Client Project Assessment Task 2

Assessment Task 2: Client project

Task summary

This assessment task requires you, in the role of an Accountant with Aus Accountants, to meet with a client to assess their needs, then analyse their business performance and prepare advice.

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

Required

● Business Report Template

● Company Data

● Performance Report Template

Submit

● Email to assessor with business report attached

● Email to assessor with calculations and recommendations

● Email to assessor regarding discrepancies in the figures

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

Assessment Task 2 Instructions

Carefully read the following:

Mary and Mike Maroney have decided to set up a company that manufactures and sells children’s toys. Mary and Mike are married and are in their mid 50s. Their children have left home, so they have no dependents. They have a small mortgage on their house.

Mary has sent you the following email:

Dear Accountant

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

I would like to set up a meeting with you to discuss the best business structure for us, and the best way to fund our business. We estimate that we will need $50,000 in start-up capital.

I would appreciate your advice on the above, including business structure and possible sources of finance, as well as the type of business risks that you consider we should take into account.

Kind Regards

Mary

Complete the following activities:

1. Prepare for meeting

The first part of this assessment requires you to prepare for the meeting with the client (Mary) to discuss and confirm the business’ objectives, as well as to confirm legal and financial requirements in relation to setting up, structuring and financing their proposed business.

Review the information provided in the email and identifies a range of initial financial options and processes. This should include:

● Potential business structures (at least three) and advantages and disadvantages of each

● Sources of funding (at least three) and the advantages and disadvantages of each

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

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

Make notes on these options to discuss at the meeting with the client.

Your assessor will advise you of the date and time of the meeting.

In the financial services industry you will frequently be approached by various clientele groups requesting information on a wide range of financial / business issues. You will need to provide the client with information which will meet the client’s needs; information which will assist the client in achieving a desired objective, different types of financial options may include:

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

2. Participate in a meeting with client to assess their needs

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

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

● Potential business structures (at least three) and advantages and disadvantages of each

● Forms of funding (at least three: one short-term and one long-term) and the advantages and disadvantages of each

● Proposed financial options based on information provided and actions to be taken to achieve the above.

During the meeting, you will be required to demonstrate effective communication skills including:

● asking and responding to questions

● active listening techniques.

● effective non-verbal communication to assist with understanding.

At the conclusion of the meeting you will need to verbally confirm the client’s expectations and objectives and secure the client’s agreement to proceed with the proposed business structure and funding options.

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

The first step is to get your information organised. Now organise the information into a logical order so that it is easy to analyse. A simple excel dashboard that records the KPIs (Key Performance Indicators) for your business is adequate and easy to use. What worked? What didn’t work? You now have a consolidated view of the key measures for your business and how they performed against target and expectation.

Categorise the performance result, based on the following:

On track
Negligible
Significant

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

There are 6 steps that are to be taken. Those are as follows:

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

· Regular review of contracted payer rates and operational costs

Financial forecasts assist you to meet your business goals. They are a future prediction of your business finances, as compared with statements, which provide details of actual results or progress.

Predicting the financial future of your business is not easy, especially if you’re starting a business and don’t have a trading history. However, forecasting and adjusting frequently will enable you to become more accurate. Monthly or weekly forecasts may be necessary when starting your business, experiencing rapid growth, or having financial difficulties. Regular forecasts allow you to closely monitor your finances and develop strategies to fix problems before they become major issues. Monthly or quarterly forecasts may be more appropriate for a stable, established business.

3. Write a business report for the client.

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

Use Business Report Template to structure your response.

The report should be about two pages long.

To client,

This discussion is regarding influence of prudence concept to reliable financial statement in auditing process. The 1989 Framework includes Prudence alongside Neutrality as a desirable quality of reporting. Due to its implications in financial reporting and conflict with neutrality, Prudence was removed by IASB in 2010. The decision was made after long discussions and controversial debates. In 2013, IASB produced a discussion paper in which it stood firm with its previous decision to remove prudence. In 2015, IASB reintroduced Prudence in its Exposure Draft (ED) Conceptual framework for Financial Reporting. It is considered that reintroduction of Prudence in conceptual framework will help to attain neutrality while making financial statements (Wagenhofer, 2015). Further down I’ve discussed the Pros and Cons of Prudence to the Firm.

