c. (3) expand testing of automated application controls used to reduce control risk to cover greater portions of the fiscal year under audit. d. (3) The sales system automatically computes the total sale amount and posts the total to the sales journal master file. 12-18 a. (1) A system that performs relatively uncomplicated processes and produces detailed output. b.
The audit objectives auditors use to perform year-end sales cutoff tests are to determine if the information they obtained by the confirmation reduces the audit risk level. This has a heavy emphasis on the materiality of the account being assessed, and the lower the audit risk the better. The sales cutoff tests are usually performed based on the existence and completeness assertions regarding the accounts receivable balance (SAS No. 67, AU Section 330.09). 2.
RUNNING HEAD: Capital Budgeting Analysis Capital Budgeting Analysis Claudio Cordon Strayer University February 26th, 2012 1. Complete the base case Depreciation and After-Tax Cash Flow tables. Compute the NPV, IRR, and MIRR. Does this investment make economic sense? Support your answer with appropriate statistics.
The accrual method works best for these businesses because revenues and expenses can be balanced at the end of every reporting period. They simply need to refer back to the account when cash is paid and make an adjustment entry. The accrual method is most notable for its accuracy in reporting transactions. Accountants must adhere to what is known as the generally accepted accounting principles or GAAP. The accrual method is GAAP compliant because it follows the revenue recognition principle which states that each financial transaction must be reported in the accounting period in which it occurs.
In order to properly evaluate performance, a flexible budget is utilized since it evaluates the “actual volume of activity, not the planned volume of activity” (Edmonds, p. 1061, 2007). Flexible budgets are use to evaluate the volume of activity based on different levels of volume, and they flex (or change) when the volume of activity changes (Edmonds, p. 1061, 2007). Flexible Budget Lend to CVP Analysis A cost-volume-profit (CVP) analysis, analyzes the changes in cost and volume by using a company’s income statement with the contribution margin format (Edmonds, p. 932, 2007). “The contribution margin is the difference between sales revenue and variable costs” (Edmonds, 2007, p. 932). A company’s profits are adversely affected by changes in sales price, costs, and the volume of activity (Edmonds, p. 946, 2007).
The Income Statement. It shows a business’s sources of income as well as the expenses it has incurred over a given time period that is being examined. The difference between the total incomes of the business and its expenses gives its net profit. The main aim of a business is to maximize its profit. The importance of an income statement therefore is to help in making an analysis of how the different decisions the business makes affect its level of profitability.
In the second reason we will select the Capital Budgeting technique such as NPV and in the third reason we will calculate the NPV of the various proposals and select the proposal that will give the positive NPV. There are various types of investment decision rules; 1) Accounting or Average rate of return 2) Net present value method 3) Internal rate of Return 4) Payback period 5)
=2.02 = 1.36 Acid-Test / Quick Ratio Quick Ratio = ! "##$%& ! "#$"%"&"'( Quick Assets = Total Current Assets – Inventories – Prepaid Expenses BOSCH INDIA LIMITED Quick Assets = 4236.30 – 1183.06 – 0 = 3053.24 3053.24 Quick Ratio = 2095.40 Quick Ratio = 1.45 FEDERAL MOGUL GOETZE LIMITED Quick Assets = 372.58 – 139.20 - 0 = 233.38 233.38 Quick Ratio = 227.71 Quick Ratio = 0.85 ! "#$% ! ""#$" Financial Ratio Analysis – Compiled By: Arpit Kapoor 1 Turnover Ratio Inventory Turnover Ratios !
APV vs. WACC Problem Given the following information, answer questions 1 and 2 below. Company and market data: Rf = 4% Rm = 10% βu = 0.9 D/V (target) = 40% RD = 4% Tc = 30% Project CFs: I0 = 1000, CF1 = 300, CF2 = 400, CF3 = 500 1) Calculate the project’s value using WACC 2) Calculate the project’s value using APV -Oops, we can’t until we know the financing (debt) pattern over time. (a) OK, assume the project is financed with 60% debt which is paid off in three equal, annual installments. (b) Now assume instead of (a) that the debt is rebalanced to be consistent with the firm’s target debt ratio (i.e. D/V = 40%).
Based on the techniques used during the preparation of budget, there are two kinds of budgeting namely: Incremental Budgeting Zero - Based Budgeting Flexible Budgeting Incremental Budgeting The budgeting that assumes the last year’s budget as a base and estimates the expected inflation, market conditions based on the current scenario while developing the budget is known as Incremental budgeting. Zero - Based Budgeting This method of budgeting starts from the very basic operation of the organization with no preconceptions based on the previous year. The budgeted amounts are justified by each department at the start of each budget period. Flexible Budgeting Flexible budget allows adjusting the planned expense levels with the actual sales level. This is a useful approach when sales are difficult to predict and a significant proportion of expenses vary with sales.