Accounting Information Systems Investigation
Learning Objectives:

1. Familiarize the student real world application of accounting information systems
2. Allow student to interact with business professionals (experiential learning)
3. Document accounting information systems

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Assignment:  Identify a service, manufacturing or retail company that interests you or where you have a connection.  The size of the company or if it is private or publically traded.  Contact a person in the leadership (CEO, president, partner, general manager, controller, etc.) of the company (does not have to be an accountant) and request a meeting to discuss the company’s accounting information system.  Your objective similar to an auditor’s objective is to learn about the company’s accounting information system.  Assure the company leader that you do not want them to share any confidential information about the company by completing the non-disclosure agreement available in D2L.
For example: the store manager at your local Lowes Home Improvement Center or the partner of a local CPA firm. 
Please read the paper guidelines document in D2L for additional details. 
The following subheadings are required in your five page paper:
Leadership- Name, titles and contact information (e-mail & phone number of the individual(s) you met with and a picture as appendix to your paper with the individual(s) person you met in front of a company logo (if possible).
Company Overview*- A brief description of the company as well as the location details as follows:

1. Provide a brief overview of the company and their primary business- (e.g. Lowes is in the home improvement business, operates in XX states and XX countries worldwide and is headquartered in YY city established in 19XX.)
2. Discuss the overall company size (sales & employees), location (sales & employees), operating structure (decentralized or centralized) (e.g. Lowes has centralized administration and decentralized management control. The company is structured in 4 regions West, East, Midwest and Southwest with Vice Presidents of store management over each region).

*Depending on the company/firm, a tour prior to your discussion may be helpful. 
Accounting Information Systems- The focus of this section is the technical part of the company’s accounting information system.

1. What software does the company employ?
2. When was it installed (if known)?
3. What accounting system is the company using?
   1. This could be an enterprise resource planning system (e.g. SAP, Oracle), quickbooks, peachtree, green ledger paper, a spiral notebook or any other system that the company uses to maintain their accounting records
4. Challenges with current system
5. What the controls for adding employees, items, general ledger accounts?
6. Where is their system maintained?
7. What are the threats to their system?

General Ledger Structure- Discuss how the AIS systems categorizes sales (revenue) and expenses.  In this section you should discuss the following:

1. the fiscal year of the company when and why does it end- is there logic for when the company has a yearend
2. structure of the general ledger accounts
3. is the location a profit center or cost center (e.g. For Lowes each store would be considered a profit center because they generate revenues & expenses and have a store P&L/income statement).
4. how does the company segment sales and expenses- in other words what departments do they use (e.g. Lowes uses millwork, garden center, lumber , plumbing, electrical, flooring etc.; a public accounting firm might use consulting, bookkeeping, audit & tax).

Key Performance Indicators- A discussion of the key performance indicators (KPI’s) the company uses to manage their business.  This section should include the following:

1. KPI’s used at the location level and the frequency
   1. Revenues (internet vs. in-store), expenses, budget, comparisons (region/nation)
2. Industry specific KPI’s (e.g. Lowes sales by department or inventory shrink, public accounting billable hours or new clients)

Insight- Please write one paragraph about your insight into how this experience enhanced your learning and understanding of accounting information systems.
Attachments-

1. In a separate JPEG file, please provide a picture with you and the company individuals you interviewed. If possible, take the picture in front of some signage from the company (e.g. Lowes in front of the store or public accounting in front of the firm’s front desk or sign outside).

A scanned signed PDF copy of the non-disclosure agreement with your name and the company name filled out correctly.  If you cannot scan to PDF, a word document with the appropriate changes will be sufficient.

Ratio analysis is an important analytical tool to use when analyzing the financial statements and there are a lot of ratios when it comes to this type of analysis. You need to understand each one in order to make better decisions about the business and evaluate its overall financial health. If you were analyzing a business and they had:

• A current ratio of 1.4
• Debt ratio of .8
• Number of days’ sales in inventory of 20
• Return on equity of 40%

What would be your overall assessment of the business and why? What additional information would you want to look at and why?

Required

Question 1 (2 marks)
White Company purchased equipment on January 1, 2015 for AED 1,000,000. The company uses the straight-line method of depreciation. Estimated useful life of the equipment is 10 years with zero net salvage value.
On December 31, 2017, the Company collected the following information

Required:

1. Was the asset impaired according to IAS 36? How much is the amount of impairment, if any? (1 mark)
2. How much is the amount of impairment, if any, under US GAAP? (1 marks

Question 2 (10 marks)

1. Red Rose Company is a real estate builder and developer. The Company started construction of a building for its own use in operations on January 1, 2015. The building was completed on December 31, 2016. It was ready for use on January 1, 2017.

The cost of constructing the building (including material, labor, and other manufacturing costs) amounted to twenty-four million dirhams. Fourteen million were spent in 2015 and the remaining ten million were spent in 2016.
Because of shortage of funds, the Company borrowed on January 1, 2016 ten million dirhams to finance the construction of the building and other general activities in the coming years. The borrowing rate was rate of 10% annual. The interest is to be paid at the end of each year with the principal amount to be paid after 5 years.
The Company uses the straight-line depreciation method. Estimated useful life of the building is 50 years with zero net salvage value.
 
