ACCT6007 Financial Accounting Theory and Practice Report Sample

Context:

This assignment develops research and critical thinking abilities. It is a critical analysis/review of an academic article. Changes in technology are impacting accounting and how accountants perform their jobs. This activity will provide students information on new trends in accounting field.

Instructions:

Answer the following questions in your critical review:

1. Research and briefly explain Institutional Theory and Legitimacy Theory of Accounting?

2. Evaluate and assess adoption of Information Technology in Accounting through Institutional Theory and Legitimacy Theory perspective of Accounting. Use examples to illustrate how accounting systems are institutionalized within organizations and provide external legitimacy.

3. Critically evaluate the propositions made by the authors. Do you agree or disagree with the 4 propositions in the article? Explain your point of view and provide evidence from other academic resources.

4. Comment on any strengths and weaknesses of the article.

To answer all the above questions: Review the article provided and search for related academic journal articles. Use minimum 10 academic references.

Solutions

Introduction

Transformation into the technologies is influencing the procedure of accounting and the role played by the accountants performing their jobs. This is further presented in an essay form enabling the development of research and critical thinking capabilities in reviewing an article. The incorporation of information technologies acts in improvising the functions of the accounting influencing the organisations. For Assignment Help However, it is often argued that the systems of accounting are institutionalised among organisations providing external legitimacy. Reviewing the overall article with a critical perspective one can able to adhere a detailed perspective of the study.

Institutional Theory and Legitimacy Theory of Accounting

As mentioned by Hope and Vyas (2017), institutional theory enables upon elaborating on the organizational processes and form's homogeneity. The perspective of institutionalisation is referred to as the process enabling the expectations of the society to generate the ideas about the organizational behaviours and forms which mainly evolve out from the actions and thought. On the other hand, De Luca and Prather-Kinsey (2018) stated that institutionalization is the underlying process for which the formal structure attains wide acceptance as an essential element in providing legitimation. Theory of institutions deliberately adopts the assumptions of considering management and structural practices which the other firms grant those for being legitimate. Hope and Vyas (2017) argued that one way of understanding the institutional theory is of accepting the idea of isomorphism. Institutional theory is recognized to be elaborating the choice of organisations about accounting within their operations. According to De Luca and Prather-Kinsey (2018), accounting systems play an important role in allowing a linkage between the defined beliefs in the institutions to that of technical activities.

Theory of Legitimacy stresses how the structure of the organisation gains recognition over an immense sphere. According to Hope and Vyas (2017), the crucial role of accounting is a vital organisation resides upon providing support for the process of legitimation of the organisation. Habib and Hasan (2019) argued that the organizational failure is considered to be legitimated and further influenced the economic, legal, or sanctions socially into the society. Therefore, there pertains to be the ardent need for organisations upon adopting the structures which portray it as to be legitimate within its environment. The symbol of legitimacy in the organisation is from the perspective of accounting. Habib and Hasan (2019) stated the accounting processes include recording, preparing financial systems, internal controls that determine the performance within the organisations and considers itself as a legitimate tool, signaling the environment that the organisations shoeing operations legitimately.

Incorporation of Information Technology within Accounting with the help of Institutional Theory and Legitimacy Theory of Accounting

According to Pendley (2018), technology is considered to be the basic sense within the mechanisms through which the organisations can produce out the services and products. Under this sphere of advancement in technology and rapid growth, the accounting field is supposed to be not isolated with the usage of technology. The effectiveness of decision-making can further be deciphered with the proper incorporation of information technology. Wu and Jia (2018) viewed that the usage of information and technologies of communication have immensely modified the nature of both the accounting as well as the business. With the recognition of the information technology, proper identification as well as opportunities can quickly be identified and further taken for resolution. Information technology is implemented mainly to bring out effectiveness and efficiency over to all of the tasks. The aspect of the quality and the speed both are enhanced for this basis. With the application of the technology, there leads to an increase in the sources for information and thereby, reduces the inclusion of the human actors.

