Provide example of one Saudi Company and analyze the steps that the managers in this company can take to achieve its vision and use core competencies

 Q1 Provide example of one Saudi Company and analyze the steps that the managers in this company can take to achieve its vision and use core competencies. (2 Mark)

Q2 The following data were obtained from the accounting information system of ABC Corporation:

Units Total Cost

Month Produced

January 60 SAR1,533.4

February 50 1,300

March 80 2,000

April 30 833.5

a. Use the data for February and March and the two - point method to determine a cost function.

b. Use the high - low method to determine a cost function.

(2 Mark)

Q3 XYZ Corporation sells its product for $17 per unit. Its variable cost is $10 per unit, and total fixed costs are $800. Assuming next period’s estimated sales are 300, calculate the following amounts:

a. Degree of operating leverage

b. Margin of safety in units

c. Margin of safety in revenues

(1 Mark)

Q1
The steps that the managers at Saudi Basic Industries (SABIC) follow to achieve the vision of providing solutions their customer’ challenges and build a better tomorrow, involves a decision-making process supported by up-to-date, relevant accounting information. Thus all the managers at SABIC will require accounting information to support them in coming up with effective solutions for their customers.

According to a 2021 report by Brand Finance Chemicals, SABIC is one of the most valuable brands in the chemical industry, and many other industries benefit from the chemical solutions offered. Among those benefiting are automotive, packaging, healthcare, industrial, building & construction.
That is why before making any important decision on which solution benefits a customer best, there needs to be a proper investigation on all alternatives.

Drury (2012) explains how professionals within an organization need to make business decisions that are underpinned by sound financial information which they can understand. Furthermore, since management requires accounting information that is easily understood, especially when it comes to costs, prices, and benefits they will need reports from the accounting department.

Drury (2012) also analyzed the decision-making process, and it consists of steps managers have to follow when making decisions that can achieve the goals and objectives of a company.

The steps are:

Step 1: Identify the company goals and objectives
The management has to identify the goals and objectives that guide them in achieving the vision. They're different objectives to choose from, and the common ones are profit maximization and maximization of shareholder’s wealth. SABIC always seeks sustainable solutions for its customers through chemistry.

Step 2: Search for alternative causes of action
SABIC’s management searches for alternative causes of actions (or strategies) that enable the company to achieve the set objectives. For the brand to survive, the management must identify potential opportunities and threats in the current environment. This involves gathering data about different alternatives – both qualitative and quantitative.

Step 3: Select appropriate alternative cause of action
This step involves evaluating different alternatives and choosing the cause of action that best satisfies the objectives set.

Step 4: Implementation of the decision
The management has to also make budgets (or financial plans) for implementing the best decisions that can help customers. The budgeting process communicates to all partners of SABIC the part they are to play in implementing the management decision.

Step 5: Control
This step involves comparing actual and planned outcomes and responding to any divergences from the financial plan. The core competencies of all workers will be fully utilized when the performances are being measured, reported, and corrected.

Q2. a.

Determining cost function using the given two points

Feb activity of 50 units and cost of SAR 1,300

March activity of 80 units and cost of SAR 2,000

Regression formula: y=a + bx

finding variable cost (b) = Difference in cost/ difference in activity

= SAR 2,000 – SAR 1,300/ 80 units – 50 units

= SAR 700/ 30 units

= SAR 23,33 per unit

This calculation is based on a comparison of the changes in costs that can be observed on the straight line between activity levels of 50 and 80 units. This gives a regression formula:

y = SAR80 + SAR 23,33X

Q2. b.

