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Financial Statement Analysis
Using the same company that you were allocated for Assignment 1 obtain the
2013 and 2015 Annual Reports from your company’s website.
A. Consolidated Statement of Financial Position for 2015 only
1. What depreciation method is used for reporting of property, plant &
equipment (PPE)? Does the company disclose assumed useful lives for
depreciation purposes? If so, what are the useful lives of the main categories
2. How is recoverable amount calculated?
3. What were the total PPE additions, disposals and depreciation expense for
4. For each PPE category, what is the gross balance, accumulated depreciation
and carrying amount at year end? What proportion of the gross balance is
the depreciation expense for each category?
5. What categories of intangible assets are reported, and what are their
6. How much is owed on non-current borrowings at year-end? How much is
owed on current borrowings?
7. What were the total financing costs (interest expense) for the period?
B. Income Statement for 2015 only (3 marks)
1. What is the total revenue from the companies operations? What are the
operations that these were derived from?
2. What is the profit of the company? There are a number of profit figures
available. What are they, how are they different and what is the best one to
3. Explain in an accounting sense what happens to the profit/loss at the end of
C. Consolidated Statement of Cash Flows for 2015 only (5 marks)
1. Summarise the total net cash flows for each of the 3 categories of cash flows.
Which category provided the majority of cash inflows? Which category had
the greatest outflows? Is this a healthy picture?
2. What were the primary cash inflows and outflows?
3. How much cash was received on the sale of property, plant and equipment
during the period?
4. How much profit did the company make and how much cash is available at
balance date? Explain the relationship between profit and cashflow and
discuss the reason for the differences in your companies reported figures.
D. Financial Statement Analysis for 2015 only (10 marks)
1. Using the consolidated income statements and balance sheets, prepare a %
common size analysis for 2012-2015 of the income statement to the profit
for the period as a percentage of revenue, and for the balance sheet.
2. Using the consolidated income statements and balance sheets, prepare a
trend analysis for sales, cost of sales and operating profit. Where cost of
sales is not available please use total expenses.
3. For the past 4 years, calculate all ratios from the Hancock et al (2015)
7901AFE textbook Chapter 10. Where a ratio cannot be calculated please
provide a brief note on the reason.
4. On the basis of your calculations in parts D1 – D3 discuss the profitability
and financial situation of the business and any relevant issues.
5. Evaluate the prospects of the company.
E. Question from Hancock et al (2015) 7901AFE textbook Chapter 10
Complete Chapter 10: Problem 14 (pages 354 – 357) as required:
a. Analyse the company’s financial position, indicating the causes of the
present situation and recommending future policy. What are the
implications of the continuation of the company’s present practices?
b. Indicate the limitations of your analysis.
c. What additional information (if any) would you like to assist you with your
You are the audit senior for the audit of Nirvana Produce Pty Ltd (NP), a large wholesale fruit and vegetable
supplier. NP operates out of a warehouse and office near the fruit and vegetable markets and also sources
product directly from organic growers. Your firm has recently been appointed as auditor of this business.
Discussions with George Bowles has revealed that George Bowles and Thomas Hayes started the
business 30 years ago as equal partners. They later converted the partnership to a proprietary limited
company, each owning 50% of the shares. When Thomas died last year, George’s brother Marcus and his
sons, George Junior and Jason bought out 50% of Thomas’ share at a market value of $2m. Thomas’
widow, Anna, holds the remaining 25% of shares in the business. The company now wishes to buy back
Anna’s 25% shareholding but needs to raise the funds for the buy back through a loan from their bank.
Key ratios include:
Ratio Unaudited 2016 Audited 2015 Industry Benchmark
Current ratio 1 1.89 1.8
Days in receivables 12 days 8 days 7 days
Inventory turnover 3 days 3 days 3 days
Debt to equity .50 .50 .20
Debt is in the form of a mortgage over the warehouse and offices. The total value of shareholders’ funds is
relatively small as the past dividend policy has been to pay out 90% of after tax profits.
NP uses basic accounting software which can import a bank statement but has no facility for generating a
file of creditor payments to be uploaded into the NP bank account. The software, which comprises
order/sales, purchases/creditors and payroll modules, is on a server that is accessed through a number of
networked computers in the office. Passwords are required to access various modules and authorisation
levels of the system.
