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ACT501 Forming a Business And Decision For Its Finance: Accounting For Business Questions Answers

ACT501 S2 2020 Assignment

Task: Answer some accounting-related questions about a business.

Value: 25%

Length: Maximum of 2000 words.

Assessment Criteria:

This task will generally be assessed in terms of the following criteria:

  1. Effectiveness of communication: readability, grammar, spelling, neatness, completeness and presentation.
  2. Demonstrated competency and understanding: This will be evidenced by the student's ability to be dialectical in the discussion of contentious issues. The marker will pay attention to the accuracy of the content, coverage of relevant issues, structure of argument, English expressions, absence of plagiarism, concise writing style, and referencing style.
  3. Evidence of research - This will be evidenced by the references used and the inclusion of a bibliography.

Assignment Requirements:

Answer the following questions:

  1. You are required to form a business and to write a brief introduction about it (name, services or products, legal form, merchandising or manufacturing, retail or wholesale, size, industry, etc…)
  2. In deciding on the legal form for your business, discuss the reasons for your choice.
  3. Discuss the different financing options to set up your business and the reasons for your choice (s).
  4. Identify the users of accounting information for your business and briefly discuss on how each can use the information.
  5. Assume that the cash flow from operating activities for your business has been negative over the recent years, discuss the various steps that you are likely to take to improve the situation.
  6. Assume that you want to improve the profitability of your business. Discuss the operational decisions that you are likely to take to improve the related ratios.
  7. Discuss the decisions you are likely to take to ensure your business survives the COVID-19 impact.

Please note that you will need to address these questions in a way that is specific, appropriate, and directly relevant to the business chosen. (I am not after general information. You will need to be specific and your answers should be relevant and suitable to the characteristics of the business you have chosen).


Answer to Question 1

The business structure should be chosen according to the investment funding and object of the business. There are various forms of businesses in which one can commence his business. I want to start my business with the proprietary Company. It is a unlimited company registered under the Corporations Act, 2001. In proprietary company, there is one member which can be maximum 50. It has the limited liability of the members of the company upto the value of the shares. It may be either limited by shares or unlimited liability. The Company would be in the website designing and development and testing and deploying the website and other related activities. The company would develop the websites according to the requirements of the clients and their businesses. The Name would be “Techstar Technologies Pty. Ltd.” and the company would deal in providing the services and can further expand its business in software development. The Company shall be considered in information technology sector and this section is very vibrant at this time. The information technology sector is at its peak as the current time is of pandemic and all are advised to work from their homes. So now, the companies and businesses are moving from the offline market to online global market. 

The Size of the company would depend upon its performance in the market. As the idea of the Company is to approach the businesses from small to large business and to give the technical assistance to introduce their business globally. This sector is most demanding and everybody is planning for shifting their business at online platform.

Hence, I would choose the legal form of Proprietary Company in which initially, I can start the company with 1 member and later on, it can be increased up to 50. It can be managed easily by the directors.

Answer to Question 2

The Proprietary Company is the best form of business which can be started with lesser formalities. There are various reasons to choose the business structure: -

  1. This business structure is ideal for small business.
  2. It has separate legal entity as the company has its own identify separate from its directors or members.
  3. The company has limited liability so that the liabilities of the members are limited up to the value of shares.
  4. The company has its common seal so it can enter into any agreement or contract on its own seal.
  5. The Company can be sued or can sue the third parties if there is any fraud or embezzlement.
  6. The company can dispose of property by its own name.
  7. The Company has one director who is the citizen of Australia.

Hence, this type of company is best for small and medium business entities as there are lesser compliances to be done and there are various relaxations. The Liability of member is limited and the company can present its entity in the market.

Answer to Question 3

The Company can raise the finance for operating its activities from the various ways. These methods are following:

  1. The Company can call the funds from the existing shareholders or employees of the company 
  2. From the General public if no disclosure document is required.

To call the funds from the general public, the company need to submit the prospectus with the Australian stock exchange. 

The Company can raise the funds from the various financial institutions for fulfilling the working capital requirement in the company. The funds are necessary to expend the activities of the company. 

If the proprietary Company need the funds, the Company can call the funds from its existing shareholders or employees of the company. If the company is unable to get the funds from the shareholders, then the company can approach to the financial institutions or banks for working capital requirement but this option would attract the interest on the loan amount sanctioned by the bank or financial institutions.

Answer to Question 4

The Accounting information is important as it is the foundation of the final accounts of the company. The company can finalise the final accounts on the basis of the accounting information of the company. The accounting information covers the accounting of the sales, purchases and booking the incomes and expenditure in the company. The company should prepare the accounting data accurately and effectively so that the final accounts can represent the true and fair picture of the company before the users of the accounting information.

The users of the accounting information assess the accounting information to see the performance of the business or profits of the company during the accounting period. The users of accounting information are:-

  1. Members or shareholders of the company
  2. Employees
  3. Creditors 
  4. Financial institutions or bankers
  5. Other persons who are interested in the affairs of the company.

