Accounting business reporting for deciison making th by bond

BIRT | CHALMERS | MALONEY | BROOKS | OLIVER | BOND Accounting B U S I N E S S R E P O RT I N G FO R D EC I S I O N M A K I N G 7TH EDITION Accounting: business reporting for decision making SEVENTH EDITION Jacqueline Birt Keryn Chalmers Suzanne Maloney Albie Brooks Judy Oliver David Bond Seventh edition published 2020 by John Wiley & Sons Australia, Ltd 42 McDougall Street, Milton Qld 4064 Typeset in 10/12pt Times LT Std © John Wiley & Sons Australia, Ltd 2014, 2017, 2020 © Jacqueline Birt, Keryn Chalmers, Suzanne Byrne, Albie Brooks, Judy Oliver 2012 © Jacqueline Birt, Keryn Chalmers, Diana Beal, Albie Brooks, Suzanne Byrne, Judy Oliver 2005, 2008, 2010 The moral rights of the authors have been asserted A catalogue record for this book is available from the National Library of Australia Reproduction and Communication for educational purposes The Australian Copyright Act 1968 (the Act) allows a maximum of 10% of the pages of this work or — where this work is divided into chapters — one chapter, whichever is the greater, to be reproduced and/or communicated by any educational institution for its educational purposes provided that the educational institution (or the body that administers it) has given a remuneration notice to Copyright Agency Limited (CAL) Reproduction and Communication for other purposes Except as permitted under the Act (for example, a fair dealing for the purposes of study, research, criticism or review), no part of this book may be reproduced, stored in a retrieval system, communicated or transmitted in any form or by any means without prior written permission All inquiries should be made to the publisher The authors and publisher would like to thank the copyright holders, organisations and individuals for their permission to reproduce copyright material in this book Every effort has been made to trace the ownership of copyright material Information that will enable the publisher to rectify any error or omission in subsequent editions will be welcome In such cases, please contact the Permissions Section of John Wiley & Sons Australia, Ltd Wiley Terry Burkitt (Director, Publishing and Course Development), Mark Levings (Executive Publisher), Kylie Challenor (Senior Manager, Knowledge & Learning Content Management), Rebecca Campbell (Production Editor), Emily Echlin (Publishing Coordinator), Emily Brain (Production Assistant), Laura Brinums (Copyright & Image Research), Delia Sala (Cover Design) Cover: © Pobytov / Getty Images Australia Typeset in India by diacriTech Printed in Singapore by Markono Print Media Pte Ltd 10 www.ebookslides.com BRIEF CONTENTS Preface x About the authors 10 11 12 13 14 xiii Introduction to accounting and business decision making Accounting in society 45 Business structures 79 Business transactions 109 Statement of financial position 138 Statement of profit or loss and statement of changes in equity Statement of cash flows 233 Analysis and interpretation of financial statements 283 Budgeting 336 Cost–volume–profit analysis 370 Costing and pricing in an entity 408 Capital investment 440 Financing the business 462 Performance measurement 491 Appendix 529 Index 571 190 www.ebookslides.com CONTENTS Preface x About the authors xiii CHAPTER Introduction to accounting and business decision making Chapter preview 1.1 The accounting process 1.2 Accounting information and its role in decision making 1.3 Financial accounting and management accounting 1.4 Role of accounting information in business planning Benefits of a business plan Operation of the business Evaluation of the business plan 1.5 Globalisation of accounting 1.6 Digital disruption and the impact on accounting 1.7 Business sustainability, drivers, principles and theories 10 Theories of business sustainability 12 1.8 Reporting and disclosure 13 Triple bottom line 14 Beyond sustainability and towards abundance 15 Role of accountants in sustainability 16 Integrated reporting 16 1.9 Careers in accounting 17 New opportunities 17 Summary of learning objectives 19 Key terms 20 Apply your knowledge 21 Comprehension questions 22 Problems 22 Decision-making activities 23 References 24 Acknowledgements 25 Appendix 26 Acknowledgements 44 CHAPTER Accounting in society 45 Chapter preview 46 2.1 Sources of company regulation 46 Australian Securities and Investments Commission (ASIC) 46 Australian Securities Exchange (ASX) 47 Australian Competition and Consumer Commission (ACCC) 47 2.2 2.3 2.4 2.5 2.6 2.7 2.8 Reserve Bank of Australia (RBA) 47 Australian Prudential Regulation Authority (APRA) 47 Australian Taxation Office (ATO) 48 Other government agencies 48 Australian and international accounting standards 49 Financial Reporting Council (FRC) 49 Development of accounting standards 49 Regulation in New Zealand 50 Role of professional associations 51 Role of the Conceptual Framework 52 Objective of financial reporting 52 Qualitative characteristics of financial reports 52 Cost constraint on financial information 54 Definition and recognition of the elements of financial statements 54 Corporate governance 55 What is corporate governance? 55 Corporate governance principles, guidelines and practices 56 Ethics in business 58 Ethical philosophies 58 Professional codes of ethics and ethical decision-making methods 61 Ethical decision-making methods 63 Limitations of accounting information 64 Potential costs of providing accounting information 65 Summary of learning objectives 67 Key terms 68 Apply your knowledge 69 Self-evaluation activities 69 Comprehension questions 72 Exercises 73 Problems 75 Decision-making activities 76 References 77 Acknowledgements 78 CHAPTER Business structures 79 Chapter preview 80 3.1 Forms of business entities 80 3.2 Definition and features of a sole trader 80 3.3 Advantages and disadvantages of a sole trader 81 Advantages 81 Disadvantages 81 3.4 Definition and features of a partnership 82 The partnership agreement 83 www.ebookslides.com 3.5 3.6 3.7 3.8 3.9 3.10 3.11 3.12 Advantages and disadvantages of a partnership 83 Advantages 83 Disadvantages 83 Definition and features of a company 84 Forming a company 85 Types of companies 85 Proprietary companies 85 Public companies 86 Advantages and disadvantages of a company 88 Advantages 88 Disadvantages 88 Definition and features of a trust 89 Advantages and disadvantages of a trust 89 Comparison of business reports 89 Sole trader reports 90 Partnership reports 91 Company reports — private company 92 Company reports — public company 93 Differential reporting 94 Summary of learning objectives 96 Key terms 97 Apply your knowledge 98 Self-evaluation activities 99 Comprehension questions 101 Exercises 102 Problems 105 Decision-making activities 107 References 107 Acknowledgements 108 