Examples: Systems of Accounting getting institutionalised and external legitimacy

Several of the accounts can further be recognized as institutional accounting like that of the insurance company, pension fund, or that of a registered investment company. On the other hand, Su, Zhai & Karlsson (2017) viewed that some of the regulators often known to be that of MSRB make it possible to further apply the term upon generalizing to involve the inclusion of the banks as well as the individuals. It is been represented in such a way that they can further be retaining the capability of investing with a large sum of money. On the contrary, Yusuf and Srithongrung (2017), the practice of institutional accounting further relies on the term of external legitimation, and thereby in such a case the outsiders are further not provided upon interfering with the domestic governance.

Propositions

The article demonstrates four crucial propositions which evaluations would be as follows. According to Agyekum and Singh (2018), it considers the first proposition as the modification into the practices of accounting are evolved with the new technologies’ adoption raises the accounting role as a mechanism for the organisational institutionalisation. On the contrary, Pendley (2018) argued with the newer implementation of technologies over the accounting process makes the calculation error-free and allows more efficient results enhancing the progress of the organsisation.

The second proposition of the article highlights that the modifications practice due to adopting new technological applications raises organisational legitimacy. On the contrary, Mele Domenec, Rosanas and Fontrodona (2017) argued for an organisation to be implemented as legitimate requires to fulfill the inclusion of socially desirable norms, values and standards.

The third proposition concerns that the modification within the practices of accounting for the technology incorporation raises the overall performance of the firm. Pendley (2018) stated that the overall performance will show an extreme raise and thereby holds efficient results. The productivity of the firm would result in an effective increment and specifically in a short duration. As the underlying processes of accounting require implementation of more time, therefore, the newer application of technologies proposes a reduction in time.

Modifications within the practices of accounting due to adopting the newer technologies are heavily institutionalised requiring the transformation in the counting field. Smith and Urquhart (2018) argued that not only the changes are necessary within the accounting field it is similarly important to practice the changes in the accounting field. The employees as well as the subsequent members require the implementation of immense knowledge and skills such that they can carry out the processes accurately over the newer technologies. According to Su, Zhai & Karlsson (2017), the incorporation of the new method requires the time which should have to be allowed to the members for gaining an effective otherwise as, without adjustment with the working of the new technologies, the work can get dismantled.

Strengths

Advancement within the information technologies is narrowing the accounting process of traditional background and thereby, acts well in drawing improvisations over efficiencies. For this, we can further negotiate that the financial managers are expanding their focus in allowing to take strategic decision making. According to the paper, Agyekum and Singh (2018)., systems of accounting initiated by the organisations range from budgeting, recording, taxation, and internal controls on an immense pedestal among the societal eyes as an accurate organizational structure. Another vivid evaluation can be gathered from the perspective of the paper that the accountant role within the organisation has transformed from mere spectators into active players within the process of management. On the other hand, the paper remains successful in presenting that accounting poses a significant role in enabling legitimacy for organisations. The transformation taking place into the accounting process and that of the systems is due to the advancement in the information technologies which can be well deciphered from the study.

Weaknesses

The paper fails upon indicating what amount of transformation poses the requirement for newer information technologies to influence the institutional transformation into the process of accounting. On the other hand, the time specification is not predicted to be clear in the case of the change of one accounting system to another one. Agyekum and Singh (2018) stated that discussion again failed to evaluate the organisational size as the size of the firms plays an important role when new technology is adopted impacting accounting system. Measurement of the level of change is extremely difficult and therefore the thinking about study implemented vagueness. The effects and the motivation of acceptance of a technology-driven change are required to be industry-specific. The goal of the overall study resides upon introducing the immense concepts and thereby, for which the future researches can achieve the capability of examining the other issues. Moreover, the technology level is found to be varied for varied levels of organisations. This paper again proposes the limitation of not involving the degree of technological requirement advancement for different organisations.

Conclusion

Systems of accounting are important for the organisations since they are important in allowing organisational institutionalisation in providing legitimacy. The systems of accounting within the organisations incur great effectiveness with the new incorporation of the technologies. It thus poses a requirement of enabling the institutionalisation at first within organisations. New installations of the technologies further allow legitimating with that of the external stakeholders. The reputed and used technologies influence some of the accounting functions resulted from several technologies intitutionalised into the field of accounting. Modifications into the accounting system concerning the growth in technology enhance the accounting role in predicting the organizational legitimacy.

