Name: Kishin Sham Mahtani Student ID: 041110003 Title: Business Accounting 2 Tutor Marked Assignment 1

Question 1: The Cost of the Machine Traded in was 35,000 RM and had been depreciated at 20% per year for four years using the reducing balance basis. Thus we now calculate the accumulated Depreciation for four years. The Formula is as follows: Annual Depreciation = Depreciation Rate % X Book Value at Beginning of Year So using the above formula: Year1: 20% X 35,000RM = 7,000 RM

Year2: 20% X (35,000 – 7,000) = 5,600 RM Year3: 20% X (28,000 – 5,600) = 4,480 RM Year4: 20% X (22,400 – 4,480) = 3,584 RM It is summarized in the table below: Year 1 Year 2 Year 3 Year 4 Total Depreciation Depreciation 7,000 5,600 4,480 3,584 20,664 Net Book Value 28.000 22,400 17,920 14,336

The Total Accumulated Depreciation from Year 1 to Year 4 = 20,664RM. To Calculate the Profit/Loss of the Machine Trade in is as follows: Machine Traded in Cost – Accumulated Depreciation = Net Book Value Net Book Value – Proceeds of Sale = Profit/ (Loss) Therefore Machine Traded in Cost Less Accumulated Depreciation = 35,000 RM = 20,664 RM -------------------Net Book Value = 14,336 RM

000 RM ----------------------- Loss on Machine = 336 RM.900 RM .000 RM =50.Net Book Value Less Proceeds = 14.000 RM ----------------------Cost of Machinery Assets = 155.336 RM = 14. So our Cost of Machinery Assets: Original Cost of Machine’s Less Machine Traded in Cost = 140. Original Cost of Machine’s Machine Traded in Cost New Machine Purchased = 140.000 RM ---------------------=105.900 RM = 35.900 RM = 35.000RM To calculate the Cost of Machinery we use the following Formula: Cost of Machinery Assets: = Original Cost of Machine – Machine Traded in + New Machine Purchased. The Loss on the Machine Traded in was Three Hundred and Thirty Six Ringgit (336RM). (b).900RM Add Cost of New Machine Purchased = 50. To Calculate the depreciation charge for machinery the year to 31st October 2012 we first calculate the value of the Cost of Machinery Assets.

664 RM -------------------Depreciation Balance before Current year charge= 25.570 RM ------------------Opening Balance of Depreciation = 46.234 RM. Net Book Value: 140. Now that we have calculated this we go on to calculate the Net Book Value. The Opening Balance of Depreciation is calculated by the formula: Machine Cost – Net Book Value = Accumulated Depreciation. The Net Book Value is calculated by the formula: Machine Cost + (New Machine Cost – Old Machine Cost) – Accumulated Depreciation. Opening Balance Depreciation Less Depreciation for Machine Traded in = 46.The next step now involves us calculating the Accumulated Depreciation Balance before the Current year Charge. .047 RM.330 RM We now deduct from this Depreciation the value eliminated by the trade in of the old Machine to get the Accumulated Depreciation before the current year charge.666RM = 130.000RM) – 25. Having Calculated the Net Book Value we now can calculate the depreciation charge for machinery the year to 31st October 2012 which is done by the formula: Depreciation Charge = Net Book Value X Percentage Depreciation.900 RM = 94. = 130.666 RM. Machine Cost Less Net Book Value =140.000RM – 35.330 RM = 20.234RM X 20% =26.900 RM + (50.

9 00 14.000 RM which is the original cost of the Machine.00 0 190.9 00 190. The Ledger Account for Machinery at Cost is as follows: Machinery at Cost Balance Brought Forward Disposal Account (Proceeds) Creditors RM.00 0 36.9 00 Disposal Account (Cost) RM. Having done this we now calculate the Balance that will be carried forward as Machinery Cost and this is 155. 140.000 RM for the Machine Traded in and tow the amount of 36. The New Machine that we have bought costs 50.The Depreciation Charge for the Machinery to 31st October 2012 is Twenty Six Thousand and Forty Seven Ringgit (26.900 RM As we are reducing an asset by Trading in our old Machine we credit the account with the amount 35. However we break down the entry into two distinct parts one the Proceeds of 14. If this was not done out Trial Balance would not balance. 35.000 RM that we still owe the Creditors as this Machine has not been paid for. It should be noted that even though it is not shown here each of the entries has its corresponding double entry.900 RM. so as we are adding an asset we Debit the Machinery at Cost for this amount. .047 RM).9 00 Balance Carried Forward Explanation: We bring forward the Balance that was our Original Cost of Machine = 140. (c).00 0 155.000 RM.

