FINANCIAL ACCOUNTING & REPORTING
Name of Student
McKenzie and Associates
668 George Street,
Melbourne, VIC 3000
Date: 7th July 2017
Managing Director, Pewter Ltd
Level 6, 510 King William Street,
Adelaide SA 5000
RE: RESPONSE TO YOUR ACCOUNTING ISSUES
Issue #1: From the analysis we have made in the first accounting issue involving deferred tax liability and deferred tax assets, this is our advice:
Both DTA and DTL are important in making key and important decisions in your business. DTL usually occur in a business account only when there is a temporary difference in the income statement. This is important to note because, due to this fact, DTLs are never accepted in the General Accepted Accounting Principles (GAAP). Well, for the fact that we support you to consider involving DTL in your accounting record; the concrete reason is that DTL can be treated as equity in the due process. This is possible in two simple ways which include when DTL usage as accelerated depreciation for the purpose of tax and not for reporting of financial transactions.
DTA in simple terms can be considered as a prepaid tax. Therefore unlike DTL, it is considered to be balance sheet oriented. It is also has the possibility of being used to help in the prediction of future cash flow and is highly accepted by GAAP. You should note that the value of DTA depends on whether your firm is expecting to pay taxes in the future or not. The ability of reducing DTA lies within the reduction of deferred tax asset allowance valuation. This is because an increase in allowance valuation leads to a respective increase in deferred tax assets where as reduction in allowance valuation results into a reduction in the deferred tax assets. This relationship is important as well; it can be used in manipulation of net income (NI) by altering the income tax expense and scrutiny is advised in this case.
Issue #2: This accounting issue goes beyond accounting. We would like to advice you beyond the book keeping process here. The marketing strategy you are using is viewed as classical due to the revolution that is being experienced in the field of business today. Various organizations in your line of business have advanced to embracing innovation and technology in their marketing process. This way they have been able to catch the attention of very many new customers through social media platforms. Besides, they have been able to advance into online marketing where they set single central shop points that distribute ordered items already booked online. This is faster and easily managed in terms of the flow of cash.
The four segmentations (retail, producer, customers and production cost) all belong to the same care which constitutes a common doctrine in returns for a single organization. For this reason, we feel it is important if segmentation analysis is done for all the existing categories. This will act as a means for the care to be able to determine the specific areas in the segmentations to make positive changes and as well make improvements to maximize returns. Besides, since this was an analysis for segmentation for both qualitative and quantitative means, we have decided to have a much simpler proportion of the data as already outlined.
Taking an instance where there is a comprehensive flow of revenue that fit the description of your company, we have decided to come up with the accounting data below:
CategoryRetail Producer customers Production costproportionproportionproportionproportiontotalRevenue19.85%54.26%21.16%4.53%$76,330Benefit cost20.01%49.64%25.31%5.06%$56,786Operating cost21.69%67.08%8.55%2.67%$16,063Profit8.70%71.42%11.62%8.24%$3,480Total19.85%54.29%11.75%4.71%$152,659
Using percentages in describing proportionate variation from one segment to the other across the segments in the table is quite helpful in determining the division of each segment per variable; in this case we have number of potential customers, projected market share, revenue, benefits costs, operating cost and profit. Each of these values has an important role to play in the care industry in determining whether an organization is becoming successful or is failing.
For profits, you will be able to find out the proportion of profits in each of the segments. This helps to avoid generalization of profits gained. For example, if a general profit is used for the four segmentations, it will be hard to determine whether one of the segments experienced a loss. Thus, you will be able to make such findings as early as possible and make improvement decisions. The same case applies to the other categories such as operating cost and benefit cost among others.
Having embraced the power of proportionality above, it is quite important that we find out various variability in all the segments and pursue the relative engagement in the rest of the data made available. Considering the percentages that we have calculated in the table for each segment, a much more comprehensive analysis can be conducted and enumeration made as follows:
From the above analysis, you will be able to come up with several conclusions for every aspect of each segment. We have decided to rate production cost as fourth even though it is ranging at the lowest profit margin compared to the rest of the segments. This is because it is one of those segments that have the lowest operational costs but experience profit at a much greater return compared to a ‘within’ analysis. Besides, it is the segment that receives the largest number of potential customers and thus would make much more profit if investments are made to its favour.
Retailing segment is rated as second. It is one of the segments that pay much revenue and uses a relatively high operational cost. And from the fact that it is one of the segments that experience low potential customers, it does not give back as much as it is supposed to – according to the level of investments made. This then changes the ratings as they are; it should be noticed that the percentages as per profitability of a segment does not determine the proportionate measure of a segment. This is to say, there is difference as shown in the pie chart above.
These segments indicate the variation in the priority that should be offered with respect to the Australian market that is recently realized. Production cost is directly involving a good number of potential customers who will in turn keep interest in other services offered by care enhancing customer loyalty routine, and producer is the most profitable of all the segments. Following the criterion of customer loyalty that is gained through the production process, there are much more profits that are to be experienced when these two segments are introduced into the new market.
Following the case analysis above, it is therefore clear that all the aspects of a business account are important. This is because each of the aspects are used to solve different problems or in determining other aspects. This mean that in the new market area in Australia, there is need to ensure that every transactions made are recorded as income statement as well as balance sheet. Most importantly, you should note that ignoring the revenue for net income is skipping other crucial transactions such as income tax that is in the violation of Australian Federal Registrar Legislation Act of 1997 on Income tax Assessment.
Managing Director, McKenzie and Associates