Using the High-low method to determine the cost function

at highest activity level X₂ = 80, Y₂ = SAR 2,000

at lowest activity level X₁ = 30, Y₁ = SAR 833.5

Finding Variable cost per unit (b) Y₂ – Y₁/ X₂ – X₁

= SAR 2,000 – SAR 833.5/ 80 units– 30 units

= SAR 1,166.5/ 50 units

= SAR 23.33 per unit

Total Fixed cost (a)

y₂ – bx₂ = y₁ – bx₁

SAR 2,000 – SAR 23.33 (80) = SAR 833.5 – SAR 23.33 (30)

SAR 2,000 – SAR 1,866.4 = SAR 833.5 – SAR 699.9

SAR 133.6 = SAR 133.6

a = SAR 133.60

Thus, cost volume formula:

y = SAR 133.60 + SAR 23.33X

Q3. a.

Degree of operating leverage = contribution margin / profit

contribution margin = Total sales – total variable costs

= S-VC

= ($17 * 300 units) - ($10*300 Units)

= $5,100 - $3,000

= $2,100

Profit = Total Sales – Total Cost

= S-VC-FC

= ($17*300) - ($10*300) - $800

= $5,100 - $3,000 - $800

= $1,300

Degree of operating leverage = $2,100/ $1,300

= 1.6

Q3. b.

Margin of safety in units = Profit/ Contribution per unit

= Profit/ p-v

= $1,300/ ($17-$10)

= $1,300/ $7

= 185.71 units

Q3. c.

Margin of safety in revenue = Profit * Sales/ contribution margin

= $1,300 * $5,100/$2,100

= $3,157

References

• Sabic Team. (2021, July 7). About Saudi Arabia basic Company. SABIC. https://www.sabic.com/en

• Brand Finace Report (2021) Chemicals 25 2021: The annual report on the most valuable and strongest chemicals brands. Branddirectory. https://brandirectory.com/download-report/brand-finance-chemicals-25-2021-preview.pdf

• Drury, C. (2012). Management and Cost Accounting(8th ed.). Cengage Learning EMEA.

The qualitative characteristics of financial information in the Conceptual Framework for Financial Reporting are relevance

 

Question #1

The qualitative characteristics of financial information in the Conceptual Framework for Financial Reporting are relevance, faithful representation, comparability, verifiability, timeliness, and understandability.

Explain the meaning of relevance, faithful representation, and comparability with examples in the context of financial reporting.

Answer:

Question #2

The following information relates to inventory for Shoeless Joe Inc.

Date		Quantity	Prices
March 1	Beginning Inventory	20	$2
March 7	Purchase	15	$3
March 11	Sale	25	$7
March 12	Purchase	20	$4

Required:

Assuming the company is using a perpetual inventory system.

1. What amount would be used to report the company’s total cost of goods sold in March if the average cost assumption is used?

2. What amount would be used to report the company’s March 31 ending inventory if the FIFO cost assumption is used?

Briefly describe the difference between the perpetual inventory system and periodic system in terms of inventory records. Which inventory system is better for management purpose? Why? Support your answer with two reasons in brief.

Answer:

Question #3

Paddington has acquired numerous pieces of land which are accounted for under revaluation model. One particular piece of land is carried in Paddington's statement of financial position at $560,000 at 1 January 2019. At 1 January 2020, further to a revaluation exercise, a fair value of $710,000 is identified in respect of this land.

Prepare the journal entry to account for the revaluation at 1 January 2020, assuming the following separate cases:

1. The land has only ever risen in value.

2. Since the land was bought until 31 December 2019, a revaluation loss of $80,000 had been identified and recognised in profit or loss.

Answer:

Question #4

Golding Muirhead Property (GMP), a property construction company, completed the construction of the M Building – a complex of 80 apartments in Shanghai – at the end of March 20X4. On 1 June 20X4, as a result of a lack of buyers in the market, and a recent fall in selling prices, GMP decided to take the property off the market. Instead the company decided to rent out the individual apartments in the M Building until the market improves. Rental arrangements were agreed immediately on all of the apartments. The company expects an improvement in the market to take four years. GMP cost $80 million to develop and had a fair value on completion of $89 million, and fair values of $83.5 million and $81.2 million on 1 June 20X4 and 30 June 20X4 respectively. GMP measures investment properties using the fair value model.

