Modern Accounting Information System

Chapter-1 Introduction 1.1 Background of the Study 1.2 Objectives of the Study 1.3 Justification of the study 1.4 Scopes of the Study 1.5 Limitation of the study 1.1 Background of the Study: Among the basic needs of human, shelter is one of them. In the presents perspective it is not possible for middle class to buy a land in the Dhaka city and build a building because of limited income. Real Estate Industries are working to provide residence for those people who have not capability to build a building but they would like to buy apartment to live in a luxurious and peaceful condition. Besides, this industry also has created a large number of jobs in the job market. Thousands of backward linkage industries such as: Brick, Sand, Ceramic, Sanitary wears industry etc. have set up on the base of real estate industries. So, it is playing a great role in our national economy as it has a huge impact on the country’s revenue collection. There is about five hundred real estate Companies in our country. All the companies are not well recognized by the people. Many of the companies do not fulfill their commitment. Unfortunately many of the people have lost their faith on few developers. To satisfy those people Habitation properties Ltd. has taken the challenge and trying to do the best. Habitation properties Ltd. is one of the fast growing Real estate Company. It is very new in the Real Estate market but I found the peoples behind it are very experienced and professional. In this internship report I tried to go through about Habitation properties Ltd. to make the report better informative and meaningful. So that the readers will able to get a simple idea about the sector’s history, nature and style of business, services etc including a live example of a well-known company that is Habitation properties Ltd. 1.2 Objectives of the Study: The broad objective of the study is to identify the pattern, problems and potentials of Real estate sector of Bangladesh. The specific objectives of the study are summarized below: To assess the role and contribution of apartment business to meet the housing Needs in the Metropolitan city areas. To identify the demand pattern of apartment buildings in metropolitan areas To identify the pricing situation of the sector in the light of soaring construction Materials price. To identify the pricing situation of the sector in the light of soaring construction materials price. To identify the sources of funds of apartment business. To identify the factors motivating the buyers to buy apartment. To identify the sources of funds of the buyers for buying flats To identify the factors motivating the buyers to buy apartment. To identify the sources of funds of the buyers for buying flats To identify the socio-economic characteristics of apartment buyers. In short, the objective of the study is to find out the current condition, growth, market structure, financing condition and future prospects of the real estate sector in Bangladesh containing comparative scenario analysis with the global real estate market. 1.3 Justification of the study: At the present condition the real estate business is most soaring business. For conducting the real estate Business, it is absorbing a lot of people. Thus it is contributing a lot to the economics of our country. This sector is also the supporting of the other sectors such as Bricks, sand, cement, paint etc. this sector is also challenging. So as a BBA student I selected this tropic. 1.4 Scopes of the Study: In our country real estate is a growing and profitable sector in business arena. There are many dimensions of study of this industry. But the main focus of the study is to identify the problem and prospects of this sector in Bangladesh from the view point of developers (Real Estate Companies), apartment buyers (Consumers or ultimate beneficiaries) and the financial institution providing housing loans. So, the study tries to explore the problem and prospects of apartment business. The apartment companies are mostly concentrated in Dhaka City and to some extent in Chittagong city. But Dhaka city is the main center of apartment development, so the study is confined to apartment projects within the Dhaka City and suburb of Dhaka City. 1.5 Limitation of the study: Inadequacy of data: Till now, the sector is developing in a scattered way. For this reason it is very difficult to obtain data about participants of this sector. As very competitive and private sector enterprises, they maintain strict secrecy about their finance related information. Information regarding finance of the industries can not be gathered as desired. Recent data and information was not available in many cases where it was necessary. Linear relationship has been assumed in analyzing the information, which may not apply in many cases. Primary data prone to inaccuracy: I had significant dependence on the primary sources, so there might be some level of inaccuracy with those collected information. Though, adequate verification and cross-checking was used to minimize the error level. Interpretation problem: Many of the analyses on the obtained data are based upon my sole interpretation. As a result it might bring in some biases, as lack of knowledge and depth of understanding might hinder me to produce an absolute authentic and meaningful report. Literature constraint: No major work has so far been done in this sector. So there is a dearth of literature in this field. Time limitation: three month is not enough to make such a vast repot on a real estate company like HPL Money limitation: As there was no system of paying any allowance. So it was not possible for me to go all the project of HPL as well as most of the competitors. Time limitation: three month is not enough to make such a vast repot on a real estate company like HPL Money limitation: As there was no system of paying any allowance. So it was not possible for me to go all the project of HPL as well as most of the competitors. 2.0 Literature Review A literature review is an account of what has been published on a topic by accredited scholars and researchers. A literature review is a body of text that determines the aims to review the critical points of current knowledge including substantive findings as well as theoretical and methodological contributions to a particular topic. Literature reviews are secondary sources, and as such, do not report any new or original experimental work. Also, a literature review can be interpreted as a review of an abstract accomplishment. Alison Doyle, When you are writing for accounting system of any real estate company you must be sure to take the time to make sure your letter includes quantifiable achievements i.e. sales volume achieved or surpassed, as well as your skills and credentials that are specifically related to what the employer is seeking in a candidate. Because you are applying for jobs that involve accounting, it's very important to effectively sell yourself in your accounting. Review examples of accounting related to get ideas. Dave Kurlan (Premium Author) Dave Kurlan is a best-financial manager consultant, top-rated speaker and thought leader on account.  He is the founder and CEO of Objective Management Group, Inc., the industry leader in account assessments and account force evaluations, and the CEO of David Kurlan & Associates, Inc., a consulting firm specializing in sales force development. Dave has been a top rated speaker at Inc. Magazine's Conference on Growing the Company, accounting and financial Management Conference and the Gazelles , accounting and financial Management Summit. He has been featured on , accounting and financial Management, including World Business Review with General Norman Schwarzkopf, in Inc. Magazine, Selling Power Magazine, , accounting and financial Magazine and Incentive Magazine. He is the author of Mindless account and Baseline account – How to Become a account Superstar by Using What You Already Know about the Game of Baseball. He created and wrote STAR, a proprietary recruiting process for hiring great salespeople, and he writes Understanding the account Force, a popular business Blog and is a contributing author to The Death of 20th Century Selling (Dan Seidman), Stepping Stones (Deepak Chopra and Brian Tracey) and 101 Great Ways to Improve Your Life. 2.1 Modern Accounting Information System 2.1.1 Introduction: Being an accounting professional today requires far more than just a textbook understanding of debits and credits. Journalizing and posting steps and the latest accounting and auditing pronouncements. The accounting professional of 21st century must also stay abreast of the many technological advances, which continually reshape the business world. These advances have sparked an information revolution, which in the past few decades has transformed almost every aspect of accounting. Perhaps the greatest impact of the information evolution has been on the accounting system itself indeed, accounting systems and the world of computers and data processing has become inseparable. Recognition of this has given rise to a new accounting specialty area known as accounting information system (AIS). The AIS area encompasses many potential topics such as general system theory control structure and specific computer applications. Developments in AIS area have substantially affected accounting practice and consequently accounting education. The modern business world is dramatically changing their accounting systems. They update their systems with the computerized systems. In computerized systems they have to keep accounting and non-accounting transaction for providing required information to the users of the organization. But Accounting Information Systems (AIS) is more complex and integrated each other which are as follows: 2.1.2 Accounting: Accounting is an information system that identifies records and communicates the economic events of an organization to interested users. That is, it employees various systemic operations to generate relevant information. Among the operations that it encompasses are: Recording economic data (Data Collection) Maintaining stored data (Data maintenance) and Presenting quantitative information in financial terms. 2.1.3 Information: In the broadest sense, information is intelligence that is meaningful and useful to persons for whom it is intended. It is necessary for making sound decisions and inducing desired actions. Usually, information is derives from the processing of data. Data are the raw facts and figures and even symbols that together from the inputs to an information system. Generally information reduces the uncertainty of future events. 