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ASSIGNMENT – STEPS 3 - 6Rochelle BurneySTEP 3 – INFORMATION ABOUT MY COMPANY, AEFFEThe company I was assigned is Aeffe. My initial thoughts when finding out my firm, was great my worst fears! I am not a girly girl, I really do not like to shop, I have no alliance to brands of clothes or accessories, and in fact I would say my priorities when buying clothing is comfort and practicability. I am a full time mum of two little boys under the age of three. Now I don’t know if you have ever had the experience of having two little boys hanging off you while trying to select clothing, it is challenging to say the least. I go in with a plan, I know where I need to go, I get what I need and I get out of there!! So when I discovered my firm was a high end fashion manufacturer well, I found it completely daunting… In saying that though, you don’t get anywhere doing what is comfortable, intrigued to see what I could learn (perhaps some fashion sense at the very least), I mustered on….. The first thing I checked was that my firm had both inventory in its balance sheet and depreciation in its financial statements, which was the case for my firm. I found my firms financial statements difficult to understand, they didn’t seem to group their financial statements instead they seemed to be spread throughout the report, rather than over a few pages which is what I was looking for after last terms studies. Furthermore all their statements seemed to be the consolidated statements, splitting operating and financial activities for the firm, as well as splitting the assets and liabilities and so forth. While this made things easier to understand for me as this was our task last term, I was initially concerned that I would be able to use these statements as needed with my upcoming assignment piece. I was also confused on what I was looking at, my firm had several sets of the financial statements spread throughout the reports, all of which looked pretty well identical apart from a few extra items here and there. Once I actually found what I understand to be the final financial statements for my firm I was further confused as the reports had until this point referred to the company as Aeffe, however reading through this section the company was now being called Aeffe S.p.A. I am guessing this is just the trading entity for my firm as I can make no sense of it. Moving on…..A bit about my firm…. Aeffe is an Italian Apparel Manufacturer, it is the parent company to a number of designer labels such as Pollini (Footware and leather goods), Moschino, and Velmar (Beachwear and Lingerie). They specialise in designer fashion and luxurious goods. The group was founded by designer Alberta Ferretti, and develops, produces and distributes its own collections as well as other licenced brands such as Blugirl Folies, Cedric Charlier and Jeremy Scott. They manufacture clothing and accessories for Men, Women and Children and have a number of designer stores throughout Europe, the UK, Japan and USA among others. From all that I saw I would say their clothing lines are very bold, which I suppose is to be expecting from a European Designer label. There is very minimal information on their website, I am guessing as the site I viewed was the English translated version perhaps they do not include as much information, or perhaps this is normal for an apparel manufacturer, therefore I have had to collate majority of the information on my company from its financial reports. Judging from my firms financial statements I would say this company is a powerhouse in the fashion industry. Its total revenue has progressively climbed over the last four years, with between 13-15 million euro increase for both the 2014 and 2016 years, and then a massive spike in 2017 with an increase in total revenue of almost 29 million euro…… That seems like a massive amount for a clothing designer manufacture, then again I have no experience in this area, however that was my initial thought…. In looking closer at the financial statements, the brand that seems to be of the most demand for this firm is Moschino. With the recorded sales making up over 70% of the total sales in the 2017 year, and this was consistent throughout the four years I investigated. Ranging from 65%-70% of sales recorded.It’s clear to see this brand really dominates the market. Further to this, the brand that seemed to be the least sort after was Philosophy. After discovering this, I went to the brand website to see if I could see a clear reason behind this, a higher price, a low quality product? However the site I found was in Italian and thus I could not gather too much from this. However I came to the conclusion perhaps this was due to the number of stores this brand has available. From what I could gather this brand only has a handful of stores compared to Moschino, which had at least ten by my count. Looking at the Philosophy designer items alone, and they definitely are more my style, in fact some of the dresses they stock are cute summer style dresses, however I was completely blown away at the price of these items with items starting around 500 euro….. Getting back to my firms financial reports and the amount of information on my firm that was disclosed in its financial reports was astonishing… With 180 pages of information, I obviously did not have the time to read every page however I found it interesting to note the sales by location for my firm. It came as no surprise to me the