FNS60217 Advanced Diploma of Accounting


To think is one thing but to do is another; to ensure you gain impact from your learning we will engage in active learning to transfer concepts into the relevance of your business environment.

One of the most critical elements of businesses success is the development of our teams beyond the formal classroom acquisition of knowledge.  It is well recognised that retention of knowledge from training alone is at best about 20% however once application and coaching is added the increase in retention and implementation increases significantly and in some cases up to and beyond 80%.  Throughout your Certificate program we are committed to both stretching your learning but also giving a framework on which you can provide learning for others and ensuring that the knowledge gained through training is translated into practical on the job improvements.

Throughout your Assessment and Activity sessions we are going to investigate how you can reflect on:

  • Key learning’s from the written and observation activities that apply to your business.
  • Understand the relevance of the subject area and demonstrate your ability to apply learning.
  • Recognise common principles that apply and actively use these in business.
  • Building steps to the way forward for business improvement using your knowledge.

All of your assessment and learning is provided as a positive learning tool. Your mentor/assessor who will guide your learning and responses to the assessment materials until you have been deemed competent in this unit further assists you in this process.

Students: How you will be assessed:

The process you will be following is known as competency-based assessment.  This means that evidence of your current skills and knowledge will be measured against national and international standards of best practice, not against the learning you have undertaken either recently or in the past. (How well can you do the job?)

Some of the assessment will be concerned with how you apply the skills and knowledge in your workplace, and some in the training room.

The assessment tasks utilized in this training have been designed to enable you to demonstrate the required skills and knowledge and produce the critical evidence required so you can successfully demonstrate competency at the required standard.

The table on the next page shows you how to achieve a satisfactory result (competent) against the criteria for each type of assessment task.

What happens if your result is ‘Not Yet Competent’ for one or more assessment tasks?

Our assessment process is designed to answer the question “has the desired learning outcome been achieved yet?” If the answer is “Not yet”, then we work with you to see how we can get there.


In the case that one or more of your assessments has been marked ‘NYC’, your trainer will provide you with the necessary feedback and guidance, in order for you to resubmit your responses.

What if you disagree on the assessment outcome?

You can appeal against a decision made in regards to an assessment of your competency.   An appeal should only be made if you have been assessed as ‘Not Yet Competent’ against specific competency standards and you feel you have sufficient grounds to believe that you are entitled to be assessed as competent.

You must be able to adequately demonstrate that you have the skills and experience to be able to meet the Learning Outcomes of modules you are appealing against the assessment of.

You can request a form to make an appeal and submit it to your trainer, the Course Coordinator, or the Administration officer. The RTO will examine the appeal and you will be advised of the outcome within 14 days. Any additional information you wish to provide may be attached to this form.

What if I believe I am already competent before training?

If you believe you already have the knowledge and skills to be able to demonstrate competence in this unit, speak with your trainer, as you may be able to apply for Recognition of Prior Learning (RPL).

TRAINER/ASSESSORS: Responsibilities

Assessors need to be aware of their responsibilities and carry them out meticulously.  To do this they need to:

  • Ensure that students are competent in their units by following the guidelines from moderation meetings.
  • Request the manager/supervisor to determine that the student is ‘satisfactorily’ demonstrating the requirements for each unit. ‘Satisfactorily’ means consistently meeting the standard expected from an experienced operator. Managers (or designates) are to sign off on a ‘ Party assessment sheet’ for each unit of training by a student
  • Ensure that participants are assessed fairly based on the outcome of the Language Literacy and Numeracy completed on enrolment.
  • Ensure that all documentation is signed by the student, trainer, workplace supervisor and assessor as units and Certificates are completed which ensures there is no follow-up required from an administration perspective.
  • Ensure that the assessor’s own qualification Certificate for Training and Assessment is current.

Guide for students and assessors

Task‘Satisfactory’ Result‘Non Satisfactory’ Result
Portfolio EvidenceThe assessor will mark evidence provided against the key competencies of the unitEvidence provided does not meet all of the key competencies in the unit

(Written or verbal)

All questions answered correctlyIncorrect answers for one or more questions
Answers address the question in full; referring to appropriate sources from your workbook and/or workplaceAnswers do not address the question in full. Does not refer to appropriate or correct sources.
3rd. party judged on performance in the workplaceSupervisor or manager observes work performance and confirms that you consistently meet the standards expected from an experienced operatorCould not demonstrate consistency. Could not demonstrate the ability to achieve the required standard
Written activityThe assessor will mark the activity against the detailed guidelines/instructionsDoes not follow project guidelines/instructions
Attachments/appendices if requested are attachedRequested supplementary items are not attached
All requirements of the written activity are addressed/covered.Response does not address the project requirements in full; is missing a response for one or more areas.
Responses must refer to appropriate sources from your workbook and/or workplaceOne or more of the project requirements are answered incorrectly.

