Introducition to AccountingPython

Java Python GROUP ASSIGNMENT AND GUIDELINES

Due date: 2.00 pm on 15th July 2024 (Monday of Week 13)

Length: 2,800 words

Weighting: 35%

Students are required to form sub-groups within their respective tutorial groups (i.e., all group members must belong to the same tutorial). Each group must have a maximum of 4 members. You can determine your group members. However, you must ensure that the group is diversified enough to ensure balanced distribution across nationality, gender and ethnicity. This is to provide an opportunity for you to expand your connections and  understand others outside your current networks. The lecturer and tutors are responsible to ensure this is achieved when finalizing members for group assignment.

Part A (40 marks)

Question 1 (20 marks)

BuildTech Rentals is a construction equipment rental company and owns various construction equipment, including excavators, bulldozers, and cranes, which it rents out to construction firms on a short-term and long-term basis.

The company's financial statements show significant investments in equipment over the years. One of the key challenges for BuildTech Rentals is accurately accounting for depreciation to reflect the wear and tear, usage, and obsolescence of its equipment. Proper depreciation accounting is crucial for ensuring accurate financial reporting and making informed business decisions.

BuildTech Rentals uses the straight-line method for most of its equipment but is considering whether other depreciation methods might better match the expense with the revenue generated by the equipment. The company also needs to decide on appropriate useful life estimates and salvage values for the various types of equipment in its fleet.

1)  Compare the straight-line method of depreciation with reducing balance method and unit production method. Suggest which method would be most appropriate  for BuildTech Rentals. (8 marks)

2)  Explain how does the choice of depreciation method impacts the company's financial statements, including the balance sheet and income statement? (4 marks)

3)  Discuss the tax implications of different depreciation methods. Explain how might the choice of depreciation method affect BuildTech Rentals'taxable income? (4 marks)

4)  Explain the matching principle in accounting and how it relates to depreciation. Why is it important for BuildTech Rentals to match depreciation expenses with the revenuegenerated by the equipment? (4 marks)

Question 2 (20 marks)

Revenue Recognition in a Software Development Company Scenario

You are an accounting student analyzing the financial practices of "TechSolutions Inc.," a software development  company  that  creates  custom  software  solutions  for  various  industries.  The company’s revenue streams include one-time sales of software licenses, ongoing subscription services, and long-term contracts for custom software development.

Revenue Streams and Details

1. One-time Software Licenses TechSolutions Inc. sells software licenses for $100,000 each. In 2023,they sold 10 licenses.

2. Subscription Services The company offers subscription services at $2,000 per month per customer. As of 2023,they have 50 customers on annual subscriptions.

3. Long-term Contracts The company engages in long-term custom software development contracts. In 2023, they signed a $1,000,000 contract to be completed over two years, with milestones for payment and delivery.

Current Practices and Issues

•     The company currently recognizes revenue from one-time software licenses at the point of sale.

•     Subscription revenue is recognized monthly as services are provided.

•     For long-term contracts, revenue is recognized only upon completion of major milestones, leading to uneven revenue reporting.

The CFO of TechSolutions Inc. has asked you to evaluate their current revenue recognition practices and provide recommendations to ensure compliance with accounting standards -   Revenue from Contracts with Customers.

Required:

1. Revenue Recognition for Software Licenses (4 marks)

Explain how  should  TechSolutions Inc. recognize revenue from the  sale  of one-time software licenses? At what point is the revenue considered earned and realizable?

2. Subscription Services (4 marks)

For  ongoing  subscription  services,  explain  how  should  TechSolutions  Inc.  recognize revenue? Explain the process of recognizing revenue overtime as the services are provided.

3. Long-term Contracts (4 marks)

Describe the methods TechSolutions Inc. can use to recognize revenue from long-term contracts for custom software development. Explain the criteria which must be met to recognize revenue overtime versus at a point in time?

4. Disclosure Requirements (4 marks)

Discuss the disclosure requirements related to revenue recognition. What information must TechSolutions Inc. include in its financial statements to comply with these requirements?

5. Ethical Considerations (4 marks)

Discuss the ethical considerations TechSolutions Inc. must keep in mind when recognizing revenue and how can proper revenue recognition practices enhance transparency and trust with stakeholders?

Part B (20 marks)

Question 1 (6 marks)

Based on the interim results below for Cabben Fashion Limited, it has  shown a  favourable receivables  turnover  ratio.  Discuss  3  possible  strategies  that  Cabben  Fashion  Limited  have implemented to achieve an improved receivable turnover from 135 days to 91 days.

Cabbeen Fashion Limited

(incorporated in the Cayman Islands with limited liability)

Cabbeen announces 2018 interim results

Profit for the period increased by 24.1% to RMB109.1 million

*** ***

(1 August 2018, Hong Kong) Cabbeen Fashion Limited ("Cabbeen" or the "Company",

including subsidiaries, the "Group", HKSE stock code: 2030), one of the leading menswear

designer brands in China, announces its results for the six months ended 30 June 2018 (the

"period").

Results and Operation Highlights:

Financial Highlights

•     Revenue increased by 37.5% to RMB 558.1 million.

•     Gross profit increased by 23.0% to RMB 267.3 million, with gross profit margin at 47.9%.

•     Profit for the period increased by 24.1% to RMB109.1 million, with net profit margin at 19.6%.

•     Basic earnings per share were RMB 0.1640, up 31.3% from the same period in 2017.

•     Resolved to declare an interim dividend of 13.2 HK cents per share.

Encouraging results from e-commerce business

•     Revenue from online shops increased 66.9% from the same period in 2017 to RMB 214.0 million.

