Management Accounting Report: Equilibrium Asset Management Analysis

This report delves into the realm of management accounting, focusing on its core principles and practical applications within a financial context. The report begins with an introduction to management accounting, emphasizing its role in analyzing business data and aiding managerial decision-making. It then explores various management accounting systems, including inventory management, cost accounting, price optimization, and job costing, illustrating their significance in business operations. The report further examines different management accounting reporting methods such as budget reports, accounts receivable aging reports, cost managerial accounting reports, and performance reports. The report highlights the benefits of these systems and their integration for effective financial management. Cost analysis techniques, specifically absorption costing and marginal costing, are discussed. The report concludes by outlining the advantages and disadvantages of planning tools used for budgetary control. The analysis is contextualized through the case study of Equilibrium Asset Management, a financial company, providing real-world examples and insights throughout the report.

MANAGEMENT ACCOUNTING

Table of Contents

INTRODUCTION
Management accounting is the process of maintaining, analysing data of different
sections associated with business (Ahmad and Mohamed Zabri, 2015). Costs such as
manufacturing and operations are the result of running business. It studies the internal aspects of
entire organisation. Managers convert data into useful information which helps in taking
effective decisions. It is important to study the overall working of organisation to understand the
profitability and growth of business organization. In simpler words looking into what is going on
in the enterprise and managing that appropriately is the main purpose of this type of accounting.
Equilibrium asset management is financial company that deals in offering services including
financial planning, investment, money and asset management. Being consulting firm it has to be
aware of deals that it is making with customers for that preparing such statements becomes
necessity. It has successfully improved it's internal structure and operation of business. The
organisation has been rated highly in providing long term fiscal plans to it's clients. In the
following report we are covering different types of management accounting and it's essential
requirements, reports, cost analysis, their advantages and disadvantages. These features are being
studies with respect to the chosen enterprise.
TASK 1
P1. Management accounting and its different types of system.
Management accounting determines the various elements that are affecting the working
of organisation. Examining the needs of business is done by splitting the work into different
sections as per their nature and analysing them accordingly. Therefore systems are created to
understand their functioning separately. Details description of them is given below:-
Inventory management system- This system is established to determine the status of
inventory coming into use in the business (Ashraf and Uddin, 2015). List of materials,
equipments, goods, spare parts etc are part of this. In financial company availability of such
systems is essentially required. Equilibrium asset management have maintained the organisation
by effectively keeping records of services such as insurance and investment portfolios. This
helps in providing clients to choose potential portfolios and based on their preferences and it
also lead to improved decision-making.
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Cost accounting- This system is prepared to control the cost incurred while producing
something. It is concerned with recording, classification and summarizing direct and indirect
expenses (Bedford and Speklé, 2018). Understating expenditure occurred during manufacturing
is difficult as there are various small invisible items attached with it which needs to be
considered. Decisions are taken by the managers after their identification. Equilibrium manages
expenditure in terms of money and time invested by employees on creating financial plans
essential requirements with the help of this system. These are made for variety of it's clients for
the purpose of achieving the goals.
Price Optimization- Setting monetary value for the services or products which company
is providing is difficult to determine. Significant amount should be charge from the customers
based on it's value. If charged amount is too high buyers will be reluctant to buy it on the other
hand low cost will not avail enough profits for the company. Main function of this system is to
fixed prices. Equilibrium management uses this system in setting prices for the building long
term plans. Clients gets benefited through this as they are satisfied with the way company
charges for the services delivered by them
Job Costing system- This system is generated to understand the per unit cost occurred on
manufacturing. Since Equilibrium company is engaged in multiple tasks it requires this system to
estimate the expenditure incurred on them. It keeps track of various activities performed by the
clients and ensures smooth functioning of their firms. Jobs are classified based on the work they
provide, equilibrium manages data separately of it's clients.
P2 Different method used for management accounting report :-
The word management relates to planning, organizing, staffing, directing and controlling
the business scenario, so to achieve the objective in an efficient and effective manner. To get the
business ahead of the pack, companies should focus on many fields as the dynamic atmosphere
of the market may kill the profit anytime. In this cut-throat competition, profit maximization is
dependent on game plan which forms unique strategies with the help of distinctive accounting
report forms by the survey of business.
