Bus 103 Assignments 1

Bus 103 Assignments

Name

Course

Institution

Date
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Bus 103 Assignments

Introduction

Stakeholders are individuals, groups, or organizations that have an interest in the

operations of a company. They are directly affected by the business's actions; hence the firm

needs to put them into consideration whenever they are carrying out a significant activity or

decision. Stakeholders of a company include creditors, employees, shareholders, directors,

government, suppliers, and the community where the firm operates (Paramasivan &

Subramanian 2012). In the case of Big Business Tobacco, the key stakeholders in the debate on

the health warning are the shareholders, marketing manager Mary Bender, Randal Hedges, the

company's public relation manager, Asian customers, and the Australian government.

Shareholders

A shareholder of the firm can be defined as an individual, a company, or an institution

that contributes their wealth to business so to enable the company to carry out its operations

efficiently. As a result, the issue returns to the respective shareholders in the form of a dividend.

The shareholders are also considered as risk takers in case the company incurs losses

(Schneeman 2013). The management of the firm puts the interests of the shareholders first by

ensuring that they can maximize their wealth. In the debate, Mary Bender said, “in this business,

it is the bottom line (i.e. profits) which matters – we have to think of our shareholders.” This

explains how the management of Big Business Tobacco is concerned about their shareholder's

wealth maximization.

Employees

An employee of a company refers to an individual who is working for the firm in

exchange for remuneration. Big Business Tobacco has managers who are in charge of decision
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making to ensure that the company can generate profit, as well as expand its market. The current

decision under review is left to the management team, which is composed of the managing

director, marketing manager, and the public relations manager.

Customers

These can be an individual, community, or an organization that is directly involved in the

purchase of goods and services of a company. The higher the number of customers, as well as their

satisfaction, the higher the revenue of the firm (Weil, Schipper, & Francis, 2012). Big Business

Tobacco is considered to be the largest tobacco producer in the Australian market, which can be

translated to mean that the firm has a higher number of customers in Australian. It is currently

looking forward to expanding the number of its customers by increasing its market to Asia.

Government

The government is another primary stakeholder in every firm's operation as the

government is responsible for the development of policies that govern the production and

packaging of commodities (Schneeman 2013). The Australian government has been a key player

in ensuring that all cigarettes produced in the country have a packaging with the warning label

because smoking is dangerous to human health. In the management decision, Randal mentioned

that the government requires them to include the warning in all their packs. From this, one can see

that the government has some influence on the firm's operations since the company has to adhere

to the Australian laws. As for the Asian Government, the label does not matter to them, but this

should not be a reason for not including the label given that the firm is operating under the

Australian regime.

Ethical issue in the Debate

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An ethical issue is a problem or situation that requires a person or organization to choose

between alternatives that must be evaluated as right (ethical) or wrong (unethical). In the case of

Big Business Tobacco, they are faced with a critical decision to make regarding their product.

The company is required by the government to include the warning label in their cigarettes. Mary

is opposing the decision to include this rule, which is considered to be unethical. The

management is aware of all the effects of smoking on human health, but they are just concerned

about the profitability of the firm. This shows non-compliance with government laws;

consequently, Big Business Tobacco is considered to be unethical in its practice.

Given the opportunity to be on the management team of Big Business Tobacco, I would

ensure that the firm complies with the generally accepted laws of the state. The company would

include the warning label on all the cigarette products no matter where they are selling the

product, being that the Austrian Health predicted an increase in thousands of deaths from

tobacco. It is necessary to take back the decision that has been approved by the management so

that it can be readjusted to ensure that they are fully compliant and not just thinking about the

shareholders’ interest, but also the community’s welfare.

Question 2

Bragg (2007) asserted that the principles guiding the recognition of revenue for financial

reporting purpose are central to Generally Accepted Accounting Principles (GAAP) and the

International Financial Reporting Standards and in most instances, they are unambiguous and

straightforward. The standard, therefore, requires that a firm should disclose its revenue

recognition criteria as an additional note to the financial statement. The standard has also

developed policies and procedures to be followed by an accountant in recognition of the

company’s (Ursick 2016). In the case of Brain Kelly, he was able to get a stone worth $60,000,
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which he later sold at $75,000 to record a profit of $15,000. He is, therefore, required to

recognize the revenue received based on the policies and procedures of International Accounting

Standards.

Recognition and Measurement in the Financial Statement of Business Enterprise

There is the existence of revenue in this transaction because the amount received is

considered as realizable or realized as mentioned by Bragg (2010). The two conditions (being

realized or realizable and being earned) are usually met by the time the merchandise is delivered,

or service is rendered to customers. Revenue from manufacturing and selling activities and gains

and losses from the sale of other assets are commonly recognized at the time of sale (usually

meaning delivery). The point at which the two conditions were met in this scenario was when

Kelly sold the product to the jeweler as this is the point at which he could realize the gains from

the sale of his stone. He could recognize revenue at the point when he picked the stone being that

he had not achieved any amount from the picking neither could he recognize revenue at the

valuation date of the stone.

Therefore, it can be concluded that the measure and recognition of revenue can only occur if

an only if the firm meets the following conditions:

1. There is evidence that the firm has an arrangement in place to sell the product or service.

It took Kelly two weeks to get the client for his product. This shows that he had a sales

arrangement.

2. The firm has made the delivery of goods to the client, or it has rendered the service as per

the requirement of the customer.

3. The seller’s product or service price is fixed and can be determined.

4. The firm has a reasonable collectability of the revenue from the client.
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All these have been met by Kelly as he has valued the product to ascertain the real value

of the product to be $60,000. He also has delivered the product to the client, who has paid him in

return an amount of $75,000, which is a reasonable value given that it is above the product value.