•     The  number  of membership  and  fan  accounts  on    as  of 30  June  2018  were 3,119,000 (30 June 2017: 1,944,000), of which 360,000 members (30 June 2017: 337,000) made purchases amounted to RMB 788.6 million (30 June 2017: RMB 681.6 million).

Improved overall inventory

•     Up to 30 June 2018, sell-through rate of the Group's 2017 collections was 81.5% and 2018 spring/summer collections was 56.0%.

•     Average inventory turnover days improved to 200 days from 296 days for the same period in 2017.

Further enhanced financial robustness

•     Cashflow from operating activities improved to net inflow of RMB48 million from net cash outflow during the first half of 2017.

•     Average turnover days of trade and bills receivables improved to 91 days from  135 days for the first half of 2017.

•     Cash and cash equivalents, pledged deposits, financial assets and time deposits with initial terms of over three months totaled RMB 994.9 million, up from RMB945.6 million on 31 December 2017.

•     Net debt position on 30 June 2018 improved to RMB 25.3 million, down from RMB 153.5 million on 31 December 2017.

Extracted from irasia.com, August 1, 2018

http://www.irasia.com/listco/hk/cabbeen/interim/2018/intpress.htm

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Question 2 (14 marks)

You are th Introducition to AccountingPython e Chief Financial Officer (CFO) of a mid-sized furniture manufacturing company that produces high-quality, custom-designed furniture. Recently, your company has been experiencing significant cash flow issues, primarily due to high receivable turnover days. The business model involves purchasing raw materials like wood, fabric, and hardware on credit. These materials are then used to manufacture custom furniture, which is stored as inventory until sold.

Your company sells the finished products on credit to a variety of customers, including retail stores and interior design firms. In the meantime, you need to cover ongoing expenses such as payroll, utilities,  and  other  operational  costs.  The  problem  arises  when  customers  delay  payments, disrupting the cash cycle. This delay in receiving payments is causing a cash flow crunch, making it challenging to meet day-to-day financial obligations and increasing the company's receivable turnover days.

1)  Discuss three strategies to improve cash flow position. (6 marks)

2)   Suggest two strategies to revise the company's credit policies to reduce receivable turnover days and encourage quicker payments from customers. (4 marks)

3)  High receivable turnover impacts the overall financial stability of the company. Discuss the long-term implications if this issue is not addressed. (4 marks)

Part C (40 marks)

You are in the last semester of your studies. After the graduation, you are determined to join one of the best companies of Malaysia. Now you have decided to do financial analysis before you start sending your job applications.

Requirement:

Choose one industry, then select two companies of your choice. You are required to do financial statement analysis, which focuses on specific aspects of the financial performance and financial position of both (selected) companies. Your analysis should contain the following:

(a) Prepare the following ratio calculations based on the 2023 financial statements. (Note: you must submit the annual reports of 2023for chosen 2 companies. Only half marks will be given for this question if annual reports are not submitted).

1. Gross profit margin, 2. Net profit margin, 3. Days’ sales in inventory, 4. Current ratio, 5. Trade receivables collection period, 6. Trade payables payment period, 7. Debt to assets ratio, 8. Interest coverage, 9. Return on Assets, 10. Asset turnover ratio (20 marks)

(b) Analyze, interpret and compare the financial statements of both companies. (20 marks)

Please use the following format to present your calculations (You are required to state the formula used clearly):

	Ratio	Company 1	Company 2
1.	Net profit margin: Net profit/ Revenue x 100	2,000/50,000 x 100 = x%	5,000/15,000 x 100 = y%

General Expectations for Group Assignment

Where computations are relevant, you must show ALL calculations clearly. You should give some thought, however, to the most effective way to present the material – you must provide clear, concise explanations.

Your assignment must be prepared in 1½ spacing on single sided pages with 3 cm left & right margins, and 2.5 cm top & bottom margins. Please use Times News Roman font (size 12). Only one assignment should be submitted on behalf of  the group. Please ensure that the assignment is submitted together with the assignment cover sheet.

A word length is required to be placed on all assignments. Where explanations are necessary, just short and concise answers are sufficient. The group assignment should not exceed 2,800 words in length – this is inclusive of all headings and calculations. Penalties will be imposed on all assignments exceeding 2,800 words. Penalties will be applied for violating the word limit (10% deduction per 200 words over the limit). Please note that words contained in the assignment cover sheet and also reference list should not be included in the overall word count.

The word count must be printed on the assignment cover sheet. Markers cannot be expected to look for the word count elsewhere. 2 marks will be deducted if the word count is not on the assignment cover sheet. Students are expected to present a paper of professional quality. At the very least, check spelling and grammar. Ensure that all aspects of the requirements have been addressed.

Submission of Assignment

You are required to submit a soft copy at Digital Drop box (submission link uploaded on mytimes) to your tutor before 2.00 pm on 15th July 2024 (Monday of Week 13). Assignments submitted via alternative modes will not be accepted.

Only one assignment should be submitted on behalf of the group. Please make sure that all student names (spelled correctly) appear on the assignment cover sheet.

Extensions

Extensions to the assignment due date will only be approved in exceptional cases and for reasons that could not have been foreseen at the commencement of the study period. All extension requests must be made by email to the module leader prior to the due date and time. In this regard, please note that:

•    Heavy workloads are not normally considered grounds for extensions as you are expected to plan your study period with the pre-set due dates in mind.

•    Extensions will only be granted in exceptional  and unforeseen circumstances supported by documentary evidence (medical certificate, or an employer’s letter of a crisis, or other third-party evidence) submitted before the due date, as noted earlier. Students requesting extensions within one week of the due date will be required to provide drafts of work-to-date in support of their application.

•    For all approved applications for extension, the maximum length of time allowable is five days from the original submission deadline