Ermolaeva_L_D_Ekonomika_i_biznes_1

P.: Just a moment, let‟s look at the other two department budgets. That‟s production and sales.

J.: Well, we can‟t cut the production budget, that‟s for sure. I don‟t know about sales.

S.: Why do you say we can‟t cut production‟s budget? They had a big investment last year. Well, surely they could manage on less this year?

P.: Yes, I think I agree. Production ought to manage with less this year, having spent so much last year.

S.: A small cut in the production budget might mean we could increase the research figure.

P.: Right, I‟ll put that to the Production Manager. Finally, what about sales?

S.: I think, it‟s a bit high. They might save a bit by spending less on the aftersales side.

P.: John, any views?

J.: Well, I think we should spend more on sales.

P.: That‟s out of question. The figure shouldn‟t be changed.

TEXT В

I. Read the text and try to understand the explanations of accounting terms.

DEFINITION OF ACCOUNTING TERMS

All companies have to keep proper records of their trading. These accounts must be available for inspection by the Inland Revenue.

In general terms, a firm will have fixed capital assets such as buildings, machinery, and motor vehicles; working capital including stock in hand, spares, money in the bank and cash in hand; and also debtors (people who owe it money). The firm will also have liabilities such as money owed to the shareholders, bank loans, and money owed to creditors. When we take the current position of liabilities and assets we can produce a balance sheet.

Balance Sheet

Balance Sheet of A.B.C. Electronics on 31 December 1990

Liabilities	£	Assets	£
Capital	50000	Shop property	30000
Bank loan	2000	Shop fittings	1000
Creditors	500	Van	3000
		Debtors	500
		Cash at bank	12000

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		Cash in till	6000
TOTAL	52500	TOTAL	52500

Fixed assets are the shop propertу, the fittings and the van. Working capital is current assets minus current liabilities. The current assets are the debtors, the cash in the bank, the cash in the till minus the bank loan and money owed to creditors.

Therefore: Current assets are 18500 – 2500 = £16000. Current liabilities are 2000 + 500 = £ 2500.

The balance sheet may be produced at any time but is often drawn up at the end of the calendar year or at the end of the financial year on 5 April.

Definitions of Accounting Terms

Profit

Profit is the difference between what the trader pays for his goods and the price at which he sells them.

Net Profit is that profit which is made when the expenses for the current period have been deducted, including rent, rates, gas, electricity, telephone, wages, etc.

Turnover

Gross turnover is the value of the sales made by a trader over a period of time (usually a year).

Net turnover is gross turnover minus the value of any goods returned by the customer to the trader.

Rate of turnover is the cost of the stock sold divided by the cost of the average stock. For instance, if a firm bought 1000 articles at £2 each and sold 500 of them, then the cost of the stock sold would be £1000. Then if the firm had 100 articles in stock at the beginning of the year and 300 in stock at the end of the year, the cost of the average stock would be 300 plus 100 divided by 2, which would be 200 at £2 each, or 400. Therefore the rate of turnover would be: 1000/400= 2.5

Useful Ratios

	Quick ratio (acid test)	current assets - stock value
		current liabilitie s

This figure shows whether a firm can meet its short term liabilities.

profits Profitability 100

assets

If this figure is lower than the assets would have raised, if they had. been invested in a building society, then the firm should consider ceasing to trade.

Profit and Loss Account

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This is basically the revenue received from sales less the costs involved in production and distribution with allowances made for depreciation of capital equipment.

Trading and profit and loss account for firm A.B.C. Electronics for the year ending 31 December 1992.

	£		£
Opening stock	10000	Sales	40000
Stock purchases	12000
Closing stock	8000
		Gross profit	26000
Expenses	£
wages	5000
rent	1500
insurance	500
depreciation	300
Total expenses	3300
Profit before tax	17700
TOTAL	26000

 II. The following figures show the liabilities and assets of a company:

Liabilities	£	Assets	£
Creditors	800	Bank	16000
Bank loan	6000	Machinery	3000
		Debtors	250
		Stock	4000
		Buildings	2000

What is the value of the following?

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1.Fixed assets;

2.Capital owned;

3.Working capital.

TEXT С

1. Read the text, try to ипderstand the explanations of the elements of financial statements.

THE ELEMENTS OF FINANCIAL STATEMENTS

Financial statements normally consists of balance sheet, income statement, statement of allocation of net income, cash flow statement, and. notes to the financial statements, as well as any explanatory material or schedules identified as an integral part of the financial statements.

Events portrayed in each statement are referred to as the “elements” of financial statements.

An element in a financial statement may comprise one or more items of information.

