Tuesday, 29 August 2017

ACC2232 - Job Order Costing

Job costing

by Steven Bragg (www.accountingtools.com)

Job costing involves the accumulation of the costs of materials, labor, and overhead for a specific job. This approach is an excellent tool for tracing specific costs to individual jobs and examining them to see if the costs can be reduced in later jobs. An alternative use is to see if any excess costs incurred can be billed to a customer.

Job costing is used to accumulate costs at a small-unit level. For example, job costing is appropriate for deriving the cost of constructing a custom machine, designing a software program, constructing a building, or manufacturing a small batch of products.

Job costing involves the following accounting activities:

Materials. It accumulates the cost of components and then assigns these costs to a product or project once the components are used.
Labor. Employees charge their time to specific jobs, which are then assigned to the jobs based on the labor cost of the employees.
Overhead. It accumulates overhead costs in cost pools, and then allocates these costs to jobs.

Sample of Job cost sheet

Example:

Forge Machine Works collects its cost data by the job order cost accumulation procedure. For Job 642, the following data are available:

Direct Materials			Direct Labor
9/14 Issued	$ 1,200	Week of Sep. 20	180 hrs @ $6.20/hr
9/20 Issued	662	Week of Sep. 26	140 hrs @ $7.30/hr
9/22 Issued	480
Factory overhead applied at the rate of $3.50 per direct labor hour. Required: The appropriate information on a job cost sheet. The sales price of the job, assuming that it was contracted with a markup of 40% of cost.

Solution:

Forge Machine Works Job Order Cost Sheet–Job 642
Direct materials		Direct labor				Applied factory overhead
Date Issued	Amount	Date (Week of)	Hours	Rate	Cost	Date (Week of)	Hours	Rate	Cost
9/14	$1,200	9/20	180	$6.20	$1,116	9/20	180	$3.50	$630
9/20	662	9/26	140	7.30	1,022	9/26	140	3.50	490
9/22	480
——–	———-	———-
$2,342 =====	$2,138 ======	$1,120 ======

Sales Price of job 642, contracted with a markup of 40% of cost:

Direct materials	$2,342
Direct labor	2,138
Applied factory overhead	1,120
Total factory cost	$5,600
Markup 40% of cost	2,240
——-
$7,840 =====

For some other exercises, please look into these file.....

Ch_009_AIA_5e

ACC1231 & BUS1233 - Financial Accounting 1 - Group Assignment

Assalamualaikum my dear students...

Attached is the group assignment for the semester. The assignment requires you to work in group, no free-rider in this group task and please report to me if there is one. The deadline for the assignment is on 23rd October 2017 not later 1700hrs.

23rd October 2017 not later 1700hrs.

Any late submission, you all better put it in the trash can. I will not tolerate with late submission.

I will not tolerate with late submission.

The assignment should be done in a group of 4. A minimum two and maximum four. Preferably type.

I think I have made everything clear. Good luck!

Group Assignment - Sem120172018

If you wish to print the assignment, kindly contact the number below, maybe they can help.

Monday, 28 August 2017

BUACC3701 - Project Cash Flows and Incremental Cash Flows

Part two or continuity from the previous posting regarding the capital investment decisions. We shall look into the projected cashflow. The cashflow plays an important tole in determining the viability of the undertaken project. Basic rule is by applying the NPV method that we've learned previously. That's basic. Here I just want to share the deatils about it. Again, I've browsed the net from the same page, well I think you also can do that...

Project Cash Flows

When beginning capital-budgeting analysis, it is important to determine a project's cash flows. These cash flows can be segmented as follows:

1. Initial Investment Outlay
These are the costs that are needed to start the project, such as new equipment, installation, etc.

2. Operating Cash Flow over a Project's Life
This is the additional cash flow a new project generates.

3. Terminal-Year Cash Flow
This is the final cash flow, both the inflows and outflows, at the end of the project's life; for example, potential salvage value at the end of a machine's life.

Example: Expansion Project
Newco wants to add to its production capacity and is looking closely at investing in Machine B. Machine B has a cost of $2,000, with shipping and installation expenses of $500 and a $300 cost in net working capital. Newco expects the machine to last for five years, at which point Machine B will have a book value (BV) of $1,000 ($2,000 minus five years of $200 annual depreciation) and a potential market value of $800.

With respect to cash flows, Newco expects the new machine to generate an additional $1,500 in revenues and costs of $200. We will assume Newco has a tax rate of 40%. The maximum payback period that the company has established is five years.

Let's calculate the project's initial investment outlay, operating cash flow over the project's life and the terminal-year cash flow for the expansion project.

Answer:

Initial Investment Outlay:
Machine cost + shipping and installation expenses + change in net working capital = $2,000 + $500 + $300 = $2,800

Operating Cash Flow:
CF_t = (revenues - costs)*(1 - tax rate)
CF₁ = ($1,500 - $200)*(1 - 40%) = $780
CF₂ = ($1,500 - $200)*(1 - 40%) = $780
CF₃ = ($1,500 - $200)*(1 - 40%) = $780
CF₄ = ($1,500 - $200)*(1 - 40%) = $780
CF₅ = ($1,500 - $200)*(1 - 40%) = $780

Terminal Cash Flow:

Tips and Tricks
The key metrics for determining the terminal cash flow are salvage value of the asset, net working capital and tax benefit/loss from the asset.

The terminal cash flow can be calculated as illustrated:

Return of net working capital +$300
Salvage value of the machine +$800
Tax reduction from loss (salvage < BV) +$80
Net terminal cash flow $1,180
Operating CF₅+$780
Total year-five cash flow $1,960

For determining the tax benefit or loss, a benefit is received if the book value of the asset is more than the salvage value, and a tax loss is recorded if the book value of the asset is less than the salvage value.

