Another Business studies in Group 1Notes [6/26, 10:48] Bs Tr: 1. What is the name of Taylor's theory? (2) 2. What is the main idea of Taylor's theory? (2) 3. What is the name of Elton Mayo's Theory? (2) 4. What is the main idea of Mayo's Theory? (2) 5. How can a manager use the Hawthorne effect to motivate teachers at your school? (3) [6/27, 15:16] Bs Tr: 1. What is the name of Taylor's theory? (2) 2. What is the main idea of Taylor's theory? (2) 3. What is the name of Elton Mayo's Theory? (2) 4. What is the main idea of Mayo's Theory? (2) 5. How can a manager use the Hawthorne effect to motivate teachers at your school? [6/28, 11:56] Bs Tr: Questions: 1. What is the main idea of the Hierarchy of Human Needs theory? (2) 2. State the five human needs according to Maslow. (5) 3. What is self-actualization? (2) 4. How can a manager satisfy the following needs of his or her workers at work: a) Physical Needs. (2) b) Safety Needs. (2) c) Social Needs. (2) d) Esteem Needs. (2) e) Self-actualization needs. (2) Due date: 28/06/21 [6/29, 10:44] Bs Tr: Questions: 1. What is the name of Herzberg's theory? (2) (3) 2. Name the factors which were identified by Herzberg which attract employees to do the work? (2) 3. What is the main idea of Herzberg's theory? (2) 4. How can a manager implement Herzberg's theory at work? (2) 5. What are *motivators* according to Herzberg? (2) Due date 29/6/21 [6/30, 09:48] Bs Tr: Questions: Essay Explain why business enterprise needs finance? (12). Remember to paragraph your work. Due date 30/6/21 [7/1, 09:20] Bs Tr: Good morning. Today our lesson focuses on Working Capital. -definition -working capital cycle -uses of working capital -managing working capital [7/1, 10:01] Bs Tr: Questions. 1. Define *working* *capital* . (2) 2. What is *liquidity* when referred to a business? (2) 3. What is the importance of working capital to a business? State any four. (4) 4. How can a business manage its working capital. (3) 5. State the formula for calculating the working capital in accounting. (1) TOTAL : 12 MARKS Due 01/07/21 [7/5, 15:27] Bs Tr: Questions: A business can choose to obtain it's finance from *internal* sources or *external* sources. These external sources can be *long-term* , *medium* *term* or *short* *term* . However some sources are *equity* *finance* and other sources are *debt* *finance* . 1. Giving two examples for each, define the following: a) internal sources of finance. (4) b) external sources of finance. (4) c) long-term finance. (4) d) medium-term finance (4) e) short-term finance. (4) f) equity finance. (4) g) debt finance. (4) 2. Outline *three* sources of finance available to unincorporated business enterprises. (3) Due date 6/7/21 [7/7, 11:13] Bs Tr: Internal sources of Finance -Retained profits -Sale of assets - Reduction in working capital -accumulated depreciation funds *Evaluation* of each source of finance ✳️To evaluate means giving the *advantages* and *disadvantages* of each method objectively. *Retained* *earnings/profits* -it refers to the profit for the year less dividends paid to shareholders. -the profit left after all deductions have been made. -it is ploughed back into the business as a source of capital Advantages -a permanent source of finance -it incurs no future liabilities like interest rate -it is a cheap source of finance Disadvantages -it is not available to newly formed enterprises -it is not available in periods of losses [7/7, 19:25] Bs Tr: For tomorrow: Presentations. 1. *Alfred* evaluate the sale of assets as a source of finance 2. *Tsitsi* evaluate reducing the working capital as a source of finance. 3. *Gweme* evaluate debt factoring as a source of finance. NB: Write notes, type them and send them here on this group chat. Due date: 8/7/21 [7/8, 08:56] +263 78 641 5857: Sale of assets: this is when a firm sells either stocks or fixed assets for cash so as to raise finance in the business,companies may find that there are some assets which are no longer needed so these could be sold to raise cash [7/8, 08:56] +263 78 641 5857: Advantages: It helps to avoid overstocking of goods. It is easier than hire purchase & loans Helps the firm to get rid of idle assets It also avoids further depreciation of assets [7/8, 08:56] +263 78 641 5857: disadvantages: not all businesses have fixed assets which they no longer use. There is limit to the number of fixed assets a firm can sell off. The assets might be of use in the future. [7/9, 11:48] Bs Tr: 1.Evaluate reducing working capital as a source