2.1.4 System: A system is a unified group of interacting that function together to achieve its purposes. Each system has a boundary that separates it form its environment. Most systems are open, in that they accept inputs from their environments and provide outputs to the environments. In particular, I will be concerned with the fact that a system contains interdependent parts that have system characteristics and are called subsystems. Objectives Basic Characteristic of a tangible open system. 2.2 Accounting Information systems (AIS): An accounting information system is a unified structure within an entity, such as a business firm, that employs physical resources and other components to transform economic data into accounting information, which purpose of satisfying the information needs of a variety of users. Information system is defined as the function that – performs the design, Construction, and maintenance of human/ machine systems that- Utilize information-processing technology (Computers, Telecommunications and office automation.) To support the information processing needs and information access requirements. The management and the various function within an organization So, the purpose of the system function is to support the test of the organization (including accounting) with information processing and information access to a brand spectrum of users, from clerical to managers. The information systems applications range from large corporate transaction and reporting systems of individual support systems and end-user computing. An accounting information system is a unified structure within an entity, such as a business firm that employs physical resources and other components to transform economic data into accounting information, with the objective of satisfying the information needs of a variety of users. In fact the AIS is a subsystem of a broader information system that encompasses all information generating activities. Other component of information systems includes the management information system (MIS), decision support system (DSS) expert systems (ES) & executive information systems (EIS). Each of these types of information System serves purposes that are similar yet different. Firms employ information systems as required to fulfill their total information needs. In a typical firm I will find an intermingling of the systems. Smaller firms are likely to emphasize the AIS, since they tend to be simple, with the managers gathering more of their decision making information informally. Medium sized firms, being more complex and having more than one level of management tend to require more formalized MIS as well as AIS degree firms being extremely complex tend to emphasize DSS &ES as well as MIS & AIS. Another thing is that, firms employ a mixture of computer based and manual processing within their transaction & information processing activities. But in general we can say that the medium & large firms emphasize to a higher degree than small firms. Figure: Factors influencing the design of AI Figure shows that corporate strategies are one of the factors that should influence the design of AIS. It also shows that new development in IT affects the design of AIS. Indeed in the past decades, IT has profoundly changed the way that Accounting and many other business activities are performed. Moreover, that impact is likely to continue in the future. There are many opportunities to invest in IT so that AIS can be improved to add value to an organization. Most organization however, do not have unlimited resources. Therefore, an important decision involves identifies which potential AIS improvements are likely to yield the 3.0 Methodologies: An explorative research has been conducted in preparing this paper. Pure basic research approach has been used. Theoretical and practical studies have also been incorporated. Multiple methods were used to collect data for identifying the pattern of apartment projects of Bangladesh and their problems: Review of relevant literature, survey, in-depth interviewing, informal interviews, and observation methods were some of them. Respondents of the study consist of apartment buyers and executives of the apartment companies, executives of the housing finance institutions. 3.1 Collection of Data: Data have been collected through face-to-face and telephone interview. Questionnaire has been used in gathering primary information from real estate participants. Information has been used from different secondary sources – Internet, Newspapers, annual reports, online and printed articles, journals and previous research papers on real estate sector and editorials & special housing supplement of news papers etc. Opinions have been collected from experts and participants in the real estate sector, which have been very useful in analyzing the data & information and to reach a conclusion. The raw data also collected from Real Estate & Housing Association of Bangladesh (REHAB), Real Estate Yellow Pages (A Residential & Commercial Real Estate Directory), Annual Report of REHAB 2011, Ministry of Housing & Public Works, Rajdhani Unnoyon Kortipokkho (RAJUK), Imarot Nirmaan Bidhimala 2011, Daily Ittefaq (Weekly Report on Real Estate, Monday on every week), Weekly Bangladesh Shaptahik, Bangladesh Real Estate Law 2008 Graphical Presentation: The data were presented in Bart Chart (Fig-1), Line graph Fig. 1. This graph also described in statistically and possible cause and result. Fig: 1 Yearly Number of flat hand over by the real estate company Year Growth of Real Estate Business Observation & guideline preparation Area Specialization of Real Estate sector Classification of Real Estate Product At the beginning, Sale of Real estate companies is low. Might be then, buyers were unaware of Real estate product 3.2 Data Analysis The flat sale of 2006-2011 show a positive skew ness curve where the highest number (Mode) of flat sale Tk. 40-55 lac. The flat sale of apartment deviate Tk. 21.61 lack With the mean value of Tk. 53.61 lac In establishment year 2005-2007, flat sold 28 % and in 2007-2008, it was 72%. Flat was sold in Dhaka (55%), Chittogong 25%, Sylhet 5%, others 15% flat was sold. Banani Gulshan and Dhanmondi, Kulshi (Chittogong) are treated as most exclusive area. The land Owners of Banani, Gulshan, Dhanmondi and Kulshi (Chittogong) zone are very much aware for developing their land Buyers are feeling comfort to buy flats in Banani,Gulshan, Dhanmondi, & Kulshi (Chittogong) zones. Uttara is now becoming prime zone. At the very beginning 15-25 lac prices flat were sold more but in the year 2004 number of flat sale of this range gone down. 40-55 lac prices flats became very much popular and buyers felt comfort to buy it. 55-70 lac prices flats are next popular to buyers. Tools Used: In analyzing the data and information gathered, a few Microsoft Excel tools were used such as mathematical functions, trend analysis etc. Moreover when forecasting future scenario based on current situation, gathered data and information have been assumed to have linear relationship and thus linear forecasting of different facts has been incorporated. Interpretation & Substantiation: Numerical data have been analyzed and interpreted with concentration and relation to the main issue. Data and information collected from different sources were compared critically and found negligible mismatching. Theoretical analysis along with numerical evidence has been used to substantiate the findings of the report. 4.1 Name of the Company Name of the company: HABITATION PROPERTIES LTD Established and Incorporated as a private company in 25th February, 2008. 4.2 Company Logo: 4.3 Historical development of the organization Habitation Properties Ltd is 100% Bangladeshi Developer and Real Estate rising company in Bangladesh. The company started its activities in 2008 named Habitation properties Ltd which registered with Joint Stock Company by the company’s act 1994. The company started its work with only one project. Now it has more than 20 projects. 4.4 Corporate Structure The company wants to establish itself not only for earning money but the company wants to build up the nations by creating working capacity. The organization had a wonderful vision about the nation. The overall Management of the company will be with the Board of Directors (BOD). It will run according to the provision of the articles of association and the Memorandum of association of the company. Md. Sharifur Rahman and Md. Abdul Kader has been appointed as the Chairman and Managing Director of the company respectively. Execuitve Commitee Members of Habitation Properties Ltd. (2010-2012) The following Directors the EC Members of Habitation Properties Ltd. as on 2010-2012 sessions: Sl Name Designation 1 Md. Sharifur Rahman Chairman 2 Md. Abdul Kader Managing Director 3 Farid Hossain Director Finance 4 Md. Abdul Latif Director Engineering 5 Md. Ariful Islam Director 6 Md. Nesar Uddin Director 7 A.G.M. Shahidul Islam Director 8 Shabbir Ahmed Osmani Director 9 Md. Mahabubur Rahman Director 10 ANM Anwar Hossain Director 11 Mostafa Amin Khan Director 12 Oliur Rahman Sheraji Director Units of Habitation Properties Ltd The following Units are Habitation Properties Ltd: Construction Unit and Land Unit In addition to the management Habitation Properties Ltd. has identified the following as persons who will contribute greatly to the success of the company. Auditor: Ata Khan & Co. (Chartered Accountant) for the year of 2010-2011. Banker: Habitation Properties Ltd is service and Finance oriented for financial support and investment it is fully supported by the following Bank: Islami Bank Bangladesh Ltd. Standard Chartered Bank Ltd. Prime Bank Ltd. Bank Correspondent As renounced companies, Habitation Properties Ltd. operates 3 accounts in different Banks. There is a close relation between the Bank and the company. Habitation Properties Ltd. received investment facilities from different Banks and refunded the investment in due time. 4.5 Operation Activities of the Organization As renounced companies, Habitation Properties Ltd. has different Apartment and Land business. Activities of Habitation Properties Ltd are described bellow. Apartment Unit: Most of our apartment projects are located in the prestigious places. One of the best residential area of the elites, having the important places, best educational institutions, shopping centers and bank of Dhaka city, as the area has clean climate and well planned model town and fast communication network, multi directional roads & highways, international airport, railway station and river port facilities. Land Unit: Habitation Properties Ltd. has Land project at Vhuighar, Narayangonj name “Harmony South Valley’’. There are about 2000 plot for incumbent. This project considering the incumbent necessities of exclusive and luxurious living, where reputed schools, colleges, universities and aristocratic hospitals and shopping malls with wonderful communication system are rudimental requirements. 