Incremental Cash Flows

Incremental cash flow is the additional operating cash flow that an organization receives from taking on a new project. A positive incremental cash flow means that the company's cash flow will increase with the acceptance of the project.

There are several components that must be identified when looking at incremental cash flows: the initial outlay, cash flows from taking on the project, terminal cost (or value) and the scale and timing of the project. A positive incremental cash flow is a good indication that an organization should spend some time and money investing in the project.

Incremental Cash Flow and Capital Budgeting

When determining incremental cash flows from a new project, several problems arise: sunk costs, opportunity costs, externalities and cannibalization.

1. Sunk Costs

These are the initial outlays required to analyze a project that cannot be recovered even if a project is accepted. As such, these costs will not affect the future cash flows of the project and should not be considered when making capital-budgeting decisions.

Suppose Newco is considering whether to make an addition to its current plant to increase production. To determine if the new addition is worthwhile, Newco hired a consulting firm for $50,000 to analyze the addition and the effect it will have on production. The $50,000 is considered a sunk cost. If the project is rejected, the $50,000 will still be paid, and if the project is accepted, the $50,000 will not affect the future cash flows of the addition.

2. Opportunity Cost

This is the cost of not going forward with a project or the cash outflows that will not be earned as a result of utilizing an asset for another alternative. For example, the opportunity cost of Newco's new addition considered above is the cost of the land on which the company is considering putting the new plant addition. As such, it should be included in the analysis of the project.

3. Externality

In the consideration of incremental cash flows of a new project, there may be effects on the existing operations of the company to consider, known as "externalities." For example, the addition to Newco's plant is for the purpose of producing a new product. It must be considered whether the new product may actually take away or add to sales of the existing product.

4. Cannibalization

Cannibalization is the type of externality where the new project takes sales away from the existing product.

Changes in Net Working Capital

A change in net working capital is essentially the changes in current assets minus changes in current liabilities. Within the capital-budgeting process, a project typically adds to current assets given additional inventories or potential increases in accounts receivables from new sales. The increases to current assets, however, are offset by current liabilities needed to finance the new project.

Overall, there may be a change to net working capital from the new project.

If the change in net working capital is positive, the change to current assets outweighs the change in the current liabilities.
If, however, the change in net working capital is negative, the change to current liabilities outweighs the change in current assets.

BUACC3710 - Capital Investment Decisions

This is an interesting topic.... but due to my busy schedule, I have browsed the net and found this in investopedia page...

Introduction To Capital Investment Decisions

Capital investments are funds invested in a firm or enterprise for the purposes of furthering its business objectives. Capital investment may also refer to a firm's acquisition of capital assets or fixed assets such as manufacturing plants and machinery that are expected to be productive over many years. Sources of capital investment are manifold and can include equity investors, banks, financial institutions, venture capital and angel investors. While capital investment is usually earmarked for capital or long-life assets, a portion may also be used for working capital purposes.

Capital investment encompasses a wide variety of funding options. While funding for capital investment is generally in the form of common or preferred equity issuance, it may also be through straight or convertible debt. Funding may range from an amount of less than $100,000 in seed financing for a start-up to amounts in the hundreds of millions for massive projects in capital-intensive sectors like mining, utilities and infrastructure.

In this section, we'll examine various components of a company's capital investment decisions, including project cash flows, incremental cash flows and more.

Download this for your notes...

Saturday, 26 August 2017

ACC2231 - Manufacturing Account

Assalamualaikum and hi,

We often heard about trading, profit and loss accounts, and most exercises so far were focusing on those topics. Well, let me introduce you guys to one of accounts that you might be doing later in the future.

Some businesses are doing just buying and selling activities. Buying goods and sell those goods with immediate profits. Somehow, if you think further, goods need to be produced first before they are being shelved for display. For example, if you want to sell fashion clothes to customers, what people normally do is... buy the clothes from the wholesaler and then sell them to customers. If this is the case, the business only need to construct a trading profit and loss account. Some businesses they have to manufacture the clothes, create them from a piece of cloth, stitch them, cut them. They need to have a roll of textile in order to produce the clothes. Moreover, they need people to cut them, trim them, stitch them and other expenses directly associated in producing the clothes. Not only that, they have to take in account the inventory of raw materials (cloth), the work-in-progress (the clothes without pockets/collar etc) and also the finished goods (the clothes ready for sale). In summary, they need a factory to do that. That is why we need to learn manufacturing accounts.

So the definition of Manufacturing Account is......

Thursday, 24 August 2017

BUACC 3701 - Type of bonds and valuing them

Before I actually elaborate...watch this first....

Types Of Bonds

This section describes the various types of bonds that a company might issue. (To learn about government-issued bonds, read Basics Of Federal Bond Issues, Savings Bonds For Income And Safety and 20 Investments: Municipal Bonds.)

Corporate Bonds

A company can issue bonds just as it can issue stock. Large corporations have a lot of flexibility as to how much debt they can issue: the limit is whatever the market will bear. Generally, a short-term corporate bond has a maturity of less than five years, intermediate is five to 12 years and long term is more than 12 years.

Corporate bonds are characterized by higher yields because there is a higher risk of a company defaulting than a government. The upside is that they can also be the most rewarding fixed-income investments because of the risk the investor must take on. The company's credit quality is very important: the higher the quality, the lower the interest rate the investor receives.

Variations on corporate bonds include convertible bonds, which the holder can convert into stock, and callable bonds, which allow the company to redeem an issue prior to maturity.

Convertible Bonds

A convertible bond may be redeemed for a predetermined amount of the company's equity at certain times during its life, usually at the discretion of the bondholder. Convertibles are sometimes called "CVs."

Issuing convertible bonds is one way for a company to minimize negative investor interpretation of its corporate actions. For example, if an already public company chooses to issue stock, the market usually interprets this as a sign that the company's share price is somewhat overvalued. To avoid this negative impression, the company may choose to issue convertible bonds, which bondholders will likely convert to equity should the company continue to do well.

