Client Project Assessment Task 2

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Assessment Task 2: Client project

● Business Report Template

● Company Data

● Email to assessor regarding discrepancies in the figures

● Email to assessor with Balance Sheet, Income Statement, and Performance Report attached.

Dear Accountant

My husband and I have decided to set up a business that manufactures and sells children’s toys wholesale to retailers. Our focus will be on Australian made, high quality educational toys. The name of the company will be Oz Quality Toys.

Complete the following activities:

1. Prepare for meeting

● Proposed business structure and sources of funding based on information provided

● Actions to be taken to achieve the proposed business structure and sources of funding.

• cost of capital
• sources of finance
• cost recoveries
• debt and equity
• dividends
• funding alternatives
• long-term investments
• purchases
• adjustment of borrowings
• asset liquidation

The next part of this assessment requires you to participate in the meeting with your client to discuss and confirm their business objectives, as well as to confirm their legal and financial requirements in relation to setting up, structuring and financing their proposed business.

In the meeting, you will be required to discuss the following according to the notes you prepared:

● asking and responding to questions

● active listening techniques.

• cost of capital
• sources of finance
• cost recoveries
• debt and equity
• dividends
• funding alternatives
• long-term investments
• purchases
• adjustment of borrowings
• asset liquidation

Categorise the performance result, based on the following:

• On track
• Negligible
• Significant

Once you understand the reasons why performance varied from expectation, and this can be positively and negatively, it is now time to formulate a plan to get the business benefiting from these learnings. This is the most important part of completing the Quarterly review.

• Maintain productivity
• Capture all charges
• Verify clean information is being sent the first time
• Effective office collections
• Effective collection policies and procedures

3. Write a business report for the client.

Write up the proposed business structure and recommended financing in the form of a short report to send to the client (your assessor).

Inclusion of prudence in framework is same when we say, “Common sense is not so common”, Now this prudence rules provides some basics for budgeting and forecasting for making judgements of particular trends within a company however the estimation results differ from person to person same way common sense differs from person to person. An example can be discussed here, that some people think that too much provisions makes banks safer, while some argue that they could hide the problems and damage the economy.

Prudence in framework have a lot of disadvantages. During the uncertain situations, Accountant will have a choice of making an estimation. If there is any personal interest involved (Earning bonuses and incentives), they may try to change the real scenario. For Instance, they may shift the expenses of this year to next year to show profit this year instead of loss and earn incentives out of it even when the business has made a loss. The company may end up in corporate failure if it keeps on making loss for the consecutive years. Directors may have their personal interest in announcing the dividend and they may announce the dividends even during the period of loss. If company is already in loss, it will increase the loss of the company which may end up again in business failure. It will be a very hard time for corporate advisors and auditors as they will have to be very careful with the financial reports. The whole reporting process will become very complicated and difficult in case of any material misstatement. Auditors will have to be very competitive and professional to be qualified for the auditing process. Even after being very careful, there is still a detection risk involved for auditors. In case if they skip any misstatement, they will certainly be the person liable for the consequences if the audit fails. Investors only rely on external auditor’s report as they don’t have any personal interest in firm’s profit. Decisions of investors are based on the auditor’s report and If any decision goes wrong, it hurts the reputation of the company. Clients may lose their trust in the company and company may lose the business. The advisory group will have to be very certain and careful with the information they provide to the clients as there are chances of bias and material misstatements in financial statements.

General purpose financial statements consist of the useful financial information for the users. Their investment decision depends on the general-purpose financial statements. First step of our firm is to point out the matter of inclusion of prudence into the conceptual framework, which is something critical (Tracey, 2015). The concept of prudence is meant to apply with proper caution where there is any uncertain condition. Concept of prudence is not practiced as exactly as it is said in the definition which gives rise to the degree of conservativism to some extent. It is assumed that Neutrality and prudence are same points of a straight line but in fact, they both oppose one another. As per Big Phore, current concept of Neutrality is been working well and they don’t feel the need of inclusion of prudence in the conceptual framework.

On the other hand, another argument can be raised against this notion. We assume that it will fade out the concept of neutrality and same issues will come up due to which the accounting bodies forced it out of the conceptual framework. Due to this concept, accounts will be full conservatism that it may lead the stakeholders to make a wrong choice while investing in the business. Which might further lead to crash in the whole industry. A firm can create a hidden reserve which does not have any obligation to be listed in the financial statements which could make investors think again prior to investment. These hidden reserves will be able to help managers to transfer this year’s expenses to next year and makes it much easier in case if

Assume that you have now received the following email from Mike and Mary:

Dear Accountant

Just as a reminder, as discussed at our last meeting our plan is to achieve a 12% return on our investment.

Please advise as to whether we should proceed with this action.

Expectations and objectives of the client are clarified and confirmed to ensure mutual understanding of client goals.