047 RM that was calculated up to 31st October 2012 is credited to the Accumulated Depreciation Account.713 RM. It should be noted that even though it is not shown here each of the entries has its corresponding double entry.664 RM. 20. If this was not done out Trial Balance would not balance.66 4 51.04 7 72. 46.330RM using the formula: Machine Cost – Net Book Value = Accumulated Depreciation We are reducing a liability by Debiting the Depreciation value of the Machine traded in 20. .The Accumulated Depreciation Account is as follows: Accumulated Depreciation Account Disposal Account Balance Carried Forward RM. The Depreciation Charge 26.37 7 Explanation: We bring forward the Original Accumulated Depreciation which was calculated to be 46.33 0 26.37 7 72.71 3 Balance Brought Forward Depreciation Charge Account RM. We then calculate the Accumulated Depreciation Balance that will be carried forward and this is 51.

(d).666RM + 26. The Charge to be reported in profit and loss account for the year up to 31st October 2012 is Twenty Six Thousand Three hundred and Eighty Three Ringgit (26. The Balances to be reported in the Statement of Financial Position as at 31st October 2012 and a result of these transactions are as follows: Fixed Assets Cost Accumulated Depreciation (25.383).383 RM.047RM) = 155.713 RM ---------------------Net Book Value Current Liabilities Creditors = 36.047 RM = 336 RM -----------------Total Charge to be reported in =26.900 RM = 51.000RM = 104. (e). Total Charge to be reported in P & L = Depreciation Charge up to 31st October 2012 Loss on Trade in of Machine =26.187 RM . To calculate the total charge to be reported in the profit and loss account for the year to 31st October 2012 in respect of machinery we add the Depreciation Charge for the year and the Loss that occurred due to the Trade in of Machinery.

This is carried out as a result of wear and tear. it will be thus depreciated over twenty years and for every accounting year the company will expense Five Thousand ringgit (assuming straight-line depreciation) which will be matched with the money that the equipment helps to make each year. Few common methods of Depreciation are: 1. Depreciation is defined as a noncash expense that reduces the value of an asset. Buyers will have to pay more ringgit in order to obtain the original amount of pounds before depreciation occurred. 2. Straight Line Depreciation. . The Calculation of Depreciation is based upon two accounting principles and these are the Cost Principle and Matching Principle. For example if the Malaysian Ringgit depreciates against the Pound. Because it is a non cash expense. The Salvage value is an estimate of the value of the asset at the time it will be sold or disposed of. Depreciation is used by accountants in accounting to try and match the expense of an asset to the income that the asset helps earn the company. Units of Production Depreciation Units of Time Depreciation.Question 2 (a). 4. Another meaning for the term Depreciation is the decline in the value of a particular currency in comparison with other currencies. Straight Line Depreciation Method is one in which the company estimates the salvage value of an asset at the end of the period during which it will be used to generate revenues and will expense a portion of its original cost in equal increments over that period. age or obsolescence of an Asset. 3. A hypothetical example can be one of a company buying an asset for One Hundred Thousand ringgit (100. 6. depreciation lowers the company’s reported earnings while increasing free cash flow. 5. Sum of years digit Depreciation. Activity Depreciation.000) and expecting it to have a useful life of Twenty years (20). Most assets lose their value over time and usage and must be replaced once the end of their useful life is reached. (b). Declining-balance Depreciation.

