MA CW - Companies Financial & Non-Financial Information

ABMC 3063 MANAGEMENT ACCOUNTING

COURSEWORK 2 GROUP WRITTEN ASSIGNMENT

NAME STUDENT ID. SIGNATURE

GAN KEAN HOE 11WBD01689

HUAN CHAN YANG 11WBD04991

HO WENHUI 11WBD04595

SIEW CHUNG JIAN 11WBD05070

SIEW PUI MUN 11WBD02326

WONG VINNIE 11WBD05080

COURSE : 2 DAC G27

TUTOR : MS. CHEAH AI LING

DATE OF SUBMISSION : 16 NOVEMBER 2012

TABLE OF CONTENT

NO

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TITLEPAGE

1 Plagiarism Statement Declaration Form 1

2 Group Written Assignment Questions 2

3 Content

Question 1 (a)

Question 1 (b)

Question 1 (c)

Question 2 (A)(i)

Question 2 (A)(ii)

Question 2 (B)

3

4

5-7

8

9-10

11-12

3 Appendices 13-16

4 Reference 17-19

5 Marking Scheme for the Group Written Assignment 20

i

1. PLAGIARISM STATEMENT DECLARATION FORM

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2. GROUP WRITTEN ASSIGNMENT QUESTIONS

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3. CONTENT

Q1 (a)

Quantitative information is the information which can be measured in numerical

terms. The information can also be categorised into financial and non-financial

information. On the other hand, qualitative information is the information which

cannot be measured in numerical terms. (Refer to Appendix 1) There are many

differences between qualitative and quantitative information.

From the point of measurement, quantitative information can be easily

expressed in numerical form or figures. It can be percentage, units, hours or dollars.

For instance, the number of output produced per day is 200 units while the product

cost per unit is RM 50. However, qualitative information cannot be expressed in

numerical form. It will be expressed in description based on observation. (Refer to

Appendix 2) For example, Apple Corporation has good relationship with its suppliers

while Apple’s products are in high quality.

From the point of sources, quantitative information can be obtained and

calculated based on the sources of written documents by the organisation. Official

written documents such as invoices, receipts, production orders, and bank statements

might provide useful data and figures to be calculated and recorded in the financial

statements or budgets. However, qualitative information is obtained based on the

sources of observation, interviews or surveys. Narrative documents such as managers’

comments and customers’ feedbacks might provide non-numerical data and

descriptions to be recorded in the reports.

From the point of verifiability, quantitative information can be reliably

verified. (Lab Space, 2012) There are evidences to prove the precision of the

information. For instance, the number of product sold per day can be measured and

verified by referring to the invoices and receipts. However, qualitative information

cannot be reliably verified. The information is usually based on assumptions and

feedbacks. For example, a manager’s good comment about the quality of a product

cannot be verified easily because other party might give a different opinion.

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Q1 (b)

Financial information is the information which can be measured in numerical and

financial terms. On the other hand, non-financial information is the information which

can be expressed in numerical or figures but not in financial terms. (Refer to

Appendix 1) Both of them are types of quantitative information. However, there are

many differences between qualitative and quantitative information.

From the point of measurement, financial information is usually interpreted

in terms of currency or values. It usually deals with “how much” are the items or the

cost. For instance, the total cash reserve of Genting Berhad is RM 2 Billion while net

profits for the year is RM 200 Million. However, non-financial information is usually

interpreted in terms of quantity or units. (eHow, 2012) It usually deals with “how

many” or “how long” are the numbers of item. For example, the total labour hour

required to produce the ship is 4,000 labour hours while the quantity of timbers

needed is 20,000 square metres.

From the point of users, financial information is the information which is

useful and required by both internal and external users. Financial accountants require

this information to prepare the financial statement and show the company’s

performance to the stakeholders while management accountants require it to prepare

the budgets for internal planning and controlling purpose. However, non-financial

information is useful and required by internal users especially management

accountants and department managers. They require this information to plan the most

cost-efficient way to produce the outputs and control the expenses of the company.

Both financial and non-financial information are useful for internal

management and employees of an organisation. However, the types of information

used are varied based on the employee’s job level. Financial information is

important and suitable to be used by higher level employees such as senior executives.

They need the information to plan a sales target and control the expenses within the

budget allocated. On the other hand, non-financial information is important for lower

level employees such as production operators and store keepers. They will use the

information to plan production schedule, store hours and material purchase amounts.