CHAPTER Business transactions 109 Chapter preview 110 4.1 Recognising business transactions 110 Examples of business transactions 110 4.2 Business and personal transactions and business events 111 4.3 The accounting equation 111 The concept of duality 111 4.4 Analysis of business transactions 112 4.5 The accounting worksheet 114 4.6 Capturing accounting information: journals and ledger accounts 117 The journal 117 The ledger 118 Chart of accounts 118 4.7 Rules of debit and credit 119 4.8 The trial balance 120 4.9 Accounting errors 121 Single-entry error 121 Transposition error 121 Incorrect entry 121 Using the accounting equation to solve for missing figures 122 Summary of learning objectives 123 Key terms 124 Apply your knowledge 124 Self-evaluation activities 125 Comprehension questions 130 Exercises 130 Problems 132 Decision-making activities 136 References 137 Acknowledgements 137 CHAPTER Statement of financial position 138 Chapter preview 139 5.1 Financial reporting obligations 139 General purpose and special purpose financial statements 139 5.2 Nature and purpose of the statement of financial position 141 5.3 Accounting policy choices, estimates and judgements 144 5.4 The definition of assets 145 Asset definition 145 5.5 The definition of liabilities 146 Liability definition 147 5.6 The definition and nature of equity 148 5.7 Assets, liabilities and equity 148 5.8 Format and presentation of the statement of financial position 150 5.9 Presentation and disclosure of elements in the statement of financial position 152 Current and non-current assets and liabilities 153 Presentation and disclosure of assets, liabilities and equity 153 5.10 Measurement of various assets and liabilities 162 Measurement principles 162 Measuring receivables 163 Measuring inventory 164 Measuring non-current assets 166 5.11 Potential limitations of the statement of financial position 169 Summary of learning objectives 171 Key terms 172 Apply your knowledge 174 Self-evaluation activities 175 Comprehension questions 178 Exercises 179 Problems 184 Decision-making activities 187 References 189 Acknowledgements 189 www.ebookslides.com CHAPTER Statement of profit or loss and statement of changes in equity 190 Chapter preview 191 6.1 Purpose and importance of measuring financial performance 191 6.2 Accounting concepts for financial reporting 193 The reporting period 193 Accrual accounting versus cash accounting 193 Depreciation 196 6.3 Effects of accounting policy choices, estimates and judgements on financial statements 196 Quality of earnings 199 6.4 Measuring financial performance 199 6.5 Income 200 Income definition 200 Income classification 200 6.6 Expenses 201 Expense definition 201 Expense classification 201 6.7 Applying recognition criteria to income and expenses 202 Income (revenue) recognition 203 Expense recognition 204 6.8 Presenting the statement of profit or loss 205 Prescribed format for general purpose financial statements 206 Material income and expenses 206 Format for entities not required to comply with accounting standards 208 6.9 Financial performance measures 209 Gross profit 209 Profit 209 6.10 The statement of comprehensive income 211 The statement of changes in equity 212 6.11 The link between the financial statements 213 Summary of learning objectives 215 Key terms 216 Apply your knowledge 217 Self-evaluation activities 218 Comprehension questions 220 Exercises 221 Problems 225 Decision-making activities 229 References 232 Acknowledgements 232 CHAPTER Statement of cash flows 233 Chapter preview 234 7.1 The purpose and usefulness of a statement of cash flows 234 Difference between cash and accrual accounting 235 Relationship of the statement of cash flows to other financial statements 237 7.2 Format of the statement of cash flows 246 Operating activities 247 Investing activities 248 Financing activities 248 Reconciliation of cash from operating activities with operating profit 249 Presentation of the statement of cash flows 250 7.3 Preparing the statement of cash flows 250 7.4 Analysing the statement of cash flows 259 Trend and ratio analysis 261 Complexity of transactions 264 Summary of learning objectives 266 Key terms 266 Apply your knowledge 267 Self-evaluation activities 268 Comprehension questions 272 Exercises 273 Problems 277 Decision-making activities 281 References 282 Acknowledgements 282 CHAPTER Analysis and interpretation of financial statements 283 Chapter preview 284 8.1 Users and decision making 284 8.2 Nature and purpose of financial analysis 285 8.3 Analytical methods 286 Horizontal analysis 286 Trend analysis 289 Vertical analysis 290 Ratio analysis 292 Benchmarks 293 8.4 Profitability analysis 294 Return on equity 294 Return on assets 295 Profit margin ratios 295 Analysis of profitability: JB Hi-Fi Ltd 296 www.ebookslides.com 8.5 8.6 8.7 8.8 8.9 8.10 Asset efficiency analysis 298 Asset turnover ratio 298 Days inventory and days debtors ratios 298 Analysis of asset efficiency: JB Hi-Fi Ltd 299 Liquidity analysis 301 Current ratio and quick ratio 301 Cash flow ratio 301 Analysis of liquidity: JB Hi-Fi Ltd 302 Capital structure analysis 302 Capital structure ratios 303 Interest servicing ratios 304 Debt coverage ratio 304 Analysis of capital structure: JB Hi-Fi Ltd 304 Market performance analysis 305 Net tangible assets per share 306 Earnings, cash flow and dividend per share 306 Price earnings ratio 306 Analysis of market performance: JB Hi-Fi Ltd 307 Ratio interrelationships 308 Limitations of ratio analysis 309 Summary of learning objectives 311 Summary of ratios 312 Key terms 314 Apply your knowledge 316 Self-evaluation activities 316 Comprehension questions 321 Exercises 322 Problems 327 Decision-making activities 333 References 335 Acknowledgements 335 CHAPTER Budgeting 336 Chapter preview 337 9.1 Strategic planning and budgeting 337 9.2 Budgets 338 The budgeting process 339 9.3 Types of budgets 340 9.4 Master budget 341 Preparation of an operating budget for a service entity 341 Preparation of an operating budget for a manufacturing entity 344 9.5 The cash budget 347 9.6 Budgets: planning and control 350 Improving cash flow 351 9.7 Behavioural aspects of budgeting 352 Styles of budgeting 352 Effect of budget targets on behaviour 352 Summary of learning objectives 354 Key terms 354 Apply your knowledge 355 Self-evaluation activities 355 Comprehension questions 356 Exercises 357 Problems 362 Decision-making activities 367 References 369 Acknowledgements 369 CHAPTER 10 Cost–volume–profit analysis 370 Chapter preview 371 10.1 Cost behaviour 371 Fixed, variable and mixed costs 371 10.2 Break-even analysis 373 Break-even analysis for a single product or service 374 Break-even analysis for multiple products 377 10.3 Contribution margin ratio 379 10.4 CVP assumptions 380 10.5 Using