Reference List

FINM4100 Analytics in Accounting, Finance and Economics Report 2 Sample

Your Task

• Create a report on Blockchain in the context of Fintech and RegTech.

• This task is to be done as an individual.

Assessment Description

Learning Outcomes: LO2, LO4 and LO5

Background: Blockchain is an emerging technology of great importance in Finance, Economics and Accounting. It impacts the way we deal with and monitor financial transactions, trade, identify ourselves, and is having an impact on auditing and regulation.

Imagine that you are a compliance manager in a financial institution. Your company wants to use blockchain for three purposes

1. As a mechanism for secure digital transactions and smart contracts

2. As a way of managing digital identities

3. To offer clients the chance to invest in cryptocurrencies however, the executives are not sure of all of the benefits of these applications or possible ethical, legal and privacy issues.

You are to explain what blockchain is, explain these uses (applications) and how it will benefit yourself and the company auditors in a report, as outlined below.

Assessment Instructions

Do your initial research from the workshops then find relevant articles on the internet to support your statements. You are to write a report as follows:

A. Introduce the idea of blockchain and its applications in general.
B. Briefly explain the applications that we are focussing on here (1,2 & 3 above, i.e. secure
digital transactions and smart contracts, digital IDs and investment in cryptocurrencies).

C. There have been dramatic fluctuations in cryptocurrency prices with current values a fraction of what they were 12 months ago. What are your views on the future of cryptocurrencies?
What are their pros and cons?

D. Describe the benefit blockchain can offer auditors and compliance officers and subsequent
positive impact on the organisation.

E. Assess possible ethical and privacy implications of the applications at the financial institution at which you are imagining that you work. The impact could be on staff and/or customers.

F. Use at least ten relevant references and the Harvard referencing style. References must be
relevant to what you are discussing in each paragraph.

G. Taking care with your report structure and novel written presentation.

Solution

A. Blockchain: A Brief Introduction

In recent years, Blockchain technology has become a massive interest among business organizations, government enterprises, and academics. Blockchain has the capability to provide transparent, secured, and tamper-proof solutions to stakeholders. Blockchain is considered the digital ledger of a particular transaction that is copied and distributed across the various network in a computer system. After every transaction, each of the blocks holds various information that gets updated in the participants' ledger. An entry, once made using blockchain technology, cannot be changed. Everyone who participates in the chain of transactions plays a vital role in the network.

In specific terms, blockchain is a distributed database that can be accessed by everyone. This means every individual can get a copy of a new record that is entered into a database, but no individual can make any changes to the data once it has been recorded in the system.

Application of Blockchain in General

Some applications of blockchain are:

• Cryptocurrency- cryptocurrency is a digital currency that is designed to be a medium of exchange wherein every coin ownership is recorded in the decentralized ledger. As cryptocurrencies make use of 'decentralized control', they are not controlled by any individual person or the government. Blockchain technology is popularly used in cryptocurrency, where all the transaction information is stored, which is not possible to hack or change. Every person can buy, sell or deal in cryptocurrency and be a part of this network.

• Cars- Blockchain technology provides a secure and digital certificate for every car. Odometer fraud is very popular, where a dealer can tamper with the odometer and make a car appear to be a newer and less worn-out car. Thus, the customer ends up paying a huge amount of money than the actual worth of the car. Using blockchain technology, the regular odometer can be replaced with modern ones that are directly connected to the internet and can write the mileage of the car to the blockchain.

• Legal Documents- to keep a good track of data over a longer period, blockchain technology is preferably suitable. Using this technology, legal documents like intellectual property, patents, and even notaries can be secured.

• Digital Voting- Currently, voting is conducted through EVM (electronic voting machine), which are special computers that run based on proprietary software. "EVM hack" can be a major problem that can disrupt the election. Therefore, blockchain technology can be used to cast votes as it is not possible to tamper with data that are recorded in blockchain technology.

