Analysis of Accounting Methods and Financial Performance Report

This report examines various accounting approaches and their impact on financial performance, focusing on depreciation, inventory costing, and uncollectible accounts. It analyzes the financial performance of Techworks using ratio analysis, including net profit ratio, return on net assets, and return on equity. The report also includes a comparative and common-size balance sheet analysis, highlighting changes in assets and liabilities. The analysis reveals the importance of selecting appropriate accounting methods to accurately reflect a company's financial position and performance. Additionally, it identifies external factors, such as political, social, and environmental influences, that can impact a company's financial health, and suggests the importance of management vigilance to mitigate these risks. The report concludes by emphasizing the need for proactive measures to improve financial ratios and overall company performance.

vii) Report
(a) Accounting approaches defines the methods for recording of transactions in the books of
accounts. The difference in accounting approach can lead to different figures being
reflected in the financials. So, adoption of current accounting approach is of utmost
importance.
Let’s discuss the different accounting approaches for depreciation, inventory and
collectibles.
For depreciation different accounting approaches are available, like straight line method
and written down value method similarly, there are two methods for measuring the assets
after its recognition, these methods are cost model and revaluation model. The accounting
under various methods are different. Similarly, for inventory costing there are two
methods one is valuing at cost and other valuing at NRV i.e. net realizable value. The
value of inventory under different methods is different and so as the financial figures.
Similarly for uncollectible there are different methods for recording the provision for
uncollectible. One is valuing the uncollectible at % of accounts receivable standing, other
is valuing the uncollectible at % of sales and third method is on the basis of debtors
outstanding over a specified time or period. The value of provision for uncollectible are
different in different methods.
So, on the basis of above we can say that yes, the alternative accounting approaches can
help in improving the financial position and thus helps in portraying the true and correct
picture of the financials.
(b) The company’s performance based on ratio analysis is as follows:
The company’s net profit ratio is 8.08%. The net profit ratio shows the performance of
the company on the basis of profit of the company and is calculated by dividing the net
profit with sales of the company. This ratio is as higher the better. The Techworks is
having a net profit ratio of 8.08% which means that on sale of $100 the company is
earning $8.08 as net profit. The company can improve its ratio by controlling or
managing its expenses in an effective manner.
Similarly, the company’s return on net assets ratio is 24.59%. The return on assets shows
the net profit earned by employing the assets of the company and is calculated by
dividing the net profit with total assets of the company. In the given case, the Techworks
has a return on assets 24.59% which means that by employing $100 in assets the
company is earning $24.59. This ratio is as higher as better.
The next is return on equity ratio, which shows that percentage of profit earned on the
equity employed by the company or profit earned by the investors on their investment in
the company. In the given case, the company has a return on equity ratio of -91.60%

which means that the company has incurred loss on the equity invested. This is a very
negative sign for the company and the company is advised to take this seriously and take
appropriate measures to improve this ratio. (Staff, 2018)
(c) The comparative balance sheet shows the comparison of current period figures with
previous period figures. The comparative balance sheet of Techworks shows that the
company’s assets have declined by 71.41% as compared to April, 2017 and similarly, the
company’s liabilities have increased by 80%. The main increase in liability is in the
salaries payable which have arose from $100 to $2300. (Bragg and Bragg, 2018)
The common size comparative balance sheet compares the balance sheet items as a % of
total assets with previous periods. This comparison shows that the company’s cash has
increased significantly nearly by 47%. Similarly, the company’s liabilities have increased
by almost 106.70%. (Bragg and Bragg, 2018)
Both of these comparisons shows an alarming picture of the company and the
management of the company needs to take immediate steps to improve the financial
position of the company.
(d) Apart from financial issues other factors are also there which directly or indirectly
impacts the financial position of the company. These factors can be political factors,
social and environment factors, etc. For example, availability of particular raw material in
the country which was subsequently banned by the government, increase in tax rates,
unfavorable business conditions, and unstable political environment in the country
negatively impacting the business and so on. The ways to overcome with these factors is
the vigilance of the management regarding these factors so that the appropriate steps can
be taken in time.

References:
Staff, I. (2018). Return On Equity - ROE. [online] Investopedia. Available at:
https://www.investopedia.com/terms/r/returnonequity.asp [Accessed 22 May 2018].
Bragg, S. and Bragg, S. (2018). Common size balance sheet. [online] AccountingTools.
Available at: https://www.accountingtools.com/articles/2017/5/17/common-size-balance-sheet
[Accessed 22 May 2018].
Bragg, S. and Bragg, S. (2018). Comparative balance sheet. [online] AccountingTools. Available
at: https://www.accountingtools.com/articles/2017/5/17/comparative-balance-sheet [Accessed 22
May 2018].