Thus using this information we know that the Cost remains the same throughout the life time of the asset (The Cost Principle).000 – 1.075 RM and we deduct it from the cost and get the Net Book Value 15.075 Accumulated Depreciation (RM) 2. We repeat the same process for 31st December 2011 and deduct another 2.150 RM.400 ------------------------------- 8 Annual Depreciation = 2.000 Annual Depreciation (RM) 2.850RM.075 2.000 18.400 RM = 8 Years = 1st January 2010.850 .925 RM for 31st December 2010.000 RM = 1. The deduction is added to the Accumulated depreciation which now increases to 4. Using this information above we now fill in the table below: Office Equipment Date 31 Dec 2010 31 Dec 2011 Cost (RM) 18.150 Net Book Value (RM) 15.075 from the Net Book Value further reducing it to 13.The formula used to calculate Depreciation using the Straight Line Method is as follows: So applying the above formula for the Asset Office Equipment: Cost of Office Equipment Residual Value/Scrap Value Estimated Life Date of Purchase = 18.075 4. Therefore the Annual Depreciation will be calculated as follows: Annual Depreciation = 18. the Annual depreciation is 2.075 RM / Year.925 13.

000 = 4. The Value which we now depreciate at 20% is our original Cost less the 6 Months Depreciation from 1 st July 2010 to 31st December 2011.000 RM = 6 Months.000 RM. Using this information we now calculate the Depreciation per Year: 1st July 2010 to 31st December 2010 Therefore for 31st December 2010 Annual Depreciation: 20% X 20.The Reducing Balance method of depreciation is one which provides for a higher depreciation charge in the first year of an asset’s life and gradually decreasing charges in subsequent years. The reason this method is used is that it reflects the fact than many assets are more useful when they are new and this reducing balance method reflects this.000 RM – 2. For Annual Depreciation till 31st December 2011. . Value to be Depreciated = 20.000 RM = = 20% 5 Years = 1st July 2010.000RM = 18. The Formula used to calculate Depreciation using the Reducing Balance Method is as follows: Annual Depreciation = Depreciation Rate % X Book Value at Beginning of Year So applying the above formula for the Asset Motor Vehicle: Cost of Motor Vehicle Reducing Balance Depreciation% Estimated Life Date of Purchase = 20. So for half year till 31st December 2010 = 4.000/ 2 = 2000RM.

In this method a higher depreciation is charged when there is higher activity and less is charged when there is a lower level of operation.000 5.000 RM = 1.000 14.000 20.000 Annual Depreciation (RM) 2.000 3.000 RM = 400. .000 Units = 1st June 2010.Annual Depreciation from 1st January 2011 to 31st December 2011 is calculated below as: = 18. So from 1st June 2010 to 31st of December 2010 the Machine Produced 40. The formula used to calculate Depreciation using the Usage Method is as follows: Depreciation = Number of Units Produced Life in Number of Units × (Cost − Salvage Value) So applying the above formula for the Asset Machine: Cost of Machine Residual Value/Scrap Value Estimated Life Date of Purchase = 17. In the usage or Units of Production Method of Depreciation. This method is quite similar to the straight-line method except that the life of the asset is estimated in terms of the number of operations or number of machine hours.000 X 20% = 3. To Calculate the Depreciation that was accumulated for the years 2010 and 2011 we first need to calculate the Depreciation recorded for the Machine.400 (c). depreciation is charged according to the actual usage of the asset.600 Accumulated Depreciation (RM) 2.000 Units.600 Net Book Value (RM) 18.600 RM Using this information we have calculated we now fill the Table Below: Motor Vehicle Date 31 Dec 2010 31 Dec 2011 Cost (RM) 20.

675 RM 8.000 X (17.000 Units.475 RM 31st December 2011 2.800 RM To Calculate the Depreciation for both years.Annual Depreciation till 31st December 2010: 40. The Depreciation Accumulated Throughout the years 3. The reducing balance method is a more realistic method as when it comes to Motor Vehicles as the benefits derived from it declines over its useful years.150 RM.475 RM The Total Accumulated Depreciation for 2010 & 2011: 14.800 RM 8.000 X (17. . This Disposal account enables us to calculate the Profit of Loss registered on the sale of a particular Fixed Asset. Motor Vehicle Sold for 10.000 – 1.675 RM 5.600 RM 5.000/ 400.000) = 1600 RM From 1st of January 2011 to 31st of December 2011 the Machine Produced 70. we use the information calculated above: Office Equipment Motor Vehicle Machine Grand Total: The Annual Depreciation for 2010: The Annual Depreciation for 2011: 31st December 2010 2. Studies have shown that new vehicles loose 65% of their value in a period of 5 years. When we sell or dispose of a fixed asset such as a motor vehicle it is necessary to bring together: 1.000 – 1.075 RM 2. The Original Cost of the Asset 2.075 RM 3.000 RM 1.600 RM 2. No depreciation is charged for 2012 as it is the year of sale.000 RM on the 11th of February 2012 and the Cheque received. The Sales Proceeds. thus using this method shows a realistic picture of the Assets value. The figures related to the sale of the Motor Vehicle are transferred from their appropriate accounts to a Disposal Account. (d). Annual Depreciation till 31st December 2011: 70.000/ 400.000) = 2. (e).

