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The Finance and Investment business cycle - Coggle Diagram
The Finance and Investment business cycle
Functions
Raising of funds and the repayment of funds
Interest, dividends and other obligations that arose out of the raising of funds
Utilizing raised funds towards the acquisition of assets
Investment Activities
Activities
Additions and Disposals of Fixed Assets
Repairs and maintenance of Assets
Supporting Documents
Capital budgets
Fixed asset requisition with quote/ negotiated prices
Minutes of Board of Directors' meeting (for authorization of purchases and sales)
Invoices (purchases and sales)
Fixed assets register
General ledger accounts
Fixed assets
Depreciation
Profit/Loss on disposal
Accumulated depreciation
Finance Activities
Activities - Owner's Equity
Issue of Shares
Share buy backs
Statutory requirments
Declarations of Dividends
Authorization for the issue of shares
Supporting Documents
Minutes of shareholders'/ Directors' meetings
Debenture trust deed
Prospectus
Share certificate
Loan/lease contract
Mortgage bons
Journal voucher
Activities - Borrowings
Cash inflow from short- and long-term borrowings received
Subsequent repayment of capital sum
Interest charged on borrowings
Authorization required for borrowings
Control Objectives
Occurrence/ Validity
Purchases of fixed assets to be supported by a fixed assets requisition and capital budget
Recorded assets should be periodically compared to physical assets by an independent senior official
Authorization
Purchases and sales of fixed assets must be autorized by senior management on a numerical capital requisition/sales document
Authorization/ decision must be recorded in minutes.
Completeness
Capital requisitions are sequentially re-numbered and accounted for and missing numbers are regularly followed up on.
Fixed assets are recorded in the fixed assets register and regularly compared to physical fixed assets
Accuracy
Recorded at the invoice amount
Depreciation and other calculations must be done by computer or checked by an independent reviewer if done by hand.
Recording
All purchases and sales of fixed assets must be recorded in a fixed assets ledger account and fixed assets register from the source dosuments
The fixed assets register is to be reconciled with the fixed assets control accounts in the ledger on a regular basis
Classification
CLassifies into appropriate categories as per company policy
Improvements are capitalized and distinguished from repairs and maintenance
Cut off
Fixed assets purchased are recorded at the date of receipt as per the goods received note and when sold as from the date that the risks and rewards of the ownership of the asset passes from the seller to the purchaser in substance
General Controls
Fixed assets should be in permanent form
Assets should be safe guarded trough authorized access and protection from the elements
Assets must be adequately insured
Possible weaknesses and risks
Explanation
Weakness
When an organization has weak internal controls
Risk
The potential resulting negative impact of the weak internal controls
Examples
Weakness
Assets are stored in an unlocked premises
There is no segregation of duties in purchases of assets
Depreciation is done by hand and not checked
Assets are uninsured to save on costs
Risk
Depreciation can be accounted for incorrectly resulting in the over/understatement of the carrying value of assets
Assets can easily be stolen
If assets are stolen or damaged, the entity may not be able to replace them with its resources at the time
Mistakes or theft can occur during the process of asset purchases