highest sales recorded was in Italy, with around 45% accounted for over all years. However I was surprised that Japan had the least amount of sales in 2014 and 2015 years and didn’t even make the list in 2016 and 2017 years. I don’t know much about fashion as I have stated however I have always connected Japanese culture with fashion. From all I have seen and experienced I would have thought there would be great demand for high end fashion in Japan.My firm’s biggest challenges seem to be Europe’s economic inflation levels over the last few years. Driving wages and thus consumer spending down and effecting Aeffe’s ability to function at full capacity. However the economy has continued to grow over the last four years thanks primarily to foreign demand, and it seems Aeffe has been able to secure its status in this time, with its consistent growth in sales figures in the last four years. Aeffe’s strategic goals are on the development of highly distinctive collections with a focus on a calibrated strengthening of its presence in high-potential markets, especially in the Greater China and Asia Pacific areas. As stated in Aeffe’s financial reports, the company has received positive feedback on its sales campaign for it’s Fall and Winter 2018-2019 collections, and the firm feels confident about the further development of its brands for 2018. Now while a firm can really print anything they want in these reports(within reason), the numbers do not lie, and judging by the consistent growth from this firm over the last four years along with the news articles collated and discussed below, I believe this firm will continue to grow and exceed its targets in the years to come. I would say I am very happy with the firm I have been given, while it is out of my comfort zone for sure, and I do not understand a lot of the fashion lingo, I believe it has challenged me and I have enjoyed searching through my firms reports to find the information I needed. Furthermore I feel I now have more knowledge, having worked with a completely different firm to the firm I had last term. There was areas of my firm’s financial reports that I found to be a lot clearer to that of the one I had in my previous term, for example the firm I had was Hargreaves Services. They specialisation in so many different areas (mining, energy production, waste management, property development and so forth). Aeffe by comparison was very easy to understand and had a lot less items recorded in its financial statements. When I first viewed its financial statements I was actually relieved, I struggled understanding a lot of the items listed on Hargreaves financial statements last term having not a lot of knowledge in this industry either. In saying that there was times I felt confused as stated above however I feel I have navigated these obstacles well and feel good about where I am at with my firm. I look forward to delving in deeper as we progress and seeing what surprises lie around the corner. The only concerns I do have at this time is that my firms financial statements are so different to that of my firm last term, that I may not find the information I need for my future assessments pieces readily available. The items are listed different to what I am used to, and the statements are split. For example last term my firm had Consolidated Statement of Profit and Loss and Other Comprehensive Income all in the one statement however Aeffe have two separate statements, ‘Income Statements’ and ‘Comprehensive Income Statements’. I am concerned as I am not familiar with this lay out, and my first thought was if there would be items repeated as these statements are separate. However after looking further at my firm’s income statements, I feel confident this is not going to be a problem. NEWS ARTICLES ABOUT AEFFEThe first news article I came across was published by Fashion Networks titled ‘Italy's Aeffe sees double-digit Q1 growth, Greater China booms’. As the title suggests this article was on the impressive start this firm has already seen for this financial year, recording massive growth for the firm and breaking into new markets with its Winter and Fall collection this year. This firm is really very impressive and obviously have some great people behind the brands that seem to be doing so well. See link below. next article that I found was much the same this time published by Fashion United titled ‘Aeffe improves sales and profitability in the first half’. Again as the name suggests reporting the impressive growth Aeffe have already seen in the first half of the year. See link below next article I found, was actually really interesting…. Published by Simply Wall St titled ‘What does Aeffe SpA’s (BIT:AEF) Balance Sheet Tell Us About Its Future?’ They talk about what key investors should be focussing on when viewing the firm’s financial position, what these statements can tell us about the long-term investments this firm can offer potential investors. For example what levels of debt-to-equity this firm has. What its ability is to keep up with its debt and thus be a long-term investment option for investor. Very interesting read. See link below. was a number of other news articles I found on this firm, all along the same lines, and some I could not read as they were in Italian. After completing this same step last term for my firm Hargreaves Services PLC, I actually struggled to find any news articles to write about and was extremely surprised to find the mass of articles I did on my firm this term. The underlining perception of Aeffe based on the articles I have read is it is an extremely successful firm, and certainly is a powerhouse in designer fashion. I would say this Firm has a very bright future, and after reading the last article listed above, Aeffe seems to be a very profitable investment option for the long-term investor. STEP 4 – MY BANK ACCOUNT, THE RECORDING PROCESSThis first step consist of collating the transactions from my bank accounts and creating a chart of accounts to allocate each transaction to. This process was really very straight forward, I actually really enjoyed completing this one. I was slightly confused about the chart of accounts, what names to use for the accounts and how the number system worked for each account. I had thought if the main transactions such as Salary and Wages and General Living Expenses should be the first listed on these chart of accounts being the most transactions recorded in my bank statements. However I then thought back to Chapter 2 of the study guide, were Martin spoke of these subsidiary accounts, and decided they are supposed to be a way of giving further detail for my transactions and so can really be called anything that makes sense to me. I really enjoyed entering all these transactions (even know I had to type mine all in from scratch), I enjoyed putting together the Income Statements for my accounts and actually found the whole process very interesting. Seeing how many General Expenses I had over a few days was very interesting, I remember these few days of running to the SPAR every day or second day as I was flat out with study at the time and I didn’t have time to do my weekly run to ALDI and so made do with small shops (we have all been there right)….. Looking at my accounts and the amount of time I wasted running to SPAR every day or second day, it would have made more sense to do a big shop…… I also found it very helpful to do a tally of all transactions on the Bank Statement sheet in excel as a way to double check that I had accounted for all transaction in my Income Statement, which is actually lucky I did as I had selected the wrong cell for one of the mortgage expenses I linked directly to my Income Statements and thus my totals did not match. I found it interesting to see where all my funds go for the month, while that month was not the normal, as my brothers were building my mother’s house around the corner from me. I was doing a lot of runs to get them lunch and so forth (I really do not order take away that often)….. However I usually do a monthly budget for my little family and think this could be a good way to look back at my spending and see areas that could perhaps be cut back on to free up further savings. I have included below my Income Statement for the month ended 31 March 2018.Rochelle BurneyIncome Statement For the month ended 31 March 2018?$INCOME?Income - Salary and wages5,377.60TOTAL INCOME5,377.60EXPENSES?Mortgage Expense(1275.00)General Living Expenses (Food, Fuel)(780.43)Work Expenses (Stock, Tools)(700.00)Household Expenses (new appliances)(289.90)Home and Car Insurance Expense(156.31)Telephone Expenses (Mobile)(30.00)TOTAL EXPENSES(3231.64)??Profit/ (Loss) for the period2,145.96Below are my responses to the questions in Step 4:The chart of accounts that I found most useful for my circumstance is as follows, I based it roughly on the examples given in the Assignment Sheet, however had to change a few to better suit my transactions. Income:Income Salary and WagesExpenses2-1 Mortgage Expense2-2 General Living Expenses (Food, Fuel)2-3 Work Expenses (Stock, Tools)2-4 Household Expenses (new appliances)2-5 Home and Car Insurance Expense2-6 Telephone Expenses (Mobile)The level of detail you could include in the chart of accounts depends largely on the transaction. Mine for example, if I owned more than the one property and paid multiple mortgages, I could include the address of each property in the account name to make them easily identifiable. I could also include details such as when mortgage payments are due to come out of my account and so forth. By the same account, I could break up my General Living expenses and separate fuel costs if I were wanting to track the fuel used, or if I was claiming these amounts though a business. You could use this process to get a good idea of what expenses you have verses the income you receive. In viewing my Income statement I could see how much Income came into my account that month and how much went out. I could use this information to make adjustments to my spending habits which would allow me to allocate more of my funds to savings and so forth. For example when viewing my Income Statements there are certain accounts that I have no control over, the Mortgage, Work expenses, telephone and insurances. However my General living expenses account was a rather high figure, I could look further at these transactions and see which expenses I could go with out in the coming months. I also found it interesting the Profit I made for that period, I would be interested to do this process for the following month as I know that ‘profit’ never saw my savings account. I would be interested to see where it went. I have found this process extremely helpful, and I will be using it in the future. This is especially useful for me as I pay for everything on my card (bank account transactions), I never carry cash and so all of my transactions are recorded through my bank accounts. There were two transactions I could apply