Business Operations and Performance Business Accounting

Question: Describe about the Business Operations and Performance for Business Accounting. Answer: Most of the organizations disclose the nature of operations and performances through its annual reports. However, many of the organizations do not follow any specific internal regulation to disclose the business information to its stakeholders. They do not maintain any source, from which the stakeholders can obtain necessary information about the organization. Generally, these are the small type of business firms and non-profit organizations (Van Auken Carraher, 2013). It should be noted for any business organization, stakeholders are the most important factor. As the employees, they provide the necessary workforce; as investors, they provide capital and as customers, they are the source of revenue. Stakeholders, in various forms, greatly rely on business information. Therefore, the organization has to provide operational performance related information to its stakeholders (Healy Palepu, 2012). Organization can gain various advantages through sharing of information. If the management informs potential investors about the higher profit margins, earned in consecutive periods, then it may be able to generate more equity capital and reduce the debt capital and interest expenses accordingly. By updating the suppliers about the shorter credit period and better payment schedule, the company can convince the suppliers to supply materials at lower rates. In the financial crisis periods, if the company shares the information of losses with its employee, they may not demand for annual increments. Thus, if the organization fails to provide information to its stakeholders due to absence of proper regulation, then it cannot enjoy the cost advantage of information sharing and incur higher operational cost (Asare Wright, 2012). In the books of Bells Beach Tourist Operation Journal Entries Dr. Cr. Date Particulars Amount Amount 1/7/2013 Aircraft A/c. Dr. 12000000 To, Bank A/c. 12000000 30/06/2014 Depreciation on Aircraft A/c. Dr. 1250800 To, Accumulated Depreciation-Aircraft A/c. 1250800 Income Statement A/c. Dr. 1250800 Depreciation on Aircraft A/c. 1250800 Workings:- Particulars Aircraft Airframe Engines Fixtures Fittings TOTAL 55% 40% 5% Cost A 12000000 6600000 4800000 600000 Estimated Life B 15 20000 5 (Years) (hours) (Years) Residual Value C 150000 0 0 Operating Hours in the current year D 0 2920 0 Depreciation E 430000 700800 120000 1250800 (A-C)/B (A-C)x(D/B) (A-C)/B 3:- a) Calculation of Rate of Interest Implicit:- Particulars Amount Less: Insurance Maintenance Charges Net Amount Value of Machinery $1,294,384 0 $1,294,384 1st Annual Payment $ (350,000.00) $35,000 ($315,000) 2nd Annual Payment $ (350,000.00) $35,000 ($315,000) 3rd Annual Payment $ (350,000.00) $35,000 ($315,000) 4th Annual Payment $ (350,000.00) $35,000 ($315,000) 5th Annual Payment $ (350,000.00) $35,000 ($315,000) Rate of Interest Implicit 6.92% Calculation of Present Value of Minimum Lease Payments:- Annual Payment Particulars Year 1 Year 2 Year 3 Year 4 Year 5 Bargain Purchase Option Amount $315,000.00 $315,000.00 $315,000.00 $315,000.00 $315,000.00 $280,000.00 Interest Rate 6.92% 6.92% 6.92% 6.92% 6.92% 6.92% Discounting Factor 0.94 0.87 0.82 0.77 0.72 0.72 Present Value $294,616.81 $275,552.58 $257,721.97 $241,045.16 $225,447.48 $200,397.76 Present Value of Minimum Lease Payments $1,494,781.76 b) In the books of Burt Ltd. Journal Entries Dr. Cr. Date Particulars Amount Amount 30/06/2016 Lease Liability A/c. Dr. 350000 To, Bank A/c. 350000 Insurance Maintenance Charges A/c. Dr. 35000 To, Lease Liability A/c. 35000 Depreciation on Machinery A/c. Dr. 180731 To, Accumulated Depreciation - Machinery A/c. 180731 Income Statement A/c. Dr. 215731 To, Insurance Maintenance Charges A/c. 35000 To, Depreciation on Machinery A/c. 180731 30/06/2017 Lease Liability A/c. Dr. 350000 To, Bank A/c. 350000 Insurance Maintenance Charges A/c. Dr. 35000 To, Lease Liability A/c. 35000 