CODE: A C C 5 0 1

FINAL ASSIGNMENT (INSTEAD OF FINAL EXAMINATION)

Faculty : Business and Accountancy

Course : MASTER OF BUSINESS ADMINISTRATION

Module Title : Business Accounting & Finance

Year/ Semester :

Intake : ODL-1+2+3+4

Date : 5th July, 2022

1. Submit your assignment on time.

2. Use Times New Roman font, size 12, and double line spacing.
3. This assignment must be your own work. You are required to acknowledge any use of
the published and unpublished works of others. Use proper referencing system (APA 6 th
Edition) by providing in-text citations and reference list.
4. Do take note that plagiarism is a serious academic offence.

STUDENT ID

Z A Y Y A R P H Y O

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Answer all Questions.

1. Discuss how the finance and accounting function supports a business’s decision

making. (25 Marks)

Answer:

The definition of Finance

Finance, the process of raising funds or capital for any kind of expenditure. Consumers,

business firms, and governments often do not have the funds available to make expenditures,

pay their debts, or complete other transactions and must borrow or sell equity to obtain

the money they need to conduct their operations. Savers and investors, on the other hand,

accumulate funds which could earn interest or dividends if put to productive use.

These savings may accumulate in the form of savings deposits, savings and loan shares, or

pension and insurance claims; when loaned out at interest or invested in equity shares, they

provide a source of investment funds. Finance is the process of channeling these funds in the

form of credit, loans, or invested capital to those economic entities that most need them or

can put them to the most productive use. The institutions that channel funds from savers to

users are called financial intermediaries. They include commercial banks, savings banks,

savings and loan associations, and such nonbank institutions as credit unions, insurance

companies, pension funds, investment companies, and finance companies. (Augustyn, n.d.)

Purpose and Functions

There are two main purposes of the finance function: to provide the financial information that

other business functions require to operate effectively and efficiently to support business

planning and decision-making.

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 costs – knowing how much the business pays its suppliers, and whether these costs are

being controlled, helps a business to make a profit

 revenue – knowing how much money the business is generating, and whether this is

increasing or decreasing, is important in decision-making

 cash flow – monitoring and forecasting the amount of cash in the business is vital to ensure

it does not run out of money

 break-even point – knowing the point at which a business starts to make a profit can

influence a number of business decisions

 profit and loss – knowing whether the business is making a profit or loss is vital when

making business decisions

 Business performance – measuring the performance of a business can inform future

decisions about where improvements are required. (BBC, Copyright © 2022 BBC)

The definition of Accounting

Accounting is the process of recording financial transactions about a business. The

accounting process includes summarizing, analyzing, and reporting these transactions to

oversight agencies, regulators, and tax collection entities. (Investopedia, n.d.)

Purpose and Functions

Accounting aims to accumulate and report on financial information about a business's

performance, financial position, and cash flows. This information is then used to reach

decisions about managing the business, investing in it, or lending money to it.

(AccountingTools, n.d.)

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Accounting and finance play an essential role in the management of any business. Companies

operate on money, and if you do not control that money, you do not control your business. By

correctly accounting for your company's income and expenses, you can manage the flow of

money and direct the course of your business. (Group, n.d.)

2. Explain the benefits of budget and how a cash is budget used in financial planning.

(20 Marks).

A budget serves as an estimation of expenses and income over a certain period of

time, usually monthly, quarterly or yearly. A budget allows a business owner to plan

out expenses, reach business goals and anticipate any operational changes as needed

to support the business. A budget helps a business understand their operating costs

and can be used to track performance. (Editorial, 2021)

The benefits of Budgeting

An effective budget should give the business owner the tools to track how the

company is doing financially so they can plan for both short- and long-term expenses

for everything from new hires to the cost of expanding operations. A budget can also

give a company owner the ability to share their process and budget with a governing

body, like a board of directors, and provide important status updates to current and

potential investors. (Editorial, 2021)

• It requires all levels of management to plan ahead and to formalize goals on a

recurring basis.

• It provides definite objectives for evaluating performance at each level of

responsibility.

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• It creates an early warning system for potential problems so that management can

make changes before things get out of hand.

• It facilitates the coordination of activities within the business.

• It results in greater management awareness of the entity’s overall operations and

the impact on operations of external factors, such as economic trends.

