Day 19 Prisoner’s dilemma

Prisoner’s dilemma

Through the study of microeconomics, there is a particular theory interests me. It is the prisoner’s dilemma effect. Although I had heard the term several times before, I did not the definition of it. Today I finally get the chance to learn this effect, and I would like to share my understanding with you.

The prisoner’s dilemma states that when each players in a game has dominant strategy, they will use that strategy. But the payoffs for both parties are lower than the outcome received by taking their dominated strategy. The are three elements that required explanation: the game is the situation when people make decisions, they must taking consideration on other people’s possible reaction to that decision. The players are the groups of people involved in a game, and the payoff is the outcome received by the players as a result of that decision. If the player obtains a higher payoff in one of the combinations of strategy, no matter what will other players react, then that player will have the dominant advantage by applying that strategy. Otherwise, it is a dominated strategy. The prisoner’s dilemma theory is about a fiction scenario of two prisoners committed serious crime that may put them in jail for a long time. However, the prosecutor did not have hard evidence, so these two prisoners only need to server one year sentence in jail. They kept these two prisoners separately and told each of them his crime companion had confessed. Hence if he remains silence, he will get a life-time sentence with his companion walk-free. As a result, both of them admitted their crime. The theory has been wildly used and we can find symmetric situation in our life. For example, there are a congestion at the left-turn line in front of the traffic light. Since the line is long, it will take you 5 minutes to make the turn. Nevertheless, there is still another option to jump the queue from the straight-going lane at the right, so you will be able to turn left next signal in the next 1 minutes. Therefore, you have to choose to jump a queue or stick to the lane. We assume other drivers are rational and fully self-interested.Consequently,they will choose as well. The two players in this game are you and other drivers and the payoff will be the time saved. As other drivers may jump ahead of you even you do not stick to the lane, your waiting time will increase, and vice versa. Let's make a matrix to clarify the problem.

In this case, the dominant strategy for both parties is to cut the lane because the waiting time will be shorter despite other player’s choice. As we can see, everyone needs to wait for six minutes, which is longer than we both stick to the rule. More importantly, people will tend to cut the lane again in with economic perspective due to the cost-benefit principle.

That is a rough sample that may not be relatively applicable to the reality. We face more complicated circumstances in our life, and the prisoner’s dilemma trends to repeat itself. The corporation is the only way we can seek a way out and increase the outcome for all players. The Tit-for tat concept can be used to establish trust between parties. It is the strategy for playing the repeated prisoner’s dilemma game in which players cooperates on the first move, then mimics their partner's last move on each successive move. 

The prisoner’s dilemma is an interesting model to study, I wish this will help you to understand it.

Day 18 One-child policy, good or bad?

One-child policy, good or bad?

China has adopted one-child policy since 1978, it enforces people to raise at most one child in their family. Although it has exceptional condition such as farmer family who has only one girl, and some of the ethnic minorities to have two children, the policy has a huge impact over Chinese society structure. Thirty-five years later, the population in China is under control, but also caused many relative issues.

The goal of the one-child policy is to restrict the overwhelming Chinese population level. Chinese economy was in a horrible position in 1970th, and there were not enough resources to allocate in the tremendous amount of population. Therefore, in order to accelerate the accumulation of national origin capital, the policy was issued under that circumstances. There are several advantages for promoting this regulation. Firstly, there will be more working opportunities with less people, because the new entry every year into the labor market will decline. Moreover, It will improve the population quality, since the government can distribute more educational resources on each person. Furthermore, with fewer children within the family, parents are enabled to spend more money for themselves. So the average happiness level in Chinese family has increased.

However, the one-child policy has also created problems inevitable. As the only children in the family, kids are normally overindulged. Parents and grandparents spoil the child by granting him/her everything demanded. In some extreme cases, children do not even know how to tie their shoe laces at eighteen, because this task was belonged to his/her mother. Children reared under these environments do not have the sense of responsibility, and they are frail when confronting setbacks. Besides that, China is entering an aging society right now. The new couples are facing the issue to support four seniors by themselves. The one-child policy results that they have no siblings, hence when the old member in the family gets ill, the burden falls entirely on their shoulders. 

In conclusion, even though the one child-policy has substantially resolved the population issue associated with the scare resources, the problems yield by it is becoming more and more serious. China needs to find the equilibrium between the boundaries, so the policy can be adjusted to benefit the country in a better way.

Day 17 Challenges to Australasian Economic

Challenges to Australasian Economic

Recently, the Australian dollar exchange rate experienced a drastic downturn, which drops about 13 percent since September. The major reason of this is that the global bulk commodity’s price has been volatile during last six months. Australian economic prosperity was relied on the mining and agriculture. However, the intentional iron ore’s price has been decreased by forty percent, the copper’s price declined by nine percent, and aluminum also had a price drop in September. That was a disaster for Australian economy because mining is around twenty percent of Australasian GDP( agriculture sector is a twelve percent, by the way). Economists said Australia is facing the challenge for adapting the international bulk commodity’s price variation and looking for substitution resources.But there is another challenge everyone utterly choose to ignore, the international competition.

