(Solution Manual) Financial Accounting

Hoggett, Medlin, Edwards, Chalmers, Hellmann, Beattie, Maxfield, 9

Business

Solution Manual

9th Edition

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Solution Manual for Financial Accounting, The downloadable file consists of 1455 pages, and the total size of the file is 7.96 MB. Purchase now only for highly discounted price.

Author(s): Hoggett, Medlin, Edwards, Chalmers, Hellmann, Beattie, Maxfield

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Solutions Manual for Financial Accounting, 9e John Hoggett, John Medlin, Lew Edwards, Keryn Chalmers, Hellmann, Beattie, Maxfield (All Chapters ) CHAPTER 1 DECISION MAKING AND THE ROLE OF ACCOUNTING DISCUSSION QUESTIONS SOLUTIONS Suggested topics for discussions are provided for each question . Discussion need not be confined to the topics indicated. 1. You are considering buying an apartme nt. Outline the information you would like to assist you to make this decision . Identify h ow much of this information is accounting information? ▪ Considerations when buying an apartment include factors such as location, type (studio, one bedroom, two or thr ee bedrooms) , size (bigger rooms, additional bathroom, balcony), age of the apartment, and available funds . Information to assist the purchase decision includes whether the apartment is for res idential or investment purpose , personal taste (e.g. interior d esign , view ), distance to workplace or train stations , funds to meet ongoing costs like repairs and maintenance required after purchase , body corporate fees, council rate s, and insurance . Initial purchase considerations include whether the apartment is to be purchased outright or through a home loan taken with a financial institution, stamp duty to be paid, and the eligibility of obtaining first -home buyer grant from the federal/state government . Purchase considerations and ongoing costs represent accountin g information relevant to the decision -making process. 2. Simone Taylor (in the scene setter p. 3) is involved in helping to make many different types of decisions as part of her employment . List examples of the types of consumption, investment and financ ing decisions that she would be involved with. As stated in the scene setter (p. 3): ‘In 2009, Taylor accepted a position at OrotonGroup. The company has approximately 85 stores throughout Aust ralia and Asia. Her role is to assist steering the finance func tion. The role is diverse, from an early morning sales meeting to product reports and cashflow, as well as rolling out a new Asia strategy, which includes setting up new structures from payroll through to audit – keeps things interesting. The role also inv olves implementing finance support services for strategic decisions, such as online shopping, acquisitions, and partnerships, to adapt to the business and economic environment to the brand ’s advantage. ’ At this early stage in the student ’s introduction to accounting, ask each student (or groups of students) to consider what they believe are examples of the types of decisions and accounting issues that Simone would face, based on the excerpt abov e. Also ask them to classify the decisions as consumption (e.g. where to get materials for the company ’s products, how many staff to be employed in each store) , investment (e.g. purchasing a n outlet to set up a new store, acquiring other apparel retail companies) and financing (e.g. using more leverage through higher borrowings) . The nature of consumption, investment and financing decisions is discussed on p. 0 of the text. Chapter 1:Decision making a nd the role of accounting © John Wiley & Sons Australia, Ltd 2015 1.1 3. Accounting is described as the language of business, and everyone is affected by the business world . Discuss if everyone should be required to study accounting . Suggested topics of discussion: ▪ Adults are affected by business activity but not all adults carry on a business; ▪ ‘Accounting is the process of identifying, measuring, recordi ng and communicating economic information to permit informed ju dgements and decisions by users of the information. ’ The ‘language of business ’ is the communication of accounting information, not the identifying, measuring and recording of accounting inform ation that all adults may not necessarily deal with. Language i ncludes the terminology (jargon) used by accountants in accounting and business reports. Communicating accounting information consists of preparing of financial reports and other interpretative disclosures necessary to make the accounting data understandab le. It is up to the accountant to communicate in a language that the client can understand. ▪ Part of an accountant ’s role is to communicate financial information to adults. It is not necessary f or everyone to study accounting as it is part of the duty of an accountant to communicate. 4. Describe the differences between accounting information and other information. ▪ Accounting information comprises financial information summarised in the form of financial reports. Accounting information is used to provide inf ormation about the financial costs of business decisions. It differs from other information used in the business decision -making process due to the financial nature of measuring economic resour ces used in business transactions. Other information which may be used in the decision making process includes personal preferences, social factors like the effect on unemployment, environmental factors (like pollution and waste management) and government policy effects on decision making in business entities. Should accountants also report social and environmental information, or is this the task of others? 5. ‘Accounting is irrelevant in decision making because the information it provides relates only to the past. ’ Evaluate this remark . ▪ Accounting is relevant to the decision -making process as it helps provide financial information as to the most efficient use of available economic resources . Although accounting provides financial information based on past financial transactions, it is useful in giving details on how efficiently an organisation has been using its available resources . For example, what profit has the accounting entity reported based on the assets used ? A reported profit of $50 000 where an e ntity has total assets of $200 000, appears more favourable whe n compared to an entity which has total assets of $1 000 000. Accounting information is useful in providing decision makers with information about the outcomes of their past business decisions . Past performance also gives insight to the future trends for t he entity . Accounting information is also used as part of the budgeting process of a business entity. Solutions Manual to accompany Financial Accou nting 9e by Hoggett et al © John Wiley & Sons Australia, Ltd 2015 1.2 6. Describe how you would identify if a financial statement is a special purpose financi al statement or a general purpose financial statement . Sugge sted topics of discussion : ▪ The difference between a general purpose financial statement and a special purpose financial statement lies in the ability of users of those reports to command the preparation of reports tailored to satisfy their needs for partic ular information. ▪ General purpose financial statement s are prepared by reporting entities for users who do not have access to special purpose financial statements . General purpose financial statement s contain information which, while general in nature, is relevant to many of the individual decisions made by the many different types of users, e.g. a shareholder will decide to sell or retain his/her shares