BAB1014 FINANCIAL ACCOUNTING FOR MANAGERS

Trimester 1, 2014/2015

Ayamas Shoppe Sdn Bhd

Submission date: 15/8/2014

Lecturer: Surenthiran A/L Panneerselvam

Prepared by:

Student ID Student Name1131121231 Fausia Dhea Marvitaayu Syamsir1132702478 Jasmeen Chan1141123385 Lai Su Yi1141124661 Lee Min Wei1141124663 Siah Soon Heng

Declaration by group leader

(This section is to be filled in the student’s own handwriting.)

I hereby declare that all group members’ names are correctly included in the above section. I hold a copy of this assignment which I can produce if the original is lost or damaged. I certify that no part of this assignment has been copied from any other student’s work or from any other source except where due acknowledgement is made in the assignment.

Group leader’s signature : _____________________________

Group leader’s name : _____________________________

Group leader’s student ID : _____________________________

Date : ____________________________

CONTENTS

1. Introduction.................................................................................................................3

a. Background of the company...................................................................................3

b. Organization structure............................................................................................4

2. Procedure to set up an account....................................................................................5

a. Company registration..............................................................................................5

b. Documentation

preparation....................................................................................6

c. Legal procedure.......................................................................................................6

d. Software/Hardware needed....................................................................................7

3. Accounting process.......................................................................................................8

a. Financing activities..................................................................................................9

b. Investing activities...................................................................................................9

c. Operating activities...............................................................................................10

4. Accounting information..............................................................................................11

a. Characteristics of accounting information............................................................11

b. Users of accounting information...........................................................................13

c. Decisions making...................................................................................................13

5. Challenges..................................................................................................................14

6. Recommendations......................................................................................................16

7. Conclusions................................................................................................................18

8. References..................................................................................................................19

9. Appendix....................................................................................................................21

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Introduction a. Background of The Company

According to the Assistant of Ayamas Manager Trainee, he has given us few of

information about The Story of Ayamas. The information that he shown which is the Ayamas

Conveniese Stock was introduced under the flagship of KFC Holding (Malaysia) Bhd , the

franchise holder for KFC Family Restaurants in year 1988. The first in Malaysia to sell

branded fresh chicken and chicken product, Ayamas now offers the No.1 branded chicken

range in Malaysia.

Ayamas have established a popular reputation among Malaysians for the high

quality of our products. Furthermore, the business keeps growing to include an ever-

increasing range of product in every year.

Behind Ayamas, there is a support of a huge network. With its own breeder or

hatchery farm, broiler farm, feed mill plant, processing plant retail chain and restaurant

chain. Ayamas Company has to ensure strict standards of quality every step of the way.

Providing customers with Ayamas chickens of the finest quality and freshness: with strict

adherence to the Jabatan Haiwan Malaysia (JBH) and Jabatan Kemajuan Islam Malaysia

(JAKIM), all Ayamas products are 100% halal.

Ayamas is also the main supplier of chicken product to fast food chains in Malaysia

like KFC and Pizza Hut. The company had also sales network extends to supermarket and

hypermarket shelves all over Malaysia.

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b. Organizational Structure

Ayamas Career Advancement Program Retail and Restaurant Operations

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Restaurant Manager

Mr Sadul B. Ibrahim

Shift Restaurant Manager

Mr Isham Ibrahim

Assistant Restaurant Manager

Miss Nor Robiah Osman

Assistant Manager Trainee

Mr Mohd Risham Tompang

Staff

Shahrul Fizam Zulkirel Mohamad Alim Siti Hawa Mausor

Procedure to Set Up an Accounta. Company registration

According to Mr Mohd Risham, the Assistant of Ayamas Manager Trainee, this

Ayamas company secretary completes the company registration process in around 10 days.

