Financial Accounting ) : 157734

Question:

a)

Explain the meaning of the term negligence.

(1 mark)

b) In the context of duty of care in negligence explain how the following TWO tests operate in order to determine the existence of a duty to take reasonable

care:

(i) The neighbour principle (4 marks)

(ii) The modern day test (5 marks)

Answer:

Negligence is the breach of duty of care, which one person owed to another, due to the possibility of the actions of the first person injuring or harming the second person, and does actually result in harm or injury to such other person. In simple terms, it means the failure in taking the proper care for something (Strong and Williams, 2011).

Duty of care is an important element which has to be established before the court of law to make a case of negligence against the defendant. In this regard, different tests have been given which help in determining the existence of duty of taking the reasonable care.

Neighbour Principle

The neighbour test was given in Donoghue v Stevenson [1932] AC 562 and in this case two requirements were established for showing that a duty of care was owed by the defendant to the plaintiff. These two requirements are of reasonable foreseeability of risk of harm, and the relationship of proximity between parties. So, in order for the defendant to take reasonable care in undertaking the actions, the chances of injury happening have to be foreseeable in a reasonable manner. The second requirement is for presence of proximity between the parties, as per which, the actions of the defendant need to have the capability of injuring the plaintiff. Relationship of proximity is present between consumer-manufacturer, employer-employee, and the like. So, where the parties have such relationship that it can be reasonably foreseen that acts of one would injure the other, a duty of care would be present based on this test (Martin and Lancer, 2013).

Modern day test

The other prominent test which is used for the purpose of holding the presence of duty of care was also given in the case of Donoghue v Stevenson and this test goes beyond establishing duty of care and towards making a claim of negligence in a successful manner. The statement made in the quoted case formed the basis for the modern law of negligence. As per the modern law of negligence, for making a successful case of negligence, there is a need to show that a duty of care was owed by the defendant to the plaintiff, the duty of care was breached by the defendant, the contravention resulted in damages being caused, and the damage caused is not too remote. So, this test essentially provides the different elements of negligence, which have to be presented before the law in order to uphold a successful claim of negligence (Lunney and Oliphant, 2013).

The duty of care is established through the neighbour principle, but this test requires other things to be shown as well. This is the reason why the elements of negligence include duty of care, its breach, and resultant harm, remoteness of loss, proximity, reasonable foreseeability, direct causation and loss being substantial. For each of these elements, different tests or case laws provide when these would be deemed to be present. Thus, for making a successful claim of negligence and getting awarded damages as remedies, the modern day test has to be fulfilled by the plaintiff (Greene, 2013).

 

 

Greene, B. (2013) Course Notes: Tort Law. Oxon: Routledge.

Lunney, M., and Oliphant, K. (2013) Tort Law: Text and Materials. 5th ed. Oxford: Oxford University Press.

Martin, J., and Lancer, D. (2013) AQA Law for AS Fifth Edition. 5th ed. Oxon: Hachette UK.

Strong, S.I., and Williams, L. (2011) Complete Tort Law: Text, Cases, & Materials. 2nd ed. Oxford: Oxford University Press.

 

Accounting principle:

Net realizable value principle is used in accounting to value the inventories. Net realizable value is a calculation of estimated sales price of products less few deductions. This principle express that the value of inventories must be done according to the market value or book value whichever is lesser (Bhimani, Horngren, Datar and Foster, 2008). Following are the few steps to analyze the NRV of a product:

  1. Evaluate the Market value of an inventory
  2. Brief all the cost which is associated with selling and completing the assets like testing, production and prep cost
  3. Subtract the cost of sales from the value in the market to calculate the net realizable value.

Following is the formula of Net realizable value:

Inventory market value – Cost of complete and sell goods = net realizable value (Garrison, Noreen, Brewer and McGowan, 2010)

This concept explains that an organization should record all the inventories in lesser value to save itself from any sudden changes and enhance the level of profits in future.

Calculation of closing inventory

Calculation of closing inventory
Cost incurred Cost to complete Sales price Cost to sell Units in inventory
80 22 100 15 600
110 55 300 40 450
Calculation of net realizable value
  Sales Price Cost to sell Market value (Sales price – Cost to sell) Book value (cost incurred + cost to complete) Net realizable value (market value or book value whichever is less)
A  €          100  €           15  €             85  €            102  €        85
B  €          300  €           40  €           260  €            165  €      165
Calculation of closing inventory
As at 31st Dec 2017
  Units in inventory Net realizable value closing inventory value
A 600  €           85  €      51,000
B 450  €         165  €      74,250

(Hansen, Mowen and Guan, 2007)

This depicts that the closing inventory of both the products are € 1, 25,250.