4.6 Vision: To earn the distinction from our clients as satisfying their commercial real estate needs better than anyone else. 4.7 Mission: Is” Quality-the unit we count” And by quality we never mean only product quality, it extends to our all business activities as well. 4.8 Our Strength: Is the support that we have gained from their people, their customers and their other stakeholder around us. 4.9 Objective of the Company: Our objectives are to conduct transparent business operations within the legal & social frame work with aims to attain the mission reflected by our vision. 4.9.1 Long-range objective: The long-term objective is to gain leadership globally in the home appliance industry. 4.9.2 Short term objective: Their short-range objective is profit maximization by providing quality product. 4.9.3 Strategic Intent: To be the global leader in this sector. 4.9.3.1 Corporate Strategy: To earn more profit by applying marketing policy. 4.5.3.2 Operational Strategy: To promote corporate image establish good production facilities and to setup a good marketing channel. Corporate Head Office: House # 09; Road # 04; Sector # 06; Uttara, Dhaka – 1230. Bangladesh. Telephone + 880 2 895 7208 + 880 2 896 0938 E-mail: [email protected] Web: www.habitationbd.com 4.10 Organizational Structure of the Company: Habitation Properties Ltd CHAPTER-5 OVERVIEW OF THE TOPIC (REVENUE CYCLE) 5.1 Introduction: 5.2 Objectives of the Revenue Cycle: 5.3 Input documents pertaining to the Revenue Cycle: 5.4. Credit Sales processing system: 5.5 Cash Receipts Processing System: 5.6 Information Output: 5.7. Typical files Associated with the Revenue Cycle: 5.8. Revenue Cycle Business Activity (THE EXPENDITURE CYCLE) 5.9 Introduction 5.10 Objectives of the expenditure cycle 5.11 Documents pertaining to the expenditure cycle 5.12 Purchasing and payables processing system 5.13 Cash disbursement processing system 5.14 Operational listings and reports 5.15 Expenditure cycle business activities 5.16 Threats, exposure and control procedure in the revenue cycle (PRODUCTIN CYCLE ACTIVITIES) 5.17 Introduction 5.18 Production cycle activities 5.19 Threats, exposure and control procedure in the production cycle (PAYROLL CYCLE ACTIVITIES) 5.20 Payroll cycle activities: 5.21 Table examples of commonly generated HRM/ payroll cycle reports 5.22 Threats, exposures and control procedures in the HRM/payroll cycle (GENERAL LEDGER CYCLE) 5.23 Introduction 5.24 Sources of Input 5.25 Forms of input 5.26 Chart of accounts (ACCOUNTING INFORMATION SYSTEM) 5.27 INTRODUCTION 5.28 REVENUE CYCLE ACTIVITIES: (FINANCIAL PERFORMANCE ANALYSIS OF HPL) 5.29 Introduction 5.30 Tools of the financial Statement analysis (REVENUE CYCLE) 5.1 Introduction: Revenue Cycles tend to be similar for all types of firms. Two subsystems perform the processing steps within the Revenue Cycle: The Sales Processing System; The cash Receipts Processing System. 5.2 Objectives of the Revenue Cycle: To record sales orders promptly and accurately; To verify that the customers are worthy of credit; To ship the products or perform the service by agreed dates; To bill for products or services in a timely & an accurate manner; To record & classify cash receipts promptly & accurately; To post sales & cash receipts to proper customers’ accounts in accounts receivable ledger; To safeguard products until shipped; To safeguard cash until deposited; Input documents pertaining to the Revenue Cycle: Customer Order Sales Order Order Acknowledgement Bill of lading Shipping Notice Sales Invoice Remittance advice Back Order Credit memo Credit Application Salesperson call report Delinquent Notice Write- off Notice Data Flow Diagram of a Sales & Receivable Processing System. 5.4. Credit Sales processing system: Order entry Customer order Flat & Plot list Shipping Bill of Lading Preparing analyses & Reports Invoice Register Accounts Receivables Summary Handling Sales Returns & Allowances Credit Memos Processing Back orders 5.5 Cash Receipts Processing System: Remittance Entry Remittance List Depositing Receipts Deposit Slips Cash Receipts Transaction Listing Posting Receipts Balance Forward Method Open Invoice Method Preparing Analyses & Reports Collection Delinquent accounts Write- off Notice 5.6 Information Output: Operational Listings & Report Inquiry Display Screens Scheduled Managerial Reports Demand Managerial Reports. 5.6.1 Operational Listing & Reports: Monthly statement Open order report Sales Invoice register Cash receipts journal Credit memo register. 5.6.2 Scheduled Managerial Reports: Accounts receivable aging schedule reports on critical factors Average dollar value per order Average number of days between the order data. Sales Analyses Sales person Sales region Product lines Customer Markets Cash flow statements 5.6.3 Demand Managerial Reports: Demand reports are ad hoc non-scheduled reports” what if “scenarios. 5.7. Typical files Associated with the Revenue Cycle: Master files Customer master file Accounts Receivable master file Merchandise inventory master file Transaction Receivable master file Sales order file Open sales order file Sales Invoice transaction Cash receipts Transaction file Other files Shipping & Price data reference file Credit Reference file Salesperson file Sales history file Cash receipts history file Accounts receivable report file. 5.8. Revenue Cycle Business Activity 8.1 Sales order entry: The first step in the revenue cycle is sales order entry. Key decisions and information Needs: The sales order entry function obtains needed information about inventory availability and customer credit status from the inventory control and accounting functions, respectively. Decisions concerning credit policies, including the approval of credit for new customers and increasing the credit limits of existing customers, however are made. Responding to Customer Inquiries. Credit Approval. Checking Inventory Availability. 5.8.1 Billing and accounts receivable: This third step in the revenue cycle is billing. To activities are performing at all this stage of the revenue cycle: invoicing customer and maintaining customer’s accounts. Key decisions and information Needs: Accurate billing for shipped merchandise is crucial. This required information from the sipping department identifying the items and quantities shipped and information about prices and any special sales terms from the sales department. 5.8.2 Cash Collection: The fourth step in the revenue cycle is cash collections. Key decisions and information Needs: because cash can be stolen easily, it is important to take appropriate measures to reduce the risk of theft. Cash collection must be accurately recorded and customer’s accounts must be properly credited for all remittances. (THE EXPENDITURE CYCLE) 5.9 Introduction: Expenditure cycle involves the outflow of cash; it is the counterpoint to the revenue cycle expenditure cycles tend to be similar for all types of firms-merchandising to manufacturing to services. Two subsystems include: The purchases processing system. The cash disbursements processing system. 5.10 Objectives of the expenditure cycle: To ensure that all goods and services are ordered as needed. To receive all ordered goods and verify that they are in good condition. To safe guard goods until needed; To ensure that invoices pertaining to goods and services are valid and correct. To record and classify the expenditure promptly and accurately. To post obligations and cash disbursements to proper suppliers accounts in The accounts payable ledger. To ensure that all cash disbursements are related to authorize expenditure. 5.11 Documents pertaining to the expenditure cycle: Purchase requisition; Purchase order; Receiving report; Suppliers invoice; Disbursement voucher; Disbursement check; Debit memorandum; New supplier form; Request for proposal. 5.12 Purchasing and payables processing system: 5.12.1. Purchases: Request for proposal Inventory status report. 5.12.2 Receiving: Receiving report. 5.12.3 Payable: Disbursements voucher file. 5.12.4. Preparing analyses and report: 5.12.5. Handling purchase return and allowances: Debit memorandum. 5.13 Cash disbursements processing system: 5.13.1 Processing petty cash disbursements: Imparts system. 5.13.2 Disbursing cash for miscellaneous purposes: 5.14 Operational listings and reports: Voucher Register; Check Resister; Open purchase order report; Open Invoices report; Inventory status report; Overdue deliveries report. Scheduled Managerial report: A payable aging report; Purchase analyses; Vendor performance report; Cash-flow statement; Critical Factors report. Data Management: 5.14.1. Master Files: Supplier Master File; Accounts payable master file; Merchandise inventory master file. 5.14.2 Transaction and Open Document Files: Purchase order file; Open purchase order file; Suppliers invoice file; Open Vouchers file; Cash disbursements file. 5.14.3 Other files: A supplier reference and History file; A Buyer file; An accounts payable detail a. Purchase Procedure Acknowledgement Requisitioned items and quantities Purchase order Ordered quantities Approved Order b. Receiving procedure Receipts Shipped goods c. Payables procedure Order quantities Open voucher & Invoice Amount of obligation Accounts balance Purchase Summaries Analyses and Reports Figure: Purchases and Payables Processing System Logistics Finance/ Accounting Figure: Relationships of organizational units to expenditure cycle 5.15 Expenditure cycle business activities: One function of the AIS is to support the effective performance of the organization’s business activities by efficiently processing transaction data. The five basic business activities in the expenditure cycle: Requesting the purchase of needed goods. Ordering goods to be purchased. Receiving ordered goods. Approving vendor invoices for payment. Paying for goods purchased. Key decision: vendor selection The crucial operating decision in the purchasing activity involves the selection of vendors for inventory items. Several factors should be considered in making these decisions: Price Quality of materials Dependability in making deliveries Receive and store goods: The third business activity in the expenditure cycle involves the receipt and storage of ordered items. Key decisions and information Needs: The receiving department has two major responsibilities deciding whether to accept a delivery and verifying the quantity and quality of the goods delivered. Approved vendor invoices for payments: The fourth activity in the expenditure cycle entails approving vendor invoices for payment. The accounts payable department performs this process. Key decision and information needs: Legally, an obligation to pay vendors arises at the time goods are received. For practical reasons, however, most companies’ record accounts payable only after receipt and approval of the vendor’s invoices. This timing difference ins usually not important for daily decision making but it does require making appropriate adjusting entries to prepare accurate financial statements at and of a fiscal period. Pay for goods: The final activity in the expenditure cycle the payment of approved invoices. Key decision: Taking vendor discounts: A key decision in the cash disbursement process is determining whether to take advantage of any vendor discounts offered for prompt payment. 