break-even data 380 10.6 Operating leverage 381 10.7 Contribution margin per limiting factor 383 10.8 Relevant information for decision making 384 10.9 Outsourcing decisions 384 10.10 Special order decisions 387 Summary of learning objectives 390 Key terms 391 Apply your knowledge 391 Self-evaluation activities 392 Comprehension questions 393 Exercises 394 Problems 400 Decision-making activities 406 Acknowledgements 407 CHAPTER 11 Costing and pricing in an entity 408 Chapter preview 409 11.1 Use of cost information 409 11.2 Direct costs 410 Indirect costs 411 11.3 Cost allocation 412 Cost drivers 412 11.4 Allocation process 414 Determination of full cost 415 11.5 Inventoriable product cost 421 11.6 Pricing of products and services 426 Summary of learning objectives 428 Key terms 428 Apply your knowledge 429 Self-evaluation activities 430 www.ebookslides.com Comprehension questions 430 Exercises 431 Problems 434 Decision-making activities 439 Acknowledgements 439 CHAPTER 12 Capital investment 440 Chapter preview 441 12.1 The nature and scope of investment decisions 441 The process of decision making 442 12.2 Accounting rate of return 444 Decision rule for ARR 444 Advantages and disadvantages of ARR 444 12.3 Payback period 445 Decision rule for payback period 445 Advantages and disadvantages of PP 446 12.4 Net present value 446 Time value of money 446 Decision rule for NPV 447 Discount tables 448 Determining the discount rate 448 Advantages and disadvantages of the NPV method 449 12.5 Practical issues in making decisions 450 Collecting data 450 Taxation effects 450 Finance 451 Human resources 451 Goodwill and future opportunities 451 Social responsibility and care of the natural environment 451 Conclusion — Coconut Plantations’ potential coconut oil manufacturers’ investment decisions 452 Summary of learning objectives 454 Key terms 454 Apply your knowledge 455 Self-evaluation activities 455 Comprehension questions 456 Exercises 456 Problems 457 Decision-making activities 460 References 460 Acknowledgements 460 Appendix 12A 461 Appendix 12B 461 CHAPTER 14 CHAPTER 13 Financing the business Chapter preview 463 13.1 Managing net working capital 463 Deciding the appropriate level of net working capital 463 13.2 Managing cash 465 The need to have sufficient cash 465 The timing of cash flows 465 The cost of cash 466 The cost of not having enough cash 466 13.3 Managing accounts receivable 467 Benefits and costs of granting credit 467 Determinants of the level of accounts receivable 467 13.4 Managing inventories 469 Types of inventories 470 Benefits and costs of holding inventories 470 Inventory management techniques 471 13.5 Sources of short-term finance 472 Accrued wages and taxes 472 Trade credit 472 Bank overdrafts 473 Commercial bills and promissory notes 473 Factoring or debtor/invoice/trade finance 474 Inventory loans or floor-plan finance 474 13.6 Sources of long-term debt finance 476 Intermediated finance 476 Debt finance from the Australian market 477 13.7 Equity finance 478 Ordinary shares 478 Preference shares 479 Rights and options 479 13.8 Hybrid finance 480 Convertible notes 480 Convertible preference shares 480 13.9 International sources of funding 480 13.10 New funding opportunities for business 481 Crowdfunding 481 Initial coin offerings 481 Angel investors 481 Microcredit (microloans) 481 Summary of learning objectives 482 Key terms 483 Apply your knowledge 484 Self-evaluation activities 484 Comprehension questions 486 Exercises 486 Problems 487 Decision-making activities 489 References 490 Acknowledgements 490 462 Performance measurement 491 Chapter preview 492 14.1 Organisational performance measurement 492 Balanced scorecard 492 www.ebookslides.com 14.2 Divisional performance measurement 497 Divisional performance evaluation 499 Pricing guide 499 Evaluation of investment level 501 14.3 Investment centre performance evaluation 501 Residual income 504 Economic value added 505 ROI, RI and EVA compared 506 The investment base 506 14.4 Environmental and social performance 507 Eco-efficiency 508 Sustainability report card 509 14.5 Individual performance measurement 509 14.6 Non-financial performance evaluation 511 Summary of learning objectives 514 Key terms 514 Apply your knowledge 515 Self-evaluation activities 516 Comprehension questions 518 Exercises 519 Problems 521 Decision-making activities 525 References 527 Acknowledgements 527 Appendix 529 Index 571 www.ebookslides.com www.ebookslides.com www.ebookslides.com www.ebookslides.com www.ebookslides.com www.ebookslides.com www.ebookslides.com INDEX Note: Figures and tables are indicated by italic f and t, respectively, following the page reference AASB see Australian Accounting Standards Board ABN see Australian Business Number ACCA see Association of Chartered Certified Accountants ACCC see Australian Competition and Consumer Commission accounting definition 2, 20 digital disruption and impact 9–10 globalisation of opportunities 17f, 17–8 accounting concepts, for financial reporting 193–6 accounting entity concept 80, 97 accounting equation concept of duality 111–12 definition 111, 124 using to solve for missing figures 122 accounting errors 121–2 accounting estimates 144–5, 196–9 accounting information capturing 117–18 limitations of 64–6 potential costs of providing 66 role in decision making 3–5 accounting judgements 144–5, 196–9 accounting policies, effect on financial statements 144–5, 172, 196–9 accounting process, components 2–3 Accounting Professional and Ethical Standards Board (APESB) 61 accounting rate of return (ARR) 444, 454 advantages and disadvantages 444–5 calculating 444 concept of 444–5 decision rule 444 accounting standards, development of 49–50 accounting worksheet 114–17 accounts payable 157 accounts receivable benefits and costs of granting credit 467 collection policies and procedures 468–9 credit policies 468 definition 154 determinants of level of 467–9 impact of total sales on credit sales 468 level of credit sales 469 accrual accounting definition 193, 216 versus cash accounting 193–6, 235–7 accrued expense 195, 216 accrued income 194, 216 accrued wages 472 accumulated depreciation 166, 172, 196, 216 acid-test ratio 301, 315 ACN see Australian Company Number activity cycle 299, 314 activity drivers 413, 428 activity hierarchy 414, 428 Additive Pty Ltd, assets in the statement of financial position 168 agency theory 12, 20 agricultural assets 155, 166, 173 allocation base definition 412, 428 selection of 414 allocation process 414–21 allowance for doubtful debts 163, 173 amortisation 166, 196, 216 angel investors 481, 483 APES 110 Code of Ethics for Professional Accountants 61, 63 APESB see Accounting Professional and Ethical Standards Board APRA see Australian Prudential Regulation Authority arm’s