Slide 1-6: Sabina

Slide 7-10: Lyna

Slide 11-12: Rolith

Remaing slides: Charish

SLIDE 1-6 giapil na nakog butang ang naa sa ppt so pwede dili na magbasa sa slide diritso na
sa script

SABINA

Slide 1:Introduction to Investments (Chapter 10)

Good day, everyone! Today, we’re diving into Chapter 10: Introduction to Investments, a
crucial topic in Intermediate Accounting 1.

This chapter will equip us with the knowledge to understand the role of investments in an entity’s
financial growth, the classifications of financial assets and liabilities, and the procedures for
recognizing and measuring these assets.

We’ll also learn about standards like PFRS 9, which guide the accounting treatment of these
investments. By the end, you’ll have a solid foundation to apply these principles in real-world
accounting scenarios.

Slide 2: Learning Objectives

Read the slide

Slide 3: What is Investment?

Now that we’ve outlined our learning objectives, let’s begin with the foundation of this chapter:
What is Investment?

Investment is the act of allocating money or resources into assets, ventures, or opportunities
to generate returns or achieving growth over time.

This could involve purchasing stocks, bonds, or even making long-term commitments to
equipment or projects.

For an entity, investments are not just expenditures—they represent strategic decisions to
increase financial wealth and stability. Understanding how these investments are recognized,
measured, and classified is essential for accurate financial reporting.
[Insert the thought-provoking question here]

"If you had excess cash right now, how would you invest it to grow your wealth?"

Slide 4: What Investment to Choose?

let’s talk about what investment to choose. The choice of what investment outlet an entity
should choose mainly depends on the following three factors:

1.​ Core Activities:​

Core activities refer to the primary and essential operations or functions that an entity
engages in to achieve its main objectives or purpose. For example, if a company’s
primary business is manufacturing, it will likely focus its investments on equipment or
production facilities that support its core operations. Understanding the core activities is
important because investments should align with them to ensure they contribute to the
business's main goals.
2.​ Availability of Excess Funds:​
The amount of surplus cash the entity has after meeting its operational needs and
reserves determines the scope and scale of possible investments. Simply put,
businesses should first ensure they have enough funds to cover their daily operational
expenses and set aside a reserve for unexpected costs. Only after this should they look
at making investments. For example, if a company has excess cash after paying for
wages, bills, and reserves, it can then use this surplus to invest in opportunities like
stocks or new projects. Entities should ensure they have sufficient liquidity before
committing funds to investments, as investing too early or too much without enough cash
reserves can hurt the business.
3.​ Risk Appetite:​
Risk appetite refers to the level of risk an entity is willing to take to achieve its financial
goals. Some companies may be comfortable with high-risk, high-return investments like
stocks or new ventures, while others may prefer lower-risk options like bonds or real
estate. The risk appetite depends on factors like the company’s financial health, industry,
and overall business strategy. Businesses that can afford to take on more risk may
choose more volatile investments, while more conservative companies may focus on
safer, more stable investments.

SLIDE 5 & 6: Financial Instruments, Financial Assets, and Financial

Liabilities
●​ Financial Instrument:​
A financial instrument is any contract that gives rise to a financial asset for one entity
and a financial liability or equity instrument for another entity. Simply put, a financial
instrument is an agreement between two parties that creates rights and obligations. For
example, when a company borrows money, the contract is a financial instrument—the
 lender has a financial asset (the right to be repaid), and the borrower has a financial
liability (the obligation to repay the loan).
●​ Financial Asset:
A financial asset is any asset that is cash, an equity instrument of another entity, a
contractual right to receive cash or another financial asset from another entity, or the
right to exchange financial assets or financial liabilities with another entity under
conditions that are potentially favorable to the entity. For example, cash is a
straightforward financial asset. An equity instrument of another entity could be shares or
stocks that the company owns. A contractual right to receive cash could be accounts
receivable, where the company is owed money by another party. Additionally, the right to
exchange financial assets or liabilities could include derivatives like options or futures,
which allow the entity to buy or sell assets at a specific price.
●​ Financial Liability:
A financial liability is any liability that is a contractual obligation to deliver cash or
another financial asset to another entity or to exchange financial assets or financial
liabilities with another entity. This represents an obligation that the entity must meet in
the future. For example, a company that borrows money creates a financial liability
because it has the obligation to repay the loan, typically with interest. Similarly, when a
company issues bonds, it takes on a financial liability to repay the bondholder at the
specified maturity date.

