accounting wace / mock 2025

Who are the users of Management accounting reports?

Directors
· Management
· Employees
· Internal accountants
· Sales and production managers

Who are the users of Financial accounting reports?

· Shareholders/investors
· Creditors
· Government agencies (ATO,ASIC)
· Lobby groups
· Employees
· Suppliers
· Customers

What is the purpose of Management accounting reports?

Provide financial information to assist internal users make internal decisions.

What is the purpose of Financial accounting reports?

Provide financial reports to assist external users make decisions about a company.

What do users of Management accounting reports make decisions about?

The business' ability to meet objectives and goals,
and to control day to day efficiency.

What do users of Financial accounting reports make decisions about?

The business' financial performance (profit, income and expenses),
financial position (A,L,Eq),
and liquidity.

Examples of Management accounting reports?

Master budget
Cash budget
Performance reports
Budgeted income statements
Capital budget
CVP analysis
Cost accounting

Examples of Financial accounting reports?

Annual reports containing GPFRs (gen purpose financial reporting)- Statement of:
· Financial position
· Comprehensive income
· Cash flows
· Changes in equity

Focus of Management accounting reports?

Future focus (assists in planning)

Focus of Financial accounting reports?

Historic focus (outlines what has happened)

What is the time period of Management accounting reports?

No specific time period- monthly, 3 monthly, yearly

What is the time period of Financial accounting reports?

Specific time period- usually financial year

What are the regulations for a Management accounting report?

None

What are the regulations for a Financial accounting report?

Regulation required for external reporting of financial statements. External regulations include:
· Corporations Act
· Australian Accounting Standards
· ASX (public coy)
· ASIC
An audit may be required

What is the nature of internal reports?

Subjective, relevant, and future oriented.

What is the nature of external reports?

Objective, reliable, and historical.

What is the frequency of internal reporting?

Prepared as needed, perhaps day-to-day or even in real time.

What is the frequency of external reporting?

Prepared periodically (monthly, quarterly, annually).

What is the level of detail for internal reports?

Information reported at the decision-making level (by product, region, customer or other business segment)

What is the level of detail for external reports?

Information reported for the company as a whole.

What is the nature and importance of the Master Budget?

The Master Budget plans, coordinates and controls all activities of a business.

It plans as it includes a budget income statement, cash flow, capital expenditure and statement of financial position.

It coordinates as it includes cash planning to ensure adequate money for operations, capital expenditure and dividends

It controls as it achieves the preparation of performance reports by time, responsibility and activity, and then management can make decisions based on those reports.

Can also be used to motivate employees as it gives them a target to work towards

What are the components of the master budget?

Operating budgets, capital expenditure, and financial budgets.

What are operating budgets?

an operating budget provides all the information to prepare a budgeted income statement

wat are example of operating budnet

1. Sales and other revenue budget
2. Production budget
3. Raw materials budget
4. Direct Labour cost budget
5. Cost of sales budget
6. Other expenses budgets (eg: Marketing, General and Administration, Finance)
7. Budget income statement

What is capital expenditure?

Budget that sets out the type and cost of non-current assets that must be purchased to meet the objectives of the business for a given future period of time. These long-term assets help the business operate over the years.

What is included in the financial budget?

The remaining budgets prepared by a business, which include a:
- Cash budget
- Budgeted balance sheet
- Capital expenditure budget

What are budgets?

A plan of future business activities expressed in money terms.

What are the advantages of budgets?

1. Provides the business with a set of objectives to be met
2. Helps to identify potential problems e.g. future shortage of cash
3. Helps co-ordinate business activities. Different sections need to work together
4. It can motivate employees to achieve the objective set
5. Helps a business evaluate its performance. Actual results compared to expected > poor performance areas identified> action taken

What is the purpose and function of a cash budget?

