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Business Operations And Performance : Business Accounting

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Question:

Describe about the Business Operations and Performance for Business Accounting.

 

Answer:

Most of the organizations disclose the nature of operations and performances through its annual reports. However, many of the organizations do not follow any specific internal regulation to disclose the business information to its stakeholders. They do not maintain any source, from which the stakeholders can obtain necessary information about the organization. Generally, these are the small type of business firms and non-profit organizations (Van Auken & Carraher, 2013).

It should be noted for any business organization, stakeholders are the most important factor. As the employees, they provide the necessary workforce; as investors, they provide capital and as customers, they are the source of revenue. Stakeholders, in various forms, greatly rely on business information. Therefore, the organization has to provide operational & performance related information to its stakeholders (Healy & Palepu, 2012).

Organization can gain various advantages through sharing of information. If the management informs potential investors about the higher profit margins, earned in consecutive periods, then it may be able to generate more equity capital and reduce the debt capital and interest expenses accordingly. By updating the suppliers about the shorter credit period and better payment schedule, the company can convince the suppliers to supply materials at lower rates. In the financial crisis periods, if the company shares the information of losses with its employee, they may not demand for annual increments.

Thus, if the organization fails to provide information to its stakeholders due to absence of proper regulation, then it cannot enjoy the cost advantage of information sharing and incur higher operational cost (Asare & Wright, 2012).

In the books of Bells Beach Tourist Operation

Journal Entries

     

Dr.

Cr.

Date

Particulars

Amount

Amount

1/7/2013

Aircraft A/c.

Dr.

12000000

 

 

To,

Bank A/c.

 

12000000

30/06/2014

Depreciation on Aircraft A/c.

Dr.

1250800

 

 

To,

Accumulated Depreciation-Aircraft A/c.

 

1250800

 

Income Statement A/c.

Dr.

1250800

 

 

 

Depreciation on Aircraft A/c.

 

1250800

Workings:-

Particulars

 

Aircraft

Airframe

Engines

Fixtures & Fittings

TOTAL

 

 

 

55%

40%

5%

 

Cost

A

12000000

6600000

4800000

600000

 

Estimated Life

B

 

15

20000

5

 

 

 

 

(Years)

(hours)

(Years)

 

Residual Value

C

 

150000

0

0

 

Operating Hours in the current year

D

 

0

2920

0

 

Depreciation

E

 

430000

700800

120000

1250800

 

 

 

(A-C)/B

(A-C)x(D/B)

(A-C)/B

 

3:- a)

Calculation of Rate of Interest Implicit:-

Particulars

Amount

Less: Insurance & Maintenance Charges

Net Amount

Value of Machinery

$1,294,384

0

$1,294,384

1st Annual Payment

 $ (350,000.00)

$35,000

($315,000)

2nd Annual Payment

 $ (350,000.00)

$35,000

($315,000)

3rd Annual Payment

 $ (350,000.00)

$35,000

($315,000)

4th Annual Payment

 $ (350,000.00)

$35,000

($315,000)

5th Annual Payment

 $ (350,000.00)

$35,000

($315,000)

Rate of Interest Implicit

 

 

6.92%

 

Calculation of Present Value of Minimum Lease Payments:-

 

Annual Payment

 

Particulars

Year 1

Year 2

Year 3

Year 4

Year 5

Bargain Purchase Option

Amount

$315,000.00

$315,000.00

$315,000.00

$315,000.00

$315,000.00

$280,000.00

Interest Rate

6.92%

6.92%

6.92%

6.92%

6.92%

6.92%

Discounting Factor

0.94

0.87

0.82

0.77

0.72

0.72

Present Value

$294,616.81

$275,552.58

$257,721.97

$241,045.16

$225,447.48

$200,397.76

Present Value of Minimum Lease Payments

$1,494,781.76

b)

In the books of Burt Ltd.

Journal Entries

     

Dr.

Cr.

Date

Particulars

Amount

Amount

30/06/2016

Lease Liability A/c.

Dr.

350000

 

 

To,

Bank A/c.

 

350000

 

Insurance & Maintenance Charges A/c.

Dr.

35000

 

 

To,

Lease Liability A/c.

 

35000

 

Depreciation on Machinery A/c.

Dr.

180731

 

 

To,

Accumulated Depreciation - Machinery A/c.

 

180731

 

Income Statement A/c.

Dr.

215731

 

 

To,

Insurance & Maintenance Charges A/c.

 

35000

 

To,

Depreciation on Machinery A/c.

