MGMT210 Financial Accounting01 : Solution Essays

Question:

I have no idea as to how we could buy it. I know I’m not able to raise any more money, how about you?

Wren Getting our business up and running has me tapped out.

Where do we go to get funds for a business? Will banks look at us as though we’re crazy if we approach them about expanding with helicopter service?

Do you know any bankers? Any that use the FBO maybe?

We could think about finding another investor and sharing some of the ownership.

My friend, Rick, says we could probably get this Raven R44 for about $148,000, and the name fits right in with BluJay, don’t you think?

 

Answer:

Based on discussions on episode 6, it can be said that an opportunity has arisen at the airport. Management of the firm can consider either leasing or selling the gift shop after consideration of the pros and cons that includes various stuff. As selling can bring about immediate inflow of cash, invest in capital wherever the firm is more efficient and eliminate distraction as well as risk (Van der Stede, 2017). On the other hand, leasing the gift shop can help in retention for particularly reaping appreciation of land in case if the combination of lease disbursement and increase in value of land surpasses cost of capital. However, it is evident from conversation between Wren and Brad that management is unaware of purchasing and selling inventory. In case of lease, there is no need to make disbursements to the prior company for the inventory as it is particularly on credit and is not paid. In this case, there is necessity to make payments to the creditors.  

 

A conversation was carried out to enhance flow of cash and to discuss about valuation of accounts receivable of the firm. Founded on conversation carried out between Wren and Brad, cash position and customer collection can be understood at particularly Eagle One’s FBO Office. The identified issue is that although the company is generating profit, the company runs short of cash. Part of the difficulty is acquiring cash from clients. However, clients can be believed to be quite steady based on their past track records of repayment of bills. In addition to this, people also get quite worried about realtors, business is very slow and housing market is still in chuck around here (Van der Stede, 2017). However, knowledge regarding the market says that some of the clients of the business will not make payments. Therefore, business is said to suffer from non-payment of bills. Also, there is need for speeding up the process of payment otherwise a necessity to carry out a change in the policy of billing. In this regard, it can be said that management need to appoint an appropriate negotiator who can aggravate the collection process. Again, there is need to follow up with the entrepreneurs and do not allow customers to slide (McLaren et al., 2016). This is because people do not want to confront otherwise offend else wise it is because people are too busy to monitor receivables. In this connection it can be said that management can also initiate by sending a reminder letter stating about the outstanding bills.

The eighth episode conversation makes approximations regarding estimated economic life of the aircraft. According to their conversation, some of the accounting stuff is going to be interesting as there is lot of depreciation. Management is of the view that there is need for enhancement of bottom line by altering estimated life of aircraft.  Also, estimated life of around 15 years was decided although it was just an approximation (Wouters & Kirchberger, 2015). However, this can be considered to be an appropriate approximation. Nevertheless, by altering minds and extending overall life to approximately 20 years, firm’s profit is anticipated to grow. Management can think about considering an alternative to process of capital expenditure. There are pros as well as cons of this alternative. Revision of useful life affects financial statements. In essence, useful life revision is principally accounted for prospectively (Maas et al., 2016). The alteration in approximation is reported in the present as well as prospective periods. Due to change in estimated life, the effect can be seen in depreciation expends, accumulated depreciation and book value of fixed assets (McLaren et al., 2016). Again, income statement also gets affected and this exerts influence on expends of depreciation and net income. The alteration in useful approximation can lead to change in income.

Based on scene of episode eight it can be said that there is yet another opportunity for growth that has stemmed for the company BluJAy Aviation. The corporation is in need of advice from business consulting regarding decisions of purchasing a helicopter. There is need to understand ways of financing this purchase and this can be done either by means of borrowing or else by obtaining new financiers (Lopez-Valeiras et al., 2015). The management can consider both advantages as well as disadvantages of both the options of financing. Borrowing money for financing the purchase of helicopter can prove to be beneficial as this can help in attainment of growth. Essentially, offering a particular building or else assets as security can help in getting low rate of interest. Again, borrowing can help in acquiring more freedom as there is no pressure of particularly owing someone principle as well as interest. However, financing by borrowed money can lead to disadvantage of limitations of cash flow. Investors also have a vested interest in the success of the business (Hopper & Bui, 2016). Particularly, outside financiers expect the said business to deliver specific value, assisting in exploring as well as executing particular ideas. However, taking into account the current business needs, borrowed money can be selected as the source of finance for financing the purchase of helicopter.

 

Reference

Hopper, T., & Bui, B. (2016). Has management accounting research been critical?. Management Accounting Research, 31, 10-30.

Lopez-Valeiras, E., Gomez-Conde, J., & Naranjo-Gil, D. (2015). Sustainable innovation, management accounting and control systems, and international performance. Sustainability, 7(3), 3479-3492.

Maas, K., Schaltegger, S., & Crutzen, N. (2016). Integrating corporate sustainability assessment, management accounting, control, and reporting. Journal of Cleaner Production, 136, 237-248.

McLaren, J., Appleyard, T., & Mitchell, F. (2016). The rise and fall of management accounting systems: A case study investigation of EVA™. The British Accounting Review, 48(3), 341-358.

Van der Stede, W. A. (2017). “Global” management accounting research: some reflections. Journal of International Accounting Research, 16(2), 1-8.

Wouters, M., & Kirchberger, M. A. (2015). Customer value propositions as interorganizational management accounting to support customer collaboration. Industrial Marketing Management, 46, 54-67.

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