B. Application of Blockchain in Specific Tasks

Secure digital transactions and smart contracts

Smart contracts are programs that are stored on a blockchain that starts running when the predetermined conditions are met. Smart contracts are mainly used to automate the execution of a particular agreement so that every participant can come up with a certain outcome without any involvement of an intermediary that can cause time loss. When a particular transaction is completed, the blockchain has updated the parties who have granted permission can check on the results (Javaid, 2022).

Blockchain as a way of managing digital identity

Blockchain is a highly trusted mechanism that can even manage digital identities. Using blockchain technology, users get the power to have better control over their own digital identity. Blockchain puts control over individuals' personal data rather than making the data public or sharing the information with industry giants. As a result, it ensures all digital data are secured and easily traceable (Ku-Mahamud et al., 2019).

Chance to invest in cryptocurrency

Cryptocurrencies are the major part of blockchain technology that was mainly designed to transfer value. Most investors use this technology to store values as the technology is highly protective, and data cannot be tampered with easily. The data are end-to-encrypted, and investors hold them for growth.

C. Fluctuation in the price of cryptocurrency

There are different kinds of cryptocurrencies that are available in the market. Some of the popular ones include Bitcoin BTC, Ethereum ETH, Tether USDT, and USD Coin USDC. Currently, the price of Bitcoin BTC is 17,392.88, whereas the price 12 months back was $48,187.22.

The fluctuations in the overall cryptocurrency are due to the poor macroeconomic conditions and the recent bankruptcies in the world of cryptocurrency. Bitcoins, one of the largest cryptocurrencies in the world, started in 2022 with a positive notion, but within a year, the price of BTC is constantly falling from $50000 levels to $15000 levels (Aziz, 2019).

Not only Bitcoins but the whole crypto world is incurring a great fluctuation due to many downfalls. This includes the Russia-Ukraine war and inflationary rise, which led to an increase in the cost of living. Interest rates in U.S. and U.K. are rising, which is another cause of uncertainty in the crypto prices. Fluctuations are noticeable in the crypto prices as China considers cryptocurrency transactions to be illegal. Fluctuations are also due to the new tax regime in India. Furthermore, the collapse of the largest cryptocurrency exchange, FTX, has caused great damage to the prices of cryptocurrency.

The fear of global recession had a great impact on equities and currencies. As a result, cryptocurrency will likely notice some revival in 2023. Most investors are losing confidence to invest in cryptocurrencies as crypto firms have insufficient liquidity and are father leading to bankruptcies. According to some research, inflation can be a key factor in Bitcoin prices in 2023 (Haar and Money, 2021).

Cryptocurrency is the fastest and cheapest mode to transfer money through a decentralized system that does not collapse at any point in time. Cryptocurrency uses blockchain technology, an infrastructure that inherently secures all transactions. It is not possible for any hacker to hack the entire transaction in a single chance, so cryptocurrency is much more secure (Al Mashhour and Abd Aziz, 2019).

Whereas investing in cryptocurrency is quite a difficult task as one must acquire knowledge of cryptocurrency, which takes time and effort an individual. Cryptocurrency fully works upon digital natives, an individual who might not understand the concept of cryptocurrency.

D. BENEFITS OF BLOCKCHAIN

Benefits to Auditors

Blockchain is the buzzword of the decade. Every individual, irrespective of their age, is curious about what this meta byproduct is and how they can utilize the same in their lives and in their businesses to reap its benefits and minimize manual work. This has led to a sharp uprise in the use of blockchain technology and has resultantly increased the work of auditors and regulators. But it is not without benefits to them, some of which are stated below:

1. Blockchain technology is available to only those users and entities that have been granted specific access to the network. This ensures that no one meddles with the data stored in the blockchain (Smith and Castongua, 2020).

2. Analytics deployed in the blockchain is robust and foolproof. The data that the blockchain system consists of is stored systematically and consistently in a structured manner. This enables the complex procedures and analysis to be performed can be done reliably across the network, and dashboards are updated as soon as possible.