From the investor's perspective, a convertible bond has a value-added component built into it: it is essentially a bond with a stock option hidden inside. Thus, it tends to offer a lower rate of return in exchange for the value of the option to trade the bond into stock.

Callable Bonds

Callable bonds, also known as "redeemable bonds," can be redeemed by the issuer prior to maturity. Usually a premium is paid to the bond owner when the bond is called.

The main cause of a call is a decline in interest rates. If interest rates have declined since a company first issued the bonds, it will likely want to refinance this debt at a lower rate. In this case, the company will call its current bonds and reissue new, lower-interest bonds to save money.

Term Bonds

Term bonds are bonds from the same issue that share the same maturity dates. Term bonds that have a call feature can be redeemed at an earlier date than the other issued bonds. A call feature, or call provision, is an agreement that bond issuers make with buyers. This agreement is called an "indenture," which is the schedule and the price of redemptions, plus the maturity dates.

Some corporate and municipal bonds are examples of term bonds that have 10-year call features. This means the issuer of the bond can redeem it at a predetermined price at specific times before the bond matures.

A term bond is the opposite of a serial bond, which has various maturity schedules at regular intervals until the issue is retired.

Amortized Bonds

An amortized bond is a financial certificate that has been reduced in value for records on accounting statements. An amortized bond is treated as an asset, with the discount amount being amortized to interest expense over the life of the bond. If a bond is issued at a discount - that is, offered for sale below its par (face value) - the discount must either be treated as an expense or amortized as an asset.
As we discussed in Section 4, amortization is an accounting method that gradually and systematically reduces the cost value of a limited life, intangible asset. Treating a bond as an amortized asset is an accounting method in the handling of bonds. Amortizing allows bond issuers to treat the bond discount as an asset until the bond's maturity. (To learn more about bond premium amortization, read Premium Bonds: Problems And Opportunities.)

Adjustment Bonds

Issued by a corporation during a restructuring phase, an adjustment bond is given to the bondholders of an outstanding bond issue prior to the restructuring. The debt obligation is consolidated and transferred from the outstanding bond issue to the adjustment bond. This process is effectively a recapitalization of the company's outstanding debt obligations, which is accomplished by adjusting the terms (such as interest rates and lengths to maturity) to increase the likelihood that the company will be able to meet its obligations.

If a company is near bankruptcy and requires protection from creditors (Chapter 11), it is likely unable to make payments on its debt obligations. If this is the case, the company will be liquidated, and the company's value will be spread among its creditors. However, creditors will generally only receive a fraction of their original loans to the company. Creditors and the company will work together to recapitalize debt obligations so that the company is able to meet its obligations and continue operations, thus increasing the value that creditors will receive.

Junk Bonds

A junk bond, also known as a "high-yield bond" or "speculative bond," is a bond rated "BB" or lower because of its high default risk. Junk bonds typically offer interest rates three to four percentage points higher than safer government issues.

Angel Bonds

Angel bonds are investment-grade bonds that pay a lower interest rate because of the issuing company's high credit rating. Angel bonds are the opposite of fallen angels, which are bonds that have been given a "junk" rating and are therefore much more risky.

An investment-grade bond is rated at minimum "BBB" by S&P and Fitch, and "Baa" by Moody's. If the company's ability to pay back the bond's principal is reduced, the bond rating may fall below investment-grade minimums and become a fallen angel.

and lastly.......

James Bond

This bond I can eloborate more than all the above mentioned bonds. And I know you'll like it. You can do so much research on this type of bond. This is also one of the investment. Hahaha. Therefore, I would like to share the history of bonds since 1962...

Ok...enough of that, now let's proceed to Valuing of Bonds

Bond Valuation

The fundamental principle of bond valuation is that the bond's value is equal to the present value of its expected (future) cash flows. The valuation process involves the following three steps:

1. Estimate the expected cash flows.
2. Determine the appropriate interest rate or interest rates that should be used to discount the cash flows.
3. Calculate the present value of the expected cash flows found in step one by using the interest rate or interest rates determined in step two.

Determining Appropriate Interest Rates

The minimum interest rate that an investor should accept is the yield for a risk-free bond (a Treasury bond for a U.S. investor). The Treasury security that is most often used is the on-the-run issue because it reflects the latest yields and is the most liquid.

For non-Treasury bonds, such as corporate bonds, the rate or yield that would be required would be the on-the-run government security rate plus a premium that accounts for the additional risks that come with non-Treasury bonds.

As for the maturity, an investor could just use the final maturity date of the issue compared to the Treasury security. However, because each cash flow is unique in its timing, it would be better to use the maturity that matches each of the individual cash flows.

Computing a Bond's Value

First, we need to find the present value (PV) of the bond's future cash flows. The present value is the amount that would have to be invested today to generate that future cash flow. PV is dependent on the timing of the cash flow and the interest rate used to calculate the present value. To figure out the value, the PV of each individual cash flow must be found. Then, just add the figures together to determine the bond's price.

PV at time T = expected cash flows in period T / (1 + I) to the T power

After you calculate the expected cash flows, you will need to add the individual cash flows:

Value = present value @ T1 + present value @ T2 + present value @T_n

Let's throw some numbers around to further illustrate this concept.

Example: The Value of a Bond

Bond GHJ matures in five years with a coupon rate of 7% and a maturity value of $1,000. For simplicity's sake, let's assume that the bond pays annually and the discount rate is 5%.

