The objectives of this project are for students to demonstrate:
1. Skills and knowledge in the preparation of financial statements that comply with Generally Accepted Accounting Practice (Assurance of Learning Outcome KS 1.1),
2. Critical analysis of accounting practice (Assurance of Learning Outcome CTA 2.1),
3. An ability to effectively employ written communication skills (Assurance of Learning Outcome PC 3.1), and
4. Ethical understanding (Assurance of Learning Outcome SEU 5.1)
The assignment must be submitted into the AYN416 assignment ‘slot’ on the 3rd floor B Block, (opposite the lifts) no later than 5pm on Wednesday 14th May 2010. Penalties will apply for late submission of 10% per day after the due date.
The Assignment comprises two (2) compulsory parts – Part A and Part B. Each part has equal weighting (10%) and, in aggregate, contributes up to 20% of your overall AYN416 final mark/grade.
For the purposes of the group project you are required to form groups of 3 or 4 students. You will need to appoint one group member as the group leader. All group members will be awarded the same mark. However, if the group considers that a group member is not actively participating in the group project the group leader must inform the unit coordinator who may award a lower mark where this is justified.
Part A – Compulsory (10% weighting)
Part A requires you to complete the requirements set out in Financial Reporting Problem BYP7.1 (p.325) of the set textbook. It is to be expected that you will demonstrate a comprehensive understanding of relevant concepts, principles and practice in the preparation and presentation of financial statements. Journal & ledger pro-formas for this are available on the blackboard site.
Part B – Compulsory (10% weighting)
Part B requires you to review the following information and prepare a briefing note that covers the issues raised in the following scenario:
CAF Ltd sells television, video and audio equipment to many retail customers in the city and surrounding area. The company has been very successful in its 50 years of operating – until the past three years. The entry of new competition from overseas, plus a downturn in the economy, has made trading very difficult.
In reviewing the year’s performance to date, the chief executive officer identifies two major areas of concern:
• The interim financial statements indicate that the company’s net profit is down again from last year. The predicted result, if the current trends continue, will bring added pressure on the company from its bankers and the financial press.
• Sales are made on credit contract terms of 2/10, n/30. In the past, over 75% of the credit customers have taken advantage of the discount by paying within 10 days of the invoice date. However, within the last year the number of customers taking the full 30 days to pay has increased with current indications that less than 60% of the customers are now taking advantage of the discount.
To alleviate the problem of a downturn in company profits, the chief executive officer proposes the following plan:
• To allow more customers to purchase television, video and audio equipment, the level of income required for customers to qualify for credit will be reduced. That is, customers must earn a minimum level of income (wages and/or salary) before a credit facility can be approved. The proposal is to lower the existing minimum level of income required.
• The method of providing for doubtful debts will be amended in accordance with the following schedule:
Accounts Receivable Collections
Proportion of Total Age Categories Current Impaired Percentage Policy Proposed Impaired Percentage Policy
1.5% Not yet due
Less than 30 days past due
30 to 60 days past due
61 to 120 days past due
121 to 180 days past due
Over 180 days past due 2%
The Board of Directors of CAF Ltd are unsure as to the merit of the actions proposed by the chief executive officer and have approached you seeking advice. Prepare a Briefing Note that:
1. Discusses the potential effects of the revised credit policy on the company’s profitability.
2. Discusses the potential effects of the proposed Impaired Percentage Policy on the company’s profitability (for illustrative purposes, assume that the current Accounts Receivable balance is $1,400,000).
3. Explains how the chief executive may have determined the amount of impaired receivables (doubtful debts) – reference should be made to relevant Authoritative Support (i.e. accounting standards).
4. Identifies and discusses any ethical issues associated with changes in credit policy and proposed Impaired Percentage Policy – your discussion should refer to Part A of the Code of Professional Conduct – available from:
The briefing note should not exceed 500 words and would comprise the following structure:
Main body/discussion (with appropriate sub-headings)
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