Accounting reports are the ballpark number which gives opportunities to go the extra
mile and create a game plan to the smooth sailing of business in a market. Equilibrium asset
management which is one of the top most company providing financial planning and investment
management working in whole new concept of acquiring, designing and building future of
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thousands. It operates and maintain the economy balance to help its clients in maintaining their
financial objective in an effective and efficient manner. Equilibrium asset management puts the
efforts on framing its management accounting reports and estimate the figure in an appropriate
manner, so to take the bull by the horns and clear all barriers while focusing on achieving
objectives. These management reports help in framing plans for the future and give confidence to
company to stand one's ground.
 Budget Reports :- The management accounting report, which acts as the most important
tool to get the ball-port/figure of a financial year in a company and gives an idea to get
the business performance on board (Bedford, 2015). Equilibrium asset management,
which has generated the revenue of £35,000+ last year, showcases every penny and
differentiate into its last year expenses on various fields according to the dynamic
environment of the market.
 Account Receivable Aging Reports :- Companies working on spreading loans and
increasing its credit limit may have sometimes lost touch base to their clients by which
gaining full payment back on time will be an uphill battle due to exceeding the time limit.
This report help in identifying the defaulters and help in framing tighter policies, which
raise the bar for future customers. Equilibrium Asset management which works on wealth
and investment management, provide pensions and different financial services to their
clients. Company take help of the report in getting the knowledge of different customers
to safe bet its fair deal and find defaulters who exceeds the given period of time in
returning money.
 Cost Managerial accounting reports :- This report talks about the articles which are
manufactured in a company. Dealing with all prices of raw material and functioned as in
the driver's seat helps in finding profit margins of a company. Equilibrium asset
management spends on raw material in the form of marketing, framing strategies, getting
the needs of clients, and much more by which it puts the efforts on framing a perfect cost
managerial accounting report. The Company deals in the 8 factor model which drives the
work in an appropriate manner to all the various departments.
 Performance Reports:- The report out in the open and talks about the individual, group
or a department, which gives review of every aspect by keeping an eye on one ball.
Managers take help of these reports and go back to square one for framing some
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important decisions to improve the performance of every department for future growth.
Equilibrium asset management begins its journey with an engagement of 5 stages, which
put eye on every performance in the fields of survey, analyse, action, accreditation, and
get listed to improve every corner of the company.
M1- Benefits of management accounting systems and their application
Inventory system is beneficial for every organisation as they keep track of products and
services (Beske, 2012). It is useful in controlling the unnecessary wastage occurring during the
course of business. Equilibrium apply this method to keep check on it's financial instruments.
The company have installed software which records every details in systematic manner.
Cost accounting provides benefits of usage and acquisition of funds. It helps in
Equilibrium company to identify the sources from where the revenues are generating along with
the cost incurring.
Price Optimization deliver benefits of assigning appropriate prices for providing services.
Equilibrium uses this to set charges of building investment portfolios and real estate planning.
Job costing is beneficial for determining the cost associated with roles played by the
company and it's clients. Equilibrium apply this method to bifurcate the activities and their
expenditure performed under it's guidance.
D1- Integration of management accounting systems and reporting
Management accounting system helps in ascertaining the costs, Determination of prices
and management of inventory (Ewert and Wagenhofer, 2012). This provides managers in taking
effective decisions regarding business and predicting the uncertainties that can influence the
organisation. Accounting reports such as budgeting gives guidance to company in maintaining
financial stability for each and every tasks being performed. They can think of cutting down
costs and making renegotiations with the clients after analysing budgets.
TASK 2
P3 -Techniques of cost analysis
Absorption costing- Absorption costing refers to the process of determining the cost
including direct and indirect expenses of the products and services which the organisation is
offering.
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Marginal Costing- Marginal costing refers to the change in the overall cost of products
due to production of an additional unit (Guthrie and Parker, 2014).