Besides the exportation of mining and agriculture products to the east-Asia region, there are sixty-four percent of our GDP consist of the service factor. In these years, the federal government did an excellent job to protect our local business by law. Nevertheless, the tendency of integrate global economics will comply every country to face competition sooner or later. Our economies are literally on the verge of contending against other competitors around the world. The biggest challenger of our local companies will from China and India. These are fast developed economy entities with relatively low wage rates, thus they will be able to carry out projects with lower cost. In other words, more competitive. In order to provide a vivid portrait of our situation, let me illustrate some examples: The Melbourne West-East link tunnel project has been postponed due to the financing problem. The estimated cost for that eighteen kilometer free way is seventeen billion AUD. What will be the average cost for Chinese constructors to build one kilometers of the freeway? The answer is between thirty million and one hundred million CNY. To ensure the quality of work plus other infrastructures, the cost should be 20 billion CNY for the East-West link project. That is twenty percent(according to the exchange rate) of our cost anticipation. In addition, let us concentrate on commute system a bit longer. The train service in Melbourne has always been a problem, because its ultra-slow transportation speed. And that was after a large upgrade by a HongKong train service company. Chinese has the worlds the most leading high-speed railway system, and the CSR Corporation Limited and CNR Corporation Limited are forming an integrated company. These are the largest railway construction companies in the world, and their aim is to export the advanced railway system around the world. Furthermore, telecommunication company such as Telstra faces little competition within the country. So their service quality is really poor. If any challenger, like BSNL from India or China Telecom are allowed to enter the market, it will be a huge compact on our market. Because they have lower labor/production cost, better service and sufficient asset to expand the market.

In conclusion, Australian can not shut the boarders to refuse competition forever. We need to be prepared and enhance our goods /service quality in this economic war. Otherwise, we will not stand a chance to win.

Day 16 Apply microeconomics knowledge

Apply microeconomics knowledge

Recently, we finished the renovation of an old apartment in a University in China. The apartment was fully decorated, and we have been looking forward to rent it. There was an applicant called yesterday, said he would like it to rent the apartment for a five-year contract. However, he was asking for a discount that may reduced the monthly fee to 7,300 CNY. Which our original quote was 7,300 CNY. In order to practice my recent learning on microeconomics and to evaluate the problem, I will try to provide a basic analysis under economic perception.

The problem is whether we rent the apartment to the applicant or refuse him. The scarcity principle stated there always a trade-off when we take actions, because the resources are always limited. As a consequence, we need to act if, and only if, the extra benefit associated to the activity is at least great as the extra cost. In our case, the costs allocated are basically the opportunity costs result from our choice. So what is the opportunity cost for accepting the proposal? It is the possibility for renting at a higher price. On the other hand, the opportunity cost for rejecting to quote is the investment return of that 7,300 CNY each month. In conclusion, when the predicted return on investment overweight the proportion with an increase in the rental market, we should rent the apartment, and vice versa.

If we accept the quote, we should receive 7,300 CNY per month. We can invest this amount in the share market at China. The Chines share market is a bear market, so we will expect at least 8 percent return under the conservatism strategy. Hence the rising in rental price shall exceed this amount for us to reject the rentee. The market equilibrium appears when both customers and sellers are satisfied with their respective quantities at the market price. To carry out a prediction for the rental market in the University, we need to consider those factors that shift demand/supply curve. To illustrate:

Factors that shift demand:

Price of compliments

Price of substitutes

Income

Preferences

Population of potential buyers

Expectations (higher price in the future)

Factors that Shift Supply:

Costs of production

Technology

Weather

Number of suppliers

Expectations

The new semester is coming next year, since there will be a lot of students joining the University, senior/junior school in the university, and the kindergarten. For convenience, a lot of students’ family decide to rent inside the university. As a result, there is a large amount of potential buyers, plus we can also expect the future rent price to rise. The demand curve will shift to the right and supply curve will shift to the left corresponding to the increase. Since the quantity supplied for apartment is fixed in the university, the increase in demand will also increase the price of rent. According to historical data analysis, the normal annual rental rate adjustment is around 4.5 percent. This amount is far less than the investment return. Although it may be safer, the prudential investment strategy shall minimize the risk. Therefore, we should accept the quote because it has the competitive advantage.

Another thing I also want to briefly mention about is whether we should give the discount. The term  elasticity on demand can be used. It is a measure of the extent which quantity demanded responded to variations in price, income and other factors. In this situation, the rentee has many substitutions(other apartment available in the area). In addition, the applicant is not a high-income person, so the rental expense is a large part of his budget share. Hence they can be very elastic to the price change. The buyer is less likely to take action when the benefit from an activity decline, in other words, the increase in cost. I suggest to maintain the level of fees at first, in order to leave the allowance amount for discount.

Day 15 The interview

The interview 

The movie ‘The interview’ was finally released and obviously North Korea was pissed. This movie is about two men who run a celebrity talk show got a chance to interview Kim-Jong-Un. The CIA intervened and recruits these two men to assassinate their interviewee. It is an ordinary pop-corn comedy which should be forgotten within three days, but the sarcasm to one of the most centralization conturt’s lead makes the things complicated.North Koera reacts radically after the Sony entertainment release the movie title.They protest to the U.S.government for slandering their leader. In addition,the Sony’s computer system was hacked and stars’ personal information were exposed to the public. The North-Korean government denied the accusations for the attack, and exalted the attack as ‘righteous deed’. Furthermore, the New York premiere was forced to be canceled, because the ‘Guardian of Peace’ pullout terrorist attack threats on cinemas to 911.As a consequence, the Leading US cinemas group refused to screen for safety measure. To escape from this pitfall, Sony claimed that they would stop the film release on Christmas. The America ‘freedom of speech’ society were detonated by this news. US President Obama said it would be a regress for their freedom of expression if the film was shelved. For vengeance, the North Koeran’s Internet was blacked out twice under Internet cyber attack. And of course US denied the charge just like North-Korea Under the pressure of community, Sony entertainment reconsidered and agreed to release film on Christmas day. Although the movie was shown in some cinema and online, the large cinemas decided not to screen it. North Korea so only announced a statement for protesting the US for hurting the dignity of their leader Kim-Jong-Un, and described President Obama as the reckless monkey in the forest. 