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

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

Undoubtedly, the reintroduction of prudence in conceptual framework do have the benefits as well. With the reintroduction of prudence in conceptual framework, Accountants and auditors will have the ease of estimation. They will have more freedom for making any estimations and can manipulate any required changes. Only reasonable manipulation is acceptable as these Financial statements will further help the investors to invest in the business. If any company lands in loss in current Financial year, through reasonable manipulation, accountants can show it in profit by transferring this year’s expenses to next year and by adding up unrealised revenues. This will help the company to operate continuously and make profit in the next financial year. This profit will further help the company to offset the loss that they have made in last year. Companies can make more provisions which make it easier for them to offset the future loses. Auditing firms and corporate advisory groups will have to be more vigilant with the procedures. Users will always be in demand of high-quality audit reports which can help auditing firms to make more money. The prudence will act in favor of corporate advising companies. Advisors will have to do more research before reaching onto a conclusion, but this will be a money-making tool for them as none of the investors would like to invest their money in a company in which there is least return on investment. Higher the return, more satisfied the users are. Before prudence, people use to follow the crowd and use to invest where the whole lot of people are investing but now without the research, investing in a business is no less than taking a chance. People interested in investing will happily pay the advisors to seek the right information before investment.

For the conclusion, I would say that prudence does have its own importance in preparing the financial reports unless the use of it is out of reasonable purpose. It will make the business environment full of bias. Accountants will have to put the real efforts in making the accounts while auditors have to be careful while checking all the financial reports. My recommendation to Mr. Price would be to be sure about the auditing quality as investors would be happy paying for getting the true and fair view of financial reports and expects the auditors to detect the frauds in the accounts. Recommendation to Dr. Waterhouse is that people may not always make right decision even after gaining the right information. Sometimes it depends on the choice of people than the information that is been provided. The concept of prudence is necessary to be included in the conceptual framework to provide guidelines for accounting professionals in the uncertain situations, transactions and events. However, the old concept needs to be improved to become more clearer and easily applicable in practical accounting.

On behalf of our clients and team, we thank you for the opportunity to provide our comments on the International Accounting Standards Board's (IASB) Exposure Draft (ED) regarding Conceptual Framework for Financial Reporting (CF).

After the re-inclusion of the prudence in ED (Exposure draft), Big Phore has been thinking on this matter. As discussed above, there are benefits of prudence concept and on the other hand, there are disadvantages of this concept as well. After long discussions and controversial debate, stakeholders’ interest has been given the priority. If we see think as per stakeholders, they always want the things in the best interest of the company. For instance, If there is an investor who has invested in the company, he will always be expecting the company to be in profits because of the return on his investments. The ones who wants to invest in the business, they will always compare the return on investments and other factors which is only possible if the company is in profits. The company appreciate it and looking forward to make a conceptual framework which can be proven successful for the investors.

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

On the other hand, another argument can be raised against this notion. We assume that it will fade out the concept of neutrality and same issues will come up due to which the accounting bodies forced it out of the conceptual framework. Due to this concept, accounts will be full conservatism that it may lead the stakeholders to make a wrong choice while investing in the business. Which might further lead to crash in the whole industry. A firm can create a hidden reserve which does not have any obligation to be listed in the financial statements which could make investors think again prior to investment. These hidden reserves will be able to help managers to transfer this year’s expenses to next year and makes it much easier in case if prudence is included. As mentioned above, this practice would lead to payment of more dividends even during the period of loss. Managers might focus only on the short-term goals to gain the incentives instead of working on long term goals. Certainly, it will negatively affect the company’s agency costs which will be increased. Trust among the investors will be felt shaken as they will know that there is the chance of misstatement in the accounts. Investors will always have a second thought in their minds before investment, as they are worried more for the risk involved than the return on investment. The investment industry might end up in depression which may later cause crash in the whole economy. Auditors are the most reliable person for the investment because they are the external party and have no personal interest in the financial statements of the company. Their job will become more stressing as they will have much higher detection risk than normal, and they are meant to provide the true and fair view of the financial statements. Due to prudence, the subjectivity would give a picture of financial statements that are less understandable and inconsistent with neutrality.

4. Send an email to Mary (your assessor)

The text of the email should be in grammatically correct English, written in an appropriate (polite, business-like) style. It should introduce and summarise the contents of the attachment.

Attach your business report to the email.