At this, point Kelly can say that he has been able to receive revenue from the sales of the

product; hence he can now recognize the amount in his financial reports.

Question 3

a) Management replies to the plant manager comment

The plan manager’s concern is about the maintenance of shareholders’ records, as well as

the Australian Tax Office information. The two issues are considered to be of importance in the

general existence of the company because those involved have a direct impact on the firm's

operation. I, therefore, agree with him that the accountant being an individual with a wealth of

financial skills should be able to provide the two players with an appropriate report. The plant

manager should not be strict on the accountant when it comes to obtaining information from him;

therefore, he still should expect some questions from the accountant regarding taxation records

(Ursick 2016).

Shareholders Record

Shareholders are the primary contributors to the firm's common equity, which is used by

the firm in its operations. They are employers of managers, as well as accountants; hence the

management works as an agent to shareholders, and they are accountable to shareholders by

ensuring that shareholders’ interest is given priority. For this reason, the accountant should make

sure that they keep a record of their shareholders (Paramasivan & Subramanian 2012). Some of

the registers held include:

List of shareholders
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This list shows the entire shareholders’ name, address, their qualifications, as well as the

type of shares held by them. This list helps the accountant when it comes to payment of

dividends to the respective shareholders.

Dividend payment record

This record shows the history of how the firm has been paying its shareholders. Through

this, the company can ascertain whether it has been able to maximize shareholders’ wealth, as

well as profit for the firm.

Liability record

The accountant will be able to determine shareholders' liability to the firm through

keeping shareholders record. They can identify shareholders who have not fully settled their

shares and those who have made full payment for their shares (Ursick 2016).

Australian tax record

The taxation record is critical to both the company, as well as the government of

Australian as this is the only way that the firm can tell if it has been compliant with taxation

policies of Australian. The reasons for keeping these records are, but not limited to the

following:

Identification of the amount of tax that the firm has been paying to the government

A company can only know the amount paid for the records that they have been able to

keep. These help them to keep track, as well as know the trend of tax payment to the

government. The records can help the firm regarding budgeting because it is critical for the

company to recognize its obligation to the government (Weil, Schipper, & Francis, 2012).

Used as a defense by the firm

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Tax records should be up to date as they are used by the company to defend it from

unexpected legal suits that may result in the imposition of massive amounts of penalties.

Therefore, both the plant manager and the accountant need to work together to ensure that all

records are up to date as per the requirement of the company law (Schneeman, 2013).

Question 3b

In today's world, technology has widely spread across the globe and forced accountants

to develop accounting software that is used for bookkeeping purposes. Even though software has

been developed, accountants need to have sufficient knowledge to carry out accounting

procedures effectively. Therefore, technology is only necessary to help simplify accounting

processes, but cannot be of help to management accountants if they do not have sufficient

accounting knowledge. Most of the accounting software is developed in line with the

International Accounting Standards, which the accountant needs to know to make the right

entries and ensure that the report generated by the software is accurate (Flood, 2017). There is a

need for accounting knowledge to set all the applications in the software in an acceptable

manner.

For this reason, an accountant without accounting skills is not in a position to carry out

the operations of the accounting software effectively. This can be seen from the current

accounting industry where firms are forced to hire an accountant with broad skills to help them

carry out bookkeeping using this software. Therefore, one can conclude that technology does not

mean that the management accountant is now satisfied (Schneeman 2013). The only reason as to

why he will be considered successful is if he has all the management accounting skills and

having obtained the necessary practical training from different industries to help him gain

experience as required by the Institute of Management Accountants.

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Question 4c

Vertical analysis is a financial statement analysis technique where each item in

the financial statement is computed as a percentage of another item (Ursick 2016).

Revenue represents 100% and is apportioned to the other items in the income statement.

As for balance sheet items, total assets and total liabilities and equity equal 100%, which

is then apportioned to assets and liability to know the percentage that is represented by

each item in the balance sheet. From this analysis, the company has been able to have an

increase in its profit before tax of 1% and a 2% increase in net assets.

Horizontal analysis is a financial analysis model that is used to compare the historical

financial report of the firm (Schneeman 2013). It uses the first year as the baseline; hence all the

values in that year represent 100%. From the analysis, the company has been able to achieve a

16% increase in revenue, leading to 13% increase in net profit.

Both vertical and horizontal analyses reports show that the firm has been able to

effectively utilize its assets, leading to an increase in the firm’s revenue. From this, it can be

concluded that Stratum Limited is efficient in its operations.

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References

Bragg, S. M. (2007). Wiley revenue recognition: Rules and scenarios. Hoboken: John Wiley &

Sons.

Bragg, S. M. (2010). Wiley revenue recognition: Rules and scenarios, 2nd edition. Hoboken:

John Wiley & Sons.

Flood, J. M. (2017). Wiley GAAP 2017: Interpretation and Application of Generally Accepted

Accounting Principles set. Hoboken: John Wiley & Sons/

Paramasivan, C., and Subramanian, T. (2012). Financial management. New Delhi: New Age

International (P) Limited.

Schneeman, A. (2013). The law of corporations and other business organizations, 6th edition.

Boston: Cengage Learning.

Ursick, M. (2016). The new revenue recognition standard in plain English. Journal of

Accountancy. [online] Available at:

http://www.journalofaccountancy.com/newsletters/2016/mar/revenue-recognition-standard-in-

plain-english.html#sthash.tmECnP2u.dpuf [Accessed Jan. 10, 2016]

Weil, R. L., Schipper, K., and Francis, J. (2012). Financial accounting: An introduction to

concepts, methods and uses, 14th edition. Boston: Cengage Learning.