This is not the first-time western society brought trouble to themselves. Danish newspaper Jyllands-Posten Muhammad cartoons controversy was another example. It is perfectly sensible to maintain the freedom of speech. However, what this movie did was selling cheap jokes about another country holds different valuation standard. To praise oneself does not necessarily needs to step on another person’s face. If the US society dislike the perspective, North-Korea holds, then try to influence them in other ways. To dress-up as a so called freedom fighter and exploit people’s patriotism will only bring more hatred and opposition to each other.

Day Discussion about Australian and Chinese medical system

Discussion about Australian and Chinese medical system

People face healthy issues throughout their lives, so having a sophisticated and efficient medical system is important in every country. The medical system works differently between Australia and China.

In Australia, the medical system’s keywords are: ‘reservation, specialization, and waiting period.” People will go to the general practitioner at the early stage of illness. A GP can be found in the local clinic/medical center within five miles around residence. Although a reservation is required, normally it will not take too long for the patient to be served. The GP will give out the basic diagnosis which may be supported by the fundamental health examination. Contingent on the level of undergoing symptom, the GP will decide whether to help the Patients with some medicine or send the them to a specialist/ hospital for further treatment. Yet again, a referral letter is needed from the GP for making another appointment with the specialist/hospital. There are various types of health specialist, to illustrate: dentist, optometrist, podiatrist, dietrist etc. They are professional under the specific area thus, and all of them have long-term experience and good reputation in the community. If the patient needs to attend a hospital, the reservation will put you on a waiting list for outpatients. Conventionally, it will take weeks or even months to be inspected, because the capacity of hospital in Australia is limited. Certainly, there are emergency services provided by the hospital, but another queue system awaits. The nurse will classify the patients’ situation base on the level of urgency, so the most emergency patient can always be treated first. To be concise for explanation, people suffering illness are allocated to three categories: lethal, non-lethal but may disable, and yield to the others group.

In China, the keywords are ‘lack of responsibility, time efficiency and congestion’. The population in China is overwhelming and always becomes an issue at public activities. Unlike Australia, China separates the medical subject as different department at the hospital. Under every department, there are ordinary doctors, specialists and professor level doctor ready to assist the patient. Patients will choose the degree of professionalism that they want to be treated with a different registration fee. However, there are too many patient swarming to the hospital everyday and cause congestion. Therefore, even the professor level doctor will only inspect you for about five minutes, because they have twenty patients waiting outside the door. In this five minutes, they have to ask your symptom, medical history, give you diagnosis and write out a prescription. It is a short process for obtaining medical help in China, since patients will be able to see the doctor on the same day. But the efficiency is carried out from sacrificing prudence.

In conclusion, both Australasian and Chinese medical system has their own benefit/disadvantages. The Australian medical system took good care of its Patients, but it is very time-consuming, which may cause distress to those who suffering under disease. The Chinese medical system makes sure the patient gets treated in the first place, but the influx of people forced the doctors to shrink the time with every patient. Which may affect them to make a more precise diagnosis and treatment plan.

Day 13 Summary of studying Financial Accounting(cont.)

Summary of studying Financial Accounting(cont.)

Chapter 14 outlines the last type of ownership - the company. A company is owned by the shareholders and managed by the board of directors. It has continuous life and limited liabilities to its shareholders. Distinguish from partnership, a company does not apply mutual agency. Although has these advantages, the company faces stricter government regulation and tax responsibilities. To form a company, we need to apply to the ASIC for the certificate of registration. The company shareholders’ equity are combined with two parts: the share capital plus the retained earnings. Whereas share capital is obtained by issuing ordinary/preference shares, and retained earnings come from profitable operations. The differences between ordinary and preference shares are: The preference have the advantage of getting paid first at a fixed dividend rate and may claim for the asset on company’s liquidation. However, the voting rights are normally withheld from them. Generally, ordinary shareholders face the greater investment risk than preference share holders, but have the potential of large returns if the company runs really well. In the share market, the company usually issues share by installment. At first it is open for applications for the down-payment, followed by another allotment payable. After that, it makes a call for the last payment of the share. When a share is too popular, the company will receive over subscriptions. The director may choose to reject the over subscription's amount or to keep the excess for future calls. If the shareholder fails to pay for the call when it's due, the company will forfeit the share capital of him. Of course, there can be a reissue of the forfeited shares take place, in that situation, a refund of the remaining amount in the forfeited share account( subtract the loss for the reissue) may be required by the legalization. Company pays the cash dividends by debit retained earnings and credit dividends payable account. There are three important dates of it: The declaration date, the date of record and the payment date. Most of the preference shares use cumulative dividend's method, which means when there is arrears from last year, then the dividends payable from this year must add that amount. The comparison of market value and book value of the share provides the investor the basic evaluation of the share performance. At last, this chapter briefly introduces the calculation of income tax expense( Profit payable before income tax* rate) and the income tax payable( total tax payable income* rate). The differences between them are reported as deffered tax liability/ future tax benefits.