(f).400 RM.000RM and Credit the Motor Vehicle Account 20. Contra Accounts are matched with the key account that they relate to as an offset. .400 RM. These amounts are substantial enough for stakeholders to be specifically informed about them.000 Date Credit 11/2/2012 Accumulated Depreciation 11/2/2012 Bank 11/2/2012 To Profit and Loss Account 5. Debit the Accumulated Depreciation Account for Motor Vehicle with the depreciation accumulated to date 5. If a profit is made we Debit the Motor Vehicle Disposal Account and Credit the Profit and Loss Account. thus we credited the Disposal Account with the loss amount of 4.000 4. The following steps are carried out.400 During the disposal of the Motor Vehicle there was a loss of 4.600 10.The Accounting entries for the Sale of the Motor Vehicle in a step by step process will be as follows: • • • Debit the Disposal Account with the cost of the Motor Vehicle which is 20. one for each scenario: • • If a loss is made we Debit the Profit and Loss Account and Credit the Motor Vehicle Disposal Account. If these transactions were not highlighted important information relating to the business may be hidden from view within large sets of numbers.000RM and Credit the Disposal Account 10. these accounts are subtracted from a related asset account as asset accounts have debit balances while contra accounts have credit balances. Debit the Bank Account with the sales of the proceeds 10.000RM. A debit balance in a contra asset account will violate the cost principle. The reason that accountants set up Contra Assets Accounts is to specifically highlight negative amounts within the accounts of a business. The next step depends if there is a profit or loss from the disposal of the Motor Vehicle. We now apply the following steps discussed above: Disposal Account of Motor Vehicle Date Debit 11/2/2012 Motor Vehicle 20.000RM. A Contra Asset Account is defined as a balance sheet account in the financial statement that offsets a related asset account.600 RM and Credit the Disposal Account 5600RM.

(g).525 258. By recording these credits in the Contra Asset Account Accumulated Depreciation means that the cost of these assets will continue to be reported.835 284. From the Figures Given we Prepare the Trial Balance for Bert as of 31st October 2005.931).The most common contra asset account is Accumulated Depression and it is credited when Depreciation Expenses are recorded.746 Credit (RM) 13.960 1. .864 12.649 31.783 9.542 142. By having these Contra Asset Accounts such as Accumulated Depreciation allows the readers of the balance sheet to see how much of the cost of the assets has been depreciated and how much is yet to be depreciated. Name of Account Fixed Assets Cash at Bank Opening Stock Debtors Creditors Capital Sales Purchases Expenses Total Debit (RM) 63.958 34.931 The Total of Debit Balances in Bert’s Trial Balance as of 31st October 2005 is Two Hundred and Eighty Four Thousand Nine Hundred and Thirty One Ringgit (284.931 284.

The Salvage value is an estimate of the value of the asset at the time it will be sold or disposed of.Question 3 (a). Straight Line Depreciation Method is one in which the company estimates the salvage value of an asset at the end of the period during which it will be used to generate revenues and will expense a portion of its original cost in equal increments over that period. The formula used to calculate Depreciation using the Straight Line Method is as follows: Using the above formula we key in the following: Cost of Ink Jet Printer Residual Value = 1800RM = 0 RM 4 Years Useful Life of Ink Jet Printer = Therefore the Annual Depreciation Expense = 1800 – 0 ------------------------ 4 Annual Depreciation Expense = 450 RM Using this we now calculate the Annual Depreciation Charges for Year 1 to Year 4 and tabulate it as follows: Annual Depreciation (RM) 450 450 450 Accumulated Depreciation (RM) 450 900 1350 Net Book Value (RM) 1350 900 450 Year 1 Year 2 Year 3 . (1).