length distance 110, 124 ARR see accounting rate of return ASIC see Australian Securities and Investments Commission asset classes 154 asset definition, criteria 145–6 asset efficiency analysis asset turnover ratios 298 days inventory and days debtors ratios 298–9 asset efficiency ratios 298, 314 asset purchase, analysis of business transactions 113 asset recognition, criteria 148 asset turnover 514 asset turnover ratios 298, 314 assets 3, 20, 54, 68, 111, 124, 173 classification in the statement of financial position 153 contingent assets 149, 173 control 146 essential characteristics 145 future economic benefits 146 measurement in the statement of financial position 162–9 past events 146 presentation and disclosure in the statement of financial position 154–7 Association of Chartered Certified Accountants (ACCA) 51 assurance services 16 ASX Corporate Governance Council, principles and recommendations 57 ASX see Australian Securities Exchange ATO see Australian Taxation Office auditing, and business sustainability 16 AuSSI see Australian SAM Sustainability Index Australian Accounting Standards Board (AASB) 4, 49, 68 differential reporting 94–5 standard-setting process 510 Australian Business Number (ABN) 81, 97 Australian Company Number (ACN) 85, 97 Australian Competition and Consumer Commission (ACCC) 47 Australian Prudential Regulation Authority (APRA) 47–8 Australian SAM Sustainability Index (AuSSI) 14 Australian Securities and Investments Commission (ASIC) 4, 20, 46–7, 68, 85 Commonwealth legislation 55 Australian Securities and Investments Commission Act 1989 49 Australian Securities and Investments Commission Act 2001 46, 55 Australian Securities and Investments Commission Act 2001 (Cwlth) 49 Australian Securities Exchange (ASX) 5, 20, 46–7, 68 Australian Taxation Office (ATO) 48, 81, 97 authoritarian style of budgeting 352, 354 available capacity (idle capacity) 387, 391 avoidable costs 384, 391 balanced scorecard definition 493, 514 development 494–5 framework 493 measures for sustainability 496f organisational performance measurement 492–6 bank overdrafts 473 BAS see business activity statement benchmarks, financial statements 293–4 Bentham, Jeremy 58 Bitcoin 10 blockchain technology 10 book value 162 bookkeeping, definition Borders Group, Inc 466 borrowings 157 break-even analysis definition 373, 391 key assumptions 380 www.ebookslides.com for multiple products 377–9 overview 373–9 service 374–7 single products 374–7 break-even data, uses 380–1 break-even graphs, showing profit 376f break-even level of sales, improving 382–3 break-even point, graphical presentation 375f budget cycle 337f budget targets, impact on behaviour 352–3 budgetary slack 352, 354 budgeted statement of profit or loss purpose and uses 340 service entity 341–4 budgeting behavioural aspects 352–3 definition 337, 354 and strategic planning 337–8 styles 352 three wheels of planning 339 budgeting process 339–40, 354 budgets cash budget 347–50 definition 338, 354 financial position statement 340 improving cash flow 351–2 master budget 341–7 planning and control 350–2 purpose and operation 338–40 sample entities 340t types 340–1 variance analysis 351 variance reports 350 business activity statement (BAS) 86, 97 business cycle, flow of cash 234f business entities 80 forms of 80 business events 111, 124 Business Names Registration (Transitional and Consequential Provisions) Act 2011 47 Business Names Registration Act 2011 47 business plan benefits of evaluation of business reporting and business sustainability 16 companies 92–3 differential reporting 94–5 for different business structures 89–93 GRI reporting framework 14 partnership 91–2 sole traders 90 business sustainability abundance 15–6 definition 10, 20 development 10 drivers 10f principles of 11t reporting and disclosure 13–7 role of accountants 16 theories of 12–3 triple bottom line 14–5 business transactions analysis of 112–14 definition 3, 20, 110, 124 examples of 110–11 recognising 110–11 business units definition 497, 514 determination of full cost 415–21 divisional performance management 497 CA see chartered accountant CAANZ see Chartered Accountants Australia and New Zealand capital budget 340 capital contribution, analysis of business transactions 112–13 capital expenditure, at Qantas 442 capital structure 302, 314 capital structure analysis capital structure ratios 303–4 debt coverage ratio 304 interest servicing ratios 304 overview 302 capital structure ratios 293, 303–4, 314 carbon liabilities 159 carrying amount (book value) 162, 173, 201, 216 cash 246, 266 cost of 466 in the statement of financial position 154, 156, 173 cash accounting definition 193, 216 versus accrual accounting 193–6, 235–7 cash adequacy ratio 263, 266 cash budget control process 350 definition 347, 354 planning process 350 preparation 348–9 purpose and uses 340, 348 cash cycle 299, 314 cash equivalents 266 in the statement of financial position 154, 156, 173 on statement of cash flows 246 cash flow ratio 263, 266, 301–2, 314 cash flow to sales ratio 264, 266, 295, 314 cash flows definition 237, 266 and evaluation of loan applications 258 impact on investment 234–5 improving 351–2 in business cycle 234f timing 465–6 cash inflows 244, 266 cash management cost of cash 466 cost of not having enough cash 466–7 key issues 465 need for sufficient cash 465 timing of cash flows 465–6 cash on hand, on statement of cash flows 246, 266 cash outflows 244, 266 cash transactions 110, 124 Ceres 14 certified practising accountant (CPA) 51 CGC see Corporate Governance Council (CGC) chart of accounts 118, 124, 341, 354 chartered accountant (CA) 51 Chartered Accountants Australia and New Zealand (CAANZ) 46, 51–2 Chartered Institute of Management Accountants (CIMA) 51 CIMA see Chartered Institute of Management Accountants classes (assets/liabilities/equity) 153–62, 173 Coconut Plantations Pty Ltd investment decisions 443 statement of financial position 251–8 statement of profit or loss 251–8 collusive pricing 427, 428 commercial bills 473–4 companies advantages 88 definition and features 84–5, 97 disadvantages 88–9 financial statements 92–3 formation 85 proprietary companies 85–6 public companies 86–8 types 85–8 Companies Act (NZ) 12 Companies Act 1993 12, 55 company regulation, sources 46–9 comparability of financial information 53 comparative information 150, 173, 206, 216 Competition and Consumer Act 2010 (Cwlth) 47 competitive information, release of 66 Conceptual Framework 66, 145, 173, 241 asset definition 145 financial statement elements 54–5 liability definition 147 liability recognition 148 role of 52–5 contingent assets 149, 173 contingent liabilities 149, 173 contra account 196, 216 contributed capital 160, 173 contribution margin 373, 391 contribution margin per limiting factor 383, 