The company has been licensed by the Company Commission of Malaysia (CCM). The

disbursement and total fee for registration and setting up a new company with CCM is

around RM2000. The main activity of CCM Malaysia is to serve as an agency to register

businesses and incorporate company as well as to provide business and company

information to public. Manager provide the documents and information to the secretary in

order to proceed the company registration process such as new company’s business

activities, new company’s name, identity card (Malaysia) of 2 director and 2 shareholders,

residential address of all directors and shareholding structure and shareholders. After

receiving the documents, the company secretary will submit the Form 13A (Company Name

Search Application Form) to CCM Malaysia for their approval of using the name in new

company. After the approval for new company’s name has been received from CCM, the

company secretary will prepare the registration documents. Therefore, the manager will

sign all the registration documents at company secretary’s office as well as pay the full

payments before the secretary proceed to the next action. The company secretary will

arrange the Form 48A to be attested by the commissioners for Oaths and stamping on the

M&A (Memorandum & Articles of Association) by the Stamping Office after receiving the

payments.CCM Malaysia will issue the Form 9 (Certificate of Incorporation) for new

company. The issuance of Form 9 indicates that new company has been successfully

incorporated with CCM Malaysia.

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b. Documentation preparation

There are several basic documentation required for Registrar of Franchise (ROF)

application. The intention should include the following information in the letter such as date

of incorporation, commencement of business, Ayamas Shoppe Sdn Bhd concept and

background, franchise experience, and the identity of proposed Malaysia master franchisee.

It also required certified true copy of incorporation from the relevant agencies in the

country of origin and the proof of trademark or intellectual property mark registration. The

company annual report and brochure with photograph of the outlets is very vital and need

to submit it (Tompang, personal communication, July 16, 2014).

c. Legal procedure

As a report by the Assistant of Ayamas manager trainee, Ayamas Shoope Sdn Bhd

registers their business and obtain the necessary licenses and permits. The business is

registered under the Registration of Business Act 1956 at the Commission of Companies

Malaysia (CCM). It is partnership with KFC holdings. “Partnership is the relation which

subsists between persons carrying on business in common with a view of profit” (The

National Archive, n. d). Partnership doesn’t pay tax on its income but share any profits or

losses to the individual partners. Partnership must file a tax return (Form 1065) that reports

its income and loss to the IRS. In addition, each partner reports share of income and loss on

schedule K-1 of form 1065. General partners are personally liable for the partnership’s debts

and obligation. Each general partner can act on behalf of the partners but need the

partnership agreement permits. Ayamas company disclose everything to their lawyer about

the planning of the business. The company also discuss with their lawyer the details needed

for any partnership contacts, employee handbooks, employee consent or agreement forms,

non-compete agreement and so on. Lastly, it must obtain a federal tax identification

number and speak with a tax professional and set up a plan to control their taxes.

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d. Software or hardware needed

Ayamas has selected Zap Business Intelligence software to improve corporate

performance with KFC and gain operational efficiencies. Zap Business Intelligence will

empower Ayamas and KFC employees to report on and analyze information across systems

including inventory, payroll, finance, mobile delivery, and human resources. They will create

“reports, scorecards, dashboards, Key Performance Indicators and ad-hoc analysis” to gain a

shared understanding of performance and meet reporting requirements efficiently (Zap,

n.d). Zap Business Intelligent is a Microsoft-based business intelligence (BI) solution that

delivers corporate information anytime, anywhere through a web browser (Tompang,

personal communication, July 16, 2014).

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Accounting Process Accounting is a technical business function that responsible for recording,

reporting and analyzing financial information. The purpose of accounting is recording all the

transaction accurately into “Books of Accounts”. The accounting process also commonly

referred to accounting cycle, is the process that begins when the transaction takes place and

ends when the transaction is recorded in the books of accounts. It includes a several steps

that are used to analyze and record the business transactions for a particular period. First,

identifying and analyzing business transactions. Second, make journal entries. Third, post to

ledger accounts. Fourth, adjusted the trial balance. Fifth, make an adjusting entry. Sixth,

adjusted trial balance. Seventh, preparing the financial statements. Next, closing the books

or accounts. Last, post-closing trial balance (Deeptee, 2013).

At the seventh step, preparing the financial statements, the financial statements

are the end-products of an accounting system. The financial statements include Statement

of Comprehensive Income, Statement of Financial Position or Balance Sheet, Notes to

Financial Statement, Statement of Changes in Equity and Statement of Cash flows (Deeptee,

2013). A statement of cash flows is a financial statement which summarizes cash

transactions of a business during an accounting period and classifies them into three

sections, namely, cash flows from financing, investing and operating activities.

