Principle of Accounting

Question 1 :

Tesco Hypermarkets have equipped the entire supermarket with CCTV(s) and cameras. This is to prevent shoplifting from “shoppers” and even Tesco’s staff. However, it is not really effective and there are limitations to it as shoplifting will still occur. The recordings only serve as evidence of the shoplifter stealing the items but most of them get away with it before security realises that the items are stolen. Tracking down shoplifters would be close to impossible with just the image of the criminal. Besides that, the age of the security guard may be a limiting factor. This is because they may not be as sharp and efficient as the young security guards. They may be slower in terms of spotting shoplifters and they certainly will be outrunned by the young criminals If a robbery were to happen, they cannot do much as they are also not pistol equipped.

The next limitation is the staff may have inadequate training and experience. Therefore, they may have poor judgement, lack of knowledge or may be careless. They may not know the correct rules and appropriate guidelines. If unfortunate, some employees may be lazy to learn the correct ways for doing their work. Thus, staff may take shortcuts instead of following standard operating procedures. Example, a part time employee of Tesco might accidentally misplace some inventory in a wrong section. This might result to inaccurate inventory count and complications.

A collusion may happen. Two or more high ranking employees may abuse their power and collaborate to override rules, policies and procedures for personal gain. Example, the head of inventory management may work together with the accountants to manipulate data and transactions made by the company. Example, data manipulated by the accountants states that 100 bags of rice are to be purchased and Rm1000 is allocated for that. However the head of inventory management buys 100 bags of lower quality rice which is worth RM 600. RM 400 will be pocketed by them. This is illegal and it is against business ethics.

Errors may occur in maintaining, designing, or monitoring automated systems. Changes made may be correctly designed but altered when translating the design into a program code. As a result, losses will be incurred due to inaccurate pricing. Example, a 20% discount is given to chocolate, sweets and drinks. However, the customer is accidentally given a 25% discount due to system errors. Prices seen at the price checker may also be different from the price tag at the shelves due to an inefficient automated updating system

The final limitation is Tesco may not have enough staff during lunch and dinner hours. Very few employees will be on duty at the cashiers during that time and this will cause customers to queue up for a long time. During seasonal sales periods such as Hari Raya, Chinese New Year and Deepavali, Tesco may suffer from lack of staff again. These is because employees are likely to go back to their hometowns no matter what Tesco offers them. Furthermore, more customers prefer to shop during these months as Tesco offers more discounts. Lack of staff will result to customers’ frustration. However, if there are too many staff, benefit vs cost is a limitation as well. At times, costs of internal controls may exceed the benefits of implying them in the first place. Example, additional employees are hired as the management wants the work done to be divided and segregated equally to avoid confusion and mistakes. However, employees’ wages and salary exceeds the company’s budget.

Question 2 :

Tesco helps the local community in many ways. Tesco prioritizes health of the community. Recently, Tesco has just launched the “Tesco – University of Malaya Medical Centre (UMMC) Helping Children with Leukaemia Fund” whereby it tries its best to raise funds for low income paediatric patients of UMMC who are suffering from leukaemia. Funds raised will be used to cover treatment costs, fund equipment for patients and special medication of those deserving children. This initiative is highly suitable as it will be life changing for the less fortunate. Without any aid from Tesco, the future of the leukaemia patients would be tough. . Also, as Tesco emphasizes on healthy living, it is the first supermarket to imply nutrition labelling on their products. All Tesco Choice and Tesco Value products are nutritionally labelled. There is also “Guidelines Daily Amounts (GDAs)” on Tesco’s food products. GDA is a guideline to the total amount of Sugar, saturates, fat, salt and calories an adult should consume in a day. This would provide customers better information for a balanced diet and they will be given a chance to improve their health.