5.16 Threats, exposure and control procedure in the revenue cycle: Transactions with in the expenditure cycle are exposed to several types of risks. Some risk may expose in the revenue cycle, which are as follows: Threat Exposure Application control procedure 1. Stock outs . Production delays lost sales. . Inventory control system and . Vendor performance analyses 2. Purchasing unnecessary goods or in too great a quantity. . increased inventory costs. . Accurate perpetual inventory . Approve purchase requisitions . Pre numbered purchase requisitions . Restricted access to blank purchase requisitions. 3. purchasing goods at inflated prices . Cost overrun . Price list consultation . Solicitation of written bids . Approve purchase orders . Budgetary control 4.Purchasing goods of inferior quality. . Production delays . Cost overruns . Use of vendor lists . Review of purchase order . Vendor performance analyses 5. purchasing form unauthorized vendors . Inferior quality of purchase goods . Inflated prices . Violation of laws . Import quotas . Approval of purchase order . Restricted access to approved vendor list and approval of any changes made to that list. . Pre numbered purchase orders 6. kick backs . Inferior quality of purchase goods . Inflated prices . Violation of laws . Prohibition of gifts from vendors . Requirement that purchasing agents disclose financial interest in suppliers . Vendor audits 7. Receiving unordered goods. . Increased inventory costs . Approve purchase order for all deliveries. 8. Received . Payment for items not received. . Inaccurate inventory records. . Blank quantity field on copy of the purchase order sent to receiving . Incentives to count all deliveries 9. Theft of inventory . Lost of assets . Inaccurate records . Physical access controls. . Documentation of all internal transfers of inventory. 10. Errors in vendor invoices . Inaccurate records . Inaccurate payment . Recheck of all invoice accuracy. . Comparison of invoice to purchase order and receiving report. 11. Paying for goods not received . Loss of cash . Over stated cost . Requirement of voucher package to support payment of invoices. (Production Cycle Activities) 5.17 Introduction: The production cycle consist of the activities involved in converting raw materials and labor into finished goods. 5.17.0 Production cycle activities: Product design Planning and scheduling Production operations Cost accounting 5.17.1 Product design: The first step in the production cycle is product design. The objective of this activity is to design a product that meets customer requirements for quality, durability and functionality while simultaneously minimizing production costs. Some of these criteria conflict with one another, making the product design task a challenging one. 5.17.2 Planning and scheduling: The second step in the production cycle is planning and scheduling. The objective of this step is a production plan efficient enough to meet exciting orders and anticipated short-term demand without creating excess finished goods inventories. Planning methods: Two common methods of production planning are: Manufacturing Resource Planning (MRP) Just in time (JIT) manufacturing System Finished goods Sales For Casts Customer order Production orders Work in Materials Process Requisitions & Move tickets goods Labor Available Labor Cost management Payroll cycle Accounting Operations Job time tickets and materials requisitions Raw material and overhead costs Cost of goods manufactured Figure: Data flow diagram of production cycle 5.17.3 Production operations: The third step in the production cycle is the actual manufacture of products. The manner in which this activity is accomplished varies greatly across companies. Differing according to the type of product being manufactured and the degree of automation used in the production process. 5.17.4 Cost accounting: The final step in the production cycle is cost accounting. The tow principal objectives of the cost accounting system are: . To provide information for planning, controlling and evaluating the performance of production operations; and . To provide accurate cost data about products for use in pricing and product mix decisions. In addition, the cost accounting system provides the information used to calculate the inventory and cost of goods sold values that appear in the company’s financial statements. 5.18 Threats, exposure and control procedure in the production cycle: Threat Exposure Applicable control procedure Unauthorized Transactions . Over production and excess inventories . Obsolescence . Under production Exposure . Stock outs . Loss sales . Excess investment in fixed assets . Accurate sales of forecast . Accurate inventory records . Authorization of production . Restricted access to production Applicable control procedure . planning program . Review an approval of capital asset expenditures 2. Theft or destruction of inventories and fixed assets. . Loss of assets . Overstated inventory records . Restricted physical access . Documentation of all internal movements of inventory . Proper segregation of duties . Periodic physical counts of inventory . Reconcile to records . Assignment of accountability and responsibilities for fixed assets . Proper approval and documentation Recording and posting errors . Ineffective scheduling and planning . Decision errors (Product mix, product pricing over/under production . Increased expenses and taxes on fixed assets that are incorrectly valued . Insurance . Source data entry edit controls . Online data entry edit controls . Periodic physical counts of inventory fixed assets and reconciliation of those counts to corresponding record. Inefficient and quality control problems . Increase expenses (scrap, rework, warranty, repairs, sales return and allowance) . Loss of customer goodwill and future sales. . Regular performance reports . Exception reports . Highlighting variances from budget plan . Measure throughput . Measure cost of quality control. 5. Loss of data . Loss of assets . Ineffective decision making . Backup and disaster recovery procedure . File labels . Access control . Creation and review of logs of all computer activity. (Payroll cycle activities) 5.19 Payroll cycle activities: The seven basic activities performed in the payroll cycle. Payroll is one AIS application that continues to be processed in batch mode because: Paychecks are prepared periodically (weekly/ monthly) Most employees are paid at the same time Update master payroll file Update tax rate and deductions Validated time and attendance data Prepare payroll Disbursement of payroll Calculate employer-paid benefit and taxes Disbursement of payroll taxes and miscellaneous deductions Pay checks Time data Payroll Figure: A Context Diagram for a payroll processing system Time card data Employee hour’s data Status & rate data Personnel data Figure: Data flow diagram for the payroll processing system. 5.20 Table examples of commonly generated HRM/ payroll cycle reports: Report Contents Purpose 1. Communicative earnings register . Communicative year to date gross pay, net pay and deduction for each employee . Used for employee information and annual payroll reports. 2. work force inventory . List of employees by department . Used in preparing labor-related reports for Govt. agencies 3.Position control inventory . List of each authorized position, job qualification, and budgeted salary . Used in planning future works force needs 4. Skills inventory report List of employees and current skills . Useful in planning future works and training programs 5. Various other reports to Govt. agencies Data on compliance with various regularity provision state and local report etc. . To documents compliance with applicable regulation 5.21 Threats, exposures and control procedures in the HRM/payroll cycle: Threat Exposure Applicable control procedure 1. Hiring of unqualified or larcenous employees . Increased expenses . Lower productivity . Theft . Sound hiring practices, including verification of job applicant’s skills, references and employment history. 2. Violation employment law. . Fine . Civil Suits Through documentation of hiring procedures 3. Unauthorized changes to the master payroll file . Increased expense . Inaccurate reports & records. . Segregation of duties . Access controls 4. Inaccurate time data . Incorrect expenses & internal reports . Over/Under payment of employees. . Automation of data collection . Application control . Reconciliation of time card and job time tickets 5. Inaccurate processing of payroll. . Inaccurate records and poor decision making . Penalties for violation of tax law . Reduced morale, if all employees not paid. . Batch totals and other application controls . Payroll clearing account 6. Theft or fraudulent distribution of paycheck. . Increased expense . Loss of assets . Direct deposit 7. Loss or unauthorized disclosure of payroll data. . Loss of assets . Reduced morale . Employee law suits. . Access controls . Backup procedures Encryption (GENERAL LEDGER CYCLE) 5.22 Introduction: The main inputs to the general ledger and financial reporting cycle are the outputs of all other cycles; it is the linchpin that ties together all the component transaction processing cycles and systems. Transactions from all cycles and systems are ultimately posted to the general ledger regardless of the extent to which the system is computerized. 5.23 Sources of Input: 1. Routine External Transactions. 2. Routine Internal Transactions. 3. Non- routine Transactions. 