The cash flow for each of the years is as follows:

Year One = $70
Year Two = $70
Year Three = $70
Year Four = $70
Year Five = $1,070

Thus, the PV of the cash flows is as follows:

Year One = $70 / (1.05) to the 1^st power = $66.67
Year Two = $70 / (1.05) to the 2^nd power = $ 63.49
Year Three = $70 / (1.05) to the 3^rd power = $ 60.47
Year Four = $70 / (1.05) to the 4^th power = $ 57.59
Year Five = $1,070 / (1.05) to the 5^th power = $ 838.37

Now to find the value of the bond:

Value = $66.67 + $63.49 + $60.47 + $57.59 + $838.37
Value = $1,086.59

How Does the Value of a Bond Change?

As rates increase or decrease, the discount rate that is used also changes. Let's change the discount rate in the above example to 10% to see how it affects the bond's value.

Example: The Value of a Bond when Discount Rates Change

PV of the cash flows is:

Year One = $70 / (1.10) to the 1^st power = $ 63.63
Year Two = $70 / (1.10) to the 2^nd power = $ 57.85
Year Three = $70 / (1.10) to the 3^rd power = $ 52.63
Year Four = $70 / (1.10) to the 4^th power = $ 47.81
Year Five = $1,070 / (1.10) to the 5^th power = $ 664.60

Value = 63.63 + 57.85 + 52.63 + 47.81 + 664.60 = $ 886.52

As we can see from the above examples, an important property of PV is that for a given discount rate, the older a cash flow value is, the lower its present value.
We can also compute the change in value from an increase in the discount rate used in our example. The change = $1,086.59 - $886.52 = $200.07.
Another property of PV is that the higher the discount rate, the lower the value of a bond; the lower the discount rate, the higher the value of the bond.

Look Out!
If the discount rate is higher than the coupon rate the PV will be less than par. If the discount rate is lower than the coupon rate, the PV will be higher than par value.

How Does a Bond's Price Change as it Approaches its Maturity Date?

As a bond moves closer to its maturity date, its price will move closer to par. There are three possible scenarios:

1.If a bond is at a premium, the price will decline over time toward its par value.
2. If a bond is at a discount, the price will increase over time toward its par value.
3. If a bond is at par, its price will remain the same.

To show how this works, let's use our original example of the 7% bond, but now let's assume that a year has passed and the discount rate remains the same at 5%.

Example: Price Changes Over Time

Let's compute the new value to see how the price moves closer to par. You should also be able to see how the amount by which the bond price changes is attributed to it being closer to its maturity date.

PV of the cash flows is:

Year One = $70 / (1.05) to the 1^st power = $66.67
Year Two = $70 / (1.05) to the 2^nd power = $ 63.49
Year Three = $70 / (1.05) to the 3^rd power = $ 60.47
Year Four = $1,070 / (1.05) to the 4^th power = $880.29

Value = $66.67 + $63.49 + $60.47 + $880.29 = $1,070.92

As the price of the bond decreases, it moves closer to its par value. The amount of change attributed to the year's difference is $15.67.

An individual can also decompose the change that results when a bond approaches its maturity date and the discount rate changes. This is accomplished by first taking the net change in the price that reflects the change in maturity, then adding it to the change in the discount rate. The two figures should equal the overall change in the bond's price.

Computing the Value of a Zero-coupon Bond

A zero-coupon bond may be the easiest of securities to value because there is only one cash flow - the maturity value.

The formula to calculate the value of a zero coupon bond that matures N years from now is as follows:

Maturity value / (1 + I) to the power of the number of years * 2
Where I is the semi-annual discount rate.

Example: The Value of a Zero-Coupon Bond
For illustration purposes, let's look at a zero coupon with a maturity of three years and a maturity value of $1,000 discounted at 7%.

I = 0.035 (.07 / 2)
N = 3

Value of a Zero-Coupon Bond
= $1,000 / (1.035) to the 6^th power (3*2)
= $1,000 / 1.229255
= $813.50

Arbitrage-free Valuation Approach

Under a traditional approach to valuing a bond, it is typical to view the security as a single package of cash flows, discounting the entire issue with one discount rate. Under the arbitrage-free valuation approach, the issue is instead viewed as various zero-coupon bonds that should be valued individually and added together to determine value. The reason this is the correct way to value a bond is that it does not allow a risk-free profit to be generated by "stripping" the security and selling the parts at a higher price than purchasing the security in the market.

As an example, a five-year bond that pays semi-annual interest would have 11 separate cash flows and would be valued using the appropriate yield on the curve that matches its maturity. So the markets implement this approach by determining the theoretical rate the U.S. Treasury would have to pay on a zero-coupon treasury for each maturity. The investor then determines the value of all the different payments using the theoretical rate and adds them together. This zero-coupon rate is the Treasury spot rate. The value of the bond based on the spot rates is the arbitrage-free value.

Determining Whether a Bond Is Under or Over Valued

What you need to be able to do is value a bond like we have done before using the more traditional method of applying one discount rate to the security. The twist here, however, is that instead of using one rate, you will use whatever rate the spot curve has that coordinates with the proper maturity. You will then add the values up as you did previously to get the value of the bond.

You will then be given a market price to compare to the value that you derived from your work. If the market price is above your figure, then the bond is undervalued and you should buy the issue. If the market price is below your price, then the bond is overvalued and you should sell the issue.

How Bond Coupon Rates and Market Rates Affect Bond Price

If a bond's coupon rate is above the yield required by the market, the bond will trade above its par value or at a premium. This will occur because investors will be willing to pay a higher price to achieve the additional yield. As investors continue to buy the bond, the yield will decrease until it reaches market equilibrium. Remember that as yields decrease, bond prices rise.

If a bond's coupon rate is below the yield required by the market, the bond will trade below its par value or at a discount. This happens because investors will not buy this bond at par when other issues are offering higher coupon rates, so yields will have to increase, which means the bond price will drop to induce investors to purchase these bonds. Remember that as yields increase, bond prices fall.