(Refer to Appendix 3)

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Q1 (c)

Public Bank Berhad

Public Bank Berhad is founded by Tan Sri Dato Sri Dr Teh Hong Piow, the then

general manager of Maybank Berhad in 1966. With a total of 401 branches and over

17,500 employees, Public Bank Bhd is the third largest domestic banking group in

Malaysia and the sixth largest banking group in Southeast Asia region. Over the years,

the Public Bank Group has developed to provide full range of financial services such

as personal banking, commercial banking, Islamic banking, investment banking and

share broking. Operations have also been set up in various overseas markets such as

Cambodia, Vietnam, China and Laos.

From the Star on 26 October 2010 (Refer to Appendix 4), Public Bank Bhd

unit, Cambodian Public Bank plc (CampuBank) has established its wholly-owned

subsidiary, CampuBank Securities plc in Cambodia. The company has successfully

obtained licence from the Securities and Exchange Commission of Cambodia,

enabling them to carry out share broking and corporate finance related services. The

issued and paid-up capital of CampuBank Securities plc was equivalent to RM 31.1

Million. Since 1992, CampuBank has set up 20 branches in Cambodia and it is

expected to increase following the establishment of CampuBank Securities plc.

From the information provided in the statement, there are two types of

information which is relevant to Public Bank Berhad: financial and non-financial

information. As for financial information, the issued and paid-up capital of

CampuBank Securities plc is RM 31.1 Million. The information is relevant as it

represents the financial ability of the company to make share investment and

corporate loan financing. It will also determine the resources available for the

company to expand in future. As for non-financial information, there are 20

CampuBank branches in Cambodia at that moment and it is expected to increase. The

information is also relevant as it determines the current market share of CampuBank

in Cambodia and expansion opportunities available for the securities company. It also

determines the number of professional staffs and additional branches required for the

establishment of CampuBank Securities plc in order to increase profitability and

market share in Cambodia.

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AirAsia Berhad

AirAsia Berhad is established by a government-linked corporation, DRB-Hicom in

1993 and began its operations on 18 November 1996. However, on 2 December 2001,

Tan Sri Tony Fernandes’s company Tune Air Sdn Bhd took over the heavily-indebted

airline in the value of RM 1 with RM 40 Million worth of debts. With the slogan of

“Now Everyone Can Fly”, the AirAsia Group has become the largest low-cost airline

in Asia. The corporation has also developed to operate scheduled domestic and

international flights to over 400 destinations spanning more than 20 countries. (Wiki,

2012) The subsidiary airline companies have also been set up in various countries

such as Indonesia, Thailand and Japan.

From the Star on 10 August 2012 (Refer to Appendix 5), AirAsia subsidiary

company, AirAsia X Sdn Bhd will lease six Airbus A330-300s from International

Lease Finance Corporation (ILFC) for RM 1.6 Billion in order to expand its Asia

Pacific Network. During the signing ceremony, the company has signed a letter of

intent with ILFC for the lease which would be for 10 years with delivery scheduled

between 2013 and 2014. Tan Sri’ Tony Fernandes stated that the additional planes will

also increase the carrier capacity by 66%.


information which is relevant to AirAsia Berhad: financial and non-financial

information. As for financial information, AirAsia X Sdn Bhd signed the lease

agreement with ILFC for RM 1.6 Billion. This figure is relevant as it will be the

future cost incurred for leasing the planes. It will also affect the upcoming net profit

figure as it is considered as rental expenses of plane. As for non-financial

information, the lease agreement which involves at least six Airbus A330-300s will

last for 10 years and it is expected to increase the carrier capacity by 66%. The

information is relevant as the number of planes will determine the number of

additional pilots and routes required. The duration of lease agreement and expected

increase in carrier will also determine the financial result in the next 10 years such as

increase in flight ticket sales, expenses and expected net profits.

6

IJM Corporation Berhad

IJM Corporation Berhad is formed by the merger of three construction companies:

IGB Construction Sdn Bhd, Jurutama Sdn Bhd, and Mudajaya Sdn Bhd in 1983. They

were merged in order to compete against bigger foreign rivals especially in

construction industry. The corporation has developed to carry out different range of

business activities such as construction, property development, infrastructure

concessions, plantations, manufacturing and quarrying. The successful development

projects include Alamanda Shopping Complex, Gleneagles Hospital, and New Pantai

Expressway. Besides domestic market, IJM Corporation has also been expanding its

business overseas such as India, United Arab Emirates, China and Indonesia.