Required:

Prepare all necessary journal entries for the M Building on 1 June 20X4 and 30 June 20X4.

Answer:

Question #5

MHL has a brand name, Magica, which has become well known since MHL developed it ten years ago. Valuation experts have valued the brand name at HK$5 million at the current year end. MHL would like to recognise this brand name as an intangible asset and report it at HK$5 million in the financial statements

MHL owns a 20-year patent which it acquired five years ago for HK$2 million. The patent was recognised at cost in the financial statements. Valuation experts have valued this patent at HK$10 million at the current year end.

Required:

Advise the appropriate accounting treatments for the brand name and the patent of MHL at the current year end.

Answer:

Solution

Answer for Paper 1

Q 1

Relevance

This accounting concept considers the use of accounting information which is helpful in decision-making. This means accounting information is relevant if it provides helpful details about the past translations together with predictive future financial details. For example, When a company is in the process of selecting an option of whether to replace the furniture it has been using for the last 12 years, the cost of the old furniture is irrelevant, and therefore is not helpful in making the decision (Nandwani, 2016) .

Faithful representation

This is an important concept which has to be followed when reporting financial statements and it involves the provision of financial information which is complete, fair and unbiased. That means financial reports should accurately reflect the actual condition of a business. For example, when a business has consistent errors in its financial reports, due to its representatives trying to be biased, this will be considered financial reporting fraud.

Comparability

This is a fundamental requirement that emphases the following standards set by the Accounting Standard Board, accounting principles, and policies. When accounting standards are followed during the preparation of accounting statements, those statements can be compared with other statements in multiple organizations around the world. For example financial statements of Google can be compared to those of Coca-Cola because they were prepared using standard principles.

Question 2

a)

calculate the total cost

Date Quantity Price Amount (Quantity X Price)

1 March 20 $2 $40 (Opening Inventory)

7 March 15 $3 $45 (Purchase)

12 March 15 $6 $90 (Purchase)

Total 50 (Units) $175 (Total Cost)

the cost per unit -

total cost/ number of units purchased

Average price per unit = Total cost ÷ total units

= $175 ÷ 50 units

= 3.5 prices per unit

multiply the per unit cost by the number of units sold,

COGS(Cost of good sold) = number of units sold x per unit cost

= 30 x $3.5

= $105

2. b)

FIFO

The FIFO or the first-in-first-out method of inventory valuation = units purchased first are the ones to be sold first.

The sale made on March 11 will include:

20 units at $2 from March 1 = $40

5 units at $3 from March 7 = $15

Thus the ending inventory will be formed by:

(15-5) units at $3 from March 7 = $30

20 units at $4 from March 12 = $80

Total value of ending inventory = 30+80 = $110

Thus the ending inventory will be $110

Users of the perpetual inventory system recognize or update the inventory accounts immediately. That is when a purchase or sale takes place they record it. While users of periodic inventory system recognize or make records in inventory account at scheduled intervals usually at the end of an operating cycle.

The perpetual inventory system is better for management purposes because data is updated in real time and the information is more robust. Management needs detailed financial information to make important decisions on a daily basis. The perpetual system is not relevant for management decisions because results take longer to come out or be available and are not detailed enough.

Q 3

a)

debiting a $150,000 increase ($710,000 -$560,000) into the Land account (which is a fixed asset) as below:

Journal entry

Dr Cr

Land A/C 150,000

Revaluation surplus 150,000

This is entered in the balance sheet

b)

impairment loss of the fixed asset not more than the revaluation surplus.

both total assets and total equity decrease instead. Journal entry will be:

Dr Cr

Revaluation loss 80,000

Land A/c 80,000

Q 4.

Journal entry for M building

1 June 20x4

80 properties x $89 million (fair value) /48 months (or 4 years) = $148.3 million

Dr Cr

Cash $148.3m

Rent A/c $148.3m

• Rent Income is recorded by crediting the account. Cash is debited if cash is received

• Fair value - is the estimated price at which an asset can be sold

• cost - property's value is equal to the cost of land, plus total costs of construction, less depreciation.