391 contribution margin per unit 373, 391 contribution margin ratio 379–80, 391 conversion costs 422, 428 convertible notes 480, 483 convertible preference shares 480, 483 corporate bonds 477, 483 www.ebookslides.com corporate collapses 2, 46 corporate governance ASX guidelines 57 definition 55, 68 principles 57f structure 56f Corporate Governance Council (CGC) 56 corporate regulation, role of 46 corporate social responsibility (CSR) 12, 20, 492 Corporations Act (Australia) 12 Corporations Act 2001 (Cwlth) 4, 12, 55, 81 corporate regulation 46, 47, 68 cost allocation definition 412, 428 first stage 417f, 417 indirect costs 412 second stage 419 cost analysis, and business sustainability 16 cost behaviour 371–3 cost centres 497, 514 cost constraint on financial information 54 cost drivers classification 413 definition 412, 428 identifying 419–20 selection 412 cost information 409–10 cost objects definition 409, 428 determining full costs 421 identifying 419–20 relationship with costs 420f cost of goods manufactured 208, 216 cost of sales 201, 216 cost pools definition 414, 428 determining indirect cost rates 420 identifying 419–20 cost-based pricing 426, 428 cost–volume–profit (CVP) analysis assumptions 380 definition 371, 391 cost/benefit test 410, 428 costing system definition 409, 428 structure of 424–5 costs definition 409, 428 relationship with cost objects 420f CPA Australia 51 CPA see certified practising accountant credit policies 468 credit rules 119–20 credit transactions 110, 124 creditors turnover, calculating 473 critical success factors (CSFs) 338 crowdfunding 481, 483 Crown Entities Act 2004 50 CSFs see critical success factors CSR see corporate social responsibility current assets 153, 173, 463, 483 current cost 162, 173 current liabilities 153, 173, 463, 483 current ratio 301, 314 CVP analysis see cost–volumn–profit analysis days debtors 298, 314 days inventory 298, 314 debentures 47, 68, 477, 483 debit rules 119–20 debt coverage ratio 264, 266, 304, 315 debt finance, from Australian market 477–8 debt ratio 303, 315 debt to equity ratio 303, 315 deflation, definition 448, 454 deontological theories 59–60, 68 depreciable assets 166, 173 depreciation 196, 216 nature of 166, 173 derivative financial assets 154, 173 derivative financial liabilities 157, 173 differential reporting 94–5, 97 digital disruption 9–10 diminishing balance depreciation 197, 217 direct costs 410–12, 428 direct investment 480, 483 direct method 251, 266 disclosing entity 4, 20, 49, 68 discount rate definition 447, 454 determining 448–9 discount securities 473 discount tables 448 discounted cash-flow techniques 446 distribution to owners 201, 217 dividend 84, 97 dividend imputation scheme 450, 454 dividend payout ratio 306, 315 dividend per share (DPS) 306, 315 divisional performance measurement allocation of costs to divisions 499f divisional performance evaluation 499 evaluation of investment level 501 and organisational structure 497, 498f pricing guide 499–501 responsibility centres 497 DPS see dividend per share drawings 110, 124 Du Pont ROI 514 duality, concept of 111–12, 124, 141, 173 due process 49, 68 dumping 427, 428 earnings before interest and taxation (EBIT) 210, 217, 289 earnings before interest, tax, depreciation and amortisation (EBITDA) 210, 217 earnings management 199, 217 earnings per share (EPS) 306, 315 EBIT see earnings before interest and taxation EBITDA see earnings before interest, tax, depreciation and amortisation ECI, balanced business scorecard 494f eco-efficiency 508–9, 514 eco-efficiency indicators 508 economic entities 150 economic performance 14 economic value added (EVA) 505–6, 514 efficiency ratios 293, 315 entity concept 110, 124 environmental and social performance categories of environmental performance 507 eco-efficiency 508–9 guidelines 507 sustainability report card 509 uses 507–9 environmental condition indicator (ECI) 508 environmental impact added (EIA) 508 environmental performance indicators (EPIs) 508 environmental, social and governance (ESG) reporting 192, 217 EPS see earnings per share equity 3, 20, 54, 68, 111, 124, 148, 173 classification in the statement of financial position 153, 159 definition 148 non-controlling interests 161–2 presentation and disclosure in the statement of financial position 159 reserves 160–1 retained earnings 160 share capital 160 equity finance ordinary shares 478–9 preference shares 479 rights and options 479 equity ratio 303, 315 equity-settled benefits reserve 161 ethical egoism 58, 68 ethics in business deontological theories 59–60 ethical decision-making methods 63–4 ethical philosophies 58–61 ethical theories and economic theories 61t professional codes of ethics 61–4 and regulation 60–1 teleological theories 58–9 executive performance compensation 510 expense ratios 295, 315 expenses 3, 20, 54–5, 68, 112, 124, 201, 217 classification in the statement of profit or loss 201–2 definition for the statement of profit or loss 201 expenses budget 340 External Reporting Board (XRB) 50 external users (stakeholders), of accounting information 4, 5, 20 factoring 474, 483 fair value 162, 173 faithful representation 163, 173 www.ebookslides.com faithful representation of financial information 52–3 family (or discretionary) trust 89, 97 FASB see Financial Accounting Standards Board FBT see fringe benefits tax FDAs see fully drawn advances fees budgets 340 finance leases 477, 483 financial accounting definition 5, 20 differences from management accounting 7t interaction with management accounting Financial Accounting Standards Board (FASB) 52 financial analysis asset efficiency analysis 298–300 benchmarks 293–4 capital structure analysis 302–5 definition 284, 315 horizontal analysis 286–9 limitations of ratio analysis 309–10 liquidity analysis 301–2 market performance analysis 305–8 nature and purpose of 285–6 profitability analysis 294–8 ratio analysis 292–3 ratio interrelationships 308–9 trend analysis 289–90 users and decision making 284–5 vertical analysis 290–2 financial assets 154, 173 financial instruments, measuring 166 financial liabilities 157, 173 financial performance measuring 199–200 purpose and importance of measuring 191–3 financial performance measures 209–11 financial reporting accounting concepts 193–6 accrual accounting versus cash accounting 193–6 depreciation 196 globalisation of objective 52 obligations 139 qualitative characteristics 52–4 reporting period 193 Financial Reporting Act 1993 50 Financial Reporting Act 2013 50 Financial Reporting Council (FRC) 49, 68 financial scandals Financial Services Reform Act 2001 55 financial statements 5, 21, 111 accounting policies, estimates and judgements 144–5, 196–9 elements 54–5 relationship between 213–14 special purpose 52 financing activities, statement of cash flows 