· Includes ONLY cash flows
· Usually prepared on a short-term basis
· Shows opening and closing cash balances
· Will reveal cash shortfalls or surpluses during budget period, to enable a business to take steps to avoid or deal with cash problems
· Relays the importance of cash to the business' viability

What is the purpose and function of a budgeted income statement?

Usually prepared for a longer period

Sets out the expected (budgeted) income and expense estimates, and profit or loss for a future period.

Its purpose is to determine if the business will have enough income to meet its expenses for the period.
To benchmark a profit level for the business.

What is the difference between Cash and Accrual accounting?

Both Methods of Profit Calculation.

Cash recognizes existence of income when cash is received, and expenses when they are paid.
Accrual accounting is an accounting method where revenues and expenses are recorded when they are earned or incurred, regardless of when cash is actually received or paid.

What is the purpose and function of performance reports?

A report comparing Budgeted Performance (Cash or Profit) for a period with Actual Performance.

Purpose of performance reports are to:
1. Establish performance benchmarks (budgets) for the business to work towards.

2. Assign responsibility for business units (cost centres, profit centres, investment centres).

3. Evaluate performance against benchmarks (performance reports).

4. Assign rewards to those responsible for favourable variances.

5. Review unfavourable variance and try and figure out how to improve/avoid in the future.

What are the methods of business planning?

Cost leadership, product differentiation, strategic initiatives, and performance management.

What is cost leadership?

A situation in which a business has lower costs than its competitors and can sell its products at lower prices than its competitors.

May be achieved by setting up a chain of retail shops, buying large volumes of products at low prices and having a management team that is focused on finding other cost savings.

What is product differentiation?

Occurs when a business offers customers a product that has superior benefits to competing products.

What are strategic initiatives?

A major plan of a business that, once implemented, is likely to have a significant impact on the future of the business.

What is performance management?

The process in which the employees of a business are made aware of the level of performance expected of them and involves the periodic review of their performance.

What is the nature and importance of Capital investment decisions?

A capital investment when a business spends a large sum of money with the intention of making an acceptable future return.
Include examples, characteristics, and essential elements.

What are examples of Capital investment decisions?

• Establish a new store
• Purchase new machinery/ replacing old equipment
• Acquire new technology
• Begin production of a new product
• Take over of an existing business
• Invest in superannuation or other investment funds

What are the characteristics of capital investment decisions?

- They involve large sums of money relative to the size of the business
- Expenditures are normally long-term.
- The decisions are difficult to reverse.
- Capital investments are HIGH RISK.

What are the essential elements in capital investment decisions?

• Management should consider qualitative factors:
• That the business remains competitive in the marketplace.
• Meets all legal and political requirements ie Government regulation
• Meets customer expectations and preferences

What are cash inflows?

- Extra sales or fees
- Cash sale of an old asset
- Residual cash value of a completed investment
- Savings in payment from operation costs - negotiated insurances, wages, suppliers, repairs and maintenance

What are cash outflows?

- Initial cost of an investment
- Major overhaul of an existing asset
- Cash payments for operation costs such as electricity, insurance, rates, taxes, repairs and maintenance

What is a net cash flow?

The differences between cash inflows and cash outflows.

What are the factors affecting capital investment decisions?

consumer preferences, competitors, and government regulations.

How to factor in customer preferences in capital investment decisions?

Understanding the needs of intended customers of a product that a business wants to develop, before proceeding with the investment.

How to factor in competitors in in capital investment decisions?

Understanding the strength and weakness of a business' competitors, considering the likely reaction of their competitors to any investment that it makes.

How to factor in government regulations in capital investment decisions?

Ensuring that any investment proposal takes into account the cost of complying with government regulations.

What is the nature and importance of a payback period?

Payback period is the length of time a proposal is expected to take to repay the initial cash outlay.
A business can set a maximum acceptable payback period.
Any proposal that takes longer than the maximum time allowed to repay the initial cash outlay will not be accepted.

When two competing proposals are being evaluated and both proposals have acceptable payback periods, the proposal with the shorter payback period will be chosen.