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a. Financing Activities – Capital Contribution (Equity & Liability)

At the beginning of a company’s life cycle, a person or group of people come up

with an idea for a new company. The initial money or initial fund comes from the owners or

it borrowed by the owners. For example, borrow from a bank, friends or family. This is how

the new company is “finances.” The money that the owners put in the company is classified

as a financing activity. The financing activities section is one of three sections on a

company's statement of cash flows, the other two are operating and investing activities

(Basu, 2014).

From the interviewee, Mr Mohd Risham who has mentioned that the initial money

that the owners of the company, Mr Sadul bin Ibrahim uses to start up the business is

RM150, 000. Mr Sadul borrowed this initial money from bank. Furthermore, the owners also

get loans from bank since the amount of initial money cannot cover up all the cost. The cost

includes salary paid, utility, rental, government tax, insurance, repurchasing stock, pay

dividends to shareholders, purchased the equipment and other assets. Besides, the owners

also take a long-term loan for business operation and paid a higher interest from loan.

b. investing Activities – Asset (Current and Non–Current)

In general, investing activities involved in the purchasing and disposing assets

necessary for business operations (Simplestudies, 2012). The owners or managers of the

business use the initial fund to buy equipment, and other assets they need to run the

business. In other words, they invest asset to their business in order to gain profit (Jan,

2013).

For this company, Ayamas Shoppe Sdn Bhd is involve more in the cash outflows for

a business. According to Mr Mohd Risham, he said that the owners of the company use this

amount of money or initial money do the investment. He invested in the tangible assets. For

example, cash payment to purchase tangible assets such as building, equipment, land or

property and so on. He also involved in the purchasing motor vehicles in order to deliver the

products to the customer. Besides, he has invested in the intangible assets such as

copyright. The owners of the company also purchase assets to replace the old and obsolete

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assets. For instance, chair, desk and motor vehicles. In addition, he also purchases of other

investments such as share. He has done the cash payments to purchase of shares of other

companies.

Moreover, Mr Mohd Risham has mentioned that the owners also involved in the

cash inflows from investing activities. The cash inflows from investing activities are cash

receipts from sales of tangible and intangible assets such as copyrights, disposal of property

and equipment, and cash receipts from sale of shares of other companies.

c. Operating Activities – Operation (Revenue, Expenses etc)

Operating activities is day-to-day business activities of a company which determine

the company’s net income or loss (Simplestudies, 2012). The company starts to sell

merchandise or services and make payments for rent, suppliers and all of the company was

established would be classified as operating activities.

As a report by this company, Mr Mohd Risham states that the yearly budget for this

year is RM259, 702. The owners of the Ayamas Shoppe Sdn Bhd, Mr Sadul operates the

business by allocating some of this money to pay for employee salary. They have 5 staffs

and 2 managers in the company. Furthermore, Mr Sadul also allocates the money to make

payments for suppliers, government taxes, insurance premiums, rental, utilities and all of

other costs of doing business. Mr Sadul also uses some of the money to pay for debt

monthly rather than pay for debt fully. In addition, he also allocates the money to do the

promotion and advertising the company’s product. They advertise their product through

local paper, magazine, internet and so on. He also spends for franchise fees around RM5000

to RM7000. These all is involved in cash outflows from operating activities.

In terms of the cash inflows from operating activities, it included revenue from

sales of goods and services. For example, the staffs sell the products to the customer and

deliver the product to the customer’s home. The revenue that receives by the company is

around RM115, 860.

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4. Accounting InformationAccounting information is a piece of financial data indicating an organization's

resources, debts, revenues or expenses. Accounting information is essential to business

operations. Below are some of the key characteristics, user, and decision making of

accounting information in Ayamas Shoppe Sdn Bhd.

a. Characteristics of Accounting Information

Accounting information helps users to make better financial decisions. Accounting

information should satisfy the following criteria or can be called as the key characteristics of

accounting information which are understand ability, relevance, consistency, comparability,

and reliability (Bragg, 2012). Before it can be regarded as considered as beneficial in

satisfying the needs of different user groups, there is general agreement. Below are the key

characteristic of accounting information in Ayamas Shoppe Sdn Bhd:

i. Understandability

In Ayamas Shoppe Sdn Bhd, the accounting information must be in the

understandable form in a way that it gives expression with clarity of accounting

information to users who are have a reasonable knowledge of business and

economic activities in the company. Accounting information and financial statements

have prepared in such a way as to facilitate understanding of the user of the financial

statements. Information about complex matters also has presented (Tompang,

personal communication, July 16, 2014).