Does not refer to or utilize appropriate or correct sources of information

Observation in workplace by assessorAll elements, criteria and critical aspects of evidence, are demonstrated at the appropriate AQF levelCould not demonstrate elements, criteria and critical aspects of evidence, at the appropriate AQF level



Case Study Comprehension and Associated QuestionsAll comprehension questions answered correctly; demonstrating an application of knowledge of the topic to the case studyLack of demonstrated comprehension of the underpinning knowledge (remove) required to complete the case study questions correctly.

One or more questions are answered incorrectly.

Answers address the question in full; referring to appropriate sources from your workbook and/or workplaceAnswers do not address the question in full; do not refer to appropriate sources.

Assessment 1

For this assessment you will need to perform the following tasks. These tasks will need to be completed and submitted in a professional, word processed, format. Each task must be 1000 words minimum in length.

Task 1

For this task you are to write a report detailing how you could apply economic principles to work in the financial services industry. Your report must include details on the following:

  • How to evaluate returns to operations


There are several fundamental pieces of financial information as well as accounting tools and techniques that are essential to understand and use in respect to evaluating the organization’s financial performance (Carraher and Van Auken, 2013). In which includes below mentions things such as:

  1. Financial Statement

Financial analysis if determined as the written record that contains the different financial activities and conditions of an organization or an entity. In this way, it is also determined that financial statement also considers the four major components. The main purpose of this financial statement is to present the financial information in relation to an entity in question as clearly and quickly as possible in respect to both such as entity and the readers. The major components of the financial statement are income statement, balance sheets, statements of retained earnings and cash flows. But at the same time, it is also determined that financial statements might also need additional information that includes the disclosers based on the relevant accounting framework.

  1. Statement of Financial Position

The statement of financial position is known as a balance sheet that contains the assets, liabilities, and equity of the company on the respective date. In another manner, it is defined as the list of organizational resources, several obligations as well as ownership details of the company on a particular date. In short, it can be mentioned that the balance sheet can be defined as a snapshot of what the company looked like at a specific time in history.

  1. Income Statement

The income statement is identified as one of the three important financial statements that are used for reporting the financial performance of a company over the particular accounting period. This can be considered along with the two other key statements being the balance sheet and the statement of cash flow. This statement is also known as profit and loss statement as well as a statement of revenue and expenses.

Thus, these three statements are important to calculate while evaluating return to operations because after measuring outcomes in these statements, the evaluation of organizational performance is possible.


  • Ways to determine short-term and long-term needs


It is not an easy task to determine the number of resources required for the businesses particularly for those who are new ventures.  These new ventures have a range of long term and short term forecasts that can be conducted and at the same time a set of financial analysis strategies which are helpful to assess and clarify the organization’s need into future. In this, some techniques are as following:

  1. What if Analysis

What if analysis is determined as the tool that is used to build two budgets which each assumes a certain level of revenue. It is an excel tool which is beneficial to run reverse calculations, sensitivity analysis and scenarios comparison. This is the tool that is mostly proffered by every data analyst and management professionals in respect to make best and accurate decisions within the organization.

  1. Bivariate and Multivariate Analysis

Bivariate analysis is used to analyze the relationship between two data sets along with the investigations pair that is taken from a single sample or individual. At the same time, multivariate analysis is used to examine various variables in respect to see if one or more of them are projecting of a certain result.

  1. Break-Even Analysis

It is the point at which the sales of the business have generated sufficient income in respect to cover all of its fixed costs as well as expenses.  At the break-even point, all the incoming revenue of the business is defined as the profit as long as the expenses.  In this manner, the costs of the business are not increased and at the same time, the sales of the business are not reduced. In addition, the break-even point is evaluated by dividing the fixed expenses of the business by its revenue margin.

  1. Cost-Benefit Analysis

It is determined as the systematic approach for estimating the strengths and weaknesses of identified alternatives. It is typically used to identify the options that are used to provide the appropriate approaches for achieving the benefits while preserving savings. In addition, it might be adopted for making a comparison between potential courses of actions.

  • The process used to review performance


In concern of review the performance within the organization, there are several steps that can be adopted by the manager or HR manager in respect to review the organizational performance. These steps are as follows:

Step 1: Establish performance expectations and standards

Under this step, manager needs to set the performance expectations for its employees so that they can achieve them.

Step 2: Providing regular feedback

In this step, manager will provide regular feedback to its employees in order to make them update in concern of their regular performance in the organization.