Accumulated depreciation 45000
Motor vehicle “c” has been traded
purchase date 1st Sept 2013 50000
Sales date 1st Feb. 2017 5000
Year end 31st Dec 2017
Depreciation (SLM) 20%
Motor Vehicle account
Motor vehicle A/c
As on 1st Feb 2017
Particulars Amount Particulars Amount
   
Balance b/d 125000 Accumulated depreciation 833.333
Purchase 35000 Sales 5000
  Profit and loss a/c 10833.3
  Balance c/d 143333
  160000   160000
Accumulated Depreciation account
Accumulated Depreciation a/c
As on 1st Feb 2017
Particulars Amount Particulars Amount
To Machinery a/c 833.333 Balance b/d 45000
To Machinery a/c 26430.6  
To closing balance 17736.1  
  45000   45000
Disposal account for Motor Vehicle C
Disposal a/c
As on 1st Feb 2017
Particulars Amount Particulars Amount
Machinery 50000 Provision for depreciation 34166.7
  Sales 5000
  Profit and loss a/c 20833.3
  50000   50000
Working Note  
Purchase value 50000  
Depreciation in 2013 -3333.3  
Depreciation in 2014 -10000  
Depreciation in 2015 -10000  
Depreciation in 2016 -10000  
Depreciation in 2017 -833.33  
Balance 15833.3  
Sales price -5000  
Loss 10833.3  

 

 

References:

Bhimani, A., Horngren, C. T., Datar, S. M., and Foster, G. 2008. Management and cost accounting (Vol. 1). Pearson Education.

Garrison, R. H., Noreen, E. W., Brewer, P. C., and McGowan, A. 2010. Managerial accounting. Issues in Accounting Education25(4), 792-793.

Hansen, D., Mowen, M., and Guan, L. 2007. Cost management: accounting and control. Cengage Learning.

Question: 1

One of the key limitations for the Maslow hierarchy of needs is the difficulty for the managers to identify the exact needs of the employees. An average organization will have good number of employees and it will be difficult for the managers to identify the level of needs where all the individual employees are standing. Moreover, according to the Maslow’s theory of needs, employees will get motivated only when their needs are being fulfilled (Niemala and Kim 2014). On the other hand, for the organization as a whole, it is difficult and impossible to determine the need of each and every employees and meeting them. Thus, this theory have not stated about any holistic steps or measures to determine the needs of the employees as a whole.

Another limitation of this theory is the sequence of steps being mentioned by the author is not according to the current business scenario. This is due to the reason that, according to the theory, sequence should be maintained in meeting the needs of the employees. Basic needs to be met first over the esteem needs. However, in the current business scenario, there may be situation where employees do not have the requirement of the recognition and positive relation with their co-workers, rather than they will get more motivated if they are being paid more along with providing more benefits (Donahue et al. 2012). Thus, Maslow’s theory of need is not applicable in this case. Moreover, in the current business scenario, there are various cases can get emerged where employees will get motivated from a particular need, which may not be in a sequential mode.

Question: 2

Equity theory was authored by John Stacey Adams in 1963, which explains the importance of having equity and fairness in the organizations. According to this theory, fairness is one of the key aspects or elements to be considered in order to motivate the employees in their workplace. This is due to the reason that, according to the author, if the particular employee perceives that, they are being treated fairly in their organization in respect to their colleagues, then will have favorable impression and will be motivated and vice versa (Al-Zawahreh and Al-Madi 2012). Thus, this theory states that, it is important for the higher level management in the organization to maintain the equity and fairness with their employees in order to have motivated and engaged employees in the organization.

In the current business scenario, the theory of equity is equally relevant due to the reason that, competition is more in the contemporary business organizations. Thus, it is important to maintain the equity among the employees in order to provide equal opportunities to all. Moreover, if the employees are being given equal opportunities, then they will be more motivated to achieve excellence (Bell and Martin 2012). For instance, they will have favorable and positive impression if they can identify that all their colleagues are getting equal opportunities and recognition in the organization.

In addition, implementation of this theory also helps in retention of the employees in the organization (Terera and Ngirande 2014). This is due to the reason that, equity theory will help to provide equal and right opportunities for the right employees along with having fairness in the whole process. Thus, the employees will remain with the organization if they are being given desired opportunities. This will eventually help the business organizations to enhance the retention ratio of the employees along with having the right people for the right job. Moreover, the cost being involved in recruiting and training new employees will also get reduced.