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

Dear Accountant

We are six months into the operations of our business and it is going pretty well. Thank you for the recommendation to make it a family trust. This has proved to be relatively simple.

Our average monthly sales are currently $40,000 with the cost of sales being $20,000.

As discussed with you originally, our Accounts Receivable turnover is set at 60 days with no cash discount payable for early payment.

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

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

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

Kind Regards

Mary

5. Monitor company progress

Based on the information above, calculate the present value of the gross profit under the current credit policy, and the present value of the gross profit under the proposed credit policy.

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

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

the organisation's objectives.

All data and reports are analysed in accordance with standard financial analysis techniques

Information is evaluated in relation to the financial performance of a business, specifically profitability,

efficiency and financial stability Analysis are undertaken to ensure consistency of analysis with client's business and personal objectives Evaluation is undertaken to assess the financial potential of the business, its future funding requirements and statutory obligations

6. Send an email to Mary (your assessor)

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

The contents of the email should show your calculations and provide advice as to whether to proceed with the proposed changes to the credit policy.

Mary and Mike have now been trading for one year and have provided you with the data for one year’s trading plus their forecasts for the following year.

They would like you to prepare their balance sheet for the financial year 2016/2017, as well as the profit and loss statement, plus the same for forecasted amounts.

They have also asked for your:

● advice on current business performance

● forecasted performance

● a reminder of their statutory obligations in terms of reporting to the ATO and ongoing tax obligations.

Dear Mary and Mike

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

Your average monthly sales are currently $40,000 with the cost of sales being $20,000. As discussed with you originally, our Accounts Receivable turnover is set at 60 days with no cash discount payable for early payment.

Proposal One (Credit terms of 1 month)

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

Proposal Two (Credit terms of 1 month with a discount offer of 8%)

Total sales and variable expenses are as per proposal 1
If a discount of 8% were offered to those who pay on time:

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

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

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

Kind Regards

Jane Foster

7. Prepare a Balance Sheet and an Income Statement.

Review the data in the Client Data document provided by Mary and Mike, and then prepare a Balance Sheet and Income Statement according to standard formats for financial statements.

Note that you will need to check all of the figures well, as there will be a discrepancy in the figures that you will need to check with Mary and Mike before proceeding. As per your company’s procedures, you are required to do this in writing so you will need to verify the data via an email to Mary and Mike (your assessor).

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

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

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

Equity
Share Capital: $ 0

Retained earnings $ 155
Total Equity $ 1305

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

8. Send an email to Mary (your assessor)

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

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

Dear Mary and Mike

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

By offering 1-month credit to all customers, it is thought that total sales will increase by 10%.

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

Total sales and variable expenses are as per proposal 1
If a discount of 8% were offered to those who pay on time:

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

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

Kind Regards

Jane Foster

9. Complete the Balance Sheet and Income Statement.

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

10. Write a company performance report.

In addition to the financial statements above, you are also required to prepare a short (one page) report that addresses the following:

● An introduction to the report confirming the client’s objectives.

● The ratios you have identified to assess the client’s performance, including an outline of the rationale behind the ratio that you have selected.

● The financial performance of the business based on your calculations i.e. profitability, efficiency and financial stability.

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

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

● Statutory obligations in terms of reporting and lodgement dates and ongoing tax obligations (include the link to the relevant section/s of the ATO web site to assist with understanding for the client).

Use the Performance Report Template to guide your work.

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

Retained earnings $ 155
Total Equity $ 1305

Income Statement
For the Year Ended 06 May, 2019
$ 40,000
Total Sales $ 2310
Less cost of goods sold
Opening Inventory $ 220
Purchases $ 1620
Goods available for sale $ 1840
Less closing Inventory $ 120 $ 1720
Gross Profit 590

Less operating expenses
Depreciation $ 110
Interest $ 90
Rent $ 30
Other $ 40
Total Expenses $ 440

Net Profit before tax $150
Tax $45
Net Profit After Tax $ 105

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

Required:

Evaluate each of the three systems above (i.e. Currently, Proposal One, Proposal Two). Assume 1% per month interest rate)

	Tiger	Industry
Current Ratio	3.1	1.5:1
Liquid Ratio	0.7:1	1.5:1
*Tiger does not have a bank overdraft

Currently system = 200,000 - (200,000 x 0.3) = $140,000.