4. Adjusting entries 5. Accruals are recurring entries. 6. Deferrals 7. Reevaluations 8. Corrections 9. Closing entries 5.24 Forms of input: Journal Voucher the primary source document to the general ledger system is the journal voucher (JV). This input form abstracts pertinent details to support postings to the general ledger. A single journal voucher generally concerns either: A non-routine, adjusting, reversing, or correcting transaction, such as a transaction to amortize and annual portion of patent costs. A Summarization of a batch of routine transactions. 5.25 Chart of accounts: A chart of accounts is a coded listing of the account-assets, equities, revenues, and expenses pertaining to a firm. In addition to the account code, each listing in a sound chart of accounts describes the contents of an account, including the specific transactions that affect its balance. The composition of the chart of accounts is determined mainly by the information needs of external and internal users. These needs are reflected through the financial statements, other financial reports that must be designed first. 5.25.1 Classification within the chart of accounts: A firm’s of accounts should provide sufficient classifications to allow analyses of transaction data as needed. For instance sales transactions should be classified in a manner that enables the output of information concerning the region where the sales took place as well as the product lines should. A firm must also consider the information needs to external parties for example; accounts must be classified to meet the requirements of governmental agencies. Finally accounts classifications should also reflect the activities and customers of the industries in which the firms reside. ACCOUNTING INFORMATION SYSTEM OF HABITATION PROPERTIES LTD. 5.26 INTRODUCTION: Habitation properties Ltd is the local company who dares to invest in Real Estate sector. Habitation properties Ltd Habitation properties Ltd is committed to cater to the growing residence care needs of the nation. This commitment demands immense social responsibility of ensuring quality Apartment of the highest strength, proper stability, excellent safety and super efficiency. Every stage of production, stringent control mechanism involving raw material testing, in process quality control, finished product testing as well as stability monitoring and documentation is maintained. HPL utilizes AIS in which the bookkeeper, clerks, cashiers and others perform all the activities. The AIS of HPL can be described under the following cycles. 5.27 REVENUE CYCLE ACTIVITIES: The revenue cycle activities consist of four activities: Sales Contract Billing Cash collection Handover of Flat The activities are shown in a graph in the next page. 5.27.1 SALES CONTRACT: This is the first step in the revenue cycle. This function includes all the activities involved in soliciting and processing customer orders. Bank Directly 5.27.1.1 Sales Contract Information: An internally generated document prepared from the contract sheet, which lists. The Unit numbers Area Prices Terms of the sale One copy of it is kept in the sales section, another copy is sent to the customer. Copies are also sent to the billing department. Order Acknowledgement Approve Contract Figure: Revenue cycle of Habitation properties Ltd. 5.27.1.2 KEY DECISION & INFORMATION NEEDS: About inventory availability Customer credit status Decision concerning credit policies including the approved of credit forward customers and increasing the credit limits of exciting customers are made. 5.27.1.3 RELATED ACTIVITIES OF THIS STEP: The three main activities are involved: Responding to customer inquiries-customer inquiries are handled directly by the sales assistants. Inquiries about current account balances. Credit approval is required in case of credit sale. 5.27.1.4 DOCUMENTATION: Related document and records of the order entry function are as follows: Order sheet: Name & address of the party Name & address of the intermediary bank advances that are made by customers Advances that are made by customers Date of Flat handover etc. 5.27.2 BILLING: Bill is prepared before the handover date. In case of direct sales bill are prepared first as per the contract form. Flats are handover after receiving the money in cash or through demand draft (DD). 5.27.2.1 Information needs: Accurate billing for flat handover or that is to be handover is required. 5.27.2.2Documentation: Sales register: Sales are transferred to the sales register The monthly statement summarizes all transactions during the past month & informs customer of their current account balances. 5.27.3 CASH COLLECTIONS: This is the last step in the revenue cycle. Here the cashier handles the remittances and deposits it in the bank; the customer accounts are credited for payments received. In case of sales through bank; the intermediary bank collects money from the customer, bank issues DD in favor of HPL. Again in case of credit sales the department collects money from customers. The sales department issue money receipt in this regard. Documentation: Money receipt (MR): Receipt that is issued to the bank/ customers on receipt of cash, check, DD etc. The account clerk also prepares Remittance list Bad debtors list Doubtful debtors list etc. 5.20.4Handover of Flat: Each Flat contains- Name & Address of the party Name & Address of the bank through which the sales are made. But in case of direct sales, Flats are handover after receiving cash or DD for the amount cited in the bills. FINANCIAL PERFORMANCE ANALYSIS OF HPL Analysis of Financial Statement 5.28 Introduction: Financial statement analysis involves careful selection of data from financial statement for all primary purpose of forecasting the financial position of the company. This is accomplished by examine trends in key financial data comparing financial data across companies and analyses key financial ratios they constitute a report on managerial performance attesting to managerial success or failure and flashing warning signals of impending difficulties in this report I was collects five year balance sheet and other important ratio of that are used in attempting to predict the future course of events in the organization. Here I have collect balance sheet and income statement of Habitation properties Ltd and analysis their financial statement ratios with comments to predict the future course of action in this organization. Auditors’ Report of Habitation properties Ltd Auditor have audited the accompanying Financial statement of Habitation properties Ltd comprising balance sheet as at the 30th June, 2011 and the related income statement, statement of change in Equity, cash flow statement together with related notes and schedule there to the year ended. The preparations of these financial statements are responsibility of the company’s management. Their responsibility is to express an independent opinion on these financial statements based on their audit. They conducted their audit in accordance with the BSA. Those standards require that they plant and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. They include examining, on a test basis, evidence supporting the amount and disclosures in the financial statements. They also include assessing the accounting principles used and significant estimates and judgments made by the management, as well as evaluating the overall presentation of financial statements. They believe that their audit provides a reasonable basis for their opinion. Their opinions, the financial statement, prepared in accordance with the BAS, give a true and fair view of the state of affairs of the company as at 30th June, 2011 and of the results of its operation and its cash flow for the year then ended and comply with the companies act 1994 and other applicable laws and regulations. They also repot that: They have obtained all the information and explanations which to the best of their knowledge and belief were necessary for the purpose of their audit and made due verification thereof; The company management has followed relevant provision of law and rules in managing the affairs of the company and proper books of account records and other statutory books have been maintained so far as it appeared from their examining of those books; The company’s balance sheet and income statement deals with by the report are in agreement with the books of account and returns. My Approach to Analysis The financial statements are analyzed and interpreted by differences classes of persons from different angles and to serve their respective purposes. I am analysis of these statements, though the basic technique of appraisal remains the same in all the cases but the approach and emphasis in analysis vary. My approach to the analysis of these statements is essentially different from that of the investors and the management. As a lender and creditor of his/her borrower/customers, interested in assessing the solvency or the repaying capacity of the borrower as is evident his/her financial statements. I was analyses and interpret the financial statements so as to evaluate: The financial soundness and stability. The liquidity position. The profitability or earning capacity of the borrowing concerned. I was analysis of balance sheet and profit and loss accounts of the company, it is most important financial statement prepared annually. There are two stages in the evaluation of the financial statements: The analysis of the balance sheet, i.e., examining of individual items of assets and liabilities and their classification into well-define categories Interpretation of the balance sheet of the ratio analysis But I was analysis to the second one that means ratio analysis of the company. And find out the current position of the company. 