Income statement by absorption costing method( When 5000 units of radiators are sold)
Particulars Amount
Sales (5000*25)
Less- Cost of good sold
Gross loss
Less- Selling and administration
expenses
Net loss
125000
140000
(85000)
60000
(145000)
Working Note*
Calculation of sales (5000*25) = 125000
Calculation of cost of goods sold: (50000+30000+20000+40000)= 140000
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(Direct material+ Direct labour+ Variable manufacturing overhead+ Fixed manufacturing
overhead)
Calculation of selling and administrative expenses:(30000+30000) = 60000
(Variable selling and administrative expenses+ Fixed selling and administrative expenses)
M2 Management accounting techniques and financial reporting documents
From above mentioned accounting technique abortion costing and marginal costing helps
to find the financial position of the company and financial reporting documents helps to give
financial data of the company. Management accounting technique help an organisation to give
accurate forecasting budgets for an enterprises. Following management technique are used by
the Equilibrium assets management company to get appropriate results such as:
Financial planning: As planning is the first function of management which helps to
make plan what to do, when to do and how to do. This is the essential requirement in any
organisation to run a business effectively (Mahesha and Akash, 2013). For making better
decision and forecasting results. Equilibrium assets management company need to prepare
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financial planning that will help to give further finance decision. It helps to give ideas for future
expectation and also give suggestion how to implement the ideas by utilizing the funds.
Historical cost accounting: This means any industry or enterprise can make effective
and comparative decision by analysing past cost information. It includes the past and historical
data that helps to measure the value of accounts which is prepared by the organisation.
Equilibrium assets management company use this technique for defining assets by using
generally accepted accounting principles that helps to give appropriate results in making better
financial decision.
D2 Financial reports which applies to interpret many business activities
From above discussion it has been concluded that management accounting system and
management accounting reports are important in Equilibrium assets management company to run
successfully business. Inventory management system help to maintain the stock in an proper
system and utilize it properly (Mancini, Vaassen and Dameri, 2013). Costing system help
Equilibrium assets management company to reduce unwanted cost and expenses which could be
occur in the organisation. For controlling on job cost system, costing and maintaining inventory
any enterprise should adopt management accounting system and reports. These systems helps to
run the business effectively within the organisation.
TASK 3
P4 Advantages and disadvantages of different planning tools used for budgetary control
Budgetary control is an ongoing process that helps to make effective planning and
coordination between employees and managers. In other words, this is the continuous process
which is used by any organisation to defining and comparing actual result with budgeted figures
for the future period of time. For instance, Equilibrium assets management a small size of UK
based company which offers financial services short term and long term loan facility, investment
management services, estate planning ect. This company helps to give client confidence in
present and in the future. It focuses on customer needs and expectations and provides finance
services according to their demand. Equilibrium assets management prepares budgetary control
reports every year by using following planning tools-
Scenario tool: This is the effective planning tool that helps to get budgets in a
challenging situation by using spreadsheet. Budgets are prepared by using planning and
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budgeting software that gives a potential outcomes on investments. By using this tool
Equilibrium assets management company prepare its budgets after analysing financial
information that gives a idea for future investment in providing financial services.
Advantages: Scenario tool makes easier to prepare budgets by investigating various
financial information and helps to get expected outcomes where multiple variable may be
change. In Equilibrium assets managements company it is also helpful to create a best position
by making strong data driven decision that helps to achieve organisation's goals.
Disadvantages: It may be manipulated or complex by using multiple copies of plan and
system. Sometimes it shows incorrect result because of inappropriate and complex formulas used
by the company.
Contingency tool: This is an essential tool which is used by all organisation to measure
the emergency fund performance in order to achieve enterprise's objectives by setting effective
contingent budget (Miller and Power, 2013). In other words, a plan can not be complete without
dealing with expected or unexpected budgets so it is required for each company yo prepare
contingent planning tool that helps to cope up with unexpected losses. Accountant of the
Equilibrium assets managements company use this tool to prepare contingent planning that helps
to bear future unexpected losses or expenses. For example, Equilibrium assets managements
company had given loan to a construction company for two years and at the maturity period
company is not able to pay loan amount then this amount will be treat as bad debt. For facing this
types of contingent issues company should have strong planning and budget that help to bear this
unexpected loss.