Depreciation on Machinery A/c. Dr. 180731 To, Accumulated Depreciation - Machinery A/c. 180731 Income Statement A/c. Dr. 215731 To, Insurance Maintenance Charges A/c. 35000 To, Depreciation on Machinery A/c. 180731 c) In the books of Burt Ltd. Balance Sheet as on 30/06/2017 Particulars Amount Amount Non-Current Assets: Machinery at Lease (at Cost) 1294384 Less: Accumulated Depreciation 361461 932923 Non-Current Liabilities: Lease Liability 1050000 In the books of Burt Ltd. Journal Entries Dr. Cr. Date Particulars Amount Amount 30/06/2016 Rent Expense A/c. Dr. 315000 Insurance Maintenance Charges A/c. Dr. 35000 To, Bank A/c. 350000 Income Statement A/c. Dr. 350000 To, Insurance Maintenance Charges A/c. 35000 To, Rent Expense A/c. 315000 30/06/2017 Rent Expense A/c. Dr. 315000 Insurance Maintenance Charges A/c. Dr. 35000 To, Bank A/c. 350000 Income Statement A/c. Dr. 350000 To, Insurance Maintenance Charges A/c. 35000 To, Rent Expense A/c. 315000 Active market can be defined as the security market, where securities are traded at high volumes. It should be noted that many investors prefer to trade in active markets, as trading in such market does not create any impact on the price of the security. Brand names, development related expenditure etc., are considered as intangible assets. This form of asset does not have any physical form. The value of such assets is ascertained either during acquisition of other business entities or from market value (Christensen Nikolaev, 2013). On the other hand, security is a form of certificate, which provides guarantee to the investors regarding the investment in a certain project or entity. Though, securities does not have any specific physical form, like land or machinery, it is deemed to be physical and thus considered as tangible asset. Generally, securities are measured on the basis of two types of values. The price, which is notified in the certificate, is treated as book value and the other one is the market price, which is determined by the supply and demand of the certificates. An investor may own large volume of same securities. From the above discussion, it can be stated that the securities and intangible assets, like goodwill or patent are very much distinct from each other. Therefore, the active market, which is formed for trading tangible assets, like securities, cannot be used for selling intangible assets. Intangible assets are recorded mostly as single unit. Therefore, it cannot be sold in large volume (Su Wells, 2015). Moreover, due to complication in measurement process, the intangible assets cannot be valued purely on the basis of market price. References and Bibliography:- Asare, S. K., Wright, A. M. (2012). Investors', auditors', and lenders' understanding of the message conveyed by the standard audit report on the financial statements.Accounting Horizons,26(2), 193-217 Christensen, H. B., Nikolaev, V. V. (2013). Does fair value accounting for non-financial assets pass the market test?.Review of Accounting Studies,18(3), 734-775 Deegan, C. (2013).Financial accounting theory. McGraw-Hill Education Australia Healy, P. M., Palepu, K. G. (2012).Business Analysis Valuation: Using Financial Statements. Cengage Learning Horngren, C., Harrison, W., Oliver, S., Best, P., Fraser, D., Tan, R. (2012).Financial Accounting. Pearson Higher Education AU Pratt, J. (2013).Financial accounting in an economic context. Wiley Global Education Su, W. H., Wells, P. (2015). The association of identifiable intangible assets acquired and recognised in business acquisitions with postacquisition firm performance.Accounting Finance,55(4), 1171-1199 Van Auken, H., Carraher, S. (2013). Influences on frequency of preparation of financial statements among SMEs.Journal of Innovation Management,1(1), 143-157 Vernimmen, P., Quiry, P., Dallocchio, M., Le Fur, Y., Salvi, A. (2014).Corporate finance: theory and practice. John Wiley Sons Weil, R. L., Schipper, K., Francis, J. (2013).Financial accounting: an introduction to concepts, methods and uses. Cengage Learning