Chapter 15 continuous on account in companies. It explains the concept of another form of dividends- share dividends. Share dividends follow the pattern of cash dividends, but credit against the shareholders' capital at payment. The share dividends occur when the business wants to reserve cash without sacrificing dividend's distribution. It also helps to reduce the share price, so the share can attract more investors. Nonetheless, the share splits, which increase the ordinary shares number based on the previous proportion of shares will also decrease the market price. On contrary to these two methods, a company may support their share price by the share buy-backs. The company purchases its own shares and retires them by canceling the shares. Ordinarily, the buy-back is recorded a debit against capital, but when the capital has a nil balance, it can debit against retained earnings. In business operation, the director may decide to transfer the retained earnings to a separate account for specific use or general reserve. This action will not affect the balance of the retained earnings, because the amount will be transferred back once the reserve is not needed. The company’s income statement must disclose the profit/loss from continuing/discontinued operations. The continuing operation is the profit earning activates that business carries period to period. The discontinued operations are the income not likely to reappear in the future, such as selling a business’ segment. Moreover, the company needs to report certain items on the statement of change in equity. For instance, change in Asset Revaluation Reserve, net exchange difference on conversion of foreign operation reports or income tax on items included directly in equity. At the end of chapter, the most widely used ratio is introduced. The Earnings per share ratio is calculated by (Net Profit- Preference dividends)/Weighted average number of ordinary shares issued. It relates the profit to one share, since indicates the profitability.

Chapter16 lectures another type of company financing, non-current borrowing. The debentures are the most common non-current liabilities inside a company. It is usually secured by a company’s asset, therefore it can be called mortgage debentures. There are two types of debentures: term and serial. The serial debenture pays it maturity value plus interest expense in installments. The market value is the present value for the principal amount adds the present value of nominal future interest. It represents as the quote(percentage) of the debenture maturity value. When the market interest rate > nominal interest rate, the debenture is issued in a lower price than principal. Hence there is a discount on debenture. In contrast, there will be a premium amount. These two amount need to be amortized through the debenture’s interest expense. The discount will be reported as an addition of interest expense. And the premium as a subtraction to the interest expense. The company shall use straight-line method or effective method to calculate the amortization amount. In fact, the interest expenses do not always fall on the date or recording, and consequently, the accrued interest payable needs to be adjusted. If the debenture is issued between its interest payment date, the company should collect the prior months’ interest and cumulative with the interest expense at the remaining months. Thereby, at the next interest payment date, the total amount can be paid out to the current owner of the debenture. The company will proceed a debenture's redemption with the aim to release interest pressure or to borrow at a lower rate. There may be a callable rate with the debenture, so the company may call back the debenture any time with that rate or the market rate, depends which one is lower. As a result, the redemption may create gain/loss on redemption. There is a type of debenture that can be converted to ordinary shares under agreement, which is really popular. The advantage and disadvantage of borrowing over shares are both related to interesting payments. Even though the interest payment is a burden on company’s cash flow, it also provides income tax deductions which can leads to higher earnings per share ratio. 

Chapter 17 overviews the accounting process when the business performing as an investor. Three ways of recording are used to adopt different situation. If the investment amount is less than 20% of the investigate holding shares, the fair-value shall be adopted. For the short-term trading investments, a revaluation of the investment to market value is carried out at the end of the year. So a gain/loss on short-term investment will occur under other gain/loss section of income statement. For the long-term available-for-sale investment, the allowance to adjust investment to market account is used for the revaluation. However, the changed value needs to be recorded as unrealized gain/loss on investment, because it is the result of market price variation. It is an equity in the balance sheet under the retained earnings. At the point of sale, the amount will be realized and become part of gain/loss on sales of available-for-sale investment. Furthermore, if the company holds the shares between 20% and 50%, the equity method should be applied. The reason of that is the inventory with that proportion of ownership has a significant influence on investee's management decisions. Under the equity method, the investment will be recorded at cost. The investor will share the business’ net profit in addition to the investment base on the proportion of the shares. On the other hand, the dividend revenue becomes a decrease in the investment. After these two adjustments, the gain/loss of sale the investment also needs to be re-evaluated. Whenever the investor's business holds more than 50% of shares in a company, it turns to being the holding company for investee.The business will need to provide consolidate a report which consists with all the subsidiary companies report to the parent. The net profit is calculated as the sum of the parent and the subsidiaries. If the investor is holding debentures, the amortization of discount/premium still needs to be recorded. The foreign currencies exchange gain/loss are included at last.

Chapter 18 reviews the cash flow statement. There are two formats on preparing cash flow statement: the direct and in-direct method. Both of them divided the cash flows into operating activities, investing activities and financing activities. The operating activities are related to current-assets current-liabilities and owner's equities that make up net profit. The investing activities involve buying/selling non-current assets. The financing activities obtain the cash through long-term liabilities or rising share capitals. Nevertheless, the interest revenue/loss and dividends' revenue are reported as operating activities due to, they affect net profit. Th dividend's payment is a financing activity. With the direct method, every cash-related account are listed below these three categories. The indirect method affects only the operating activities. It begins with net profit then add up depreciation expenses plus loss on sales of assets. After that, it adds all decrease in current assets, and all increase on current liabilities. Subtracts increase in current assets with all decrease in current liabilities. The formulas for calculating cash amounts in these activities are given as below:

Day 13 Basic evaluation over Australia Retail Food Group 2014 Annual Report(cont.)

Basic evaluation over Australia Retail Food Group 2014 Annual Report(cont.)

Continue with day 11.

We have evaluated the liquidity and solvency for RFG, so now it is the time to predict the profitability.The most common tool is the profit margin ratio.

There are 22% of revenue retained as profit, which is healthy.

We can support the assessment of profitability by another two figures:

The ability to earn profit form both its assets and shareholder’s investment are great.

The last important ratio was given in the income statement, the earnings per share is 26.5 cents/share.The EPS increased slightly from last year’s 26cents/share, it indicates the business’ profitability is on a favorable trend.

