kinds of stakeholders are:
Primary Stakeholders – The stakeholders who are primary refers to the internal
stakeholders who are internally busy in the economic transactions with the organisation. They
are stockholders, customers, suppliers, creditors, and employees.
Secondary Stakeholders –The secondary stakeholders include the stakeholders who are
external who are not engaged in direct economic exchange with the business. However, they
are influenced by or can get affected by the operations of the business. They include the
general public, activist groups, communities, business support groups, and the media.
Excluded Stakeholders – Every company has a group of stakeholders who are known as the
disinterested public as they do not have economic impact on business and they are not impact
by any operations of the business. They are excluded from the stakeholders list.
In the chosen company of Almarai, the highest shareholders are SAVOLA group of
companies with 36.5% ownership and HH Prince Sultan Bin Mohammed Bin Saud Kabeer
with 23.7% ownership (AlZahrani 2014).

3FINANCIAL MANAGEMENT
Answer to Question 2
The PEST analysis refers to evaluation of the political, economic, socio cultural and
technological factors that affect an organisation. It is a process in which the external
environmental factors of Almarai are strategically analysed in order to understand the market
growth decline position and the potential. Almarai was established in Riyadh in the Saudi
Arabia in the year 1977 and was established as a partnership between the Irish agri-foods
pioneer Alastair McGuckian, his brother Paddy and Prince Sultan bin Mohammed bin Saud
Al Kabeer. At present, Almarai is the largest dairy product company in the Middle East
(Bodnar 2014).
According to the annual report of the Almarai, the external factors that influence the
company are analysed. The PEST analysis of the Almarai Company are shown below:
Political: The political factors include the ongoing tension in the Gulf region that started in
the June 2017 that has resulted in the loss of revenue for all the Saudi based company.
Another factor price control of the government, any change in the pricing will have to be in
sync with the existing government pricing (Sarker 2014).
Economical: The economic factors refers to the implication of the exchange rate fluctuation
in the market and the negative trend in the consumer spending in the area.
Social: the social factors that impact the company refers to the health conscious consumers
and the rise in the demands of the milk product in the festive season.
Technological: the technological factor that impacts the Almarai is the high investment in
technology. The Almarai has invested a great amount in the factories to improvise the
production process and make innovations to ensure smooth flow of products.
Answer to Question 3
AS 16 Property, Plant and Equipment outlines the accounting treatment for most types of property, plant and equipment. Property, plant and equipment is initially measured at its cost, subsequently measured either using a cost or revaluation model, and depreciated so that its depreciable amount is allocated on a systematic basis over its useful life.

4FINANCIAL MANAGEMENT
The IAS 16 Property, Plant and Equipment plans the treatment of accounting for most
types of property, plant and equipment. Property, plant and equipment is initially measured at
its cost, subsequently measured both using a cost or revaluation model, and depreciated so
that its amount that is depreciable is allocated on a basis that is more systematic over its
useful life. The principal issues are the assets recognition, carrying amounts determination,
and the charges of depreciation and impairment losses to be recognised in relation to them.
The two accounting models in this standard IAS 16 includes the
 Cost model: In this case the asset is accepted at cost after deducting the accumulated
depreciation and impairment.
 Revaluation model: In this model the asset is taken at a value at a revalued amount,
being its fair value at the date of revaluation less subsequent depreciation and
impairment, provided that fair value can be measured reliably.
In the given company of Almarai, according to the annual report of 2016, the
company uses the reducing balance method. The depreciable amount or the cost less
residual value is allocated on a systematic basis over the asset's useful life (Gashgari
2017). The residual value and the useful life of an asset is reviewed at least at each
financial year-end.
Answer to Question 4
The Generally Accepted Accounting Principles is a set of standards of accounting that
is used by organizations to organize their information related to finance and summarize
the accounting records into financial statements. An accounting estimates that has been
identified in the Alamrai is IAS 8 Accounting Policies, that reflects the Changes in
Accounting Estimates and Errors that is applied in selecting and applying accounting

5FINANCIAL MANAGEMENT
policies, accounting for changes in estimates and reflecting corrections of prior period
errors (Hodgkinson 2017).
Answer to Question 5
The capital expenditures are the expenditures that are incurred for the fixed assets that
are expected to be productive assets for a period of time more than a year. On the other
hand Revenue expenditures are are incurred for specific revenue transactions such as the cost
of goods sold or repairs and maintenance expense. The basis of difference between the two
in the company of Alamrai are as follows:
Time: Capital expenditures are long term in nature. Revenue expenditures are charged to
expense in the current period or short period.
Consumption rate: Capital expenditure is to be consumed over the useful life of the related
fixed asset. A revenue expenditure is assumed to be consumed within a very short period of
time.
Size: The capital expenditures tend to involve larger monetary amounts than revenue
expenditures.
Answer to Question 6
The principle of going concern is the assumption that an organization will remain in
business for the foreseeable future. This signifies that the entity will not be forced to stop the
operations and liquidate its assets in the near term at what may be very low fire-sale prices
(Aldosari and Atkins 2015). This assumption, helps in recognizing the certain expenses until
a later period, when the entity will presumably still be in business and using its assets in the
most effective manner possible.

