One of the opportunities managers can take in order to maximise shareholder wealth is to make the “right” decisions at the right time. Managers need to have a developed understand of the past to be able to make decisions which will present the best outcome for the firm in the future. How can accounting help a manager to understand which decisions to make? I am not sure yet. We make decisions every single day – what to wear to work, what to eat for breakfast. I assume that managers make business decisions all the time as well. However, I am led to believe from Martins writing that he is referring to the “big” decisions in a business. What could these big decisions be? Deciding whether to purchase a new item of technology or machinery to product outputs more efficiently? To terminate an employee who does not have the firm’s best interests at heart?  

Most decisions require managers to choose where to allocate resource and capital. The manager must weigh up the opportunity costs and ensure they choose the option which will maximise profits because rarely does a firm have unlimited capital and resources. Do any firm ever really have unlimited capital? Being a millennial, my mind automatically shifts to Kylie Jenners make up brand. Kylie Jenner is one of the richest individuals in the world – “Youngest Self-Made Billionaire”. But I still think Kylie Jenner would have some limitations about how much makeup she could produce, how many factories she can afford to have operating and how many products she can afford to produce. Would Kylie Jenner also be limited by the demand for her product? If she had no limitations on resources and capital and continued to produce makeup, wouldn’t her business get to a point where they created surplus product because every person who wanted to purchase the item already has purchased it? Would the products eventually sit on the shelf?  

Costs which have been created from decision in the past are known as sunk costs. The idea of sunken costs automatically makes me think of a saying I have come to live by – “You can’t change the past so there is no use worrying about it”. In FINC19011 I learned that past cost should not be considered when deciding to invest in a future project because whether we invest or not, the cost have already been incurred. For example, if I was deciding whether or not to invest in my sisters Macrame business and I had an accountant make some recommendations for me and those recommendations cost me $100, I would not include that $100 in the costing for that project because I have already paid the fee regardless of whether I decide to invest in the project. I wonder if Martin will argue the same point or whether he will agree with my FINC19011 teacher and say that sunken costs are irrelevant.  

If a cost can be avoided by selecting one option over another, it would be considered a differential cost. A differential cost is a cost which is not common to all options. I struggle to think of an example of a differential cost in my sisters Macrame business. However, my Mum travels from her home in Cessnock each month to a wholesale cleaning product distributor in Newcastle. When deciding whether to purchase a new vacuum or mop next month, the cost of fuel to travel to Newcastle is common to both decisions so this cost would not be considered when deciding between the two options. However, the cost of biannual vacuum service will only be incurred if the decision to select the vacuum is taken. I don’t think that example quite hits the nail on the head but it is all I can come up with at this stage.  

In life we only have a restricted amount of time to accomplish everything we want to do. This idea keeps me up at night. The older I get the faster time seems to be ticking over. Why, as a society, are we not more concerned about our limited time? If we were told the world would end in 12 months, five years or even ten years, I am sure all of our resource would be dedicated to preventing imminent death. However, because we do not know when our time will be up, it is as if we do not have any sense of panic or urgency to get things done. I understand this is the same in business – time is a resource that is constantly depleting. Or is it? Just because we die does not mean that business’ die. Management is just handed onto the next in line. I am not exactly sure of the implications of this concept for business yet. 

Product mix decisions involve choosing which amounts of each product to produce or sell when a firm has limited inputs for both options. Martin’s process states that firms must discard any products which have a negative contribution margin and then rate the remaining product by their contribution margin. This makes me wonder why a firm would not just stock the one product with the largest contribution margin? Unless possibly they can produce up to the amount which there is demand for and then switch to the next highest rated product?  

Depending on the industry which a firm operates in and their products, some firm’s business requires large capital outlays whereas others only requires small capital investment. This makes me think of my friend who recently became a Tupperware consultant. She tried to convince me to become a consultant as well. However, after she explained that I would have to outlay over $1000 for my “kit”, it was a no for me. The kit is required to host parties as your kit is your demonstration products. For me, $1000 was a huge capital investment when I was only expected to make $30 – $50 per party. I thought to myself “what if I don’t make back the $1000, I have outlaid to start up”. In a previous chapter, Martin argued that the greater the fixed cost of a firm, the greater the risk involved. I wonder if it is similar for capital outlay. Is the greater the initial capital investment, the greater the risk? For example, if the Tupperware kit had only cost $100, I probably would have thought to myself “I will give it a go, all I can lose is $100”.  

Decisions about investments with high capital cost would be harder to make than investments with low capital costs. My partner and I are currently thinking about buying a bigger home before we have children. We keep going back and forth about whether it would be the right decision, or will we get ourselves to far in debt that we cannot manage. We are looking at purchase a home for around $650,000 – $750,000 and we will plan to live in this new home for the rest of our lives. I would consider this a long-term large capital investment decision. On the other hand, last year we purchased a jetski for $26,000 which we will probably keep for 3-5 years. This decision was an easier decision, we didn’t even really discuss it. We both knew we wanted the jetski and saved and bought it without too much consideration or worry. Whereas in regard to the purchase of a new home, we are constantly speaking to each other about, talking to our friend and colleagues for advice. I can understand why long-term capital investment decision are important and hard to make – because the risk and consequences can be so much greater.  

