Financial Accounting Principles and Analysis

Financial Accounting Principles and Analysis Referencing Styles : Harvard | Pages : 19 Big Business Tobacco (BBT) is a large Australian producer of tobacco products…

Financial Accounting Principles and Analysis

Referencing Styles :
Harvard | Pages :
19

Big Business Tobacco (BBT) is a large Australian producer of tobacco products

including a market-leader brand of cigarettes. With the continuing development of

Asian countries such as China and its move to a market-based economy, the company

has made the decision to sell its cigarettes in this larger market from the beginning of

next month. The cigarettes will be sold in packs of 40.

Mary Bender, marketing manager, is discussing the design of the cigarette packet for

the Asian market with Randall Hedges, the company’s public relations manager.

Having agreed on the basic design of the pack, Hedges raised the issue of whether to

include the normal health warning on the pack, which has to be displayed under

Australian law. He emphasised recent medical findings which predicted many

hundreds of thousands of deaths from cigarette smoking in the next few years,

particularly in the developing countries.

Mary Bender was strongly opposed to including a ‘health hazard’ warning on the packs

destined for parts of the Asian market. She explained: ‘In this business it is the bottom

line (i.e. profits) which matters — we have to think of our shareholders. BBT stands to

lose a considerable market share to competitors if it includes such a warning. Besides,

it is not a legal requirement in many Asian countries to display a health warning on

cigarette packs. If Asian law is subsequently amended then we will be one of the first

to comply. Besides, the managing director supports me on this one.’

Hedges expressed a final opinion: ‘The Company could be better off in the long term

by being seen to be acting with corporate responsibility, and demonstrating some

concern for its consumers. Besides, such warnings have not been detrimental to the

company’s performance in Australia, where health warnings have been common for

many years.’

Required

1. Who are the major stakeholders in the debate on the health warnings on

cigarette packs?

2. What are the main ethical issues involved in the debate?

3. If you were Randall Hedges, what would you do?

From humble beginnings, Phil expanded his backyard business in Melbourne to produce and

sell sports drink bottles for AFL, cricket, Rugby League and Rugby Union football teams in

2012. Due to the success of his product and the fact that he was dealing with very wealthy

football clubs, he was advised to form a proprietary company limited by shares so as to

maintain his credibility.

To comply with a previous requirement in the Corporations Act (whereby a company requires

two directors), he insisted that his wife Josephine (a school teacher) become a director. Phil

was not renowned for his accounting skills, and he overlooked the tax liabilities for the

company over the following two years. Earlier this year case ended up in court, with the

Australian Taxation Office claiming that both Phil and Josephine are individually and jointly

liable for the tax payable by the company.

Required

1. Do you think Phil and/or Josephine should be liable for overlooking the tax liabilities

for the company? Why or why not?

2. What responsibilities do you think Phil and Josephine have as directors of the

company?

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The following list of items relate to the business of Jay Street Wear:

1. cash paid into the business by Jay to begin operations

2. racks purchased to display merchandise to customers

3. building leased for 2 years, with rent payable monthly in advance

4. streetwear items purchased from a manufacturer

5. amount owing to the manufacturer for merchandise purchased

6. insurance premium on the merchandise paid in advance

7. cash withdrawn by Jay for personal use

8. wages paid to casual employee

9. amount borrowed long-term from the bank

10. cash sales of merchandise to customers

Required

1. Identify the elements of the financial statements (asset, liability, income, expense and

equity) impacted by each of the transactions.

2. List the cash flow classification (operating, investing or financing) and direction (inflow

or outflow) for each transaction
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