Unformatted text preview: e and are prepared
to pay for it.
Value is added to society when an
organisation transform resources from a less
desirable form or location to a more
desirable form or location.
32 Accounting measures the increase in value created by
a transformation as the difference between: Total price of
services sold Total costs of
selling the goods
and services Profit
added) 33 Value added by transforming resources }
(B) T o ta l c o s t o f re s o u rc e s c o n s um e d to p ro d uc e a nd m a ke o ne b o x o f b is c uits a va ila b le (A)
S a le s p ric e o f o ne b o x o f b is c uits $3.50 (A) – (B)
Va lue Ad d e d – $3.00 = $0.50
34 5. Explain how accounting helps investors
and other decision makers understand
Why owners invest in a business?
T h e y in ve s t to re c e ive a return on their investments fro m p ro fits e a rn e d b y th a t b u s ine s s .
ROI = (Return on Investment) Profit
Amount invested Return of
Investment is a
return of a
portion of the
investment What can the business do with the profit?
What Dis trib ute to o wne rs R e inve s t in b us ine s s to g ro w a nd e a rn m o re p ro fits 35 Lets go back to our scenario:
If Me g a n a n d R ya n inve s te d $ 1 0 0 0 0 to s ta rt Mum ’s Bis c uits P ty Ltd a nd e a rn e d a $ 1 7 0 0 p ro fit, wh a t wo u ld b e th e re turn o n inve s tm e nt? ROI = $1 700
$10 000 = 17% Is this good? How can we tell? What are the alternatives? Are the alternatives of the same risk? Why is risk important?
Higher risk would require a higher return.
Consider an investment in a bank….high or
low risk? High or low return?
low 36 Effective vs efficient?
An effective business is
one that is successful in
providing goods and
services demanded by
customers. An efficient business is
one that keeps the cost of
resources consumed in
providing good and
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