Importance of reducing nature to a number in environment and accounting
Economist says that every business should put a price on nature. To ensure sustainable use of natural resources, it is crucial to find a way of calculating the value of nature. Environment accounting helps the investors to identify the role played by the natural environment in the economy. Pricing for nature provides information that explains the contribution of a natural resource to the economy as well as the cost imposed by resource degradation or pollution. The business has the social responsibility of ensuring that it plays a role in conserving the environment, and hence in accounting, it is necessary to consider the cost associated with environmental conservation.
Accounting for nature helps in providing information relating to the environmental impact on both external and internal users. It plays a vital role in reducing the cost and negative effects on the environment. Environmental accounting provides data necessary for decision making about the structure and level of production, ecological coast, and value of the investment. Reducing nature to a number helps the investor do a cost-benefit analysis of the project the company is undertaking. It helps in minimizing the negative impact and cost on the environment by providing information about the supply process, the product being produced, and the producer’s responsibility. The main aim of this is to protect the environment against pollution. Don't use plagiarised sources.Get your custom essay just from $11/page
The process also ensures the development of sustainable activities of a business. It helps in analyzing the cost and benefits that emanate from the effect of activities that affect the environment, practice, and policies for pollution control, research on effective mechanisms of environment conservation, and selection for material that reduce the cost of environment control. Environmental accounting presents corporate social and ecological responsibility as ecological costs. Reducing nature to a number of acts as a useful information system for pricing the benefits associated with business operations in an environmentally friendly economy. Environmental pricing and accounting help the company meet the regulatory requirement. When the company is aware of the cost, it will suffer in case it does not conform to environment conservation. The management will work towards meeting the set requirements. This will help the company to ensure safe disposal and handling of hazardous waste. With the safe disposal of waste, the company is able to reduce the risk associated with environmental pollution.
Question 2
Dental Services Ltd
Trial Balance as at 30 June 2019
| Dental Services Ltd | ||||
| Unadjusted Trial Balance as at 30 June 2019 | ||||
| No | Account Name | Dr ($) | Cr ($) | |
| 100 | Cash | 75,380 | ||
| 110 | Account Receivable | 137,055 | ||
| 130 | Office Supplies | 70,357 | ||
| 140 | Prepaid Insurance | 28,058 | ||
| 150 | Dental Equipment | 430,868 | ||
| 151 | Less Accumulated Depreciation – | |||
| Dental Equipment | 157,717 | |||
| 200 | Account Payable | 41,879 | ||
| 220 | Interest Payable | |||
| 230 | Revenue Received in Advance | 133,545 | ||
| 240 | Salaries Payable | |||
| 250 | Bank Loan (10 years term) | 88,544 | ||
| 300 | Share Capital | 180,723 | ||
| 310 | Retained Earnings | 43,451 | ||
| 311 | Dividends | 26,453 | ||
| 400 | Service Revenue | 176,684 | ||
| 500 | Salaries Expense | 28,451 | ||
| 505 | Insurance Expense | |||
| 510 | Interest Expense | 2,334 | ||
| 520 | Depreciation Expense | |||
| 530 | Office Supplies Expense | |||
| 540 | Rent Expense | 23,587 | ||
| 822,543 | 822,543 | |||
- adjusting entries
| June 30 | Debit | Credit | ||
| 110 | Account Receivable | $13,198 | (150,253-137,055) | |
| Service revenue | $13,198 | |||
| To record service revenue | ||||
| June 30 | Supplies expenses | $25,012 | (70357-45345) | |
| Office supplies | $25,012 | |||
| (To record supplies expenses) | ||||
| June 30,2019 | Insurance expenses | $8,607 | (28058-19451) | |
| Prepaid insurance | $8,607 | |||
| (To record insurance expenses) | ||||
| June 30, 2019 | Depreciation Expenses | $49,356 | (207,073- 157,717) | |
| Accumulated depreciation | $49,356 | |||
| (To record depreciation expenses) | ||||
| June 30, 2019 | Interest Expenses | $2,885 | (5,219- 2,334) | |
| Interest payable | $2,885 | |||
| (To record interest expenses | ||||
| June 30, 2019 | Revenue receive in advance | $42636 | (133,545- 90,909) | |
| Service revenue | $42636 | |||
| (To record service revenue) | ||||
| (31,571- 28,451) | ||||
| June30, 2019 | Salary expense | $3,120 | ||
| Salary payable | $3,120 |
| Dental Services Ltd | ||||
| Adjusting entries | ||||
| No | Account Name | Dr ($) | Cr ($) | |
| Account receivable | $13,198 | |||
| Service revenue | $13,198 | |||
| Supplies expenses | $25,012 | |||
| Office supplies | $25,012 | |||
| Insurance expenses | $8,607 | |||
| Prepaid insurance | $8,607 | |||
| Interest Expenses | $2,885 | |||
| Interest payable | $2,885 | |||
| Revenue receive in advance | $42636 | |||
| Service revenue | $42636 | |||
| Salary expense | $3,120 | |||
| Salary payable | $3,120 | |||
| Dental Services Ltd | ||
| Income statement for the year ended on 30 June 2019 | ||
| Account Name | Dr ($) | Cr ($) |
| Revenue | $232,518 | |
| Salaries Expense | 31,571 | |
| Insurance Expense | 8,607 | |
| Interest Expense | 5,219 | |
| Depreciation Expense | 49,356 | |
| Rent Expense | 23,587 | |
| Retained earnings | 114,178 | |
| Dental Services Ltd | ||
| Statement of financial position as at 30 June 2019 | ||
| Account Name | Dr ($) | Cr ($) |
| Dental Equipment | 223795 | |
| Cash | 75,380 | |
| Account Receivable | 150,253 | |
| Office Supplies | 45,345 | |
| Prepaid Insurance | 19,451 | |
| Total Assets | 514224 | |
| Current liabilities | ||
| Account Payable | 41,879 | |
| Interest Payable | 2,885 | |
| Revenue Received in Advance | 90,909 | |
| Salaries Payable | 3,120 | |
| Total current liabilities | ||
| Bank Loan (10 years term) | 88,544 | |
| Share Capital | 180,723 | |
| Retained Earnings | 43,451 | |
| 451511 | ||
The post-closing entries show the final balance for the business accounting period. The main purpose of post-closing entries is to resettle a temporary account.