3. Blockchain-enabled solutions solve a crucial auditing limitation relating to testing checking or sampling (Bonyuet, 2020). Auditors, because of the shared ledger technology of blockchains, can now check 100% of the items in a population and not resort to sampling. The shared ledger technology, which includes several counterparties, can be audited in real-time, and any fraudulent activities can be inquired into simultaneously as they are taking place. For instance, the internal audit department of big audit firms has the option to maintain a read-only node on the blockchain environment. As per Deloitte US, auditors do so that "they can monitor and flag transactions in real-time and they can potentially use analytics to automate auditing of routine transactions."

Benefits to Compliance officers

Besides being of immense benefit to the auditor, blockchain technology also makes the work of compliance officers easy because it supports smart contracts, which makes the contract risk compliance more automated, allowing compliance officers to shift from manually testing CRC to more automated testing of its functions and performance, which is a higher value role (Okazaki, 2018).

E. Ethical and Privacy Implications

Privacy Implications

Data is the biggest asset that this generation is going to use. Since all companies across the globe, big or small, are heavily reliant on data and store massive amounts of it on various networks, the question of safety of the same is bound to arise. Data privacy, also called information privacy, provides a suitable protocol for collecting, processing and storing data to ensure that it is properly managed.

With blockchain, the growing implication of privacy of personal information is increasing by the day. A lot of personal data tends to be protected with the General Data Protection Regulation, and for the rest, it is forbidden unless one has the basis, legally, to move ahead with its usage (Salmon and Myers, 2019). Some growing trends that hamper the confidentiality motives in data privacy have been noticed like -

a. Growing misinformation- Most people resort to the internet to get any information about anything they want, and this provides a fertile ground for the users to fall into fraudulent traps and lose their money even- if they are irresponsible.

b. Monitoring employee performance- Since the culture of bringing your own device (BYOD) is on the rise, employers find it increasingly difficult to monitor the activities of employees and the expenses that are being incurred on them. This saw a rise also during the pandemic wherein employees worked from home, and the world ended up on zoom calls instead of physical meets.

Ethical Implications

Blockchain technology has turned out to be a disruptive technology that has the potential to bring about major positive implications to the lives of people on the internet (Sharif and Ghodoosi, 2022). However, as is the case with any upcoming techno-giant, the ethical considerations are to be considered and discussed so that we humans still manage to have some degree of control over the negative side effects (Tang et al., 2019). Some ethical considerations are-

a. Environmental Impacts - Public blockchain networks such as bitcoin engage with unverified networks, and unreliable participants and so have to use networks like proof of work which involves mining. Mining, in turn, requires massive amounts of hardware that requires massive amounts of electricity. This, of course, is harmful to the environment and poses ethical threats. Going forward, an alternative needs to be developed to make this system sustainable.

b. Problem of anonymity- Ransomware can be enabled by public networks like bitcoin. A software system can be easily attacked, data stolen, and the hacker can demand payment in bitcoin, which one will have to make without any knowledge of the attacker or the loss suffered. Also, since such blockchain networks are not regulated centrally or legally, no actions can be taken.

References

FNCE623 Capital Budgeting Assignment Report 1 Sample

The case is open ending. The way you collect data may affect the results. You must collect or estimate the related data if you can’t find them in the question.

THE ASSIGNMENT MUST BE DONE INDIVIDUALLY. ANY ACADEMIC INTEGRITY

ISSUES WILL BE REPORTED TO ACADEMIC OFFICE.

Vita Smart Ltd is a leading high-tech company which is incorporated in Surrey, BC. The company wants to add a lab equipment in Dec 2023. They hired you, a UCW graduate, to prepare a capital budgeting plan for the project. Do you recommend the company to accept the project or not?

Below is the information that your manager provided:

1. The approximate cost of the machine would be $210,000, with another $10,500 in shipping and handling charges. It would also cost an additional $2,0500 to install the equipment and $500 tuning fee.

2. The equipment would be set up in an unused space at the company’s main plant. The plant space could be leased out to another lab for $11,000 per year.

3. The machinery has an economic life of 5 years, but the manager didn’t know the CCA classification and CCA rate. He estimated that the machinery is expected to have a salvage value of $18,000 after 4 years of use.

