Task 01

1.1 Identify the purpose and aims of financial accounting and management
accounting and accounting regulations.

Accounting and Organizations

Accounting can be defined as the process of identifying, measuring and

communicating economic information about an entity to variety of users for decision-
making purposes.[ CITATION Bir10 \l 1033 ] For small firms, those information can be
operated by an individual and can be observed and recalled as needed. As the size
and complexity of organization grows, the need for organized measureable
information also increases.

The Objectives of Accounting

 To provide detailed information about the business activities to both External

Users(Entity’s management) and Internal Users (the stakeholders) to take
decisions on investment and lending.
 To effectively manage the material resources available.
 To facilitate social functions and control.
 To provide information regarding accounting policies.

Classifications of Accounting and accounting regulations

There are two classifications of Accounting.

Financial accounting pertains to the financial statements prepared for and used by
individuals internal or external to the business organization. These individuals may
not be actively engaged in or responsible for the day-to-day operations of the
organization, but they do have an interest in knowing about its economic progress.
[ CITATION Har10 \l 1033 ] Financial accounting reports are distributed inside and outside
of a business and are governed by GAAP and IFRS.

Managerial accounting pertains to the financial statements that are used by

management for making economic decisions within the business organization.
[ CITATION Har10 \l 1033 ] So its reports are shared internally for the use of management
and are not subject to such rules and regulations and are not required by laws to
follow any accounting standard.

1.2 Evaluate the different users of accounting and financial Information

Accounting information of a business enterprise is used by a number of

parties. Different parties use accounting information for different purposes depending
on their needs. Therefore, the accounting information system of a business
enterprise must be designed in a way that should generate reports to satisfy the
needs of everyone interested in accounting information.

We can broadly divide the users of accounting information into two groups,
internal users and external users.

Internal Users

Internal users use a mix of management and financial accounting information.

Some internal users of accounting information and their needs are briefly discussed
below:

1. Management

Management uses accounting information to evaluate and analyze the

business’s financial performance and position, to take important decisions and
appropriate actions to improve the business performance in terms of
profitability, financial position and cash flows.

2. Owners

Owners need accurate financial information to know what they have earned or
lost during a particular period of time. Base on this financial information they
take decisions for the business.

External users
External users normally use only financial accounting information. Some external
users of accounting information and their needs are briefly discussed below:

1. Investors

The accounting information is used by both actual and potential investors.

Actual investors use this information to know how their funds are used by the
management and what is the expected performance of business in future in
terms of profitability and growth. Potential investors use accounting
information to make decision of whether or not a particular corporation is
suitable for their investment needs.

2. Lenders

Lenders are individuals or financial institutions that normally lend money to

businesses and earn interest income on it. They need accounting information
to assess the financial performance and position and to have a reasonable
assurance that the business to whom they are going to lend money would be
able to return the principal amount as well as pay interest there on.

3. Suppliers

Suppliers are business individuals or organizations that normally sell

merchandise or raw materials to other businesses on credit. They use
accounting information to have an idea about the future creditworthiness of
the business and to decide whether or not to continue providing goods on
credit.

4. Government agencies

Government agencies use financial information of businesses for the purpose

of imposing taxes and regulations.

6. Customers

Accounting information provides important information to customers about

current position of a business organization and to make a judgment about its
future. They are interested in continuous availability of products and related
accessories.
 7. Employees

Employees except the management personnels of the business are

considered external users of accounting information. They are interested in
financial information because their present and future is tied up with the
success and profitability of business that ensures job security, better
remuneration, job promotion and retirement benefits.

1.3 Identify and evaluate the main types of business and accounting
information

Types of Business

1. Sole Trader - A sole trader is a business owned by only one person. It is easy
to set-up with minimal paperwork and is the least costly among all forms of
ownership. Therefore, it usually is small in size and is common in service,
retailing, and farming industries. Often the owner is the manager. Legally, the
business and the owner are not separate entities. The owner shares the same
identity as the company. Accounting views the business as a separate entity,
however, that must be accounted for separately from its owner.
2. Partnership - Partnership are made up of two or more people and any profits,
debts and decisions related to the business are a shared responsibility. These
are common for practices that offer services such as accountants, dentists,
doctors, solicitors and so on. The partnership is a separate business entity to
be accounted for separately from its several owners. There are generally
three different types of business partnerships.

