Accounting and Financial Management Report: Analysis and Review

This report provides a comprehensive analysis of accounting and financial management principles. It begins with an examination of International Financial Reporting Standards (IFRS) and their role in harmonizing global accounting practices, discussing obstacles such as nationalism and the differences between rules-based and principles-based accounting. The report then includes the creation of a simplified balance sheet, calculation of working capital, and analysis of financial statements using common-size analysis. Profitability ratios are computed and interpreted to assess the company's financial performance. The report demonstrates the application of accounting concepts through practical financial analysis, including the interpretation of financial data and the evaluation of the company's financial health and operational efficiency. The report also analyses the company's debt, equity, and cash flow, providing a holistic view of its financial position and performance over several years.

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

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Table of Contents
Part A...........................................................................................................................................2
Question one................................................................................................................................2
Question two................................................................................................................................5
Question three..............................................................................................................................5
Question four................................................................................................................................6
Question five................................................................................................................................7
Question six..................................................................................................................................8
Part B..........................................................................................................................................10
Question One..............................................................................................................................10
Question two..............................................................................................................................11
Question three............................................................................................................................13
References..................................................................................................................................18

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Part A
Question one
The International Financial Reporting Standards (IFRS) are a set of common reporting
rules which are useful in preparing the financial statements in a consistent, transparent and
comparable manner around the world. Issued by the International Accounting Standards Board
(IASB), these guidelines specify how companies should report and maintain their accounts. The
process of harmonisation of financial statements is one where the comparability of accounting
practices is increased by reducing the degree of variation. In order to reduce the variation
between the financial statements, the compatibility of accounting practices is improved by
setting bounds to the degree of the variation of the financial statements. This is different from
standardisation in the sense that it does not impose a more rigid or narrow set of rules in
preparing the financial statements. In other words, harmonization of accounting practices does
not bring out uniformity by reducing the available alternatives but combines the different
elements of accounting practices into a structure.
Many of the regulators worldwide believe that the IFRS developed by the IASB brings
harmonization to the accounting standards followed across the world. This is because the
adoption of IFRS not only provides superior information to the users of the financial statements
but also helps the company in making strategic decisions. Due to the increased transparency in
the information provided by the financial statements, the comparability of the information
becomes much easier. While the methods of accounting may be different, the manner in which
they were applied by the firms is clearly stated. Hence, the adoption of IFRS brings a positive
impact on the comparability of financial statements. For companies from developing countries
which are looking to be a part of the process of globalisation, adoption of IFRS is the best option

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in becoming a part of the foreign exchange markets. This not only results in an increase in the
quality of the reporting but also makes the firm global in every manner possible. Several
countries like India and the European nations have announced their convergence with the IFRS
as a part of improving the process of harmonization of financial statements (Desai 2016). The
technical developments brought by the IFRS has resulted in the opportunity for accelerating the
process of accounting and making it more precise. Some of the techniques like the constant
calculation of time value of money and the revaluation of the fixed assets of the company have
been made easier by the adoption of IFRS as a part of the financial reporting of the entity. The
availability of the new technologies and the adoption of these aspects as a part of IFRS has made
it much easier to calculate the changes occurring in the business (Darabos and Hrerczeg 2015).
Individual studies in case of Tunisian firms suggests that the level of harmonisation in
case of the accounting policies has remained at the same level irrespective of the level of
adoption of IFRS. Hence, some of the studies in relation to the harmonisation after IFRS provide
results which may not be consistent with the results of prior studies. This also reveals that there
is a lack of information about the evaluation of the accounting practices and the impact in case of
developing countries. However, due to the recent adoption of the practices of IFRS, the studies
conducted in developing countries are limited to a very short span of time. A broader set of
information in relation to the same is not available for the process of analysis (Alnaas 2017).
Another reason for the lack of quicker harmonisation in the accounting practices is the lack of
uniformity in the adoption of IFRS principles by the business. Some firms tend to adopt IFRS
more vigorously while other firms are not particularly active in the complete adoption of IFRS as
a part of the business. The adoption of the specific standards by the business is also a result of
the specific characteristics of the firm. Due to these differences, firms tend to become selective