However, we can only tell that RFG was on a profitable position in 2014. What interests us the most is the share performance. The most widely used ration is the Price/earnings ratio.

This indicates that the average return/year on the reporting time is around 6%(1/16.68). It shows that investors are willing to purchase RFG’s share at 16.68 times of the EPS.

We should use dividend yield to support our analysis:

5% of the market price is going to be returned as dividends.

The share performance is ordinary, but in consideration of the RFG’s stability and profitability, it is a safe investment which can be used as risk separation factor.

Day 12 Review of the Financial Accounting book

Summary of studying Financial Account

The first chapter barely explained the accounting system. There are 4 major types of accounting: financial accounting , management accounting, public accounting and private accounting. This book is focused on providing business operating information to outsiders of the company, by which is financial accounting.This chapter also introduced the basic accounting principle:entity, accounting period, matching inputs/outputs to goods/service, profit recognition and conservatism(prudent) principle. In addition, the accounting equation is outlined along with types of financial statements. Basically, this is an introduction chapter.

The 2nd chapter taught the process of recording transactions with double entry accounting. There is not much to write about, except two technique to correcting balancing errors. To divide the outbalance amount by two and 9, in order to find slide and other error.

The following two chapters explained the adjusting balance and closing account at the end of accounting cycle. It includes to adjust unearned revenue (L) prepaid expenses (A) and the opposite, accrued expense (L).This is performed in order to measure profit more accurately in the income statement, and to updated related assets/liabilities account with correct profit in the balance sheet.The closing process is exceeded later, because the earnings/expenses/drawings account only reflects on the current accounting period(nominal account), thus need to be closed to prevent carry it to the next period. All the revenues and expenses balances are transfer to income summary account and the drawing to capital account. The current ratio and debt ratio are also mentioned in this chapter.

Chapter 5 is about retailer operations. A retailer purchase goods/service and hold them as inventory to resell. They use perpetual or integrated inventory recording system. Which the difference between them is whether keep a running record of all goods bought and sold or not. Settlement discount can be received in most credit purchase, we debit inventory account and GST Clearing for the discount amount received. The purchase return & allowance is the account for return the damaged goods. There is another issue about freight charges(in/out), freight in normally use point of delivery which care buyers. So the delivery expense is recorded as part of inventory(debit and GST).Freight out recorded as delivery expense. Contrast to purchase of inventory, the sale is more complicated. We need to record the cost of goods sold against inventory for the sale. The adjustment of inventory will occur in the sales return,but not allowance since nothing returned. Sales counted is discount as an expense account. After the physical count of stock, the error may be found. Therefore a stock loss might be record against inventory. The gross profit percentage and the inventory turnover are also included.

The next chapter is about the inventory cost method. There are four major types: Unit of Cost, FIFO, LIFO and average cost method. FIFO has the lowest COGS so the highest profit. LIFO is the opposite and can leads to a decrease on income tax. Average cost is in the middle. The cost of goods sold calculates differently on average method, is the total cost in inventory/ no. units available for sale.Furthermore, the lower of cost and net realistic value on inventory are applied. If the NRV <historical cost, the a loss on inventory journal entry occurs. It is important for us to estimate the inventory volume under some cases, we can use gross profit method or a retail inventory method to compare the cost with its price.

Chapter seven consists with account framework theory. It states the establish process of accounting standards in Australia. AASB sets the standard on due process which a new standard is created then debated in the public to decide to accept/reject. The other part in this chapter introduce the conceptual framework and it provides concepts&principles to use in preparing financial statements.It defines the objective o financial reporting plus the general principles of reporting. Understandbility, relevance which combined with materiality, reliability(free from material error and bias), and comparability. At the end, the book concludes the four ways to recognize profit: sales method, collection method, installment method(gross profit percentage*collections) and percentage-of-completion method(must use on construction contract, defined by cos for year/total cost times total revenue).

Chapter eight introduces the four most common special journals in accounting information system.

Cash receipts/payment journal, sales journal and purchase journal. These accounts are used to summarize all the relative subsidiary accounts, for the purpose of avoiding multiple journal entries.All subsidiary ledger needs to be posted daily, however the general ledger posting can be performed monthly.There is a brief notes of the credit note for sales return and debit note of purchase return.

The following chapter focused on internal control of cash. The internal control is the related measures intend to :

1.safe guard assets 

2.encourage adherence to business policies

3.Promote operational efficiency

4.Ensure accurate & reliable accounting records

The effective internal control system must consists:

1.Competent & ethical personal

2.Assignment of responsibility

3.Proper authorization

4.Separation of duties-most important

5.Internal&external audits

6.Documents & records

7.Electronic devices & computer controls: e.g. Electronic sensors

8.Other controls: vault, POS terminal, job rotation etc.

It can be limited by colluding and cost issues.

To perform internal control over cash, we need to use bank reconciliation as the tool.

It is divided into two parts, bank or the book error. The bank may miss the outstanding cheque or deposit in transit. The book may miss recording the bank collections on behalf/service charges, electronic fund transfer,interest revenue, dishonored cheque/other returned/rejected cheque and the cost of printing special cheque. Other than these, it can simply be an error made by either parties.

The process is to add deposit in transit and subtract outstanding cheque on the bank Statement balance. Then adjust the business’ book so we can compare these two adjusted value in the end.There are other internal control techniques over cash flow in the company. For instant, use point-of-sale terminal and mail reception room to control cash receipts. Use cash short & over to control the mathematical error made during daily sales.. And establish a corresponded purchasing purchase process.Moreover, the control over Petty cash fund is also told in the chapter. We should assign a specific person to scrutiny the certain amount of petty cash on hand. The balance of petty cash fun never changes, and will be replenish in a time period.

