UGANDA MANAGEMENT ISTITUTE
COURSE: MASTER OF BUSINESS ADMINISTRATION
MODULE: MBAF7212 ADVANCED FINANCIAL REPORTING
COURSEWORK QUESTIONS (40Marks)
Question One
A company that owes you money has in the recent three years made operating losses consistently. According to the audit report prepared by a reputable world class audit firm, it was discovered that this trend is caused by but not limited to the following:
- Inefficient management
- Poor client retention
- Deteriorating good will
- Competition from the other industry players
- Poor liquidity position
- Insolvency due to a large long term debt.
As a result, the auditors have advised the board to exploit one of the following options:
- To send the company in to Receivership and Liquidation
- To appoint an Administrator who can turn the company around.
Required:
- With the use of relevant examples and scenarios, distinguish between Receivership and Liquidation ( 5 marks)
- In a bid to exploit the second option, the board has decided to appoint an administrator to turn the company around in to profitability. The board has been informed that you are the best candidate for that job. Basing on the above 6 factors, show how you would address the above challenges in order to turn the company around in to profitability. ( 15 Marks)
Question Two
Measurement of the elements of Financial Statements is the process of determining the monetary amounts at which these elements are recognized and carried in the Statement of Financial Position and the Statement of Profit or Loss and Other Comprehensive Income.
Required:
Enumerate the four major bases of measuring the elements of financial statements in accordance with the IASB Conceptual Framework for Financial Reporting and the circumstances under which each one of them is used. (20 marks)
N.B
- i) Avoid as much as possible presenting the same work by different people and plagiarism. Use citations as much as possible.
- ii) Your coursework should be typed and should not be more than 5 pages.
References:
- Elliot,Barry and Jamie Elliot, 2011, Financial Accounting and Reporting, 12th Edition (UK Prentice Hall
- Internet
- Sulton,Tim, 2004,Corporate Financial Accounting and Reporting (Pearson Education)
- Institute of Certified Public Accountants of Uganda, 2017 Paper 8 Financial Reporting Study Pack.
- Discussion
Timeline: Hand in by 25th October 2022.
QUESTION ONE A
All business owners naturally fear the terms “receivership” and “liquidation”. Oftentimes, these terms are used interchangeably to describe the downfall of a company. That comparison is misleading. While it’s true that appointing either a receiver or a liquidator indicates that a company is in serious financial trouble, there are crucial differences between these two processes.
Liquidation, also known as “winding up”, is the process in which a liquidator collects and sells the company’s assets and then distributes the proceeds among the creditors to pay off debts owed. Once the interests of the creditors are met, the company is officially dissolved.
A receivership is a court-appointed tool that can assist creditors to recover funds in default and can help troubled companies avoid Bankruptcy, having a receivership in place makes it easier for a lender to recover funds that are owed to them if a borrower defaults on a loan.
Similarities liquidation and receivership
Management Relinquishes Control. The company’s management will need to step down and hand over legal control of their business operations and its assets to either the receiver or the liquidator.
Repaying Debt is the Primary Objective. The ultimate goal of both court-appointed receivership and liquidation is to pay off accrued debts to all of the company’s creditors, according to their priority.
Each Process is Well-Documented. The appointed professional, whether a receiver or a liquidator, is responsible for regularly filing reports to document the company’s progress in repaying debts.
Differences between liquidation and receivership
The Outcomes. Receivership offers an insolvent company the opportunity to recover and resume business operations. Once the receiver has fulfilled their appointed role, the company can oftentimes be handed back to its directors and shareholders. In contrast, liquidation always ends in the termination of the business and its removal from the registrar of companies.
Whose Interests are Represented. A court-appointed receiver acts on behalf of both the company and the creditors in order to reach repayment negotiations that benefit both parties. A liquidator, on the other hand, purely represents the interests of the creditors and shareholders.
Management’s Involvement. In receivership, the owner of a company maintains a limited role in the debt restructuring process. Liquidation completely eliminates the roles of the owner and directors and operates without their input.
Trading Ability. Since a receiver strives to keep the company afloat and viable, they can continue to trade while receivership takes place. A liquidator cannot continue trading.
QUESTION ONE B
WAYS OF TURNING THE COMPANY ROUND INTO PROFITABILITY
The first step towards making the company profitable is by Defining business goals; Improving business performance starts with the enterprise carefully evaluating and deciding on its goals and aligning its organizational strategy with them. This might seem obvious, but more than a few companies go ahead with developing a product or hiring a new cadre of employees without ensuring those actions are the best way to meet their business goals or without even defining those goals in the first place. Before they know it, they’re committed to initiatives that, at best, fail to advance their core objectives and, at worst, actively hinder them, when company defines its goals
Recruit and develop talent with the right skills and cultural fit; At the end of the day, business performance depends on the skills and motivation of the company’s workforce. If n organization’s employees don’t believe in its mission, genuinely want to be a part of its culture, or have the abilities and background needed to accomplish its aims, attempts to improve business performance are bound to fail.
Keep your finger on the pulse of key metrics and adjust as needed; Data reporting and analytics are the backbone of organizational success across industries. After all, it’s hard to improve business performance if an organization can’t measure it. Beyond tracking key metrics related to revenue and profit, an organization should dive deeper into the drivers of employee performance it’s chosen to focus on. These may relate to employee engagement, recognition, wellness, professional development, or other factors that can help an organization succeed.
