You are a recently qualified accountant and have accepted a job as financial controller for a well established family business which supplies equipment to photographers, both by mail order

Question 1

You are a recently qualified accountant and have accepted a job as financial controller for a well established family business which supplies equipment to photographers, both by mail order

and from its warehouse outlet. Its customers range from enthusiastic amateurs through to part-

time professionals and owners of busy studios.

The customers’ payment methods reflect their diversity. There are credit card transactions and customers with 30-day credit business accounts. There is also a surprisingly large number of customers who collect their goods from the warehouse and pay in cash. You are

told that cash payment probably reflects the nature of the customers’ own receipts, as some photographers will often be paid in cash for weekend wedding assignments.

In your first week at the company, the sales director (the principal shareholder’s son) brings to you a cheque in settlement of the account of a major customer. He explains that the cheque (whichappears to clear the amount due) is in fact an overpayment, as the balance showing

on the salesledger is before allowing bulk discount (which is calculated retrospectively). The

sales director shows you his calculations and the agreement as authorised by the board.

The sales director states that the customer’s managing director has come to collect the discount in cash. He says that this is not an unusual occurrence for some of the company’s better customers. It helps to maintain a good relationship with those customers, which leads to purchasing loyalty. Another benefit of this arrangement is that it gives the sales director regular face-to-face meetings with the senior staff of those customers. It also reduces the high charges that the bank makes for handling cash.

Required

a) Identify the key fundamental ethic principles

b) Suggest the possible causes of actions

Question 2

Managers in an agency relationship are to require to always act in the best interests of the owners.

However, it is impossible to arrange the ‘perfect contract’ because decisions by the managers (agents) affect their own personal welfare as well as the interests of the owners. This gives raise to conflict of interests

Required

Identify and briefly discuss the different ways in which the interests of managers and owners of a

Company conflict.

Question 3

Capital budgeting is the process of evaluating and selecting long-term investments that are in line with shareholders’ wealth maximisation objective.

Required: a) State and briefly explain any THREE capital investment evaluation techniques known to you

b) State the advantages and disadvantages of any TWO of the capital investment evaluation

techniques you discussed in (a) above.