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I. IntroductionThis study has the goals of preparing basic financial statements for small-scale business firms and unincorporated companies with standards, accounting principles and conventions. Furthermore, the research will explain and elucidate financial statements of An Binh Car Repairs and DHHT...

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I.

Introduction

This study has the goals of preparing basic financial statements for small-scale business firms and unincorporated companies with standards, accounting principles and conventions. Furthermore, the research will explain and elucidate financial statements of An Binh Car Repairs and DHHT plc. Finally, the assignment will construct spreadsheets of budget for strategy designing, management and decision making. II.

SCENARIO 1

1. Task 1 a. Income statement for the year ending September 30, 2021 of An Binh Car Repairs.

b. Financial position of An Binh Car Repairs for the year on September 30, 2021 Firstly, before presenting the financial position statement of An Binh Car Repairs, we must calculate the retained earnings of the business for the year ended on September 30, 2021.

After having the retained earnings on September 30, 2021, we insert the data in the statement of financial position as of September 30, 2021.

c. Explanation of financial position The financial position statement of An Binh Car Repairs shows that the business is healthy and if maintained, the garage will grow over years. First of all, the firm has a decent amount of cash on hand. Therefore, it is easy to pay salaries and wages for its

employees. The business has invested lots of money in its equipment to offer the best service for their customers. Regarding the accumulated depreciation, we can assume that the garage’s tools are in good condition and can perform the work very well. Furthermore, the company does not depend on other creditors due to its low liabilities. Thus, the organization can survive well if some bad situation occurs like social distancing as a protection from COVID-19 and the garage cannot be working for limited amount of time. At this thriving pace, An Binh could potentially get his invested money back in just four years of working. Looking at this positive financial position, the owner can face no problem in invite more people to invest in his business to accelerate the growing phase of the firm and expanding the business over the years. 2. Task 2 Before constructing income statement and financial positions statement of An Binh Car Repairs for the month ending on October 31, 2021, this study will present an adjustment worksheet.

(https://docs.google.com/spreadsheets/d/1A2W46OG7FP8eg9ihVNf2BLSJOMr8F1RU/e dit#gid=1817443719) a. Income statement of An Binh Car Repairs for the month on October 31, 2021

b. Financial position statement for the month ending on October 31, 2021 Similar to the last financial position statement, we have to know the retained earnings of the An Binh Company to successfully design the balance sheet.

After obtaining all the information about the An Binh organization, we can assemble to a financial position statement of the business for the month ending on October 31, 2021.

c. Explanation of financial position It is clear from the financial position that An Binh Car Repairs is working smoothly and generates profit through months. The company maintains a fine amount of cash and does not have many liabilities which is good. This proves that the organization can stand on its own feet and will not be affected much from the outside creditors. The owner has withdrawn a decent amount of money but it seems not to be a problem because the business still has a generous budget. One noticeable factor is the profit of the garage is nearly three and a half thousand dollars in a month which is relatively high compared to the net income of the company is over twelve thousand for a year. This huge net income in October might be the result of people rushing to get their vehicles repaired and washed for the ending year events such as Christmas or New Year.

III.

SCENARIO 2

1. Ratios calculation

2. Ratios comparison with the previous year a. The total assets turnover ratio shows how effective the company uses assets to make money. Compared to the year 2019, the ratio has increased 0.02 time which shows that the company is better at using assets to create sales revenue. b. The Days’ Sales in Inventory ratio of the firm displays the number of days required for the company to sell and replace it. Inventory period has risen in the year 2020 means that the firm takes more time to sell its products and thus there are more risks of products being depreciated because they must stay in the inventory for a longer time. c. Receivable collection period is the number of days DHHT plc takes to turn receivables into cash nearly unchanged from the year of 2019. d. Days’ Sales in accounts payable is the numbers of days that it takes for the organization to pay its suppliers. Days payable outstanding has increased 2.88 which means that the stores took approximately three days more to pay its suppliers. e. Net profit margin shows how much the firm profit from sales. The return on sales ratio of the organization has increased about 1%. This is good because they will earn more profit from sales.

f. The gross profit margin has also risen about 2% compared to the year 2019 means that the stores can earn more profit through selling products and keep the costs in command. g. The ROA (Return on assets) ratio illustrates overall measures of the firm’s profitability. This ratio raised from 21.50% to 23.23% is considered as a good sign showing that the company is doing a good job. h. Return on Equity ratio (ROE) of the organization indicates how effective the firm use shared capital to generates revenue. This proportion has rose significantly over the previous year. The difference is approximately 5% more. This indicates that the DHHT plc has done good work to convert owner’s equity to its income. i. Current ratio is considered as a measurement of how good the company in paying short-term debt. This ratio of the firm rose 0.13 time displays that the company is better at paying short-term debt to the lenders. The higher the ratio means that the organization has higher liquidity. j. Quick ratio of DHHT plc also seen a 0.15 time rose. This ratio is under 1 indicates that the company is not able to pay all its liabilities if urgency comes. This ratio has the purpose of showing if the company able to pay short-term liabilities by selling assets. k. The debt-to-equity ratio indicates the proportion of long-term liabilities to total of the company’s equity. This ratio of the firm has increased 0.2 time over a year which is not a good sign because it lowers the solvency of the firm. l. The year 2020 has seen a magnificent change in the interest cover ratio of the DHHT convenience stores. The ratio shows the heath of the company in generating profit to cover interest rate in the long run for creditors. This giant leap from 54.25 dropped to 14.1 has made the company to look vulnerable in front of the people who tend to invest in the organization. Therefore, future investors of the firm may have second thought whether they should fund DHHT plc or not. 3. Assess performance of DHHT plc using financial ratios a. Efficiency ratios