BUS1233 & ACC1231 SELF LEARNING ACTIVITIES – WEEK 7 (28 Aug – 30 Aug)

After cashbook, we proceed with bank reconciliation. During my lecture, I have explained in detail why we need to do this activity every month at the end of the month. You should also understand some banking terms such as cheque issued, cleared, unpresented, uncredited, interest, standing order, bank charges, bank transfer, GIRO etc. Those terms not only be appearing in your exam but you will be experiencing when you possess a checking account. Worst, if you are handling an account department, then it will be part of your life. Not only managing your cashbook, you will also managing your company's cashflow.

Here is some notes for the bank reconciliation..

and here is another..

See? How simple it is...

As usual...

Tuesday, 22 August 2017

ACC2232 - Overhead Absorption Rate

Basis (Methods) for Calculating Overhead Absorption Rate:

The production overheads calculated for each production department after going through apportionment and allotment are used to calculate overhead absorption rate. There are six basis (methods) to calculate an overhead cost absorption rate.

Formula:

General formula for calculating overhead absorption rate is as follows:

overhead-absorption-rate-formula

Solved Example:

On 31 December 2016 the following estimates relate to ABC Ltd for the year ending 30 June 2017.

overhead-absorption-rate-example-data

Required:

Use the above data to calculate overheads to be absorbed to calculate total cost of the job by using six basis (methods) for overhead absorption.

Solution:

(1) Raw Material Cost Basis:

When the historical records of a company reveal that in the past, there was a correlation between raw material costs and factory overheads then they may use a rate as a percentage of raw material cost to absorb production overhead costs into the product or cost unit.

Overhead absorption rate and total overheads to be absorbed for the job may be calculated as:

based-on-direct-material

The material cost base normally has a limited use as fluctuations in price of materials are not accompanied by similar fluctuation in overheads; moreover cheap quality material has a low material cost but has more overheads and opposite is true for better quality material. There are instances that one product using high priced material and another is made from low priced material but go through the same manufacturing process and as a result incur approximately same amount of factory overheads. In this case by using direct material cost base the product using expensive material will be charged more overheads than its share.

(2) Direct Labor Cost Basis:

This is frequently used rate in practice and is easy to apply as amount of direct wages is readily available. This is recommended as unlike material prices; labor rates are relatively stable moreover there is direct relationship between direct labor cost and factory overheads on the basis that both are related to time.

Certain objections are raised for using this method as no distinction is made between skilled and non-skilled workers and differences of their pay scale. It may also ignore time factor as when workers are paid on piece rate basis or when business makes higher overtime payments whereas overheads do not increase at the same rate.

(3) Prime Cost Basis:

This is applied by using both direct material and direct labor cost in the calculation, which is given below:

based-on-prime-cost

This method is usually recommended as it combines the weaknesses of both direct material cost and direct labor cost base.

(4) Units of Production Basis:

This method is simple and easy to use when company manufactures only one type of product and all units produced are similar in terms of size, time spent being worked on by the cost center etc. This is calculated as follows:

(5) Direct Labor Hours Basis:

This method is more appropriate in a labor intensive cost center where there is insignificant role of machines involving low machine related expenses and relatively high labor costs. This is considered as a better method for overhead absorption than direct labor cost method as is only based on time factor and is not distorted by factors like varying wage rates, overtime or bonus payments.

The use of this method requires a record of the direct labor hours expended on each job, product or cost unit in order to determine the share of overhead, it should bear.

(6) Machine Hour Basis:

This method is more appropriate in a capital intensive cost center where use of machines is the most significant factor in production. In such a cost center most of the production overheads are related to the machinery (power, repairs, depreciation, etc.), so a machine hour rate should reflect fairly the incidence of overheads. This is used as follows:

This method is in frequent use as it gives consideration to time factor, moreover in contrast to different efficiency and skill levels of workers the machines normally give equal output. However this method has a drawback as it is quite difficult to estimate machine hours in advance.

Which Method is better for Calculating Overhead Absorption Rate?

There is general acceptance that the time based methods (direct labor hours, machine hours and to some extent direct labor cost) are more likely to reflect the load on a cost center as production overheads also tend to be incurred on a time basis so even in exams students should use these methods unless questions requires to use some other methods.

In respect of capital intensive operations or machine related departments, machine hours’ base is more appropriate since most of the overheads in these departments would be closely related to machine hours. However, for labor intensive operations direct labor hours base is the most appropriate method.

source: http://www.financialaccountancy.org

BUS1233 & ACC1231 SELF LEARNING ACTIVITIES – WEEK 6 (23 Aug – 24 Aug)

It is a Part Two!

I believe my students have already mastered the cashbook topic (for now). You should because this is your pass mark. If you manage to solve or answer this cashbook question, the rest of the questions in the final exam will be your scoring marks!.

This cashbook topic actually test you basic recording of Debits and Credits. The tip is, whatever journal entries having either cash or bank in any debits or credits, these transactions should go into the cashbook. For example, cash sales, sold to Ali by cheque, purchase stationeries paid by cheque, payment to creditors by cash.... As long as the transactions are made by either cash or cheque, then they are cashbook materials.

If the transactions do not have any word cash or bank, then don't bother! For example, purchase supplies from Ahmad on credit, then the debit and credit will not appear as there is none involving cash or bank. You get me?

Very well, now, download this and start doing it....

Self Learning Activities - Week 6 - 23 Aug - 24 Aug 2017

Required:

Download the required document.
Print it.
Attempt all the questions.
Bring them to class for discussion.

Potential marks ♥♥

Friday, 18 August 2017

BUS1233 & ACC1231 SELF LEARNING ACTIVITIES – WEEK 6 (21 Aug – 24 Aug)

Click the link below to retrieve the document.

SELF LEARNING ACTIVITIES – WEEK 6 (21 Aug – 24 Aug)

Required:

Download the required document.
Print it.
Attempt all the questions.
Bring them to class for discussion.

Potential marks ♥♥

Tuesday, 15 August 2017

Accounting reference lists...