Step 3: Measure actual performance

After giving regular feedback to the employees, manager gets performance related outcomes that need to be measured so that actual performance can be identified.

Step 4: Compare actual performance with standards

Under this step, manager has the duty to compare the actual performance with their set standards. If the actual performance is more than from its set standards, it means employees are working with efficiency within the organization.

Step 5: Discuss results of appraisal

On the basis of result of appraisal, manager should discuss the outcomes with the employees so that their actual performance can be known by them.

Step 6: Come up with corrective measures

After discussing all the outcomes with the employees, manager needs to set the corrective measures for the employees in order to help them so they can achieve their targets.

Thus, these steps can help the manager to make the review on the performance of the organizational employees.

Task 2

For this task you are to use your knowledge and research skills to discuss in detail, in your own words, the following points.

Discuss techniques for developing long-term and short-term plans and determine financial priorities

Answer: In respect of developing long-term and short-term plans, there are some techniques that can be used by a business for successfully achieve the objectives:

  • Keep short-term goals varied

It is an effective technique to develop effective long-term plans. In this, the business focuses on the short-term goals as a millstone and achieves them in an effective manner to increase the chances of success (Bodnar and Hopwood, 2012). In addition, short-term planning is a company’s present characteristic and it is helpful for the business to develop the strategies for improving the organization.

  • Don’t be afraid to set audiences long-term goals

In order to develop long-term and short-term plans, the management of the company should have good confidence to set audiences long-term goals. It is because the organization can lose the opportunity when it spends much more time to think that the work should be done or not (Louwers et al., 2015). If the long-term goals are developed with clarity, commitment and courage then it can be an effective goal for the business.

  • Use a consistent goal-setting framework

The use of the consistent goal-setting framework is also an effective technique for developing long-term and short term plans for the business. In this, the simple strategies and tactics can be used by a business to increase the probability of achieving the goals.

  • Link short-term goals to long-term objectives

It is necessary for a business to link the short-term goals with long-term objectives. It is because the business can achieve short-term goals in a systematic manner if it formulates good efforts. By achieving the short-term goal, the millstones of the business can be achieved that creates a way to attain long-term objectives.

On the basis of the above techniques, it can be said that the organization includes financial priorities such as the analysis of the expected return of investment (McKinney, 2015). At the same time, the investment may prefer in the different portfolios like Debentures, Interest bring to account, plant & equipment, preference share, and property, etc.


Explain the purpose and key features of standard financial analysis techniques and business review processes

Answer: The main purpose of the standard financial techniques and business review process is to analyze the financial performance of the organization. Through this, the present condition of the organization can be measured in an effective way because the standard financial analysis techniques provide suitable techniques for different kinds of businesses. With the help of standard financial analysis techniques and business review processes, a business can determine further steps that need to be taken in regard to the finance (Barr and McClellan, 2018).

In addition to this, there are some key features of standard financial analysis techniques and business review processes that are helping to define the financial analysis of a company. It defines that financial analysis is an aspect of the overall business finance function that is helpful for an organization to examine historical data to gain information about the current and potential financial health of an organization. At the same time, it can also be said that the financial analysis can be applied in a wide variety of situations to give business managers the information they need to make a critical decision for the success of the business (Sharma and Panigrahi, 2013).

There are some key features of standard financial analysis techniques and business review processes:

  1. Revenues are probably the main source of cash in a business. The quality, quantity, and timing of revenues can determine the long-term success of the business. These techniques help to discuss the revenue.
  2. If a business cannot produce quality profit consistently then it may not survive their business in long-run. These are also beneficial to calculate the profit.


Explain the role of audits in evaluating financial performance

Answer: In order to evaluate the financial performance of a company, there is an important role of audit. It is because the audit provides in-depth knowledge and information about the financial performance of the business. It is also helpful for the management to improve the internal controls of the business because it identifies the weaknesses in the system as well as it provides an opportunity to correct those weaknesses. Internal auditors deal with issues that are important to the continued existence and prosperity of any company (Allen et al., 2013). Detection and prevention of errors is also an important role of audit in the company because, during the audit, a business founds several errors in their financial data. In this, a firm innocently and deliberately committed for preventing and solving the error issues. On the other hand, the auditors deal with issues that are associated with internal financial management that plays a significant role to make effective prosperity of any company among its target customers (Vijayakumar and Nagaraja, 2012). The combination of assurance and consulting can also be made in the organisation by using internal auditing.