based on the information in the general p urpose financial statement s. Other users such as lenders suppli ers and employees will make individual decisions based on these general purpose financial statement s. ▪ Regulators attempt to prescribe the disclosure requirements in the general purpose financia l statement s to ensure that individual users have access to rel iable information. ▪ General purpose financial statements do not satisfy all of the needs of users for information . Users will also add their personal, social, political and environmental prefere nces to any decision . General purpose financial statement s do n ot even provide all of the financial information that users may need . For example, budget information is not provided. ▪ Special purpose financial statement s are specifically tailored to provide the special information needs of users for decision -making purp oses. Unlike general purpose financial statement users, special purpose financial statements users have the power to require/insist that the information generated is specifically suited to thei r needs . For example , a bank may require special information fr om an entity before it grants the entity a loan. 7. Users of accounting information can be identified as internal and external users . List examples of users in each category and the type of infor mation they require. Firstly, distinguish internal and externa l users. The following are examples of i nternal users and the type of information they require : • Section /line managers need to know the impact of increasing or decreasing selling price on profit ability. • Chief Executive Officers and directors need accounting information to make a decision of whether it would be beneficial for the company to acquire another company. • General managers of divisions need to know if their divisions should make new produ cts. • Account managers require information about how much the co mpany owes suppliers. • Production supervisors need to know the most efficient production process to be implemented. External users are often classified as being resource providers, recipients o f goods and services, and reviewers and overseers. The followin g are examples of e xternal users, who mainly receive general purpose financial statement s which are commonly available to the general public on an entity ’s website , and the type of information they require : • Shareholders want to know the return on their inv estments. Chapter 1:Decision making a nd the role of accounting © John Wiley & Sons Australia, Ltd 2015 1.3 • Long -term lenders need to know if the company will be able to repay the money lent to it. • Potential investors want to know if they should invest in the company. • Suppliers require info rmation to find out if the company will be able to pay outstand ing bills. • Employees want to know if the company is still able to pay their wages. • Customers want to know if the company uses locally -grown products in their production to support local economy . • Government e.g. for tax reasons needs to know if the company complies with tax regulations by paying the right amount of tax . What about other interest groups? e.g. RSPCA, Greenpeace, World Vision, Unions, Chambers of Commerce, Community interest groups , The Australian Securities Exchange (ASX). Are they entitled t o receive financial reports? 8. Distinguish between the work performed by public accountants and the work performed by accountants in commerce and industry and in not -for-profit organisations. Public accounting Public accountants run businesses which offer their professional services to the public for a fee. These vary from small businesses to very larg e international organis ations. Members of public accounting businesses tend to specialise in o ne of four general services: auditing and assurance services, t axation services, advisory services, and insolvency and administration. Auditing and assurance services An audit is an independent examination of a business entity ’s financial reports, support ing documents and records in order to form an opinion as to whe ther the financial reports comply with certain levels of quality, as specified in accounting standards, and present a true and fair view of the entity ’s performance and financial position. It is essential that auditors are independent observers in carrying out their duties. Assurance services are defined as ‘independent professional services that improve the quality of information, or its context, for decision makers ’. Emphasis is being placed on the detection of fraud and assessing whether the entity is ap propriately placed to remain as a going concern. The auditor is required to report on the ‘credibility ’ of information. Example s of assurance services include (see p. 00 for details) : • assessm ent of risk • business performance measurement • information sy stems reliability • electronic commerce • health care and care of the elderly Taxation services Accountants provide advice concerning the tax consequences of business decisions. Individuals an d business entities have to collect or pay various forms of tax es including income tax, capital gains tax, fringe benefits tax, goods and services tax, local government rates, and other taxes. Accountants are often engaged to help in tax planning to minimi se the tax liability of the business, consistent with the rules and regulations established by taxing agencies. Accountants also are often called upon to prepare tax returns, including business activity stat ements (BASs), required by law. Solutions Manual to accompany Financial Accou nting 9e by Hoggett et al © John Wiley & Sons Australia, Ltd 2015 1.4 Advisory service s Accountants provide advice on: • overcoming detected defects or problems in a c lient’s accounting system. • the installation and modification of computer syst ems, • budgeting, forecasting and general financial planning, • design or modif ication of superannuation plans • company mergers and takeovers, • personal financial planni ng, and • managing deceased estates. Forensic accounting Forensic accounting develops investigative tec hniques in order to generate information and op inions for use in the legal system, such as in court, and to provide opinions as an expert witness if neede d. The forensic accountant is often needed to resolve disputes in circumstances such as bankruptcy, embezzle ment, fraud, employee irr egularities, business partnership dispu tes, personal injury claims, road accidents, divorce proceedings, business losses, and claims for professional negligence . Visit the following website for further information: forensicaccountant.com. Insolvency and administration Public accountants help businesses administer their recovery from trading difficulties or insolvency, if poss ible. However, if recovery is not possible, accountants then help in the winding -up of the business ’s affairs. In the case of the company form of business organisation, such a wind -up is referr ed to as liquidation . Accountants in commerce and industry An entity ’s chief financial officer (CFO) has overall responsibility for directing the activities of accounting personnel. In a large company, the CFO may have severa l management accountants as pa rt of the finance team . Overall responsibilities include: Gene ral accounting The accountan t in commerce and industry is required to oversee the recording of transactions undertaken by the business entity and to prepare reports specially tailored for use b y management in their planning, control and decision -making act ivities. Cost accounting The accountant deals with the collection, allocation and control of the costs of producing