General Partnerships are founded upon the premise that duties and
responsibilities will be equally divided amongst owners. If any owner wants
more or less, then documentation must be complete and signed in
agreement by all partners.

Limited Partnerships are more complex than general partnerships, as

they provide partners with the opportunity to opt out of a majority of
 management decisions. Partners choosing to limit their managerial
decisions provides them with limited liability as well. As a whole, these
limits coincide with each owner’s percent of investment, which makes
limited partnerships intriguing to those that are more interested in short-
term enterprises

Joint Ventures are similar in function to general partnerships, but differ in

that they are designed more for single or time-sensitive projects. Partners
partaking in joint ventures have the opportunity to continue beyond the
designated time-frame, but must fill out paper work to do so.
1. Company - A corporation or company is a business organization that has a
separate legal personality from its owners. Ownership in a stock corporation is
represented by shares of stock, shareholders. The shareholders get limited
liability and are responsible for the corporation’s debts only to the extent of
their investments. The corporate charter specifies the types and amounts of
capital stock that can be issued. Most states require a minimum of two or
three stockholders and a minimum amount of resources to be contributed at
the time of organization. The shareholders elect a board of directors to
manage and supervise the corporation. Accounting also views the corporation
as a separate business entity that must be accounted for separately from its
owners.[ CITATION Lib11 \l 1033 ]

2.1 Prepare Books of Original Entry

Mr. Young Trading Profit and Loss Account for the year
ended 31 Dec 2016

Dr Cr
Sales 138,078
(-) Cost of
Sales
Opening Stock 11,900
Purchase 82,350
(-) Closing Stock (13,550) (80,700)

Gross Profit 57,378

(-) Expense
Carriage 5,144
Advertising 1,330
Rent & Rates 6,000
Stationary 3,001
Wages and
Salaries 26,420
Bad Debts 870 (42,765)

Net Profit 14,613

2.2 Prepare trial balance information to enter to final account

Balance Sheet as at 31 Dec 2016

Total
Cost Depreciatio NBV
        n
Non-Current Assets      

39,00
  Equipment 58,000 19,000 0
       
Current Assets      

  Stock   13,550  
Debtors
  (12120-123)   11,447  

  Cash   177  

  Bank   1,002  

Prepaid 26,79
  Insurance   622 8
       
Total Assets    
65,79
 8
       
       
Total Equity      

  Capital   53,064  

  Net Profit   14,613  

  (-) Drawing   (7,800)  

59,87
      7
       
Current Liabilities      

  Creditors   6,417 6,417

       

Total Equity and 66,29

Liabilities       4

2.3 Construct final accounts including cash flow statements

2.4 Make adjustments for book keeping and final accounts

Stockholders' Capital A/C

    $     $

30-Sep Balance c/d 20,000 1-Sep Cash 20,000

       

    20,000     20,000

Cash
A/C
    $     $
1-Sep Stockholders
' capital 20,000 2-Sep Rent 1,000
 Trade
30-Sep received 5,000 3-Sep Equipment 10,000

    4-Sep insurance 1,200

20-
    Sep Dividend 700
balance
      c/d 12,100

    25,000     25,000

Rent
A/C
    $     $
balance
2-Sep Cash 1,000   c/d 1,000

    1,000     1,000

Equipment A/C
    $     $
balance
3-Sep Cash 10,000   c/d 25,000

  Payable 15,000    

    25,000     25,000

Payable A/C
    $     $

  balance c/d 15,400 3-Sep Equipment 15,000

      Interest 900
(15000 x
      12%)  

    15,400     15,400

Interest A/C
    $     $
3-Sep Payable   balance
 900 c/d 900

    900     900

Insurance A/C
    $     $
       
balance
4-Sep cash 1,200   c/d 1,200

    1,200     1,200

Advertising Expense A/C

    $     $
balance
10-Sep Bill payable 200   c/d 200

    200     200

Bill payable A/C

    $     $
10-
  balance c/d 200 Sep advertising 200

    200     200

Sales
A/C
    $     $
15- trade
  balance c/d 6,200 Sep receivable 6,200

    6,200     6,200

Trade
receivable A/C
30-
15-Sep SALES 6,200 Sep Cash 5,000
balance
      c/d 1,200

