Enterprise Systems on Management Accounting †MyAssignmenthelp.com

Question: Discuss about the Enterprise Systems on Management Accounting. Answer: Introduction: According to the case, the total amount of insurance premium for 24 vehicles will be $9,600. Now as the business follows accrual accounting system and the insurance premium period is January-December for each year, thus as per the companys current financial year, the company has made a prepaid insurance for a period of 9 months starting from April-December which will be recorded in the balance sheet as prepaid insurance (Fullerton et al., 2014). The usage bills are sent on a quarterly and as the companys financial period are January-December, thus the amount for December will be shown in the financial statement of the company as outstanding bill whereas the bill amount will affect the cash flow statement after the actual payment that is on the last day of February (Renz 2016). As the company has purchased the Asset (Computer Network Server) for $12,000 on 30th June, therefore, the depreciation for the same will be applicable from July to March of the next year i.e. for the period of 9 months. The amount of depreciation which is $1,800 will be shown in the statement of Profit and loss as an expenses. Similarly in the financial statement the value of the asset will get reduced by the amount of depreciation as accumulated depreciation (Otley Emmanuel, 2013). However there will be no effect of depreciation on the cash flow statement but the amount of depreciation will get deducted from cash flow from investing activities. Statement of Comprehensive Income RosiInc Statement of Comprehensive Income Particular Amount Amount Sales $200,000.00 Closing Inventory $56,000.00 Opening Inventory $12,000.00 Change in Inventory $44,000.00 Total Income (A) $244,000.00 Expenses Purchase $178,000.00 Administrative Salary $5,000.00 Office rent and utilities $3,100.00 Commission $2,100.00 Depreciation $2,500.00 Income Tax Expenses $12,000.00 Interest Paid $800.00 Dividend Paid $5,000.00 Total Expenses (B) $208,500.00 Net Profit (A-B) $35,500.00 Interpretation of Financial Statement and Ratio Statement showing Ratio Particulars Formula 2012 2011 Profitability Ratio Net Profit $8,100.00 $7,980.00 Income $34,000.00 $29,000.00 Net Profit Margin ratio Net Profit/Sales X 100 24% 28% Liquidity Ratio Current Assets $7,457.00 $6,000.00 Current Liability $4,300.00 $3,750.00 Current Ratio CA/CL 1.73 1.60 Efficiency ratio Days Sales Outstanding ratio AS provided in Exh 5.16 76 59.8 Leveraging Ratio Degree of Operating leverage AS provided in Exh 5.16 11% 9.90% Share Holder Return Return on capital Employed AS provided in Exh 5.16 53.80% 65.70% The Net profit margin ratio indicates the profitability of the company. Increase in the net profit margin ratio signifies that the company is performing well by efficiently utilising its resources and assets. However, in the current scenario, it can be observed from the study of financial ratio analysis that the net profit margin for the year 2011 was 28% that declined to 24% in 2012 (Vakalfotis et al., 2013). This was because the amount of expense was proportionately more than the amount of profit. In 2012 the amount of increase in net profit was only 1.5% and the revenue or income of the company increased by 17% only. Whereas it was found that the expenses for the year has increased significantly by 23%. Thus due to such substantial increase in the amount of expenses for the company the net profit margin ratio has declined by 4% despite of an increase in the figure of net profit and revenue (Cooper et al., 2017). The current ratio indicates the liquidity position of the company. The better the liquidity ratio the more is the company capable to meet its liability (Ax Greve, 2017). In the current scenario the current ratio has increased from 1.60% in 2011 to 1.73% in 2012 which means that it has increased by 8.125%. This is a good sign for the company and it indicates that the company has sufficient liquidity (Messner et al., 2016). The Efficiency ratio indicated how efficiently the company is able to utilise its assets and liabilities internally to produce income. In the present situation, days sales outstanding ratio has increased. This indicates that the collection of the efficiency department of the company has declined (Tappura et al., 2015). On analysing the degree of operating leverage is concerned, it can be observed that it has increased by 11.11% that is from 9.90% in 2011 to 11% in 2012. These suggest that the companys fixed cost is higher than its variable cost (Shields, 2015). This is not at all considerable for the business and require immediate attention in order to bring down the same. As evident from the above analysis that the Return on Capital Employed has declined by 18.11%. In 2011 ROCE was 65.70% which became 53.80% in 2012. The primary reason is the decline in the net profit of the company the ROCE have also decreased drastically over the period (Figge Hahn, 2013). Interpretation of ratios When it comes to evaluating the performances of the business, ratio analysis plays an essential role in it. With the help of various ratio analysis, the profitability, liquidity, solvency and efficiency of the business can be gauged (Morales Lambert, 2013). In order to measure the performance of the business, it is very important to study the trend of those ratio over a number of years. Through such study it can be understood whether they are improving or declining over the time. For example, in order to measure the liquidity position of the business, the current ratio is used. Similarly quick ratio can be used to evaluate the solvency position. Again using the gross profit ratio, the profitability of the business can be analysed (Alawattage et al., 2017). On analysing the ratio of Ratunga Inc. for the past 4 years it can be observed that the business have shown its strengths in terms of sales, return on investment, profitability, leverage, asset utilization, wealth of the shareholders, etc (Alawattage et al., 2017 ). This can be proved by studying several ratios such as the sales ratio in 2009 was 7% which increased to 10.0% in 2012. This indicates that the sales for the business have increased compared to the previous year as a result of which there were considerable increase in profit for the business as well. As it can be observed from the gross profit ratio, which was 28.0% in 2012 that profit have increased by 9.4% in the year 2012. Also the company was able to provide fair return on its investments (Fourie et al., 2015). The return on investment for the company have also increased from 4.1% in 2009 to 5.0% in 2012. This ensures that the company have utilised its resources in appropriate area in order to earn the desired return. Similarly the company was also able to generate decent revenue by utilizing its asset due to which the Asset turnover ratio have also increased. Most importantly, the price/earnings ratio of the business have increased which signifies that there are higher potential of the company to generate higher revenue and growth in future (Jrvinen 2016). However, the key weakness of the business as it can be studied from the ratio analysis is that the return on capital employed for the business is declining over the years and as a result of which the operating profit is also showing a decent fall (Armitage et al., 2016). 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