Financial Analytics for Managerial Decisions Report - RMIT University

This report provides an analysis of financial analytics for managerial decisions. It begins by examining the benefits and limitations of analyzing financial accounting information, agreeing with the statement that its retrospective nature restricts its utility. The report defines financial accounting and financial reports, highlighting the drawbacks of relying solely on past data due to dynamic market conditions. Furthermore, the report discusses goodwill, both self-generated and acquired, particularly focusing on its emergence during business acquisitions and the accounting treatment requiring amortization within five years. It concludes by emphasizing the benefits and restrictions of financial accounting analysis and clarifying the nature and accounting treatment of goodwill in business acquisitions. This document was submitted by a student and is available on Desklib, a platform offering study tools and solved assignments.

Financial
analytics for
managerial
decisions
August 1
2019

Table of Contents
Introduction................................................................................................................................2
Answer 1: Analysis of the given statement................................................................................2
Answer2: Goodwill and acquisition of the business..................................................................3
Conclusion..................................................................................................................................4
References..................................................................................................................................6

Introduction
This paper has been prepared to examine the concept of accounting which is the benefits in
analysing the financial accounting information in the first answer and the rise of goodwill at
the time of acquisition in the second answer. The financial accounting is a branch of
accounting which keeps a record of all the financial transactions carried by the firm for a
particular period. The recording of financial transactions provides for the review of the
transaction and analysis purpose. In the study, a statement is provided, the agreement to
which is explained in the report. Another topic of discussion is the goodwill arising on the
acquisition of a business. The two points are briefly described with the concept of accounting.
Answer 1: Analysis of the given statement
The statement provided for the study is ‘Financial accounting by its nature reports on a past
situation and thus there is limited benefit in analysing financial accounting information.'
There is a complete agreement to this statement.
Financial accounting is the process through which the financial reports of the companies are
formed (Christensen, Nikolaev, and Wittenberg‐Moerman, 2016). The financial report means
those statements which show the company's position, cash flow, and profit or loss for the
period. The analyses of financial reports are conducted to derive the actual growth of the
company and the pattern of revenue generation by the organization. The analysis of financial
reports is performed by calculating various financial ratios which determine the various
parameters of the organization's financial conditions and profitability status in the market
(Magnan, Menini, and Parbonetti, 2015). It is to be noted that these reports are prepared at the
end of the financial year of the company and which is why there is limited benefit in the
financial accounting information analysis.

The financial accounting information is derived at the end of the period and financial reports
are formed to precisely obtain an understanding ability of the information (Lock, and Seele,
2016). The accounting information available in these financial reports belongs to the period
which has ended. The analysis performed for this financial information is beneficial to the
entity but their benefit is limited. It provides the enterprise details about the last year's profit
amount and sales pattern but fails to examine the current of upcoming data for the profit and
sale values. It is to be noted that the evaluation of financial accounting information provides
the analysis report based on the market trends at the time of recording of the financial
accounting (Hapsoro, and Suryanto, 2017). The trend and dynamics of the market are
unpredictable and dynamic which limits the benefits of the performed evaluation of financial
accounting information. To add to this situation, the nature of the reports of financial
accounting is such that they provide data of profit for the period and position as on the date of
year-end (Saini, and Sharma, 2019). Through the analysis of these reports, the conclusions
will be drawn for the same period or particular date. However, these conclusions could not be
relied upon as the market conditions changes frequently and the time of boom sales could be
the no-sale period for the upcoming period (Cortis, Freitas, Daudert, Huerlimann, Zarrouk,
Handschuh, and Davis, 2017). Thus, it is understood that the financial accounting information
is drafted in reports, the analysis of which provides benefits to the company but their benefits
are restricted due to the presence of certain drawbacks or conditions.
Answer2: Goodwill and acquisition of the business
Goodwill in general scenario means the additional amount of profits derived by the firm due
to its reputation in the market. The goodwill is generally self-generated by the firms over the
time by providing customers preferable taste, quality, location, and other supporting elements

of building a reputation in the market (Hoffman, and Bechtold, 2018). However, the goodwill
is also purchased by the buyer of the business at the time of acquiring existing business.
At the time of acquisition or purchase of the existing business by other business, there may
arise some goodwill in the books of the purchaser which shows the benefit obtained by the
purchaser in the transaction of purchasing the business of the other firm. For instance, a
business with the total of its assets amounting to 50 million and the total of liabilities for 30
million agrees to sale its business at any price lower than 20 million then, it will give rise to
the goodwill in the books of the purchasing company.
The accounting treatment for such goodwill provides for showing this goodwill in the books
of the purchasing company for not more than 5 years which means it should be amortized in
the maximum period of 5 years (Su, and Wells, 2018). This is because the treatment of
goodwill is done according to the accounting standard for the intangible assets in the
business.
Thus, at the time of acquisition of the business when the goodwill arises, it merely explains
that the acquiring company is having a benefit of the amount equal to the amount of goodwill
in the acquisition of the business. It is to be noted that this benefit is only the benefit in
monetary terms which is a comparison of the difference between the assets and liabilities of
the business and payment made by the business. The amount paid for the business is lower
than the actual value of the selling company.
Conclusion
In conclusion, the first answer has been analysed to bring an understanding of the terms like
financial accounting and financial reports. It has defined the benefits derived by the
companies with the analysis of the financial accounting information. It has also highlighted

the nature of financial reports as they have been prepared based on past information and
explained the limited benefit of the evaluation of the financial statement. It has been done to
explain the agreement with the statement provided for financial accounting. The second
answer defined the meaning of goodwill and the types of goodwill. It has explained the
scenario of goodwill generation at the time of acquisition of the business and has also
discussed the accounting treatment of the arisen goodwill in the books of the purchasing
company.

References
Christensen, H.B., Nikolaev, V.V. and Wittenberg‐Moerman, R. (2016) Accounting
information in financial contracting: The incomplete contract theory perspective. Journal of
Accounting Research, 54(2), pp.397-435.
Cortis, K., Freitas, A., Daudert, T., Huerlimann, M., Zarrouk, M., Handschuh, S. and Davis,
B. (2017) August. Semeval-2017 task 5: Fine-grained sentiment analysis on financial
microblogs and news. In Proceedings of the 11th International Workshop on Semantic
Evaluation (SemEval-2017) (pp. 519-535).
Hapsoro, D. and Suryanto, T. (2017) Consequences of going concern opinion for financial
reports of business firms and capital markets with auditor reputation as a moderation
variable: an experimental study. European Research Studies, 20(2), p.197.
Hoffman, D.L. and Bechtold, D. (2018) Can the Small Business Institute's Field Based
Consulting Enhance Knowledge Retention and Acquisition. Small Business Institute Journal,
14(2), pp.61-70.
Lock, I. and Seele, P. (2016) The credibility of CSR (corporate social responsibility) reports
in Europe. Evidence from a quantitative content analysis in 11 countries. Journal of Cleaner
Production, 122, pp.186-200.
Magnan, M., Menini, A. and Parbonetti, A. (2015) Fair value accounting: information or
confusion for financial markets?. Review of Accounting Studies, 20(1), pp.559-591.
Saini, R. and Sharma, P. (2019) INVESTOR PERCEPTION ON THE USEFULNESS OF
INTERIM FINANCIAL REPORTS IN INDIA: AN EMPIRICAL STUDY. Indian Journal of
Accounting (IJA) Vol, 51, p.1.

Su, W.H. and Wells, P. (2018) Acquisition premiums and the recognition of identifiable
intangible assets in business combinations pre-and post-IFRS adoption. Accounting Research
Journal, 31(2), pp.135-156.