LYNA

Slide 7: Broad Classifications of Financial Assets

Now, let’s explore the broad classifications of financial assets, which are key to
understanding how financial assets are categorized. These classifications help determine how
financial assets are measured and reported on financial statements.

1.​ Investment in Debt Securities:​

These involve assets like loans or bonds where the investor receives interest. They are
typically low-risk, as they represent obligations from other entities, but they are also
dependent on the issuer’s ability to repay.
2.​ Derivatives:​
These are contracts that derive value from underlying assets like stocks, commodities, or
currencies. They are used for speculation to profit from price changes or for hedging to
reduce exposure to market risks.
3.​ Investment in Equity Securities:​
These involve owning shares in other companies, either common or preference shares.
They provide ownership in the company and can result in returns through dividends and
share price appreciation.

Each classification affects how these financial assets are recognized, measured, and reported in
financial statements.
Slide 8: Classifications of Financial Assets

1.​ Investments in Equity Securities:​

These are classified as FVTPL (Fair Value Through Profit or Loss) or FVTOCI (Fair
Value Through Other Comprehensive Income), but only if the designation is irrevocable.
This means the company must decide at the time of investment whether it will recognize
gains and losses through profit or loss or through other comprehensive income.
2.​ Investments in Debt Securities:​
These can be classified as FVTPL, Amortized Cost, or FVTOCI. The classification
depends on specific conditions, such as the entity's business model for managing the
assets and the characteristics of the cash flows the debt instrument generates. For
example, if the company holds the debt with the intention to collect contractual cash
flows, it may be classified at amortized cost.
3.​ Derivatives (Used for Speculation):​
Derivatives, by default, are classified as FVTPL. This is because they are typically held
for speculative purposes, aiming to profit from changes in market prices.

Basis for Classification of Financial Assets:​

The classification depends on:

●​ The entity’s business model for managing the assets, refers to how the company
plans to use the asset (whether to hold it to collect cash flows or sell it).
●​ The contractual cash flow characteristics of the asset, which refers to whether the
asset generates cash flows that are solely principal and interest payments

Slide 9: When to Recognize Financial Assets?

●​ FVTPL Financial Assets:​
For FVTPL (Fair Value Through Profit or Loss) financial assets, recognition occurs at
fair value. Transaction costs are expensed outright, meaning they are immediately
recorded as an expense in the profit or loss statement.
●​ All Other Financial Assets (FVTOCI and Amortized Cost):​
For financial assets classified as FVTOCI (Fair Value Through Other Comprehensive
Income) or Amortized Cost, recognition occurs at fair value plus transaction costs. In
this case, transaction costs are capitalized, meaning they are added to the value of the
asset and recognized over time.

Slide 10
Next, let’s understand how we compute the fair value of financial assets, which is essentially
figuring out what an investment is worth at a given time. There are two main methods we can
use:

First, there is the Quoted Price Approach, which is used when the fair value of an asset can be
directly obtained from publicly available market prices. This method is applicable to both equity
securities, like stocks, and debt securities, like bonds. For equity securities, the fair value is
typically the quoted price per share, meaning the price at which the stock is currently being
traded in the stock market. For debt securities, the fair value is usually expressed as a
percentage of the face amount. For example, if a bond has a face value of $1,000 and is quoted
at 98%, its fair value would be $980.

The second method is the Present Value Approach, which is primarily used for debt securities,
especially when there is no quoted market price available. In this approach, the fair value is
calculated by determining the present value of the future cash flows from the investment. These
cash flows include the principal amount, or the original amount invested, and the interest
payments expected over time. To find the present value, these future cash flows are discounted
using the market interest rate on the measurement date. For instance, if an investor is expecting
to receive $1,000 two years from now, that amount is adjusted to reflect its value in today’s
terms because money in the future is worth less than money today due to the time value of
money.

