Accounting Principles

Business managers in SSE are often subjected to crucial scenarios where they need to choose between projects. Such business decisions are extremely vital and difficult to make. The managers need to choose the project that could maximize the return made on an investment (Martí-Ballester et al. 2017). To analyze the possible advantages and disadvantages of the payback period, the following things need to be considered:

The SSE is a business operating on a national basis and thus it cannot ignore the value of time and money. Similarly, SSE like other businesses operating within the domain of sustainable energy generation needs to maintain a competitive advantage in the market (Wang and Li, 2016). Despite the possible disadvantages, the chosen method is still used widely in businesses. The chosen method works well evaluating smaller projects and projects with consistent cash flow (Robson, Young, and Power, 2017). There remains no doubt that SSE needs to invest in multiple projects to keep the organization running. In similar regards, it becomes easier to understand that the investment needs to be done in numerous projects big and small for maintaining profitability in business. The chosen method can thus work on evaluating smaller projects, projects with a consistent flow of cash. In addition to that, the mentioned tool of investment is suitable for small businesses for whom liquidity holds greater importance than profitability (Nerini et al. 2018). For instance, if SSE plans to open a subsidiary business, then the mentioned mode of financial analysis can work on providing the expected outcomes.

In addition to that big enterprise such as SSE can use the mentioned method in their mainstream business. However, due to the possible limitation on providing holistic analysis, businesses such as SSE are seen to make use of the mentioned method as a preliminary model of screening (Robson, Young, and Power, 2017). Thus, the mentioned mode of analysis can be used in combination with extensive modes of analysis, such as net present value analysis or the internal rate of return.

The chosen method is used to rank the capital project as per their earnings. Projects that are giving maximum returns are chosen while the others not performing good enough are discarded. However, to understand the possible advantages and disadvantages it is important to understand the ways the mentioned method can be used for taking up the right financial decisions

Advantage	Disadvantage
Helps in comparisons: The mentioned method helps in comparing new project with the highly cost-efficient projects (Kenny and Larson, 2018)	Ignores the factor of time: The method is known to ignore the aspect of time while selecting alternate use of financial resources
Easier to calculate: The payback period is easier to calculate and it helps in considering the savings over the total financial plan of the project	Ignores the external factors: Marketing of the business is an external factor that influences the financial performance of the business. However, marketing plays a major role in the profit-earning capacity (Hasibuan and Syahrial, 2019)
A clear view of profitability: The method can provide a clear understanding of the profitability	Creates a problem in the process of decision making: There remains no doubt people arrives at different results if ROI and ARR are calculated on a separate basis
Creates the perception about net profit: The method provides perception related to net earnings after the events of depreciation and tax payments (Shen and Han, 2019)	Only considering accounting profits: The method helps in understanding the ways of accounting profits and not the cash flows (Nahar, Subadriyah and Sofwan, 2018)
Satisfies interest of the owners: There remains no doubt that businesses concentrate on the aspect of profitability. So the method helps in satisfying the interest regarding investment return	ARR is not that important: There is no need for ARR for calculating the rate of return
Accounting of profit: The mentioned method takes into consideration the concept of accounting profit. The profit in the mentioned case can be determined by calculating return sales (Wen and Moehrle, 2016)	Life period investment: The mode of lifetime investment is not taken into consideration by the chosen method.
Measuring the current performance: The method is extremely useful to measure the performance of the business	Time frame: The mentioned method does not take into consideration the aspect of time and thus may be termed risky for future financial transactions (Bangsa, 2018)

Thus, it becomes important to understand the fact that time is an important aspect of carrying out financial transactions. The financial statement is inclusive of obtaining a clear understanding of the financial situation of SSE by reviewing the existing financial reports that are analyzed based on the income statement, listed on the balance sheet. Hence, it can be clearly stated in the last few decades, accounting principles evolved a lot. However, Chimtengo et al. (2017) argued the fact that there is a lack of a universal set of principles that can set up accounting procedures. Thus, as per the current accounting principles, it becomes easier to understand that the formulation is like a synthesis of extant accounting practice. (Putra, 2019)

On analyzing the financial reports the cost principle theory can be rightly implemented. The cost principle theory demands that assets can be recorded at the cash flow or at the time when the asset is acquired. Furthermore, the amount recorded will not be subjected to an increase due to events of inflation or improvements in the market value (Al-Hawari, 2017). Thus, it becomes clear to understand the fact that the chosen business, operating in the domain of sustainable energy, needs to keep a track of the expenses or the possible investment made for expanding business.

Mobilizing finance for innovation and investment within the domain of low carbon energy is a key challenge for climate mitigation (Imoniana, Soares and Domingos, 2018). Due to cumulative carbon emissions, determining the intensity of climate change. However, the investment in fossil fuel continues to dwarf the investment into the domain of sustainable energy. Fossil fuels dominate the area of energy investment; therefore, there remains a major concern is related to the change to sustainable energy is how to gain financial support to steer investment. However, it becomes important to note the fact that businesses operating within the line of sustainable energy needs to invest to meet the ongoing change and increasing demands within sustainable energy. Thus, it is of prime importance to ensure that the investments are kept under record and not wasted without any proper record (Lin, 2019).

The SSE is a business working on a national premise and therefore it can't overlook the estimation of time and cash. Along these lines, SSE needs to keep up an upper hand in the market. In spite of the potential inconveniences, the picked strategy is as yet utilized generally in the organizations. The picked technique functions admirably assessing littler ventures and tasks with steady income (Blankley, Kerr and Wiggins, 2019). There remains most likely that SSE needs to put resources into numerous tasks to keep the association running. Incomparable respects, it gets more clear that the speculation should be done in various undertakings of all shapes and sizes for keeping up benefits in business. The picked strategy would thus be able to deal with assessing littler ventures, ventures with the reliable progression of money. Notwithstanding that, the referenced device of the venture is reasonable for private ventures for whom liquidity holds more noteworthy significance than productivity. For example, if SSE intends to start a backup business, at that point the referenced method of money related investigation can take a shot at giving the normal results.

Notwithstanding that huge ventures, for example, SSE can utilize the referenced strategy in their standard business. Nonetheless, because of the conceivable impediment on giving all-encompassing examination, organizations, for example, SSE are believed to utilize the referenced strategy as a fundamental model of screening (Coluccia, Fontana and Solimene, 2016). Accordingly, the referenced method of investigation can be utilized in a mix of broad methods of examination, for example, net present worth investigation or the inside pace of return. Thus, based on accounting principles and the idea derived from this assignment, it would be fair to recommend that a holistic approach is imperative to understand a mix of different accounting methods that can work on answering the accounting related issues in the chosen mode of business.

Reference list

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• Bangsa, I.N., 2018. The Effect of Internal Control Systems, Accounting Systems on the Quality of Financial Statements Moderated by Organizational Commitments. Accounting Analysis Journal, 7(2), pp.127-134.
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