Required

1. Determine the initial cost of the building as of January 1, 2017 (2 marks)
2. Provide the journal entries related to the building for the year 2017 (2 marks)
3. Assume that at the end of 2018, the Company decided to use the revaluation model to reflect the market value of the building of 48 million dirhams. Provide the journal entry (or entries) to reflect the effect of applying the revaluation model. Show your worked numbers to support your answers (2 marks)
4. Assume that at the end of 2020, the market value of the building was 45 million dirhams. provide the journal entry (entries) to reflect the effect of applying the revaluation model. Show your worked numbers to support your answers (2 marks)

Question 3 (7 marks)
The Holding Company of the Golden Group of the Emirate desires to have an executive aircraft to be used by its board members on official duties. A formal search was undertaken by a team representing the Group and its Associates to select an appropriate aircraft manufacturer. The team recommended Walton Company (an aircraft manufacturer that is located in Europe). An initial meeting was held last month and the discussion resulted in the selection of the aircraft type and model which has a fair value that is equivalent to 305 million dirhams. The aircraft would have an economic life of 25 years for the Holding Company. However the issue of financing the transaction was deferred until a further notice from the Holding Company. In the meantime, both sides outlined the following options to finance the transaction.

• The aircraft manufacturer can arrange for a loan from a bank at a reasonable interest rate with the security of the aircraft. However, the bank will require the Holding Group to sign a note with the borrowing agreement that specifies the period of payments and the periodic amount of payment that includes the principle amount and its interest.
• The Holding Group can lease the aircraft with the following terms

1. The manufacturer will maintain ownership of the aircraft until all payments are made.
2. The lease term will be for 20 years.
3. The annual lease payment will be 31,534,000 dirhams and to be paid at the beginning of each year. The first installment will be paid on the date of signing the lease.
4. The implicit interest rate of the aircraft manufacturer is 10% annually.
5. The Holding Group has the option to buy the aircraft at the end of the lease period for 5 million dirhams.
6. The Holding Group does not have the right to cancel the lease.

Required:

2017. Assume the lease was signed on January 1, 2017. Discuss the appropriate accounting treatment of the lease for the Holding Group of Dubai and how the lease will be shown on its financial statements on January 1, 2017 (2 marks)
2018. Construct the necessary journal entries related to the lease for 2017 on the books of the Holding Group (3 marks).

• Construct the necessary journal entries related to the lease for 2017 on the books of Walton Company (1 mark)

1. Why a company would prefer to lease rather than financing the purchase through a bank loan (1 mark)

Question 4 (6 marks)
West Corporation is a UAE Company located in Dubai. The Company has a subsidiary operating in Europe that was established on January 1, 2016 by investing six (6) million Euros when the exchange rate was AED 5.00 per Euro. On that date, the foreign subsidiary borrowed four (4) million Euros from a European bank on an eight-year note to finance the acquisition of plant and equipment. The subsidiary’s opening balance sheet (in Euros) was as follows:
Balance Sheet
January 1, 2016

During 2016, the foreign subsidiary generated sales of 20 million Euros and net income of four (4) million Euros. Dividends in the amount of 2,000,000 Euros were paid to the UAE Parent Company on December 5, 2016. Inventory was acquired evenly throughout the year, with ending inventory acquired on November 28, 2016. The subsidiary’s foreign financial statements (in Euros) for the year ended December 31, 2016 are presented below:
Income Statement
For the Year Ending December 31, 2016

 
Statement of Retained Earnings
Year 2016

 
Balance Sheet
December 31. 2016

Relevant exchange rates for 2016 were as follows (UAED per Euro):

Required:

1. Translate the subsidiary’s financial statements into UAE dirhams assuming that the Euro is the functional currency(4 marks).
2. Provide a schedule to verify the amount of the translation adjustment included in your solution to A Above (2 marks).

OR
Alternate Question 4 IFRS Statement of financial position presentation. ( 4 marks)
The following statement of financial position was prepared by the bookkeeper for Kraus Company as of December 31, 2015.
Kraus Company
Statement of Financial Position
as of December 31, 2015
 
Investments                                          £ 76,300                    Equity                                                                      £215,500
Equipment (net)                                         96,000                Non-current liabilities                                         100,000
Patents                                                           32,000                Accounts payable                                                   78,000
Inventories                                                    57,000
Accounts receivable (net)                       52,200
Cash                                                                 80,000
£393,500                                                                                                  £393,500
 
The following additional information is provided:

1. Cash includes the cash surrender value of a life insurance policy £12,400, and a bank overdraft of £2,500 has been deducted.
2. The net accounts receivable balance includes:

(a)  accounts receivable—debit balances £60,000;
(b)  accounts receivable—credit balances £4,000;
(c)   allowance for doubtful accounts £3,800.

3. Inventories do not include goods costing £5,000 shipped out on consignment. Receivables of £5,000 were recorded on these goods.
4. Investments include investments in ordinary shares, trading £19,000 and non-trading £48,300, and franchises £9,000.
5. Equipment costing £5,000 with accumulated depreciation £4,000 is no longer used and is held for sale. Accumulated depreciation on the other equipment is £40,000.

Instructions
Prepare a statement of financial position in good form (shareholders’ equity details can be omitted.)