Another relevant feature of this theory for the contemporary business organizations is the positive relationship between the upper level and lower level management (Ekici 2013). This is due to the reason that, with the implementation of equity theory, ethical standard of the organization will get enhanced due to maintaining the fairness in managing the employees. Thus, the more fairness will be maintained in the organization, the more positive will be the understanding and relationship between the employees and the upper level management. This will in turn enhance the organizational performance.

Question: 3

As discussed in the earlier sections hat, the current business scenario is more competitive than it was a few years ago. Thus, effective management of the employees is important to have motivated employees in place. However, according to the major motivation theories, external steps and proxies are being given important to enhance the level of motivation among the employees. On the other hand, Vroom expectancy theory states that, apart from the external factors, internal factors such as the perception and expectation of the employees is also important to determine the motivation level of the employees (Parijat and Bagga 2014). This is due to the reason that, according to this theory, employees may get de-motivated even if they are being provided with all the external elements and facilities. This is due to the fact that, employees may have different perception regarding the particular facility being provided by the organization.

Thus, in the current economic environment, Vroom expectancy theory is relevant due to the reason that, it helps the contemporary business organizations to determine the perceptions of their employees in their workplace along with identifying their needs and requirements. Accordingly, managers are being guided to design the strategies to motivate and engage the employees. Thus, this theory helps to align the human resource strategies of the organizations with the requirement and expectation of the employees. The more will be the alignment between the two factors, the more will be the motivation and engagement of the employees. This theory is more important in the current business scenario due to the reason that, the contemporary business organizations are having diversified workforce and different sections of the workforce are having different requirements (Savolainen 2012). Implementation of this theory will help to determine their diverse requirements and designing the strategies accordingly. Moreover, the perception of the employees is rapidly changing along with the change in the business scenario. Thus, Vroom expectancy theory will also help to determine the change in the perception of the employees with time.

 

 

Reference

Al-Zawahreh, A. and Al-Madi, F., 2012. The utility of equity theory in enhancing organizational effectiveness. European journal of economics, finance and administrative sciences, 46, pp.158-170.

Bell, R.L. and Martin, J.S., 2012. The relevance of scientific management and equity theory in everyday managerial communication situations.

Donahue, D.A., Cunnion, S.O., Balaban, C.D. and Sochats, K., 2012. The all needs approach to emergency response. Homeland security affairs, 8(1).

Ekici, A., 2013. Temporal dynamics of trust in ongoing inter-organizational relationships. Industrial Marketing Management, 42(6), pp.932-949.

Niemela, P. and Kim, S., 2014. Maslow’s Hierarchy of Needs. In Encyclopedia of Quality of Life and Well-Being Research (pp. 3843-3846). Springer Netherlands.

Parijat, P. and Bagga, S., 2014. Victor Vroom’s expectancy theory of motivation–An evaluation. International Research Journal of Business and Management (IRJBM), 7(9), pp.1-8.

Savolainen, R., 2012. Expectancy-value beliefs and information needs as motivators for task-based information seeking. Journal of Documentation, 68(4), pp.492-511.

Terera, S.R. and Ngirande, H., 2014. The impact of rewards on job satisfaction and employee retention. Mediterranean Journal of Social Sciences, 5(1), p.481.

Motor vehicle 80000
Accumulated depreciation 45000
Motor vehicle “c” has been traded
purchase date 1st Sept 2013 50000 Working Note
Sales date 1st feb 2017 5000 Purchase value 50000
Year end 31st Dec 2017 Depreciation in 2013 -3333.3
Depreciation (SLM) 20% Depreciation in 2014 -10000
Depreciation in 2015 -10000
Depreciation in 2016 -10000
Depreciation in 2017 -833.33
Motor vehicle A/c Balance 15833.3
As on 1st Feb 2017 Sales price -5000
Particulars Amount Particulars Amount Loss 10833.3
Balance b/d 125000 Accumulated depreciation 833.333
Purchase 35000 Sales 5000
Profit and loss a/c 10833.3
Balance c/d 143333
160000 160000
Accumulated Depreciation a/c
As on 1st Feb 2017
Particulars Amount Particulars Amount
To Machinery a/c 833.333 Balance b/d 45000
To Machinery a/c 26430.6
To closing balance 17736.1
45000 45000
Disposal a/c
As on 1st Feb 2017
Particulars Amount Particulars Amount
Machinery 50000 Provision for depreciation 34166.7
Sales 5000
Profit and loss a/c 20833.3
50000 50000

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