2011 % 2010 % Turnover & other Income 97,103,666 34,893,735 Brought -in-Materials & Services 22,376,727 87,826,683 Value Added 1,374,726,939 100 1,147,067,052 100 APPLICATIONS Retained by the Company 8,453,100 15 7,550,839 18 Salaries and Benefits to Employees 5,976,823 21 3,765,125 21 Interest to Lenders 2,054,306 13 6,601,506 14 Dividend to Shareholders 1,928,750 12 1,775,000 9 Duties & Taxes to Govt. Exchequer 713,960 39 504,582 38 Total 1,374,726,939 100 1,147,067,052 100 5.29 TOOLS OF FINANCIAL STATEMENT ANALYSIS Various tools are used to evaluate the significance of financial statement date. Three commonly used tools are these: Horizontal analysis evaluates a series of financial statement date over a period of time. Vertical analysis evaluates financial statement data by expressing each item in a financial statement as a percent of a base amount. Habitation properties Ltd Vertical Analysis of Financial Statement As at 30 June, 2011 30-06-11 30-06-10 amount % amount % Income Statement Net Sales Revenue 2,402,700,962 100 2,183,829,795 100 Cost of Goods Sold 1,430,590,446 59.54 1,355,748,848 62.08 Gross Profit 972,110,516 40.45 828,080,947 37.91 Operating Expanses: 470,837,493 19.59 397,998,572 18.22 Administrative Expenses 88,095,645 3.66 84,329,332 3.86 Selling and Distribution Expenses 382,741,848 15.92 313,669,240 14.36 Profit form operations 501,273,023 20.86 430,082,375 19.69 other Income 5,298,876 0.22 3,318,590 0.15 Finance Cost 172,054,306 7.16 156,601,506 7.17 Net Profit Before Contribution to WPPF 334,517,593 13.92 276,799,459 12.67 Contribution to workers Profit participation 15,929,409 0.662979 13,180,926 0.60 Net Profit Before Tax 318,588,184 13.25 263,618,533 12.07 Income Tax Expense 24,285,250 1.01 56,478,167 2.58 Current Tax 28,469,983 1.18 38,975,206 1.78 Deferred Tax Income/(Expense) -4,184,733 0.17 17,502,961 0.80 Net profit After Tax 294,302,934 12.24 207,140,366 9.48 Earning per Share 5.26 2.19 4 1.69 Number of share used to compute EPS 55,976,250 2.32 55,976,250 2.56 Ratio analysis expresses the relationship among selected items of financial statement data. Habitation properties Ltd Vertical Analysis of financial Statement Income Statement: Vertical Analysis of the income statements shows the following changes, vertical analysis of Habitation properties Ltd shows in illustration I see that cost of goods sold as a percentage of net sales decline 62.08% to 59.54%. Gross profit increased from 23.96% to 17.07% of net sales revenue Operating expenses increased from 13.37% to 16.52% Administrative expenses increased from 8.29% to 9.74% Income tax expenses decreased from 1.97% to 0.21% Net profit after tax increased from 0.85% to 1.00% Earning per share increased from 0.08% to 1.00% Habitation properties Ltd Vertical Analysis of Financial Statement As at 30 June 2011 Date 30-06-11 30-06-10 amount % amount % Balance Sheet ASSETS Non-Current Assets 6,088,867,207 71.12 5,940,092,996 74.13 Property, Plant & Equipment -Carrying value 6,043,243,087 70.59 5,895,916,746 73.58 Investment in shares 45,624,120 0.53 44,176,250 0.55 Current assets 2,471,513,225 28.87 2,072,764,870 25.86 Inventories 1,394,794,907 16.29 1,143,710,812 14.27 Accounts Receivable 600,028,183 7.00 499,677,576 6.23 Loans Advance & Deposits 468,680,833 5.47 424,464,615 5.29 Cash and Cash Equivalents 8,009,302 0.09 4,911,867 0.06 Total Assets 8,560,380,432 100 8,012,857,866 100 Equity and Liabilities Shareholders Equity 483,4747,661 56.47 4,596,420,977 57.36 Issued share capital 559,762,500 0.06 508,875,000 6.35 Share premium 1,489,750,000 17.40 1,489,750,000 18.59 Tax-Holiday Reserve 445,355,048 5.20 1,090,052,509 13.60 Retained Earnings 2,339,880,113 27.33 1,507,743,468 18.81 Non- Current Liabilities 2,066,372,169 24.13 2,186,575,901 27.28 Long Term borrow 1,864,767,749 21.78 1,996,908,089 24.92 or Gratuity & WPPF 158,595,611 1.85 142,474,270 1.77 Deferred Tax Liability 43,008,809 0.50 47,193,542 Current Liabilities & Provisions 1,659,260,602 19.38 122,986,988 15.34 Customs Debentures 1,758,387 0.02 1,758,387 0.02 Short term Borrowing from Banks 1,121,910,904 13.10 939,872,641 11.72 Long term borrowing-Current Maturity 256,179,379 2.99 39,313,860 0.49 Creditors & Other Payables 170,176,125 1.98 139,591,269 1.74 Accrued Expenses 81,230,153 0.94 81,568,363 1.01 Dividend Payable 1,065,437 0.01 1,206,751 0.01 Income Tax Payable 26,940,217 0.31 26,549,717 0.33 Total Liabilities &shareholders' Equity 8,560,380,432 100 8,012,857,866 100 Habitation properties Ltd Vertical Analysis of Financial Statement As at 30 June 2011 Date 30-06-11 30-06-10 amunt % amount % Balance Sheet ASSETS Non-Current Assets 6,088,867,207 71.12 5,940,092,996 74.13 Property, Plant & Equipment -Carrying value 6,043,243,087 70.59 5,895,916,746 73.58 Investment in shares 45,624,120 0.53 44,176,250 0.55 Current assets 2,471,513,225 28.87 2,072,764,870 25.86 Inventories 1,394,794,907 16.29 1,143,710,812 14.27 Accounts Receivable 600,028,183 7.00 499,677,576 6.23 Loans Advance & Deposits 468,680,833 5.47 424,464,615 5.29 Cash and Cash Equivalents 8,009,302 0.09 4,911,867 0.06 Total Assets 8,560,380,432 100 8,012,857,866 100 Equity and Liabilities Shareholders Equity 483,4747,661 56.47 4,596,420,977 57.36 Issued share capital 559,762,500 0.06 508,875,000 6.35 Share premium 1,489,750,000 17.40 1,489,750,000 18.59 Tax-Holiday Reserve 445,355,048 5.20 1,090,052,509 13.60 Retained Earnings 2,339,880,113 27.33 1,507,743,468 18.81 Non- Current Liabilities 2,066,372,169 24.13 2,186,575,901 27.28 Long Term borrow 1,864,767,749 21.78 1,996,908,089 24.92 or Gratuity & WPPF 158,595,611 1.85 142,474,270 1.77 Deferred Tax Liability 43,008,809 0.50 47,193,542 Current Liabilities & Provisions 1,659,260,602 19.38 122,986,988 15.34 Customs Debentures 1,758,387 0.02 1,758,387 0.02 Short term Borrowing from Banks 1,121,910,904 13.10 939,872,641 11.72 Long term borrowing-Current Maturity 256,179,379 2.99 39,313,860 0.49 Creditors & Other Payables 170,176,125 1.98 139,591,269 1.74 Accrued Expenses 81,230,153 0.94 81,568,363 1.01 Dividend Payable 1,065,437 0.01 1,206,751 0.01 Income Tax Payable 26,940,217 0.31 26,549,717 0.33 Total Liabilities &shareholders' Equity 8,560,380,432 100 8,012,857,866 100 Comment: Habitation properties Ltd appears to be a profitable enterprise that is becoming even more successful. Balance sheet: Vertical analysis shows the relative size of each category in the balance sheet. It also can show the percentage change in the asset, liabilities, & stockholders equity items. Vertical analysis of the balance sheet statements shows the following changes. Assets-I can see that in 2008 to 2009 non-current assets decrease from 74.13% to 71.12% of total assets Current assets :( 1) inventories- increased from 14.27% to 16.29% of total assets. Accounts receivable- increased from 6.23% to 7.0% of total assets. Loan and advance- increased from 5.29% to 5.47% of total assets. Equity & liability: Share holders’ equity decreased from 57.36% to 56.47% of total liability & share holders’ equity. Issued share capital- decreased from 6.35% to 0.26% of total liability & share holders’ equity. Share premium decreased from 18.59% to 17.40% of total liability & share holders’ equity. Retained earning increased from 18.81% to 27.33% of total liability & share holders’ equity. Long-term borrow decreased from 24.92% to 21.18% of total liability & share holders’ equity. Accrued expenses decreased from 1.02% to .94% of total liability & share holders’ equity. Dividend payable decreased from 0.02% to 0.2% of total liability & share holders’ equity. Income tax payable decreased from .33% to .31% of total liability & share holders’ equity. Comment: Habitation properties Ltd choosing to finance through to retained earnings rather than through issuing additional debt. Habitation properties Ltd Horizontal Analysis of Financial Statement As at 3o June 2011 increasing or decreasing Date 30-06-11 30-06-10 Amount Amount Amount % Income Statement Net Sales Revenue 2,402,700,900 2,183,829,700 218,871,1600 10.02 Cost of Goods Sold 1,430,590,400 1,355,74800 74,841,5900 5.52 Gross Profit 972,110,500 828,080,900 144,029,500 17.39 Operating Expanses: 470,837,49 397,998,57 72,838,92 18.30 Administrative Expenses 88,095,64 84,329,332 3,766,31 4.46 Selling and Distribution Expenses 382,741,84 313,669,24 69,072,60 22.02 Profit form operations 501,273,07 430,082,3 71,190,64 16.55 Other Income 5,298,876 3,318,590 1,980,280 59.67 Finance Cost 172,054,300 156,601,500 15,452,800 9.86 Net Profit Before Contribution to WPPF 334,517,500 276,799,400 57,718,13 20.85 Contribution to workers Profit participation 15,929,400 13,180,920 2,748,48 20.85 Net Profit Before Tax 318,588,180 263,618,500 54,969,65 20.85 Income Tax Expense 24,285,25 56,478,167 -32,192,91 -57.00 Current Tax 28,469,980 38,975,206 -10,505,22 -26.95 Deferred Tax Income/(Expense) 4,184,7300 17,502,960 -13,318,22 -76.09 Net profit After Tax 294,302,9 207,140,36 87,162,56 42.07 Earning per Share 5.26 4 2 42.16 Number of share used to compute EPS 55,976,250 55,976,250 0 0 Habitation properties Ltd Horizontal Analysis of financial Statement Income Statement: Horizontal analysis of the Income Statement shows the following changes. Net sales revenue increased from 2010 to 2011 218871167 or 10%. Cost of good sold increased 5.52%. Gross profit increased 17.39%. Operating expanses increased 18.30% Administrative expenses increased 22.02% Other income increased 59.67% Finance cost increased 9.86% Income Tax Expense decreased 57.00% Net profit after tax increased 42.07% Earning per share increased 42.16% Balance Sheet: Horizontal analysis of the balance sheet statements shows the following changes. Habitation properties Ltd finance structure from 2010 to 2011 in the assets section non current asset increased 2.50% Property, Plant, & equipment-carrying value increased 2.49% Current assets increased 19.23% Inventories increased 21.95% Accounts receivable increased 20.08% Loans, advance & Deposits increased 10.41% Total assets: Shareholders equity increased 10% Retained earnings increased 55.19% Long term borrow decreased 6.61% Accrued expenses decreased 0.41% Dividend payable decreased 11.71% Income tax payable increased 1.41% Total Liabilities & shareholders equity increased 6.83% Here I see that the company expanded its assets during 2011 and financed this expansion primarily by retained earning income rather than long term debt. Ratio Analyses: Ratio analysis is undertaken to intercept the data to derive useful conclusions. Ratios show in arithmetical terms the relationship between figures drawn from the financial statements. Ratio analysis is useful only when the figure selected for comparison or for establishing the ratio are relevant to each other and have meaningful relation. Ratio analysis will prove much more useful if ratios are computed for a number of the consecutive years so that definite trend may be noted and interpreted. Several types of ratios may be worked out from the financial statements. No one ratio will give a clear picture of the inherent soundness or weakness of a business unit. I am calculates the several ratio analyses that are the describe below: Current ratio This ratio between the current assets and the current liabilities is known as the current ratio. If the current assets are larger than the current liabilities, the borrower ability to meet his current liabilities without default may easily be established. The current ratio shows the short-term financial