Next, Tesco improves the quality of living of the community by initiating environmental projects to reduce negative impact towards the environment. Tesco encourages its customers and community to support green initiatives. Together, they will make a huge impact towards the environment. Tesco has initiated the “Plant a tree together programme” whereby it aims to plant 500,000 trees in 3 years in partnership with Malaysian Timber Industry Board (MTIB). This programme is funded through the No-Plastic Bag Day campaign. Besides that, Tesco has set up recycling centres in selected outlets nationwide. This will encourage customers to recycle as they will can sell the recyclable products for money. Tesco also rewards consumers with green club card points if customers reuse their plastic bags. This will reduce plastic bag usage and disposal. Tesco has also implemented various energy savings initiatives to reduce the environmental impact on its stores. Example, high efficiency air conditioning system is used , energy saving lights and close monitoring controls are used to ensure its stores are more energy efficient. These efforts requires lots of support, manpower and funds but it certainly is more beneficial to the society in many ways

Besides that. Tesco creates plenty of job opportunities for the locals as they offer various kinds of roles for employees to do. (38 stores and over 14000 staff in Malaysia).Locals are given equal opportunities to obtain a stable source of income and to build their careers. Tesco also offers training and development programmes for its employees. This will allow employees to unlock their true potential to grow and improve themselves throughout their career. Tesco has the philosophy of “treating the people the way they want to be treated”. With that, Tesco constantly improve themselves to ensure that it remains a wonderful place for employees to work at. Also, Top talents would certainly be attracted to work for Tesco. This will improve the income of the community and the nation’s economy as well.

Next, I suggest that Tesco should organize more campaigns that will benefit the society by utilizing its huge workforce. Tesco must encourage its staff to participate in campaigns such as campaigns to counter hunger and starvation, promote awareness on green environment and health awareness. With this, Tesco’s staff will gain more experience themselves and promote the awareness amongst family and friends. Besides that, experienced staff and high ranking employees should spend some time to share experience and knowledge to educate the youth of the country. In fact, it would be better if training is provided to the youth to enhance leadership and teamwork skills that will benefit them when they go to work in future. As Tesco has a great management, managing skills should be taught to adults or younger employees who wants to learn and improve themselves.

Lastly, as a responsible corporate citizen, I suggest that Tesco should set aside a portion of its profits to help old folks, underprivileged children and the lower income group. This will help ease their financial burden. Example, every Tuesday, 5% of its total sales that day would be donated to orphanages and old folks home. Through this, Tesco’s customers can shop at the same time as well as do a good deed to the community. This is very suitable for Tesco’s business prospects as it may even attract more customers to shop on Tuesdays. Therefore, it is a “win-win” situation for Tesco and the society. Tesco should also help the lower income group on Tuesdays. Example, individuals who have a family and have a monthly income of less than Rm 1000 a month should be given discounts on Tuesdays. This will allow them to buy basic necessities and therefore, it would have a huge impact on their lives.

Question 3 :

Historical Cost Concept. Assets are shown at cost price and this is used as the basis for valuation of assets. As market value often fluctuates, reporting of liabilities and assets at current values will disrupt the whole concept of accounting, eliminate comparability and accounting information may be unreliable. Therefore, historical cost concept provides managers with reliable, objective data which will identify the changes in the business performance. Therefore, changes in performance is then comparable in reporting and measuring economic information. Historical costs helps the management of the business to analyse and forecast future operational costs based on the historical data. Therefore, historical cost concept is important and is used.

Money measurement concept. Money is used as the measurement by which economic activity is measured and reported. Transactions are measurable in monetary units and most people and understands and agrees with the measurement used. Besides that, it will always be used to report all financial information. The only disadvantage to the money measurement concept is that money does not have a constant value as the currency of a country fluctuates from time to time.

Accounting Entity Concept. Activities of the entity are separated from both the personal activities of the owners and other entities. Accountants will be able to evaluate businesses itself, regardless of their ownership status. Any personal expense made by the owners will not be recorded in the financial statements. Therefore, financial statements will reflect how the business is performing. With this, investors can evaluate and determine if the business has good cash flow from its operations or if its because the boss of the business keeps funding the business with his/her own money.

Time Interval Concept. Life of an entity can be subdivided into time periods of equal length. It determines the financial performance and financial position during that period of time. The income statement and statement of financial positions will provide investors information on how the company is performing during that period of time. Reports will be quarterly (3 months) or annually. This will ensure consistency of the financial data.

Accrual basis assumption. Transactions and all other events are recognized and recorded in financial data during the period when it occurs. It is not when cash is paid or received. This will be more effective for financial management and monitoring activities. By using this system, businesses have a clear picture of how much money they have coming in, and what they can future prospects they have in terms of profits. All of this will keep users up to date and informed.

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