The Formula used to calculate Depreciation using the Reducing or Diminishing Balance Method is as follows: Annual Depreciation = Depreciation Rate % X Book Value at Beginning of Year So applying the above formula for the Asset Ink Jet Printer for Year 1 to Year 4: Year 1: Annual Depreciation = 60% X 1800 = 1080RM Net Book Value for Year 2 = Cost – Year 1 Annual Depreciation = 1800 – 1080 = 720RM Year 2 Annual Depreciation = Depreciation Rate % X Net Book Value of Year2 Year 2: Annual Depreciation = 60% X 720 = 432 RM Net Book Value for Year 3 = Net Book Value Year 2 – Year 2 Annual Depreciation = 720 – 432 = 288 RM Year 3 Annual Depreciation = Depreciation Rate % X Net Book Value of Year3 Year 3: Annual Depreciation = 60% X 288 = 173 RM Net Book Value for Year 4 = Net Book Value Year 3 – Year 3 Annual Depreciation = 288 – 173 . The reason this method is used is that it reflects the fact than many assets are more useful when they are new and this reducing balance method reflects this.Year 4 450 1800 0 (2). The Reducing or Diminishing Balance method of depreciation is one which provides for a higher depreciation charge in the first year of an asset’s life and gradually decreasing charges in subsequent years.

depreciation is charged according to the actual usage of the asset.0) . In this method a higher depreciation is charged when there is higher activity and less is charged when there is a lower level of operation. The formula used to calculate Depreciation using the Usage Method is as follows: Depreciation = Cost of Printer Number of Units Produced Life in Number of Units = 1800 RM = 35. in the usage or Units of Production Method of Depreciation.000 = 45.= 115 RM Year 4 Annual Depreciation = Depreciation Rate % X Net Book Value of Year4 Year 4: Annual Depreciation = 60% X 115 = 69 RM However even though by percentage calculation we would depreciate 69RM but as at the end of four years there is no residual value we Depreciate the full net book value of 115 RM.000 = 180. This method is quite similar to the straight-line method except that the life of the asset is estimated in terms of the number of prints by the Ink Jet Printer.000 X (1800 . We now Tabulate the Results for Clarity as follows: Annual Depreciation (RM) 1080 432 173 115 Accumulated Depreciation (RM) 1080 1512 1685 1800 Net Book Value (RM) 720 288 115 0 Year 1 Year 2 Year 3 Year 4 (3).000 = 45.000/ 180.000 = 55.000 × (Cost − Salvage Value) Year 1 Copies Printed Year 2 Copies Printed Year 3 Copies Printed Year 4 Copies Printed Total Copies Printed So applying the above formula for the Asset Machine Ink Jet Printer: Year 1 Depreciation = 35.

000 X (1800 .0) = 550RM We now tabulate the results for clarity as follows: Annual Depreciation (RM) 350 450 450 550 Accumulated Depreciation (RM) 350 800 1250 1800 Net Book Value (RM) 1450 1000 550 0 Year 1 Year 2 Year 3 Year 4 (b).000/ 180.000/ 180.0) = 450RM Year 4 Depreciation = 55.0) = 450RM Year 3 Depreciation = 45.= 350 RM Year 2 Depreciation = 45.75 RM Rounding up Year 4 February = 6 RM = (60% X 109)/12 . We now calculate the rate of Depreciation on a Month by Month Basis using the following formula: Monthly Annual Depreciation = (Depreciation Rate % X Monthly Net Book Value) /12 Year 4 January = (60% X 115) /12 = 5.000/ 180. We use the following the Data from the following Table Calculated Above for Depreciation on a Diminishing Balance Basis of 60% : Annual Depreciation (RM) 1080 432 173 Accumulated Depreciation (RM) 1080 1512 1685 Net Book Value (RM) 720 288 115 Year 1 Year 2 Year 3 At the end of Year 3 the Net Book Value was 115 RM.000 X (1800 .000 X (1800 .