ROLITH

Slide 11

Now, let’s look at what happens when the transaction price is not equal to the fair value

If the transaction price is less than the fair value, the difference is an unrealized gain
because the asset was purchased below its market value. For example, if you buy an asset for
$90 and its fair value is $100, the $10 difference is recorded as an unrealized gain.

If the transaction price is greater than the fair value, the difference is an unrealized loss
because the asset was purchased above its market value. For instance, if you buy an asset for
$110 and its fair value is $100, the $10 difference is recorded as an unrealized loss.

Slide 12
"Next, let's explore the Basket Purchase of Financial Assets, where we'll compare the
Traditional and Contemporary Approaches to see how different methods handle the
purchase and valuation of multiple assets at once."

Traditional Approach:

●​ In the Traditional Approach, when you buy several financial assets together, the total
transaction price is divided based on the relative fair values of each asset.
 ●​ For example, if one asset is worth more than the others, it will get a larger share of the
total price.
●​ The key point here is that no gain or loss is recorded at the beginning. This means that
even if the market value of the assets changes right after the purchase, no immediate
adjustments are made.
●​ This method is considered outdated and is no longer commonly used in modern
accounting practices.

Contemporary Approach:

●​ In contrast, the Contemporary Approach does not divide the transaction price among
the assets. Instead, each asset is measured based on its fair value right from the start.
●​ If there’s a difference between what you paid and the total fair value of the assets, that
difference is recognized immediately as an unrealized gain or loss.
●​ This means that the changes in the asset values are reflected in the books right away,
similar to how other assets are handled in modern accounting.

Now that we’ve covered the key concepts, it's time to apply what we've learned. Let’s move on
to some practice problems to test your understanding and see how these ideas work in real-life
scenarios.
Estimated Duration: 30-35 minutes
Section 2. - LOSS OF THE THING DUE

Yna Introduction
Learning Objectives
Articles to cover
Articles to be discussed: 1262 - 1263

Rolith Brillo Articles to be discussed: 1264 - 1265

Lyna Villanueva Articles to be discussed: 1266 - 1267

Charish Dalion Articles to be discussed: 1268 - 1269

YNA
[Slide 1: introduction]
Good day, everyone! We’re so excited to be here with all of you today. I’m Sabinarose, and
together with my groupmates, Lyna, Charish, and Rolith. We'll be discussing one of the key
topics in Obligations and Contracts—“Loss of the Thing Due.”

This principle is essential for understanding what happens when the object of an obligation can
no longer be fulfilled.

[Slide 2-3:Learning Objectives]

Let’s begin by outlining our goals for today. By the end of this discussion, you’ll be able to
achieve these learning objectives. May we call on [Kassandra] to read the objectives for us.

1.​ Identify when a thing is lost and its effects.

2.​ Differentiate cases of loss that extinguish obligations.
3.​ Explain partial loss and debtor responsibility.
4.​ Understand fault presumption in loss.
5.​ Assess how impossibility or fortuitous events affect obligations.
6.​ Analyze the effect of fortuitous events on obligations from criminal offenses.
7.​ Examine the creditor’s right to act against third parties in cases of loss.

[Slide 4: Introduce the articles to be covered today]

Today, we’ll be focusing on Articles 1262 to 1269 of the Civil Code.

[Slide 5: Article 1262]

Article 1262
[may we call on Angel Lim to read article 1262, pabasa lng sila dam]

this means that:

- If a specific item (determinate thing) is lost or destroyed without the debtor's fault and before
any delay, the obligation ends.
- However, if the law, a contract, or the nature of the obligation makes the debtor responsible
even for unexpected events (fortuitous events), the obligation continues, and the debtor must
pay for damages.
[Slide 6: thing is lost when]

A thing is considered lost when:

1.​ The object perishes: It is completely destroyed or lost.

2.​ It goes out of commerce: It can no longer be legally owned or traded.
3.​ It disappears in such a way that its existence is unknown: It cannot be located or
confirmed to still exist.
4.​ It cannot be recovered: It is impossible to retrieve or bring back.