Discuss ethical considerations in evaluating financial performance

Ethical consideration is a necessary part in order to evaluate the financial performance of an organization. In concern to this, an auditor must focus on the legislation where the audit report should compliance with legislation. All the legislative criteria must be followed by an auditor during the auditing to increase the ethical consideration (Knechel and Salterio, 2016). In addition, during evaluating the financial performance of a firm, shareholder’s rights should also be ethically considered by an auditor. At the same time, another aspect must be ethically considered by an organization in evaluating financial performance is consumer protection. In this, it should be considered that the financial data of a company should not increase the information of consumers and it should protect to them. Similarly, transparency is also an effective aspect that must be considered in the evaluation of financial performance. In concern to this, an organization should provide transparency in their financial performance. Moreover, community impact should also be ethically considered by an organization during evaluating financial performance and auditing (Badolato et al., 2014). Honesty is the best policy in order to evaluate the financial performance. However, it can be said that there are several aspects that must be ethically considered by an organization to evaluate the financial performance like Compliance with legislation, Transparency, Community impact, Honesty Shareholders rights, Consumer protection, etc.


Task 3

N Engineering is a recently listed company that has just appointed a new, non-executive director to its main board of directors. At the first board meeting that the non-executive director attended, he was asked to become a member of the audit committee. The committee has only just been established and its terms of reference have yet to be finally agreed (Sodhi et al., 2012). The non-executive director is unsure what such a role might involve and, as a qualified engineer without a detailed understanding of finance, he is also unsure as to whether he is the right person for such a committee. He has, therefore, written to you for advice.

Write a report to the non-executive director setting out the possible role and responsibilities of the audit committee and the main qualities that a member of such a committee should possess.


The roles and responsibilities of the audit committee:

ü  Overseeing the financial reporting and disclosure process.

In this role, the members of audit committee need to take care of financial reporting of the company and they have also responsibility to take care of disclosure process. A high degree of financial literacy is necessary for an audit committee to effectively oversee a company’s financial control and reporting. The role of an audit committee in overseeing accountability of the management covers a wide scope to include the overall process of corporate reporting.

ü  Monitoring choice of accounting policies and principles.

It is the need to monitor the selection of accounting policies and principles and this is the responsibility of audit committee in the organization. The main principle and purpose of disclosure of accounting policies is to disclose any affair or event that had an influence on any of the financial statements. Business incorporates a legal system and, for most legal systems, it is a requirement in most countries to disclose its policies and statements.

ü  Overseeing hiring, performance and independence of the external auditors.

This is also the audit committee’s responsibility to oversee the hiring, performance and independence of the external auditors so that any kind of error can be determined, if the company have. It is essential to verify all the detail of external auditors because there is chance to have any fraud.

ü  Oversight of regulatory compliance, ethics, and whistleblower hotlines.

Within a company, it is important for the audit committee to oversight of regulatory compliance, ethics and whistleblower hotlines.  Due to this responsibility, it can be ensured by the organization that ethics and codes of conducts are followed within the organization by the employees while performing their operations. audit committees have special responsibilities for the oversight and management of their organization’s ethics and compliance programs, and there are numerous rules set by regulators.

ü  Monitoring the internal control process.

Management is required to assess internal control systems and provide quarterly certifications. Further, external auditors are required to audit management’s assessment in conjunction with an audit of the financial statements. The most effective way to mitigate the risk of fraud in your business or organization is by designing and implementing strong internal controls. In this way, monitoring of this internal control is also must.

Main qualities that a member of such a committee should possess:

ü  Competence in accounting and finances

Management outside finance attach a much greater importance to the technical accounting skills that finance professionals possess. There is, however, consensus between finance professionals and non-finance personnel regarding the relatively high importance of communication, problem-solving and interpersonal skills. The current study identifies the importance of finance and accounting abilities and examines whether there are significant differences in the perceived importance among different gaming industry professionals.

ü  A substantial understanding of the operations of the entity or organization

A member of audit committee needs to understand the operations of the entity or an organization so that while making any kinds of policies and procedures, they can effectively take part in this. Due to their deep knowledge, organization can get several benefits.

ü  An understanding of generally accepted accounting principles, as well as professional auditing standards

It is important to understand the accounting principles as Accounting is extremely important for recording the financial transactions in a business. Without accounting, you cannot display the financial health of your business to your stakeholders. Accounting is pivotal for various aspects and plays a crucial role in preparing the compiled financial statements.

ü  An understanding of the Committee of Sponsoring Organization’s (COSO) internal control framework

In our business world of multiple rules and regulations that have been established by numerous governmental and other agencies that often use hard-to-remember acronyms, it is easy to roll our eyes or shrug our shoulders at yet another set of standards. In addition, COSO (Committee of Sponsoring Organizations) internal controls are only a framework model outlining professional practices for establishing preferred business systems and processes that promote efficient and effective internal controls. This is essential for a member of audit committee to understand the internal control.