248–9, 255–6, 266 financing decisions 141, 173 finished goods 80 first-in, first-out (FIFO) 165 fixed costs 371, 391 flow items 292, 315 foreign currency translation reserve 161 FRC see Financial Reporting Council free cash flow 264, 266 Friedman, Milton 59 fringe benefits tax (FBT) 81 fulfilment value 163, 173 full costs definition 410, 428 determination of 415–21 simple costing system 415f fully drawn advances (FDAs) 476, 483 fundamental analysis 284, 315 funding opportunities, for business 481 angel investors 481 crowdfunding 481 initial coin offerings 481 microcredit 481 GAAP see generally accepted accounting principles GE Capital, inventory and floor-plan finance 474 Gee Vesty Accounting Services 384 general purpose financial statements (GPFS) 5, 21, 49, 68, 139, 173, 492 and differential reporting 94 statement of profit or loss presentation 206 general reserve 161 generally accepted accounting principles (GAAP) 5, 21, 51, 68, 140, 173 and regulation of financial accounting 7t subjectivity of accounting information 65 global financial crisis 234 Global Reporting Initiative (GRI) 14 goods and services tax (GST) 81, 97 goodwill 173 determination 155, 167 impairment 155 recognition in the statement of financial position 157 government agencies 48–9 GPFS see general purpose financial statements GRI reporting framework 14, 21 GRI see Global Reporting Initiative gross profit 209, 217 gross profit margin 295, 315 groups 150, 151f, 173 GST see goods and services tax hedging principle 463, 464, 483 hedging reserve 161 hire-purchase agreement 477, 483 historical cost 5, 21, 162, 173 historical cost convention 162 historical financial information 65 Hobbes, Thomas 59 horizontal analysis, financial statements 286–9, 315 hybrid debt securities 480, 483 hybrid finance 480 convertible notes 480 convertible preference shares 480 IASB see International Accounting Standards Board ICOs see initial coin offerings identifiable intangible assets 155, 157, 167, 173 idle capacity 387 IFRS see International Financial Reporting Standards IIRC see International Integrated Reporting Committee impairment 201, 217 impairment losses 166, 173 income 3, 21, 54, 112, 124, 217 classification of income 200–1 definition of income 200 income earned, analysis of business transactions 113–14 income received in advance 194, 217 incorrect entry 121–2 incremental costs 384, 391 incremental income 384, 391 indirect cost rate 415, 429 indirect costs 411–12, 429 indirect method 251, 266 individual performance measurement 509–11 inflation, definition 448, 454 information costs 65–6 initial coin offerings (ICOs) 481, 483 insolvent entities 465, 483 instalment loans 483 Insurance Contracts Act 1984 (Cwlth) 47 intangible assets definition 155, 173 impairment 155 integrated reporting (IR) 16, 192, 217, 310, 492, 514 interest coverage ratio 304, 315 interest servicing ratios 304 interest-only loans 476 intermediated finance 476–7 internal users, of accounting information 4, 5, 21 internal value chain 409, 429 International Accounting Standards Board (IASB) 49, 80 Conceptual Framework for Financial Reporting see Conceptual Framework Framework for the Preparation and Presentation of Financial Statements (Framework) 52 International Financial Reporting Standards (IFRS) 9, 21, 49, 68, 206, 412 International Integrated Reporting Committee (IIRC) 310 International Public Sector Accounting Standards (IPSAS) 51 international sources of funding 480–1 inventoriable product cost definition 421, 429 determination for multi-product (job costing) 424–6 www.ebookslides.com determination for single product (process costing) 423 overview 421–6 inventories 173 benefits and costs of holding 470–1 controlling turnover levels 471 cost flow assumptions 165–6 FIFO cost flow assumption 165 ‘just-in-time’ (JIT) philosophy 471 management of 469–72 management techniques 471–2 measurement in the statement of financial position 164–6 nature of 154 net realisable value 166 periodic inventory system 165 perpetual inventory system 164 types 470 weighted-average cost flow assumption 165 inventory budgets 340 inventory loans 474–6 investing activities, statement of cash flows 248, 255, 266 investing decisions 141, 173 investment base 506–7, 514 investment centre 497, 514 investment centre performance evaluation common investment measures 501 economic value added 505–6 investment base 506–7 residual income 504–5 return on investment for a division 502–3 investment decisions coconut oil manufacturers 452–3 collecting data 450 finance 451 goodwill and future opportunities 451 human resources 451 material for a decision 443 nature and scope of 441–3 practical issues 450–3 process of decision making 442–3 social responsibility and care of natural environment 451 taxation effects 450–1 investment turnover 503, 514 investment, effect of cash flows 234–5 investments accounted for using equity method 154, 174 IPSAS see International Public Sector Accounting Standards IR see integrated reporting JB Hi-Fi Ltd analysis of asset efficiency 299–300 analysis of capital structure 304–5 analysis of liquidity 302 analysis of market performance 307– 308 analysis of profitability 296–8 balance sheet — asset section 154f balance sheet — disaggregation of asset classes 156f balance sheet — disaggregation of liability classes 158f balance sheet — equity section 159f balance sheet — liability section 157f cash flows 288f consolidated balance sheet 151f executive compensation 510 expansion into home appliance market 338 financial position 287f inventory and cost data 471f notes to financial statements 151 notes to the accounts — non-current assets 167f notes to the accounts — retained earnings 161f notes to the accounts — trade and other receivables 164f profit or loss 288f revenue recognition 203 selected financial items and ratios 262f statement of cash flows 246f statement of changes in equity 213f statement of comprehensive income 212f statement of profit or loss 202f trends in sales revenue, EBIT and profit after tax 289f vertical analysis of statement of profit or loss 291f job costing system definition 422, 429 overview 423f journals 117–18, 124 just-in-time (JIT) philosophy 471 Kant, Immanuel 59, 60 Kantianism 59, 68 key performance indicators (KPIs) 496, 514 KPIs see key performance indicators labour budgets manufacturing entities 346 service entities 343 last-in, first-out (LIFO) 165 leases 477, 483 ledgers 118, 124 legal entity 84, 97 legitimacy theory 13, 21 lessees 477, 483 lessors 477, 483 liabilities 3, 21, 54, 68, 111, 124, 174 classification in the statement of financial position 153 contingent liabilities 149, 173 current liabilities 153 essential characteristics 147 future sacrifice of economic benefits 147 measurement in the statement of financial position 162–9 non-current