• It motivates personnel throughout the organization to meet planned objectives.

(Viquepedia, n.d.)

• The sales budget is derived from the sales forecast.

• It represents management’s best estimate of sales revenue for the budget period.

(brainscape, n.d.)

• The production budget shows the number of units of a product to produce to meet

anticipated sales demand. (coursehero, n.d.)

• The direct materials budget shows both the quantity and cost of direct materials to

be purchased.

• The direct labor budget contains the quantity (hours) and cost of direct labor

necessary to meet production requirements (TeachUcomp, n.d.)

• The manufacturing overhead budget shows the expected manufacturing overhead

costs for the budget period

• The selling and administrative expense budget projects anticipated selling and

administrative expenses for the budget period.

Budgeting and Human Behavior

• In developing the budget, each level of management should be invited to

participate. (Unknown, n.d.)

• This “bottom-to-top” approach is referred to as participative budgeting.

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• One advantage of participative budgeting is that lower-level managers have more

detailed knowledge of their specific (Iugaza.edu, n.d.) area and thus are able to

provide more accurate budgetary estimates.

• Also, when lower-level managers participate in the budgeting process, they are

more likely to perceive the resulting budget as fair.

• The overall goal is to reach agreement on a budget that the managers consider fair

and achievable, but which also meets the corporate goals set by top management.

• When this goal is met, the budget will provide positive motivation for the

managers.

Cash Budget

A cash budget is an estimation of the cash flows of a business over a specific period

of time. This could be for a weekly, monthly, quarterly, or annual budget. This budget

is used to assess whether the entity has sufficient cash to continue operating over the

given time frame. (Investopedia, n.d.)

o The cash budget shows anticipated cash flows.

o Because cash is so vital, this budget is often considered to be the most

important financial budget.

o The cash budget contains three sections (cash receipts, cash disbursements,

and financing) and the beginning and ending cash balances.

o The cash receipts section includes expected receipts from the company’s

principal source(s) of revenue.

o These are usually cash sales and collections from customers on credit sales.

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o This section also shows anticipated receipts of interest and dividends, and

proceeds from planned sales of investments, plant assets, and the company’s

capital stock.

o The cash disbursements section shows expected cash payments.

o Such payments include direct materials, direct labor, manufacturing overhead,

and selling and administrative expenses.

o This section also includes projected payments for income taxes, dividends,

investments, and plant assets.

o The financing section shows expected borrowings and the repayment of the

borrowed funds plus interest.

o Companies need this section when there is a cash deficiency or when the cash

balance is below management’s minimum required balance.

3. The Malia Corporation is a regional Toyota dealer. The firm sells new and used trucks
and is actively involved in the parts business. Given the following information,
prepare a statement of cash flows for the year ended 31st December 2019. ( 25 Marks)

Depreciation expenses $140

Dividends 10

Increase in account receivable 150

Increase in inventories 300

Change in common stock 0

Net income 700

Increase in Gross Fixed Assets 550

Beginning cash 180

Increase in account payables 250

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Increase in long term notes Payables 55

Increase in accrued expenses 75

Answer:

Operating Activities $ $

Net Income 700.00

Depreciation expenses 140.00

Increase in account receivable (150.00)

Increase in inventories (300.00)

Increase in account payable 250.00

Increase in accrued expenses 75.00 15.00

Total cash flow from operating

Activities 685.00

Investing Activities

Increase in gross fixed asset (550.00)

Total cash flow from Investing

Activities (550.00)

Financing Activities

Dividend (10.00)

Change in common stock 0.00

Increase in long-term note payable 55.00

Total Cash flow from Financing

Activities 45.00

Change in cash 180.00

Beginning Cash 180.00

Ending Cash 360.00

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4. The following financial statements for two very similar privately owned department
stores which each comprise of one store in the city centre of a major UK city and then
answer the questions which follow.

