Principles of Asset Management

Question 1

An appropriate level of investment in Non-Current Assets

Answer 1

A business must have the non-current assets it needs to provide a satisfactory service to customers.

However, a too large investment in non-current assets will mean that a business has assets that it is not using efficiently.

Question 2

Appropriate Management of Cash

Answer 2

The handling of cash transactions should be separated from the recording of cash transactions. REASON: an employee cannot steal money and make false entries in the accounting records to cover the thefts.

All cash receipts should be banked daily.
REASON: This practice will minimise the amount of cash that can be stolen from the business premises.

Cash budgets should be prepared on a continuing basis.
REASON: This practice will help ensure that a business has sufficient cash on hand to pay debts as they fall due.

Question 3

Appropriate Management of Inventory

Answer 3

The handling of inventory should be separated from the recording of inventory transactions.
REASON: An employee cannot steal inventory and make false entries in accounting records to cover the theft.

Inventory should be stored in a secure location. Access to the location should be restricted.
REASON: This practice will reduce the risk of inventory being stolen.