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in the accounting procedures adopted by them which makes the process of harmonisation
difficult. Hence, an improvement in the level of compliance would result in the better adoption
of the accounting practices by the firm. As the assessment of the financial performance of the
firm becomes better with the adoption of IFRS, it is necessary that the firms are more actively
involved in the process of adoption of IFRS. In case of countries like Turkey, this will quicken
the decision-making related to foreign investment in the country (Uyar, Kılıç and Gökçen 2016).
In case of countries like Australia which are the mandatory adopters of IFRS, then has been no
significant difference in the accounting results of the firms. This is because of a similarity in the
previously existing principles guiding the accounting practices along with the current accounting
practices (Bryce, Ali and Mather 2015). This insignificance casts more doubts on the
harmonisation of accounting practices for countries yet to adopt the IFRS as a part of the
reporting guidelines. It also suggests that the quality of accounting harmonisation is not merely
dependent on the adoption of the practices. The audit committees and other aspects responsible
for the selection of accounting policies need to be more proactive in the adoption of the
accounting practices as a part of the business.
However, it needs to be kept in mind that the research conducted in the present day in
relation to the accounting harmonisation by the adoption of IFRS is incomplete and focuses on
selected aspects of the business. There is a common consensus regarding the fact that the
harmonisation of accounting process is a broader process which requires significant effort on the
part of the people preparing the financial statements. The adoption of IFRS has however been
associated with an improvement in the quality and comparability of the information provided by
the financial statements (Legenzova 2016).

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Question two
Particulars 2015 2014
Assets
Cash and Cash Equivalents 2345 1934
Other Current Assets 5007 5237
Total non-current assets 17149 15246
Total Assets 24501 22417
Liabilities
Total Current Liabilities 7341 8429
Total Non-Current Liabilities 5360 2622
Total Liabilities 12701 11051
Equity of Shareholders
Total Equity 11800 11366
Total Liabilities and Equity 24501 22417
Question three
Particulars Formula 2015 2014
Current Assets 7352 7171
Current Liabilities 7341 8429
Working Capital Current Assets - Current Liabilities 11 -1258
Working Capital Amount required to cover the negative working 0 1258

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need capital
Net Cash Cash - Total Liabilities -10356 -9117
Question four
Particulars 2016 2015 2014 2013
Net Operating Revenues 2104
4
100
%
1956
4
100
%
1754
5
100
%
1735
4
100%
Cost of Goods Sold 7762 37% 7105 36% 6044 34% 6204 36%
Gross Profit 1328
2
63% 1245
9
64% 1150
1
66% 1115
0
64%
Selling, general and
administrative charges
7488 36% 7001 36% 6149 35% 6016 35%
Other Operating Charges 573 3% 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 issuance of stock by
equity investee
8 0% 91 1%
Income before Income taxes 5495 26% 5499 28% 5670 32% 3399 20%
Income Taxes 1148 5% 1523 8% 1691 10% 1222 7%
Net Income before 4347 21% 3976 20% 3979 23% 2177 13%

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cumulative effect of
accounting change
Cumulative effect of
accounting change
Company Operations -367 -2%
Equity Investees -559 -3%
Cumulative effect of
accounting change
0% -10 0%
Net Income 4347 21% 3050 16% 3969 23% 2177 13%
Question five
The operating income of the business has been fluctuating due to the changes occurring
in the additional operating charges incurred by the business. This suggests that the entity has not
been able to maintain consistency in the management of the operating overheads. This needs to
become more efficient. As operating income is a measure of the efficiency of the core businesses
of the entity, it is necessary to maintain a high margin of the same. As the interest expense and
tax rates to a business are variable and tend to change on the basis of the nature of the business,
operating income is a more reliable measure of the business efficiency (Ehrhardt and Brigham
2016). There is a need to keep the additional operating charges under control. The net income
generated by the business has however been positive over the years. This suggests that the
business is efficient in its core operations with some improvement required in the additional
expenditure incurred by the business. As these expenditures like the additional operating

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expenditure and loss from equity investees are more occasional, it can be said that the
performance of the business has been consistent.
The main concern when analysing the Balance Sheet of the business is the increase in the
debt of the company by more than 100%. However, the equity of the business has remained the
same. This suggests that the entity has been depending on the availability of debt funds to fund
its growth. While there is a significant increase in the performance of the company, it also
increases the pressure on the business to pay the debt obligations in a timely manner. Otherwise,
the business faces the risk of bankruptcy. The amount of assets contained by the business like the
Machinery and Equipment indicates that the business has been using the debt funds to purchase
the required assets (Yazdanfar and Öhman 2015). There is also a reduction of the short term debt
along with an increase in the cash balances of the company. The advantage of using the long
term debt as a part of the business is that the interest payments made by the business are tax
deductible. They also allow the company more time to pay the debt. An overview of the
performance of the business suggests that it has been able to maintain a consistent level of
performance in the short run with an increased focus on improving its stability in the long run.
These are indicators of good performance by the business (Badoer and James 2016).
Question six
Particulars 2016 2015 2014 2013
Gross Profit 13282 12459 11501 11150
Total Revenue 21044 19564 17545 17354
Gross Profit Ratio 63.12% 63.68% 65.55% 64.25%
Net Profit 4347 3050 3969 2177