[Slide 7: when loss of thing will extinguish to give]

The loss of a thing will extinguish the obligation to deliver if:

1.​ The thing is specific or determinate: The obligation is tied to a uniquely identified
item.
2.​ The loss happens without the debtor's fault: The debtor did not cause or contribute to
the loss.
3.​ The debtor is not in delay: The loss occurred before the debtor failed to perform on
time.

so guys, remember these requisites for the extinguishment of obligation when loss of a thing.

[Slide 8: General Rule]

And as a general rule loss of specific thing results to the extinguishment of an obligation.

However, there are exceptions to this general rule that we have to consider.

[Slide 9-10: When loss of thing will not extinguish liability]

The loss of a thing will not extinguish liability if:

1.​ The loss is due to the debtor's fault: If the debtor caused the loss, they are still
responsible because it’s their wrongdoing. Example: The debtor damages the item
through negligence.​

2.​ The debtor is in delay: ​

Example: The debtor failed to deliver a car on time, and it was stolen afterward.

If the debtor took too long to deliver and the item was lost during the delay, they are
liable because the delay caused risk to shift to them.​

3.​ Liable for fortuitous events (Art. 1174): The debtor remains responsible for loss due
to unavoidable events when:
-​ it is expressly provided by law, or
-​ by stipulation of the parties, or
-​ when the nature of the obligation requires the assumption of risk.
 ○​ Required by law: Some laws impose liability regardless of the event.

Example: If an obligation arises from a criminal offense, the law expressly states
that the debtor remains liable even if the thing is lost due to a fortuitous event.

○​ Stipulated by the parties: The contract explicitly states that the debtor must
bear the risk.
○​ Risk is part of the obligation: The obligation involves assuming specific risks,
like transporting goods.

4.​ Promised the same thing to multiple people: If the debtor promised one item to
several creditors, and it’s lost, the debtor is still liable.​
Example: The debtor sold a rare painting to two buyers at the same time.​

5.​ The lost item is generic or indeterminate (Art. 1263): Generic things are not
extinguished because they can be replaced by something of the same kind.​
will have an example for this in later discussion..​

6.​ The obligation comes from a criminal offense (Art. 1268): If the obligation arises
from a crime (e.g., theft), the debtor remains liable even if the stolen item is lost.​
Example: A thief must pay for a stolen car, even if it’s later destroyed in an accident.​

[Slide 11: Article 1263]

[For article 1263, may we call on Chrisha to read article 1263?]

[Slide 12: Effect of loss of a generic thing]

The article is an example of a case where the debtor is liable even for a fortuitous event
because the law says so.
It is based on the principle that a generic thing never perishes (LATIN TERM: genus
nunquam perit) the debtor can still be compelled to deliver a thing of the same kind. The
creditor, however, cannot demand a thing of superior quality and neither can the debtor deliver
a thing of inferior quality.

[Slide 13: (1) Example of Article 1263]

John promised to deliver 100 sacks of rice to Sam. The 100 sacks of rice which John intended
to deliver were lost in the flood.
John is liable to Sam because his obligation is to deliver a generic thing and it can still be paid
from other sources.

[Slide 14: (2) Example of Article 1263]

Suppose the obligation of John is to deliver 100 sacks of Jasmine fragrant rice 25 kg- premium
grade quality and such sacks of rice are completely lost or destroyed, is the obligation
extinguished?
[May I call on Angel Grace Lim again to answer the question. is your answer to the question
YES or NO? and please explain why.] [Kassandra, agree ka sa answer ni Angel? if not, why
man sab?]
Yes, because the rice stipulated to be delivered is confined to a particular class and may thus be
considered a determinate thing.

ROLITH BRILLO
articles 1264-1265

[Slide 15: Article 1264]

[For article 1264, may we call on Ate Mae Kirsten to read article 1264?]

Rolith:
Article 1164 means that if only part of something owed is lost or damaged, the courts will
decide if that loss is serious enough to cancel the obligation. The decision depends on how
important the lost or damaged part is to fulfilling the promise. If the loss makes it impossible to
achieve the purpose of the obligation, it may be canceled.