The client's specific legal and financial requirements are identified when establishing, structuring and financing a business Financial options and processes are discussed with the client to develop suitable plans for the provision of information and the achievement of client goals Progress of plans is reviewed regularly against agreed criteria and results clearly communicated to the client Client objectives are monitored to identify changes in client needs Feedback on service is regularly obtained, analysed and incorporated into services to client Shortfalls in customer service are investigated and proposals for overcoming them are formulated and implemented Advice on reliability and accuracy of data is sought from appropriate authorities and sources in accordance with organisational procedures Data are compiled and reconciled to ensure statements are accurate and comply with organisational procedures, statutory requirements and standard financial reporting principles Revenues and costs are analysed in accordance to standard accounting techniques and consistent with

6. Send an email to Mary (your assessor)

The text of the email should be in grammatically correct English, written in an appropriate (polite, business-like) style.

● advice on current business performance

● forecasted performance

However, based on a review of our competitor’s policies, we are thinking about offering a cash discount of 3% to our customers who pay within 30 days. The aim of this is to increase sales, which we estimate by offering the discount would rise to $45,000, with the cost of sales being $22,500, and 50% of our customers paying within the discount period. I give for 2 option for investment with us.

Proposal One (Credit terms of 1 month)

• By offering 1-month credit to all customers, it is thought that total sales will increase by 10%.
• Variable expenses percentage to remain at 30%.
• 40% of customers would pay on time.
• 56% would pay in 2 months.
• The remainder would become bad debts.

• Those who pay on time would increase to 60%.
• No amounts received at 2 months.
• 36% would pay at 3 months.
• Bad debts would remain the same at 4%.

Please advise as to whether we should proceed with this action.

Kind Regards

The Balance Sheet and Income Statement for Mary and Mike. are given below.
Balance Sheet as at 06 May, 2019

Current Assets $ 40,000
Cash $ 50
Accounts Receivable $ 80
Inventory $ 120 $ 250
Non-Current Assets
Plant and equipment $ 950
Land and Building $ 1100
Goodwill $ 140 $ 2190
Total Assets $ 2440

Current Liabilities
Accounts Payable $ 280
Provn for Long Service Leave $ 85 $ 365
Non-Current Liabilities
Debentures $ 550
Mortgage loan $ 220 $ 770
Total Liabilities $ 1135
Net Assets $ 1305

Equity
Share Capital: $ 0

The contents of the email should ask for clarification of the figure(s) that you consider to be discrepancies.

Dear Mary and Mike

• Variable expenses percentage to remain at 30%.
• 40% of customers would pay on time.
• 56% would pay in 2 months.
• The remainder would become bad debts.

Total sales and variable expenses are as per proposal 1

If a discount of 8% were offered to those who pay on time:

• Those who pay on time would increase to 60%.
• No amounts received at 2 months.
• 36% would pay at 3 months.
• Bad debts would remain the same at 4%.

Use the new figures given to you by Mary in her return email to complete the Balance Sheet and Income Statement

10. Write a company performance report.

● The financial potential of the business based on your analysis, as well as any future financing requirements.

● Risk management, including future cash flows and risk management options and rights and obligations?

Prudence in framework have a lot of disadvantages. During the uncertain situations, Accountant will have a choice of making an estimation. If there is any personal interest involved (Earning bonuses and incentives), they may try to change the real scenario. For Instance, they may shift the expenses of this year to next year to show profit this year instead of loss and earn incentives out of it even when the business has made a loss. The company may end up in corporate failure if it keeps on making loss for the consecutive years. Directors may have their personal interest in announcing the dividend and they may announce the dividends even during the period of loss. If company is already in loss, it will increase the loss of the company which may end up again in business failure. It will be a very hard time for corporate advisors and auditors as they will have to be very careful with the financial reports. The whole reporting process will become very complicated and difficult in case of any material misstatement. Auditors will have to be very competitive and professional to be qualified for the auditing process. Even after being very careful, there is still a detection risk involved for auditors. In case if they skip any misstatement, they will certainly be the person liable for the consequences if the audit fails. Investors only rely on external auditor’s report as they don’t have any personal interest in firm’s profit. Decisions of investors are based on the auditor’s report and If any decision goes wrong, it hurts the reputation of the company. Clients may lose their trust in the company and company may lose the business. The advisory group will have to be very certain and careful with the information they provide to the clients as there are chances of bias and material misstatements in financial statements.

The Balance Sheet and Income Statement for Mary and Mike. are given below.
Balance Sheet as at 06 May, 2019

Industry standards/benchmarks
Current Ratio 1.45:1
Liquid Ratio 1.06:1
Debt to Equity ratio 160%
Earnings per Share $0.45 per share
P/E ratio 15
Return on Equity 10.5%
Net Profit Ratio 22%
Times Interest Covered 4 times
Dividend Payout ratio 20%

Required:

Less variable cost = (220,000 x 0.3) = $66,000.00
PV of sales = (87,128.80 + 120,772.96 ) - 66,000 = ​ $141,901.76

Proposal Second
Sales increase 10% = (200,000) + (200,000 x 0.1) = $220,000.00
30 days pay 60% = (200,000x 0.6) - ((220,000 x 0.6) x 0.08)) x 0.9901 = $120,237.74 90 days pay 36% = (220,000 x 0.36) x 0.9706= $76,871.52
Less variable cost = (220,000 x 0.3) = $66,000.00
PV of sales = (120,237.74 + 76,871.52) - 66,000 = ​ $131,109.26

Dear Mary and Mike

I am express writing into the operations of our business. Thank you for your kind to make it our trust. This has proved to be relatively simple.