ii. Consistency & Relevance

Consistency implies consistent treatment of similar items and application of

accounting policies. Ayamas Shoppe Sdn Bhd follows the Government policies in

preparing their accounting information. Government’s policies and legislations such

as imposition of control prices, changes in interest rates, methods of taxation or

introduction of new regulations. Ayamas in Malacca is considered as one of the

subsidiaries of the group company. Therefore, all of the accounting information has

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been sent to their headquarters in Kuala Lumpur. The process of all the reports will

be stand selected in there which make it easier to ensure that there is no imbalance

arises from all Ayamas spread throughout Malaysia and also to accelerate their form

of corporations. These actions include initiatives to further enhance the company's

debt and improving operational structuring (Tompang, personal communication, July

16, 2014).

iii. Comparability

Accounting information and financial statements should be equipped in such a way

as to assist assessment of entity information during time. Comparatives results when

different enterprises apply the same accounting management to similar occurence.

Obedience with International Accounting Standards helps to increasecomparability.

The accounting information in Ayamas Shoppe Sdn Bhd is in the comparative form

that implies the ability for users to be able to compare similar companies in the same

industry group and to make comparisons of accomplishment over time. The majority

of the work that goes into setting accounting standards is based around the need for

comparability (Bragg, 2012).

iv. Reliability

Reliability is the quality of information that authorized users to depend on it with

collateral. This means it is examined, has faithful presentment, and is reasonably free

of errors and bias. The accounting information in Ayamas Shoppe Sdn Bhd financial

statements is reliable and that is presented in truthful and accurate matter because

they have been prepared on accounting principles and bases consistent with those

previously adopted in the preparation of audited financial statement (Tompang,

personal communication, July 16, 2014).

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b. Users of Accounting Information

Accounting information is useful for several of parties. Accounting sets to satisfy

the needs of a wide range of users. Users of financial information may be both internal and

external to the organization (ACCOUNTINGVERSE FOR ALL THINGS ACCOUNTING, 2014). The

user accounting information of Ayamas Shoppe Sdn Bhd is presented to internal users and

usually in the form of management accounts, forecasts, budgets,and financial statements

which is their manager of every ayamas’s branches. Managers are the main internal users of

accounting information. Managers need the information for making various decisions.

Managers need the information to protect the property of business from fraud,

mismanagement, to plan for future, to make specific decision and to measure the

performance. Ayamas Shoppe Sdn Bhd never discloses the accounting information to the

external users (Tompang, personal communication, July 16, 2014).

c. Decision Making

Decision making is the process by which managers or top management respond to

opportunities and threats that confront them by analyzing options and making

determinations about specific organizational goals and courses of action. Accounting

information helps users to make better financial decisions. An experienced accountant will

prepare financial reports that provide the specific information needed by management to

reach a decision. That is, the accountant does not just issued the same boiler plate reports,

month after month. It may also be necessary to create new reports that deal with new

situations confronting a business (Bragg, 2012).

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ChallengesThere are sort of challenges that have met by the Ayamas Shoppe Sdn Bhd since

they have established. From the interview conducted, the challenges that Ayamas

encountered is the halal and non-halal issue (Tompang, personal communication, July 16,

2014). As the year before, Ayamas collaborated with Ayam A1 Company. In order to avoid

unnecessary conflict between the two companies, the food that Ayamas and Ayam A1

provided is the halal and non-halal poultry products respectively since the issue happened.

This challenge has caused these two companies to split and run their business operation in

their own system.

The other challenges that Ayamas Shoppe Sdn Bhd has overcame is the inventory

shortage during the special day from their customer (Tompang, personal communication,

July 16, 2014). When the company receives orders from the catering service order, the

company might face the problem when the supply of stock is not in time and limited

inventory. The ways to overcome this challenge is that they find other nearby outlets which

in the same area to supply more inventories in order to solve the problem. Hence, there is

adequate inventory to be sold to their customers.