    6,200     6,200
 Divident A/C
    $     $
balance
20-Sep cash 700   c/d 700

3.1 Calculate various financial ratios

Profitability Ratio

    Formula
Gross Profit Gross Profit
x 100
Margin Sales
       
Net Profit Net Profit Liquidity
x 100
Margin Sales Ratio
       
    Formula
Capital
      - Current Liabilites
Total Assets  
Employed Current Assets  
Current Ratio Current
Return on EBIT
Liabilities  
  Capital      x 100
Employed Current Assets -
Capital Employed
Inventory  
Acid Test Ratio
Current
Liabilities  
       

Assets Analysis

    Formula
Stock Turnover Cost of Sales  
Ratio Average  
 Inventory
       
Sales Revenue  
Account Receivable
Average
Turnover Ratio
Receivable  
       
Cost of
Account Payable Revenue  
Turnover Ratio Average
Payable  
       

Financial Leverage Ratio (Capital Structure Analysis)

    Formula
Dept to Total Debt
x 100
Equity Ratio Total Equity
       
Assets Net Sales
Turnover Average Total  
Ratio Assets
       
Debt to Total Debt
Capital
x 100
Employed
Ratio Capital Employed

Profitability Ratio
    2015 2016
Gross 775838 798725
x 100 51.62 x 100
Profit 150295 50.80%
= % =
Margin 8 1572275
           
Net 29295 51221
x 100 x 100
Profit 150295 1.94% 3.25%
= =
Margin 8 1572275
           
Capital 1758973 -   1736171 -  
Employe 755591 = 462108 =
d 1003382 1511063
Return 117583 140836
on
x 100 11.71 x 100
Capital 9.32%
= % =
Employe 100338 1501106
d 2 3

Liquidity
Ratio
    2015 2016
           
Current 671523 .= 0.89 :   664531 .= 1.44 :  
Ratio 755591 1   462108 1  
           
671523 - 664531 -
Acid Test .= 0.45 : .= 0.74 :
326359   326359  
Ratio 1 1
755591   462108  
               

Assets
Analysi
s
    2015 2016
Stock 727120   773550  
.= 2.35
Turnover (291141 + .= 2.38 times
times
Ratio 326359)   (326359 + 323289)  
    2   2  
           
Account 1502958   1572275  
Receivable .= 7.7
.= 8.5 times
Turnover (197677 + times
Ratio 192384)   (192384 + 177506)  
    2   2  
           
Account 762338   770480 .= 2.1 times  
Payable (265691 +   (313887 + 400863)  

Turnover 313887)
 Ratio
    2     2    

ZIFARM Hospital’s gross profit margin is slightly increased by 0.82 percent. If

One dollar of sales revenue results in 51.62 cents of gross profit in 2015, the cost of
sales is 48.38 cents of each sales dollar in 2015. The same in 2016, if one dollar of
sales revenue results in 50.8 cents of gross profit, the cost of sales is 49.2 cents of
each sales dollar in 2016. So the gross profit margin of the hospital shows
negative.This suggests that either (1) Declining Sales while costs remain the same
of become elevated, (2)ZIFARM HOSPITAL started discounting charges more in
2016 than in 2015.

Profit Margin of ZIFARM Hospital is increased by 1.31 percent in2016 which

means the hospital is converting revenue into actual profit in 2016 than 2015.
Although there is a slightly lower gross profit margin in 2016, the company was able
to generate more EBIT per dollar of sales revenue in 2016 than 2015, which means
ZIFARM Hospital did well in managing its expenses.

