Management Accounting and Finance for Decision Making

MANAGEMENT
ACCOUNTING AND
FINANCE FOR DECISION
MAKING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
Question 1........................................................................................................................................3
International financial reporting standards..................................................................................3
2. Simplified balance sheet..........................................................................................................5
3) Working capital, working capital need and net cash...............................................................5
4. Common size income statement..............................................................................................6
5. Analysis of the statements.......................................................................................................6
6) Profitability ratio.....................................................................................................................7
REFERENCES................................................................................................................................9

INTRODUCTION
Management accounting is the process of measuring, identifying and analysing and interpretation
of financial information and helping the company in meeting the short term and long-term
obligations for the growth and development of organisation. The main objective of management
accounting is providing help to company in the planning, organising, direction and controlling of
resources in which the objectives have to be completed in time frame given. More so, each
organisation requires apt amount of finance for meeting all expenses or the costs associated for
the business’ smooth operations in external environment. Report is divided in two parts: PART
A is IFRS and international financial analysis, Honey Badger Plc, PART B is “Strategic
management accounting: Alpha Ltd.”
Question 1
IFRS
International financial reporting standards
International financial reporting standard are the professional code of conduct that needs
to be maintained by the business entities in against to deliver the accenting and financial
practices. These are the financial reporting standards that allow the business entity to
professionally represent the financial position of the business entity for the respective financial
year. The application of the international financial reporting standards is mandatory for the
business ventures. This is essential to deal with all different requirements associated with this
professional code of conducts. The international financial reporting standard present the best
level of accounting treatment and recording practices for all aspects of the accounting and
financial applicability whether it is related to assets, financial transactions, expenses and all other
factors that can influence the accounting projection of the business entity (Kieso, Weygandt and
Warfield, 2020). The basic aim of the international financial reporting standard is to guide the

corporate entities in such way that they get to represent the actual position of the business entity
in the best way possible. Applicability of the standards is mandatory for every single business
entity. This is necessary that any provision of the international financial reporting practice is
projected it must have been entertained by the organisation in any situation.
Financial reporting is very essential and crucial for every business entity as it allows the
stakeholders and company to know about the actual position of the business entity. The use of
the international financial reporting standard made the organisation more capable to ascertain the
actual business position for the respective financial year in the given financial year. Every
stakeholder always look at the financial position of the business entity before making or cracking
any deal with the business entity to understand the actual financial position of the organisation or
also to analysis is it profitable enough to make any trade with the business entity. Financial
statement of company must always state the true and fair position of the organisation (Mongrut
and Winkelried, 2019). The use of the international financial reporting standards make it more
important for the organisations and business entities to project the financial position or situation
of the organisation or business entity in the best way possible. This is essential for the company
to always use these reporting standards and code of conducts that can overview the financial
position of organisation in the best way possible. The use of the international financial reporting
standard is always done by the national level of financial regulatory agency to formulate
different accounting principles that is further followed by different companies. The guidelines
and suggestions given by the international financial reporting standard agency are always crucial
and important in regards to the accounting regulatory firms and authorities. This make it more
significant for the agency to utilise these accounting code of conducts while making any
regulations related to the financial or accounting practices followed in the country.
The component of financial statements as per these standards is Balance sheet which reflects the
assets and liabilities of the company. This statement is prepared by company at the ear end and
investors look forward to a company’s balance sheet in annual report of the company. It speaks
about the current assets and liabilities of the company which shows the liquidity of the company
and reflect the working capital (Sacarin, 2017).
Profit and loss statement is another important financial statement according to the IFRS
as they report the actual profit or loss happening to a company. It tells about the sources through

which company earned revenue and expenses which happened. This also facilitates promotion of
accounting practice. The standard reduces the difference of process of reporting to maximum
extent and the statements of two or more companies in the same sector can be evaluated. The
position of a company in external environment can be found in terms of profitability and market
share in comparing with others.
Cash flow statement is another important financial recognised by IFRS as it reveals the
cash income sources as to where the funds are coming from and how the company is utilising the
same as to where the cash is going out or cash outflow. It is to be mentioned that cash inflow
higher than the cash outflow would be suitable for the company’s operations and the balance can
be thus carried forward.
2. Simplified balance sheet
Asset 2019 2018
Current asset 7352 7171
Fixed asset 14455 12454
Other assets 2694 2792
Total asset 24501 22417
Current liabilities 7341 8429
Long term liability 5360 2622
Equity 11800 11366
Total stockholder equity 24501 22417
3) Working capital, working capital need and net cash
Working capital:
Current asset – Current liability
2018= 7171 – 8429
= -1258
2019= 7352 – 7341
= 11
Company’s working capital is in negative for the year 2018 and in financial year 2019 it is 11.
Working capital is the difference between current assets held by company and the current
liabilities which are associated with the business entity. The working capital is the amount of

capital resource a business requires to continue its operations. The balance sheet reflects that it is
the key requirement which is associated with the business entity and in any situation, business
Venture will be requiring the working capital to smoothly run its operations. Net cash the
company will be requiring is 2126 in the financial year 2019 whereas for the financial year 2018
the same commodity requirement is 1866. In context for channelising the business operations,
the level of liquidity is required by ventures (Morales and Zamora, 2018).
4. Common size income statement
Year ended December 31 (in
millions of $) 2020 2019 2018 2017
Net operating revenues 21044 100% 19564 100% 17545 100% 17354 100%
Cost of goods sold 7762 37% 7105 36% 6044 34% 6204 36%
Gross profit 13282 63% 12459 64% 11501 66% 11150 64%
Selling, general and
administrative expenses 7488 36% 7001 36% 6149 35% 6016 35%
Other operating charges 573 3% 0% 0% 1443 8%
Operating income 5221 25% 5458 28% 5352 31% 3691 21%
Interest income 176 1% 209 1% 325 2% 345 2%
Interest expense 178 1% 199 1% 289 2% 447 3%
Equity income (loss) 406 2% 384 2% 152 1% -289 -2%
Other income (loss)—net -138 -1% -353 -2% 39 0% 99 1%
Gains on issuances of stock
by equity investee 8 0% 0% 91 1% 0%
Income before income taxes
and cumulative effect of
accounting change 5495 26% 5499 28% 5670 32% 3399 20%
Income taxes 1148 5% 1523 8% 1691 10% 1222 7%
Net income before
cumulative effect of
accounting change 4347 21% 3976 20% 3979 23% 2177 13%
5. Analysis of the statements
The above given balance sheet and income statement are necessary for effective analysis of the
company’s financial position. It is related to the fact that when the company’s position is