specific products and services. Knowledge of the cost of each manufacturing process and each service activity is important in making sound business decisions . Accounting information systems Accountants are often heavily involved in designing both manual and computerised accounting information systems. Once systems have been desig ned and installed, their operation is constantly monitored for improvements and system maintenance. Integrity of data and privacy issues are of paramount importance. Budgeting Accountants deal with the preparation of plans and forecast s of future operatio ns. Budgets also serve as control devices when used in conjunct ion with performance reports, which measure actual results for the period. Budgets also are used in assessing the efficiency of operations. Chapter 1:Decision making a nd the role of accounting © John Wiley & Sons Australia, Ltd 2015 1.5 Taxation accounting Businesses are assessed for a va riety of taxes all of which require the preparation of periodic reports to the various taxing agencies. The effects of tax must be considered in every investment and financing decision m ade by management. Some businesses rely on public accountants for some tax-planning advice and tax -return preparation, but many large companies also maintain a tax accounting dep artment to deal with tax issues and problems. Internal auditing and audit committees The internal audit committee in a business conduct s ongoing re views to make certain that established procedures and policies are being followed. Thus, any deficiencies can be id entified and corrected quickly. Not-for-profit accounting Government City councils, shire councils, state governments and the federal govern ment collect and spend large a mounts of money annually. Many of the problems and decisions faced by government officials are the same as those encountered in private industry, but accounting for not -for-profit entities may require a different approach in s ome respects because of the absence of a profit motive. Governm ent accounting is concerned with the efficient usage of its resources, consistent with the provisions of city, shire, state and federal laws. Other not -for-profit organisations Chur ches, hospi tals, charities, clubs, p rivate educational institutions also h ave specialised accounting needs. 9. List some of the fields (other than financial reporting) that have opened up to accountants in recent years. Suggested topics for discussion: In addition t o the fields that accountants have long been involved in (refer to Q8 above for more details), there are some fields that have opened up to accountants in recent years: • sustainability reporting As the demand from stakeholders that organisations produce sus tainability reports has increased, the need to have those repor ts audited also increases. Accountants can provide assistance to organisations in assessing their compliance with sustainability reporting requirements. • forensic accounting As business structur e and transactions become more complicated, organisational issu es and disputes cannot be avoided. Forensic accountants help to uncover the causes of those issues and settle disputes within organisation and in the legal system (such as court). • accounting in formation systems The rapid advancement of technology has enabl ed organisations to improve the efficiency of their operations using computerised accounting information systems. Some of strategic management accounting techniques, such as Just - In-Time (JIT) and Activity -Based Costing (ABC) rely heavily on good accountin g information system to be able to operate effectively. Accountants could be involved in designing, installing, monitoring, and maintaining those information systems. Solutions Manual to accompany Financial Accou nting 9e by Hoggett et al © John Wiley & Sons Australia, Ltd 2015 1.6 Ask students if they hav e other examples of accounting fields that have become more popular recently. 10. Regulators are concerned with external auditors providing advisory services to a client at the same time as providing audit ing services to that client. Explain why this is a concern. Suggested topics for discussion: • If an external audi tor is required to express an independent opinion on whether the financial reports present a true and fair view of the entity ’s performance and financial position, can the auditor successfully be involved in providing management services to the client and maintain independence? • Note that as a result of certain significant corporate crashes in the early 2000s, the Australian government introduced requirements (via CLERP no 9) for auditors to decl are their independence and to ensure a rotation of auditors every 5 years, with a further two -year delay before a former auditor can become an officer of the former client. 11. Discuss the actions taken by regulators in Australia, the United States and Ch ina to address auditor independence concerns. Australia • Altho ugh audit firms in Australia are allowed to provide non -audit services to the same audit clients, the audit firms must disclose non -audit services provided to their clients. • The Corporations Ac t lists relevant employment and financial relationships that ar e prohibited between an audit firm and its clients to ensure audit independence (section 324CH) . • Only one former audit partner of an audit firm can be an officer of an audited client (section 3 24CK). • Individual auditors who play a significant role in the a udit of a listed company must be rotated after five successive years and not return for a further two years (section 324DA). • There is a two -year ‘cooling -off’ period for former partners of audi t firms before they could become officers/employees of an audit ed client. The ‘cooling -off’ period only applies to a partner or director of an authorised audit firm who has been a professional member of the audit team. United States • An audit firm is prohi bited from providing both audit services and non -audit services to client firms. • The Securities and Exchange Commission (SEC) imposes ban on certain relationships between an auditor or audit firm and an audit client, similar to those listed in the Australi an Corporations Act. However, the SEC applies the ‘covered pers on’ concept (rather than ‘all partner ’ approach as adopted in Australia) in regards to restrictions in those relationships. • The Sarbanes -Oxley Act (SOX) also contains provisions for a ‘cooling -off’ period of no longer than two years before a former auditor could become an officer of audited client. The requirement of ‘cooling -off’ period in the U.S. is more extensive than in Australia as it applies to any person who participated in any capacity in the audit. Chapter 1:Decision making a nd the role of accounting © John Wiley & Sons Australia, Ltd 2015 1.7 • Lead auditors must rotate after five successive y ears and there is a five -year time-out period before the rotated auditors are allowed to resume involvement with the same audit client. China (source: Lin, K. Z., and K. H. Chan. 2000. Auditin g standards in China: A comparative analysis with relevant inte rnational standards and guidelines. International Journal of Accounting 35 (4): 559 –77.) • Article 5 of the Chinese General Standard on Professional Ethics requires the auditor to remain independ ent in form and in substance. An accounting firm or a CPA must not accept the engagement for an audit or other attestation function if vested interest with the client exists. • Chinese CPA Law requires that during the period of a professional engagement, the auditor should not: (1) buy or sell stocks or bonds of the client, (2) accept compensation other than the audit fee specified in the engagement letter, (3) act as a liability collector, (4) allow others to practice on his/her behalf, (5) work in two or mo re CPA firms, (6) obtain clients by advertising, and (7) engage in other activities that violate laws and regulations. • However, there is no limitation on providing non -audit services, such as bookkeeping, preparation of the financial statements, taxation a nd management consulting, nor is there any restriction on the p ercentage of total fee income deriving from one client. 