A dollar today is worth more than a dollar tomorrow because if you invested that dollar today, you could earn interest and it be worth more tomorrow (not much, but it would be). Another factor to be considered is that a dollar today is worth more than a dollar tomorrow because a dollar tomorrow will be “eaten away at” by inflation (very small amount of inflation, but inflation none the less). I have learned about this concept in FINC19011 as well. Before I was introduced to the time value of money, I had never thought of this concept. I thought it was ridiculous, a dollar is a dollar! But I have now come to realise I was wrong. My grandma does not trust the bank.  She has told me stories about when she was a young girl, her mother (my great grandma) went to the bank one day to get money and the bank was closed and did not re open. They could not access any of their money. And even when the bank did re open, they did not get their savings back. So, my grandma hides her money in old books. She has thousands of dollars stashed in books on her bookshelf. She has done this as long as can remember. If she had $10,000 in her books back when I was 10 (15 years ago) and she had invested it into the Goal Saver Bank Account Martin discusses, she would have $12,806 today. She should have kept it in the bank – but you can’t tell my grandma that!  

The payback period is a method used to asses an investment option. The quicker an investment option recoups the initial capital outlaid for the project, the less risky it is considered to be. For example, if I had of signed up to be a Tupperware consultant my initial investment would have been $1000. If I earned $30 per party and hosted 1 party per month, I would have made $360 per year. If I divide my initial investment by my annual cashflow (1000/360) I can calculate that it would take me 2.78 years to recoup my initial outlay meaning my payback period would be 2.78 years. I think 2.78 years is a lengthy amount of time to have to recoup my investment for a side hustle. Plus it means that I would have to work for 2.78 years before I could even start “making money”.  

NPV is a method of calculating the value which is added to a firm by accepting an investment opportunity or project. NPV provides a dollar figure calculated by discounting the future cash flows of the project. Reading about this I wonder where do you draw the line for future cashflow? Can’t an investment have unlimited future cashflows? Do you limit the cashflows to a certain time frame, such as the first five years? I look forward to seeing an example of this concept, I usually understand these concepts better once I have seen them demonstrated.  

The DCF method discounts future cash flows to appease the time value of money law. However, using the DCF method has one major drawback. Eventually all figures, no matter how large, if discounted far back enough will become nothing. This cannot be true I don’t believe; I don’t think that any amount of money can become nothing – Its value may become small but it must still have some value I would think.  

The “what the hell” decision in my experience is usually a risker decision but one I make with great optimism and bravery. I don’t think a have ever truly made a decision with complete disregard and I don’t think Marilyn Munroe did either. I think saying “What the hell” just makes us braver to make decisions we have weighed up, stewed over and contemplated. Most of my “what the hell” decision have been me “following my heart” rather than my “head”. Saying “what the hell” is like giving myself permission to be a little bit reckless. I can’t imagine a manager being even a little bit reckless in business. Although, at my work we do have one landlord who is a self-made millionaire, with over 40 investment properties. My boss always says this landlord “had the balls to take a risk and it paid off”. Maybe the most successful business people, have been the bravest? Maybe you only really ever get ahead by making the decisions everyone else was too scared to make?  

No decision is ever just about the numbers because in the foundations of firms are people. People with emotions who sometimes “follow their heart” or their “gut”. While accounting can give managers of a firm all the support and facts, they need to make a decision, the numbers cannot make the decision for the manager. I wonder if I will be good at making business decisions? I hope so.  

Managers in a firm create the pathway for employees and others within a firm to achieve the company’s goal and dreams. Managers need to make the plan of attack (or action) which others can follow. The managers within a firm also need to relay this plan of attack to others within a firm, there is no use deciding on a course of action unless others within the firm understand and can carry out the actions. When I read this concept I automatically think back to when I was playing sports under the direction of a coach. When I was playing representative Basketball in high school, my coach would come to training each week with new plays to run in order for us to score. My coach would carry out demonstrations or draw the plays on a whiteboard in order to communicate the plan, similarly to how Martin describes managers helping others to contribute to their plans. Each player on my team had a role to play to contribute to scoring a basket. Martins writing does make me wonder about managers in my current workplace. Is strange that my mind automatically went to my past basketball coach rather than the manager at my current workplace? I believe it takes a certain person or personality to be a manager and there is plenty of people in the real world who are in management positions who are not effective managers as Martin describes.  

Without taking the first step, no one will ever achieve anything. It takes one step in the right direction to begin any journey to desired destination. I could not connect with this concept any more if I tried. I tell myself this every day. When my house needs cleaning, I tell myself just start with one small thing such as dusting and before I know it the whole house is clean. It is often the first step which is the hardest step. Beginning a task is always the hardest part, but when you look back to where you started it is amazing to see how far you have come. I did not want to write these KCQs tonight. When I got home from work, I procrastinated and fiddled around for an hour before I finally sat down to start. Although now that I have taken the first step and written my first paragraph the task already seems easier.  