[Slide 16: COURTS DETERMINE IF PARTIAL LOSS OF OBJECT CAN EXTINGUISH

OBLIGATION]
[read the slide]

[Slide 17: COURTS DETERMINE IF PARTIAL LOSS OF OBJECT CAN EXTINGUISH

OBLIGATION]
In case of partial loss, the court is given the discretion in case of his agreement between the
parties, to determine whether under the circumstances it’s important in relation to the whole as
to extinguish the obligation. In other words, the court will decide whether the partial loss is
such as to be equivalent to a complete or total loss.

[Slide 18: Example of Article 1264]

Example: John obliged himself to deliver to Sam a specific racehorse. The horse met an
accident as a result of which it suffered a broken leg. The injury is permanent. Here, the partial
loss is so important as to extinguish the obligation.
If the loss is due to the fault of John he shall be obliged to pay the value of the horse with
indemnity for damages.
If the horse to be delivered is to be slaughtered by Sam, the injury is clearly not important.
Even if there was fault on the part of John, he can still deliver the horse with liability for
damages, if any, suffered by Sam.

Question!
[May I call on Grace to answer this question.]
Question:​
In the example, Why does the obligation end if the horse’s injury is permanent, but not if
the horse is to be slaughtered?

Answer:​
The obligation ends in the first case because the horse’s permanent injury prevents it from
being used as a racehorse, which is likely the purpose of the obligation. This makes the partial
loss significant enough to cancel the obligation.

However, if the horse is meant to be slaughtered, the injury doesn’t affect its purpose. John can
still fulfill his obligation by delivering the horse, though he may need to pay for any
inconvenience or damages caused to Sam.
This shows that the effect of loss or damage depends on how it impacts the intended use of the
thing promised in the obligation.

[Slide 19: Article 1265]

[For article 1265, may we call on Kuya Elban Vasaya to read article 1265?

[ Slide 20 ]

1.​ Main Rule:​

If the thing is lost while in the debtor’s possession, it is assumed to be the debtor’s fault
unless they can provide proof to the contrary. Also, it’s not considered a fortuitous event
(such as a natural calamity).​

2.​ But this has its Exceptions:​

○​ Lack of fault by the debtor: If the debtor can prove that they were not at fault,
it is their responsibility to provide evidence.
○​ Natural calamity: If the loss is due to a natural disaster, and there’s no delay or
promise to another creditor, the debtor is not at fault.

[Slide 21]
Example:
(1) Ben borrowed Sam's car. On the due date of the obligation,

[Slide 22]
Ben told Sam that the car was stolen and that he was not at fault. That is not enough to
extinguish Ben’s obligation. It is presumed that the loss was due to his fault. Hence, he is liable
unless he proves the contrary.

[Slide 23]
(2) Suppose the house of Ben was destroyed because of the earthquake. It is admitted that there
was an earthquake and it was accidental and that the car was in the house at the time it
occurred. Here, Ben is not liable unless Sam proves fault on the part of Ben.

Lyna Villanueva
[Slide 24: Article 1266]
[For article 1266, may we call on Des Murallon to read article 1263?]

Then, may we call on Mae Ann Guarin to share to us your insights about the article, share at
least 1 insight about this article.]

thank you!
[Slide 25: Effects of impossibility]
This article refers to a case when, without the debtor's fault, the obligation becomes legally or
physically impossible. The impossibility of performance will result in the extinction of the
obligation.

This impossibility must take place after the constitution of the obligation. If the obligation is
impossible from the very beginning, the obligation is void (see Arts. 1183, 1348.) and it is
immaterial whether the impossibility was known or unknown to the parties. In such a case,
there is no obligation to be extinguished, and the parties would be entirely discharged.

[Slide 26: Article 1266]

[may we call on Regina to read the kinds of impossibility?]

Okay, so now we know the kinds of impossibility and their meaning. Let’s go to the example to
better understand this article.
[Slide 27: Article 1266]
EXAMPLES:

(1) John obliged himself to paint a picture for Sam to be finished within a month. One week
after the obligation was constituted,

[Slide 28: Article 1266]

John met an accident, as a result of which, his arms were amputated.