4. The new product line would generate incremental sales of 1,350 units per year for 4 years and they are expected to grow 5% per year.

5. The variable cost per unit is estimated in $50 per unit in the first year. Each unit can be sold for $210 in the first year.

6. The sales price and cost are both expected to increase due to inflation. The fixed costs are estimated to be $90,000 per year and would increase with inflation. The manager ask you to do the research about the inflation rate in recent years.

7. The company hired 3 workers to operate the new equipment and provided them 100 hours paid training according to BC minimum wage. They will work on the production line 35 hours per week under a four year contract with a 15 working days paid leave. The manager estimated the inventory level will increase 5% of the total sales every year due to expansion. The accounting teams said the new project won’t affect A/R and A/P accounts in the future 4 years.

8. The company received $25,000 Research fund from BC government and decided to use 20% of them to do a market research on the new project.

9. The manager has concerns about the potential effects on other products when introducing the
new equipment. Currently, he estimated a 2.5% decrease in sales revenue.

10. The firm is a small business which taxable revenue under $300,000. The project is considered by the financial department to be as risky as the company. The financial department has estimate that the total WACC is 12% including $8,000 interest paid every year.

Requirements

Part I: Project analysis. Total 85 marks. Q1: 8 marks, Q2-Q12, 7 marks.

Write 4 or more complete sentences for each question in a Word file. Do not write in an essay format.

References are not necessary unless the questions require. No word limitation in this part.

1. State the steps and process of Capital Budgeting.

2. What are the principles in determining incremental cash flows?

3. What’s the definition of sunk cost? Which cash flow(s) is the sunk cost in the case and why?

4. What’s the definition of opportunity cost? Which cash flow(s) is the opportunity cost in the case and why?

5. What’s the definition of externality? Which cash flow(s) is the externality in the case? Are they positive or negative?

6. What’s definition of NOWC? Which cash flow(s) reflect the change of NOWC in the case?

7. What’s CCA in Canadian accounting practice. Estimate the CCA class of the asset in the case and explain.

8. What are CCA claim methods according to CRA guidance?

9. Why is the interest included in the cash flow estimation? What’s the current interest rate of business loan in BC now? Include reference website(s) where you obtain the data.

10. Is wage a direct cost or an indirect cost? How mush is the minimum wage in BC currently?
Include reference website(s) where you obtain the data.

11. Why is tax shield important in a business operation? How much is business tax rate in BC and Federal? Include reference website(s) where you obtain the data.

12. Will inflation be included in cash flow estimation? What’s most recent inflation rate in Canada?
Include reference website(s) where you obtain the data.

Part II: Project Evaluation. (Total 15 marks)

Using an Excel spreadsheet:

• Find the NPV of the project by using the pro forma financial statement method to determine cash flows.

• Set up the necessary equations by referencing to the input variable cells. The spreadsheet must be formula driven; do not put any numbers in equations, must use cell references.

• Use Excel’s built-in functions wherever possible

Present this assignment in a professional way. It is your responsibility to communicate clearly to the marker.

Solution

Part 1:

1. Steps of capital budgeting

The steps of capital budgeting will include a thorough analysis of the business and how it is going to conduct the business operations over the period. For Assignment Help, Here, for the capital budgeting purpose, the chronological steps should be taken into consideration in the ascending order:

1. Idea generation

2. Proportional for the project where the formal understanding of the potential risk will be identified.

3. Estimation of cash flow: in the cash flow estimation, the overall project analysis will be done. This is because, the effectiveness and the efficiency of the cash flow assumptions will help the organization to improve the company's financial performance.

4. Project evaluation: In this segment, the application of the capital budgeting tools, such as the net present value analysis, internal rate of return, payback period and others, will be calculated, The analysis will provide a detailed understanding of the profitability and another solvency related aspect of the investment.

5. Project selection and ranking: based on the outcomes of the project evaluation process, if the company is considering multiple opportunities, then it will rank the project depending on the profitability and another aspect, which will help the company to select the best and most preferred option.