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Total Revenue 21044 19564 17545 17354
Net Profit Ratio 20.66% 15.59% 22.62% 12.54%
Income before
Taxes
5495 5499 5670 3399
Total Revenue 21044 19564 17545 17354
IBT margin 26.11% 28.11% 32.32% 19.59%
In the given situation, the company has been able to efficiently use its resources in the
operational aspect. The analysis of the income statements of the entity suggests that the
operational aspect of the entity has been very stable. It has been able to maintain the Gross Profit
percentage of 63-64% on a consistent basis. This indicates that the business has been able to
maintain sufficient control on the proportionate increase in the cost of goods sold when measured
against the revenue generated by the business. Hence, this indicates that the management has
been efficient in using the factors of production available with it in the process of manufacture
(Robinson et al. 2015). Other probable factors behind this gross profit margin may include the
differentiation in the products of the entity which allows it to charge significantly high prices.
The vertical integration of the business also allows it to purchase the raw materials at
significantly lower costs. However, in this case, the cost of the raw materials of the business has
been increasing consistently. This suggests the likeliness of product differentiation of the
business being higher than any other aspect. The net profit margin of the entity has been
fluctuating constantly. This means that the entity has been finding it difficult to correctly manage
the short term funds available with it. A fluctuating net profit suggests that the entity needs to
better allocate the resources in terms of administration and non-operating expenditure. This has

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been extremely inconsistent and fluctuating wildly. The lower net profit returns also suggests
that the business will not have sufficient resources to distribute amongst the shareholders of the
business. Hence, there is a need to focus on this aspect and reduce the additional non-operating
expenditure incurred by the business. The benefits in relation to this will be faced by the business
in the long run. The other aspect of profitability which has been analysed in relation to the
business is the profits before the income taxes paid by the entity. Income taxes are not under the
control of the business and may vary on the basis of the nature of the industry in which the
business is operating. Hence, in order to understand the operating and administration efficiency
of the firm, it is necessary to determine the IBT margin of the entity. In case of the business, the
IBT has also been declining in comparison to the past year. This suggests that the business needs
to increase the focus on its operations. While net profit may be dependent on the income taxes
paid by the entity, the IBT is a fair representation of the financial performance and the operating
decisions of the entity. Hence, the long term debt funds implemented by the business should be
put to better use to ensure the benefit of the firm.
Part B
Question One
Particulars October November December January February
Opening Bank Balance 70000 70000 70000 100000 10000
Amount collected from sales 300000 300000 300000 300000 450000
Less: Payment for raw materials 60000 60000 60000 180000 180000
Less: Payment of other variable
costs
120000 120000 90000 90000 90000
Less: Payment for fixed costs 120000 120000 120000 120000 120000

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Net cash flow during the month 70000 70000 100000 10000 70000
In the above situation, the cash flow is prepared on the basis of the assumption that the
proposed sales plan of the business goes ahead. However, the statement being prepared in the
current situation is the cash budget which is concerned with the collections made by the business
from the sales made by it and not other aspects. Hence, the amount collected from the sales up to
the month of December remains the same in till the month of December. However, since
December, there is a decrease in the variable costs incurred by the entity. This results in the
increase in the net cash available with the firm at the end of the month. Due to this particular
reason, there is a change in the overall cash flow of the entity from the month of January. There
is a significant improvement in the amount of sales generated by the entity from the process of
increased collection of funds by the business. However, these benefits do not remain for a long
period of time and are offset by the increase in the variable costs incurred by the entity for the
month of January and February. The impact of these changes is severely felt in the month of
January when the cash flows generated by the business are extremely low at $10000. However,
the business again recovers from this situation and the overall cash flows generated by the
business increase in February. On an overall basis, it can be suggested that the adoption of a new
sales model does not essentially result in a drastic changes in the cash flows generated by the
entities. Hence, unless the business has sufficient capabilities to reduce the costs incurred by it,
there is no suggestion that the new sales policy results in an improvement in the sales generated
by the entity.