ü  An understanding of the role of the auditors

It is important for the audit committee member to understand the role of the auditors in the organization. Accountants and auditors follow companies’ money, ensuring a business accurately and truthfully records and reports its financial operations. Accountants handle the day-to-day recording, analysis and reporting of an organization’s financial transactions. Those transactions include the recording of income, payments, payroll and tax deductions as well as the annual reconciliation of the company’s books. Auditors are generally highly trained accountants who carefully examine a company’s financial records for accuracy and review a company’s accounting methods and procedures to ensure that the company avoids fraud and theft.

ü  High integrity and ethical standards

This is the need of a member of audit committee that high integrity and ethical standards are important that helps the organization through various ways. The system of moral and ethical beliefs that guides the values, behaviours and decisions of a business organization and the individuals within that organization is known as business ethics. Some ethical requirements for businesses are codified into law; environmental regulations, the minimum wage, and restrictions against insider trading and collusion are all examples of the government setting forth minimum standards for business ethics. A successful business depends on the trust of various parties—employees, managers, executives, customers, suppliers, and even competitors.

ü  Good communication skills

Communication is the process by which we share and understand information. This can be achieved verbally, visually, non-verbally, and through writing. Communication is considered effective when the message is received and understood in the way it was intended. With the help of effective communication, audit committee member can influence the organizational employees. In today’s hectic world, we rely heavily on the sharing of information, resulting in greater emphasis being placed on having good communication skills. Good verbal and written communication skills are essential in order to deliver and receive information quickly and accurately.


Allen, R., Hemming, R. and Potter, B. eds., 2013. The international handbook of public financial management. Springer.

Badolato, P.G., Donelson, D.C. and Ege, M., 2014. Audit committee financial expertise and earnings management: The role of status. Journal of Accounting and Economics58(2-3), pp.208-230.

Balsam, S., Jiang, W. and Lu, B., 2014. Equity incentives and internal control weaknesses. Contemporary Accounting Research31(1), pp.178-201.

Barr, M.J. and McClellan, G.S., 2018. Budgets and financial management in higher education. John Wiley & Sons.

Bodnar, G.H. and Hopwood, W.S., 2012. Accounting information systems. Upper Saddle River: Pearson.

Carraher, S. and Van Auken, H., 2013. The use of financial statements for decision making by small firms. Journal of Small Business & Entrepreneurship26(3), pp.323-336.

Cole, S., Giné, X., Tobacman, J., Topalova, P., Townsend, R. and Vickery, J., 2013. Barriers to household risk management: Evidence from India. American Economic Journal: Applied Economics5(1), pp.104-35.

Knechel, W.R. and Salterio, S.E., 2016. Auditing: Assurance and risk. Routledge.

Li, R. and Shen, Y., 2013. An old method facing a new challenge: re-visiting housekeeping proteins as internal reference control for neuroscience research. Life sciences92(13), pp.747-751.

Louwers, T.J., Ramsay, R.J., Sinason, D.H., Strawser, J.R. and Thibodeau, J.C., 2015. Auditing & assurance services. McGraw-Hill Education.

McKinney, J.B., 2015. Effective financial management in public and nonprofit agencies. ABC-CLIO.

Okpala, K.E., 2012. Adoption of IFRS and financial statements effects: The perceived implications on FDI and Nigeria economy. Australian Journal of Business and Management Research2(5), p.76.

Sharma, A. and Panigrahi, P.K., 2013. A review of financial accounting fraud detection based on data mining techniques. arXiv preprint arXiv:1309.3944.

Sodhi, M.S., Son, B.G. and Tang, C.S., 2012. Researchers’ perspectives on supply chain risk management. Production and operations management21(1), pp.1-13.

Vijayakumar, A.N. and Nagaraja, N., 2012. Internal Control Systems: Effectiveness of Internal Audit in Risk Management at Public Sector Enterprises. BVIMR Management Edge5(1).

Assessment 2

A friend has approached you looking for some advice. He has been offered the position of Sales Director within an entity, ABC, which supplies the building trade. He commented that he had reviewed the information on ABD’s website and there were lots of positive messages about the entity’s future, including how it had secured a new supplier relationship in 2010 resulting in a significant improvement in margins.