Proposal One

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

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

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

11. Send an email to Mary (your assessor)

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

It should introduce and summarise the contents of the attachments.

Attach your Balance Sheet, Income Statement, and Performance Report to the email.

Dear Mary and Mike

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

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

Retained earnings $ 155
Total Equity $ 1305

	Tiger	Industry
Current Ratio	3.1	1.5:1
Liquid Ratio	0.7:1	1.5:1
*Tiger does not have a bank overdraft

Currently system = 200,000 - (200,000 x 0.3) = $140,000.

Proposal One

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

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

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

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

Kind Regards

Jane Foster

Assessment Task 3: Case studies

Task summary

This assessment task requires you to review three case studies and provide answers to questions.

You need to answer all of the written questions correctly.

Answers must be word processed and sent to the assessor as an email attachment.

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

Required

● Computer and Microsoft Office

● Access to the internet for research

Submit

● Email to assessor with answers to the questions attached.

Assessment Task 3 Instructions

Carefully read the following:

Case study 1

Sammy Sausages is a sausage processing business run by Samuel Smith. The sausages are made fresh every day and delivered to the fast food outlets the same day. The prime ingredient is premium quality minced beef. Each day 708 kilograms is used to produce 700 kilograms of sausages.

An administrative assistant who is paid an hourly rate of $28 does the order processing. She takes 45 minutes to process each order.

The minced meat is bought at a price of $4,000 per tonne. The cost of refrigerating the meat is $1 for every 10 kilos.

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

The order lead-time is 1 day.

The company requires a 10% return on investment (ROI).

Complete the following activities:

1. Determine Sammy Sausages’ Economic Ordering Quantity (EOQ). Show your calculations.

The single-item EOQ formula finds the minimum point of the following cost function:

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

Where:

Economic order quantity = √2DK/h =√ (2*708*28)/4,000 =3.152D∗Kh

2. Advise Samuel on whether he should implement the calculated EOQ

In presence of a strategic customer, who responds optimally to discount schedule, the design of optimal quantity discount scheme by the supplier is complex and has to be done carefully. This is particularly so when the demand at the customer is itself uncertain. An interesting effect called the "reverse bullwhip" takes place where an increase in consumer demand uncertainty actually reduces order quantity uncertainty at the supplier.

Backordering costs and multiple items

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

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

Malakooti (2013) has introduced the multi-criteria EOQ models where the criteria could be minimizing the total cost, Order quantity (inventory), and Shortages.

A version taking the time-value of money into account was developed by Trippi and Lewin.

Imperfect quality

Another important extension of EOQ model is to consider items with imperfect quality. Salameh and Jaber (2000) are the first to study the imperfect items in an EOQ model very thoroughly. They consider an inventory problem in which

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

Case study 2

Rachael Wilson is CFO for a large telecom company in Australia. She has recently discovered an interesting computer available for purchase in Australia from Computer Analytics. It is being used by several companies to automatically perform analysis on data. Rachael has been researching it for the last month and is convinced that the $3.1million machine would suit her company. It will save $900,000 a year in analyst salaries. Computer Analytics will install it and test it for $100,000 and it is expected to last for 8 years. Computer Analytics also requires a refundable deposit of $300,000 to be paid up front. This will be held by Computer Analytics for the life of the machine so it can provide annual updates. Required rate of return is 14%

3. Calculate Net Present Value (NPV). Show your calculations.

The formula for NPV varies depending on the number and consistency of future cash flows. If there’s one cash flow from a project that will be paid one year from now, the calculation for the net present value is as follows:

NPV= [Cash flow/(1+i)^t ] - initial investment

where:

i=Required return or discount rate

t=Number of time periods

NPV= [900,000/(1+0.14)⁸ ] – 300,000 = 14,685.32

4. Calculate Internal Rate of Return (IRR). Show your calculations

The IRR formula is as follows:

NPV = [100000 / (1+14%)⁸] = 15.63%

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

NPV= [Cash flow/(1+i)^t ] - initial investment

where:

i=Required return or discount rate

t=Number of time periods

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

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

Case study 3

Three directors of a profitable listed company discussed their preferred dividend policies for their company.