The Company must record every transaction accurately and as per the basics of the accounting. The accounts are the most important facts in respect to the growth of the company. The accounting information shows the increase or decrease in the sales or incomes of the company and its impact on the profits of the company.

Hence, the accounting information is the internal machinery of the company which records each and every transaction made in the company and assesses the impact of these transactions on the profits or surplus of the company. 

Answer to Question 5

Cash Flows from the operating activities of the company represent the amount received from the sale or purchase of the goods or services in the accounting period. It does not cover the long term capital expenditure amount or revenue or expenses. The cash flows are based upon the operations of the business. The cash flows consider those transactions which directly affect the operating activities of the company. For example, tax, interest and changes in the current assets or current liabilities.

It is the standard by which one can assess the financial soundness of the business. It is the foremost section in the cash flow. There are two methods to get the amount from operating activities: Direct Method or Indirect Method. It starts from the net income from income and expenditure account. The cash flows in the company affect the liquidity of the company and it shows the capacity of company to convert the assets into the liquid assets.  It supports the business organisation to get the information about the availability of the cash in the business and inflows and outflows of the cash in the business. The company can convert the negative cash flows into the positive by paying out the outsider’s liability of the company or giving the dividends to the shareholders of the company. The cash flows from operating activities should be upward direction which would increase the financial stability of the company in the market.

Hence, the company should reduce the outflows of the cash in the company and increase the sales or incomes in the company so that the inflows of the cash can be increased so that the ratio of liquid assets can be maintained as per the standard norms.

Answer to Question 6

To improve the profitability of the company, the company must increase its sales or incomes from the operations of the company. The company should expand its activities. The company reduce the outsiders’ liability in the company by repayment of the loans in the company.

The company need to work on the strategies and improve the working of the company so that the incomes can be maximised and the profits can be increases. These strategies can be following:

  1. The Company can build the new products which can give the incomes in the company and the income from the new products can be mitigated and the profits can be increased by introducing the new policies and technologies relating to the sector.
  2. The company should find the prospective customers in the market which can give the company more and more business opportunities. The company should satisfy the requirements or demands of the customer so that the customers can refer the company to their relatives or friends and the chain of the prospective customers can be increased.
  3. The Company must approach the new markets so that the more customers can be added in the customer list of the company. The company should focus the local as well as global market so that more business opportunities can be generated.
  4. The company must focus on the services rendered to its customers so that they can be satisfied. The company should provide the qualitative services to its customers to get the better profits and they can expand the prospective customers of the company.
  5. The products or services of the company must be priced correctly so that the company can book the adequate profits. The company should decide the prices of the products or services to the market or customer behaviour.
  6. The company do the advertisement or promotion of the business so that the company can get the more business. The advertisement or promotion is must in any business organisation as it gives the information to every customer about their products or services.

The Company can improve the profitability by reducing the costs of the company which can be done by the following ways:

  • The company should decrease the direct costs and get the raw materials or direct wages at the marginal costs. So that the gross profits can be maximised.
  • The Company should do the cost cutting in the indirect costs by removing the unnecessary staffs or by repayment of financial liabilities of the bank or other financial institutions.
  • The Company can decrease the costs of overhead so that the net profits of the company can be increased.
  • The company should reduce the inventories in the company as the inventory also affects the net profits of the company.

Hence, there are various methods to increase the profitability of the company and the company can maintain the sales or income and net profits at the standard ratios. The performance of the company is measured by the ratios which represent the increase in the net profits or incomes of the company.

Answer to Question 7

The business is the based upon going concern concept. The business must be go whatever the situation is. But this pandemic time affect the operations of the businesses inadvertently. The business can opt the survival of the business by four stages of the recovery which are as follows:-

  1. Reaction: Every business undertaking is affected by this Covid 19 epidemic. It shuts the business for many days and reduces the business activities of the business. So the organisations must revive themselves in this situation as it would be in the environment for the long time. The business should follow the measures according to the guidelines of the governments. The business should be carried out as they were carrying its business operations in the common parlance.
  2. Resilience: The demands from the customers have increasing and the business should start its activities according to the requirements or consumer behaviours. The businesses should assess the market scenario and manufacture the goods and products safely and following the consumer requirements.
  3. Recovery: - the businesses now came into the phase of recovery. They have started their plants to manufacture the goods or products with adopting the safety measures. The business organisations are following with the guidelines of the government. The businesses are using the technology for calling meeting or reduce the crowding. The companies are looking out for hiring the staffs and investing opportunities for new business models.
  4. New Reality: - the businesses are now in the new real world. In this scenario, the business need to take care of the staff and safety of the goods or product while manufacturing or trading in the market. 

Hence, the businesses should formulate the policies looking after the pandemic time and act according to the safety measures of the health of the staffs, employees or the prospective customers. The Businesses should use the technologies to supply their products to each and every customer.

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