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Key Financial Areas - ABB

University: University of Cambridge

  • Unit No: 10
  • Level: Post Graduate/University
  • Pages: 6 / Words 1420
  • Paper Type: Assignment
  • Course Code: ACC 202
  • Downloads: 56
Question :

In order to meet the requirement of this assessment, following questions are given below:

  • Explain the cask balance of the company for the recent year and compare it with the previous year.
  • Give calculation for the receivable turnover and compare it with the industry average.
  • Explain how the company analyse the allowance for the doubtful accounts and does it increase over the past year.
  • Define the inventory methods with the ratio for the recent years and make comparison with the given industry.
  • Define the long-lied assets and its comparison with industry.
  • Explain the investment and the connected factors.
Answer :
Organization Selected : ABB

INTRODUCTION

Financial accounting is terminology for gathering information related to financial transactions, and events and recording them in a systematic manner according to accounting standards. This report outlines the key financial areas of the ABB organisation. There is a discussion made on cash receivables and inventories for the current year. Calculations of Long term assets and impairment are analyzed in this report. Investments analysis regarding reporting and securities or trading are analysed with market change and holding gains. 

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MAIN BODY

Cash receivables and inventory

Company's cash balance

Cash and cash equivalents is considered high liquid current assets in organisation. It helps to manage day to day monetary transactions. As per the annual report of ABB cash and cash equivalents were calculated as $4526 million for 2017 and $3644 for 2016. It seems that cash and cash equivalent increased during the year 2017 by £882. Currency and other local regulatory limitations related to the transfer of funds exist in a number of countries where the company operates. In funds including fees or loan repayments, every day dividends can not be promptly transferred abroad from these countries and are there fore deposited and used for working capital needs locally. These funds are included in cash and cash equivalents as they are not reasoned limited.

Receivables turnover ratio

It is activity based ratio that are measuring efficiency of firm to uses its assets. It will be calculated on the basis net value of credit sales of particular time and same period average accounts receivable. It is calculated as follows - 

Ratio Analysis

2016

2017

Net credit sales

33828

34312

Average accounts receivables

4848

5208

Receivables turn over

6.98

6.59

This means the company collects its receivables in 2016 have 6.98 accounts receivable and in 2017 have 6.59. It is decreasing compare to last year and it is goods for company. High receivables turn over ration can imply a variety of things about a company. It is suggest that a company operates it on the basis of cash. A low ratio can suggest few things related to company, like as bad credit policy, customer with financial difficulty and bad customers.

Allowance for doubtful accounts and contra-assets increase over the prior year

Related Service- Finance Assignment Help

Inventory costing method used by organisation

Inventories are expressed at the lower of cost or net realizable amount. Cost of inventories are determined by using first in first out method, weighted average cost method or in certain condition for example the accomplished revenues with the help of contract method is used for the particular known method. Inventories costs are explicit at acquiring costs or actual production cost including direct material and applicable manufacturing overheads. Modify to cut down the cost of inventory to its net possible value are made, if necessary, for decreases in sales prices, devolution or same reductions in amount. 

Inventory turnover ratio

This ratio based on efficiency that presents how efficaciously inventory is managed by examination cost of goods sold with average inventory for particular time period. This measures how many times average inventory is turned or sold during a period. This ratio is important because total turn over mainly based on main two components of performance. First one is stock purchasing and second one is sales.

Inventory turn over = Cost of goods sold/Average inventory

Ratio Analysis

2016

2017

Cost of goods sold

20431

20313

Average inventory

2173.5

2529.5

Inventory turn over

9.4

8.03

From the above calculations shows that inventory turn over decrease compare to last year. In 2016 have 9.4 time and in 2017 have 8.03 that is shows of efficiency in the company.

Long-Lived-Assets (PP&E and Impairment)

It is represents net property, plant and equipment and are shown by location of the assets. Long lived assets that are held and used are assessed for impairment when events or circumstances shows that the carrying amount of the assets may not be recoverable. If the asset's net carrying value exceeds the asset's net undiscounted cash flows expected to be generated over its remaining useful life including net proceeds expected from disposition of the asset, if any the carrying amount of the asset is reduced to its estimated fair value. The estimated fair value is determined using a market, income and cost approach.

Also Check: Concept of Financial Accounting

Fixed assets turnover ratio

It is related to efficiency because these assets are shows performance of the company. With the help of this measures a companies return on their investment in plant, property and equipment by comparing net sales with fixed assets. In different words it is calculate efficiency of a company to producing sales with its machines and equipment.

Fixed assets turn over = Net sales/Fixed assets – Accumulated depreciation

Ratio Analysis

2016

2017

Net sales

24081

24046

Net fixed assets

4743

5363

Fixed assets turn over ratio

5.07

4.48

From the above table it shows that fixed assets turn over decreases from 2016 to 2017 because of decrease value of fixed assets. One reason is also that sales out some part of fixed assets. So it will be good or not because it is not effect in big way to the company.

  • Amount invested on R&D as well software development cost in financial statements
  • Amount spent in R&D during the past year and the % of increase or decrease from last year
  • Analysis of goodwill impairment and its recognition in financial statements
  • Amortization of goodwill

Investment

  • Analysis of liquid investment with maturities of three months or less in financial statements
  • Analysis of records of short term investments/securities during past year
  • Classification of financial instruments and investments
  • Unrealized holding gains on its financial statements
  • Market change causes a holding gain classified as available for sale or trading securities

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CONCLUSION

From the above report it is concluded that finance accounting is important terminology for the company. With the help of this know about the specific items and that are affected according to the market situation. Some specific methods are explained in annual report of AAB Ltd. So after this report market position is good compare to last years.

REFERENCES

Beatty, A. and Liao, S., 2014. Financial accounting in the banking industry: A review of the empirical literature. Journal of Accounting and Economics. 58(2-3). pp.339-383.

Lovell, H., 2014. Climate change, markets and standards: the case of financial accounting. Economy and Society. 43(2). pp.260-284.

Fülbier, R. U. and Weller, M., 2011. A glance at German financial accounting research between 1950 and 2005: A publication and citation analysis. Schmalenbach Business Review. 63(1). pp.2-33.

Baxter, R. J. and Thibodeau, J. C., 2011. Does the use of intelligent learning and assessment software enhance the acquisition of financial accounting knowledge?. Issues in Accounting Education. 26(4). pp.647-656.

De Waegenaere, A., Sansing, R. and Wielhouwer, J. L., 2015. Financial accounting effects of tax aggressiveness: Contracting and measurement. Contemporary Accounting Research. 32(1). pp.223-242.

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