12. ‘When one examines the distinctive and different functions of financial and management accounting, it is obvious that to maximise th e usefulness of the information derived, two systems of account ing are necessary . It does not matter how large or small the entity is, it is just common sense that one system cannot do the job. ’ (An assertion made by a recent management graduate.) Evaluate this assertion. ▪ Financial and management accounting systems ha ve different objectives, direct reports to different users, and differ in the degree of regulation that can be imposed from outside the entity. ▪ Financial accounting is designed to produce repor ts for external users, e.g. shareholders, lenders, trade credit ors. These reports are general purpose financial statement s for entities which are reporting entities, and as such must comply with accounting standards. ▪ Management accounting is designed to pr oduce relevant information for internal users, e.g. all levels of management . The reports are specific -purpose reports, designed to meet specific needs of those using such reports. ▪ The frequency of reporting differs considerably . Whereas with financial acc ounting, reports could be yearly and half -yearly, management ac counting reports are usually requested on a daily, weekly, monthly basis, or on demand. ▪ The question of whether two separate systems are necessary depends, to a large extent, on cost factors. ▪ Both financial and accounting management systems are based on a framework of accounting, the majority of the elements of which are common . Therefore, the one accounting system can be used to serve the needs of both forms of accounting. 13. Describe what i t means to behave ethically. Solutions Manual to accompany Financial Accou nting 9e by Hoggett et al © John Wiley & Sons Australia, Ltd 2015 1.8 ▪ Ethic s can be defined as ‘moral principles that govern a person ’s behaviour or the conducting of an activity (Oxford Dictionary). Therefore, to behave ethically means to make decisions or to act based on what is morally right , for instance being honest, complying with rules, and ‘doing t he right thing ’. ▪ Ethical conduct can be considered essential to a business ’ long-term survival because: (a) It attracts a regular and stable client base; (b) The legal implications of unethic al conduct may prove to be costly; (c) It may attract sharehol ders and/or consumers in that they trust you to manage their money successfully and/or provide a quality service; and (d) Unethical conduct can lead to government intervention and even closure of the business. ▪ Discuss with students the ethical dilemmas th ey may face in the workplace and identify who are the stakeholders, the ethical issues faced, what they may do in the situation. 14. ’Accounting is all about numbers ’. Evaluate. ▪ Although it is a common perception that accounting is all about numbers, the fie ld of accounting enc ompasses broader issues than merely numbers. Accounting is defined as the process of identifying, measuring, recording and communicating economic information to assist users of the information in making informed economic decisions. ▪ Base d on the definition above, there are four elements of accounting associated with providing information that is useful for decision -making. Identification involves selecting economic events that are relevant to a particular entity. Even though the economic events eventually need to be expressed in measuring unit (numbers), the identification process itself requires knowledge about the entity and its operations rather than just looking at the numb ers. ▪ After the identification of the transaction , accounting in formation must be expressed in a common denominator so that the effects of transactions can be combined. This is where measurement takes place. It is true that measuring economic events mostly involves numbers, however it also requires knowledge of various measurement techniques , relies on judgments and assumptions, and involves knowledge of relevant accounting standards. ▪ Economic events or transactions that have been identified and measured are then maintained systematically through recording process. In order to be useful in making decisions, recorded data must be classified and summarised. ▪ Finally, classified and summarised accounting data need to be communicated to the potential users of the information. The communication process consists of placing accounting information into financial reports and preparing interpretive disclosures necessary to make the date understandable. For accountants to be able to help users of the reports to make econo mic decisions effectively, the accountants who prepare the reports must have a full appreciation of who the users are and their needs for accounting information. ▪ In conclusion, it is a misunderstanding that accounting is all about numbers. Many people with limited knowledge of accounting tend to view accounting as lim ited to recording numbers and do not comprehend the whole processes involved in accounting as described above, which requires extensive training, business experience and professional judgment r ather than merely calculating numbers. Chapter 1:Decision making a nd the role of accounting © John Wiley & Sons Australia, Ltd 2015 1.9 EXERCISE SOLUTIONS Exercise 1.1 Information for decisions Ian Boardman has been appointed as the loans officer for the local community bank. One day, a person walks into the bank looking for a loan to buy a new car. List six items about that individual that Ian should find out before deciding whether to approve the loan. Classify these items as ‘economic’ or other (specify). Which type of information is more important for the purposes of good decision ma king? Ian Boardman, as the loans officer, should obtain personal and financial information about the loan applicant to ascertain whether or not the person will be able to repay a bank loan . In deciding to approve the loan, the following would be required: 1. Name of applicant 2. Address of applicant 3. Previous addre ss 4. Employment details 5. Marriage status 6. Years at current or previous address 7. Years in current or previous employment 8. Salary and wage details * 9. Total assets and estimates o f values * 10. Total liabilities (total commitments) * 11. If married/de facto, spouse/partner details for items 6 -10 * 12. Credit history * 13. Banking details of applicant* 14. Ability to repay the loan for the period of the loan * 15. Any guaranto r to the loan * indicates economic information included. Solutions Manual to accompany Financial Accou nting 9e by Hoggett et al © John Wiley & Sons Australia, Ltd 2015 1.10 Exercise 1.2 Information for decisions Tran Qu’s family lives in Beijing, China. She has been accepted into a university course in Sydney, and has to find accommodation in the city within walking distance of the unive rsity, or at least be close to pub lic transport. She searches the Internet to find suitable accommodation and comes across the following apartment: CBD $525 pw Great unfurnished one bedroom apartment in Maestri Towers. Send an enquiry via the email agent button to access