What is the nature and importance of Net present value?

Net Present Value determines if the expected rate of return of an investment proposal is above, equal to, or below the rate of return required by a business.

If the expected rate of return is higher than or equal to the required rate of return of the business, then the business should proceed with the investment.

What are advantages to using a payback period?

1. Simple to calculate
2. Easy to understand
3. A good indicator of the risk of investment

What are disadvantages to using a payback period?

1. Does not consider the time value of money
2. Cannot determine if a proposed investment is likely to generate an acceptable rate of return
3. Ignores cash inflows after the payback period is reached
4. Makes assumptions about future cash flows that may not be accurate, particularly for the latter years of a project

What are advantages to using a net present value?

1. Considers the time value of money
2. Has a simple decision rule → If the NPV is positive, the investment should go ahead, vice versa
3. Establishes if a required rate of return should be achieved

What are disadvantages to using net present value?

1. Makes assumptions about future cash flows that may not be accurate, particularly for the latter years of a project
2. More complex to calculate than the payback period
3. Less easy to understand than the payback period

appropriate levels of investment in nca ?

-must not be excess
-assets must be safeguarded from loss, theft or damage
-monitored and controlled
-assets must be used as efficiently as possible
-management must provide necessary info to ensure protection and efficient usage of assets

appropriate managment of accounts recievable?

-business should have set rules in place → only good customers are sold products on credit & money from debtors is collected quick
- conduct credit checks
impose credit limits (selling to new customers)
follow up overdue accounts (as soon as they exceed payment date)
- Send monthly statement to debtors (so customer knows what they owe)
- separation of duties (recording of debtors separate to handling cash)

appropriate management of inventory?

-must not have an excessive amount of stock→ stock must be safeguarded against loss or damage
-handling of inventory should be separate from recording inv transactions ( separations of duties , stealing)
- inv should be stored in a secure loc (reduce risk of steal and loss)
-inventory records should be done through perpetual inv system
( more accurate and shows slow and fast moving lines of stock)

appropriate management of cash?

-vulnerable asset as it is desirable to all and easily disposed of
- separations of duties ( handling different to recording, stealing)
- Cash should be banked daily
- Payments approved by a senior employee and made by cheque or by direct bank transfer (also double signature)

appropriate management of short term and long term debt ?

- Vital that financial planning shows how debt will be paid
- Cash budgets and cash flow allow management to be aware of ability to repay loan and detect trends before inability to do so
- Should never owe more than a business owns.
Gearing is the percentage of funding against the total assets of a business
(lower is better)

appropriate management of equity capital?

two methods of financing a business
equity financing → money earned by selling shares in the company
Debt financing → borrowing money provided for a limited time by an external source

The relationship between the two forms of financing (gearing/leverage)
- If low geared there is high proportion of equity
- If highly geared there is high proportions of borrowings
business must not be too highly geared to too lowly geared

appropriate management of equity capital- what is undercapitalisation?

is an inadequacy of equity, caused by underestimating the initial capital needed to start the business or excessively rapid expansion

appropriate management of equity capital- what is overcapitalisation?

having too much equity

what is the role and function of the accountant in managing business operations?

employment of a qualified accountant is critical to a business (will work in the best interests of the client

- accountant will provide info and advice that will ensure legal requirements of the business

- advice aims to optimize the owners chances of reducing taxation debt and opportunities for growth

- advice is unbiased as their reputation and future client base depends on the success of clients

- role of an accountant is to provide the managers of the business with the information to maximize their financial performance

what is the purpose of an internal audit?

checking operating systems of a business that they are working properly

what is review of business procedures and policies

internal audit will examine all the procedures and policies the business has in place → check if departments are following these procedures and policies
→ if not followed → check for why
→ if it is an oversight of the department then steps will be taken to ensure all employees are aware of what they should be doing and make sure policies r followed
→ if not followed because they are not efficient then the audit committee will make suggestions as to what should be put in place

what is detection and correction of errors? (internal audit

errors in reporting and deficiencies in business operation can be identified to correct and ensure the proper information is reported to internal users.