liabilities 153 past event 147–8 present obligation 147 presentation and disclosure in the statement of financial position 152, 157–9 liability definition, criteria 147–8 liability recognition, criteria 148 Life Insurance Act 1995 (Cwlth) 47 limited by guarantee, public companies 87 limited by shares, public companies 86–7 limited liability 84, 97 liquidity 141, 174, 263, 266, 301, 315, 463, 483 liquidity analysis cash flow ratio 301–2 current ratio and quick ratio 301 liquidity ratios 293, 315 Listing Rules 5, 21, 46, 47, 68 long-term debt finance corporate bonds 477 debentures and unsecured notes 477–8 debt finance from Australian market 477–8 fixed-rate and variable-rate business loans 476 fully drawn advances 476 instalment loans 476 interest-only loans 476 intermediated finance 476–7 leases 477 sources 476–8 management accounting definition 5, 21 differences from financial accounting 7t interaction with financial accounting management performance indicator (MPI) 508 manufacturing entities 80 manufacturing overhead budget 340 margin of safety 377, 391 market performance analysis dividend per share 306 earnings per share 306 net tangible assets per share 306 operating cash flow per share 306 price earnings ratio 306–7 market performance ratios 293, 315 market test ratios 293, 315 market-based pricing 426, 429 master budgets definition 341, 354 main components 341 operating budget for manufacturing entity 344–7 operating budget for service entity 341–4 material items 206, 217 materials budgets, manufacturing entities 346 measurement uncertainty 149, 203 Medical Indemnity (Prudential Supervision and Product Standards) Act 2003 (Cwlth) 47 microcredit (microloans) 481, 483 www.ebookslides.com Mill, John Stuart 58 mission statements 492, 514 mixed cost behaviour 375f mixed costs 372, 391 monetary concept 148, 174 Mum’s Choc Heaven Pty Ltd, profit and cash position 235–6 mutual agency 84, 97 NAB see National Australia Bank National Australia Bank (NAB) National Consumer Credit Protection Act 2009 47 net finance costs 210, 217 net present value (NPV) 454 advantages and disadvantages 449–50 calculating 448 decision rule 447–8 determining the discount rate 448–9 discount tables 448 and discounted cash-flow techniques 446–50 time value of money 446–7 net realisable value 166, 174 net tangible asset backing (NTAB) per share 305, 315 net working capital definition 463, 483 level of 463–5 managing 463–5 New Zealand Exchange (NZX) 47, 51 New Zealand, regulation in accounting and auditing standards 50–1 NFPs see not-for-profit entities no-liability (NL) companies 87 non-controlling interests 160–1, 174 non-current assets 153, 174 classified as held for sale 154 measuring 166–9 non-current liabilities 153, 174 non-financial performance evaluation 511–13 non-financial performance indicators 512 non-financial performance measures 511, 512f, 515 non-renounceable rights issues 479, 483 not-for-profit entities (NFPs) 80 not-for-profit entity novated leases 477, 483 NPV see net present value NTAB see net tangible asset backing NZX see New Zealand Exchange (NZX) OECD see Organisation for Economic Co-operation and Development operating activities, statement of cash flows 247– 248, 267 operating cash flow per share (CFPS) 306, 315 operating cycles 153, 174, 299, 314 operating expenses budget purpose and uses 340 service entity 343 operating leases 477, 483 operating leverage 381–3, 391 Operating Rules 47, 68 operational performance indicator (OPI) 508 opportunity costs 384, 391, 449, 454 options 479, 483 ordinary shares 87, 97, 478–9, 484 Organisation for Economic Co-operation and Development (OECD) 55, 508 organisational performance measurement balanced scorecard 492–6 importance 492 mission statements 492 organisational structure 497, 498f, 515 other comprehensive income 211, 217 outsourcing definition 384, 391 of business activities 384–5 of component parts 386 of technology 385 outsourcing decisions 384–6, 390, 391 overapplied overhead 422, 429 overdraft 473, 484 overheads, indirect costs 411–12, 429 paid-up share capital 160, 174 parent entities 150, 151f, 174 participative style of budgeting 352, 354 Partnership Act 1892 (NSW) 83 Partnership Act 1895 (WA) 83 Partnership Act 1958 (Vic) 83 partnership agreement 83, 97 partnerships advantages 83 definition and features 82–3, 97 disadvantages 83–4 financial statements 91–2 partnership agreement 83 PAT see profit after tax pay-as-you-go (PAYG) withholding instalments 472 payback period (PP) 472 advantages and disadvantages 446 calculating 445 decision rule 445–6 definition 445, 454 PBE see public benefit entity peak load pricing 427, 429 penetration pricing 427, 429 PER see price earnings ratio performance management 338, 354 period costs 421, 429 permanent funding 464, 484 personal transactions 111, 124 PM see profit margin portfolio investment 480, 484 PP see payback period pre-tax profit target 379 predatory pricing 427, 429 predetermined indirect cost rate 415, 429 preference shares 87, 97, 479, 484 prepaid expense (prepayment) 195, 217 present value 163 price discrimination 427, 429 price earnings ratio (PER) 306–7, 315 price skimming 427, 429 pricing, of products and services 426–7 financial statements 92–3 pro forma earnings 211, 217 probability 203 process costing system definition 422, 429 overview 422f production budgets manufacturing entities 345 purpose and uses 340 production overhead budgets 347 professional association, regulatory role 51–2 profit 5, 21, 53, 68 definition 209 from continuing and discontinued operations 210–11 pre- and post-depreciation and amortisation 210 pre- and post-interest 210 pre- and post-material items 210 pre- and post-tax 209–10 pro forma earnings 211 profit after tax (PAT) 505 profit centre 497, 515 profit margin (PM) 295, 315, 515 profit margin ratios 295–6 profit or loss 191, 192, 217 profitability 285, 315 profitability analysis profit margin ratios 295–6 return on assets 295 return on equity (ROE) 294–5 profitability ratios 293, 315 program budget 340 promissory notes 473–4 property, plant and equipment (PPE) 155, 156, 174 proprietary companies 85–6 provisions 157, 174 public accountability 140, 174 public benefit entity (PBE) 51 public companies 86–8 financial statements 93–4 limited by guarantee 87 limited by shares 86–7 no-liability company 87 unlimited company 87–8 purchases budgets 340 Qantas, capital expenditure 442 quality of earnings 199 quick ratio 301, 315 ratio analysis 263, 267 definition 292, 315 financial statements 292–3 limitations 309–10 ratio interrelationships 308–9 RBA see Reserve Bank of Australia realisable (settlement) value 164 www.ebookslides.com receivables 174 measuring 163–4 nature of 156 recognition 202, 217 of assets 148, 174 recoverable amount 204, 217 of an asset 166, 174 relevance