Reference no: EM132322753

Accounting for Business Assignment - Financial Statements Elements and Financial Statement Analysis

Purpose of the assessment (with ULO Mapping) - Students are required to apply knowledge learned in class and perform independent research of the key topics.

Learning Outcomes:

Familiar with and readily able to access (refer to) and integrate across:

• The social role and purpose of accounting
• The accounting equation and how it shapes the financial statements
• General Purpose Financial Statements (GPFS)
• Special Purpose Financial Statements (SPFS)

Understand how to prepare, analyse, and interpret financial ratios from GPFS.

Obtain and contextualise business information for business accounting to explain and apply to business decisions.

Demonstrate the ability to apply, analyse, synthesise and evaluate information from multiple sources to make decisions about the financial performance of entities including assets, liabilities, owner's equity, revenue and expenses.

Apply concepts and theories discussed on a weekly basis.

Use transaction data and financial statement analysis for data-driven decisionmaking.

Demonstrate the ability to communicate accounting information writing to a professional standard.

Assignment Specifications -

Purpose: This assignment aims to reinforce and extend students' knowledge and understanding of key topics in this course including: Statement of Financial Position, Statement of Financial Performance, Cash Flow Statement, Financial Statement Analysis, Accounting for Business Transactions through independent research and application of knowledge and skills.

PART A - Financial Ratios and Financial Statement analysis

The following financial data relate to Big Bang Pty Ltd for the years ended 30 June Year 2019 and 30 June Year 2018.

Financial item	30 June Year 2019	Year 2018
Net credit sales	$630,000	$490,000
Cost of goods sold	290,000	250,000
Cash	18,000	12,000
Accounts receivable	70,000	60,000
Inventory	130,000	150,000
Current liabilities	105,000	81,000

Additional information: The amount of Accounts receivables at 30 June Year 2017 was $78,000 (net). The inventory figure at 30 June Year 2017 was $130,000. The company provides its credit customers 30 days to pay. The average inventory turnover for the industry in which the company operates is 101 days.

a. You are required to explain and calculate the following ratios for the years ended 30 June Year 2019 and 30 June Year 2018:

• Current ratio;
• Quick ratio;
• Accounts receivable turnover (times and in days); and
• Inventory turnover (times and in days).

b. Comment on the short-term solvency, including the efficiency of the business, given the ratio result obtained in your answer in part a.

PART B - Income and Revenue

The core business of Green Apple Ltd involves the sale of anti-virus software. The following took place during the financial year ended 30 June. The company earned $25,000,000 from the sale of software; $3,000,000 from update downloads; and $50,000 in interest from investing on the short-term money market. The company also received a $2000 discount arising out of the early settlement of a liability; and issued shares in exchange for $500,000 cash during the year.

Discuss whether the foregoing five financial items would meet the definition of income to the company during the year? Give reasons for your answer.

Which, if any, of the items would meet the definition of revenue to the company for the year? Give reasons for your answer.

PART C - Comparing balance sheet

ABC Company and XYZ Company conduct the same type of business. Both are recently formed entities. The balance sheets of the two companies as at 30 June 2020 are as follows:

ABC Company Balance sheet As at 30 June 2020
	$	$	$	$
Assets
Current assets
Cash at bank	2,400
Accounts receivable	4,800
Total current assets		7,200
Noncurrent Assets
Office equipment	6,000
Land	18,000
Building	30,000
Total non-current assets		54,000
Total assets			61,200
Liabilities
Current liabilities
Accounts payable	21,600
Loan payable due 30 September 2020	31,200
Total current liabilities		52,800
Total liabilities			52,800
Net assets				8,400
Owner's equity
P. Cable Capital	8,400
Total owners' equity				8,400

 

XYZ Company Balance sheet As at 30 June 2020
	$	$	$	$
Assets
Current assets
Cash at bank	2,000
Accounts receivable	24,000
Total current assets		26,000
Noncurrent Assets
Office equipment	6,00
Land	13,600
Building	6,000
Total non-current assets		20,200
Total assets			46,200
Liabilities
Current liabilities
Accounts payable	4,800
Loan payable due 30 September 2020	7,200
Total current liabilities		12,000
Total liabilities			12,000
Net assets				34,200
Owner's equity
P. Cable Capital	34,200
Total owners' equity				34,200

You are required to answer the following questions based on the information provided above:

a. Assuming that you are a banker and that the owner of each business has applied for a short- term loan of $6000 (repayable in six months), which application would you select as being the more favourable? Explain.

b. Assuming that you are a businessperson interested in buying one or both companies, and both owners have indicated their intentions to sell, for which business would you be willing to pay the higher price, assuming you will be taking over the existing liabilities of the company? Explain.

c. If the existing owners agreed to be accountable for all existing liabilities, how would this change your decision in (b), if at all?