ACCOUNTING FOR MANAGERS

PBA4807

Group EDS0619B
26 August 2019

Charlton Raymond - 67684351

Gordon Hopgood - 61194891
Question 1

1.1
Receivable Turnover = Net Credit Sale/Average Accounts Receivable

Houston House (Pty) Ltd Whitney Holdings

46 980/ (1968+642/2) 4335/ (246+264/2)
= 36 = 17

1.2.
Formula: Accounts receivable*365

Houston House (Pty) Ltd Whitney Holdings

365/36
= 10.14 Days
Houston House collects credit every 15 days and at
a reasonable rate meaning that they have capital at
hand to purchase products and pay their debts.
365/17
= 21.47 Days
Whitney Holdings are collecting capital
from creditors every 21 days. This is also
good in terms of them making payments on
time and having capital to purchase other
products.

1.3
Considering all available information, it appears that Houston House (Pty) Ltd is performing better.
In addition to the above, we need to look at other performance metrics to make a more accurate
assessment of which company is performing better such as: turn over ratios, quick ratios, return on
investments and dividends generated.
Question 2

1. The owner of Phoenix Photography Company instructed the accountant to do two

things, which is ethically wrong. Firstly, to record a sale of R10 000 which has not been
sold yet. Meaning Phoenix Photography has not yet received the revenue although the
company want to recognise it as capital earned.
Secondly, the owner of Phoenix Photography wants the accountant to make the entries
of the salaries owed to employees of R20 000 and prepaid insurance that has expired of
R2 000. This means that these two expenses would show on the financial report, where
in case it should have been written off. Amounting towards R22 000 (R20 000+ R2
000), of expenses that should have been written off by the company.

2. Madea took these actions to be able to get the loan the following year from the bank,
what Madea did was not very ethical and could cause that the business gets investigated,
loan does not get approved by the bank. Madea’s actions could also lead towards the
accountant losing his profession because accountants are required as a professional to
be honest.
Phoenix Photography are falsifying their revenue information knowingly and
consciously to the bank, by reporting that they made more revenue than they actually
did. The falsifying of the report means that it would be easier for the company to get
the loan from the bank. The company is taking this action in order for the Company to
have a good credit order for the bank to approve their loan in the following year

Ethical Decision-Making Model

All three factors economic, legal and ethical are precedence. Below are the comments
on why we say that all three factors need to be considered.
Economic – The accountant is influencing the perception of how the business is doing
by making the adjustments, which the manager requested. This would lead towards
investors being misled about how the company is performing and would invest within
the company although the companies reported financial position was indeed
misrepresented by the manager and accountant.
Legal – The accountant has a legal responsibility to report all activities within the
organisation and not make adjustment or falsify reports at the request of managers. The
 account should have released that what the manager is requesting is undermining
him/her and can lead towards legal actions being taken against the accountant.
Ethical – There are also ethical concerns for the Accountant that could lead towards
him/her not being trusted anymore by other companies to do their books as the company
could be fined for the adjustments being made to their financial statements.

The below Table illustrates the Stakeholders and Potential consequences:

Stakeholder Potential consequences

Bank The bank would be investigated as to why the loan was approved,
they would want to see if this has not happened before and all
transactions or loan applications would be looked at.

Community The community would lose faith in the shop and the owner of the
shop because of the poor managements and wrong decisions that was
taken.

Accountant The accountant could lose his credentials, as no one would trust
him/her with doing their companies finances. There is also the
possibility of the accountant losing his/her license to operate as an
accountant.

Employees Employees could lose their current positions within the company as
the company would
Creditors Creditors would lose capital, as the company cannot make payments
as it is under investigation and the loan is not approved. This means
that these companies (Creditors) can now also not pay their debts as
they are collecting money slower than usual.

3. As a friend I would inform Perry, that what she is doing is ethically wrong by instructing
and putting the accountant in a position where he could lose his job and cannot act as a
professional accountant.
I will also inform Perry, that the bank could ask for the company’s books and figure out
what they have been presenting was fraudulent financial reports.
I would also, advice Perry to let the accountant do his job by recording all transaction
in a truthful and candour matter.
Question 3
Expenditure
1. Adding a new patio deck to
the resort’s ocean side bar,
R180,000
2. Painting 10 ocean front
beach houses, R75,000
3. Purchasing additional golf
carts for the club house,
R25,000
4. Rebuilding the engine in
the resort’s airport shuttle
bus, R10,000
5. Replacing the pro shop’s
old air conditioning unit with
a more efficient one, R20,000
Agree or Disagree? Proper Treatment, if Disagree
Agree This is a non-recurring expense
and is attached to the larger
property which is the restaurant
Disagree This is a recurring maintenance
expense which does not add
additional value to the non-
current asset.
Agree Golf carts are a capital
expenditure and can thus be
depreciated over its serviceable
period
Agree This is non-recurring maintenance
which prolongs the serviceable
period of the asset and can thus
be capitalized
Agree A more efficient air conditioning
unit can be capitalized as it will
have a longer serviceable period.
Question 4

Lunar Company (Pty) Ltd

Statement of Cashflow 2013

Cash Flows from Operating Activities

Cash Receipts - Customers 315,000
Amount paid - Suppliers -70,000
Amount Paid - Operating Expenses -58,000
Amount Paid - Income Tax -30,000
Net Cash Flows - Operating Activities 157,000

Cash Flows from Investing Activities

Sale of Equipment 57,000
Purchase of Equipment -120,000
Net Cash - Investing Activities -63,000

Cash Flows from Financing Activities

Proceeds - Long Term Notes Payable 50,000
Interest paid -2,000
Cash Dividends -100,000
Net Cash from Financing Activities -52,000
Net Cash Flow 42,000
Opening Balance 40,000
Closing Balance 82,000