Budgets are a method of ensuring the short-term delivery of a managers plans and can help managers predict or foresee the future of their firm. Budgets keep people in all sections of a firm accountable for their actions and can be used easily to measure the success or failure of management. I use budgeting each day. I have an allowance for mortgage repayments, groceries, recreation, fuel etc from my weekly wage. I also use budgeting as a tool to be able to plan when I will be able to purchase something in the future. For example, I often calculate how much I would need to save each week and for how many weeks I will need to save in order to have a certain amount accumulated to book a holiday. Martin is asking if budgeting can help or hinder a firm and I cannot see why it would do anything other than help. How could budgeting hinder a firm? Unless the budget is too tight or too lax.  

Budgets can also be effective in assigning certain responsibilities within a firm to certain individuals or departments. I struggle to find an example of this in my world. Possibly could this mean that if I budgeted $200 into my partners weekly wage for groceries that he would be responsible for the weekly shop? Wouldn’t it be nice if it was that easy to have my partner do the groceries?  

Managers need to delegate tasks in all sizes of firms in order for the firm to operate effectively. Particularly within larger firm managers need to delegate responsibility and decision making to others because they can only be in so many places at once and complete as much work as their time permits. At this stage I am unsure of how delegating can be made easier using budgeting. However, in my workplace I hear employees talking about “micromanagement” a lot. The manager at my workplace appears to always be flat out busy while other staff members are twiddling their thumbs and asking for work to do. And I often hear whispers that the manager checks the work of other so closely that the manager may as well do it themselves. I think this is an example of where delegation could be effective and would help our business excel. 

Budgets can also assist with keeping people motivated. I am not sure of an example of how this would happen within a firm. However, I do understand that I am motivated to complete my degree so I can work a higher paying job and intern our household budget will not so tight.  

When Martin was telling the story of the baggage claim target, I was racking my brain trying to come up with a reason why the first bag was rushed through to the carousel. I had nothing, not a single idea which make me frustrated and I wonder if maybe I am not thinking with my accounting or business hat on? Could Martin find the answer to that wonder because of experience or just because he is better than most people when it comes to accounting and business? Will I ever be able to think like Martin? This story also makes me wonder how often or how many times does a manager usually have to adjust a budget or target before getting it correct? It is usually for a manager to make 2 or 3 adjustments to a budget before getting it right? 

Participative budgeting involves lower level managers and staff to assist in budgeting because they are in the heart of the business and understanding the operations within a business often better than a high level manager who may be sitting in an office far away from the center of the business who is out of touch with the realities the business faces. I work at Ray White Singleton. Ray White Group is one of the largest real estate brands in Australia and has hundreds of offices across the country. We hate Ray White Corporate. I know that sounds awful, but it is warranted. Almost every decision that Corporate makes seems to be trying to hinder our small country town business. Corporate makes decisions for city offices. For example, something as simple as uniforms is a problem. Corporate have recently released a new range of uniforms that look high end and overly professional. Women are expected to wear heels, men are expected to where tight-fitting dress pants which would work fine in the city where most properties are apartments. However, in the country we can sell irrigation or cattle farms and it is difficult to do a walk over of 100 acres plus property in high heels. Ray White Corporate do not understand this because they are in air-conditioned offices rather than on the ground. If we were offered participation in this decision, would we not be making complaints like we currently are? Could participation have avoided many of the “fires” corporate have to put out? 

When I read the quote from Henry Ford it makes me think he must have been an excellent manager and “budgeter”. I recently read that when Henry Ford change to the production line he was losing staff quicker than he could hire them because many employees found it boring to complete the same one task over and over again and went to work for competitors. Henry Fords response to this was to double, yes double, his employees’ wages. This meant that he retained his staff. When I first read about this, I couldn’t believe it, however I suppose that Henry Ford calculated that the cost of hiring and training employees over and over again was higher than that of the doubled wages. I believe this is a perfect example of effective budgeting and his words “keeping together is progress” may even be about that decision.  

A cash budget outlines the cash inflows and outflows of a firm and only records transactions when cash is received not when products are handed over to customers or retailers. The net cashflow is the figure on a cash budget that is calculated by deducting the cash outflows from the inflows. Does this mean the firms profit or loss?  

Head room is like wiggle room, it means allowing space for our budget to be a little bit “off”. Having head room in a budget ensures we account for any inaccuracies or unexpectant issues in our budget. This is a necessity because no one can predict the future exactly and a budget is rarely going to be exact. The question is, is there a guide on how much head room you should allow in a budget? Maybe a percentage allowed?  

A firm’s cash budget and budgeted income statement may tell us two different stories because the firm may pay for expenses at different times to when the expense happens and similarly a firm may receive cash at a different time to when a sale is made. I recall Martin discussing a similar concept to this in a previous Chapter where he used the example of utility bills. A firm uses electricity each day but will not be charged for electricity until the end of the quarter. Therefore, the expense is recorded at a different time (end of quarter) to when the expenses is incurred (throughout the entire quarter). I hope that this is a correct interpretation of this concept because other than this I do not have any other ideas of what this concept could look like in real terms.  