4.1 Understand UK regulatory framework

In UK, the regulatory framework is enacted in The Companies Act 2006. UK

accounting standards were set by the Accounting Standards Board (ASB) which was
established to develop regulations and guidelines. Those standards could enable
preparation of accounts which keeps into accordance the benefit of users, prepares
and auditors of financial information. All accounting standards developed and issued
by the ASB are known as Financial Reporting Standards (FRSs). These are
designed to facilitate adequate and proper reporting of financial information by the
organization which is expected to prepare the financial statements. The ASB
operates under the monitoring and funding of the Financial Reporting Council (FRC).
The statues, laws and regulations that relate to the financial reporting framework
may be in any form such as Statements of Standard Accounting Practice (SSAP),
Generally Accepted Accounting Principles (GAAP), International Accounting
Standards (IAS), International Financial Reporting Standards (IFRS), internal
accounting controls,  policies for notes to accounts, quality standards for financial
reporting, auditing standards etc.[ CITATION Leu16 \l 1033 ]

Generally Accepted Accounting Principles (GAAP)

GAAP makes it easier for investors to analyze and extract required

information by ensuring a minimum level of consistency in company’s financial
statements. GAAP also facilitates when a company distributes its financial
statements to anyone outside of the company.

GAAP is set forth in 10 primary principles.[CITATION Inv19 \l 1033 ]

1. Principle of consistency: This principle ensures that consistent standards

are followed in financial reporting.

2. Principle of permanent methods: Closely related to the previous principle is

that of consistent procedures and practices being applied in accounting and
financial reporting.

3. Principle of non-compensation: This principle states that no entity is to

expect any compensation for providing full and accurate financial reporting.

4. Principle of prudence: All reporting of financial data is to be factual,

reasonable, and not speculative.

5. Principle of regularity: This principle means that all accountants are to

consistently abide by the GAAP.

6. Principle of sincerity: Accountants should perform and report with basic

honesty and accuracy.

7. Principle of good faith: Similar to the previous principle, this principle

asserts that anyone involved in financial reporting is expected to be acting
honestly and in good faith.

8. Principle of materiality: All financial reporting should clearly disclose the

organization’s genuine financial position.
 9. Principle of continuity: This principle states that all asset valuations in
financial reporting are based on the assumption that the business or other
entity will continue to be in operation going forward.

10. Principle of periodicity: This principle refers to entities abiding by commonly

accepted financial reporting periods, such as quarterly or annually.

Statements of Standard Accounting Practice (SSAP)

SSAPs are part of the Generally Accepted Accounting Practice, or GAAP,

which is statutory in the United Kingdom through the Taxes Acts. They are
authoritative pronouncements that explain how to deal with specific accounting
problems such as the valuation of closing stocks or the treatment of research
expenditure.[ CITATION Dys17 \l 1033 ]

4.2 Evaluate international regulations and their value to Myanmar Firm

Understanding International Accounting Standards

International Accounting Standards (IAS) were the first international accounting

standards that were issued by the International Accounting Standards Board (IASB).
IASB was originally found in 1973 as International Accounting Standards Committee
(IASC). The goal was to make it easier to compare financial statements between
businesses around the world and foster global trade and investment. The IASB’s
standards are called International Financial Reporting Standards (IFRSs).

Currently around 120 countries globally have started following the IFRS. Still other
countries have plans to converge their national standards with IFRS. A business can
accord its financial statements in a standard as its foreign competitors and make it
easier to compare between businesses all around the world. Companies with
subsidiaries in countries that require or permit IFRS may be able to use one
accounting language company-wide. Companies also may need to convert to IFRS if
they are a subsidiary of a foreign company that must use IFRS, or if they have a
foreign investor that must use IFRS. Companies may also benefit by using IFRS if
they wish to raise capital abroad. [ CITATION IFR19 \l 1033 ]

Myanmar Accounting Standards

In Myanmar, companies must maintain and prepare its financial statements with
Myanmar Accounting Standards (MAS) which are set by Myanmar Accountancy
Council (MAC). Domestic public companies are required to use Myanmar Financial
Reporting Standards (MFRS), which are adopted from 2010 versions of IFRS
Standards. In July 2018, the MAC announced the adoption of the latest versions of
IFRS Standards for financial reporting periods beginning in or after the 2022–2023
financial year. Early adoption of IFRS Standards is permitted. [ CITATION IFR191 \l 1033 ]
From 1st April to 31st March is the tax assessment year and cannot be varied
including branches of foreign companies that may have different financial year-end.
Companies’ audited financial statements must be submitted to the tax authorities
annually by 30th June. Myanmar’s reporting currency stated by law is MMK/ Kyats.

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