There are two sales’ clerks who take phone and email orders and generate packing/buying slips through the
sales order module of the accounting software. These slips are used by warehouse and buying staff to
purchase produce on the following morning and pack the produce into boxes. The debtors’ clerk uses the
completed packing/buying slips to generate invoices which are attached to the boxes to be collected by the
purchaser or a courier later that morning.
Often when the customer arrives to collect their order they identify other produce that they want and take
that with their order. These goods are then added to the original invoice in the system and the revised
invoice is emailed to the customer. Payments on sales invoices are due within seven days of invoice date
and are generally paid by electronic funds transfer (EFT). A brief review of debtors identified that there were
a significant number of short payments on the invoices. The debtors’ clerk matches the EFT payments to
the invoices and chases up outstanding payments.
George and his sons do the buying in the morning on the basis of the information on the buying slips.
Purchases are often made in cash at the market and the details noted on slips of paper which are passed to
the bookkeeper when all the purchasing for the day has been concluded. Purchases direct from contracted
growers are paid for through EFT on receipt of the goods and the purchase invoice.
Warehouse staff agree the goods to the invoice and pass the signed purchase invoice to the bookkeeper.
The bookkeeper maintains and reconciles the cash purchase float daily. The bookkeeper also maintains the
creditors’ ledger, approves and makes payments to creditors and reconciles the bank account monthly.
Payments to creditors are made within 7 days of the date of the invoice through the bank’s online payment
system and then entered into the accounting software. The invoice is then stamped as paid and the date of
payment and the bookkeeper’s initials are entered on the invoice. A brief review of the creditors’ ledger
revealed that there were a number of duplicate payments to creditors which were being resolved.
The payroll is completed by the bookkeeper on the basis of normal hours worked though George must
authorise any holiday pay, paid sick leave and overtime. All holiday, sick pay and overtime authorisation is
Question 1 6%
Analyse the ratios in conjunction with the additional information and identify implications for the audit and
02/09/2016 Untitled Document
any particular audit steps that need to be undertaken to reduce audit risk. For example, if there was a
worsening inventory turnover, one of the audit steps would include a review for obsolete inventory. Ensure
that you also identify any potential weaknesses in this ratio analysis and any additional information that you
will need to make a judgement about the business risk facing the company.
Question 2 10%
Identify the strengths and weaknesses in the internal control system described above. For each control
weakness, identify the financial report assertions that may not be met. Suggest a control to correct any of
the deficiencies identified. Identify how this weakness will affect your audit, indicating the additional audit
steps and audit evidence that you will need to collect to reduce audit risk.
Question 3 4%
Outline the audit approach that you would take with the networked personal computer based accounting
software in this audit engagement. As part of this audit approach develop and justify the use of at least two
CAATs that you would use in this audit.
Manual Accounting Cycle
For this assessment task you are an assistant accountant who has been asked to set up a new accounting system for a client, "Foppi’s Bike Shop" first manually & then on MYOB & then to process all transactions, including year-end transactions for that client. You have also been asked to prepare all reconciliations & final reports. Submissions will be made both manually & using MYOB in three parts over the semester.
Part A - set up of the manual accounting system for Foppi’s Bike Shop; manual processing of cash & accrual transactions, including subsidiary ledger entries; production of internal accounting reports including unadjusted Trial Balance. Due for submission on Monday 30th March.
Task: Financial Statement Analysis
To consolidate your learning in ACCT5021 Accounting for Managers, you are to undertake a financial analysis of Santos Ltd (ASX Code: STO) and Woodside Petroleum Ltd (ASX Code: WPL), two Australian Securities Exchange (ASX) listed companies. Apart from examining each company’s annual reports, all other relevant disclosures made (e.g., quarterly and half yearly reports), ASX disclosures and other information relevant to the performance and position of each company and the industry report for Oil and Gas Extraction in Australia. It is expected that your research effort will extend beyond each company’s annual reports and Morningstar DatAnalysis. Accordingly, your team will need to identify and evaluate other sources of information such that a thorough and well-founded analysis of each company’s past performance and position adequately supports the provision of a well-argued investment recommendation (e.g., to buy, hold or sell shares in either company and the Australian industry sector to which they belong).