Surprises occur in business because business require people to operate and people are free willed and can sometimes make unpredict choices. I wonder if accounting can really help businesses navigate, overcome or enhance these surprises, depending on whether they are good or bad? I can think of plenty of bad surprises in business, but struggle to think of many good surprises? Maybe that is because we always hope for the best outcome, so we find shortfalls more common? 

Once a firm’s business realities have been consolidated into a budget it is easier to evaluate the risks a business is exposed to and the outcomes of changes in business. This is because we can adjust the numbers to reflect the “what ifs”. What if our sales dropped by 10%? What if the price of raw material increased by $8? By inputting varying numbers into our budget or spreadsheet we can see the volatility of sections of our business as well as the largest risks.  

If a manager does not keep employees accountable for their performance, staff can begin to believe that the firm “owes them” something. Rather than the idea that they are there to contribute to achieve the goals of the firm. I think I can see this in my workplace. When I worked for Flight Centre a few years ago, I was held accountable to my KPIs and sales targets. We also had the idea of “cost of seat”. My cost of seat was $8,000.00 per month which meant it cost Flight Centre that amount to have me employed there (cost of seat consisted of my wage, store overheads etc). Each month I knew I needed to make $8,000.00 to break even for Flight Centre. I think this kept me humble and focused. I felt like I owed Flight Centre rather than they owed me. Whereas, now I do not have any performance reviews or targets or KPIs. And I must admit, I often find myself with a bad attitude where I slack off and think “well they don’t pay me enough anyway so I can take back some time”. That must sound awful to read, I know. Unrelated, I think a huge key takeaway from this course for me has been that I am learning to challenge my own ideologies and change my mindset about my situation. Maybe I am changing as a person? Even if that is the one I have achieved from this course then it will still be 12 weeks well spent.  

I began with my Statement of Changes in Equity as the video Maria has provided was the shortest and I though it would be best to build my confidence up slowly rather than diving into the harder statements, particularly the Income Statement which I had heard other students were having difficulty with.  

When it came to separating my items into Comprehensive Income into Operarting and Financing I was very lucky as most of the items I had, Maria also had. Some items seemed obvious to me such as items surrounding tax. However I did struggle with items relating to “Joint ventures or associates”. I originally classified these items as Operating, however after discussions with one of my peers, Amanda Noyle, I decided to allocate these items to Financing. As Amanda pointed out to me my company’s financial statements (under a note) outline that “Group revenue represents interest income from loans granted to joint ventures and associates, dividends from other financial assets”. I understand this to mean that the income has been generated from the interest the company earns from loans they have granted – meaning this would be financial. 

I found it useful to visit the group Facebook page and type in part of the name of items on my spreadsheet and read about what past and current students have allocated similarly names items to and their reason for doing so.  

I was nervous about the linking Maria emphasised we had to do, but it was easier than I expected. I have learned lots of new excel skills while restating the financial statements. I learned how to use the Format Painter button which has proved to make it much quicker to format my financial statements.  

The Statement of Changes in Equity took me about an hour to complete and I was feeling reasonably confident by the end of it. However, I think I could have used Martin’s study guide more to help me categories items. My biggest challenge was interpreting the notes associated with the items. Finding the notes was easy, but making sense of them was hard. I found myself saying in frustration “Ok but is it Operating or Financing?” after reading the notes a lot.  

Next I tackled the Balance Sheet. Again, some items here were easy to separate. I had a few items which actually said “financial” or “bank” in their name. I also started to notice a connection to a couple of items on the SOCIE which made it easier to separate. For example, I noted that “Remeasurement of net defined benefit asset/liability” on the SOCIE and “Employee retirement benefit asset” on the Balance Sheet were related so I assigned them to the same category being Operating.  

On problem I had with the Balance Sheet was that when I used Maria’s checks (OA + FA = Total Assets in original Balance Sheet and OL + FL = Total Liabilities in original Balance Sheet) I noticed that I did not have a row for either total on my original Balance Sheet. I tried adding the row and using formulae (=D49+D53 for 2018 for example) but it was putting other figures out of whack in the spreadsheet (because of other formulae I had put in different places). I spent about an hour trying to solve this problem before deciding against changing my original Balance Sheet to make it easier to perform the checks. I received full marks for my original Balance Sheet so I thought it must not be too important and my time could be better spent working on my restated Income Statement. I know that Maria and any of the other teachers would probably look at this and work it out in less than a minute, but I just could not fix it. I think this demonstrates my “developing” excel skills.  

When I completed the Income Statement, I was surprised I did not have much trouble. I had a few equations/totals incorrect which made me scratch my head until I figured them out though mostly because I was using a + where it needed a – (Because I had NFI). I was unsure whether I was completing the tax section correctly because my percentages of cash out of operational revenue were so large and Maria’s were not. However, once I started looking at other students work I noticed some were also the same. I asked a couple of peers what they thought and they said it looked fine.  

Once I was finished my first draft, I uploaded it to my blog and shared the link to Facebook. When I received my feedback from Becx Bamford she pointed out I had a discrepancy in my Balance Sheet when she did the checks. I had to print out the restated and original and sit down and cross items off one by one until I found that I had left off “Interest in Leasehold Land for own use under finance leases”. Once I added this into my restated Balance sheet everything balanced again.  