• company expects an improvement in the market to take four years (4 years = 48 months)

Journal entry

30 June 20X4

80 properties x ($83.5(fair value)/48) = $139.2m

Dr Cr

Cash 139.2

Rent a/c 139.2

Q 5

MHL’s brand name, Magica, was internally generated and therefore not an intangible asset, as per IAS 38.63.

The standard states that Internally generated brands, mastheads, publishing titles, customer lists, and items similar in substance shall not be recognized as intangible assets.

IAS 38 does not recognize internally generated assets but does recognize purchased brands.

IAS 38.64 states that expenditure on internally generated brands cannot be distinguished from the cost of developing the business as a whole.

Therefore, MHL should not recognize the brand name in its consolidated statement of financial position.

Patent

The company’s patent is amortized to a nil residual value at HKD2 million / 20 years = HKD100,000 per annual.

A patent cannot be revalued under IAS 38 because there is no active market as a patent is unique (IAS 38.78).

IAS 38 does not permit revaluation without an active market as the value cannot be reliably measured in the absence of a commercial transaction.

Therefore, MHL should not revalue the patent in its consolidated statement of financial position.

References

• Nandwani, M. (2016, June 18). Top 11 Qualitative Characteristics of Accounting Information. Learn Accounting: Notes, Procedures, Problems and Solutions. https://www.accountingnotes.net/financial-reporting/top-11-qualitative-characteristics-of-accounting-information/5409

Choose one of the nation's first three presidents --- George Washington, John Adams, or Thomas Jefferson ----- and write a short essay exploring

 Q) 53. Choose one of the nation's first three presidents --- George Washington, John Adams, or Thomas Jefferson ----- and write a short essay exploring the major issues facing the nation during that individual’s presidency. Your response should include a consideration of both domestic and foreign policy issues.

Q) 54. BY the turn-of-the-nineteenth century the nations first political party system had developed with the emergence of the Federalists and the Democrat-Republicans What did each party stand for and what were some of the primary issues that they disagreed about during the years of the Early Republic?

Q) 52. Why did some of the nations founding fathers decide to have a Constitutional Convention 1787? What were the main features of the resultant United States Constitution and how did debate over its ratification lay the groundwork for the development of political parties in the United States?

Q) 51. How and why did the United States find itself at war with Great Britain in the War of 1812? What were the major outcomes of that conflict for the United States?

Q) 55. In the Declaration of Independence, Thomas Jefferson wrote “We hold these truths to be self-evident that all men are created equal” thus establishing foundational principles of liberty and justice for the United States. In the first several decades after the Revolution, did the nation seem to be living up to those ideals? In farming your responses consider at least three of the following groups:

1. White male property owners

2. Native Americans

3. Enslaved African Americans

4. Women

5. Other group of your choosing      

Solution

Q53

The Major Issues Faced By United States When George Washington Was President

During George Washington’s presidency, the United States faced serious issues, both domestically and Internationally. In regards to domestic issues, Washington had to set an example for future presidents because he was the first president of the nation. The way he approached the presidency determined how other (presidents) governed the nation. For instance, he handed over the office of the presidency to his successor, John Adams, after his second term. This helped the nations’ internal politics by ensuring a regular and orderly transfer of executive power. There has been no tyranny administrator ever since he demonstrated good leadership.

Furthermore, In regards to foreign affairs, Washington issued the proclamation of neutrality to avoid entering the war between Great Britain and France. At that time, each of these European Superpowers wanted the United States to support them (to aid) against the other, But Washington decided to be neutral.

Q54

The Federalist and the Democrat-Republican parties and their disagreements

These two parties had conflicting views on how the United States should be governed. During George Washington’s presidency, the Federalists (headed by George Washington, John Adams, and Alexander Hamilton) favored a strong central government. The Democrat-Republican (headed by Thomas Jefferson and James Madison), on the other hand, favored a decentralized government. Their party was not in favor of slavery.

