Assessment Details and Submission Guidelines | |
Trimester | T1 2019 |
Unit Code | HC1010 |
Unit Title | Accounting for Business |
Assessment Type | Individual Assignment |
Assessment Title | 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:
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Weight | 20% of the total assessments |
Total Marks | 20 marks |
Word limit | 1000 words |
Submission Guidelines |
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HC1010 Assignment Specifications
Purpose:
This assignment aims to reinforce and extend students’ knowledge and understanding of key topics in this course (HC1010) 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.
Assignment details:
PART A Financial Ratios and Financial Statement analysis (6 marks)
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 Cost of goods sold Cash Accounts receivable Inventory Current liabilities | $630 000 290 000 18 000 70 000 130 000 105 000 | $490 000 250 000 12 000 60 000 150 000 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.
PART B. Income and Revenue (4 marks)
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 (7 marks)
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 | 600 | |||
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:
HC1010 Accounting For Business
PART A Financial Ratios and Financial Statement analysis
1. Ratios Calculation: The given information and calculations can be presented as follows:
30 June Year 2019 | Year 2018 | Year 2017 | |
Net credit sales | $ 6,30,000 | $ 4,90,000 | |
Cost of goods sold | $ 2,90,000 | $ 2,50,000 | |
Cash | $ 18,000 | $ 12,000 | |
Accounts receivable | $ 70,000 | $ 60,000 | $ 78,000 |
Inventory | $ 1,30,000 | $ 1,50,000 | $ 1,30,000 |
Current liabilities | $ 1,05,000 | $ 81,000 | |
Period to Pay | 30 days | ||
Industry Average Inventory Turnover | 101 days |
The calculation of ratios and formulae are:
Ratio | 30 June Year 2019 | Year 2018 | Formula |
Current Ratio | 2.08 | 2.74 | CA/CL |
Quick Ratio | 0.17 | 0.15 | Quick Assets/CL |
Accounts Receivable Turnover (times) | 9.69 | 7.10 | Net Credit Sales/Average Receivables |
Accounts Receivable Turnover (days) | 37.7 | 51.4 | 365/Accounts Receivables Turnover |
Inventory Turnover (times) | 2.07 | 1.79 | COGS/Average Inventory |
Inventory Turnover (days) | 176.2 | 204.4 | 365/Inventory Turnover |
2. Ratio Analysis:
PART B Income & Revenue
The required can be presented as follows:
Line Item | Amount | Classification |
Software Sales | $ 25,00,000 | Revenue |
Updates Download | $ 30,00,000 | Revenue |
Interest on short-term investment | $ 50,000 | Income |
Discount on early liab settlement | $ 2,000 | Cash Discount or Income |
Share Issue | $ 5,00,000 | Income |
The last column indicates classification for each line item. For any company, revenue refers to the amount received from customers for the company products and services.
Whereas, income is a much larger term that indicates net profit of the company after including all items. In other words, the revenue and total income from various sources is included and then all expenses are deducted to arrive at income.
In above case, company is a software company selling anti-virus software. Hence, revenue will be the line items that show software sales and software updates download as these are related to product of the company.
All the other line items, such as interest earned on short-term marketing securities (investment income), cash discount (operating income) and share issues (financing income) can be classified as income.
PART C Balance Sheet Comparison
The required can be presented as follows:
ABC Company | XYZ Company | |
Balance sheet | Balance sheet | |
As at 30 June 2020 | As at 30 June 2020 | |
Assets | $ | $ |
Current assets | ||
Cash at bank | 2,400 | 2,000 |
Accounts receivable | 4,800 | 24,000 |
Total current assets | 7,200 | 26,000 |
Noncurrent Assets | ||
Office equipment | 6,000 | 600 |
land | 18,000 | 13,600 |
building | 30,000 | 6,000 |
Total non-current assets | 54,000 | 20,200 |
Total assets | 61,200 | 46,200 |
liabilities | ||
Current liabilities | ||
Accounts payable | 21,600 | 4,800 |
Loan payable due 30 September 2020 | 31,200 | 7,200 |
Total current liabilities | 52,800 | 12,000 |
Total liabilities | 52,800 | 12,000 |
Net assets | 8,400 | 34,200 |
Owner’s equity | ||
P. Cable Capital | 8,400 | 34,200 |
Total owners’ equity | 8,400 | 34,200 |
Current Ratio | 0.14 | 2.17 |
Quick Ratio | 0.05 | 0.17 |
Short term Loan to Equity | 3.71 | 0.21 |
From above, the three key ratios can be seen. XYZ has a much higher current ratio of 2.17 indicating higher level of liquidity as compared to ABC. Further, XYZ has a much higher quick ratio of 0.17 indicating higher level of immediately available liquidity as compared to ABC. If the debt to equity ratio is seen, XYZ scores better with a lower ratio of 0.21.