I completed my Restated Financial Statements around New Year and then did not look at them for a week or so. I wanted to check them with fresh eyes so as I was completing a feedback form for another student, I completed a feedback form for myself as well. I used all the checks Maria suggested and as far as I can tell everything is balancing.  

Overall, I found this assessment very challenging. A few times I sat down to work on it and if I was not in the right headspace, I was useless. I needed to be 100% focused to work on it. I was a nervous wreck the final time I completed all the checks, I was so terrified I was going to find a mistake and have to start again because I couldn’t remember why or how I did something. However, once I was “in the zone” and achieving progress I really enjoyed it. A few times I sat down in the morning to work on it and it was lunchtime before I knew it.  

Costs are a necessary part of business and include and outlay of value from a business. Generally, the outlay is being exchanged for revenue or something else larger than the outlay made. Otherwise a firm will not last in business very long because they will not be making profit and will probably be operating at a loss. I understand this basic definition of costs, it seems quite straightforward. I know that at my workplace there is cost which are unavoidable or necessary to sell houses (such as an advertising listing on realestate.com.au). Although as I read the Study Guide, Martin describes that it can be quite difficult for managers within a firm to fully understand their costs. I wonder if this could be because the costs are so large, they are hard to grasp? Or for what other reason could it be hard to understand costs?  

Cost objects are categories in which costs can be allocated to in order to understand overall firm costs easier. I assume this is similar to how we separated expenses on our restated financial statements into operating and finance. Cost object sound like they are large bins which we dump certain costs into, which seems straightforward. I have noticed the financial statements for my company do not list cost in their most basic form such as rent or utilities so possibly could these cost objects be the categories which are displayed on the company’s financial statements? The Study Guide implies that it is trickier than that which makes me anxious. Throughout this course there have been many concepts that have seemed “easy” when I have read about them, but the proved to be frustrating and complicated when I have tried to put them into practice, particularly when completing my company spreadsheet. 

A cost object can be any activity or item of a business. From the Study Guide it sounds like a cost object can be absolutely anything. I work at Ray White Singleton and I imagine the cost object could be a property we have listed for sale. For example, the cost object would be 64 Dangar Road, Singleton and I think the costs that would be allocated to that property (cost object) would be the marketing expenses such as online advertising on realestate.com.au, signboard, vendor gifts. I wonder if I would even allocate something as small as the ink which is used to print the brochures and window display. Or if something like ink would fall into a different cost object such as stationary? Now I am starting to see how there could be many blurred lines when it comes to cost objects. 

Costs object can be products and because products usually take some time to be produced or sell, it is common for a firm to have an inventory of uncompleted products or materials. It is important consider both the cost of these products as well as the possible revenue in a period because if we only considered the cost, we would be understating the firms value. And the reverse can happen if a product is sold in a period which the costs of producing the product were not incurred. To avoid under/over stating a firm’s value, the inventories must be valued. I wonder what happens if the products never sell? When would the costs be considered? I have seen on my company’s financial statements that there are some items listed which say “will not be allocated to profit and loss” or “will be allocated to profit and loss” and I wonder if eventually a product did not less would it be “allocated to loss”? 

Direct costs are costs which are easily and clearly allocated to a cost object. I will use my above-mentioned example again to explain. An advertisement on realestate.com.au for 64 Dangar Road, Singleton would be a direct cost for that cost object (being the property) as the entire amount of outlay is directly spent to assist in the selling of that property. However, coming back to my question about the ink that is used to produce brochures and window cards – I believe this would be an indirect cost because while a small portion of the ink may be used for this cost object, the entire ink cartridge will not be used for this single cost object. Some of the remaining ink in the cartridge could be used to print employee pay slips which is completely unrelated to the subject cost object. Also, when my boss speaks about our overheads, he talks about rent, internet, phones and “office expenses” which includes ink as well as other stationary because he considers this his fixed costs. Whether we list 64 Dangar Road, Singleton (cost object) for sale or not, he still must pay our overheads including the ink as we will need it to print other things. I really hope my understanding of this is heading in the right direction. 

There is a difference between services and products. Products are the physical item provided to a consumer while service is the act of providing something to a customer. I understand the example in the Study Guide about a meal being a product and the waitress providing a service but it has got me wondering about where you draw the line. For example, my Mum worked at the King Gee factory when it was still operating in Australia. I would consider this a manufacturing/product industry with the products being apparel. However, was my Mum providing a service by sewing the apparel? Is this not considered a service because she does not have a direct connection with the consumer? Whereas a retail assistant in a store which sells the clothing would have a direct connection to the consumer, therefore rendering that a service? Similarly, when a dressmaker creates a dress for a customer, I would consider this a service and product transaction, and it is very similar to my Mum working at King Gee but I have a feeling my Mum is not going to be considered providing a service. 

Apportioning of indirect costs is a method used to allocate certain amounts of overhead outlays to particular sections of the business. Other than the example Martin uses in the Study Guide about apportioning costs to departments based on how many staff were in the department, I am struggling to think of another way which indirect costs could be apportioned. I also think it would be hard to create “equal” cost objects and by this, would it be “correct” to have one cost object as a department and another as a process (like mixing in Cadbury case)? Rather than having two “comparable” cost objects being two staff departments. Do the cost objects need to have the same features?  