I just wandering around, browsing for some songs and some accounting information while finishing on something that I really need to do. Sigh! BUT I came across some good sites for students to do some researching or knowledge seeking. Websites, videos, slides etc...So I will post some first and maybe if I have time, I will continue to contribute here...

www.futureaccountant.com

http://www.accountingdetails.com

Later...

BUS1233 - PTPTN Session

I just got to know that today there will be a PTPTN session. So, I assume that you guys are busy completing all the required documents to be submitted to PTPTN. Therefore, today's class is not compulsory. I will be at my place just doing my routine.

ArusPerdana

Date : 15^th August 2017

Day : Tuesday

Time : 9.00 a.m. until 5 p.m.

Venue : International Islamic College Great Hall

Good luck

Monday, 14 August 2017

Week 5 - Valuing Shares and Bonds

Bonds are an investment ‘asset’ and their price (or value or worth) is the present value of their future cash flows. The bond contract is a special kind of business agreement. The deed of trust (bond indenture) states the explicit terms of the agreement such as the (fixed) coupon rate and the face value to be paid on the bond. The legal effect of having the agreement enshrined in a deed of trust rather than a contract of sale, means that the bond carries a stronger security of claim and lower probability of default risk. The economic effect of the trust deed means that the bond purchaser gains greater certainty over the cash flows the bond will generate. The bond must be held to maturity for it to generate the quoted yield. The bond price remains subject to interest rate changes in the market.

The inverse relationship between interest rates and values is particularly relevant to bond markets. If interest rates surge because of unexpected rises in inflation for example, bond prices fall analogously. Bondholders then face the double stress of a lower bond value and lower interest income on their fixed-rate investment. Conversely, if there is a surge in demand for bonds, their yields may fall. This phenomenon has been recently reported in the US Junk bond market (BBB credit rating and below). Investors who were reportedly unhappy with the low returns being paid on secure bonds, increased their demand for riskier securities. They reportedly spent $US4.6 billion in the first six weeks of 2011 in the BBB-rated and below bond markets. This sent the high-risk class of bond yields down to extremely low levels.

(http://www.theaustralian.com.au/business/markets/junk-bond-yields-fall-to-all-time-lows/).

Essentially, the market pricing mechanism ensures that everyone gets the same deal no matter what coupon interest rate the issuer is paying. If the bond coupon rate is above the market average, you have to pay more for the bond; if the bond coupon rate is below the market average, you pay less for the bond; and if the bond coupon rate is equal to the market average, you pay the same as the face value of the bond.

Here are some slides and notes for bonds.

Ross7e_PPT_Ch06

Week 5a

Week 5 (Ch 6) Tutorial Questions

So another alternative for a company to raise funds is issuing stocks (shares). Take alook at this video...

Try to understand that first and we shall discuss later when we meet. Next, maybe I will touch a bit regarding the type of bonds...

Later...

BUS1233 & ACC1231 SELF LEARNING ACTIVITIES – WEEK 5 (14 Aug – 18 Aug)

Asalamualaikum and greetings my dear students,

Self Learning Activities - Week 5 - 14 Aug - 18 Aug 2017

Attached is the self learning activities for you guys to attempt. Print those and we shall discuss in class. Participation marks will be given.

Potential marks: ♥♥♥

Sunday, 13 August 2017

BUACC3701 - Fisher's separation theorem and The "Market Value Rule"

Hi guys, here are some notes just for you to read. I took them from the internet as I think they are quite important. You might find something in the YouTube if you want to avoid getting sleepy reading this. Hahaha

What is Fisher's separation theorem?

By Richard Wilson

Fisher's separation theorem stipulates that the goal of any firm is to increase its value to the fullest extent, regardless of the preferences of the firm's owners. The theorem is named after American economist Irving Fisher, who first proposed this idea.

The theorem can be broken down into three key assertions. First, a firm's investment decisions are separate from the preferences of the firm's owners. Second, a firm's investment decisions are separate from a firm's financing decisions. And, third, the value of a firm's investments is separate from the mix of methods used to finance the investments.

Thus, the attitudes of a firm's owners are not taken into consideration during the process of selecting investments, and the goal of maximizing the firm's value is the primary consideration for making investment decisions. Fisher's separation theorem concludes that a firm's value is not determined by the way it is financed or the dividends paid to the firm's owners.

For related articles, check out Ten Books Every Investor Should Read and Profiting From Panic Selling.

This question was answered by Richard C. Wilson.

Read more: What is Fisher's separation theorem? http://www.investopedia.com/ask/answers/09/fisher-separation-theory.asp#ixzz4pYu458bo

Follow us: Investopedia on Facebook

The "Market Value Rule"

If you have ever lived in a property and then began to rent it out to produce income, then the application of the “market value rule” is something you need to be aware of.

If you first commenced to rent out your main residence after 20 August 1996, you have the option of obtaining a valuation of the value of the property as at that date which then becomes the “deemed purchase price” for any future capital gains tax calculations. This will ensure that any capital gain that as accrued up until the time the property was first used to produce income is effectively disregarded.

Although not clear from a literal reading of the Tax Act, based on the advice from the Tax Office, it appears that where the market value rule applies, the property’s entire purchase price including legal fees, etc, is replaced with the property’s market value.

This means that all expenditure incurred in relation to the property before it first became income producing, is replaced with the property’s market value at the first income time.

However, any cost base expenditure incurred after the first income time, will be included in the property’s cost base in addition to the property’s market value at the first income time.

For example, let’s say a property was valued at $350,000 at the first income producing time. A number of improvements were made to the property after it commenced producing income. The cost of these improvements would be added to the $350,000 to form the cost base for any future capital gains tax calculations.

If you initially purchased your property, lived in it, then commenced renting it after 20 August 1996, the market value could be extremely valuable in your endeavours to reduce any capital gains tax payable.