Regarding the inventory period ratio of DHHT plc, this ratio has rose over the past two years 2018 and 2019 and higher than the average of the industry by almost three days which shows that the products and merchandises of the firm usually takes longer to be sold and replaced in the inventory. This is not good for the firm because they are three days longer than their competitors in selling and importing new products. Also, the organization may suffer from product’s depreciation for an extended time being in the warehouse. The receivable collection period ratio of the stores maintained close to the industry average over the past years, which is decent. One thing the company should taken serious of is the Days’ Sales in accounts payable ratio. This ratio of DHHT is rising over years and indicates that the firm usually pay its suppliers later than its competitors do. This may make the suppliers to lose trust in them and will not lend them a large amount of money. b. Profitability ratios Looking at the net profit margin of the organization, the ratio has increased 1.5% over three years and nearly 2% higher than the average of the industry. This means that DHHT has a competition advantage against its rivals because they simply have more profit over the same value of revenue than their competitors. Next, gross profit margin of the firm has also risen from 31.50% to 35% in two years and 3% higher than the average ratio of the industry. This growth indicates the company keeping more money after deducting all costs that related to selling products. The firm has shown that they are able to cut costs and maintain sales volume to reach more gross profit margin. Like other ratios, ROA (Return on assets) ratio of DHHT has accelerated approximately 3% from 2018 to 2020 and 1.23% higher than the average. This illustrates that the company is using its assets effectively to create more revenue. Finally, the ROE (Return on equity) indicates how good the company in changing equity into income. The ratio of the organization is dramatically higher over the years from 36.70% in the year 2018 and ended up with 43.30% in the recent year and has 3.30% better than the average of the industry which is

40%. This ratio attracts more investors to fund DHHT plc rather than any other convenience stores. c. Liquidity ratios Firstly, current ratio of the firm is growing over years, from 1.1 and raised 0.2 time to became 1.3 time in 2020. This ratio is 0.1 time higher than of the average. It shows that DHHT plc has more liquidity than its competitors because current ratio illustrates the ability of a company in paying short-term debt. Furthermore, it can strengthen the trust of lenders for the company and attract more short-term loaners. Secondly, the quick ratio displays the straightaway liquidity of the firm like cash, investments, and current receivables to pay its current liabilities. This proportion of the organization is getting larger over previous years, starting with 0.6 time in 2018 and increased to 0.71 time in 2019 then raised to 0.86 time in the recent year. This ratio of DHHT is also 0.06 time higher than the average of the industry means that the company’s quick assets are not enough to pay for the current liabilities. d. Solvency ratios Debt-to-equity ratio is a proportion of long-term debt and average equity of the firm, the higher the ratio means that the company may face with many insolvency risks. This ratio of DHHT pls is developing from 0.57 time in the year 2018 to 0.6 time in 2019 and finished at 0.62 in the year 2020. Over more, this ratio of DHHT is 0.7 time bigger than the average of industry. Therefore, investors may hesitate to invest in the company regarding this ratio. Next, interest cover ratio of DHHT pls is the proportion of operating profit and interest expenses. It has witnessed an extremely downward trend with 56 times in 2018 and went down to 54.25 and finally hit the bottom at 14.1 times which is nearly a half from that ratio of the average in the industry. This means that the company barely offer any protection to its long-term investors because of the ridiculous interest expenses. It may become the red flag that the firm should take it more seriously if they still want more investment and funds from outsiders.

4. Critically valuate organization performance using financial statements with rational conclusions This essay will evaluate the performance of DHHT plc through financial statements with financial ratios to reach decisions from different aspects of owners, creditors, and investors. Firstly, looking at the financial statements of the year 2019 and 2020, the owner has little money spent on inventories. Owners are using too much money for land and buildings with equipment. These are not required because the company’s main operation is by selling products not offering services. Therefore, the leaders of the organization should invest more budget into sourcing new products and try to rotate the product cycle as soon as possible. Regarding the financial ratios such as net profit margin and gross profit margin of DHHT plc are quite decent compared to them of the previous years and of the industry average. The owners should keep this positive measurement up throughout future years to attract more investors and gain trust from creditors. Secondly, the creditors should be concern when looking at the interest expenses of the company. It was 400$ at the year 2019 but has raised nearly five times in the following year to 1900$. Thus, the interest cover ratio of the firm dropped significantly from 54.25 in 2019 to 14.1 in 2020. Because of that, the company barely offers any protection for its creditors and investors in the long run. Otherwise, when lending money, the creditors mainly watching the liquidity ratios of the company such as current ratio and quick ratio. These ratios of DHHT are just as good as ratios of efficiency. The fact that current ratio of the organization is 1.3 time is better than 1.2 of the average and quick ratio of 0.62 time compared to it of 0.55 for the industry average. This has shown that there are some good signs in investing short-term loans for the company. Finally, in the viewpoint of investors, DHHT plc is not worth in taking the risks to invest in the company. Looking at the solvency ratios of the firm, debt-to-equity ratio is 0.62 time which is higher than 0.55 time of the average meaning that the company has low solvency compared to other competitors. Moreover, as mentioned before, interest cover ratio of the organization is has dropped dramatically in the recent year. It was 54.25 times in 2019 and went down to