the booking page to sche dule an inspection time. Bond is $2120. Required A. Discuss how this information may help Tran make a decision . B. List additional information Tran would need before deciding whether t o rent this apartment. A. The information provided partly hel ps Tran ’s decision -making process . It gives financial information as to the location of the apartment, cost of the rental per week, number of bedroom, and the amount of deposit required as bond . Tran is only able to identify this unit as one of the selecti ons for further investigation based on the location identified, at a weekly cost she can afford and for meeting one of her criteria of being close to public transport . She should highlight this advertisement for further investigation. B. Other informatio n Tran may require include s: ▪ the exact location of the apartment in CBD (is it on a main road/close to shops or transport ?); ▪ whether the location is safe (will she be able to arrive home safely after night lectures ?); ▪ how far the apartment is to the train station ; ▪ details for transport close to the apartment (d oes the train run past the university ? If not, is there a suitable bus service? ); ▪ personal taste (does she like the building, the apartme nt, or the neighbours? ); ▪ whether she could afford paying the we ekly rental or whether it is financially more affordable for her to rent a two -bedroom apartment and share the rental with a friend); ▪ whether it is practical and easy to furnish her own apartme nt or whether she should be looking for a furnished apartment i nstead; ▪ other alternative options available to Tran (e.g. stay in a student accommodation provided by the university or live with relatives in Sydney ); Tran needs to consider what she is tryin g to achieve, assess what information she requires, consider wh at her alternatives are and decide what will be her final choice. Chapter 1:Decision making a nd the role of accounting © John Wiley & Sons Australia, Ltd 2015 1.11 Exercise 1.3 Information for decisions Renee Carter has decided to study medicine at a university in Melbourne. She has arranged to stay with a fam ily on the north side of the city. In order to get to and from the university, she decides she will need to buy a car, costing a maximum of $10 000. She searches the Internet and comes across the following at Car City: MAZDA 32 3 Red, 4D Sedan; 5 SP Manual; 2.0 Ltr, 4 cycl; odometer 153 293. Required A. Evaluate how useful this information is in arriving at a decision . B. List extra information that Renee should ascertain before deciding whether to buy this car . C. Assume that Renee does purchase the car, and subsequently finds that the c ar has mechanical problems that will require $2000 to fix . Discuss what she should do, given that she does not have enough money to pay for the repairs . D. Hypothesise as to how ethical the com munity regards used car sales people . A. Renee needs to buy a small car costing a maximum of $ 10 000. The information provided in the advertisement is not very useful for Renee in making a decision, as it mostly describes the physical appearance of the ca r and does not mention the price of the car . Subsequently, Rene e needs to find out the price of the car first before she looks further into other features of the car, as the most important requirement for her in buying the car is that the price does not ex ceed $10 000 (i.e. she will not buy the car if the price is abo ve $10 000 even though she likes other features of the car). B. In her decision -making process (assuming the price of the car does not exceed $10 000), Renee needs to consider other features beyond personal taste or preference , such as: ▪ the age and previ ous mileage of the vehicle (the age is unknown at this stage, but once she finds out she needs to consider if the mileage shown on the odometer is reasonable for a car built in that year); ▪ whet her the vehicle is mechanically sound or whether certain parts of the car need to be repaired ; ▪ whether the car still has a warranty (although it would be unlikely for a car with such a high mileage to have a warranty); ▪ the total expected ongoing costs incl uding petrol and oil, maintenance, registration and insurance ; ▪ additional features included in the car, e.g. tinted windows, power steering, A/C, CD player, and so on ; ▪ other alternative vehicles available within the same price range (e.g. different brand, model, colour, automatic instead of manual, etc.). She should highlight the advertisement for further investigation and compare it with other available vehicles advertised in the internet or elsewhere. C. If Renee buys the second -hand car and subsequent ly discovers that it will require further expenditure of $2000 to fix, she must pay it herself . Is there a warranty attached to a second -hand vehicle? If so, will this cost be passed on to the car dealer ? Solutions Manual to accompany Financial Accou nting 9e by Hoggett et al © John Wiley & Sons Australia, Ltd 2015 1.12 If she has insufficient funds to meet the unexpecte d expense, she will have to borrow the money (loan from the fam ily or borrow using a credit card) in order to fix the car . D. In Australia, the community generally perceives used -car salespeople as being unethical and deceitful in doing business. That is, people commonly have a negative perception of used -car salespe ople based on the view that they use high pressure and manipulation to sell vehicles, especially to potential buyers who may not have sufficient knowledge about cars (usually female buyers). It is widely -known that used-car salespeople often do not reveal the truth about real condition of the car, and the unfortunate buyers would only find out about it after they buy the cars. Because of this stigma, many people feel reluctant to deal with used -car salespeople , even though undoubtedly there are a lot of use d-car salespeople who do their job with high level of professionalism and integrity. Ask students from other countries whether they have the same perception about used - car salespeople in thei r home countries. Ask if there are students whose family memb ers or relatives or friends are used -car salespeople . Ask them if their perception about used -car salespeople has changed knowing that their close family or friends work in this area. Chapter 1:Decision making a nd the role of accounting © John Wiley & Sons Australia, Ltd 2015 1.13 Exerci se 1.4 Choosing a university major You have just enrolled in a course in business at the Western University in Perth. There are several specialty areas, one of which you must choose — accounting, business law, economics, finance, manag ement, marketing , information systems. The choice you make is important as it w ill affect your future; hence, you must give car eful thought to this decision. Required A. Identify two possible specialty areas in business that interest you. B. Set down your goals and perso nal preferences in selecting a business major. Identify the fac tors which will help you make this decision, and specify the factors which are most important to you. C. Establish a set of criteria which must be met before making a decision about your approp riate specialty area. D. Determine the sources of information y ou will need to make such a decision. Students may answer this question in the context of their own choices made upon entering university. A. Identify your own personal preferences and stren gths and weaknesses with respect to a choice of major in Busine ss. For example, consider your strengths and weaknesses in considering whether to choose between an accounting or marketing major. B. Possible goals include desired area