6FINANCIAL MANAGEMENT
In the Almarai Company the auditor evaluates an entity’s ability to continue as a going
concern for a period not greater than one year following the date of the financial statements
being audited. The auditor considers the following items in deciding if there is a substantial
doubt about Almarai’s ability to continue as a going concern:
 Loan defaults by Almarai
 Denial of trade credit to Almarai by its suppliers
 Uneconomical long-term commitments to which Almarai is subjected
 Legal proceedings against the Almarai
Answer to Question 7
The IAS 2 refers to the set of the accounting treatment for inventories. It consists of
the guidelines for determination of the inventories cost and for recognising the expense. The
standard measures the inventories at the lower of cost and net realisable value (NRV) and
find outs the acceptable methods of determining cost. According to the annual report of the
Almarai Company the methods of inventory valuation are as follows:
First in, First Out method: FIFO is a considered a valuable method of inventory valuation
where there are huge quantities are involved. By using the method of FIFO, the one of the
oldest inventory is considered to be sold first, so the cost/value of the inventory in the
financial statements is always the most recent.
Weighted Average Cost: The Weighted average cost is used in case the inventory is all the
same, or very similar.
Actual Cost: This is generally used for items that are high-value, taking the actual value of
the items.

7FINANCIAL MANAGEMENT
Answer to Question 8
The bad debt allowance, is the allowance for doubtful accounts. It is the process used by the
Almarai when a borrower defaults on a loan, the for bad debt allowance account and the loan
receivable balance are both reduced for the book value of the loan, or the outstanding loan
balance (Woertz and Keulertz 2015).
Answer to Question 9
In order to adapt the accounting practices (GAAP) that is approved, Almarai must
account for their revenue in specific ways. There are several revenue recognition mechanism
that may be used, in Almarai, there are three basic methods adapted for recognising revenues
that are
Sales Basis Method: In the process of sales basis method of revenue recognition, the revenue
is recorded during time of sale. Sale is defined as the period of time where goods and
services change hands, which may or may not be at the same time as payment (Al Daffaa,
2018).
Percentage of Completion Method: The percentage mechanism of completion is for
recognizing the revenues that is typically used in projects which are large or long-term in
nature. Construction services Firms, engineering services or other services with long
projects are most likely to utilize this technique.
Completed Contract Method: When the technique of completed contract is used, the
revenue recognition is done only when the project is complete and the contract is
fulfilled. This process applied in case of both revenue and expenses. This method of revenue
recognition is used is when the requirements of the percentage of completion method are
unable to be met.

8FINANCIAL MANAGEMENT
Answer to Question 10
The financial condition is the condition of solvency of the organization that takes into
account both the financial status and current operational, as replicated in the balance sheet,
and an evaluation of the capability of the organization to survive risk scenarios in future
(Scott 2015). The Almarai Company has a sound financial condition with a proper balance
between the assets and the liability and a sound corporate governance.

9FINANCIAL MANAGEMENT
References
Al Daffaa, A., 2018. Policy and Regulatory Frameworks for Foreign Direct Investment in
Saudi Arabia. In Economic Diversification in the Gulf Region, Volume I (pp. 117-135).
Palgrave Macmillan, Singapore.
Aldosari, A. and Atkins, J., 2015. A study of corporate social responsibility disclosure
practices in Saudi Arabia.
Alhumoudi, H.Y., 2016. Corporate Governance Mechanisms and Firms’ Performance: An
Empirical Analysis of Firms Listed on the Saudi Stock Exchange. International Journal of
Accounting and Financial Reporting, 6(2), pp.101-145.
AlZahrani, Y.A., 2014. Critical Evaluation of Minority Shareholders’ Rights in General
Shareholders Meeting under the Saudi Company Law No. 1965. Global Journal of Human-
Social Science Research.
Bodnar, O., 2014. Some Aspects of Developing Company Accounting Policy in Relation to
Production Costs. Accounting and Finance, (2), pp.14-18.
Gashgari, R., 2017. Exploring the implications of corporate governance practices and
frameworks for large-scale business organisations: A case study on the Kingdom of Saudi
Arabia (Doctoral dissertation, Brunel University London).
Hodgkinson, R., 2017. Special Issue: International Accounting Policy Forum
Introduction. ACCOUNTING AND BUSINESS RESEARCH, 47(5), pp.471-472.
Sarker, B.R., 2014. Consignment stocking policy models for supply chain systems: A critical
review and comparative perspectives. International Journal of Production Economics, 155,
pp.52-67.
Scott, W.R., 2015. Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.

10FINANCIAL MANAGEMENT
Woertz, E. and Keulertz, M., 2015. Food trade relations of the Middle East and North Africa
with tropical countries. Food Security, 7(6), pp.1101-1111.