only 14.1 times in 2020. This figure is not every where near the average of the industry which is 30. It has illustrated that DHHT plc did not manage their interest and liabilities very well. Also, it could be a big reason for the investors to not invest in the firm. IV.

SCENARIO 3

1. Cash budget of HGA

2. Discussion of advantages and restrictions of budgets, budgetary planning and control for HBA. a. Benefits Firstly, the budgets and budgetary planning have a purpose to set out goals and objective that the company will try to achieve in the near future. It can ensure that the company is going on the right path with a constant pace by set out specific numbers that the firm has to reached for. Furthermore, budgets and budgetary planning are seen as a method of

communication throughout the organization. By setting out goals for each department of the company to follow, it organizes the firm to help all departments achieve mutual target. Also, it forces company to think and formulate plans and strategies to meet the expectation numbers. Moreover, by using budgets and budgetary planning and control, company can motivate their employees. Sales employees when meeting low budgetary planning can easily be done can get bored and do not use all their knowledge and try to think of ways to generate more revenue. Contradict to that, when sales employees are being challenged by a high number but achievable budgets, they tend to think outside the box and force themselves to find new and different strategies to sell more product and increase productivity of the department. Similar to sales employees, staffs who are working as controlling costs may have benefit affection from budgetary planning. When costs controlling employees see a big cost budgets, they will accept the offer without trying to cut the costs. This action may cost the company to spend a lot more money on costs and expenses. In the opposite, small budgets for costs and expenses may make the costs controlling employees to negotiate to cut the costs as low as possible to meet the budgets. Budgets can construct a basis for controlling system (McLaney, 2018, p.334). Staffs and managers can use budgets to compare with actual performance of their employees to work out ways to monitor and keep the productivity in control. b. Limitations Looking on the downside of the budgets and budgetary planning, there are some disadvantages that a company need to be concerned of. The first thing a firm should check is if the accountant is good and experience enough to set out the budgetary plan. It takes a good accountant with decent knowledge to form budgets because unexperienced accountant may not be familiar with structuring a budgetary plan so that the plan may have errors or simply unrealistic with a high unachievable number. There are always obstacles that come when executing the plan such as production shortage (plant, labor, materials) and it is called limiting factor (McLaney, 2018, p.336). Another problem that organization should be consider is budget slack which is the situation when managers

who set the budgets too low or too high to effortlessly meet the requirements. These managers will set out unused resources “that allows a lapse from actual high levels of performance without deviating from budget targets’’ (Weetman, 2019, p.625). Therefore, they can do their job without any hard problems and benefit from promotion and salary raised. Sometimes, company may be too hard on the budgets that it may become a rigidity problem. In business, there are moments that company should break their budgets to catch a steal deal that comes out of thin air. If the firm does not have spare money and stick to its budgetary plan, that company may miss an opportunity to have a good deal. Finally, there are some aspects that budgetary planning cannot cover such as the satisfy of clients. 3. Actions to solve problems from budgetary planning and control a. Problems The company is having problem with overdraft loan from the bank. It started at 20000$ and still continuing in October and November at 13000$. This may lead to high interest expenses for HGA Ltd. Therefore, the company should change in transactions. Utility expenses is out of the conversation because it must be pay on the due date or else the whole operation will be stopped. Suspend paying for employees is not a wise choice because it can have a negative affection to employee motivation. b. Solution The best solution HGA can try to negotiate is paying the rent each moth, not by paying every quarter. 4. Positive effects To illustrates how effective this mentioned solution is, below is the new cash budget if HGA Ltd choose to negotiate to pay rent every month in the next three months.

Compared to the previous cash budget, this new solution has made the company to save up to 48000$ in the end of December 2021. This solution is the most suitable for HGA Ltd now. V. -

References ATRILL, P. and McLaney, E. (2018) Accounting and Finance for NonSpecialists.11th Ed. Harlow: Pearson.

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WEETMAN, P. (2019). Financial and Management Accounting: An Introduction. Harlow: Pearson.

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Phi Minh Duc (spreadsheets): https://docs.google.com/spreadsheets/d/1A2W46OG7FP8eg9ihVNf2BLSJOMr8F 1RU/edit?usp=sharing&ouid=101700491203879393170&rtpof=true&sd=true...