of finance (5) Reducing working capital When business increase stock levels or sell goods on credit to customers they use a source of finance .If they reduce these assets they reduce working capital then capital is released , which acts as a source of finance It is beneficial for a business to use this source of finance as too much capital tied up in stocks ,debtors ,idle cash is the return that money can return elsewhere in the business , maybe invested in fixed assets However , without sufficient working capital a business will be illiquid ( unable to pay its immediate debts) and forced into liquidation . [7/10, 13:13] Bs Tr: Good afternoon �. Today's lesson focuses on long-term external sources of finance. These are: 1. Share issue 2. Debentures 3. Mortgage [7/10, 15:47] Bs Tr: Wonderful presentation. It is clear and full of relevant information. Keep it up [7/12, 11:28] Bs Tr: Written work 1. Outline any three long term external sources of finance for a business enterprise. (3) 2. Define equity finance. (2) 3. Why is share capital important source of company finance? (3) 4. Why do some companies prefer debt finance over equity finance? (4) Due 12/7/21 [7/14, 12:01] Bs Tr: Good morning. Today's lesson will focus on the published final accounts of a business enterprise. These include: 1. Income statement/profit and loss account 2. Statement of Financial Position/The Balance Sheet 3. Cash flow statement [7/14, 12:01] Bs Tr: *The Income Statement* It shows the income and expenses of a business during the *Financial* *Year* - It is divided into three sections a) the trading account b) profit and loss account c) profit and loss appropriation account [7/14, 12:01] Bs Tr: *Trading account* The first section of the income statement - it is mainly used to calculate *gross* *profit* . -It shows the *net* *sales/turnover* of the business -Net sales is the money generated from the sale of business products -It also shows *cost* *of* *sales* . - Cost of sales is the direct costs of the products sold e.g direct labor, cost of raw materials - Gross profit is calculated by substracting cost of sales from turnover -Gross profit is profit made before business expenses are deducted [7/14, 12:02] Bs Tr: *The profit and loss account* This section begins with Gross profit figure. - It shows *total* *expenses* or *overheads* - *Operating* *profit* will be calculated by substracting total expenses from gross profit. -Then *non* - *operating* income is added to operating profit -Non-operating income includes any income which does not come from sales e.g. dividends, rent from leased business property, donation -It shows *interest* paid. This is subtracted from operating profit. -It shows how *net* *profit* is calculated. -Net profit is the profit before tax [7/14, 12:02] Bs Tr: *The profit and loss appropriation account* -it shows how net profit is distributed. -It starts with net profit/loss figure -corporate tax is deducted, to get net profit after tax -Declared *dividends* (if any) are then deducted -Dividends are subtracted from net profit after tax - *Retained* *profit* is established. [7/15, 11:42] Bs Tr: *Income Statement continued* Key concepts 1. *Income* *Statement* : a record of revenue, costs and profit/loss of a business over a period of time 2. *Gross* *profit* : the difference between sales revenue and cost of sales. =Sales revenue less cost of sales 3. *Revenue/sales* *turnover* is the total value of sales made during the trading period. =Selling price x quantity sold 4. *Cost* *of* *sales/cost* *of* *goods* *sold* : refers to direct cost of goods that were sold during the Financial Year. 5. *Operating* *profit/Net* *profit*: the difference between gross profit and overhead expenses. = Gross profit less expenses 6. *Profit* *for* *the* *year* : it is profit after tax = Operating profit less interest cost and corporation tax 7. *Dividends* : the share of the profit paid to shareholders as a return for investing in the company. 8. *Retained* *profit/earnings* : the profit left after all deductions, including dividends, have been made. This is 'ploughed back' into the business as a source of finance. 9. *Low-quality* *profit* : a one-off profit that cannot easily be repeated or sustained. 