From the Star on 27 January 2012 (Refer to Appendix 6), IJM wholly owned

subsidiary company, IJM Construction Sdn Bhd will be appointed as the main

contractor for package V5 of (Mass Rapid Transit) MRT project which includes the

construction and completion of viaduct guide way and other associated works from

the Maluri Portal to the Plaza Phoenix station worth RM974 Million. The MRT line

which will be constructed is 51km long and 9.5 km of the track will be constructed

underground. The routes have a total of 31 train stations started from northwest areas

of Klang Valley to its southeast areas.


information which is relevant to IJM Corporation Berhad: financial and non-financial

information. As for financial information, IJM Construction Sdn Bhd gets the

construction package V5 worth RM 974 Million. This information is relevant as it

will determine the future cost and loan amount requirement if the project is

undertaken. It will also affect the future net profit figure of the company. As for non-

financial information, the MRT line which will be constructed is 51km long and

there will be 31 train stations constructed. This information is relevant because the

company will need to build the specified amount of track lines and train stations if it

accepts the project. This will determine the amount of construction material, labour

and machine required for the project.

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Q2 (A)(i)

Goal congruence is a circumstance where the multiple goals within an organization

or between multiple groups are consistent and mutually supportive. It also means that

the goals of individuals and groups within the organization coincide with the goals of

the organization as a whole. When goal congruence is achieved, the employees will

try to achieve their own goals as well as the organization’s goals.

Budgetary slack is defined as the intentional projection of lower revenue or

higher expenses than which is realistic during the financial planning process.

Managers might prepare easily attainable budget (safe budget) for their own

convenience. It occurs by under-estimating the amount of income or over-estimating

the expenses over the time period. (Investopedia, 2012) However, budgetary slack

might give false impression of the corporate performance and understating the profits.

Aspiration refers to a hope or ambition of achieving something while

aspiration level is a point on an individual’s scale of the utility of his goals. In short, it

is expected level of future achievement. In an organization, employees who

participate in a project can be motivated by their desire to success. Thus, they will

work hard in order to achieve their personal goals as well as the corporate goals.

Feedback is defined as the result of the organization’s performance, action or

decision. Feedback control is known as error-controlled regulation as it compensates

an error from the goal after it happened. Managers will compare the actual result

(feedback) against budgeted result and take corrective actions after the event has

happened. For example, production manager will improve the quality of product after

the quality of output produced is not up to the desired level.

Feed-forward control is the process where predictions are made against the

expected output production in future. The improvement or corrective action is made

during the production when the expectation made differs from the expected results.

Thus, it is different from feedback process as the likely errors can be anticipated and

steps can be taken to avoid them. However, this control system requires early

information to make accurate expectation.

8

Q2 (A)(ii)

There are few ways where the dysfunctional effects of the budgetary control system

can be minimized.

The first issue is the discouragement of goal congruence. If lower level

employees are not involved in decision making process, it will cause failure of goal

congruence. In order to solve the problem, decision makers should include the

employees’ personal goals and departmental goals in creating the budgeting system.

During the participative budgeting process, the decision makers should collect the

suggestions from lower level employees or involve them in the decision making.

Thus, the budgeting system created will be able to encourage all employees to achieve

the organisational goals as well as their personal goals.

The second issue is the ignorance of aspiration level of participations. If

only high rank employees are allowed to participate in decision making process, the

budget created might not be publicly acceptable. In order to overcome the problem,

participative budgeting system should be applied. Every employee has an idea and

able to provide more suggestions for issues within an organisation. Thus, lower rank

employees should be involved in target setting process to work out the target which is

workable and publicly acceptable. Comprehensiveness should be practiced as the

organization needs to work as one so that it can be more successful.

The third issue is the budgetary slack. Some managers might prepare easily

attainable budget (safe budget) by overstating the budget cost and understating the

revenue. Thus, the budget might not be able to motivate employees or maximize

corporate profits. In order to solve the problem, responsibility accounting system

should be applied in order to make a manager of department responsible for the

performance of his department. Besides, the company objectives should be

communicated to all level of management before the budgets are made. Then, the

budgets produced should be verified and checked through clerical verification process

and critical analysis system before it is approved. Thus, a realistic and balanced

budget can be formed and implemented.

The forth issue is feedback control system is applied instead of applying

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feed-forward control system. Feedback control system (Cybernetic system) is the

control system where actual result is compared against budgeted result and corrective

action is taken after the events. It might cause lost in company’s reputation and future

sales as it allows errors to occur before corrective action is made. In order to solve the

problem, it is more appropriate to adopt feed-forward control system. It is the

control system where predictions are made against the budgeted result and corrective

actions are taken before event happens. Constant monitoring for a project is necessary

at an early stage so that adjustments can be made immediately before the output is

produced. (Refer to Appendix 7) Thus, it will be easier to achieve cost minimization

and profit-maximization purposes.