1. Pay no dividends for the next five years.

2. Always pay a dividend of 50% of earnings after taxation.

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

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

6. Discuss the advantages and disadvantages of the alternative dividend policies for the company.

Advantages of Stable Dividend Policy:

A stable dividend policy is advantageous to both the investors and the company on account of the following:

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

· It provides a source of livelihood to those investors who view dividends as a source of funds to meet day-to-day expenses.

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

It improves the credit standing and makes financing easier.

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

Disadvantages of Stable Dividend Policy:

Inspire of many advantages, the stable dividend policy suffers from certain limitations. Once a stable dividend policy is followed by a company, it is not easier to change it.

If the stable dividends are not paid to the shareholders on any account including insufficient profits, the financial standing of the company in the minds of the investors is damaged and they may like to dispose of their holdings. It adversely affects the market price of shares of the company. And if the company pays stable dividends in spite of its incapacity, it will be suicidal in the long-run.

Assessment Task 4: Customer feedback and analysis project

Task summary

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

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

Submit

● Email to assessor with customer survey attached

● Email to assessor with response to the results of the survey, and intended actions

Assessment Task 4 Instructions

Carefully read the following:

You are a self-employed Accountant with a number of small and middle-sized businesses as your clients. These businesses are local, and you know the owners personally after years of doing business together. Over the last year you have noticed that your workload is building, so you are considering taking on a bookkeeper to help out with some of your tasks. Before you employ the bookkeeper, you want to make sure that your customers are satisfied with the services you currently offer, and to know what skills any new employee should have to most benefit your business.

To help you with your decision, you choose to send a short survey to all of your clients. The survey should give you enough information so you can decide whether or not your business will continue to grow in the future and, if so, in what directions.

The survey should probe the clients’ satisfaction with your work and your time management on a sliding scale. It is also important for you to ask how they see their company’s demand for accounting services developing over the next few years. It is also important that you give each client the opportunity to give feedback that is outside the questions that you ask, so ask several open answer questions, too.

Complete the following tasks:

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

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

An example of a sliding scale question could be:

Circle the to rate the statements below, where 1 means that you completely disagree and 10 means that you totally agree.

When I leave a message for you, it is responded to quickly.

1 2 3 4 5 6 7 8 9 10

An example of an open question could be:

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

2. Send an email to one of your clients (your assessor)

The text of the email should be in grammatically correct English, written in an appropriate (polite, business-like) style. The text should explain why you are sending them a survey, and ask them to fill it out and return it as soon as convenient.

Attach the questionnaire to the email.

Of the 30 customer surveys that were sent out, 16 customers responded to the survey with the findings as follows:

Response time

Average rating: 6

Three comments received as follows:

● I really like your services but do find the length of time you take to respond to be annoying.

● Quicker response time would be better.

● Why not introduce clear service standards so we as customers know when we can expect you to respond.

Professional service

Average rating: 9

● No additional comments

Value for money

Average rating: 8

One comment as follows:

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

Additional services

● I think employing additional accountants would improve service time.

● A bookkeeper would be a welcome addition to your business.

● I’d also like to use the services of a bookkeeper within your company.

Dear client

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

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

We actively use feedback to constantly improve our delivery and provide you with the best possible service.

Based on past experience this survey will take 5 minutes.

Thank you for providing your feedback. We appreciate the time you have taken and will actively use it to improve our services to you.

Kind Regards

Jonathan Hex

Customer Service Survey
	10	8	7	6	5	4	3	2	1
Staff available in a timely manner.
Staff greeted you and offered to help you.
Staff was friendly and cheerful throughout.
Staff answered your questions.
Staff showed knowledge of the products or services.
Staff offered pertinent advice.
Staff was courteous throughout.
Overall, how would you rate our customer service?
Open-Ended Questions
What did you like best about our customer service?
How could we improve our customer service?
Is there a staff person you would like to commend?
Name:						Reason:

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

Review the survey results, analyse the issues and research the Internet to identify how other similar companies address such issues. Then send out a short email to your clients with the results of the survey and your intended actions.

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

The text should explain the purpose of the email and clearly identify the outcomes of the survey and your response.

Dear client

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

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

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

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

Regardless of why you need feedback, there is no better forum to start the conversation than email, and these 5 tips will help you create a great campaign that ensures you get the insights you are looking for from any customer feedback request.

Remember to keep the process simple:

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

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

Kind Regards

Jonathan Hex

Dear client

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

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

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

Remember to keep the process simple:

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

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

Kind Regards

Jonathan Hex