00 Accumulated Depreciation (RM) 1685.00 1711.00 4.70 RM Rounding up Year 4 June =5RM = (60% X 89)/12 =4.00 85.00 5.00 99.00 1715.00 5.= 5.00 1691.45 RM Rounding up = 5 RM Year 4 March = (60% X104)/12 =5.00 5.00 Net Book Value (RM) 115.45 RM Rounding up =4RM We now tabulate these rounded up results as follows: Monthly Depreciation (RM) Year 3 Year 4 January Year 4 February Year 4 March Year 4 April Year 4 May Year 4 June Year 4 Jan-June 6.00 30.00 94.00 104.20RM Rounding up =5 RM Year 4 April = (60% X 99)/12 =4.00 5.00 109.00 .00 1706.00 1701.95 RM Rounding up Year 4 May =5RM = (60% X 94)/12 =4.00 89.00 1696.

Date 1.915. Date 1-Jan Y4 1-Jul Y4 Balance Brought Forward Depreciation (Jan-June) RM. 00 1.715.800. 00 200.00 1.0 1-Jul 0 Y4 1-Jul Y4 115. 00 1-Jul Y4 Disposal Account 1715.915.715.800. 00 The Asset Disposal Account is as follows: Date 1-Jul Y4 Ink jet Printer RM.800.800.0 0 Date 1-Jul Y4 Disposal Account RM. 1. 1. 1. 00 30. 1.800. 00 1.715.685. 00 The Provision for Depreciation Account is as follows: Date RM. 00 The Profit/Loss on the Disposal of the Printer is calculated as follows: .00 Income Statement Bal: 1.0 0 1.The Printer Account for Year 4 is as follows: Date 1-Jan Y4 Balance Brought Forward RM. 00 1. 00 Provision for Depreciation Cash Received for Printer RM.

relevant and comparable. brokers. Income Statements. External users have limited access to an organizations information yet their decisions depend on information that is reliable.Cash flow statements show the exchange of money between a company and the outside world also over a period of time 4. lawyers.A Balance sheets normally shows what a company owns and what it owes at a fixed point in time. These users are External users and Internal Users. managers of the business. Human resource managers. suppliers. Balance sheets. purchasing managers. controllers and employees. They use the information to both improve the efficiency and effectiveness of an organization. Marketing Managers and Service Managers. regulators. . They include shareholders. bankers. 2.show changes in the interests of the company’s shareholders over time. consumer groups. competitors and the press. Both Internal and external users analyze financial statements so that they may take better decisions on how to invest their money in the case of external users and how to run the company to be more profitable in the case of internal users. internal auditors. Some examples of managers of the business are Research and Development managers. Internal users of accounting on the other hand are those that are directly involved in managing and operating an organization. (c). lenders. There are two users of accounting information and they both analyze financial statements with different purposes. External users of accounting information are not directly involved in the running of the organization. Statements of shareholders equity. 3.Income statements show how much money a company made and spent over a period of time. investors. There are four main financial statements and these are: 1. directors. customers. They include owners of the business. Cash flow statements. Distribution Managers.Sales proceeds less net book value at date of sale 200 – 85 = 115RM. external auditors. Production Managers.