Fixed costs are cost that remain the same for a firm even when production rises or falls. For example, a coffee shops rent will remain the same regardless of how many coffees it sells. Variable costs are costs which increase or decrease depending on the level of sales/products. For the coffee shop, coffee cups would be a variable cost because this cost increases as more coffees are sold. I have also learned about fixed and variable costs in ECON11026 and I think I have a fairly good grasp on it so I am not too concerned about this concept.  

Martin argues that each time a firm does something a cost is incurred. I can understand this concept is quite true. For example, everything I can think of that I do at work costs, such as using the computer (cost of internet), going to an inspection (cost of petrol) and answering the phone (cost of phone bill). However, it does make me wonder if when an item is sold, that particular transaction does not cost anything? I mean the production of the product does, yes, but the act of selling the product does not? Although I suppose this is probably not true because when and the item is sold it must be paid for. It could be paid for on the eftpos machine and that costs money to operate (electricity and internet connection). Therefore, I would have to say I agree with Martin – everything a firm does costs. 

The higher the fixed costs of an operation are, in relation to the variable cost, the higher the operational risk is. I understand this means that activities that incur large overheads are riskier because there is more pressure on the level of output of the product to cover the fixed costs of the operation. For example, my Sister creates beautiful macramé wall hangings and sells them. She had two options when she started this venture– open a store in town to sell the wall hangings or sell the wall hangings on Etsy. If she went with the first option, she would have large fixed costs being rent and utilities. However, she went with the second option because it has low fixed costs (well essentially it has no fixed costs). The only cost she incurs is the cost of materials (variable) if she sells a wall hanging. This was a far safer option for her because if she does not sell any wall hangings, she does not incur any costs (she makes the wall hangings as they are ordered). 

The break-even point is the point at which total revenue is equal to total costs. I think of a firm being at break-even point kind of like a car being in neutral. If the firm was above break-even then the car would be in drive and if the firm was below break-even the car would be in reverse. For my example about my sister and her wall hangings, I think her break-even point would be when she sells a wall hanging for the exact price it cost her to purchase the materials plus her time spent making the wall hanging. If the cost of the materials was $60 on string and $20 on timber, plus her time spent was 5 hours (she values her time at $20 per hour, so 5 x 20 = $100) she would need to sell the wall hanging for $180 to break-even.  

I have had less questions about this Study Guide chapter than previous chapters – which I hope means I am gaining a better understanding of this course. I also think that the other two subject I am studying this semester (ECON11026 and FINC19011) have a significant amount of cross over with concepts explored so this may be helping me as well. After reading this chapter I am looking forward to continuing in this course… but mostly I am craving Cadbury chocolate.  

Please click the following link to access my Spreadsheet. All feedback will be greatly appreciated.

The first concept I can identify is the understanding that history will provide a better understanding of the future. I imagine reviewing history is the main way in which a firm’s shares can be valued or priced because we cannot predict what will happen in the future. Investors can look at the past performance of a firm to decide whether it is a good investment or not. I think this makes sense because I continue to go back to the same hairdresser and mechanic because they have provided a good service in the past. In doing this, I am banking on the fact that because they did a good job last time, they will do a good job in the future. However, I believe that history should only be used for consideration, not to base an entire decision on because if we only used the past to make decisions about the future then I feel as though we would never progress forward with innovation and technology. I think it is also important to be able to think beyond what has happened in the past.  

I understand that adding value and transferring value are two concepts that can easily be confused.  Within a firm, free cash flow and paying shareholders dividends are examples of transferring value because these actions are not creating any extra value for the firm. Whereas, adding value can be achieved by investing in capital assets which generate more income than what was spent to establish them. Why do we bother to look at cash flow statements then? Wouldn’t it just be like looking at my bank accounts and seeing me transferring money to and from my own accounts? What is the point? 

Martins states “To understand the value of the equity of a firm we need to engage with the economic and business realities of a firm that are driving the creation of value by the firm for its equity investors” and I need to break it down to relay in my own words. Therefore, the value of equity means the share price. The economic and business realities is a concept I am still struggling with. Does this refer to things which are happening within a business, positive and negative. Like the actions of a business? Driving the creation of value means increasing the share price for the shareholders. So, if I put this all together in my own words – To price a share, we need to identify how the actions of a firm will affect the price of the firms share for the shareholders. My statement is not as easy to follow as Martins which is frustrating. This concept is difficult to articulate in my own words. At my workplace, management recently terminated a property manager (action) and now the department is understaffed. This has meant that there is no one in the department arranging maintenance which has upset the landlords of many of our managed properties. We have lost several managements over the last month. I think that terminating an employee and then being understaffed is a business reality which has led to lost managements. Loosing managements means our business is not generating as much income. Therefore, if investors could purchase shares in our business, I believe the share price would have dropped as a direct result from termination the property manager. This example does not explore creating wealth. It explores losing it, but I still think it is applicable. 