strength of a business concern. This ratio of 2:1 is generally considered quit satisfactory as the current liabilities are sufficiently covered by the current assets and the surplus is a short of buffer for the creditors. This is true from the viewpoint of a creditor but not from that of product management, because excess of cash balance or stock-in-trade over what is needed, may not be considered desirable by the management. The current ratio may also fluctuate because seasonal characteristic of business. This ratio is to be calculated The current ratio = Now I analysis of two years current ratio of the Habitation properties Ltd, follow their financial statements. These analyses are below: Current Ratio 2010 = = = 1.48 Current Ratio 2011 = = = 1.6 Note: This ratio is indicating the company has how much current asset to repay their current liabilities. This ratio of 2:1 is the satisfaction level of the creditors. But my analysis of the financial statements, I see that this ratio is standard of the satisfaction level to the investors. But the management wants to do properly manage the current assets and current liabilities. Quick Ratio This ratio is the similar to the current ratio except that the inventories are excluded from the current assets because they may not be so easily marketable assets as the other liquidity assets are. This ratio measures the short-term liquidity of a business concern. The quick ratio establishes a relationship between readily marketable assets and the current liabilities. It provides a better indication of the liquidity position and repaying capacity of borrowing concern than the current ratio. This ratio of 1:1 is generally considered excellent, as the liquid assets will be considered sufficient to meet the current liabilities. This ratio is to be calculated: The quick ratio = Now I analysis of two years quick ratio of the Habitation properties Ltd, follow their financial statements. These analyses are below: Quick Ratio 2010 = = = 0.64 Quick Ratio 2011 = = = .75 Note: The quick ratio is the important of the analysis of the financial statements. This ratio is indicating how much quick asset to repay their current liabilities. This ratio of 1:1 is standard of the analysis of the financial statements. I am analysis of their financial statements and find out their quick ratio. It is not standard for the quick ratio. This ratio is the less for their standard to repay their current liabilities. I am analysis of their statements and saw that they large amount of the inventory to their current assets. Return on assets The return on assets (ROA), often called the return on investment (ROI), measures the overall effectiveness of management in generated profits with its available assets, the better. The return on assets is calculated as following: Return on assets = earning after taxes/ total assets Now my analysis of two years return on assets ratio of the Habitation properties Ltd, follow their financial statements. These analyses are below: Return on assets 2010 = = = .034 Return on assets 2011 = = = .026 Note: The return on assets ratio is the important of the analysis of the financial statements. This ratio is indicating how much earn to company for their total assets. I am analysis of their financial statements and find out their return on assets and analysis of their statements and saw that their return on assets ratio is increase. So in this case the company position is good. Fixed Assets Turnover Ratio The fixed assets turnover indicates the efficiency with which the firm’s uses its assets to generate sales. Generally, the higher a firms fixed asset turnover, the more efficiently its assets have been used. This measure is probably of greatest interest to management, because it indicates whether the firm’s operations have been financially efficient. Fixed asset turnover is calculated as follows: Fixed asset turnover = sales/net fixed assets Now I analysis of two years total assets turnover ratio of the Habitation properties Ltd, follow their financial statements. These analyses are below: Fixed Assets turnover 2010 = = = .394 Fixed Assets turnover 2011 = = = .37 Note: The fixed assets ratio is the important of the analysis of the financial statements. This ratio is indicating the efficiency with which the firm’s uses its assets to generate sales. I am analysis of their financial statements and find out their return on fixed assets, analysis of their statements and saw that their return on assets ratio is increase. So in this case the company position is good. Debt Ratio The debt ratio measures the proportion of total assets financed by the firm’s creditors. The higher this ratio, the greater the amount of the people’s money being used to generate profits. Debt ratio is calculated as follows: Debt Ratio = Now I analysis of two years debt ratio of the Habitation properties Ltd., follow their financial statements. These analyses are below: Debt Ratio 2010 = = = .44or 44% Debt Ratio 2011 = = = .43 or 43% Note: This ratio indicates that the company has financed close to half of its assets with debt. The higher this ratio, the greater the firm’s degree of indebtedness and the more financial leverage it has. I analysis this ratio and see that higher this ratio. So in case the company position is good. Receivable Turnover Ratio This ratio is worked out by dividing the total credit sales during the year by the amount of the debtors outstanding at the end of the year. The ratio shows the extent to which credit is granted by the business concern to its buyers and also indicates the promptness with which the debts are realized. A low turnover of receivables means higher collection period and large amount of overdue. Receivable Turnover ratio = Now I analysis of two years receivable turnover ratio of the Habitation properties Ltd, follow their financial statements. These analyses are below: Receivable Turnover 2010 = = = 4.00 times Receivable Turnover 2011 = = = 4.37 times Note: Debtors turnover Ratio indicted the collection period amounts of overdue. A low turnover ratio is the highest period and large amounts of overdue, and high turnover ratio is the lowest period amount of overdue. I am analysis this ratio and find out their return, but I see that this turnover is decreasing every year. So in this case, their position is good. Inventory Turnover Ratio This is usually computed as cost of sales divided by the inventory. Like the account receivable turnover ratio, the more liquidity the asset. The basic difficult with the accounts receivable turnover ratio and inventory turnover ratio as liquidity measure is that only focus on only one assets nearness to cash, and thus by themselves do not tell about the firm’s overall liquidity position. That really what we want to measure. Inventory Turnover Ratio = Now I analysis of two years inventory turnover ratio of the Habitation properties Ltd, follow their financial statements. These analyses are below: Inventory Turnover 2010 = = = 1.02 Inventory Turnover 2011= = = 1.19 Note: I am analysis this ratio and find out their return, but I see that this turnover is decreasing every year. So in this case, the company’s position is not good. Net profit Margin Ratio The net profit margin measures the percentages of cash sales dollar remaining after all the cost of expense, including interest, taxes, and preferred stock dividends, have been deducted. The net profit margin is a commonly size measure of the firm’s net profit margin, the better. The net profit margin calculates as follows: Net Profit Margin Ratio = Now I analysis of two years net profits margin ratio of the Habitation properties Ltd, follow their financial statements. These analyses are below: Net Profit Margin 2010 = = = .12 Net Profit Margin 2011 = = = .09 Note: Net Profit margin means the company pays all the expenditure and calculated the profit in the present year. I saw that this ratio is around 10.5%, it is the normal situation of the company. Gross profit Margin Ratio The gross profit margin measures the percentage of each sales dollar remaining after the firm has paid for its goods. The higher the gross margin, the better that is, the lower the relative cost of merchandise sold. The gross profit margin calculates as follow: Gross Profit Margin Ratio = Now I analysis of two years gross profits margin ratio of the Habitation properties Ltd, follow their financial statements. These analyses are below Gross Profit Margin 2010= = = .40 Gross Profit Margin 2011= = = .38 Note: Gross Profit margin indicate the percentage of each sales dollar remaining after the firm has paid for its goods. I see the better position of the company. Operating profit margin ratio The operating profits are the profit earned by an enterprise out of its business operations and are derived by deducting for the gross profit all expenses necessarily incurred in the course of business operations, e.g., selling expenses, general and administration expenses, interest, rent, etc. The operating profits as a percentage of net sales during the year show the profitability of the enterprise. A comparison of the ratio for the last few years will show the trend of the profitability of the business operations. The profitability is increasing, decreasing or constants. This ratio of the borrowing concern should be compared with that of other units in the same trade or industry to have a comparative views of the performance of the borrowing concern vis-à-vis similar other units. I calculate this ratio in the basis of; Operating Profit Margin Ratio = ×100 Now I analysis of two years operating profit margin ratio of the Habitation properties Ltd, follow their financial statements. These analyses are below: Operating Profit Margin 2010 = (Operating profit/Net sales)*100 = (501273023/2402700962)*100 = 20.87% Operating Profit Margin 2011 = (Operating profit/Net sales)*100 = (430082375/2183829795)*100 = 19.69% Note: Operating Profit Margin Ratio is not net profit; it is indicates return of the profit basis of the operating cost of the company. This operating profit return is increases; it is the better position of the company. Profit margin before taxation This ratio is the similar of the previous one except in one aspect. It also takes into account other profits income and expenses of the business, besides the operating profits and expenses. For example interest earned on investments is not included in the operating profits, but is included in the case of this ratio. This ratio thus shows the overall profits before taxation of the business and it’s expressed as a percentage of net sales. It is an index of the overall profitability of