2. The principles of determining the incremental cash flow:

Determining the incremental cash flows provides a critical step in the capital budgeting process. It involves the identification of the cash flows, which are directly related to any particular investment project because of the additional inclusion in operations. The implementation of the revenue will help the organization to understand how efficiently the project can do and add profit to the shareholder's value.

The principles of determining the incremental cash flows for the business are discussed

1. Relevance: the first preference for determining the incremental cash flow will include the relevance, which will consider that only the relevant income and expenses should be included for the evaluation purpose. Hence, the sunk cost should be eliminated.

2. Time horizon: One of the basic aspects for determining the incremental cash flow will include the time horizon determination, which is the defined period at which the company can generate the incremental cash flow out of the business.

3. Differential principle: The differential principle will include the incremental cash flows directly related to a particular project and not being generated in response to any other project.

4. Opportunity cost: For the incremental cash flow generation, if the company sacrifices their existing revenue or substitutes the use of any particular asset that is used for a different purpose then it will be considered as an opportunity cost, and it should be considered as an expense.

5. Externalities: the externalities will record the side effects of the project, which will impact the performance of the already existing businesses or product sales. Certain externalities will have a positive or negative impact depending on the positioning of the business.

6. Taxes: the taxes are the incremental aspect of revenue, and they should be accounted for by determining the value of incremental cash flow.

7. Working capital movement: The movement in the working capital requirement for the business will be considered an essential aspect of the incremental cash flow.

8. Terminal value: The terminal value will be considered as the amount of cash flow generated or spent on the closure of the proposed investment.

3. Definition of sunk cost and which cash flows should be considered as sunk cost for Vita Smart Ltd.

Definition

The sunk cost can be considered as the expense that is already incurred, and it will not be recovered.

cash flow, which should be considered as sunk cost

Here, the market research cost is taken from the grant for $5000. It is considered as the sunk cost because it has no relation with the acceptance or rejection of the project.

4. Definition of opportunity cost: cash flow that should be considered the opportunity cost for Vita Smart Ltd.

Opportunity cost

The opportunity cost can be considered as the expense for forgiving any opportunity to generate any alternative income because of the selection of any particular project. For the instrumental cash flow calculation, the opportunity cost should be considered as an expense for the business as the company is forgiving the chances of generating an alternative revenue because of the new investment.

Opportunity cost for the project:

In the given case scenario, the leasing of the land will be considered as the opportunity cost. This is because, the company was the opportunity to lease the place for $11000 per year.

5. Definition of externality, which cash flows should be considered externality and the given case scenario and the assessment of their positive and negative aspects.

Definition of externality

For the incremental cash, the determination of any project's externalities suggests a particular project's impact on other project revenue. There will be positive or negative externalities because of the particular project. Suppose any particular project is increasing the revenue of the alternative products available for the business. In that case, it will be considered a positive externality. On the contrary, if the project minimizes the sales revenue of other projects, then it will be considered as an negative externality.

Externalities for the proposed plan

Based on the calculation and the information provided by the company, the decrease in the revenue by 2.5% will be considered as the externalities for the business, and it will be considered as the negative externality. Here, the case study is silent about the sales revenue for the alternative project. Therefore, the current forecast of its sales is considered as the basis of the decrease in revenue for the other projects.

6. Definition of NOWC, cash flow indicating the NOWC:

Definition:

NOWS stands for the net operating working capital for the business. It is an expense, which will be employed in the accounts that are receivable and inventory and the accounts that are payables will partially finance it. In most of the cases, it is assumed that the entire working capital invested into the business will be recovered at the terminal period.

NOWC for the company

In the given case scenario, because of the increase in revenue, the working capital requirement for the business is increased by 5% every financial year as compared to the previous financial year's working capital requirement.

7. CCA in Canadian accounting practice, and the estimation of the class of assets in accordance with CCA:

The term CCA, in accordance with Canadian accounting practices, will be considered as the capital cost allowance, which is available for deduction in taxation purposes. It is an expense of the business for the capital expenses made by the organization. Here, CCA has been classified into different kinds of classes of assets.

Class of asset as defined with a specific rate of capital and available for the financial year:

Determination of the class of asset:

Based on the information available for the asset, it will be a class 8 asset, which includes specific property that is not included in another class of asset, like furniture and appliances and costing more than $500. The applicable cca for the "class 8" assets is 20%.