Ayamas Shoppe Sdn Bhd also has encountered their challenges when come to find

the poultry manufacturing industry suiting their business know-how and business format

(Tompang, personal communication, July 16, 2014). In other words, they need to consider

on the compatibility of the company with their supplier. To elaborate the problem in the

clearest manner, the Ayamas need more supply of poultry during the festive season, but

they need to ensure that the poultry manufacture industry possesses the same concept and

system in progressing their product to finalized product such as the process and method in

preparing, washing, cutting, marinate, package the chicken and distribute it. Mr Mohd

Risham, the assistant manager in this Ayamas outlet has also claimed that there is only two

major poultry manufacturing industry are the nearest to them. Hence, the choice made to

complement to the right poultry manufacturing industry is a matter in this scenario as they

cannot rely on any other industries other than in these two industries due to the geographic

factor.

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As mentioned in earlier section, the halal and non-halal product issue has brought

to a negative impact on the business of Ayamas. As the product focusing has been changed

and the company has split in isolation, the business of Ayamas has dropped and the profit is

relatively reduced as compared to previous days. To overcome this, the company has found

their way to promote the special offering and promotion to customer by distributing flyers,

publicize the poster at anywhere else. Besides, the carnival and promotional events like

‘Mega Jualan Hebat’ will be held where offering the discount price and product sales in

whole Malaysia for that product.

The Ayamas also found it challenging to compete with their rivalry. Every kind of

businesses must have their own competitors. In order to capture the target market and

potential customer, the key elements to consider is the strength and location of the

company (Roger, 2000). From the interview, Mr Mohd Risham stated that their competitors

not only are fast food restaurant such as Pizzahut but also the slow food restaurant as they

also have the similar product type to be sold such as Mori and Windmill Station. The other

factors cause this problem to be happening is also include the location of a business. The

location of the Ayamas is quite far from the residential area. Despite these drawbacks,

Ayamas has focused on product differentiation as they sell the fast food packages, frozen

food is distinctive to the usual restaurant do. Ayamas implement a ‘Fullmoon Set’ that

included a different bundle of food in each set to promote their set meal (shown in Figure

1.2 in Appendices). The Ayamas outlets also provide air-conditional space to offer their

customers have dine-in service and experience once they have done purchasing.

On the interviewers’ side, the challenges met are the time conflict between the

group members. The interview has been conducted successfully in spite of the difference of

schedule from different members have.

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6. RecommendationsAyamas Shoppe Sdn Bhd is more suitable to get the short-term loan. Short-term

loan have a maturity of one year or less. They should be repaying to the lender within one

year (Peavler, 2014). Short-term loan more frequently used for working capital

requirements or day-to-day operations of the business. For example, Mr Sadul, the owners

of the company make payments for employee salaries, suppliers, government taxes, rental

and etc. There are 4 main types of short-term debt which are overdraft, letter of credit,

short-term loan and bill of exchange. An overdraft is an extended of credit from a lending

institution. When a company has an overdraft agreement with a bank, it can draw down or

transmit cash from its account beyond the available balance. Moreover, a letter of credit is a

letter from bank guaranteeing a buyer’s payment to a seller, that a seller will receive the

amount in the credit period. Next, a short-term loan is a loan that must be repaid within a

year with interest. Furthermore, a bill of exchange is a document that binds one party to pay

a fixed sum of money to another party at a particular future date (Mitchell, 2013).

There have a several advantages of short-term loan. The advantage of short-term

loan is it is a quick way to get liquidity for the business, in particular SMEs, the person who

do not have large pool of reserve funds for emergency uses. Besides, the short-term loan is

usually easier to negotiate compare to long-term loan and equity financing, as the financier

faces quite lower credit risk. Due to easy of negotiation, short-term loan can be used to free

up funds in the business for good investment opportunities. Furthermore, most of the short-

term debt instruments can be obtained without having to vow a considerable amount of

collateral, as long as the borrowing company has comparatively stable operations and

turnover rate. Last but not least, the cost of servicing short-term credit is less taxing on the

company. Short-term loans typically offer lower interest charges and the majority of

suppliers do not charge interest at all until the credit allowance period is breached.