Advantages: This measurement helps to take decision quickly whether a company
should move ahead or not with spending activity. It helps to prevent from upcoming risk ans
losses which may be generate suddenly. In Equilibrium assets managements it helps accountant
to take speedily steps to address an unexpected problems. This company prepare contingency
plan and budget to face the incidently and suddenly expenses.
Disadvantages: This planning tool is reactive not proactive which is based on
assumptions. It is difficult to experiential testing because it includes too many provisions. In
Equilibrium assets managements accountant need to be aware for upcoming losses and expenses
which may be happen or not as a result accountant can not get actual budget.
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Forecasting tool: This tool is based on excel application which helps to generate
valuable forecasting budgets. Moreover, it helps to produce future estimates such as future
growth value process for certain period of time that helps to make future planning. In
Equilibrium assets managements accountants makes forecasting planning tool to control budgets.
It helps to make strategic planning management by providing accurate financial information.
Accountant find, collect and analyse accurate information and use it in preparing plan that helps
to give future planning for investment and providing financial services.
Advantages: This tool helps to assure about possible outcomes for the enterprises by
providing valuable financial information. This tool also helps to bring effective decision for
bright future of the organisation. In Equilibrium assets managements, it help accountant to make
better decision and gives ideas to whom company should provide financial services.
Disadvantages: This is not possible to give accurately results for future forecast because
it contains qualitative nature of forecast which is depend on various scenarios. It make difficult
to interpret the data for Equilibrium assets management company. Hence, some times it could be
difficult for future budget decision.
M3 Analysis of different planning tools and their applications
It has been recommended that above mentioned planning tools such as scenario tools,
forecasting tools and contingency tools are essential in any organisation to control the budgets
and it also helps to make decision in order to maintain profitability organisation. If Equilibrium
assets management company apply contingency tool then it would be easy to cope with
unexpected expenses and company can sustain in market place (Mussnig, 2013). On other side,
by apply forecasting tool Equilibrium assets management company can get future information
that could be helpful to maintain the forecasting budgets. It also will give idea to this company to
make future budget by comparing actual and past performance of the company. If Equilibrium
assets management company follow scenario tool which is prepared with the help of excel spread
sheet then it will be easy to define what is potential outcomes. It help to show the nearby results
that help to make effective decision.
P5 Organisations are adapting management accounting systems to respond to financial problems
Accounting management system is the system of gathering, storing, assessing and
processing financial and accounting information which is used by the organisation in decision
making process. Financial problems are said to be the situation which have long lasting impact
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on enterprise's profitability and efficiency. Equilibrium assets managements includes various
types of financial problems that influence company's budget such as:
Lack of money management: This is the basic problem which is faced by the mostly
organisation to run a business effectively. In this problem managers do not manage money
proper as a result loss in business. In Equilibrium assets management company managers are
facing continuous loss situation because of money management and not proper records of
financial transaction. For solving this issue manager need to keep and utilize financial
information.
Spending more than incomes: This means when company are facing more expenses
comparative to revenues then financial problems are occurred (Ratnatunga, Michael and
Balachandran, 2012). Managers of the Equilibrium assets managements company are spending
more expenses continuously which affect the fund of the company and as a result company is
facing finance problems. For minimizing this problem enterprises need to prepare solid strategy
that where manager should invest in order to get outputs.
Financial governance: It refers to the mode in which a company gather, manages,
review, monitor and controls its financial information. Manager and accountant of Equilibrium
assets management company need to collect and track the financial transaction, manage
performance and control data for better management.
Management accounting approach: This is the best approach which is used by every
organisation to keep accounting records and making effective decision by proper management.
Manager of Equilibrium assets management company keeps proper records of accounting
principle and convention and financial transaction that helps to make planning and effective
decision. This company follows following management accounting approaches such as:
KPI: Key performance indicator is the tool which help an enterprises to measures the
performance of organisation as well as employees who are working in an industry (Sisaye and
Birnberg, 2012). Additional, KPI is the performance measuring technique that show running
position of the activities and it helps to achieve business's goals. For instance, Manager of
Equilibrium assets management company evaluate the performance of accountant that they are
providing proper financial information or not, where spending is require to get more returns etc.
this information helps to take better business decision in preparing budget.
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