 

180731

30/06/2017

Lease Liability A/c.

Dr.

350000

 

 

To,

Bank A/c.

 

350000

 

Insurance & Maintenance Charges A/c.

Dr.

35000

 

 

To,

Lease Liability A/c.

 

35000

 

Depreciation on Machinery A/c.

Dr.

180731

 

 

To,

Accumulated Depreciation - Machinery A/c.

 

180731

 

Income Statement A/c.

Dr.

215731

 

 

To,

Insurance & Maintenance Charges A/c.

 

35000

 

To,

Depreciation on Machinery A/c.

 

180731

c)

In the books of Burt Ltd.

 

Balance Sheet

 

as on 30/06/2017

 

Particulars

Amount

Amount

 

Non-Current Assets:

 

 

 

Machinery at Lease (at Cost)

1294384

 

 

Less: Accumulated Depreciation

361461

932923

 

Non-Current Liabilities:

 

 

 

Lease Liability

 

1050000

 

In the books of Burt Ltd.

Journal Entries

     

Dr.

Cr.

Date

Particulars

Amount

Amount

30/06/2016

Rent Expense A/c.

Dr.

315000

 

 

Insurance & Maintenance Charges A/c.

Dr.

35000

 

 

To,

Bank A/c.

 

350000

 

Income Statement A/c.

Dr.

350000

 

 

To,

Insurance & Maintenance Charges A/c.

 

35000

 

To,

Rent Expense A/c.

 

315000

30/06/2017

Rent Expense A/c.

Dr.

315000

 

 

Insurance & Maintenance Charges A/c.

Dr.

35000

 

 

To,

Bank A/c.

 

350000

 

Income Statement A/c.

Dr.

350000

 

 

To,

Insurance & Maintenance Charges A/c.

 

35000

 

To,

Rent Expense A/c.

 

315000

Active market can be defined as the security market, where securities are traded at high volumes. It should be noted that many investors prefer to trade in active markets, as trading in such market does not create any impact on the price of the security.

Brand names, development related expenditure etc., are considered as intangible assets. This form of asset does not have any physical form. The value of such assets is ascertained either during acquisition of other business entities or from market value (Christensen & Nikolaev, 2013).

On the other hand, security is a form of certificate, which provides guarantee to the investors regarding the investment in a certain project or entity. Though, securities does not have any specific physical form, like land or machinery, it is deemed to be physical and thus considered as tangible asset. Generally, securities are measured on the basis of two types of values. The price, which is notified in the certificate, is treated as book value and the other one is the market price, which is determined by the supply and demand of the certificates. An investor may own large volume of same securities.

From the above discussion, it can be stated that the securities and intangible assets, like goodwill or patent are very much distinct from each other. Therefore, the active market, which is formed for trading tangible assets, like securities, cannot be used for selling intangible assets. Intangible assets are recorded mostly as single unit. Therefore, it cannot be sold in large volume (Su & Wells, 2015). Moreover, due to complication in measurement process, the intangible assets cannot be valued purely on the basis of market price.

 

References and Bibliography:-

Asare, S. K., & Wright, A. M. (2012). Investors', auditors', and lenders' understanding of the message conveyed by the standard audit report on the financial statements. Accounting Horizons, 26(2), 193-217

Christensen, H. B., & Nikolaev, V. V. (2013). Does fair value accounting for non-financial assets pass the market test?. Review of Accounting Studies,18(3), 734-775

Deegan, C. (2013). Financial accounting theory. McGraw-Hill Education Australia

Healy, P. M., & Palepu, K. G. (2012). Business Analysis Valuation: Using Financial Statements. Cengage Learning

Horngren, C., Harrison, W., Oliver, S., Best, P., Fraser, D., & Tan, R. (2012).Financial Accounting. Pearson Higher Education AU

Pratt, J. (2013). Financial accounting in an economic context. Wiley Global Education

Su, W. H., & Wells, P. (2015). The association of identifiable intangible assets acquired and recognised in business acquisitions with postacquisition firm performance. Accounting & Finance, 55(4), 1171-1199

Van Auken, H., & Carraher, S. (2013). Influences on frequency of preparation of financial statements among SMEs. Journal of Innovation Management,1(1), 143-157

Vernimmen, P., Quiry, P., Dallocchio, M., Le Fur, Y., & Salvi, A. (2014).Corporate finance: theory and practice. John Wiley & Sons

Weil, R. L., Schipper, K., & Francis, J. (2013). Financial accounting: an introduction to concepts, methods and uses. Cengage Learning

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