Question three
For the purpose of this analysis, AGL Energy Ltd was selected. AGL Energy Ltd is a public company listed in Australia’s security exchange. The company operates in the energy industry. AGL Energy Ltd engages in the generation and retailing of gas and electricity for commercial and residential use. The company is required to adhere to the national electricity law established to regulate the national electricity market, National gas law establish to regulate gas pipelines, gas wholesale markets, and a gas market bulletin board and National retail law that regulate sale and supply of energy to consumers.
From the horizontal analysis data, it is observed that net profit after tax increased by 195%. The increase is attributed to the increase in operating revenue which increased by 4%. The decrease in operating expenses also causes an increase in operating profits by 106%. Earnings before tax increased by 197%, this is attributed to a decrease in interest expenses.
The total assets of the company increased by 1%. There was no increase observed on the total non-current assets which were a result of a decrease in non-current inventories held by the company which reduced by 50%. Reduction in NCA – Intangibles (ExGW) and NCA – Future Tax Benefit also caused these changes. The 1% increase in non-current assets was attributed to a 5% increase in current assets of the company. The company total liabilities reduced by 9%. The total equity increased by 11%, which was attributed to a 70% increase in retained earnings.
The company Net Operating Cash flows increased by 40%, the increased was caused by 80%increase in the dividend received. The net investing cash flows increased by 180%. The increase was a result of Payment for Purchase of PPE
And Investments Purchased which increased by 45% and 54% respectively. Net Financing Cash flows increased by 74% due to an increase in the Repayment of Borrowings and Dividends Paid from the year 2017 to the year 2018. The explained factors resulted to increase in cash flows in the year 2018 by 201%.
Ratio analysis
To explain the performance of the company it is important to do ratio analysis. The table below shows the ratio used to explain company performance.
| Liquidity Ratio | 2017 | 2018 |
| Current Ratio | 1.327353 | 1.649047 |
| Quick Ratio | 1.20 | 1.49 |
| Profitability Ratio | ||
| Net Profit Margin (%) | 4.36 | 12.40 |
| ROE (%) | 7.12 | 18.94 |
| ROA (%) | 4.88 | 11.92 |
| ROIC (%) | 9.34 | 23.89 |
| Financial Leverage | 1.91 | 1.74 |
| Gross Gearing (D/E) (%) | 44.18 | 33.86 |
| Net Gearing (%) | 42.14 | 28.34 |
| Net Interest Cover | 4.41 | 11.60 |
| EBIT Margin (%) | 7.99 | 19.28 |
Based on the company ratio analysis the company’s ability to pay its short term debt when they fall due to having increased. This is explained by the company current ratio which increased from 1.33 in 2017 to 1.65 in 2017. The company is also considered to be more liquid in 2018 compared to 2017. This is demonstrated by an increase in quick ratio from 1.20 to 1.49.
To explain the profitability of the company we use the profitability ratios. The company’s net profit margin increased from 4.36% to 12.40%. This means that compared to the year 2017 the company was able to generate more profits in the year 2018. The investor’s return on equity increased from 7.12% in the year 2017 to 18.94% in the year 2018. This means that the investors were able to generate more income on their investment in the year 2018. The return on asset increase from 4.88% to 11.92%, this means that the company was able to use the available asset more efficiently in the year 2018 as compared to the year 2018. The company ROIC from 9.34% to 23.89%.The earnings before interest and tax margin also increased from 7.99% to 19.28% meaning that the company was more profitable in the year 2018 as compared to the year 2018.
To assess the company solvency gearing and financial leverage ratios were used. From the analysis, the company net gearing ratio decreased from 42.14% to 28.34%. This means that the company equity ratio reduced in 2018 hence most activities of the company were financed by equity share capital. This results in a reduction n interest rate. The interest cover ratio increased from 4.41 to 11.60. This means that the company’s ability to meet interest payments increased in 2018 as compared to 2017. The company’s financial leverage ratio reduced from 1.91 to 1.74. The company uses debt to acquire assets decreased and hence most of the company were acquired using the shareholders’ investment hence increasing the return on investment.
Based on the analysis above the investors should consider investing in the company. The reason behind this is the ability of the company to pay its short term debts as they fall due. The company has also shown improved performance in terms of profitability and hence the investors are assuring that they will get a high return from their investment. The ability of the company utilizing its assets effectively is also another reason for the investor investing in the company. Based on the analysis the company has also demonstrated to be a going concern and have no sign of closing any time soon.