10. *High-quality* *profit*: a profit that can be repeated and sustained 11. *Window* *dressing* : presenting the business accounts in a favourable light as a way to massage business performance. [7/15, 11:44] Bs Tr: *Window dressing the Income Statement* - it is the practice of presenting accounts in a way that flatters the financial position of a business enterprise. -management can bring forward or delaying transactions with the intention of presenting a more favourable position in a set of accounts. -in an income statement, the technique is to *include* in *the* *current* *year's* *_sales_* *invoices* *relating* *to* *the* *early* *part* *of* *next* *year* . - the artificial boost to revenue will result in a higher than justified profit figure. -Another technique is to delay the writing off of bad debts so as not to reveal losses in the current account. * Window dressing practices can be viewed as normal accounting practice on one end and at other end, can be seen as fraud against the true and fair principle of financial accounting. [7/17, 14:45] Bs Tr: *THE STATEMENT OF FINANCIAL POSITION (BALANCE SHEET)* It is an accounting statement that records the values of a business' assets, liabilities and shareholders' equity at one point in time. - It is a summary at a point in time of business assets, liabilities and capital. *Structure* *of* *a* *balance* *sheet* 1. *Assets* -Here it records the value of all business assets, starting with non-current assets and then current assets. -An *asset* is an item of monetary value that is owned by a business enterprise. a) *Non-current* *assets* *(Fixed* *assets)* -These are listed and added together. -Non-current assets to be kept and used by business enterprise for more than one year e.g land, property, vehicles, equipment. -This also include *intangible* *assets*. - Intangible assets are items of value that do not have a physical form e.g. patents, trademarks, copyrights, goodwill etc -Intangible assets are also known as *intellectual* *property* . b) *Current* *Assets* -Are assets that are likely to be turned into cash before the next balance sheet date. -Examples include inventory (stock); trade receivables (debtors); cash and cash equivalents etc -They are added together. [7/17, 14:45] Bs Tr: *Structure of a B/S continued* 1. Assets a) Record Non-current assets and sum them b) Record Current Assets and sum them 2. *Liabilities* a) Record and sum all *current* *liabilities* of the business. -Current liabilities are debts of the business enterprise that will usually have to be repaid within a financial year. -Examples include accounts payable (trade creditors); bank overdraft; taxation 3. Calculate the *Working* *Capital* / *Net* *Current* *Assets* Working Capital= *Current* *Assets* less *Current* *Liabilities* 4. *Non-current* *Liabilities* -Record Non-current liabilities of the business enterprise and sum them. -Non-current liabilities are the debts of the business enterprise that will be payable after more than a year. -Examples include Mortgage, long term bank loan, long term lease charges 5. Calculate *Net* *Assets* Net Assets=Working Capital less total Non-current liabilities 6. *Equity* *and* *Reserves* -Shareholders' equity refers to share capital and retained earnings reserves. - Shareholders' equity= total value of assets less total value of liabilities -Share capital is the total value of capital raised from shareholders by the issue of shares. - Retained earnings reserves is the cumulative value of the company's annual retained profits. Total equity and liabilities give the figure for *Capital* *Employed* [7/21, 09:52] Bs Tr: Good Morning Team!� Today's lesson focuses on *depreciation* What is *depreciation* ? � -Depreciation refers to the decline in value of *Non-current*/fixed assets as a result of wear and tear, obsolescence and overtime e.g. vehicles -Only land/buildings do not depreciate over time, but they *appreciate*.(opposite of *depreciation* is *appreciation)*. -In the balance sheet/statement of financial position, non-current assets' value is shown *net* of depreciation. This means the value of *accumulated* *depreciation* is *deducted* from the book value (historical cost) of the fixed assets. *Why* *do* *non-current* *assets* *depreciate* ? - due to wear and tear (friction) -obsolescence (process of becoming out of date) due to technological innovations -passage of time leading to changes in market changes e.g. change of fashion Why is depreciation is accumulated in books of accounts? -In terms of the statement of financial position, depreciation is recorded to account for loss in value of fixed assets. -In terms of the income statement, depreciation reflects the matching principle of allocating the cost of an asset over time. Thus