Here, the obligation of Sam has become physically impossible. Sam is, therefore, released from
his obligation.

The rule does not apply where Sam bound himself absolutely to finish the painting irrespective
of whether his failure is caused by unavoidable accident or for any reason in which case he
shall be liable to pay damages for nonperformance.

[Slide 29: Article 1266]

another example:
(2) John agreed to construct a commercial building for Sam.

[Slide 30: Article 1266]

The government refused to issue a building permit because the area has been declared by law
as a residential zone.

The obligation of John is, therefore, extinguished because it has become legally impossible.
Here, the performance of the prestation is directly prohibited by law.

[Slide 31: Article 1267]

(read)

[Slide 32: Article 1267]

(read)

[Slide 33: Example of Article 1267]

Jacob agreed to construct a road near a mountain. A very strong typhoon caused an avalanche
making the construction of the road dangerous to human lives which was not foreseen or
contemplated by the parties.

In this case, Jacob may be released, in whole or in part, from his obligation to continue with the
construction.
 Charish Dalion

[Slide 34: Example of Article 1267]

[For article 1267, may we call on Kuya DOm to read to us article 1267?]
thank you!

[Slide 35: Article 1267]

Effect of a fortuitous event where obligation proceeds from a criminal offense.

Article 1268 is another instance where a fortuitous event does not exempt the debtor from
liability. (Arts. 1174, 1262.)

The obligation subsists except when the creditor refused to accept the thing (eg, property stolen
from him) without justification, after it had been offered to him. Consignation is not necessary.
The debtor, however, must still exercise due diligence.

[Slide 36: Article 1267]

EXAMPLE

D stole the jeep of C. Here, D has the obligation to return the jeep to C. The obligation of D
aríses from an act punishable by law. (Art. 1157.)

Even if the jeep is destroyed without the fault of D, he shall be liable for the payment of its
price. The exception to the rule is when C is in mora accipiendi (creditor’s delay). (see Art
1169) In either case, D is liable if the loss is due to his fault.

[Slide 37: Article 1267]

ART. 1269. The obligation having been extinguished by the loss of the thing, the creditor shall
have all the rights of action which the debtor.

[Slide 38: Article 1267]

Right of creditor to proceed against third persons.

Under the article, the creditor is given the right to proceed against the third person responsible
for the loss. There is no need for an assignment by the debtor. The rights of action of the debtor
are transferred to the creditor from the moment the obligation is extinguished, by operation of
law to protect the interest of the latter by reason of the loss.

The rule in Article 1269 finds frequent application in insurance.¹

[Slide 39: Article 1267]

EXAMPLE:

John is obliged to deliver to Bryan a specific horse.

[Slide 40: Article 1267]

The horse is lost through the fault of Sam.

The obligation of John is extinguished and he is not liable to Bryan. Such being the case, John
would not be interested in going after T. The law, however, protects Bryan by giving him the
right to bring an action against Sam to recover the price of the horse with damages.
[Slide 41: Outro]
thank you everyone chuchu ikaw nay bahala dai

LYNAAAA IKAW NA ANI DAMM HEHEHEH

summary
questions T/F (wa pa na tawag, pamili lang, Jahz, Krizzea)
True or False: The loss of a specific or determinate thing always extinguishes the obligation,
regardless of whether the debtor is at fault.
Explanation: False. The loss of a determinate thing extinguishes the obligation only if
the debtor is not at fault and is not in delay. If the debtor caused the loss or was delayed,
they remain liable.

True or False: If a debtor proves that a loss occurred due to a natural calamity, they are
automatically not at fault for the loss of the thing, whether he is in delay or not.
Explanation: False. A natural calamity may excuse liability, but it does not
automatically absolve the debtor, especially if they are in delay. Liability depends on the
situation and whether the loss could have been prevented.
 Strategic Cost Management
Slide 1-4: Yna
Slide 5-8: Lyna
Slide 9-11: Rolith
Slide 12-13: Charish

SABINA
Slide 1:
Finally, we are down to our last subject. At this point, we’ll discuss the Contemporary
Business Environment and Strategic Focus of Cost Management.