10

Q2 (B)

Cost Classification for Decision Making

The main types of cost which are essential for decision making purpose are relevant

costs and irrelevant costs. According to CIMA Official Terminology, relevant cost is

a cost appropriate to a specific management decision. It is important for users in

making the business future plans as the costs will affect the running and profitability

of the projects to be undertaken. The examples of relevant cost are opportunity cost,

differential cost and avoidable cost.

There are many characteristics of relevant costs. Firstly, relevant cost is a

future cost. It is the cost which is expected to occur when a decision is made. Thus,

decision makers will not be concerned with any past cost or cost which has been

incurred. Secondly, relevant cost is the incremental cost (differential cost). It is

defined as the difference between costs for an item between two alternatives. For

example, if the cost of buying Product A from external supplier is RM 1 per unit while

the cost of producing it is RM 3 per unit, the incremental cost will be RM 2 per unit.

Thirdly, relevant cost is the cash flows. Relevant cost such as avoidable cost will

provide appropriate information for decision makers to plan their budget and

maximize profits or net cash flows. It is the cost which can be avoided when a certain

decision is not taken.

Irrelevant cost is the cost which will not be affected by a decision and it has

been incurred. The examples are sunk cost, committed cost and notional cost. To be

specific, these costs are past cost and not relevant in decision making. For example, a

firm is considering selling a machine which is bought at cost of RM 5,000, in making

decision to sell the machine, the cost of RM 5,000 is a sunk cost which has been

incurred and not relevant in affecting the decision. (Business Dictionary, 2012)

Cost Classification for Performance Evaluation

The main types of cost which are essential for performance evaluation purpose are

product cost and period cost. According to CIMA Official Terminology, product cost

is defined as the cost of finished product build up from its cost elements. It includes

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all production and manufacturing cost incurred in producing an output. These costs

will be recorded in the manufacturing account to find out the total cost of

manufacturing. (Refer to Appendix 8)

There are two elements of product cost: direct cost and indirect cost. Direct

cost (Prime Cost) is the expenditure which can be economically identified and

specifically measured in respect to a relevant cost object. The examples of direct cost

are direct material costs, direct labour costs, and direct expenses such as loyalty

payment. Indirect cost is the expenditure on labour, materials or expenses which

cannot be economically identified with a specific saleable cost unit. The examples are

production overheads such as factory rental expenses and factory manager salary.

On the other hand, period cost is the cost treated as expenses during the

period and it is not being included in the value of stock held. It includes all non-

manufacturing cost such as administrative expenses, selling and distribution expenses,

research and development cost and financing cost. These costs will be recorded in the

statement of comprehensive income as expenses to find out the net profits.

Cost Classification for Planning and Controlling

The main types of cost which are essential for planning and controlling purpose are

controllable costs and non-controllable costs. Controllable cost is the cost which can

be influenced by its budget holder within an organization unit. These costs include

variable costs such as direct labour, direct material and variable overheads. In short

term, most variable costs within a department are controllable because the department

manager can make some adjustment to influence the allocation of resources. (Ezine

Articles, 2012)

On the other hand, non-controllable cost is a cost which will not be affected

by management of the organization unit within a given time period. These costs

include fixed costs such as fixed overheads and rental. In short term, most fixed costs

are not controllable because it takes some times for an adjustment to be made.

However, the controllability of the cost depends on the level of authority (high or

low rank), time frame involved (short or long term), and the department or location at

which the cost is incurred.

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4. APPENDICES

Quantitative Information Qualitative Information

Financial

Information

Non-Financial

Information

Quality of Output

Reputation of Company

Employees’ Loyalty

Company’s relationship with other

stakeholders

Fixed cost per

month

Product cost per

unit

Total asset value

of company

Quantity of

material purchased

Quantity of output

produced

Number of labour

hour required

Appendix 1: Examples of Quantitative Information (Financial & Non-Financial) and

Qualitative Information

Appendix 2: Qualitative and Quantitative Data

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Appendix 3: The Users of Data

Appendix 4: Public Bank’s Cambodian Unit sets up securities business (The Star)

14

Appendix 5: AirAsia X in RM 1.6b Deal (The Star)

Appendix 6: IJM, AZRB win MRT jobs (The Star)

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Appendix 7: Feed-forward Control System