depreciation is seen as providing a fund for replacement of the asset. NB: Depreciation is not an *expense* as money does not leave the business. Instead, it is a *provision* , a setting aside of funds. [7/21, 10:18] Bs Tr: *How is Depreciation calculated? ��♂️* 1. Using the straight line method 2. Using the reducing balance method Etc. -In both methods three items of data are needed: -the historical cost of the fixed asset -the residual value when sold off (either as scrap or as a working asset) - the expected life of the fixed asset in years. STRAIGHT LINE METHOD *Use the formula below: *Annual* *Depreciation* = historical cost less residual value ____________________________ Expected life -A fixed sum is deducted per year from the value of the asset. -Depreciation is calculated by dividing the historical cost less expected residual value by the time in years that the business expects to own the asset. [7/21, 10:24] Bs Tr: Any questions so far??�� [7/21, 10:29] Bs Tr: Net Book Value (NBV) is calculated as: Historical cost less depreciation on the balance sheet. [7/21, 11:01] Bs Tr: Written work: Write and submit now now���� 1. Explain what is meant by the following terms: a) trade receivables. (2) b) inventories. (2) c) current assets. (2) d) shareholders' equity. (2) e) depreciation. (2) 2. What is a liquid asset? (2) [7/14, 12:01] Bs Tr: Good morning. Today's lesson will focus on the published final accounts of a business enterprise. These include: 1. Income statement/profit and loss account 2. Statement of Financial Position/The Balance Sheet 3. Cash flow statement [7/14, 12:01] Bs Tr: *The Income Statement* It shows the income and expenses of a business during the *Financial* *Year* - It is divided into three sections a) the trading account b) profit and loss account c) profit and loss appropriation account [7/14, 12:01] Bs Tr: *Trading account* The first section of the income statement - it is mainly used to calculate *gross* *profit* . -It shows the *net* *sales/turnover* of the business -Net sales is the money generated from the sale of business products -It also shows *cost* *of* *sales* . - Cost of sales is the direct costs of the products sold e.g direct labor, cost of raw materials - Gross profit is calculated by substracting cost of sales from turnover -Gross profit is profit made before business expenses are deducted [7/14, 12:02] Bs Tr: *The profit and loss account* This section begins with Gross profit figure. - It shows *total* *expenses* or *overheads* - *Operating* *profit* will be calculated by substracting total expenses from gross profit. -Then *non* - *operating* income is added to operating profit -Non-operating income includes any income which does not come from sales e.g. dividends, rent from leased business property, donation -It shows *interest* paid. This is subtracted from operating profit. -It shows how *net* *profit* is calculated. -Net profit is the profit before tax [7/14, 12:02] Bs Tr: *The profit and loss appropriation account* -it shows how net profit is distributed. -It starts with net profit/loss figure -corporate tax is deducted, to get net profit after tax -Declared *dividends* (if any) are then deducted -Dividends are subtracted from net profit after tax - *Retained* *profit* is established. [7/14, 12:03] Bs Tr: Sample Income Statement. Calculate the missing figures [7/14, 18:09] Bs Tr: Now answer all these questions based on two passages above [7/14, 18:16] Bs Tr: Reminder: As you answer the questions, copy the question as it is and its marks. It simplifies my marking. Thank you for cooperation [7/15, 11:42] Bs Tr: *Income Statement continued* Key concepts 1. *Income* *Statement* : a record of revenue, costs and profit/loss of a business over a period of time 2. *Gross* *profit* : the difference between sales revenue and cost of sales. =Sales revenue less cost of sales 3. *Revenue/sales* *turnover* is the total value of sales made during the trading period. =Selling price x quantity sold 4. *Cost* *of* *sales/cost* *of* *goods* *sold* : refers to direct cost of goods that were sold during the Financial Year. 5. *Operating* *profit/Net* *profit*: the difference between gross profit and overhead expenses. = Gross profit less expenses 6. *Profit* *for* *the* *year* : it is profit after tax = Operating profit less interest cost and corporation tax 7. *Dividends* : the share of the profit paid to shareholders as a return for investing in the company. 