Chapter 10 presented two major proportion of receivables. The accounting for bad-debt and bills receivables. The allowance method is normally used for bad-debt, because it is more accurate to assign the bad debt expense to the period it occurred. The allowance of bad debt reduce the account receivable on balance sheet. In order to estimate the allowance amount, we combine the percentage of sales with the aging of account receivable method. Which we use POS method for the monthly or quarterly report, and aging method at the end of financial year. Sometimes business may decide some debt is unrecoverable, hence we need to perform a write-off. We can debit the allowance of bad-debt against account receivable to journalize the write-off.If the write off amount are eventually recovered, we need to do the opposite recording. In modern days, many business accept credit card or bank card for sale. However, wee need to record the credit-card discount expense as the subtraction of account receivable against sales revenue. By the way, bank card will directly care your cash at bank account instead of account receivable.The next part in chapter 10 is the bill payable. The promissory note and bill of exchange are both bills payable, which acceptor agrees to pay the drawer of the bill a specific amount with interest at a fixed or determinable future. The interest can be calculated as principal*rate*time. The account receivable can transfer to bill receivable, and can be transfer in the contrary when a dishonored bill appears. Normally people will hold the bill till maturity, but they can also sell it to the bank with a discounted price. The sellers proceeds is the maturity less (maturity value*bank’s discount rate* times remaining on this bill). When the proceeds exceeds the principle amount, there is a interest revenue, otherwise a interest expense.

Chapter 11 is about non-current assets. There are two main categories: tangible and intangible. For tangible asset, the cost is the purchase price plus and cost associate with bring the asset to a intended usable position. However, we need to identify which cost we need to capitalize to asset and others as expenses. For example the custom duty and charge for clear the lands can be capitalize as cost of asset. But the fencing, paving etc need to be recorded as land improvement expenses. In this case, we define the capital expenditure as is will increase asset’s capacity ,efficiency or extend its useful life. Otherwise, as expenses such as painting the truck. The non-current faces depreciation over its useful life. There are 3 ways to estimate the depreciation expense: Straight Line method, Units of Production method and reducing balance method.The SL method is better on asset producing profit over its useful life, due to the matching principle we need to related the revenue to any expense made to generate it. The UOP method is prefer to describe wear and tear. And the RB method is suitable for the asset generate lager revenue at the first year because the depreciation expense is larger as well using this method. The accounting process of changing the useful life of depreciable asst, disposal/selling/exchanging assets, the writing-down and revaluation of non-current are also introduced.In most situation, we need to bring the depreciation up to date and off-set the accumulated depreciation account by the non-current asst account. The accounting of intangibles asset follow the same pattern, despite to use amortization expense account. The goodwill is a company is phrasing another, the excess amount from total assets less total liabilities that company willing to pay.A loss on goodwill may be recorded.

Chapter is 12 a disclosure of current liabilities. We understand that: account receivable, bill payable, payroll liability, current portion of non-current liabilities, GST payable, accrued expense and unearned revenue are the ordinary current liabilities. There are also liabilities must be estimated, such as warranty payable. It appears after the sales, and record as warranty expense and estimated warranty payable. We have already studied about the other liabilities, so this chapter concentrates on payroll liabilities. An empolyee’s payroll is showed as following chart.

The employee payroll relation

Gross Payable   -  Income tax payable-Deductions  

In business we use a payroll information system to clarify each employee’s payroll, they will receive a payroll cheque and the PAYG payment summary for the salary to explain the payment with deductions. For convenience, company report payroll liabilities as ‘Remuneration and Benefits payable in balance sheet. Which combine all payroll liabilities together.

Chapter 13 grants us with the knowledge of partnership. Unlike to company or sole proprietor ship, partnership is two or more people caring business in common with a view to make profit. To commence a partnership does not need any registration, but a written agreement about how the bossiness run between partners. As partnership, there are some specific characteristic of it. To illustrate, It has limited life(ceased if partner withdraw), unlimited liability, co-ownership of the property, mutual agency( every partner present as the agent of business) and no partnership income tax( as tax allocated to partners’ personal income). At commencement of partnership, all non-cash capital contribution needs to be record at market value. Because the partnership is buying the asset and assuming liabilities. Partners can split profit/loss by a stated fraction or base on capital contribution and service. Normally they use a current(retained earnings) account to record profit/loss, and add this amount under the partner’s capital. When the business want to add a new partner, he can either purchase a current partner’s interest or investing in the partnership. However, both of them will end the old partnership. When investing into the partnership, there can be a bonus to the old/new partners, the gain/loss are allocated base on old partners’ profit/loss sharing ratio. Before a partner withdraw, the non-current assets need to be evaluate to their market value, and the gain/loss are assigned to partners base on P/L sharing ratio. No matter the partner withdraw at/less/more than his capital caring amount, the gain/loss still shared in the other partners with their sharing ratio. If the partnership is going out of business, there are three steps to liquidize the business. Firstly, sell the non-current assets and allocated gain/loss to partner’s capital. Secondly, pay off all the liabilities. Thirdly, distribute remaining cash to partners. Due to the unlimited liability feature, the partner needs to use his own asset to cover capital deficiency. If he can not afford to pay, the loss is allocated with other partners base on the proportion of the capital balances prior to the liquidation.

