Financial Reporting

    You are employed in a financial consultancy and one of your clients is a relatively new company that is facing rapid growth. As they began as a small family business, they have not had the level of financial control that would be expected in a business of their current size. The management team is looking to employ an accountant. Before taking this step they need to understand the reasons for recording and reporting financial information, the legal responsibilities they have in this respect and the usefulness of financial information. They also require some specific help in relation to working capital and in respect of a new project they are considering assume the business is incorporated, that is, in Malta as a limited company. Your answer should be based on Maltese law and regulations.   Task 1 Produce a written document for the board of directors that:  Explain the purpose and requirements for keeping financial records  Analyses the techniques for recording financial information  Analyses the legal and organisational requirements of financial reporting  Evaluate the usefulness of financial statements to stakeholders  Explain the difference between management and financial accounting  Explain the budgetary control process  Evaluate the use of different costing methods used for pricing purposes   Task 2 The business carried out some calculations on set up and the following information relating to their main product was produced: € € Sales Revenue 62 Direct labour 22 Direct materials (1kg) 20 Fixed overheads 6 Standard profit 14 The budgeted output for last month was 1,000 units of this product. Actual output was 1,100 units which were sold for €69,900. The actual production costs were: € Direct labour (1075 hours) 24,420 Direct materials (1175kg) 23,260 Fixed overheads 6,400 There were no inventories at the start or the end of the month. You are required to calculate the variances for the month from the available information, and use them to reconcile the budgeted and actual profit figures. You should produce a document that indentifies and explains the variances and reconciles the actual and budget profit figures. You should indentify further information required that would help to further explain variances.   Task 3 The directors have the opportunity to invest in one of two new projects. Both projects involve the acquisition of new machinery. The figures for the projects are as follows: Project 1 Project 2 € € Cost (will be incurred immediately) 200,000 120,000 Expected annual profits/losses Year 1 58,000 36,000 Year 2 2,000 4,000 Year 3 4,000 8,000 Estimated scrap value of machinery 14,000 12,000 The business has an estimated cost of capital of 10%. They use a straight line method of depreciation for non-current assets to calculate operating profit. The business has sufficient funds to meet the capital expenditure requirements. For each project calculate: A. Accounting rate of return B. Payback C. Net present value D. Internal rate of return