the enterprise, exclusive of the liability of the taxation. The tax ability is deliberately excluded because net profit before taxation is a better criterion to judge the profitability of a business concern over a period of time, during which the taxation rates may not remain the same. I calculate this ratio in the basis of; Profit Margin before tax = ×100 Now I analysis of two years profit margin before tax ratio of the Habitation properties Ltd., follow their financial statements. These analyses are below: Profit margin before tax 2010 = (Profit before tax/ Net sales)*100 = (318588184/2402700962)*100 = 13.25% Profit margin before tax 2011 = (Profit before tax/ Net sales)*100 = (263618533/2183829795)*100 = 12.07% Note: Profit before taxation means the company doesn’t pay the tax but calculated the profit in the present year. I saw that this ratio is increasing; in this case it is the better position of the company. Interest coverage ratio The investor’s point of view, the profitability of the borrowing concern must be sufficient so as to ensure payment of interest there from. Investors interested to ascertain the times the amount of interested on loans and the earnings of the borrowing concern cover advances. If the profit record high fluctuations, larger interest cover is required by the bank. I calculated to be this ratio as the bellow: Interest coverage ratio = Now I analysis of two years interest coverage ratio of the Habitation properties Limited. by following their financial statements. These analyses are below: Interest coverage ratio 2010 = Net profit/Interest debt = 294302934/172054306 = 1.71 Interest coverage ratio 2011 = Net profit/Interest debt = 207140366/156601506 = 1.32 Note: Interest coverage ratio is the more important of the ratio analysis. This ratio show the interest payment for the bankers, they have enough or not to pay the bankers loan. This ratio is depending upon the net profit of the company. I am analysis their financial statements, and find out percentages of the profit coverage the loan. Now the last year they have enough profit and also decrease their term loans. So company position is good to achieve the loans. 3.0 SWOT Analysis of Habitation Properties Ltd Strengths: Experienced financial Management. Efficient and dedicated employees. Good understanding between employees. Good relationship with exiting clients. Locations of the Projects are good enough. High standard of construction quality. Weaknesses: As a company it is new in Real Estate sector. Many prospective clients don’t have any idea about its construction quality. Comparatively product’s prices are higher than many companies. Lack of promotional activities or advertisements. No specific policy following by the employees. Opportunities: The upcoming Projects are in demandable locations. Those who know about Union, they normally consider as a good developer. Huge number of projects under construction. Motivation of the sales persons to encourage them for more effective in sell. Offer the prospective clients to visit the existing projects to make positive impression. Threats: Huge numbers of developers means huge numbers of competitors are in the race. Land procurement cost becoming higher and higher day by day. Asking prices of many companies in the same location are lower than Union. Some well reputed companies considered Union as their competitor. Number of Project still zero in Gulshan & Dhanmondi.Central 7.1 Findings On the basis of previous analysis and practical experience of 3 months internship program, the following findings are observed during the research period: The accounting system of Habitation properties Limited is satisfactory than the preceding years. But if we compare the performance with other competitors then it is not satisfactory. The branch network of the company is not strong enough for the convenience of customers. Connectivity with branch and head office is not well established. So if there is any technological problem in the branches it takes time to recover. Habitation properties Limited Uses centralized online system to enhance customer care and increase employee efficiency. There is not sufficient internet connectivity in the branch level. Selling of flats through remittance to the immigrants is not sufficient for meeting the needs of customers and it is so insufficient compared to other competitors. Sometimes charges on different services are not properly imposed. This is detrimental to company’s profit. There is well relationship in customers and employees 7.2 Conclusion: After analyzing the business of whole Real Estate sector in Bangladesh it is very clear that the number of competitors for Habitation Properties Ltd. are huge. That’s why it is not very easy for the company to make the business financially and profitably stable without extra efforts in business promotion and extra ordinary features and services. The offer from Habitation Properties Ltd. should be extra ordinary and something new. Definitely there need to have specific advantages for the buyers. So that they will find Habitation Properties Ltd. better than others. Service is important specially to make the references strong. Clients will bring clients. This should be the theme of the business. And it can be possible by giving better services. If the clients are happy, they will tell others. It is very effective for long term business. Still the future of Habitation Properties Ltd. is very bright. If they able to improve their lacking and weaknesses, they will be able increase their sell more. Habitation Properties Ltd. have different projects in its hand in different locations for different levels of buyers. Just Need to go for aggressive promotion with attractive offer to reach to the buyers. I strongly believe that time is not a far away for Union to have its position on the top. 7.3 Recommendations: Not only Habitation Properties Ltd. also every business organization is looking for a vision that is profit. Because without profit a company will not be able to run. Once upon a time it will be wordless & unsuccessful. The continuation of achieving the vision is a very important thing which is the central target and maintains and organizes the company’s whole staffs & officials. But it is not a very easy task for the companies. The top Real Estate and Multinational companies running in our country are doing a lot to achieve their goals. As a new company Habitation Properties Ltd. May study those. Some common activities of different organizations may be a sort recommendation as listed below to follow: The company should remove conservatism and review the customers' transaction behavior for a period of time and should develop a certain policy in this regard. The company should take more effective promotional activities Selling of flats through remittance to the immigrants. Company can introduce more advanced online system to mobilize its day to day activities. It will help the employee to do their works more quickly and at the same time maintaining their quality of work. The company should try to arrange more training programs for their officials. Quality training will help the officials to enrich them with more recent knowledge of International real estate business. The company should be as stricter as possible about giving payments against discrepant documents without hurting the customers. The company should give more technological support and internet accessibility at the branch level. All the employee should be assigned with proper and specific assignment The company should expand their business in a balanced way which means they should not focus on a particular industry like flats business or land business. Proper rules related to price of flats through remittance to the immigrants should be maintained and charges on services should be taken properly. Otherwise the profit of the bank will go to be affected. Better connectivity with head office and branches should be maintained. The company should maintain stricter operational policy for increasing its business and profit. ook: Annual reports, Prospects of HPL & REHAB, ewspaper: The Daily Star, The Bangladesh Observer. nternet: www.yahoosearch.org www.google.com www.realestate.org www.habitationbd.com PAGE 1 System (including components/ resources) Boundary. Sources Users Strategy Information Tech. AIS Organization Culture Number of flat hand over 2006 2007 2008 2009 2010 2011 Luxarious 30 30% Luxary suprim 15 15% Economic 35 35% Seni economic 20 20% In Charge MD Director Engineering Director Marketing Director Finance Director Human Resource Store Keeper Project Manager Project Eng. Regional Sales Manager District Sales Manager Controller GM/CFO Accounting Manager Tax Officer Cash Officer VAT Officer Director Research & Development Chairman/President Consultant Advisor/Lawyer inancial Manager Controller Labor Relation Manager Plant Human Resource Laboratory In charge Training Coordinator Technician/ IT Officer Store Officer Customer Receivable Data Sales Data General Ledger Account Bata Sales History Data Customer Data Pricing Data Shipping Data Order Data Inventory Data Customer Data Credit Data 1. Receive & Enter Sales Orders 2. Ship Goods to Customers. 3. Bill Customer 4. Prepare Accounting Analyses & Report Supplier Inventory Data Order data Inventory data Supplier Data Supplier history data Accountants & Managers Receiving data Payable data General Ledger data Supplier Supplier reference and history data Purchase goods when requisitioned Received goods from supplier Approved Obligation for payment Prepare accounting Analyses and reports Vice-precedent Logistics Vice-precedent Finance Receiving Inventory Stores Production Purchasing Budgeting & Cash Planning Inventory Control Accounts Payable Cash Disburse- ments ments General Ledger Recognize Need for goods or services Price Order Receive And store Goods Determine Validity of Payment obligation Make cash Payments Maintain Accounts Payable Post Transactions & prepare Financial Revenue cycle Expenditure Cycle Raw materials Production costs 2. Planning and Scheduling 1. Product design Bill of materials Operations list 3. Production Finished 4. Cost Human resource Management General ledger & reporting system Payroll processing system Time keeping Employees Management Government Agencies Personal Time keeping Process Employee hours Payroll Master file Personnel Process Employee Status & rate Process Payroll reports Process Pay check Employee Government Management Customer Receive & enter sales order Handover of Flat to customer Billing Cash Collection Customer Cash receipt General ledger reporting system Sales