Day 11 Basic evaluation over RFG 2014 Annual Report

Basic evaluation over Australia Retail Food Group 2014 Annual Report

Before we take decisions on purchasing a company’s share, we can evaluate the business’ performance in three simple accounting perspective: the business’ ability to cover its debts,its profitability, and some share price indicator. I have subtracted some part of the Retail Food Group( will abbreviate as RFG for convenience) 2014 report, and provided the basic analysis to it.You can find the report at the following link:

http://www.rfg.com.au/images/investor_docs/RFGAnnualReport_2014.pdf

The company’s short-term liquidity and long-term solvency are important. It is hinged on the risk allocated to invest on the company. In this sector, we are going to use five basic ratio to determine RFG’s ability to pay its debts. For the short-term liquidity, there are three ratios listed below:

     

These two ratios indicate RFG is capable of pay off its current liability by its current twice. The decrease on Quick ratio was caused by the inventory value, which should not be a problem since these figures are pretty healthy.However I would also check the inventory turnover ratio in case the stock stacks up which may cause liquidity issue.

Hence the number of days inventory is held is 96 (365/3.8).This might look a bit long but RFG’s major inventory is store held for sale. Therefore it is a considerable fast turnover ratio. I will skip the Accounts Receivable Turnover and the Days’ sales in receivables because RFG is a large company with its efficient debt recover process.

In addition, we will measure the long-term solvency ability for RFG.

Only 22 percent of assets are financed through liabilities, which is excellent.But I still want to see RFG’s performance on cover interest expenses.

RFG can cover its interest expense by its profit for 12 times. Now we know that RFG is on a decent position for meeting its financial obligation, so the risk on investing this company is fairly low.

We will discuss the profitability of RFG and its ordinary shares tomorrow.

Day 10 The Financial leasing

The Financial leasing 

The financial leasing has shown its significance in company’s financial operation. As we know, leasing can be classified as two types.The operating leasing and the financial leasing. The core concept to differentiate them is that the financial leasing will substantially transfer all the risks and rewards incidental to ownership of an asset to the lessee. Which indicates during the economic life of the non-current asset, the lessee company will obtain all the profit created by it. However, the company also will be liable for the maintenance or other liability associated with the asset. 

Finance lease is a convenient tool in business’ borrowing procedure. It allows the business to lease the equipment with a more flexible financial option. Sometimes it is hard for business to acquire a bank loan, but financial leasing provides an alternative method to gain access to the profit generating asset. It eases off the burden on cash flow for the purchase of a non-current asset. In addition, the financial leasing has longer terms- usually the most of equipment’s entire economic life than other fund raising tools. Hence it decreases the risk on business solvency, because the large fair value is not required to be paid off in short term. Moreover, the lease of equipment let the business have the advantage on technology, due to the upgrade shall be available when the term ends. 

On the other hand, there are a few disadvantages for finance lease. Although the payment rate is fixed and stable, it still creates stress over the company’s financial position. The payment is continuous. Therefore, the business may face the financial problems, especially in slack season. Furthermore, the risks associated with the asset are binding with the company, so it is your responsibility to maintain its usefulness. Despite the fact you do not own the asset, these costly expenses are still your obligation. 

The assets under the lease are treated like purchase of non-current assets in accounting. Therefore, we need to capitalize the finance leased asset and establish finance lease liability. The amount is determined with its fair value or the present value of minimum lease payment. The repayment amount is divided into two parts, the current lease liability and the interest expense. So the present value is the accumulated lease liability excluded the impact of interest. Then we need to record the depreciation on the asset and calculate the interest expense, which is another part of the total repayment. 

Capital leasing is important and complicated, thus it is critical for us to understand it.

Day 9 Writing Practice

I have been searching for a good restaurant in the area today, which recalls my memory of the dining experience in Melbourne. I migrated to Melbourne for eight years, and it was miserable that I only discovered a few decent restaurants here. By the term ‘decent’, I did not mean those luxury costly restaurants. In my opinion, a good restaurant must have the following intrinsic and extrinsic features. 

Restaurant is a place people eat and drink, so the most important is the quality of food. Ordinarily, it is not necessary for the food to be absolutely flawless. Ninety-nine percent of the customer is not a gourmet. The flavor can be just above-average level, but what makes customer return is to have your own peculiarity. For instance, I have been to many restaurants in the area. However, I cannot tell the difference of their menu. The Chinese restaurant will have roast duck, sweet and sour pork, plus beef in black bean sauce. Moreover, I never find a menu without baramundi and Atlantic salmon. Assume all the restaurant has the same level of cooking, how do you distinguish yourself from the others? 

Another characteristic is to maintain a satisfied environment. It includes many perspectives. The most vital one is the decoration. It is not only the fixtures, floors or ceilings, but also the other exterior highlights. To illustrate, a comfortable temperature in the room will make diners enjoy their food. The neat and fitted uniform on waiter/waitress will upscale the class of restaurant. And the convenient location allows the customer to choose their transportation to arrive. These advantages will accumulate in a customer’s decision process, thus affect their choice. 

At last, the restaurant's reputation is crucial. It is directly reflected with the customer’s satisfaction. And the service quality has a large impact on the degree of satisfaction. Customers may feel offended if the waiters are too busy, because they feel being ignored. The solution to this is the allocation of the responsible area. Therefore, every area will have a waiter supervising it. It is important to let the customer find you when needed, so set up a small working platform to keep customer attended is a good idea.In addition, the restaurant can register on the online review website. This will attract many first-time customers if the rating is high. 

These are my thoughts, and hope I can find more excellent dinning options in Melbourne at the future.  

Day 8 Writing Practice

How can I save you, HK Chank!

