FINANCIAL ACCOUNTING And REPORTING

Financial Accounting 1

FINANCIAL ACCOUNTING & REPORTING

Name of Student

Institution Affiliation

Instructor’s Name

Date

Financial Accounting 2

McKenzie and Associates

668 George Street,

Melbourne, VIC 3000

Date: 7

July 2017

Managing Director, Pewter Ltd

Level 6, 510 King William Street,

Adelaide SA 5000

Dear Sir,

RE: RESPONSE TO YOUR ACCOUNTING ISSUES

Issue #1: From the analysis we have made in the first accounting issue involving deferred tax

liability and deferred tax assets, this is our advice:

Both DTA and DTL are important in making key and important decisions in your business.

DTL usually occur in a business account only when there is a temporary difference in the

income statement. This is important to note because, due to this fact, DTLs are never

accepted in the General Accepted Accounting Principles (GAAP). Well, for the fact that we

support you to consider involving DTL in your accounting record; the concrete reason is that

DTL can be treated as equity in the due process. This is possible in two simple ways which

include when DTL usage as accelerated depreciation for the purpose of tax and not for

reporting of financial transactions.

DTA in simple terms can be considered as a prepaid tax. Therefore unlike DTL, it is

considered to be balance sheet oriented. It is also has the possibility of being used to help in

Financial Accounting 3

the prediction of future cash flow and is highly accepted by GAAP. You should note that the

value of DTA depends on whether your firm is expecting to pay taxes in the future or not.

The ability of reducing DTA lies within the reduction of deferred tax asset allowance

valuation. This is because an increase in allowance valuation leads to a respective increase in

deferred tax assets where as reduction in allowance valuation results into a reduction in the

deferred tax assets. This relationship is important as well; it can be used in manipulation of

net income (NI) by altering the income tax expense and scrutiny is advised in this case.

Issue #2: This accounting issue goes beyond accounting. We would like to advice you

beyond the book keeping process here. The marketing strategy you are using is viewed as

classical due to the revolution that is being experienced in the field of business today. Various

organizations in your line of business have advanced to embracing innovation and technology

in their marketing process. This way they have been able to catch the attention of very many

new customers through social media platforms. Besides, they have been able to advance into

online marketing where they set single central shop points that distribute ordered items

already booked online. This is faster and easily managed in terms of the flow of cash.

The four segmentations (retail, producer, customers and production cost) all belong to the

same care which constitutes a common doctrine in returns for a single organization. For this

reason, we feel it is important if segmentation analysis is done for all the existing categories.

This will act as a means for the care to be able to determine the specific areas in the

segmentations to make positive changes and as well make improvements to maximize

returns. Besides, since this was an analysis for segmentation for both qualitative and

quantitative means, we have decided to have a much simpler proportion of the data as already

outlined.

Financial Accounting 4

Taking an instance where there is a comprehensive flow of revenue that fit the description

of your company, we have decided to come up with the accounting data below:

Category

Retail

Producer

customers

Production

cost

proportion

total

Revenue

19.85%

54.26%

21.16%

4.53%

$76,330

Benefit cost

20.01%

49.64%

25.31%

5.06%

$56,786

Operating

cost

21.69%

67.08%

8.55%

2.67%

$16,063

Profit

8.70%

71.42%

11.62%

8.24%

$3,480

Total

19.85%

54.29%

11.75%

4.71%

$152,659

Using percentages in describing proportionate variation from one segment to the other

across the segments in the table is quite helpful in determining the division of each segment

per variable; in this case we have number of potential customers, projected market share,

revenue, benefits costs, operating cost and profit. Each of these values has an important role

to play in the care industry in determining whether an organization is becoming successful or

is failing.

For profits, you will be able to find out the proportion of profits in each of the

segments. This helps to avoid generalization of profits gained. For example, if a general

profit is used for the four segmentations, it will be hard to determine whether one of the

segments experienced a loss. Thus, you will be able to make such findings as early as

possible and make improvement decisions. The same case applies to the other categories such

as operating cost and benefit cost among others.

Having embraced the power of proportionality above, it is quite important that we

find out various variability in all the segments and pursue the relative engagement in the rest

of the data made available. Considering the percentages that we have calculated in the table

Financial Accounting 5

for each segment, a much more comprehensive analysis can be conducted and enumeration

made as follows:

From the above analysis, you will be able to come up with several conclusions for

every aspect of each segment. We have decided to rate production cost as fourth even though

it is ranging at the lowest profit margin compared to the rest of the segments. This is because

it is one of those segments that have the lowest operational costs but experience profit at a

much greater return compared to a ‘within’ analysis. Besides, it is the segment that receives

the largest number of potential customers and thus would make much more profit if

investments are made to its favour.

Retailing segment is rated as second. It is one of the segments that pay much revenue

and uses a relatively high operational cost. And from the fact that it is one of the segments

that experience low potential customers, it does not give back as much as it is supposed to –

according to the level of investments made. This then changes the ratings as they are; it

should be noticed that the percentages as per profitability of a segment does not determine the

Financial Accounting 6

proportionate measure of a segment. This is to say, there is difference as shown in the pie

chart above.

These segments indicate the variation in the priority that should be offered with

respect to the Australian market that is recently realized. Production cost is directly involving

a good number of potential customers who will in turn keep interest in other services offered

by care enhancing customer loyalty routine, and producer is the most profitable of all the

segments. Following the criterion of customer loyalty that is gained through the production

process, there are much more profits that are to be experienced when these two segments are

introduced into the new market.

Following the case analysis above, it is therefore clear that all the aspects of a

business account are important. This is because each of the aspects are used to solve different

problems or in determining other aspects. This mean that in the new market area in Australia,

there is need to ensure that every transactions made are recorded as income statement as well

as balance sheet. Most importantly, you should note that ignoring the revenue for net income

is skipping other crucial transactions such as income tax that is in the violation of Australian

Federal Registrar Legislation Act of 1997 on Income tax Assessment.

Yours sincerely,

Managing Director, McKenzie and Associates

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