Assets are defined as future economic benefits owned or controlled by a particular enterprise as a result of past transactions or events. The common characteristic possessed by all assets is “service potential” or “future economic benefit”, that is, the capacity to provide future services or benefits to the enterprise which uses them. That service potential or future economic benefit eventually results in cash inflows to the enterprise. Assets may be purchased, exchanged for other assets, self-manufactured or received as grants or donations.

Liabilities are obligations, arising from past transactions of the enterprise, to transfer assets or services to other entities or individuals in the future. Liabilities include long-term loans and debentures, short-term loans, payables, pension plans and similar financial obligation. The scope of definition of liabilities covers obligations whose financial amounts can or cannot be established precisely.

The ownership claim on total assets of an enterprise is known as equity. It is equal to total assets minus total liabilities. Liabilities are creditor‟s claims whereas equity is owner's claim on the assets of the enterprise.

Revenues are inflows or enhancements of assets (or reduction of liabilities) which arise in the course of an enterprise‟s normal activities (fig. 7).

Revenue from Sales

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Debt

Funds for All

Uses

Equity

Sales of As-

sets

Figure 7. Sources of Funds

Revenues may arise from different sources, and are identified bу various names depending on the nature of the business, e.g. sales, fees, interest, dividends, royalties and. rent.

Expenses are outflows or depletions of assets (or additions to liabilities) which arise in the course of an enterprise‟s normal activities. These include; for example, cost of raw materials, wages, depreciation, utilities, etc.

Gains are increases in equity from incidental transactions (i.e., from transactions not related to the primary business activity of the enterprise) that are not revenue or owner investment transactions. For example, the firm may sell an asset, such as equipment, that is normally used in business operations. The excess of the selling price of the equipment over its value as recorded on the books (after depreciation) is a gain on sale of equipment.

Losses are decreases in equity from incidental transactions. They are not expenses or withdrawals by owners.

For example, the enterprise may sell land that is normally used in business operations. The excess of land‟s recorded value on the books over the selling price is reported as a loss on sale of land.

II. Give short characteristics of the elements of financial statement.

III. Imagine that you work as an accountant in a joint venture. Answer the

following questions.

1.When do you total the accounts?

2.When do you prepare a financial statement?

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3.Why should you have more assets than liabilities?

4.What characteristic features of accounting can you name?

5.What financial statements do you know?

6.How are the financial statements prepared?

 IV. Make up dialogues about accounting:

a)between an experienced accountant and a person who has just begun to work as an accountant,

b)you are a director of joint venture and you want to hire an accountant, find out if the person is experienced enough in accounting.

UNIT IX

ROLE PLAYS

Role play 1. Starting a Business

Problem

Peter S. is a young electronics engineer who works at a plant which manufactures all kinds of audio-visual equipment: television-sets, projectors, videotape recorders, etc. In his spare time Peter has invented a new device which will allow the manufacture of a smaller and simpler video recorder at a relatively low price. In his opinion it will transform this machine from the very expensive toy it is at present to a machine as useful and as common as a tape recorder.

Peter is extremely excited by his discovery and he thinks that it will be a good idea to try and form his own company. He wants to involve in his project people with good expertise who will be good at running the business affairs of the company. Today is Saturday. Peter is at home together with his friends who have come to discuss the project and its feasibility. Among the guests there is a new friend from the U.K., who has come to Moscow for a long-term stay.

	Words and word combinations
spare time	- свободное время
transform	- превращать
relatively	- сравнительно
Analyse the case
Questions

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1.What advice would you give Peter about setting up his company?

2.What questions will Peter have to settle before business is started?

3.Will it be suicidal to compete with big plants?

4.Is it realistic for Peter to start a business abroad?

	Word
suicidal	- самоубийственный, гибельный

Roles

Mike

You have been a loyal and true friend of Peter since college. As a lawyer you are well informed about legal aspects of founding a company. You also give Peter some practical advice how to patent the invention.

Arthur

You have come to Moscow from the UK. You are an executive in one of the joint ventures. You have been on friendly terms with Peter since the inauguration ceremony where Peter was invited as an official representative of the Electronics Department. You want wholeheartedly to bе of help and have made a breakdown of the initial costs. You think it is unrealistic to start a business without a loan from a bank.

For the managerial work you can recommend Mr. Simon, who has been a top manager for many years. He could have a part time job in Peter‟s firm.

Bob

You are an accountant with a coop and confirm Arthur‟s words about probable costs. You have roughly calculated all the costs, which will inevitably arise. It‟s not only the rent and the cost of machinery but also the advertising expenses necessary for the product promotion. You give a full account of the costs to be incurred in the first year, the sales needed to cover investment and start making the profit. You don‟t want to dissuade Peter. Your aim is to make him think in realistic terms.