The Federalists and democratic-Republicans disagreed on several key issues. When it came to the constitution, the federalists favored centralized enforcement of power (or order). while the democratic-Republicans party favored Liberty (over order). and advocated for a strict interpretation of the constitution.

On one hand, the federalists also believed that the government should only be led by the elites, with the right education and property. On the other hand, the Democratic-Republic believed that the right to govern comes with favor. In regards to the economic policy, the federalists favored Hamilton’s financial plan of having strong management of the national debt and taxes to accumulate revenue. The Democratic-Republicans opposed Hamilton’s financial plans because they believed that it would give the national government more power and revenue.

Q52

The reasons why the founding fathers decided to have a Constitutional convention in 1787

They wanted to revise the articles of confederation - the first constitutions of the United States – which were considered to be weak and inadequate. America was struggling economically and the governance was poor. There was a weak central government “with no other branches of government” that led to a lack of coordination between the States and a higher tax burden. Great Britain was refusing to honor the economic pact (the Paris Treaty of 1783) it made with The United States.

The main features of the resultant US constitution were the creation of more branches of government, separation of powers between governments, division of federal and state power, protection of personal liberty, a continuation of the slave trade, and no bill of rights. The federal government was now made up of three branches: the executive powers (Vested in president), the legislative power (Vested in Congress), and the Judicial powers (vested in Courts). The constitution provided a system where all branches are independent and considered before an important decision is taken. For example, The president appoints federal judges but the appointees must be vetted by the senate (congress).

The debate over the ratification laid the groundwork for the development of political parties because of the agreements to the Connecticut compromise. The delegates arrived at a decision where the population chooses the representation at the lower house of congress and each state having two members in the Senate chosen by the state legislature. Supporters of both Democratic-Republican and Federalist views started to vote for their beliefs.

Q) 51

Why the US went to war with Great Britain

The reasons why The united states went to war with the mightier-more powerful Great Britain was because Britain restricted American trading by capturing ships and restricting neutral trade. Britain interfered with have proclaimed the United States’ rights to expand its territory. For example, Great Britain captured American ships to prevent any trade between the United States and France,” Britain’s enemies”. Britain was also supporting the uprising of Tecumseh, who was organizing a native Indian confederacy to fight white settlers on their land.

The major outcomes of the 1872 conflict for the United States include no trade restrictions with other nations, released sailors who were captured by the British. The Federalist party collapsed because it was aligning itself with Britishitsh. That victory brought - to ordinary Americans- a feeling of independence and self-confidence. That is why it was referred to as “the second War of independence.” The Tecumseh plans to create an Indian State in the North West failed and this victory meant that American gained the freedom to expand.

Q 55

The United States Nation did not seem to be living up to the ideals in the declaration of independence, especially In the first several decades of its declaration. Women have had no legal/ equal rights to participate in governance and economic activities. The Native Americans were denied their land rights and there was a continuation of enslavement of African Americans.

It has taken many decades after the declaration of independence, for minority groups to have any form of liberty and justice. For instance, America saw women’s right movements groups that stood for equal rights, freedom, and opportunities for women. feminism brought the right for women to vote and to participate equally. Jefferson and other founding fathers who opposed slavery did not insist on abolishing slavery because, at the time, abolishing it would divide the new fragile nation. Although, over the years African Americans have got progress in achieving liberty and equality through the Civil war, the Emancipation Proclamation, and the 13^th Amendment.

Thomas jefferson, and some of the other founding fathers hoped that the Native Americans would integrate into the American society and if this happened the two would live in relative peace, benefiting from agricultural land, infrastructure, and trade. instead, the natives continued to lose their land either by force or payouts. There haveproclaimed been many changes in federal policies over the years, but the native Americans are yet to achieve liberty and justice.