Slide 2:
At the end of the activity, you should be able to…
1. Describe the more recent changes in contemporary business
environment such as
a. The Global Business Environment
b. Advances in Manufacturing Techniques
c. Advances in Information
d. A greater focus on customers
e. New forms of organization
f. Changes in the Social, Political & Cultural Environment
2. Explain the strategic focus of cost management.
3. Describe the relationship between cost management and the
accounting systems.
4. Explain the concept of integrative framework on how the accounting
system is used in the firm's organizational architecture.

Let’s start with a question to spark your curiosity: “How do businesses stay
competitive amidst rapid technological and social changes?”

Think about that as we go through our discussion.

Slide 3: The business environment in recent years has been characterized by

increasing competition and relentless drive for continuous improvement. These
changes include (1) an increase in global competition; (2) advances in manufacturing
technologies; (3) advances in information technologies, the Internet, and e
commerce; (4) a greater focus on the customer; (5) new forms of management
organization; and (6) changes in the social, political, and cultural environment of
business.

Let’s explore each of these changes starting from the global business environment

Slide 4: The global business environment is shaped by growing economic

interdependence and international trade. This creates both opportunities and
challenges for businesses:
 1. Economic Interdependence & Global Trade: Global trade connects
economies, influencing businesses, consumers, and regulators, while
increasing competition.
2. Growth of Multinational Alliances: Partnerships and trade agreements drive
growth and profitability in global markets.
3. Rise of Low-Cost, High-Quality Goods: Consumers benefit from affordable,
quality products, while businesses grow through international sales and
production.
4. Challenges & opportunities in Foreign Markets: Strong competition requires
businesses to manage costs and make informed decisions to stay
competitive. Adapting and innovating are key to thriving in this dynamic global
landscape.

LYNA
Slide 5: Next is Advances in Manufacturing Technologies

To stay competitive in a global market, many companies are adopting new

manufacturing technologies. Key advancements include:

1. Just-in-Time (JIT) Inventory Method: This method helps reduce costs and
waste by minimizing the need to keep large amounts of raw materials and
unfinished products in stock.
2. Speed-to-Market: Companies gain a competitive advantage by delivering
products or services faster than their competitors, allowing them to meet
customer demands quickly.

These methods, inspired by successful Japanese manufacturing techniques,

focus on improving quality and efficiency through teams and statistical control,
ultimately boosting cost-effectiveness and speed.

Slide 6: Additionally, the rise of information technology, e-commerce, and digital

transformation has transformed businesses. Companies like Amazon and eBay
highlight the shift toward internet-based operations for data processing,
communication, and sales. These advancements improve cost management by
speeding up transaction processing and expanding access to critical business
information. As a result, businesses achieve faster production, lower costs, and
better decision-making in a global environment.

Slide 7: In today’s competitive environment, customer value is the priority for

businesses. Firms are meeting the demand for high-quality, functional products while
addressing shorter product life cycles and intensified competition. This shift
emphasizes customer satisfaction, focusing on quality, service, faster delivery, and
customization over low-cost, mass production.

To stay competitive, businesses aim to deliver superior customer value by addressing

factors like price, quality, functionality, and service. Cost management now includes
customer satisfaction metrics, helping firms provide better value at the same or lower
cost than competitors.
In terms of strategic positioning, businesses typically choose between two strategies:
Cost Leadership, which focuses on offering the lowest prices, or Product
Differentiation, which emphasizes unique features or higher quality. Both strategies
require understanding the firm’s value chain and supply chain to manage costs
effectively and enhance customer value. Strategic cost management supports this by
aligning costs with customer-driven success.

Slide 8: Business practices have evolved significantly over time. Here are key
comparisons between prior and contemporary business environments:

Management Organization

● Type of Information Recorded: Previously, businesses focused almost

exclusively on financial data. Today, they record both financial and operating
data, emphasizing strategic success factors.
● Organizational Structure: The prior structure was hierarchical with command
and control. Now, network-based forms promote teamwork, giving employees
more responsibility and emphasizing coaching over control.
● Management Focus: Earlier management prioritized short-term performance
measures, compensation, and stock price. Contemporary management
focuses on long-term success, critical success factors, and adding
shareholder value.