of financial information 52 relevant costs 384–6, 391 relevant financial information 163, 174 relevant income 384, 391 relevant information definition for decision making 384 relevant range (cost behaviour) 372, 391 renounceable rights issues 479, 484 reporting entity 139, 174 reporting period 193, 217 reporting see business reporting Reserve Bank of Australia (RBA) 47 reserves 160–1, 174 residual income (RI) 160–1 compared to ROI and EVA 506 definition 504, 515 formula 504 investment centre performance evaluation 504–5 resource drivers 413, 429 retained earnings 92, 97, 160–1, 174, 217 Retirement Savings Accounts Act 1997 (Cwlth) 47 return on assets (ROA) 295, 315 return on equity (ROE) 294–5, 315 return on investment (RIO) 294–5 compared to RI and EVA 506 definition 515 for a division 502–3 formula 502 revaluation surplus 161 revenue 192, 217, 385 revenue centre 497, 515 rights issues 479, 484 risk in finance 441 and investment decisions 448–9 ROA see return on assets ROE see return on equity SACs see Statements of Accounting Concepts sales budgets for manufacturing entities 344–5 for service entity 342 purpose and uses 340 sales mix 377, 391 schedule of receipts from accounts receivable (debtors) 348, 355 secured debt 158, 174 selling and administrative expense budget 347 service entities 80 share capital 160, 174 share-based payment reserve 161 shareholder value 12, 21 shareholders 84, 97 short-term finance accrued wages and taxes 472 bank overdrafts 473 calculating creditors turnover 473 commercial bills and promissory notes 473–4 factoring or debtor/invoice/trade finance 474 floor-plan finance 474–6 inventory loans 474–6 sources 472–6 trade credit 472–3 single-entry errors 121, 124 small and medium-sized enterprises (SMEs) 80 small businesses small to medium-sized enterprises (SMEs) SMEs see small and medium-sized enterprises; small to medium-sized enterprises Smith, Adam 59 social performance 15 social responsibility, and investment decisions 451 sole traders advantages 81 business reports 90 definition and features 80–1, 97 disadvantages 81–2 source documents 110, 124 special order 387, 391 with idle capacity 387–8 with no idle capacity 389 special order decisions 387–9 special purpose financial statements (SPFS) 5, 21, 52, 68, 139–41, 174 spontaneous sources of funding 464, 484 stakeholder theory 12–3, 21 stakeholders 12, 21 use of accounting information 4, statement of cash flows analysing 259–65 complexity of transactions 264–5 definition 5, 21, 234, 267 financing activities 248–9, 255–6 format 246–50 investing activities 248, 255 operating activities 247 presentation 250 purpose of 234–45 reconciliation of cash from operating activities with operating profit 249–50 relationship to other financial statements 237–45 trend and ratio analysis 261–4 usefulness of 234–45 statement of cash flows preparation activity classification 257t cash flows from financing activities 255–6 direct method 251 ending cash balance 256 indirect method 251, 256–7 net cash flow 256 notes 257–8 reconcile cash from operating activities with operating profit 256–7 statement of changes in equity 212–13, 217 statement of comprehensive income 211–13, 217 statement of financial position 5, 21, 110, 124 definition 141 examples 141 format and presentation 150–2 nature and purpose 141–4 potential limitations 169–70 presentation and disclosure of elements 152–62 statement of profit or loss 5, 21, 110, 124, 192, 217 at break-even level of sales 376f definition expense classification 201–2 expense definition criteria 201 expense recognition 204–5 income classification 200–1 income definition criteria 200 income recognition criteria 203–4 statement of profit or loss presentation entities not required to comply with accounting standards 208–9 general purpose financial statements 206 material income and expenses 206–8 Statements of Accounting Concepts (SACs) 52 stewardship theory 13, 21 stock see inventories stock items 292, 315 straight-line depreciation 197, 217 strategic planning and budgeting 337–8 definition 337, 355 subjectivity of accounting information 65 Superannuation Industry (Supervision) Act 1993 (Cwlth) 47, 55 Superannuation (Resolution of Complaints) Act 1993 47, 55 sustainability see business sustainability sustainability report card 509 taxation impact on investments 450–1 sole trader 82 teleological theories 58–9, 68 temporary funding 464, 484 Teresa’s Carpets and Rugs statement of financial position 238–42 statement of cash flows 238–45 time lag in financial information 64–5 time value of money 444, 454 timeliness of financial information 53 times interest earned 304, 315 trade credit 472–3 trade creditors 157 trade debtors 154 www.ebookslides.com trade payables 157, 174 trade receivables 154, 174 trading entities 80 transposition error 121–2, 124 trend analysis definition 261, 267, 289, 315 financial statements 289–90 trial balance 120, 124 triple bottom line 14–15, 21 triple bottom line reporting 192, 217 trust advantages and disadvantages 89 definition and features 89, 98 trustee 89, 98 unavoidable costs 384, 391 uncertainty 203 in finance 441, 454 underapplied overhead 422, 429 understandability of financial information 53–4 UNDSD see United Nations Division for Sustainable Development UNEP see United Nations Environment Programme unidentifiable intangible assets 157 unit trust 89, 98 United Nations Division for Sustainable Development (UNDSD) 507 United Nations Environment Programme (UNEP) 14 units of production depreciation 197, 217 unlimited companies 87–8, 98 unlimited liability 81, 98 unsecured notes 477–8 utilitarianism 58, 68 variance 341, 355, 422, 429 verifiability of financial information 53 vertical analysis definition 290, 315 financial statements 290–2 volume drivers 413, 429 value in use 166, 174 variable costs 372, 391 XRB see External Reporting Board (XRB) weighted average contribution margin (WACM) 391 weighted-average cost flow assumption 165 working capital absolute value 464 definition 234, 249, 267, 301, 315, 463, 484 importance of 234 working capital ratio 301, 315 www.ebookslides.com WILEY END USER LICENSE AGREEMENT Go to www.wiley.com/go/eula to access Wiley’s ebook EULA ... with the tools they require to make decisions regarding the daily running of the business entity and whether the goals set by the business entity in the planning process are being achieved For. .. provides the rationale for the existence of the business Among other things, it gives the business owner the opportunity to show what market research has been done, the likely level of demand for the... structure will suit the business Will the business be a for- profit entity with the primary objective of making a profit from the resources the owners control in order to increase their wealth? Alternatively,