Accordingly, your team may choose to access and interpret publicly available information on each company from sources such as the ASX, the Australian Accounting Standards Board; online databases such as ABI, IBIS World, ORBIS, ProQuest, Factiva, Morningstar DatAnalysis Analysis, etc; stock broker research reports; relevant websites such as http://www.bloomberg.com.au; business publications such as the Australian Financial Review and business oriented periodicals.
Balanced Score Card
Part A. Balanced Score Card and Strategy Map (4 marks)
Using the same company that you were allocated for Assignment 1 (Qantas)
obtain the 2015 Annual Reports from your company’s website.
1. Using your company's annual report, identify and explain the company's
strategy as per Porter's Generic competitive strategies (Text p. 392).
2. Identify goals relevant to the company, and propose 2 KPI's for each
quadrant of the balanced scorecard.
3. Draw the company's strategy map (similar to Text p. 427).
Cash flow statement
Discuss the differences between the indirect and direct methods of preparing the statement of cash flows. What do you believe are the most significant advantages and disadvantages of using each method? Explain your reasoning
Tara Pickettis an environmental consultant based in Newcastle. She has just appointed your firm to provide her accounting services and you have been presented with the following transactions:
1. Charged SVC Ltd for services £10,000
2. Received £50 cash for advice to a local business
3. Charged Waste Management Inc. for environmental study £20,000
4. Paid wages £500 and rent £500
5. Received £10,000 for SVC Ltd.
You are required to prepare:
a) T- accounts for the transactions (Marks: 8)
b) Calculate the balance in each T-account (Marks: 7)
c) Trial-balance for her business (Marks: 10)
Issues in Accounting
Our company has recently entered into a long-term and a radical agreement with several of our
retailers in Australia. Under the new agreement, at the start of every quarter, we will ship a variety of
our products (suitable for that state and that time of the year) to our retailers. All retailers have agreed
to set aside a section in their stores to exclusively display our products including the display windows
at the front of the store. In return we have agreed to pay a fee to each store on a monthly basis for
allowing us the access to this window space and space on the shop floor to advertise and sell our
products. The average fee is around $600 per square metre, per store per month. At the end of the
quarter, the store will return all the unsold products to us and we will send out a new shipment to
prepare for the next quarter. The stores will also transfer the revenue from total sales to us after
deducting the display fee noted above. The board unanimously agreed to recognise the sales
revenue at the start of the quarter (when the goods are shipped). At the end of the quarter when the
excess inventory is returned to us by the stores, we can always make the necessary adjustments i.e.
reverse both the sales revenue and cost of sales as well the amount owed by the stores and the
incoming inventory. After all, the net effect would be the actual sales of the period. The board also
agreed that the fee we pay to the stores should not be recorded separately because that is the cost of
doing business. So we will only record the net amount received as sales revenue. This should
simplify matters, shouldn’t it?
Accounting of Asset
Below you will see three scenarios for disposal of assets. Prepare the journal entry for each.
On June 1, 2016 Axle Corporation sold a truck for $10,000 cash. The truck originally cost $45,000 and the
accumulated depreciation as of May 31, 2016 was 37,600.
B. Two company scenarios are listed below. Based on the information provided in each scenario, prepare the corresponding Cash T-Account in the columns to the right of each scenario. Your T-Account should be in good form and utilize cell referencing and formulas where applicable.
Scenario 1 (10 points):
Hannah's Hot Dogs, Ltd., engaged in the following cash transactions when she started up the business this year. Record each transaction in the Cash T-Account Provided in Columns H and I of this worksheet. Be sure to label each item in the T-Account with its corresponding number. The T-Account is drawn for you in this first scenario.
1 Received cash from investors $30,000
2 Paid cash for hot dog cart 4,900
3 Paid cash for hot dog, buns, and condiment inventory 2,000
4 Paid cash for cart license 1,200
5 Received cash from customers 6,700
6 Paid cash for insurance 3,000
7 Paid cash to accountant 1,000
8 Paid cash for taxes 450
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