of employment after gr aduation, postgraduate starting salaries, postgraduate study op tions and desired membership into professional societies . In choosing a major, you may identify subjects which you enjoyed taking or in which you achieved good grades . Discuss personal goals an d ambitions after your degree is completed. C. Criteria for se lecting a major: ▪ Postgraduate employment opportunities ▪ Postgraduate starting salaries ▪ Recruiting and training opportunities ▪ Work experience ▪ Professional society membership ▪ Personal choice ▪ Perso nal interest and work preferences D. Identify areas of interes t and talk with career advisers, lecturers, members of professional societies or become a student member of a professional society to gain access to information . Also speak with more senior stu dents about their experiences with their studies and don ’t forg et to read the University Handbook and relevant unit outlines . Consult newspapers and business press, prepare a resume and apply for a job. Seek work experience in your desired area of interest . Solutions Manual to accompany Financial Accou nting 9e by Hoggett et al © John Wiley & Sons Australia, Ltd 2015 1.14 Exercise 1.5 Making an economic decision You have deci ded that now is the time to buy a new laptop. List the factors that are important in choosing a new laptop and gather relevant information from various sources about different models on the mar ket. Given that you have a maximum of $1600 to spend, identify which model you would buy and discuss the reasons for your choice. Present your answer so as to illustrate the steps required in the decision -making process as discussed in this chapter. Refer to figure 1.1 ‘ Steps in the decision -making process ’. 1. What are you trying to achieve? — Establish goals ▪ Discuss your personal preference for a laptop including brand, make and model. ▪ What laptop do you think you need (e.g. RAM, CPU, hard disk, screen size, weight) ? ▪ How will you use the laptop ? Is it for your own personal use, or will you be sharing it with others? 2. What information do you need? — Gather available information on alternatives ▪ Investigate pricing. ▪ What are the available models in the desired price range? ▪ Identify features available for each mode l. ▪ Compare warranty and after -sales service. ▪ Consider all possible alternatives. 3. What are the consequences of different choices? — Determine consequences of alternatives ▪ Identify all the a lternative options in your price range and identify your prefer red choice. ▪ Discuss the features which best appeal to you. ▪ Discuss the likelihood that laptops will become technologically obsolete in the near future. ▪ What is the worst case and best case scen ario? 4. Which course of action will you choose? — Choose a c ourse of action ▪ Identify your choice and discuss why and how this particular model appealed to you. ▪ Discuss why you think this particular model is the best option compared to other alternatives . Chapter 1:Decision making a nd the role of accounting © John Wiley & Sons Australia, Ltd 2015 1.15 Exercise 1.6 Factors in making a business decision Consult the business section of a local newspaper, or the The Australian Financial Review , or a bus iness journal, such as BRW (Business Review Weekly ), and find an appropriate article detailing a n impo rtant business decision that has been made in the last mo nth. Based on the article, determine the factors that were taken into account in arriving at the decision. Discuss the effects that such a decision will have on various interested parties or st akeholders. Factors to be taken into account in arriving at a business decision include: 1. Nature of the business entity. 2. Goals of the business entity. 3. Resources available to the entity. 4. Parties involved in the decision -making process. 5. The management level required for the decision to be made. 6. Possible gains or losses anticipated to be experienced by the business entity. 7. Possible alternatives which could be employed by the business entity. 8. The best or worst case scenario for t he entity in adopting a certain business decision. 9. Identify ing all possible groups both internal and external to the business entity who may be affected. 10. Identifying the stakeholders (i.e. parties for whom or on whom the decision will have a posit ive or negative impact). Solutions Manual to accompany Financial Accou nting 9e by Hoggett et al © John Wiley & Sons Australia, Ltd 2015 1.16 Exercise 1.7 Factors in making a government decision Consult a local newspaper, the The Australian Financial Review , or a business journal, such as BRW , and find an appropriate article detailing an important federa l government decision in the last month. Based on the article, determine the factors that were taken into account in arriving at the decision. Discuss the effects that such a d ecision will have on various interested parties or stakeholders. Factors to be taken into account in arriving at a government decision include : 1. The nature of the government decision. 2. The government policy dictating the decision. 3. The political impact of the decision. 4. Identifying all parties affected by the government d ecision. 5. Identifying all the stakeholders (i.e. parties to which the decision will have a positive or negative impact). 6. Identifying any particular lobby or special interest groups involved with the issue. 7. Identifying the available funding or re sources available for the government decision. 8. How is the g overnment initiative to be funded? 9. Identifying the cost of the initiative. 10. Was the decision made in a consultative manner? 11. Was there much political debate or commentary? 12. Possible gains or losses anticipated to be experienced by the commu nity. 13. Possible alternatives which could have been employed by the government. 14. Was the resultant decision considered to be the most efficient use of community resources? Chapter 1:Decision making a nd the role of accounting © John Wiley & Sons Australia, Ltd 2015 1.17 Exercise 1 .8 Economic decisions made by management List examples of economic decisions that the following people would need to make with the use of accounting information: • A marketing manager • A production manager • The Chief Executive Officer of a national footb all league • The manager of a second -hand clothing charity . Mark eting manager : Decisions about which marketing tools (e.g. radio, TV, billboards, brochures, sponsorships etc.) are most effective in promoting the company ’s products/services; the best times t o put advertising (e.g. which times on TV or radio); how much t o spend on advertising; whether it is beneficial to conducts surveys for custom ers about the products/services. Production manager: Decisions about appropriate production staff levels; appropr iate plant and machinery capacity to meet customer ’s demands ; costs of raw materials, labour and overhead, such as electricity, in order to make the appropriate goods; where to get the best suppliers of materials with reasonable price; costs of occupationa l health and safety ; how to improve the efficiency of the produ ction process (e.g. acquiring new machinery) . Chief Executive Officer of a national football league : Decisions about the venue selection and costs for football matches ; ticket pricing for foot ball matches in different venues and for special events (such a s grand final); possible breaches of the salary cap imposed on football clubs ; possible implementation of new rules or abolition of certain existing rules; annual membership fees; sponsorship e nticements and entitlements ; selection of new players for the nationa l