He has been offered a lucrative remuneration package to implement a new aggressive sales strategy, but has been with his current employer for six years and wants to ensure his future would be secure. He has provided you with the finalized financial statements for ABC for the year ended 31 Dec 2010 with comparatives

The financial statements for ABC are provided below:

Statement of Financial Position at 31 Dec20102009
Non-current assets
Property, plant and equipment254198
Investment in associate240
Current assets
Cash and cash equivalents06
Total assets456341
Equity and Liabilities
Share capital ($1 equity shares)4545
Retained earnings146139
Revaluation reserve400
Total equity231184
Non current liabilities
Long term borrowings9191
Current liabilities
Trade and other payables9566
Short term borrowings390
Total liabilities225157
Total equity and liabilities456341


Statement of comprehensive income for the year ended 31 Dec20102009
Cost of sales(203)(223)
Gross profit4825
Distribution costs(18)(13)
Administrative expenses(16)(11)
Share of profit of associate70
Finance costs(12)(8)
Profit before tax10(7)
Income tax expense(3)2
Profit for the year7(5)
Other comprehensive income:
Revaluation gain on PPE400
Total other comprehensive income400
Total comprehensive income47(5)


Additional information:

  1. Long term borrowings

The long term borrowings are repayable in 2012

  1. Contingent liability

The notes to the financial statements include details of a contingent liability of $30 million. A major customer had to rectify some of its building work when investigations discovered that a building material, which had recently been supplied by ABC, was found to contain a hazardous substance. The initial assessment from the lawyer is that ABC is likely to lose the case although the amount of potential damages could not be measured with sufficient reliability at the year-end date.

  1. Revaluation
  2. ABC decided on a change of accounting policy in the year and now includes its land and buildings at their revalued amount. The valuation was performed by an employee of ABC who is a qualified valuer.


  • Analyse the financial performance of ABC for the year to 31 Dec 2010 and its financial position at that date and briefly discuss ABC’s suitability as a secure employer for your friend

Answer:  Analysis of Financial Performance:

Liquidity Ratio
Current Ratio:Current Assets / Current Liabilities2.171975
Activity Ratio
Accounts Payable Turnover RatioNet Credit Purchases / Average Accounts Payable1.26087
Accounts Receivable Turnover RatioNet Credit Sales / Average Accounts Resembles2.1
Leverage Ratio
Debt to Equity Ratio(Long-term debt + Short-term debt + Leases) ÷ Equity0.393939
Profitability Ratio
Gross Profit Ratio(Revenue – Costs of Goods Sold)/ Revenue19%
Net Profit RatioNet Profit / Revenue3%


On the basis of above analysis, it can be mentioned that ABC Co. is in positive condition as it is earning enough profit so it can adopt several sales strategies in order to increase its sales (Luo et al., 2015). At the same time it can also adopt the customer relationship strategy so that it can easily maintain the relationship with its suppliers. Due to changes in its strategies, its profit margin will also be changing (Al Karim and Alam, 2013).

  • Explain the potential limitations of using traditional ratio analysis as a means of decision making using ABC situation.

Answer: The potential limitations of using traditional ratio analysis

  • Historical
  • Historical versus current cost
  • Inflation
  • Aggregation
  • Operational changes (Vinci et al., 2013)
  • Accounting policies
  • Business conditions

Thus, these limitations impacted the decision making of ABC situation.

Task 2

T Ltd specializes in the importation and sale of equipment for children’s indoor play centres. The company was set up 2 years ago by its joint shareholders, Mr and Mrs B.

The business has been very successful, expanding rapidly over the last year, and the cash balance in the company’s current account has exceeded $1million on several occasions recently.

Mr and Mrs Brute have asked you, an accounting technician for T Ltd, to assist them in managing their cash balances over the next 6 months.

You have been provided with the following information.

  • The bank balance on 1 Jan 2005 is forecast at $1.2 million in credit
  • Sales for Nov and Dec 2004 are $1.3 million per month. They are expected to rise to $1.5million in Jan 2005, $1.7 million in Feb and $1.9 million in March. They will then fall to $1.4 million for each of the following 6 months. This is due to a downturn in demand as the weather improves.
  • All sales are made on credit. 2% of debtors do not pay at all, 70% pay one month after sale and the remaining 28% pay 2 months after sale.
  • Purchases are made one month prior to sales, and 2 months’ credit is taken from suppliers.
  • The company’s gross profit margin is 50%
  • The cost of employing T Ltd’s permanent staff is $150,000 per month. T Ltd also employs temporary staff during Jan, Feb and March at an additional cost equating to 3% of sales each month
  • T Ltd uses a courier to dispatch the equipment to its customers. The cost of this service is 2% of sales value in Jan to March, falling to 1% thereafter.
  • Administration costs are forecast at $30,000 for Jan. These costs are directly proportional to sales each month.
  • Mr and Mrs B will be attending a conference abroad in July 2005 at a total cost of $5,000. They must complete the booking form and send it off, along with a deposit of $2,000, by the end of Jan 2005. The final balance is due in June.
  • The company charges depreciation of $45,000 each month
  • T Ltd also owns 2 indoor play centres that it rents out at the rate of $3,500 each per month from Jan to April, falling to $3,000 per month thereafter. All rents are received one month in advance.
  • The company will invest in a new computer system later in the year. This will be paid for by 2 equal instalments of $200,000 one in June and one in Sept.