Increase employee engagement; employee engagement; is simply how motivated and excited team members are about their jobs on a daily basis. Highly engaged employees come up with innovative ideas for making your company better, give their all to every task, and serve as your organization’s best advocates when it comes to building great employee brand Unfortunately, disengaged employees can have the opposite effect, only doing enough to get by, rarely sharing their thoughts on important issues, and spreading disengagement to others. The first step to building an engaged workforce is understanding the drivers of employee engagement like recognizing team members frequently and establishing a culture employee believe in. Then measure these drivers using an employee engagement solution that features the tools described above, acting quickly to address any issues holding engagement down. HR should train managers on how to build collaborative action plans with their team members so everyone has a stake in the outcome and buys into the actions taken to achieve it.
Show team members they’re valued with employee recognition; A great salary, first-in-class benefits, a well-designed office all of this can fade into the background if you feel unappreciated at work. Employee recognition feeds into engagement, letting team members know they and their contributions are valued by peers, leaders, and the company as a whole. The best employee recognition programs facilitate appreciation at all these organizational levels and combine both social and monetary recognition for maximum effect. They lean on the capabilities of today’s recognition programs to deliver a centralized, exceptional recognition experience no matter where team members find themselves. Look for a solution that lets all employees give and receive reward points they can redeem for a wide variety of exciting items, experiences, and more. There’s no better or simpler way to personalize recognition at scale.
Identifying and understanding the target market; A company’s target market is simply a group of customers with shared characteristics that make them an ideal match for your organization’s offerings. Defining a target market allows your business to spend its marketing and sales resources where they’ll make the most impact, rather than trying and failing to appeal to everyone. It also provides the data your organization needs to further refine its products and services, so they better match what customers actually want.
Improving business performance by engaging with employees; Motivated, engaged employees can be a core driver of business performance in good times and bad. But many organizations don’t understand what factors engage their employees, let alone how to start positively impacting them.
Question Two
ANSWERS
Elements of Financial Statements; The elements of financial statements are the general groupings of line items contained within the statements. These groupings will vary, depending on the structure of the business. Thus, the elements of the financial statements of a for-profit business vary somewhat from those incorporated into a nonprofit business (which has no equity accounts).
ELEMENTS
ASSET
An asset is defined as a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity. Assets are presented on the statement of financial position as being noncurrent or current. They can be intangible, ie without physical presence, eg goodwill. Examples of assets include property plant and equipment, financial assets and inventory. While most assets will be both controlled and legally owned by the entity it should be noted that legal ownership is not a prerequisite for recognition, rather it is control that is the key issue. For example, IAS 17, Leases, with regard to a lessee with a finance lease, is consistent with the Framework’s definition of an asset. IAS 17 requires that where substantially all the risks and rewards of ownership have passed to the lessee it is regarded as a finance lease and the lessee should recognise an asset on the statement of financial position in respect of the benefits that it controls, even though the asset subject to the lease is not the legally owned by the lessee. So this reflects that the economic reality of a finance lease is a loan to buy an asset, and so the accounting is a faithful presentation.
LIABILITY
A liability is defined as a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. Liabilities are also presented on the statement of financial position as being noncurrent or current. Examples of liabilities include trade payables, tax creditors and loans. It should be noted that in order to recognise a liability there does not have to be an obligation that is due on demand but rather there has to be a present obligation. Thus for example IAS 37, Provisions, Contingent Liabilities and Contingent Assets is consistent with the Framework’s approach when considering whether there is a liability for the future costs to decommission oil rigs. As soon as a company has erected an oil rig that it is required to dismantle at the end of the oil rig’s life, it will have a present obligation in respect of the decommissioning costs. This liability will be recognised in full, as a non-current liability and measured at present value to reflect the time value of money. The past event that creates the present obligation is the original erection of the oil rig as once it is erected the company is responsible to incur the costs of decommissioning.
EQUITY
Equity is defined as the residual interest in the assets of the entity after deducting all its liabilities. The effect of this definition is to acknowledge the supreme conceptual importance of identifying, recognizing and measuring assets and liabilities, as equity is conceptually regarded as a function of assets and liabilities, ie a balancing figure. Equity includes the original capital introduced by the owners, ie share capital and share premium, the accumulated retained profits of the entity, ie retained earnings, unrealized asset gains in the form of revaluation reserves and, in group accounts, the equity interest in the subsidiaries not enjoyed by the parent company, ie the non-controlling interest (NCI). Slightly more exotically, equity can also include the equity element of convertible loan stock, equity settled share-based payments, differences arising when there are increases or decreases in the NCI, group foreign exchange differences and contingently issuable shares. These would probably all be included in equity under the umbrella term of Other Components of Equity. Income is defined as the increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants. Most income is revenue generated from the normal activities of the business in selling goods and services, and as such is recognized in the Income section of the Statement of Comprehensive Income, however certain types of income are required by specific standards to be recognized directly to equity, ie reserves, for example certain revaluation gains on assets. In these circumstances the income (gain) is then also reported in the Other Comprehensive Income section of the Statement of Comprehensive Income.
EXPENSES
Expenses are defined as decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants. The reference to ‘other than those relating to distributions to equity participants’ refers to the payment of dividends to equity shareholders. Such dividends are not an expense and so are not recognized anywhere in the Statement of Comprehensive Income. Rather they represent an appropriation of profit that is as reported as a deduction from Retained Earnings in the Statement of Changes in Equity. Examples of expenses include depreciation, impairment of assets and purchases. As with income most expenses are recognized in the Income Statement section of the Statement of Comprehensive Income, but in certain circumstances expenses (losses) are required by specific standards to be recognized directly in equity and reported in the Other Comprehensive Income Section of the Statement of Comprehensive Income. An example of this is an impairment loss, on a previously revalued asset, that does not exceed the balance of its Revaluation Reserve.