draft; addition of new football clubs within the league . Manager of second -hand clothing charity: Decisions about the pricing of second -hand clothing; appropriate locations and display equipment for clothing stores; the cost of collection systems to receive donated clothing; the cost of mending any suitable clothing items; the cost of disposing of any unsuitable items; overheads such as electricity, insurance; the costs of full -time emp loyment and the management of volunteers. Solutions Manual to accompany Financial Accou nting 9e by Hoggett et al © John Wiley & Sons Australia, Ltd 2015 1.18 Exercise 1.9 Choos ing an accounting career After reading the chapter, d iscuss the areas in which accountants work, and indicate which area(s) you find most interesting and/or familiar. If you intend to pursu e a career in any one of these areas of accounting, discuss the types of decisions and advice that you believe you will be involved in making and giving. Refer to the chapter text about public accounting versus commercial accounting . Students can then con tribute to class discussion re their intentions , familiarities and interest s. • Are students studying accounting because they have a genuine interest in participating as an accountant in business? Or in government? Or in not -for-profit organisations? • Do stu dents see themselves as experts in tax? Or in assurance service s? Or in running a small business? Or…? • Are any students merely studying accounting because their parents/family have insisted that they do so ? • Do any students have parents/relatives who are ac countants? • Are they studying accounting merely as a subject the y have to take as part of the course requirements of another degree? What do they expect to get out of the accounting course, if anything? Students can then contribute to the class in the type s of decisions that they believe they will be involved in makin g. Chapter 1:Decision making a nd the role of accounting © John Wiley & Sons Australia, Ltd 2015 1.19 Exercise 1.10 Setting up a business Luigi and Gina Cicello have decided to lease some newly built premises for the purpose of opening a seafood outlet. They intend to provide a wide range of different products, including a variety of seafood for sale and take -away fish and chips. Required Discuss the types of economic decisions that they will be required to make, and the information that they will need to make those decisions . Distin guishing non -economic and economic information, identify non -economic decisions that they will also be required to make. Discuss why Luigi and Gina may require the services of an accountant. Examples of economic decisions they will need to make include: • the cost of leasing suitable premises (long-term or short -term) ; • the cost of purchasing suitable quantities of different types of seafood from local and overseas suppliers; • import and quarantine costs for exotic items ; • minimisation of wastage, and disposal costs ; • storage costs, including cold storage and freezers; • transport facilities to bring merchandise from the markets to the store (e.g. cooling van) and the cost of transport (e.g. petrol); • staff wages and training; • cost of display equipment, refrigerato rs, cooking equipment, electricity, and cash registers ; • selecti on and development of a suitable accounting system ; • tax implications, including income tax, GST, import duties ; • assessment of actual financial performance, in relation to budgeted performance. Examples of non -economic decisions they will also be required to make include: • location of the seafood outlet; • the range of seafood demanded by their local resident; • where to get best suppliers for fresh products with reasonable price; • import and quaranti ne policy (e.g. whether there are certain types of seafood that cannot be imported); • where to hire experienced staff; • determination of hours open for business (do they also open on weekends or public holidays?); • whether to have ‘specials ’ on certain days t o attract more customers. Based on the above list or any appro priate additional items suggested by students, consider the information needed to make such decisions and then discuss in class whether/where accounting may be expect ed to provide such informat ion. Of the economic decisions that Luigi and Gina need to mak e as listed above, there might a number of factors that Luigi and Gina have not considered, particularly those related to development of accounting systems, tax issues, and financial performanc e assessments. Therefore, Luigi and Gina may require the servic es of an accountant to assist them in decision -making by providing relevant information related to certain issues.Solutions Manual to accompany Financial Accou nting 9e by Hoggett et al © John Wiley & Sons Australia, Ltd 2015 1.20 Exercise 1.11 Becoming an accountant Read the article from InTheBlack below and answer the questions below. New pathways to business s uccess As you may know, our 2009 –2011 corporate plan established the importance of having a globally competitive CPA Program and broadened entry pathways . With this in mind, CPA Australia has f or a long while now been working on making the CPA Program more focused and competitive and appropriately opening up entry routes to becoming a CPA Australia member. Last month CPA Australia celebrated the launch of the new entry pathways to the CPA design ation along with the revised CPA Program. These changes will cr eate more o pportunities for potential members to attain the CPA Australia designation and become part of one of the world’s largest accounting bodies. The revised CPA Program syllabus addresses the needs of employers and will provide candidates with a high ly valued and global designation. The program is a rigorous education and experience program. It consists of 14 subjects along with integrated workplace learning. CPA Australia has maintained t he same high standards of competence that have always been requ ired to achieve the CPA designation. The new pathways to membership will welcome people who want a career built on professional accounting skills — in Australia and around the globe — and who h ave the desire, appropriate level of competence, and the profes sionalism and integrity to carry the CPA Australia designation. In addition to recognising the prior learning and experience that potential members bring, we are providing more options for grad uates from other disc iplines and for candidates with gaps in th eir core knowledge to work towards becoming a CPA. This means that more aspiring business leaders will now be able to become members of our professional body. It is important, however, to note that to attain CPA status candidates must complete the Professi onal Level within six years of starting the CPA program and hold an eligible degree or higher education award. The changes will enable us to become more relevant globally while retaining the hi ghest professional standards and the quality of the CPA designa tion. And, importantly, they take us a step forward in the aim of realising our organisational vision: for CPA Australia to be the global professional accountancy designation for strategic busi ness leaders. Against the backdrop of an increasingly competiti ve global marketplace we must work harder and smarter than ever to realise this vision. The new entry pathways are vital to ensuring that the CPA Australia designation co ntinues to be recognise d by key stakeholders as a valuable asset. Source: Petty, R 200 9, ‘New Pathways to Business Success’, InTheBlack , August, p. 7. Required A. Compare the entry requirements to become a full member of CPA Australia, Institute of