8. *Retained* *profit/earnings* : the profit left after all deductions, including dividends, have been made. This is 'ploughed back' into the business as a source of finance. 9. *Low-quality* *profit* : a one-off profit that cannot easily be repeated or sustained. 10. *High-quality* *profit*: a profit that can be repeated and sustained 11. *Window* *dressing* : presenting the business accounts in a favourable light as a way to massage business performance. [7/15, 11:44] Bs Tr: *Window dressing the Income Statement* - it is the practice of presenting accounts in a way that flatters the financial position of a business enterprise. -management can bring forward or delaying transactions with the intention of presenting a more favourable position in a set of accounts. -in an income statement, the technique is to *include* in *the* *current* *year's* *_sales_* *invoices* *relating* *to* *the* *early* *part* *of* *next* *year* . - the artificial boost to revenue will result in a higher than justified profit figure. -Another technique is to delay the writing off of bad debts so as not to reveal losses in the current account. * Window dressing practices can be viewed as normal accounting practice on one end and at other end, can be seen as fraud against the true and fair principle of financial accounting. [7/17, 14:45] Bs Tr: *THE STATEMENT OF FINANCIAL POSITION (BALANCE SHEET)* It is an accounting statement that records the values of a business' assets, liabilities and shareholders' equity at one point in time. - It is a summary at a point in time of business assets, liabilities and capital. *Structure* *of* *a* *balance* *sheet* 1. *Assets* -Here it records the value of all business assets, starting with non-current assets and then current assets. -An *asset* is an item of monetary value that is owned by a business enterprise. a) *Non-current* *assets* *(Fixed* *assets)* -These are listed and added together. -Non-current assets to be kept and used by business enterprise for more than one year e.g land, property, vehicles, equipment. -This also include *intangible* *assets*. - Intangible assets are items of value that do not have a physical form e.g. patents, trademarks, copyrights, goodwill etc -Intangible assets are also known as *intellectual* *property* . b) *Current* *Assets* -Are assets that are likely to be turned into cash before the next balance sheet date. -Examples include inventory (stock); trade receivables (debtors); cash and cash equivalents etc -They are added together. [7/17, 14:45] Bs Tr: *Structure of a B/S continued* 1. Assets a) Record Non-current assets and sum them b) Record Current Assets and sum them 2. *Liabilities* a) Record and sum all *current* *liabilities* of the business. -Current liabilities are debts of the business enterprise that will usually have to be repaid within a financial year. -Examples include accounts payable (trade creditors); bank overdraft; taxation 3. Calculate the *Working* *Capital* / *Net* *Current* *Assets* Working Capital= *Current* *Assets* less *Current* *Liabilities* 4. *Non-current* *Liabilities* -Record Non-current liabilities of the business enterprise and sum them. -Non-current liabilities are the debts of the business enterprise that will be payable after more than a year. -Examples include Mortgage, long term bank loan, long term lease charges 5. Calculate *Net* *Assets* Net Assets=Working Capital less total Non-current liabilities 6. *Equity* *and* *Reserves* -Shareholders' equity refers to share capital and retained earnings reserves. - Shareholders' equity= total value of assets less total value of liabilities -Share capital is the total value of capital raised from shareholders by the issue of shares. - Retained earnings reserves is the cumulative value of the company's annual retained profits. Total equity and liabilities give the figure for *Capital* *Employed* [7/21, 09:52] Bs Tr: Good Morning Team!� Today's lesson focuses on *depreciation* What is *depreciation* ? � -Depreciation refers to the decline in value of *Non-current*/fixed assets as a result of wear and tear, obsolescence and overtime e.g. vehicles -Only land/buildings do not depreciate over time, but they *appreciate*.