I am comfortable with the concept of opportunity cost which I believe is an implicit cost. The opportunity cost of any investment or activity is the highest valued alternative option that has to be sacrificed. It is an implicit cost because it does not cost physical money (like an electricity bill), but rather it costs the company the possible income from investing the capital in some other option. For example, I started studying at 5am this morning instead of sleeping in until 8am. My opportunity cost is the 3 hours of sleep I sacrificed. Would I have been more productive because I am less tired during the day if I slept in for an extra 3 hours? The benefits and drawbacks need to be compared in order to make a decision which minimises opportunity cost. I like the concept of opportunity cost because I often use pros and cons list when making a decision. In the cons list I always write down what I “miss out on” by choosing a different option/decision. So without realising it, I think I have been considering my opportunity costs.  

Economic profit and accounting profit vary in definition. Accounting profit comprises of all explicit costs, whereas, economic profit comprises of all explicit and implicit cost (including opportunity cost). I learned about this concept in ECON11026. However, in ECON11026, we learned that Accounting only considers explicit cost (hence the term accounting profit) but now I am learning about opportunity costs in this course I am wondering if that was false information. Does accounting also consider economic costs? How much of economics is considering in accounting? I really hope that economics is not that important in accounting because I find ECON11026 really difficult compared to this course. 

It is easier to find the key accounting drivers of economic profit and cashflow by restating a company’s financial statements. When the company’s financial statements are separated into two categories, financial activity and the operating activity, we can focus on and interpret the operating activities easier. I remember Martin discussing that a company may try to hide information within their financial statements and when I first read about re stating financial statements, I thought to myself what is the point? However, reading this chapter, I now understand we are re stating the financial statements to “strip away” the excess information to get down to the “juicy” information. We are discovering the truth of the company’s business realities.  

How does a company decide how much and when to pay investors dividends? This is a question that keeps popping into my head over the last few weeks of this course. Is there some sort of equation or guide? I hope this question will be answered throughout this course.  

Cash in a balance sheet is a harder item to categorise as either a financial or operating asset. If the cash is held in the till or as an overdraw facility at the bank, it is considered an operating asset. Whereas, if the cash is held in a bank account, the cash is considered a financial asset. I hope I have this concept explained correctly. After reading Martin’s example I can relate because I have an spending account with a visa card attached to it which I use for day to day expenses such as groceries, this would be my operating cash. I also have a saving account which I let accumulate and earn interest, this would be my financial cash.  

Profitable is the amount of money made by a company for each dollar of sales. Efficiency is the amount of sales the company can make for each dollar the company has invested in its business. These two items must be considered together because there is no point being profitable if the company is not efficient and vice versa. This concept raises the question whether it is better to produce or service with a high profit margin but low sales or to mass produce or service but at a low profit margin. I understand the difference between these two concepts as well as the relationship between them. For example, in my workplace we could charge a higher commission fee of 3.3% on all sales but when there are other agents in the area charging only 2.8%, we would only be likely to list one or two properties per month. If we sold two homes per month (at $400,000.00 for argument sake) we would receive $26,400.00 in commission. In this situation our profitability is high but our efficiency is low. Whereas, if we only charged 1% commission, we would be likely to list 10 houses per month. If we sold 10 houses in the month, we would receive $40,000.00 in commission. In this situation we would be highly efficient but not as profitable. It would be important to find the right balance between profitability and efficiency.  

After reading this chapter, I am feeling slightly overwhelmed by the concept of restating the financial statements. So far, I have not had to review any of the Study Guide chapters after I read them the first time, however I think I will certainly be revisiting this chapter while re stating my company’s financial statements. Although anxious, I am also excited to re state the financial statement to find out if there really are hidden truths to find in the statements.  

Step 5 – Chapter 2 KCQs:  

From my reading of Chapter 2, I understand banks have the power to request financial information when they are deciding whether to lend a firm money or not. This makes complete sense to me because I work in real estate and when a prospective tenant applies for a rental property, we request a copy of the individuals pay slips to ensure they can afford the rent. I believe this process is a smaller scale example of what banks do when firms apply for loans.  

I find it slightly strange that financial institutions, such as banks, have the authority to request financial information from firms. However, there is more restrictions on what information the shareholders can request (when the shareholders own the company). Even though the shareholders may only own a small portion of the firm, I think they should be able to access whatever information they would like, whenever they would like. I feel as though I would want this right.  

This chapter discusses whether accounting is a game. By asking this question, I think Martin is conveying that the figures within financial reports can be presented in certain ways to make the overall position of the firm appear more positive. He uses the word “manipulate” which makes feel suspicious and dubious of accountants. Last year at tax time, my Dad estimated his tax return on the MyTax website at approximately $500 which he was not happy with. So, he went to see the accountant – He received a tax return of over $3,000. At the time I remember thinking that the accountant must have been doing something “dodgy” because that is a huge difference. But after reading this chapter, maybe it is isn’t that my Dad’s accountant is “dodgy” but rather she is very good at “playing the game”.   

I was surprised to learn that not all firms are required to produce financial information. Additionally, only those who produce general purpose financial reports are subject to legislation and requirements outlined in this chapter. However, upon reflection, I realised that my workplace does not produce any financial reports even though it is set up as a company. I wonder if Ray White Corporate produces these reports? I wonder if Ray White Corporate is the right “type” and “size” to be required to produce conforming reports.  

