Solutions manual - © John Wiley and Sons Australia, Ltd 2017 1.1...

Solutions manual For

Accounting: business

reporting for decision making 6 th

edition b y Birt et al.Prepared by Jacqueline Birt 1 / 4

Chapter 1: Introduction to accounting and business decision making

© John Wiley and Sons Australia, Ltd 2017 1.1

Chapter 1: Introduction to accounting and business

decision making Apply your knowledge a.Provide an example of the different types of activities that would be performed by a management and financial accountant for a large public company listed on the ASX. (5 marks) b.What are some of the advantages of business planning? (5 marks) c.Carbon accounting is a very important and huge growth area of accounting.Discuss the different stakeholders (and their information needs) that would be interested in the carbon accounting report. (10 marks) d.The AASB’s role has changed since the introduction of IFRS in 2005. Most of the Australian accounting standards mandated in Australia are Australian equivalents to IFRS. Why do you think Australia has adopted Australian equivalents to IFRS? (5 marks) e.The sustainability report is a recent disclosure by some Australian companies.What do you think are the advantages and disadvantages to the company of providing such disclosures? (10 marks) f.What are the three elements of a business plan? Consider the situation of two brothers contemplating a new business hiring surfboards and providing surf lessons on the Sunshine Coast. Explain how the business plan would assist the two brothers in planning their business venture. (10 marks) a.Provide an example of the different types of activities that would be performed by a management and financial accountant for a large public company listed on the ASX.The management accountant would perform activities such as capital budgeting for future store fit-outs, preparation of budgets and cost-volume-profit analysis for a new business venture e.g. diversifying product range to include books.The financial accountant would perform activities such as preparation of financial reports i.e.statement of profit or loss, balance sheet and the statement of cash flows in accordance with generally accepted accounting principles, which are represented by accounting standards including those issued by both the AASB and the IASB and the Corporations Act.b.What are some of the advantages of business planning?Business planning provides a clear, formal statement of direction and purpose. It allows management and employees of the entity to work towards a set of clearly defined goals in the daily operations of the business. It also assists the business entity in evaluating the business. 2 / 4

Solutions manual to accompany Accounting: business reporting for decision making 6e © John Wiley and Sons Australia, Ltd 2017 1.2

• Carbon accounting is a very important and huge growth area of accounting.

Discuss the different stakeholders (and their information needs) that would be interested in the carbon accounting report.

Stakeholder Information needs

• Management Levels of carbon emissions can provide targets to improve

environmental performance, can also be tied to executive remuneration. Significant costs can lead to increased costs and reduced sales.

• Investors Assist in investment decision making. Research has found

that firms with higher disclosures of sustainability carbon information can lead to improved financial performance and share price.

• General

public Interested in comparing companies to determine if they are managing their carbon risks and reducing emissions.

• The AASB's role has changed since the introduction of IFRS in 2005. Most of

the Australian accounting standards mandated in Australia are Australian equivalents to IFRSs. Why do you think Australia has adopted Australian equivalents to IFRS?

The Australian standard setter i.e. the AASB has changed its role since the adoption of IFRS in 2005. It is not solely making accounting standards for use by Australian reporting entities, much of that role is now undertaken by the IASB in its development of IFRS. IFRS adoption means that the AASB can now contribute to the development of global financial reporting standards. Most recently, the AASB provided export support on the IASB's discussion paper on 'extractive activities'. Adopting IFRS means that there is a reduction in standard setting costs for Australia. Adopting Australian equivalents of IFRS means that there is still scope for the AASB to tailor the IFRS to meet the needs of Australian entities. For example: certain IFRS standards will be made available to specific Australian entities rather than all Australian entities. Conversely, there will be other IFRS which the intention is for a more narrow group of entities e.g. all listed companies and in Australia it might be applies to both proprietary and limited companies. Adopting Australian equivalents means that there is also the scope to change the wording of certain standards to “fit” the Australian business environment.

• The sustainability report is a recent disclosure by some Australian companies.

What do you think are the advantages and disadvantages to the company of providing such disclosures?

Such disclosures provide a positive signal about the company to various stakeholders such as consumers, investors, general public, employees and suppliers. The disclosures can provide information to investors to determine the future of an entity and to assess the future cash flows for dividends and the possibility of capital growth of investment. Employees can use the information to ascertain job security and future promotional opportunities. Suppliers of the entity can use the information to determine an entity’s ability to repay debt associated with purchases. 3 / 4

Chapter 1: Introduction to accounting and business decision making

© John Wiley and Sons Australia, Ltd 2017 1.3

• What are the three elements of a business plan? Consider the situation of two

brothers contemplating a new business hiring surfboards and providing surf lessons on the Sunshine Coast. Explain how the business plan would assist the two brothers in planning their business venture.

The three elements/components of a business plan are:

• Marketing • Operations • Finance

The business plan would provide the brothers with a clear statement of purpose and direction for their business. It would allow them to both work towards a set of clearly defined goals, thus enhancing the likelihood of the goals being reached. It also provides them with a suitable means of periodically evaluating the performance of their business. Different quantifiable targets, such as sales of surfboards, the number of surfboards sold, market share and profitability, can be compared with the actual results at the end of the plan period. The business plan also would encourage the brothers to effectively review all aspects of their operations, which could foster a more effective use of scarce resources, such as staff, time and money, and improve coordination and internal communication. Finally, the process of collecting information, analysing it and integrating it into a written plan can help ensure that the brothers have adequately researched the business idea.

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