Prepare a monthly cash budget for each of the 6 months to 30 June 2005, showing clearly any necessary workings

Note: All workings should be in $000

Unless told otherwise, assume that payments are made in the month in which the costs are incurred.

Answer: Cash budget for 6 months

Particular1($)2 ($)
Beginning Cash01,200,000
Sources of Cash
Account Receivable11662000
Total Cash Received 260000022,162,000
Use of Cash
Costs of Permanent staff900000900000
Temporary Staff153000
Courier Services144,000
Administration Costs186,000
Rent for indoor play20,000
Computer System Installment200,000
Total use of cash2,470,0006,526,000
Net Cash Position

(This budget shows in the change of net cash position)



Al Karim, R. and Alam, T., 2013. An evaluation of financial performance of private commercial banks in Bangladesh: Ratio analysis. Journal of Business Studies Quarterly5(2), p.65.

Luo, D., Dong, H., Luo, H., Xian, Y., Wan, J., Guo, X. and Wu, Y., 2015. The application of stable isotope ratio analysis to determine the geographical origin of wheat. Food chemistry174, pp.197-201.

Vinci, G., Preti, R., Tieri, A. and Vieri, S., 2013. Authenticity and quality of animal origin food investigated by stable‐isotope ratio analysis. Journal of the Science of Food and Agriculture93(3), pp.439-448.

Assessment 3

  1. Briefly describe what financial statements are.

Answer: Financial statements:

Financial statements are identified as the written records which contain the financial activities as well as conditions that are related to a particular business or entity. At the same time, it also consist four major components (Palepu et al., 2013). The key purpose of the financial statement is to provide the financial information of the entity as clear as possible in respect of entity or the readers.

  1. What are averaged results and disaggregated results?

Answer: Averaged results:

In colloquial language, an average is a single number taken as representative of a list of numbers. Different concepts of average are used in different contexts (Bierman Jr and Smidt, 2012). Often “average” refers to the arithmetic mean, the sum of the numbers divided by how many numbers are being averaged.

Disaggregated results:

Disaggregated data refers to numerical or non-numerical information that has been collected from multiple sources and/or on multiple measures, variables, or individuals; compiled into aggregate data—i.e., summaries of data—typically for the purposes of public reporting or statistical analysis; and then broken down in component parts or smaller units of data.

  1. Describe what capital budgeting is.

Answer: Capital budgeting:

Capital budgeting is the process in which a business determines and evaluates potential large expenses or investments. These expenditures and investments include projects such as building a new plant or investing in a long-term venture.

  1. What are the five main categories that can be applied to resources? Name and describe them.

Answer: There are several categories of resources in which five categories are as follows:

  1. Financial Resources: The most important element in starting a business is funding. Even the most basic home business incurs a multitude of startup costs, including registering a business name, obtaining a business telephone line and printing business cards.
  2. Human Resources: The success of an organization is heavily reliant on the talent and strength of its employees.
  3. Educational Resources: Perhaps the greatest thing an entrepreneur can do when establishing a new business is to gain as much education possible.
  4. Physical Resources: Whether a small home business or a retail operation with multiple locations, every organization must have the appropriate physical resources to survive.
  5. Emotional Resources: Starting a business can be an extremely stressful endeavor for an entrepreneur to undertake.


  1. What is a strategy? Briefly describe the term.

Answer: A strategy is all about integrating organizational activities and utilizing and allocating the scarce resources within the organizational environment so as to meet the present objectives.

  1. What are four types of data that may be collected to inform you on areas of the business that are in need of financial evaluation?

Answer: Several kinds of information is identified within a business that are defined below:

  1. Description of Business

The company description section of your business plan is typically the second section, coming after the executive summary.

  1. Marketing of Business

Business marketing is a marketing practice of individuals or organizations

  1. Finances of Business

Finance is about managing your money — knowing what’s coming in and going out. Check out our jargon-buster: B is for budget, C is for cash flow

  1. Management of Business

Business management – Management of a business. It includes all aspects of overseeing and supervising business operations.

  1. What might expenditure and Investment organisational policies and procedures include?

Answer: Factors that affect the expenditure policies and procedure are the Labour Costs, Operating & Other Expenses and Records.