(opposite of *depreciation* is *appreciation)*. -In the balance sheet/statement of financial position, non-current assets' value is shown *net* of depreciation. This means the value of *accumulated* *depreciation* is *deducted* from the book value (historical cost) of the fixed assets. *Why* *do* *non-current* *assets* *depreciate* ? - due to wear and tear (friction) -obsolescence (process of becoming out of date) due to technological innovations -passage of time leading to changes in market changes e.g. change of fashion Why is depreciation is accumulated in books of accounts? -In terms of the statement of financial position, depreciation is recorded to account for loss in value of fixed assets. -In terms of the income statement, depreciation reflects the matching principle of allocating the cost of an asset over time. Thus depreciation is seen as providing a fund for replacement of the asset. NB: Depreciation is not an *expense* as money does not leave the business. Instead, it is a *provision* , a setting aside of funds. [7/21, 10:18] Bs Tr: *How is Depreciation calculated? ��♂️* 1. Using the straight line method 2. Using the reducing balance method Etc. -In both methods three items of data are needed: -the historical cost of the fixed asset -the residual value when sold off (either as scrap or as a working asset) - the expected life of the fixed asset in years. STRAIGHT LINE METHOD *Use the formula below: *Annual* *Depreciation* = historical cost less residual value ____________________________ Expected life -A fixed sum is deducted per year from the value of the asset. -Depreciation is calculated by dividing the historical cost less expected residual value by the time in years that the business expects to own the asset. [7/21, 10:24] Bs Tr: Any questions so far??�� [7/21, 10:29] Bs Tr: Net Book Value (NBV) is calculated as: Historical cost less depreciation on the balance sheet. [7/21, 11:01] Bs Tr: Written work: Write and submit now now���� 1. Explain what is meant by the following terms: a) trade receivables. (2) b) inventories. (2) c) current assets. (2) d) shareholders' equity. (2) e) depreciation. (2) 2. What is a liquid asset? (2) [7/22, 13:25] Bs Tr: *Evaluation of the Straight line method of *depreciation* .* Advantages 1. It is easy to calculate and understand. 2. It is popular with big companies like Pvt LTD and plcs. *Disadvantages* 1. It is unrealistic to assume that an asset would depreciate by an even amount every year e g motor vehicle 2. It requires estimates to be made regarding both life expectancy and residual value. This can leads to mistakes, leading to inaccurate depreciation charges being calculated. 3. Assets like motor vehicles and IT gadgets tend to depreciate much more quickly in their first and second years than in subsequent years. Straight line method does not reflect this. 4. It does not recognize the rapid pace at which advances in modern technology tend to make existing assets redundant. [7/22, 13:26] Bs Tr: *2. REDUCING/DIMINISHING BALANCE METHOD* - this method depreciates assets by a greater amount in the first few years of life than in later years. - It takes into account the fact that decline is greatest in the early months but slows down later. - Thus rather than deducting a fixed amount from the value of an asset, the reducing balance method takes a fixed percentage of the balance of value till a scrap/residual value is reached. Depreciation=X% of the Net Book Value of the given year. [7/22, 14:14] Bs Tr: *Evaluation of the reducing balance *method** Advantages 1. It is more realistic than the straight line method when it comes to depreciating motor vehicles and IT gadgets. *Disadvantages* It is difficult to come up with realistic percentage to use for the depreciation. [7/22, 14:14] Bs Tr: *Today's written *work** 1. Define depreciation. (2) 2. Why do assets depreciate in value? (2) 3. Why is there a provision for depreciation? (2) 4. State any two methods used to calculate depreciation. (2) 5. Evaluate the straight line method of depreciation. (4) [7/23, 16:41] Bs Tr: *Lesson of today. *Window* *dressing* *the* *Balance* *Sheet** Recap� What is window dressing? Accountants can window dress/massage the Balance Sheet through the following techniques: 1. Sale and leaseback of non-current assets. It will result in an inflow of funds that in turn either increases the cash figure in the current asset section or is used to pay back or reduce current liabilities. Thus the Balance Sheet will reveal an improved liquidity position. 2. Delaying writing off of bad debts to improve the debtor figure and hence show an unjustified improvement in liquidity 3. Converting current liabilities into long term debt e.g overdraft, trade credit Research: Why is window dressing undesirable practice in accounting?� [7/24, 16:27] Bs Tr: *Topic of Discussion* ACCOUNTING RATIO ANALYSIS.