ROLITH
Slide 9: Manufacturing

● Basis of Compensation: Previously based on standardization and economies

of scale, now focused on quality, functionality, and customer satisfaction.
● Manufacturing Process: Earlier, processes involved high volume, long
production runs, and significant inventory levels. Now, firms adopt
low-volume, short runs to reduce inventory and eliminate non-value-added
activities.
● Technology: Traditional assembly-line automation has been replaced by
robotics, flexible manufacturing systems, and integrated, networked
technologies.
● Labor Skills: Earlier practices required machine-paced, low-level skills.
Modern approaches demand high-level skills, both individually and in teams.
● Quality Focus: Previously, normal amounts of waste were acceptable. Today,
the goal is zero defects.

Marketing

● Products: Earlier businesses offered fewer variations with long product life
cycles. Now, there is a greater variety of products with shorter life cycles.
● Markets: Marketing has expanded from primarily domestic markets to global
reach.

Slide 10: Changes in the Social, Political, and Cultural Environment of Business
The business environment has evolved due to significant social, political, and cultural
shifts. These changes include a more diverse workforce in terms of ethnicity and
culture, heightened ethical responsibility among managers and employees, and
increased deregulation by national governments, encouraging freer market
dynamics.

To thrive in this environment, businesses must prioritize flexibility and adaptability

while empowering a skilled workforce to take on more responsibilities. Moreover,
companies are broadening their focus beyond production, addressing their role in the
global society and meeting the needs of consumers. This shift highlights a greater
emphasis on social responsibility, global integration, and long-term business
sustainability.

Slide 11: Phases of Cost Management Development

Cost management has evolved through four key stages, reflecting its growing
importance in business strategy:

Stage 1: Basic Transaction Reporting Systems

Initially, cost management systems focused on recording and reporting basic

transactions.

Stage 2: External Financial Reporting

In this phase, the focus shifted to creating reliable external financial reports.
However, the usefulness of these systems for internal cost management was limited.

Stage 3: Operational Data and Decision-Making

Systems began tracking key operational data and generating more accurate, relevant
cost information to support decision-making.

Stage 4: Strategic Cost Management Integration

Cost management systems became integral to strategy, providing relevant insights

that align with the firm’s goals and success factors.

Modern cost management integrates business changes like customer preferences,

regulations, and technology into strategic planning. It emphasizes identifying critical
success factors (CSFs) essential for competitive advantage. Management
accountants now act as strategic partners, analyzing both financial and nonfinancial
factors to align cost management with long-term goals. The focus is on driving
performance and ensuring success, not just controlling costs.

CHARISH
Slide 12: Cost Management and Accounting Systems
Cost management involves planning and controlling decisions to increase customer
value and reduce costs, focusing on materials, processes, and product designs.
While accounting systems provide essential data, cost management extends beyond
accounting by aligning cost strategies with business goals like quality, customer
satisfaction, and revenue growth. It includes strategic investments, such as
advertising or product improvements, to boost profits and integrate with broader
management strategies. This alignment ensures programs for quality, innovation, and
customer satisfaction to support long-term success.

Slide 13: This figure presents an Integrative Framework that highlights the role of the
accounting system within a firm’s organizational architecture. At the top, two key
external factors—technological innovation and market conditions—influence the
firm’s business strategy, which considers elements such as asset structure, customer
base, and the nature of knowledge.

The business strategy interacts with the firm’s organizational architecture, which
includes elements like decision-making rights, centralization or decentralization,
performance evaluation systems, and accounting systems. These components work
together to create incentives and actions for managers and employees, ultimately
driving firm value.

The framework emphasizes two critical points:

1. Accounting system changes are rarely standalone. They typically occur

alongside shifts in business strategy and organizational elements like
decision rights and reward systems.
2. These changes are usually driven by external shocks, such as technological
advancements or market shifts, and require a coordinated response across all
elements of the organization’s architecture.

In summary, this framework illustrates that a firm’s accounting system is not

isolated—it is deeply embedded in the firm’s strategy and organizational design,
aligning incentives, decisions, and actions to achieve value creation.