Retained earnings $ 155
Total Equity $ 1305

Additional information
• Current share price is $1.55
• Most recent dividend was $0.05 per share. Dividends are expected to grow by 7% per year.
• 550 Debentures were issued with a face value of $1,000 trading at par value of 8.5%
• The mortgage loan is currently at a variable rate of 8.9%.

Sales increase 10% = (200,000) + (200,000 x 0.1) = $220,000.00 30 days pay 40% = (200,000x 0.4) x 0,9901 = $87,128.80
60 days pay 56% = (220,000 x 0.56) x 0.9803 = $120,772.96

Less variable cost = (220,000 x 0.3) = $66,000.00
PV of sales = (87,128.80 + 120,772.96 ) - 66,000 = ​ $141,901.76

Jane Foster

Assessment Task 3: Case studies

This assessment is to be completed in the simulated work environment in the RTO.

Required

Assessment Task 3 Instructions

Carefully read the following:

The meat may be refrigerated for 14 days as Sam wants to maintain a high standard and freshness with his products. He also tries to maintain a safety stock of 2 days.

The order lead-time is 1 day.

Total Cost = purchase cost or production cost + ordering cost + holding cost

Where:

Several extensions can be made to the EOQ model, including backordering cost and multiple items. Additionally, the economic order interval can be determined from the EOQ and the economic production quantity model (which determines the optimal production quantity) can be determined in a similar fashion.

A version of the model, the Baumol-Tobin model, has also been used to determine the money demand function, where a person's holdings of money balances can be seen in a way parallel to a firm's holdings of inventory.

the demand is deterministic and there is a fraction of imperfect items in the lot and are screened by the buyer and sold by them at the end of the circle at discount price. ^[12] Imperfect quality items have also been considered in a decentralized supply chain and the problem has also been studied with game theoretical models.

Case study 2

where:

i=Required return or discount rate

NPV = [100000 / (1+14%)⁸] = 15.63%

5. Should Rachael go ahead with purchasing the computer if the required rate of return is 15%? Show your calculations.

NPV= [900,000/ (1+0.15)⁸ ] – 300,000 = -5,882.35

If require rate of return is 15%, it should not for purchasing the computer because net value rate is shortage.

3. Maintain a low but constant dividend per share (after adjusting for the general price index), and offer regular scrip issues and shareholder concessions.

Each director is convinced that his policy will maximise shareholder wealth.

• It is sign of continued normal operations of the company.
• It stabilises the market value of shares.
• It creates confidence among the investors.

· It meets the requirements of institutional investors who prefer companies with stable dividends.

• It improves the credit standing and makes financing easier.

· It results in a continuous flow to the national income stream and thus helps in the stabilisation of national economy.

Task summary

For this assessment task, you, in the role of a self-employed Accountant, are tasked with developing a customer survey, as well as analysing and responding to customer feedback.

Assessment Task 4 Instructions

Carefully read the following:

1. Create a short survey that satisfies the above requirements. It should contain at least six sliding scale questions, as well as at least two open questions.

The sliding scale questions should be such that the customer can strongly agree or disagree with them, or indicate something in between. This will give you a good idea of how your customers see your work.

An example of an open question could be:

How would you describe the reception you receive when you arrive in my office?

Response time

Average rating: 6

Professional service

Average rating: 9

● The prices of your services are higher than most accountants, but I think they are worth it.

Additional services

I am express writing into inviting you because you are a valuable client. We are the market leader and provide a great service. So, we can do even better.

So, we can provide you an even better experience we are collecting feedback on how we performed in our last engagement.

Jonathan Hex

3. Send out a short email to your clients (your assessor).

Thank you for using Survey Monitor! As we plan for new our service in our company, we always like to reach out to our customers to gather some thoughts. Simply put, we’d like to understand more about what’s important to you when it comes to email marketing.

At the end of the survey, you’ll have a chance to share your suggestion and email, so we can send you a small gift as a token of our appreciation.

• Analyze what your business is currently doing
• Organize and study feedback findings
• Execute feedback suggestions

Thanks again for your business, and thank you for helping to shape the future of our service quality

Kind Regards

Getting feedback from your customers about your product/services is an incredibly simple and easy way to get insights that can grow your business.

It can give you information about where your business is falling short of meeting your customer’s needs, and it can open your business up to entirely new markets and revenue possibilities.

• Analyze what your business is currently doing
• Organize and study feedback findings
• Execute feedback suggestions

Jonathan Hex