Balance sheet

X(£000s) Y(£000s)

Non-Current Assets

Building 30 100

Equipment 17 200

Machine 13 50

Total Non- Current Assets 60 350

Current asset

Bank 100 250

Inventory 250 50

Account Receivable 50 100

Total Assets 460 750

Finance by:

Capital 200 400

Add; Net profit 70 160

270 560

Less: Drawing (40) (20)

230 540

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Current liabilities: Creditors 80 70

Long-Term Liabilities: Loan 150 140

Capital &Liabilities 460 750

Income Statement

X(£000s) Y(£000s)

Sales 2,500 4,700

Less: Cost of goods sold

Opening stock 650 500

Add purchases 1800 2750

2450 3250

Less: Closing stock (250) ( 50)

(2200) (3200)

Gross Profit 300 1500

Less: Depreciation 50 580

Other expenses 180 760

(230) (1340)

Net Profit 70 160

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Required: (1) Calculate the following ratios:

a. Gross profit as percentage of sales
b. Net profit as percentage of sales;
c. Expenses as percentage of sales;
d. Stock turnover;
e. Current ratio;
f. Acid test ratio;
g. Account receivable turnover;
h. Debt ratio;
i. Total asset turnover;
j. Fixed asset turnover;

(2) Evaluate upon all your knowledge of accounting comment upon the differences and
similarities of the accounting ratios for X and Y. Which business seems to be the most
efficient? Justify your opinion. (30 Marks)

Answer: 1

X(£000s) Y(£000s)
Gross profit as
percentage of
X = 12.00% X = 31.91%
a. sales = 300 100 1500 100
2500 1 4700 1

Net profit as
percentage of
X = 2.80% X = 3.40%
b. sales = 70 100 160 100
2500 1 4700 1

Expenses as
percentage of
X = 9.20% X = 28.51%
c. sales = 230 100 1340 100
2500 1 4700 1

d. Stock turnover = 2200 4.89 3200 11.64

= =
(650+250)/2 times (50+500)/2 times

e. Current Ratio = 400 400 5.71

= 5.00 =
80 70

f. Acid Test Ratio = 150 = 1.88 350 = 5.00

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80 70

Account
receivable
= 50 times = 47 times
g. turnover = 2500 4700
50 100

h. Debt ratio = 230 210

= 50.00% = 28.00%
460 750

Total asset
i. turnover = 2500 = 5.43 4700 = 6.27
460 750

Fixed asset
j. turnover = 2500 = 41.67 4700 = 13.43
60 350

Answer: 2.

Department stores Y has made more net profit (£4,700,000 compared with £ 2,500,000) and

return on capital employed of department stores X has only managed to achieve a return of

18.42 per cent whereas department stores Y has managed a return of 23.52 per cent.

Department stores Y is clearly more efficient in the use of its resource. Reason of follows-

possibly-as not until you know more about the business could give a definite answer.

i. As per gross profit margin, 31.91 per cent of department stores Y managed to sell

more merchandise compared with department stores X 12 per cent margin.

ii. As per net profit margin, 3.4 per cent of department stores Y managed more net profit

compared with department stores X 2.8 per cent margin.

iii. But as per expenses margin, 28.51per cent of department stores Y spend more

expenses compare with department stores X 9.2 per cent margin. It means that

department store Y is cannot well control at cost than X.

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iv. Department stores Y did not have as much stock lying idle. Department stores Y

turned over stock 11.64 times in the year as compared with 4.89. This could indicate

inefficient purchasing by department stores X and / or a likelihood of stock outs and,

so loss of sales.

v. As per current ration, 5.71 of department stores Y’s ability to meet its short-term debt

and obligation than 5 of department stores X’s ability. On the other hand, a current

ratio greater than one can also be a sign that department store has too much cash on

hand.

vi. As per acid test ratio, 5 of department stores Y is considered healthier than 1.88 of

department stores X.

vii. While department stores X waited (on average) 50 times to be paid by customers.

Department stores Y managed to collect 47 times per year on average. Money

represented by debts is money lying idle. The ratio shows how many times during the

period. So, department stores X receivable turnover ratio show good financial

performance and efficiency of account receivables management than department

stores Y.

viii. As per debt ratio, 28 per cent department stores Y is less borrowing amount than

department stores X. For the viewing of investors, Department stores Y should be

invested than department stores X.

ix. As per total asset turnover ratio, 6.27 department stores Y is more efficient than 5.43

department stores X.

x. As per fixed asset turnover ratio, department stores Y is not efficient than 41.67

department stores X. It indicate that department stores Y is not efficient using its fix

assets to generate sales.

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For conclusion

As per above justification, department stores Y business is more efficient than department

stores X business.

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