Today is the 15th anniversary of Macu’s sovereign right back to China. As the only two special administrative region in China, HongKong holds the similar issue and perspective to the mainland China. Since 1997, the HongKong people’s attitude towards the mainland has been volatile besides more complicated than Macu. We are going to discuss the reason behind this phenomenon. 

On the 1st of July 1997, HongKong was returned by British to China. Between these 17 years, the mental state of Hongkongese experienced three major stages of transformation. Before and in the early time in 1997, the transfer of the governing to Communist Party Of China caused havoc among some Hongkongese. According to the rumor on the street at that time, the communist will confiscate their asset and allocate to the poor people. Thus, many of them emigrated to Australia, Canada and other western country. That is why we have that tremendous amount of roast duck restaurant in Autralia, because many of them settled in before the HongKong’ return. Those people who believed the rumor but did not have the financial ability to immigrate reminded in HongKong. Hence at that time, they lived under the terror towards the mainland China. China took over the regime smoothly and obviously no one’s personal assets were ravaged. The life in Hongkong returned to normal, so the people’s thought started to change. In that period of time, China was in the middle of its economic reform, but HongKong had already been the economic centre in Asia for many years. As a result, there was a portion of HongKonger started to hold prejudice against mainland China, due to they thought Chinese were poor. Their bias blinded them. Therefore, they could not see the vigorous innovation in China everyday. The term ‘Ah Chank’ was invented as the discrimination to mainlander, which means the imperious and rusty. At present, China developed to a strong and cohesive country. The influence of China around the world, both politically and economically are becoming larger every day. So those people who despised Chinese were conscious with their ignorant. The old ‘Ah Chank’ was replaced by the new word “Hk Chank’ to vividly describe their short sight. However, the extreme inferiority caused defect self-esteem. They became chubby and against every policy from government. They fought for their so called ‘democracy’ and content they were against mainlands 'intervention'. They treated themselves as ‘freedom fighter’, so they could have a reason to riot in the city center. 

The Hongkong’s future are in the hands of its own people. Beijing and Shanghai have already taken the HongKong’s place in the global economy. Consequently, Hongkong will never be benefited by these HK Chanks.   

Day 7 Writing Practice

How do we protect ourselves.

Since the 911 incident the world is becoming more and more dangerous every day. As a consequence, people should understand the take care of their own safety in public place. It is critical for us to know what to do when a crisis happened nearby. There are a few tips I would like to share with you.

First of all, be aware of your surroundings. In modern days, people are kept busy with their cell phones. Thus they are oblivious to the environment around them. Which made them unable to oversee the dangers. For instance, if you can take a glance of your surrounding for 10 seconds, you might find someone acting suspiciously so you can leave the scene before something happened. It sounds neurotic, but the dangerous are not inevitable if you can forecast them. In addition, when you're inside a building, make sure you know where are the fire exits. Therefore, at least, you will be able to guide yourself to safety when an alarm breaks off. There is nothing to be ashamed for being prudent, because it is our life on the other side of balance. 

Furthermore, save your curiosity when you see a congestion of people. It is human nature to be an onlooker in the crowed, and it is not a good one. Of course, you will have access to the first hand story that you may share with friends. However, it can also drag you into an unpredictable event. If there is a man needs help, then go get help. Do not stand in a circle and staring at him like a monkey in the zoo. Nonetheless, keep your distant shall not bring you any more trouble. 

Moreover, you should not be a hero without wisdom. A hero succumbs to his injury is called the martyr, hence if you still enjoy your life, meditate before you act. Try to comprehend what is going on. Assess your probability to success and the consequence you may face. Plus think about the people you love. If your disadvantage is too obvious, go find people who will adapt the situation with more experience such as the cop. 

In conclusion, the concept rule of self-protection is to have a clear mind and understand the circumstances. Be cautious and well prepared will always help you in foul environment. I wish we all of us can stay sharp, and stay safe.   

Day 6 Writing Practice

Farewell, Grandma 

It has been a year since grandma left us, and we are still laden with sorrow. The memories of her highest virtue and the time she spent with us will forever remain in our heart. The words and knowledge imparted by grandma will inspire and encourage us to consistently step forward in our live. We will cherish the wisdom that she taught us throughout her life, thus she can feel at ease in heaven 

Grandma is a woman with great value of ethical standard and a robust soul. She took very good care to her family without sacrificing he career. Her spirit of never give up made her achieve a perfect score as a mother, a wife and a successful member in the society. Grandmother loves her family, although the living condition in China was hard in 1960s, she raised her children healthily with care. At work, her hardworking won the respect from her colleagues, therefore, she could perform extremely well in the Chinese civil servant system. Which was very rare for a woman back into that time. As an admirable judge at the local authority, grandmother always preserve the high level of moral obligation. She taught us never to lose our consciences and integrity, so we can be proud of ourselves for our entire life. 

I do not have many memories with grandma in my youth, but the sense of her love and care has been with me all the time. I can still remember that she prepares my favorite spareribs braised in brown sauce every time. I will never forget the smile on her face while I was feasting on the meal. She indulged me as her eldest grandson. She would protect me from all the dangerous in this world, occasionally from my parents when I had driven them mad. She encouraged me to become a good man and a useful member in the community. Before she left us, I was gifted by her last inspiration of life,‘ you need to contribute something before your gain’. These words supported me to overcome my indolence, because I understand that I need to put in more effort to become successful. 

Grandma departed so quickly without leaving us any last-words. However, I think she does not have any regrets in her life. Her family will continue their own journey encouraged with the memories of her , may grandma rests in peace.