what are some examples of errors and deficiencies in reporting and business operations detected by the internal audit

• Theft or assets such as cash

• Accounts receivable not collected

• Poor procedures (protecting assets thoroughly)

what is the role of financial institutions and the management off business finance.

facilitate the flow of funds invested by savers to fund borrowed by borrowers.
- involves administering financial activities and decisions within a business to achieve its goals

what is short term types ( investments for the business)

cash management trusts
money market
term deposits

what are cash management trusts (short term)

• manages the money of investors
  - interest earned on the money deposited
  - Money primarily invested in many short term, low risk investments (12m<)

what is money market (short term)

-financial market where short term borrowing or lending occurs
-instruments (treasury notes and certificates of deposit)
-where banks and other financial institutions buy and sell debt instruments

what are term deposits (short term)

money invested with a financial institute for a fixed period at a fixed rate of interest earned
short term - must be shorter than 12 m

what are types of long term (sources of finance)

shares, debentures, trusts , unsecured notes and term deposits

what are shares (long term finance)

shares are units of ownership of a business
- provide capital to the business as they are sold and profits made depending on the size of shares and profits
-sold on the Australian securities exchange (asx)

what are debentures (long term finance)

issued by a company to raise funds
- secured by company assets
- debenture holders are creditors that receive fix interest payments
-Public companies can issue debentures to the general public, → way for the company to raise money. → loaned the money and have to pay interest on the money and the original amount.
→ debenture is classified as a liability like a bank loan.

what are trusts (long term finance)

-   manages the money of investors 
-   invested in long term securities 
- A trust is money or other property administered b y a person known as a trustee for the benefit of others

what are unsecured notes (long term)

- issued by a company 
- similar to debentures but not secured by company assets
-loans that arent backed up

what are term deposits (long term)

- money invested for a fixed period at a fixed rate of interest 
- [long term deposits, fixed period can be greater than 12 months]

what is the management of business finance with short term and long-term perspectives

short term and long term both come with disadv and adv
 
-Long term results in larger investments but more $$$ and need time
- short term finance results in quick and cheap assets but is limited with heavy overdue debt penalties. 
 
business must consider the purpose of the finance when choosing between them,
→ must provide collateral and liquid assets, provide profitable plans and projections and a good debt history to persuade financial institutions to lend finance. 
 

Adopting accounting standards (e.g., AASB Accounting Standards) ensures accurate financial reporting.

Helps businesses maintain effective and reliable financial statements detailing the financial position and business income for periods of time..

→ Ensures proper tracking of finances and assets within the business.

what is the concept of insolvency as defined by the Corporations Act 2001 

• section 95 of the Corporations Act 2001 defines ‘insolvency’ as an entity that is unable to pay all debts due and payable. 

• indications of insolvency can include
  - the current ratio being less than 1,
  - excessive lengths of time to repay creditors,

  - lack of internal controls,

  - poor credit policy,
  - inability to report recent performance,
  - overdue taxes,
  - external factors, like natural disasters. 

• Insolvent businesses can take action to mitigate effects.

what is the Alternative action for insolvent companies of voluntary administration?

‘external administration’ 

- the directors, or secured creditors, of an insolvent company may appoint a registered liquidator, the voluntary administrator, to take full control and find a better return to creditors than liquidation 

- they assesses the viability of the company and asks for creditors to submit a proof of debt 

- then they can obtain additional capital, reduce the amount of noncurrent assets or obtain a ‘scheme of arrangement’ to renegotiate debt with creditors 

- the voluntary administrator can either restore the directors’ control, if a compromise with creditors is reached, or initiate liquidation, if the company and creditors cannot agree. 

what is the Alternative action for insolvent companies of liquidation?