If you have any questions regarding the market value rule and how you might take advantage of it, please contact Ellingsen Partners.

Thursday, 10 August 2017

BUACC3701 - Hedging

Assalamualaikum and selamat sejahtera

In order for you guys to prepare for the up coming test, I strongly recommend you to read some chapters which i feel a little bit important. So here it is....

Hedging readings

ACC2231 - Single entry and incomplete records

Hi again,

Looking at the topic, we might be asking why it is a single entry? Well, some business owner does not really know how to do accounts...I mean, they don't know how to record all the transactions properly. It is normal and the answers we get from them is almost the same, that they knew but they don't have the time to do it.

Normal accounting records should gave both debit as well as credit. Here, what we can say is, when when the records in only filled one sided, either debit or credit. Disaster! And it is a fail system where it should be double entry instead. They may only know to record the entry in the cashbook only because, there where the money goes in and out. For them CASH IS KING!. As long as they can control the cash, then, that's it.

This single entry somehow potentially causing the financial statement to be incorrect, simple...not balance!.

There are two approaches to settle this matter.

Comparison method
Analysis method

Comparison Method

A quick method to determine 'estimated' profit without preparing financial statement. Hmm..how can it be? What choice do we have when we are force to do the accounts with limited information or no records available.

In determining the profit for the year, we shall go back to basic. We have to play with the capital account. Logically, when we started a business, we had capital, and this capital is being invested into the business and there...the business is built.

The business activities ie the buying, the selling of goods will eventually created profits or losses. Thus, those profits or losses will effect the capital which the owner invested. If the business had a good profit, the capital account will grow and vice versa.

In this method, the profit or losses can be determined from the difference between the owner's capital at the end and the owner's capital at the beginning. If it is increased, then it is profit, if the capital amount is lesser than the previous period, then it is said that the company is having a loss. Therefore we need to open up the Statement of Affairs. This statement shows an estimate assets and liabilities of the business at a particular date, the beginning and also at the end of a period. The the difference between the two is the profit for the period.

Analysis Method

The analysis method came into the picture to overcome the weakness of comparison method. This method involves the analysis of all transactions that related to sales, purchases, expenses, revenues and cashbooks.

Using this method, we will again use our knowledge of control accounts and other topics that we have already covered. Further we will use as many information available to find our answers. For example, to find total sales, we need to look at the cashbook, the opening balance of our receivables as well as our closing. Open up our control account and start put in the figures, the missing figures then will be your answers. Same goes to purchases and other expenses...

Try this....Exercise 1 - Single entry and incomplete records - Fitri and Hafiz - Analysis Method

Another one....just calculate for a), b) and c). Fitness Club - Receipts and Payments Account

Monday, 7 August 2017

ACC2232 - Inventory Control and Valuation - Answers

As promised, attached are the answers to the questions posted on August 2, 2017 recently.

Stock evaluation - answers to posting

Happy reviewing....

BUACC3701 - The Percentage of Sales Approach (Long term Financial Planning)

Hi,

Click the link below for the Youtube course on the above topic. The presenter is quite fast but you can play it again and again, or pause for a little while to make yourself understand.

Friday, 4 August 2017

BUS1233 & ACC1231 SELF LEARNING ACTIVITIES – WEEK 4 (7 Aug – 10 Aug)

Click the link below to retrieve the document.

SELF LEARNING ACTIVITIES – WEEK 4 (7 Aug – 10 Aug)

Required:

Download the required document.
Print it.
Attempt all the questions.
Bring them to class for discussion.

Potential marks ♥♥

ACC2231 - Errors Which do not Affect the Trial Balance

Accounting errors that do not affect the trial balance fall into one of six categories as follows:

Error of Principle
Errors of Omission
Error of Commission
Compensating Error
Error of Original Entry
Complete Reversal of Entries

Error of Principle

An error of principle in accounting occurs when the bookkeeping entry is made to the wrong type of account. For example, if a 1,000 spent on motor vehicle maintenance is debited to the motor vehicle account instead of the asset account;

The error was,
	Dr	Cr
Motor vehicle	1,000
Cash/Bank		1,000

Should be,
	Dr	Cr
Motor vehicle maintenance	1,000
Cash/Bank		1,000

Correcting entries
	Dr	Cr
Motor vehicle maintenance	1,000
Motor vehicle		1,000

Error of Omission

Errors of omission occur when a bookkeeping entry has been completely omitted from the accounting records.

Example, the payment 4,000 from a debtor has been omitted in both books.

The error was,
	Dr	Cr
- no transaction at all	nil
- no transaction at all		nil

Should be,
	Dr	Cr
Cash/Bank	4,000
Debtor		4,000

Correcting entries
	Dr	Cr
Cash/Bank	4,000
Debtor		4,000

Error of Commission

Error of commission occurs when an item is entered to the correct type of account but the wrong account. For example is cash received of 2,000 from Nur is credited to the account of Nor.

The error was,
	Dr	Cr
Cash/Bank	2,000
Nor		2,000

Should be,
	Dr	Cr
Cash/Bank	2,000
Nur		2,000

Correcting entries
	Dr	Cr
Nor	2,000
Nur		2,000

Compensating Error

A compensating error occurs when two or more errors cancel each other out. For example, if the fixed assets account is incorrectly totalled and understated by 600, and the wages account is also incorrectly totalled and overstated by 600, then the posting to correct the error would be as follows:

Correcting entries
	Dr	Cr
Fixed Assets	600
Wages		600

Error of Original Entry

An error of original entry occurs when an incorrect amount is posted to the correct accounts.

A particular example of an error of original entry is a transposition error where the numbers are not entered in the correct order. For example, if cash paid to a supplier of 2,140 was posted as 2,410 then the correcting entry of 270 would be.