In addition, Ayamas Shoppe SdnBhd should select Enterprise Resource Planning

System (ERP) software to improve in their procedures. ERP software consists of multiple

application such as customer relationship management (CRM) software; accounting

application; sales software; order-tracking tools; invoicing software; project-management

and payroll programs. By using these software, business can dramatically cut maintenance

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and training costs, ensure all data is consistent and up-to-date and reduce software

expenses. ERP systems have more advantages compare with the disadvantages. The

advantage is ERP systems connect the necessary software in order for accurate forecasting

to be done. This system also can integrate among different functional areas in an

organization to ensure proper communication, productivity and efficiency. It orders

tracking, from acceptance through fulfilment. Reduce paper documents by providing on-line

formats for quickly entering and retrieve information is one of the advantages. It also can

improve timeliness of information by permitting, posting daily instead of monthly and have

greater accurateness of information with complete content, better presentation, fully

satisfactory for the auditors. It helps to achieve competitive advantage by improving its

business process. Besides that, the disadvantage is customization of the ERP software is

limited. Many of the integrated links need high exactly in other applications to work well.

ERP are often seen as too rigid and too difficult to adapt to the specific workflow.

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7. Conclusions In conclusion, this assignment has given students chance to understand and

analyze the procedure of business setup and the challenges they overcome. For Ayamas

Shoppe Sdn Bhd, they are considered as a stable accounting company as they maintain a

well-growth business though they have been challenged by the rivalry. From this assignment

experience, students have acquired the knowledge of maintain a good accounting process in

monitor well in finance, investment and operation besides the knowledge from chance to

conduct interview. In brief, this assignment has benefit students to be prepared on their

accounting knowledge in their career future.

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8. ReferencesA, D. (2013, August 9). Accounting Process. In Buzzle. Retrieved July 4, 2014, from

http://www.buzzle.com/articles/accounting-process.html

Basu, C. (2014). Examples of Financing Activities. In Small Business by Demand Media.

Retrieved June 24, 2014, from http://smallbusiness.chron.com/examples-financing-

activities-37342.html

Bragg, S. (2012, December 30). What are the characteristics of useful accounting

information? In Accounting Tool. Retrieved August 1, 2014, from

http://www.accountingtools.com/questions-and-answers/what-are-the-

characteristics-of- useful-accounting-informatio.html

Jan, O. (2013). Cash Flows From Investing Activities. In AccountingExplained. Retrieved June

24, 2014, from http://accountingexplained.com/financial/statements/cash-flow-

investing-activities

Mitchell, B. (2013, January 30). Short-term vs. Long-term Loans. In The Small Business Fund

Secured Debt Financing for Small Business. Retrieved July 5, 2014, from

http://www.thesmallbusinessfund.com/blog/2013/1/30/short-term-vs-long-term-

loans.html

No.1 Company Registration Firm in Malaysia. (n.d.). In NBC Group of Companies. Retrieved

August 1, 2014, from http://www.nbc.com.my/

Peavler, R. (2014). Short-Term Business Loans. In About.com Business Finance. Retrieved

July 5, 2014, from http://bizfinance.about.com/od/businessloans/qt/short-term-

small-business-loans.htm

Roger, C. R. (2000).10 Common Mistakes for Prospective Franchisees. Retrieved July 13,

2014, from http://www.inc.com/articles/2000/01/14880.html

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The National Archive. (n. d). Retrieved August 2, 2014, from HM Revenue and Custom:

http://webarchive.nationalarchives.gov.uk/+/http://www.hmrc.gov.uk/manuals/bim

manual/bim72505.htm

Users of Financial Statements. (2014). In ACCOUNTINGVERSE FOR ALL THINGS

ACCOUNTING. Retrieved August 1, 2014, from

http://www.accountingverse.com/accounting-basics/users-of-financial-

statements.html

What are operating activities in accounting?. (2012, July 31). In Simplestudies. Retrieved

June 24, 2014, from http://simplestudies.com/what-are-operating-activities- in-

accounting.html

What is the difference between investing and financing activities?. (2012, August 5). In

Simplestudies. Retrieved June 24, 2014, from http://simplestudies.com/what-is-the-

difference-between-investing-and-financing-activities.html

Zap. (n. d). Zap Business Intelligent. Retrieved August 2, 2014, from

http://www.zaptechnologyafrica.com/Products/ZapBusinessIntelligence.aspx

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9. Appendix Figure 1.1 The ‘Fullmoon Set’ Gift Pack that presented by Ayamas

Figure 1.2 The coupon for discounted set meal shown

Figure 1.3 The picture taken for interview to Ayamas

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