Construct and interpret final accounts to understand profitability, financial position and business decisions in IB Business Management SL.
Alejandra’s opening balance in a cash-flow forecast is the cash available at the start of a period; the closing balance is the opening balance plus net cash flow for that period, and the closing balance becomes the next period’s opening balance. As music income grew from copyrights and royalties, Alejandra needed an accountant to prepare final accounts, manage money and pay taxes. Final accounts such as a profit and loss account and balance sheet help owners, managers, shareholders and tax authorities assess performance, financial position, assets, liabilities, profit and obligations. LadyA’s product life cycle began with the 1994 film and first CD, grew through successful albums and a number-one hit, reached maturity and peak popularity by 2000–2001, then faced decline as CD sales fell because of file sharing, MP3 players, smartphones and the economic downturn. Endorsements, social media, perfume and cosmetics and rebranding could extend the life cycle and create new revenue streams.
"Alejandra needed an accountant to help her prepare her final accounts". Explain the importance of final accounts to two different LadyA stakeholders.
Ace Industries (AI)
Ace Industries ( A I ) manufactures plastic containers, mostly for the soft and fruit juice industries. The operations management department uses flow production for its standard-sized products and batch production for its customized products.
Al's sales are growing rapidly. It currently has a 6 % share of the plastic container market. However, it has recently struggled to meet customized orders on time. Some customers have complained about product quality. Currently, A I is organized by region, which allows the company to have strong relationships with customers, who feel that A I knows them and cares about their interests. The human resource department is proposing restructuring the organization by function. Not everyone at A I agrees with this change. Many think that the problems of late delivery and poor quality could be solved through greater delegation.
Lloyd Rinnegrat, Chief Financial Officer, has suggested that Al's management think more deeply about their rapid growth. Except Lloyd, most people at A I believe that rapidly growing sales are good - that by increasing its market share A I will, in the long run, benefit by being a large organization. However, Lloyd argues that being a small organization has many merits, as shown by the changes in Al's recent gross profit margins and net profit margins.
Table 1: Selected financial data for \(\boldsymbol{A
The marketing department has predicted that the soft and fruit juice industries are moving away from major mass-produced drinks and toward niche products, such as exotic fruit drinks and speciality beverages for very particular markets.
Calculate:
the difference in Al's net profit before interest and tax between 2018 and 2019 (show all your working).
AFA’s growth created diseconomies of scale, declining gross and net profit margins, management unhappiness and concerns about recruitment. Sam and Finn disagreed about fringe payments, a worker cooperative and a possible takeover. The potential international retailer could provide fresh capital, online presence and intangible assets, but might not retain employees or managers and could threaten AFA’s fair-trade mission and stakeholder relationships. The existing financial data and takeover details in this question’s root must remain available to the user.
AFA was at a critical point. Sam and Finn had not fully resolved their disagreements. They seemed to be constantly arguing but Sam could also see that new issues were emerging. At their most recent meeting in early 2018, Finn provided the following financial information to illustrate the declining trend in gross profit margin.
Table 1: Selected financial information for A F A
In addition, the recruitment of new staff was becoming a problem, as the wages that A F A offered were much lower than fair trade competitors. In a meeting between Sam and Finn, they argued over the best way to financially reward and motivate newly recruited workers, given the lower wages paid by A F A.
Finn argued for a reward system based on fringe payments (perks), as this was being offered by AFA's main competitors, the supermarkets. Sam countered that AFA should form a cooperative involving all physical stores. He argued that creating a worker cooperative could give all members a sense of community and fulfillment and motivate them so that all members of the cooperative would benefit. There would also be additional stakeholder benefits. Finn argued that a worker cooperative was too difficult to organize and operate and would not solve the problem of recruiting staff.
In the meantime, A F A was continuing to attract a good deal of publicity. Sam had appeared on a national television show about young, innovative entrepreneurs. After the television show ended, one very large international retailer with a strong online presence contacted Sam about the possibility of a takeover. Sam initially refused, but as the details of the takeover became clear he started to seriously consider the opportunity. By selling the business Sam would have enough fresh capital to start new, innovative businesses and make some of his other visions and ideas into reality. In addition to the corporate social responsibility (CSR) AFA was generating, the takeover would give AFA access to other intangible assets. However, the international retailer had indicated that it could not guarantee keeping all existing and newly recruited employees and managers. Finn and Kim were both very worried that Sam would even contemplate the takeover, which they felt was an act of betrayal to all the stakeholders of AFA.
Define the term intangible asset.