A good indicator for a transposition error is that the difference (in this case 270) is divisible by 9.

The error was,
	Dr	Cr
Accounts payable	2,410
Cash/Bank		2,410

Should be,
	Dr	Cr
Accounts payable	2,140
Cash/Bank		2,140

Correcting entries
	Dr	Cr
Cash/Bank	270
Accounts payable		270

Complete Reversal of Entries

Complete reversal of entries errors occur when the correct amount is posted to the correct accounts but the debits and credits have been reversed. For example if a cash sale is made for 400 and posted incorrectly as follows:

Accounting Errors - Incorrect Posting

Account       Debit        Credit
Sales             400
Cash                                400

As you can see, by right, the nature for sales account should always be at the credit side. Same goes to the cash account. When we made a cash sale, the cash receive will increase the the cash account (asset account). Then the rule is debit the cash account.

Then to correct the accounting error the original entry must be reversed and the correct entry made, this can be achieved by doubling the original amounts as follows:

Accounting Errors - Complete Reversal of Entries

Account	Debit	Credit
Sales		800
Cash	800

Why it is 800? Actually there are two transaction of 400 we have to make. The first transaction is to 'zerorize' both account. Taking out 400 from the sales by debiting the sales account and another 400 from the cash account by debiting the amount to cancel the originally entered figure.

The second transaction, is to record the normal transaction because all the said accounts are now at 'zero' state. You can see that when the second transaction is done, there were 2 same transaction just to correct the errors. The amount now is double!

The type of accounting errors that do not affect the trial balance are summarized in the table below.

Summary of Accounting Error Types
Accounting Errors	Description
Error of Principle in Accounting	Correct amount, wrong type of account
Errors of Omission in Accounting	Entry missed from accounting records
Error of Commission	Correct amount and type of account but wrong account
Compensating Error	Two or more errors balance each other out
Error of Original Entry	Correct accounts, wrong amounts
Complete Reversal of Entries	Correct amount and account, entries reversed

Where possible all accounting errors should be identified and corrected, if the accounting errors are immaterial to the accounts then, as a last resort, the balance could be carried in the balance sheet on a suspense account or written off to the income statement as a sundry expense.

Wednesday, 2 August 2017

ACC2232 - Inventory Control and Valuation

In order for the organization to stay competitive, the inventory control and valuation is important. An inventory valuation allows a company to provide a monetary value for items that make up their inventory. Inventories are usually the largest current asset of a business, and proper measurement of them is necessary to assure accurate financial statements. If inventory is not properly measured, expenses and revenues cannot be properly matched and a company could make poor business decisions.

For your benefits, let's watch some short videos regarding the valuation of inventory.

The two most widely used inventory accounting systems are the periodic and the perpetual.

Perpetual: The perpetual inventory system requires accounting records to show the amount of inventory on hand at all times. It maintains a separate account in the subsidiary ledger for each good in stock, and the account is updated each time a quantity is added or taken out.
Periodic: In the periodic inventory system, sales are recorded as they occur but the inventory is not updated. A physical inventory must be taken at the end of the year to determine the cost of goods

Regardless of what inventory accounting system is used, it is good practice to perform a physical inventory at least once a year.

JUST IN TIME (JIT)

No material are purchased and no product are manufactured until they are needed
To reduce or eliminate inventories at every stage of production
Minimize storage cost

FIFO (First In First Out)

First material in will be the first material issued
Most logical method and accepted by IRB
Lower cost, higher profit

LIFO (Last In First Out)

Most recent material received, will be the first to be issued
Not really logical and not accepted by IRB
Higher cost, lower profit

WEIGHTED AVERAGE

Material issued is valued at average cost price
Accepted by IRB

Weighted Average	=	Total Cost of Inventory
Unit Cost	=	Total Units in Inventory

Like FIFO and LIFO methods, AVCO is also applied differently in periodic inventory system and perpetual inventory system. In periodic inventory system, weighted average cost per unit is calculated for the entire class of inventory. It is then multiplied with number of units sold and number of units in ending inventory to arrive at cost of goods sold and value of ending inventory respectively. In perpetual inventory system, we have to calculate the weighted average cost per unit before each sale transaction.

There are so many videos you can find in the YouTube. Varies in minutes duration but why not? Just spend a couple of minutes to understand various presentations. Who knows, you might get addicted! Hahaha

I also uploaded the a calculation sheet to calculate the FIFO, LIFO and WACO. If possible try to download this, make 3 copies and we will use them in class.

Download this... Store Ledger Card

Example - FIFO

Use the following information to calculate the value of inventory on hand on Mar 31 and cost of goods sold during March in FIFO periodic inventory system and under FIFO perpetual inventory system.

Mar 1	Beginning Inventory	68 units @ $15.00 per unit
5	Purchase	140 units @ $15.50 per unit
9	Sale	94 units @ $19.00 per unit
11	Purchase	40 units @ $16.00 per unit
16	Purchase	78 units @ $16.50 per unit
20	Sale	116 units @ $19.50 per unit
29	Sale	62 units @ $21.00 per unit

Example - LIFO

Use LIFO on the following information to calculate the value of ending inventory and the cost of goods sold of March.

Mar 1	Beginning Inventory	60 units @ $15.00
5	Purchase	140 units @ $15.50
14	Sale	190 units @ $19.00
27	Purchase	70 units @ $16.00
29	Sale	30 units @ $19.50

Example - AVCo

Apply AVCO method of inventory valuation on the following information, first in periodic inventory system and then in perpetual inventory system to determine the value of inventory on hand on Mar 31 and cost of goods sold during March.

Mar 1	Beginning Inventory	60 units @ $15.00 per unit
5	Purchase	140 units @ $15.50 per unit
14	Sale	190 units @ $19.00 per unit
27	Purchase	70 units @ $16.00 per unit
29	Sale	30 units @ $19.50 per unit