8. the CCA claim methods in accordance with the CRA guidance:

In accordance with the CRA guidelines, the organization can use the capital cost allowance in the following method

- Straight line method: Under the straight line method, the company will be getting the same amount of capital cost allowance, which can be calculated by deducting the salvage value from the cost of acquisition and it will be divided by the period or the life of the asset.

- Diminishing balance method: Under the diminishing balance method, the company will use the undepreciated capital cost multiplied by the diminishing balance rate.

- Double declining balance method: Under the double declining balance method, the company will use the double depreciation of the straight-line method as the initial percentage for getting the maximum depreciation in the initial years.

In order to claim the capital cost allowance in accordance with the Canadian income tax rules, the depreciation can be claimed by using the form t2125, which is the statement of the business and professional activities. At first, the company will require to identify the class of asset and the depreciation rate for the same as it to claim the capital cost allowance (www.canada.ca, 2023).

9. The interest included in the cash flow estimation and the current interest rate of the business loan in BC:

The interest expenses should be included in the cash flow estimation because it is an integral part of the cash outflow, which is relevant for a particular project itself. For instance, if the organization has included debt financing for the capital resourcing of the particular project, then it will be required to pay for the interest expenses, which will be specific to this project itself, and it will make a significant cash outflow out of the business. Hence the interest expense should be included in the cash flow consideration.

However, if the management applies the wacc as the discounting rate, then, the company is considering the cost of debt financing account as the way to average the cost of capital, including the weight of debt capital. Hence, the company is automatically considering the cost of interest for the project discounting purpose. However, if the company is not using the average cost of capital, then in such a case, the company will be required to include the interest expenses as an expense in the cash flow estimation.

The interest rate in British Columbia

The average interest for British Columbia is almost 5.25% for small-scale organizations. However, the interest will depend upon the liquidity position and other aspects of the business (tradingeconomics.com, 2023).

10. Assessment of the wage's expenses, determination of the minimum wages in BC

Assessment of the wage expenses

The wages can be direct and indirect depending on the nature of expenses. In the given case scenario, each employee worked a hundred 1835 hours over the period, which includes 35 hours of weekly working along with 15 days of week off, which is the total payment for 2345 hours. The wage expenses in the case study are a direct expense because these wages are paid for operating production equipment.

The correct minimum wage rate in British Columbia is $16.75 (news.gov.bc.ca, 2023).

At the same time, here and in many cases, the wages can consider as indirect costs if the wages costs are not associated with the production.

11. Importance of tax shield for the business operation and determination of the business tax rate in BC:

The tax shield can be considered as the items for which the company can get the deduction for taxation purposes. Because of those expenses, the company's tax liability will be reduced. However, for sure, it is like depreciation. The tax shield will minimize the tax expenses for the business, and there will be no cash flow for the same.

In accordance with the small business organization, the applicable business tax rate in British Columbia is 9% only (www.canada.ca, 2023).

12. Inclusion of the inflation in the cash flow estimation and the most recent inflation rate in Canada

Inflation is an integral part of the cash flow estimation because it will impact the cash generation process because of the general increase in the prices for the product. Therefore, the inflation should be adjusted with all expenses like the increase in revenue order product prices, direct material expenses, overhead expenses and others.

Considering the recent year inflation trend, it is identified that in recent financial years, inflation has increased by a significant portion because of global volatility. However, it will not exist in the future. Hence, for a better understanding of the situation, the 5-year average inflation, which is 3.27%, is considered (ycharts.com, 2023).

Part 2: project evaluation

Finding the net present value (NPV):

For the investment analysis purpose, the net present value will be used where the project cash flows will be discounted by the cost of capital, which is 12%. Suppose the present value of the future cash inflow is more than the cash outflow at the present value. In that case, the project can be considered for investment purposes because then it will serve the minimum required rate of return to the investor (pienaar, 2021). Based on the calculation, it is identified that the project identified by Vita Smart Limited cannot be selected because it is generating a negative net present value of $229120.04.

Reference