Peter

You explain to your friends the technical aspect of the product, its advantages, how it can be manufactured and in what way it is an innovation. When you realize how much capital will be necessary to run a business you are taken aback. Nevertheless you don't want to give up the idea completely, and think that it will be possible to open a small workshop which will make the device you have invented. The device when manufactured could be sold to big plants, who would use it as a component. As to the funds, a loan can be obtained from a commercial bank for innovation.

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Useful language

The first decision to be taken is to …

I don‟t know what to begin with …

There is little chance of …

I see no reason why …

I know it‟s risky but I‟m all optimistic about …

The thing that worries me most is …

After a lot of thoughts I've come to understand that …

Could you break down the calculations into more details?

I'd like to see how you came to these figures.

We should reach the first year target of … if we …

In the circumstances the only chance seems to be …

Role play 2.

A Market Research Problem

Problem

Alexander Petrov is Manager of a workshop in Petersburg, which builds hand-made furniture in reproduction of the 19th century styles. His collective has taken it on lease with a view to buy it out in future. Alexander is faced with a number of pressing problems. He is increasingly worried by a slight decrease in the orders coming in. Another problem is that the number of skilled craftsmen is dwindling. It is evident that a new development programme should be worked out. The factory management is sure that a thorough study of marketing possibilities will allow them to avoid making a leap in the dark. Before reaching a final decision the Market Research group is to collect the following information:

1.What proportion of the customers was no longer satisfied with the present styles of furniture offered them?

2.What kind of furniture would they like to buy?

3.Would they be prepared to buy modern furniture from the factory? Were the qualities of good workmanship and durability as important in the market for modern styles as they were for the present product?

4.What method of advertising could persuade people to buy modern furni-

ture from the factory?

The research findings are as follows:

1.Elderly people are completely satisfied with the present style of the furniture offered.

2.Young customers want furniture of modern design. They want furniture that is adaptable, light and easy to move.

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3. All groups of customers think, that good workmanship is absolutely desirable in modern furniture.

From the research data collected it is clear that time has come to make the changeover to modern furniture. Alexander plans to set up a new production line, which could be supplied from Finland. A few Finnish experts have been enrolled on the staff of Alexander‟s firm recently.

Play the meeting between the General Manager, the Production Manager, the furniture Designer, the Chief Accountant. Those present at the meeting work out plans for putting the new idea into practice.

The questions on the agenda are:

1)the market situation,

2)the timing of the changeover to modern furniture,

3)the characteristics of the new furniture.

	Words and word combinations
workshop	-	мастерская, цех
take on lease	-	брать в аренду
dwindle	-	уменьшаться, сокращаться
craftsman	-	искусный мастер
a leap in the dark	-	прыжок в неизвестность, рискованный шаг
findings	-	полученные данные, добытые сведения
data	-	данные
change-over	-	переход, переключение

Analyze the case

Questions

1.What were the findings of the market research study?

2.Why is the number of skilled craftsmen dwindling?

3.Why do many work collectives take production facilities on-lease?

4.What strategy would you suggest to the factory management for further progress?

Roles

Alexander

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Your aim in the meeting is to reach a decision about the future of the factory. You know that your Production Manager is skeptical of your plans. Try to convince him that it is the only way to put things right.

You are also afraid that the ideas of the furniture designers may be too avant-garde. You intend therefore to make sure that they decide to adopt designs which will be saleable.

As to the reproduction furniture you think that the factory should go on as before. Old-style furniture is in demand both in the home market and abroad. You want to make an attempt to sell it in Western Europe.

Furniture Designer, a conservative

You have spent all your working life with the factory. You are a fine craftsman and it is your insistence on high standards that has allowed the factory to maintain its good reputation. You have little sympathy for new styles and do not think that a change of style will solve the problems faced by the factory. Your only argument is „people will soon get tired of this modern rubbish‟. In the meeting you will do your best to persuade your boss not to revolutionize the factory overnight.

Furniture Designer, an avant-garde artist

You oriented only on new fashionable designs. You have just returned from an exhibition, which was held in Italy and are now full of avant-garde ideas. You think the factory must be mostly oriented on people of the younger generation. You are convinced that modern life styles mean that the old fixed heavy furniture is outmoded and that lighter, more flexible solutions are necessary.

Finnish Experts

You are glad at the possibility of working with factory management, which wants to put new ideas to life.

Your strong belief is that reproduction furniture must not be out of production. There is a great demand for exclusive, well-built furniture in Western Europe, particularly in Scandinavian countries.

You also believe that the changeover to modern furniture should be urgent. It is clear that in a year or two there will be an increasing demand for office furniture in Petersburg and other big cities.

Useful language

The purpose of to-day‟s meeting is to make up our minds on …

The subject for to-day‟s meeting is …

I don‟t accept that there‟s any need to …

There‟s nothing in the market survey that will persuade me to … I advise you most strongly to …

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