Appendix 8: Product Cost & Period Cost

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4. REFERENCE

1. Lab Space, 2012. Quantitative v. Qualitative Data. Viewed on 26 October

2012. Available from: <http://labspace.open.ac.uk/mod/resource/view.php?

id=365839>

2. University of North Florida, 2012. Introduction to Management Accounting.

Viewed on 26 October 2012. Available from: <

http://www.unf.edu/~dtanner/dtch/ch1.pdf >

3. Algebra Lesson Page, 2012. Qualitative v. Quantitative Data. Viewed on 26

October 2012. Available from: <

http://www.regentsprep.org/Regents/math/ALGEBRA/AD1/qualquant.htm>

4. Business Writing Services, 2012. Qualitative Information in Accounting

Systems. Viewed on 26 October 2012. Available from: <

http://businesswritingservices.org/finance-costing/quantitative-and-qualitative-

information-in-accounting-systems >

5. Bloomberg, 2012. Non-financial Data is Material: The Sustainability

Paradox. Viewed on 26 October 2012. Available from: <

http://www.bloomberg.com/news/2012-04-13/non-financial-data-is-material-

the-sustainability-paradox.html >

6. Ehow, 2012. Non-financial vs. Financial Information. Viewed on 26 October

2012. Available from: < http://www.ehow.com/info_7758431_nonfinancial-

vs-financial-information.html >

7. NZICA, 2012. The Management Accountant and Non-financial Information.

Viewed on 26 October 2012. Available from: <

http://www.nzica.com/News/Archive/2012/March/The-management-

accountant-and-non-financial-information.aspx >

8. Knowledge Warton, 2012. Non-financial Performance Measures: What works

and what doesn’t. Viewed on 26 October 2012. Available from: <

http://knowledge.wharton.upenn.edu/article.cfm?articleid=279 >

9. Christopher S. Chapman, Anthony G. Hopwood, Michael D. Shields, 2006.

Hand of Management Accounting Research Volume 1. Oxford: Elsevier Ltd.

10. Wikipedia, 2012. Feedback. Viewed on 27 October 2012. Available from: <

http://en.wikipedia.org/wiki/Feedback >

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11. Ivythesis Typepad, 2012. Budgetary Control System. Viewed on 27 October

2012. Available from <

http://ivythesis.typepad.com/term_paper_topics/2009/08/typically-budgetary-

control-systems-do-not-encourage-goal-congruence-contain-budgetary-slack-

and-do-not-provide-appropriate.html >

12. Colin Drury, 2007. Management and Cost Accounting. Viewed on 27 October

2012. Available from: < http://books.google.com.my/books?

id=8SaARYOflPIC&pg=PA392&lpg=PA392&dq=feedforward+accounting&

source=bl&ots=-i_MTc-

JLa&sig=KCoNLcgDFL1T1pfX51kGzeHE30o&hl=en&sa=X&ei=DluLUI7m

C4HprAfZxoC4Aw&ved=0CE8Q6AEwBw#v=onepage&q=feedforward

%20accounting&f=false >

13. Accounting for Management, 2012. Product Cost versus Period Cost. Viewed

on 27 October 2012. Available from: <

http://accounting4management.com/product_costs_and_period_costs.htm >

14. FAO Corporate Documentary Repository, 2012. Chapter 4- Budgetary

Control. Viewed on 27 October 2012. Available from: <

http://www.fao.org/docrep/W4343E/w4343e05.htm >

15. Public Bank Berhad, 2012. Corporate Profile. Viewed on 3 November 2012.

Available from: < http://www.pbebank.com/corporate/ >

16. Airasia Berhad, 2012. Corporate Profile. Viewed on 3 November 2012.

Available from: <

http://www.airasia.com/my/en/corporate/corporateprofile.page? >

17. Wiki, 2012. AirAsia. Viewed on 3 November 2012. Available from: <

http://en.wikipedia.org/wiki/AirAsia >

18. IJM, 2012. Corporate Profile. Viewed on 3 November 2012. Available from:

< http://www.ijm.com/web/aboutUs/corpProfile.html >

19. The Star, 2012. IJM, AZRB win MRT jobs. Viewed on 3 November 2012.

Available from: <

http://biz.thestar.com.my/news/story.asp?file=/2012/1/27/business/

10548499&sec=business >

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20. The Star, 2012. AirAsia X in RM1.6b deal. Viewed on 4 November 2012.

Available from: <


11832256&sec=business >

21. The Star, 2012. Public Bank’s Cambodian Unit set up securities business.

Viewed on 4 November 2012. Available from: <


7294693&sec=business%3Cbr%20/%3E >

22. Public Bank, 2012. Public Bank’s Indirect Wholly-owned Subsidiary in

Cambodia Obtains Securities Company Licence. Viewed on 4 November

2012. Available from: <

http://www.pbebank.com/corporate/cnt_press341.html >

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5. MARKING SCHEME FOR THE GROUP WRITTEN ASSIGNMENT

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Documents

MA CW - Companies Financial & Non-Financial Information