Chartered Accountants in Austral ia and the Institute of Public Accountants. Identify the common alities and differences. B. Discuss why the professional accounting bodies would have different entry requirements. C. Identify what qualifications are required to: 1) be a company auditor; 2) be a public accountant; 3) be a financial advisor; and 4) prepare tax returns. A. The entry requirements to become a full member of CPA Australia , ICAA, and IPA: CPA Australia ICAA IPA Academic requirements for accounting degree A degree or postgraduate awards in accountin g Australian accounting bachelor or masters degree or an overseas Advanced diploma or a bachelor degree in accounting. Chapter 1:Decision making a nd the role of accounting © John Wiley & Sons Australia, Ltd 2015 1.21 recognised by CPA Australia . accounting degree recognised by ICAA. Academic requirements for non- accounting degree A degree or postgra duate awards in any discipline recognised by CPA Australia. Any Australian non - accounting degree and completion of ICAA - accredited conversion course. Non-accounting degree is not eligible to enrol in IPA program. ‘Core knowledge ’ requirements Successfully cover the core knowledge required that is obtained either through accounting degree study or CPA ’s foundation level program. Successfully cover the core knowledge required that is obtained either through accounting degree study, ICAA -accredited conversion course, or ICAA program entrance exam. Successfully cover the core knowledge required that is obtained either through accounting degree study. Member admission program CPA Program professional level CA Program IPA Program Working experience Practical ex perience requirement within six year of starting CPA Program. Mentored Practical Experience. Mentored Experience Program. In general the three professional accounting bodies have similar entry requirements to become full members of their associations . Candidates aiming to be admitted as full members must have a uni versity degree, either in accounting or non -accounting, with the exception of IPA who accepts candidates with advanced diplomas in accounting . All associations have their own program of study t hat includes material at the post - degree level. In order to bec ome a full member, c andidates must have covered the core knowledge required by the professional bodies, either through their accounting degree or by completing program s conducted by the profess ional bodies. Before being admitted as full members, candidates must also complete further studies and a mentored working experience program. The differences in the entry requirements is reflected in the programs that the professional bodies offer. The CP A professional level program offers 6 segments consisting of 4 compulsory segments and 2 electives. The CA Program consists of 5 modules and upon successful completion of the program , candi dates are awarded a Graduate Diploma. The IPA Program offers 4 subj ects consisting of 1 core subject and 3 electives. Upon complet ion of the program candidates will receive a Graduate Certificate in Professional Accounting. B. Different professional accounting bodies may have different entry requirements as a way to set the mselves apart from other professional bodies and attract a diff erent member cohort . To attract members, the associations have generally become more flexible with their entry requirements by providing a pathway to full membership for a person without an acc ounting qualification. C. Qualifications required to: 1) be a compan y auditor (as prescribed by ASIC) : • Candidates must have the prescribed academic qualifications and have completed a prescribed course in auditing, OR have other qualifications and experience t hat ASIC considers equivalent to both of these requirements. • Candidates must satisfy all the components of an ASIC -approved competency Solutions Manual to accompany Financial Accou nting 9e by Hoggett et al © John Wiley & Sons Australia, Ltd 2015 1.22 standard, OR have the prescribed level of practical experience or experience that ASIC considers equivalent. • Candidates m ust be capable of performing the duties of an auditor, AND be a fit and proper person to be registered as an auditor. 2) become a public accountant (as prescribed by IPA): • Must be a member of IPA . • Candidates must hold a Public Accountant Practice Certificate. 3) be a financial advisor (as prescribed by ASIC): • Candidates mus t have an AFS (Australian Financial Services) license which can be applied through ASIC. 4) prepare tax returns (as prescribed by the Tax Practitioners Board): • Must be a registered as a tax agent with the Tax Practitioners Board (http://www.tpb.gov.au/TPB/Reg ister/0322_Registering_as_an_individual_ta x_agent.aspx) Chapter 1:Decision making a nd the role of accounting © John Wiley & Sons Australia, Ltd 2015 1.23 Exercise 1.12 Conduct in business Read the following prelude to NIKE’s Code of Ethics by the President of NIKE, Inc. and discuss t he points that fo llow. Inside the Lines: The NIKE Code of Eth ics At Nike, we are on the offense, always. We play hard, we play to win, and we play by the rules of the game. This Code of Ethics is vitally important. It contains the rules of the game for N IKE, the rules we live by and what we stand for. Please read it . And if you’ve read it before, read it again. Then take some time to think about what it says and make a commitment to play by it. Defining the NIKE playing field ensures no matter how dynamic and challenging NIKE may be, our actions and decisions fit wit h our shared values. Thanks for your commitment Source: NIKE 2011, Inside the Lines: The NIKE Code of Ethics — Defining the NIKE, Inc. Playing Field and the Rules of the Game , http://investors. nikeinc.com. Required A. Check if there is a code of ethics to gu ide your behaviour as a student at your university. B. Identify if the university that you are attending has a course on ethics in accounting or in business . Also find out whether this ethics cour se (if it exists) is compulsory in your degree. C. If such a cours e exists, find out the types of issues discussed in the course. D. Referring to ‘Inside the Lines ’ NIKE, Inc. ’s code of ethics governing the conduct of all employees, identify the values employees should operate by as part of the NIKE team. E. Assume that you ar e employed by NIKE Inc. Referring to the company ’s code of ethics , discuss how the code would guide your behaviour in the following situations: 1. a retailer offers you an all expenses paid hol iday if he can have a special price on a runner soon to be rele ased. 2. you are aware that NIKE is shortly to announce a profit increase for the most recent reporting period and think that it would be a good time to sell some of your NIKE shares. A, B , and C: Answers here must come from the student ’s own research. D. Some of the values employees should operate by as part of the Nike team: • treat others the way they would expect to be treated as professional adults, respectful of the diverse workforce NIKE e njoys. • uphold business integrity (i.e. not doing anything prohi bited by NIKE policy. • refrain from disclosing NIKE ’s confidential information to anyone without prior written consent from NIKE. • maintain accurate records and reports, including financial and a ccounting records that accurately and completely reflect all tr ansactions and assets. • safeguard NIKE ’s assets and records against waste and abuse. • use NIKE ’s computing and information assets in accordance with NIKE ’s business objectives and policy. • respect privacy of other people ’s personal information. • refrain from c ommitting fraud and theft.