THE MANAGEMENT ACCOUNTING

Running head: MANAGEMENT ACCOUNTING
Management Accounting
Name of the Student
Name of the University
Author Note

MANAGEMENT ACCOUNTING1
Table of Contents
Part A...............................................................................................................................................2
Answer to Question 1...................................................................................................................2
Answer to Question 2...................................................................................................................2
Answer to Question 3...................................................................................................................2
Answer to Question 4...................................................................................................................2
Answer to Question 5...................................................................................................................3
Answer to Question 6...................................................................................................................3
Answer to Question 7...................................................................................................................3
Part B...............................................................................................................................................4
Answer to Exercise 1...................................................................................................................4
Answer to Exercise 2...................................................................................................................4
Answer to Question 3...................................................................................................................5
Answer to Exercise 4...................................................................................................................5
Answer to Exercise 5...................................................................................................................6
Answer to Question 6...................................................................................................................7
Answer to Question 7...................................................................................................................7
Answer to Question 8...................................................................................................................9
References and Bibliography.....................................................................................................10

MANAGEMENT ACCOUNTING2
Part A
Answer to Question 1
A) The information provided in financial statements is useful in deciding whether a loan
should be granted to a business or not. The credit worthiness and the scope of bad debts
of the business can be determined by using the debt repayment details of the business.
B) The information that would be required from the financial statements of the entity are the
dividend yield of the company. The changes in the share prices of the entity over the
years are also essential to assess the company’s prospects (Gitman, Juchau and Flanagan
2015).
C) The financial statements can be used in negotiations with the management about
increasing the salaries of the employees. The profit levels and trends of the business can
be used as a basis for suggesting the rate of improvement in the salaries.
Answer to Question 2
 The matching concept has been violated in this situation as the asset is not related to the
business.
 The historical cost assumption principle has been violated in this situation.
 The time period assumption is being violated in this case.
 The going concern assumption is being violated in this particular situation.
Answer to Question 3
The financial statements would be used in reviewing the debt levels and ratio between the
assets and liabilities of the company. It will also be used in assessing the risk of default of the
loan and the revenues generated by the entity. The overall profitability will also be taken into
consideration.
Answer to Question 4
The main difference between dividends and other expenditures are the person to whom
they are paid to. Dividends are paid to the shareholders, who are the owners of the company.
They can only be paid to the shareholders after paying all the remaining expenditures. Other
expenditures are allowed as a deduction in calculating the income taxes. Dividends are paid after
the payment of the taxes to the authorities (Ofori‐Sasu, Abor and Osei 2017).

MANAGEMENT ACCOUNTING3
Answer to Question 5
a. The main purpose of the auditor’s report is to provide a reasonable assurance that the
books of accounts are free from any major errors. They apply all the required procedures
to make a judgement on the validity of the financial statements.
b. A going concern is a business which plans to continue its operations in the near future
and not liquidate itself at the end of the financial year. The business is looking to grow
and expand into the future while also trying to maintain the accepted levels of
profitability (Fischer, Marsh and Brown 2016).
c. No, it cannot be said that aspects like losses, restructuring and the disposal of segments
are the precursors to the demise of a company. They can also be considered to be steps
towards making the company more efficient and profitable for the period following the
period for which the above mentioned activities have taken place.
d. The auditors are suggesting that the losses incurred by the company have resulted in the
overall deficit of the company going up to $49.7 million. The lack of sufficient cash and
working capital with the company add to the doubts that the company may not be able to
continue its operations in the foreseeable future. The plans of the management do not
contain any details about the adjustments that have occurred as a result of the
uncertainties.
Answer to Question 6
Merck & Co. mean that the results of the lawsuits faced by them are likely to result in
their favour. The losses that will be incurred by them due to these lawsuits are not likely to cause
any material changes in the financial statements of the entity. Here, material means the changes
are unlikely to cause major losses to the company. Remote means the chances of losses
occurring due to the lawsuits are extremely low or unlikely. The legal authorities are in the best
position to determine the outcome of a lawsuit (Hærem, Pentland and Miller 2015).
Answer to Question 7
On the basis of the information provided, it can be said that Unique Factory is a business
entity. This is because the financial statements suggest that the entity is involved in the sales of
goods and is incurring administrative and other expenses. It is also recording net income in its
books of accounts after the payment of taxes. It is also recording depreciation on the assets and