For example Shareholders also like to look at the 5 Year Group Financial statistics as this shows the history of dividend payments and can be compared to the price of the share at that time.1. The reason being they need to ensure that there is sufficient Income to repay debt and ensure that their is sufficient cash at hand to pay dividends and further invest in profitable ventures that present themselves from time to time. As Customers. Those who buy shares need to determine if they should buy. Investors. For Suppliers they would need to look at the Cash Flow position of the company so as to ensure that there is enough cash to cover their bills when they come due. They look at the ability to generate net cash flows as this directly would affect the ability to pay Dividends to shareholders. Suppliers are dependent on the continuation of the business as they are a major customer. They would also look at the 5 year group financial statements and if they see that profit for the year has been rising for the last 5 years would know that the company will still be in business. Customers: A company or organization is a source of goods and services and thus customers are interested in assessing the ability of this company or organization to continue to provide these goods and services. lender of Shareholder the main area they would focus on when reading a financial report is the Income Statements. 3.. but if profit has been decreasing they would start looking for alternatives so that if for any reason the company cannot stay in business any longer they would still be able to get their goods and services from another provider. 2. Suppliers: These provide goods and services to a company and organization and are interested in assessing that the amounts owed to them will be paid when they are due. Some shareholders are also quite interested in information that enables them to assess a company or organizations ability to regularly pay dividend. lenders or Shareholders: These are the providers of risk capital and they are concerned with the risk inherent in investing in a company or organization and want to know what return they can receive on their investments. Investors and lenders need to ensure that sufficient cash flow is generated to pay back their investments and the interests associated with these investments. more so if they have a long term involvement or are dependent on them. Changes in Equity and Statements of the Cash Flows. As an Investor. hold or sell and this can be determined by information from the annual financial reports. A new supplier would also look at their consolidated statement of financial position particularly on the . A simple calculation carried out can show the percentage return on investments. the main area to look at is the Consolidated Income statements for so long as the company is profitable and is making profit it would continue to be in Business thus providing them with the Goods and Services it currently does.

For the Government all aspects of financial statements are important and a complete picture of the company is required to compute tax obligations and to ensure compliance with all laws and regulations of Malaysia. 6. They would pay close attention to their Trade Payables and all major short and long term liabilities and cross check with their assets and equity levels. If for any reason their Assets are less than the combined value of their liabilities they would have reservations on doing business with them as they would not seem to be in a healthy position. If a short term supplier who is to be paid in a week to ten days their main focus would be on assessing their Cash Flow positions but this document might not easily be available to them at that time in moment. Profitability could be high but cash flow could be less if the company has invested or plans to invest in new equipments and projects. Competitors: A company or organization has competitors in its line of business and these also look at the financial reports to compare their company's position. The key areas that would be looked at closely are once again the profitability levels and the overall Cash Flow. Government Regulators and their agencies: The Government of Malaysia and their tax collecting and other revenue agencies are interested in the allocation of resources and the activities a company or organization.section covering their current liabilities. 5. 4. The Financial statements are important for these groups to provide the trends and recent developments in the financial position of the company or organization and whether they can continue to carry out these functions. and this could affect their ability to continue doing what they have been doing in the past. This information is required to regulate the activities and determine taxation policies and as the basis for national income and similar statistics. The Public: A Company or Organization normally makes contributions to the local economy that they operate in as well as the overall economy of Malaysia by providing employment opportunities. The Annual report shows figures for the previous business year and if the position was healthy they would have to take a calculated risk in assuming that a few months down the road that as they are about to do business with them they still have a good cash flow position. paying taxes to state and federal as the requirements are and by making charitable contributions as part of their Corporate Social Responsibility. Just as the Government and regulators every part of the financial satements is important to them as information in today's age is vital to stay ahead and maintain or close the gap on competitive advantage as the case might be . buying from local suppliers where possible.

corporate social responsibility and any expansion plans in their business section as they asses the importance to be. 8. return on investments and the only difference is that Internal users have access to monthly. What the press report on depends on what they feel is important to their readers or viewers.7. cash flow. weekly or in some cases daily information on the financial statements of the organization. . Internal Users of the business use the financial statements more than the external users of the business the reason being that they are running the business and have to take decisions on a daily basis that affect the company or organization. so they are not as comprehensive in covering the financial statements. For people who are internal users they need information that is current and up to date as their decisions directly impact the running on the company or organization. The Press: The Press normally goes through the financial report and prints information on dividend. Most of these decisions are similar to the ones that external users look at such as profitability. equity. Managers and Owners: They normally analyze financial statements so as to help improve their decision making and invest money and resources where they would get a better return on investment.

John J.investorwords.investorwords.html. 2009. Singapore: McGraw-Hill/Irwin. Wild. . Shaw. http://www. 2012). Principles of Accounting.References: http://www.investorwords. Ken W.com/1416/depreciation.com/11550/contra_asset_account.html (accessed January 31.html (accessed January 31. 2012.com/1416/depreciation. 2012). Barbara Chiappetta.investorwords.html. 2012. http://www. January 31. http://www.com/11550/contra_asset_account. January 31.

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