Martin argues that there is not a rule for everything in accounting. I understand this to mean that, like in the real world, sometimes you have to make a judgement call about an issue because there is no specific written rule about it. Just like in life, there is too many possibilities and outcomes to make a straight down the line rule for everything. I don’t love this concept. I think it would be far easier if there was a rule for everything, or at least a guideline for everything. I also think this about life, I ask almost every person I meet “What is one piece of advice you would give to your younger self?”. Respondents often answers this question with their “rule” of life. I could struggle with not having a set of clear rules for everything. 

Real learning is hard to put into my own words. I suppose, I would consider I really learned something if I used in in everyday life. I am not sure if that description correctly defines real learning because I struggle to think of an example relevant to myself. I need to think on this concept more.  

Martin says that billions of people would kill to study at university. I love this statement because I know it is true and it is a reality check for myself. This morning my alarm went off at 5am so I could get to work by 5:30am and complete this step before I start at 9am. Even though I was tired and cranky when I woke up I tried to adjust my attitude because I know that I am lucky to have the opportunity to study when so many others don’t. I know I need to maintain this mindset if I am going to make it through the next few years of studying and working.  

My understanding of accrual accounting is that business activities are recorded in financial reports when the activities or services takes place rather than when the firm is paid for the activity or service. This is important because if a “snapshot” of a firm was taken on one particular day of the year and accrual accounting was not employed the firm may not appear as though they are performing as well as which they are. My mum runs her own cleaning business, and she is paid for most jobs at the end of the month. I know she usually spends less money in the middle of the month than the beginning/end of the month because she has less cashflow then. If I took a snapshot of her business on the 15^th day of the month I am sure it would not look as healthy as if I took a snapshot of her business on the 30^th day of the month. I think this is a situation where accrual accounting would be helpful if applied. Without it, her business would appear to be performing under its reality at the middle of the month, and over its reality at the end of the month.  

Materiality is a concept I feel familiar with. To me, material facts are information that need to be disclosed to someone in order for them to make an informed judgement about something. In accounting, what would be an example of this? At my work when a client lists their house on the market for sale with us we require them to sign a material fact disclosure. On this form they need to list anything they think could be a material fact such as previous termite activity or violent crimes committed at the property. Is it the accountant’s responsibility to disclose material facts or the client?  

Step 5 – Chapter 3 (Sections 3.1 & 3.2) KCQs:  

In this chapter I learned firms can design their financial reports to their own liking, meaning again that there are no specific rules. I feel as though it would make it far easier for investors to compare investment options if all firms statements were uniform. That way an investor could put the two sets of reports for two different firms next to each other and clearly see the differences between the two firms. Why couldn’t a governing body make this a rule? It would be far easier.  

Glossy photos and lots of words? That is not how I was imagining the financial reports in my mind. I imagined them to be pages of numbers in black and white size 11 script. Instead the reports are used as a sneaky marketing tool to engage prospective investors and, again, positively morph the business realities of the firm.  

When I read about the balance sheet, it sounds like the “snapshot” I was referring to earlier. It communicates the position of the business on one day of the year. Why wouldn’t a firm choose their best day of the year? Maybe they do? The balance sheet provides three of the five accounting elements – assets, liabilities and equity.   

The Study Guide states that the balance sheet will show the information for a group of companies controlled by the parent company. I think this would mean that my company, Power Assets, will have shares in smaller companies and that all these smaller companies plus Power Assets (Parent) will be included in the balance sheet. This could make it trickier than I thought.  

I am looking forward to learning more about the four general purpose financial statements because I believe it will be easier to identify and understand these statements for my own company if I have already learned what to look for and how to read them. 

Please click the following link to access my Spreadsheet. All feedback will be greatly appreciated.

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Studiosity has already made me feel much more confident in my own work. At first, I had some problems logging in and thought it was going to be more hassle than what it is worth. However, once I logged in I realised what a wonderful service it is. I submitted my assessment and had it back within a couple of hours.  

As expected, most of my areas to improve were in spelling and grammar. I usually have someone at work read the majority of my assessments before I submit them to check spelling and grammar. Studiosity will be useful in the future as I will not have to hassle anyone at work to check my assessment and I can also be confident in the person checking them.  

I notice that the feedback does not give the answers but points you in the right direction. For example, one of my comments was “This is not spelt correctly. Please double-check the spelling.”, so instead of providing the correct spelling, the author just points out the mistake but leaves the correction to myself. I wish they would just tell me the answers – but then again how would I learn and the focus of this unit is effective learning.  

I tend to lose focus when I am writing, especially when it is my own thoughts. My mind can be manic at times and this can be reflected in my writing. Similarly, when I am telling someone a story I deviate from the storyline and get lost. Studiosity was fantastic in pointing out to me where I was doing this in my KCQs, it pinpointed the areas where I needed to be more concise which was very helpful.  

The only negative I can find to Studiosity is that it appears I only have 320 minutes per month and I plan to use it for all assessments for all units from now on so hopefully 320 mins is enough. I wish I had known about Studiosity last semester.