‘winding up’ 

- the director of an insolvent company, or secured creditors through court approval, initiates liquidation and appoint a registered liquidator which takes control to properly wound up the company in an orderly way to benefit creditors
 

- the liquidator takes possession of company assets, determines debts owed
 - company assets are sold to repay creditors with remaining amount distributed amongst shareholders 

- the conduct of positions responsible for insolvency, such as directors and some employees, are investigated 
 

- liquidation prevents insolvent trading and buying into an insolvent company, ensures fairness as it is a legal procedure and holds positions accountable responsible for insolvency 

what is the Alternative action for insolvent companies of receivership?

- a receiver may be appointed by court order initiated by secured creditors with overdue debts owed.  
 
- the receiver takes over some or all the company assets to sell to repay secured creditors. 

what is the Order of priority of the distribution of funds when insolvent 

fees for the liquidator and liquidation are paid first; 

- secured creditors, including employees, are paid second; 

- outstanding employee wages, superannuation, leave and redundancy pay are paid third; 

- unsecured creditors are paid fourth; and 

- remaining funds are distributed amongst shareholders 
 

what is is csr and examples
(Identification of the costs and potential income associated with engaging in socially and environmentally responsible practices.)

• corporate social responsibility (CSR) is the expectation that businesses should consider their impact on society and the environment. It encompasses economic, legal, ethical, and philanthropic responsibilities.
   

  examples of CSR programs can include protecting the environment,
  -through recycling waste,
  - reducing pollution emitted or reducing energy consumption,
  -show concern for the community,
  - through funding charity or sponsoring local groups and clubs

what competitive advantages does csr bring?

community respect and reputation,
improving brand perception,
generating higher sales
gaining customer loyalty,
greater production and attract and retain high quality employees
motivated employees,

how can csr be costly

through costs of
support programs
producing social disclosure reports

environment protection may require new energy-saving or pollution-reducing plant and equipment

what are ethics?

ethics are a set of morals, values and principles that guide people in deciding what is right and wrong 
- owners and managers of businesses can face many ethical issues and dilemmas

what issues and dilemmas does owners and managers face?

Conflicts of interest: senior employees may have to decide between self-interests and company interests

Employees exploitation: employees may work excessive unpaid overtime or be expected to leave

Gifts from suppliers: decision-making may be biased in regards to changing suppliers if the original provide gifts

Breaches of confidentiality: senior employees may provide confidential information to friends working for competitors

Oversea workers exploitation: operations in foreign developing countries may provide low wages and unsafe working conditions

Foreign consumer exploitation: unsafe and unregulated products may find easier markets in foreign countries with poor education and lack of access to information

Investors exploitation: investors’ funds may be used to finance high-risk ventures and endeavors

What are costs

The value of a resource used in:
The manufacture of a product like timber
Carrying out other business activities (electricity used in office)

What are the types of Costs?

Fixed, Variable and Mixed

What are fixed costs?

Do not change w the number of products sold or manufactured in any way.

What are variable costs?

Changes in proportion with the number of products manufactured/sold within relevant range

what is the relevant range

length of time that goes by before the cost of a business change
eg rent / insurance

What are mixed costs?

Contains both Fixed and Variable aspects
eg telephone service/ wifi

What is the contribution margin?

Revenue available after taking away variable expenses
-Covers expenses of the business

What is the break even point?

Point in the volume of activity when the organizations revenue and expenses are equal
nor profit or loss atp

wat r Limitations of break even analysis?????

1. Fixed Expenses are fixed for a limited amount of time and all expenses will increase.
   

2. Variable Expenses may decrease as a manufacturing business expands due to economics of scale.
   

3. A business may be able to obtain a discount for the bulk purchase of inv → reducing variable cost per unit

When should you make the decision to close down a part of the business?

if its negative contribution margin
- if it is positive that revenue can be used to pay fixed expenses even if it makes a total loss
- never add fixed expenses

what is a cost object?

Anything in a business that generates costs