Factors that affect the investment policies and procedure

  • Interest rates

An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited or borrowed.

  • Economic growth (Tang and Chang, 2012)

Economic growth is the increase in the inflation-adjusted market value of the goods and services produced by an economy over time.

  • Confidence/expectations

Expectations usually concern results, or personal statistics such as, expecting to get a hit every time you’re at the plate.

  • Technological developments

Technological developments required for the biorefining of woody biomass can be compared to current technologies and processes used in petrochemical refineries

  1. What does a high debt to equity ratio demonstrate?

Answer: The Debt/Equity (D/E) Ratio is calculated by dividing a company’s total liabilities by its shareholder equity. These numbers are available on the balance sheet of a company’s financial statements (Gracis et al., 2012).

  1. What is forecasting?

Answer: Forecasting is a decision-making tool used by many businesses to help in budgeting, planning, and estimating future growth.

  1. What is the process for conducting a gap analysis?

Answer: There are three steps that are related to the process for conducting a gap analysis.  These steps are as follows:

Step1. Finding the gaps

Under this step, analyst determines the gap between relevant facts in the business.

Step2. Narrowing down on key variables

One you have found the gap, you have to narrow down on the key variables.

Step3. Implementing a strategy to cover the gap

Once gap analysis is complete and the gaps are known, various strategies can be implemented to ensure that the gaps are covered.

  1.  What are the types of internal and external risks in business? Include 3 examples of each.

Answer: Internal Risks:

It includes the following

  • Union strikes

The object of collective bargaining is for the employer and the union to come to an agreement over wages, benefits, and working conditions.

  • Dishonesty by employees

Dishonesty in the workplace includes employee theft, submitting incorrect time sheets, lying to managers and co-workers and unethical conduct such as harassment or drug abuse.

  • Ineffective management or leadership

An effective manager should posses a mix of skills and competencies, such as interpersonal skills, communication and conflict-management skills, and leadership skills.

Types of Internal Risks:

  • Human-Factor Risks: It include death, injury and accident
  • Technological risk: The risk occurs in the form of failure of system and obsolete
  • Physical risk: It includes the Endinitis or carpal tunnel syndrome

External Risks:

It includes the following:

  • Unexpected loss of revenue

Budgeting After an Unexpected Loss of Income. Panic is a natural reaction when your income ceases or drops drastically, through illness, job termination or any other event that results in less income.

  • Tariffs

Tariffs are generally introduced as a means of restricting trade from particular countries or reducing the importation of specific types of goods and services.

  • Taxes

A tax is a mandatory financial charge or some other type of levy imposed upon a taxpayer by a governmental organization in order to fund various public expenditures.

Types of External Risks:

  • Economic risk: It includes the risk in exchange rate and government regulation.
  • Natural risk: It involves earthquake and floods (Kou et al., 2013).
  • Political risk: It include the investor, corporation and government risk
  1. What is the process for reviewing performance

Answer: Steps that need to be taken for reviewing performance within the business are as follows:

Step1. Develop an evaluation form: In this performances of individual is evaluated based on factors.

Step2. Identify performance measures: It includes comparing of standard performances with actual performances (Nickel and Tudyka, 2014).

Step3. Set guidelines for feedback: It involves the identification of deviation which needs to solve.

Step4. Create disciplinary and termination procedures: In this, the performances procedure will be adopted in order to bring changes accordingly.

Step5. Set an evaluation schedule: This stage evaluates the schedule in such a way that individual is making improvement in performances or not.


Bierman Jr, H. and Smidt, S., 2012. The capital budgeting decision: economic analysis of investment projects. UK: Routledge.

Gracis, S., Michalakis, K., Vigolo, P., Vult von Steyern, P., Zwahlen, M. and Sailer, I., 2012. Internal vs. external connections for abutments/reconstructions: a systematic review. Clinical oral implants research23, pp.202-216.

Kou, S., Peng, X. and Heyde, C.C., 2013. External risk measures and Basel accords. Mathematics of Operations Research38(3), pp.393-417.

Nickel, C. and Tudyka, A., 2014. Fiscal stimulus in times of high debt: reconsidering multipliers and twin deficits. Journal of Money, Credit and Banking46(7), pp.1313-1344.

Palepu, K.G., Healy, P.M. and Peek, E., 2013. Business analysis and valuation: IFRS edition. Cengage learning.

Tang, Y.C. and Chang, C.T., 2012. Multicriteria decision-making based on goal programming and fuzzy analytic hierarchy process: An application to capital budgeting problem. Knowledge-Based Systems26, pp.288-293.

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