the accrual basis of accounting to, the first being my mortgage payment. There is a lump sum that is drawn from my nominated account on the 10th of every month. While I put whatever I can in there each month to offset interest charges, the amount I need to pay is pretty standard each month. Therefore these extra payments are creating future benefits for my accounts. The second transaction would be my insurances, I pay a monthly amount which covers me for the month ahead therefore this is also an accrual accounting transaction. Treating a transaction under the accrual basis of accounting basically means that the transactions are entered into the accounts when they actually take place or when they are used up. So for the example of my mortgage payments, at the end of an accounting term these Revenue and Expense accounts would be closed off and all transactions would be transferred to a profit and loss account in the general ledger. At this point balance-day adjustments would be made, which would include entering the mortgage payments that covered the month of March 2018 for me. This would include the first 10 days of March, and the remaining of the days in February after the 10th (when my mortgage payments are due for the month). Further the extra payment I made into this account (above what my standard payments are) would also be accrued for the following months depending on payments made and so forth. As these extra payments are currently driving up my expenses, and driving my profits down for the month of March, therefore to correctly record my expenses and profits/ (loss) for the month of March these payments need to be adjusted. This same concept would be relevant to my insurance payments, I pay for the upcoming month, meaning the payment that would be recorded as at 31 March 2018 would be the payment I made in February, as this payment provided the insurance to cover me in March. This is the concept of accrual accounting, compared to the cash basis accounting with is when the money actually changes hands. My bank statement is a great example of cash basis accounting. I may have received an invoice last month, however I did not pay that invoice until the month of March despite the invoice being for something I consumed in the month of February. The cash actually left my account in March, therefore it would be recorded as an expense as at 31 March 2018. The opposite to accrual accounting. STEP 5 – TRIAL BALANCEI found completing this step very difficult. I would have really liked to view a video explaining each step so that I could feel confident in the reasons for each task. For example I struggled with the retained earning item, closing off the revenue and expense accounts. I could see in the Westfarmers Trial Balance provided how this was done using the formulas however I did not understand what deducting the revenue and adding the expenses was actually doing. This did not make sense to me, I felt like this should have been the opposite (add the revenue and deduct the expenses). I did a lot of research on this concept, despite this concept being explained in the study guide, I just could not make sense of it. I feel it would have been very helpful to have a video tutorial as we did in accounting learning and online communication last term better explaining this concept. While I feel confident in my outcome, I do not feel confident in my understanding of the concept.I also struggled with the other comprehensive income in my financials, I kept trying to think of it as a revenue item, which as we all know (or really should by this stage) an increase in revenue is a credit. However majority of my items in my other comprehensive income were negatives, I found it challenging to figure out how to show these in the trial balance stage. For some reason having the negative figure really threw me. In saying that entering in my firm’s balance sheet I found very easy, as my firm split all its liabilities and assets very clearly in its financial statements. I struggled a lot more with the balance sheet. One such item I struggled with was the item ‘(profit) / loss attributable to minority shareholder’, this item had the exact same value as the item listed on the balance sheet, to me this seemed like it was simply a repeat and made me unsure if I was meant to add this figure into my income statement section. After looking at the item further I decided this item was a repeat and including it again would just be doubling up. After seeing the Retained earnings section in the westfarmers trial balance I was puzzled as this item was not in my firm’s financial statements. I did some research on what this item was, what it was made up of and concluded that ‘Net profit / (loss)’ item in my firms equity section was perhaps the same thing and so used this item to complete my calculations (closing of revenue and expense accounts). All in all, I really enjoyed this task, I did struggle with it more than I have with any others as I found I was not really confident in the concepts. In conclusion I have decided to go back through and read chapter three again, hopefully I might get a better understanding now that I have completed this step. Once again I have confirmed my passion in studying accountings. At the start of each section I find myself questioning if I will be able to complete what has been asked, and despite the struggles I am finding I am really enjoying studying accounting. ................
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