Contemporary Accounting A Strategic Approach For Users 10th Edition Phil Hancock, Peter Robinson, Mike Bazley - Solutions

A 20 per cent increase in net profit is, on the surface, an improvement. However, we need to consider how the company’s competitors have performed so that we have a benchmark for comparison. If the average increase of other companies’ net profit was 30 per cent, then the company has fallen
Financial risk relates to the mix of owners’ equity and debt financing, whereas business risk refers to the type of business or trade in which the enterprise is engaged.
Long-term lenders and equity investors have many common needs, but they differ in that long-term lenders look at interest cover rather than dividend cover or earnings per share. They are also interested in measures of security.
The directors of Efficient Distributors Ltd are concerned at the results of trading activities reported for the year ended 30 June 20X6, and failure to keep within the limit of the bank overdraft ($12 000).They request that a comprehensive survey be made of the financial state of the company, and
The balance sheets and additional information follow for Jayco Ltd:Required Evaluate the position of Jayco Ltd. Cite specific ratio levels and trends as evidence. Jayco Ltd Balance sheets at 30 June 20X4 20X5 20X6 $ 5400000 5416300 6224104 Net assets Owners' equity 8% preference shares 500000 500
Following are the summarised accounts of Apple Ltd for the past five years. These accounts form the basis for the questions that follow.Required a Complete the common-size statements of comprehensive income for the five years and analyse these statements with particular reference to the
The balance sheets and selected information are given below for Katrina Ltd and Catherine Ltd for the year ended 30 June 20X2.Required a Calculate the current ratio, quick ratio, inventory turnover, accounts receivable turnover and average days sales uncollected for each company.a Which company do
You have been given the following financial information for Bigboy Catering Ltd Required a Comment on the profitability of the business.b Comment on the financial situation of the business.c What would be your advice to the company after viewing the figures for 20X4?
As an analyst, you have extracted the following information from the accounts of Romeo Construction Co. Ltd.Required a Comment on the profitability of the business.b Comment on the financial situation of the business.c What action do you suggest for the coming year?
JK Ltd is a retailer of roller blinds with branches throughout the country. For the three periods ending 30 June, the following cash flow information is available:Required a Assuming these are all the cash flows, briefly discuss the financial performance and position of the company to 30 June
Following is a simplified balance sheet for XYZ Ltd.a The present current ratio is: 1.225:1.b The company has been told by its bank to increase its current ratio to 1.5:1. Given the balance sheet, what simple step does the company have to take to achieve the required current ratio?
Bazz Co. has provided the following information. Prepare a trend analysis and comment on the results.
The Coverup Company has completed its financial year on 30 June 20X2. The auditor, Kate Porter, has approached the CEO, Norman Stacey, regarding the year-end receivables and inventory levels of Coverup. The following conversation takes place:KATE: We are beginning our audit of Coverup and have
Phantom Ltd reported the following information:a Determine, for each year (rounding to two decimal places):i the inventory turnover ii the inventory turnover in days.b What conclusions can be drawn from this data concerning inventories?
Skippy Ltd reported the following current assets and current liabilities at the end of 20X1 and 20X2:a Determine, for both years (rounding to two decimal places):i the current ratio ii the quick ratio.b What conclusions can you draw from this data?
DEF Ltd has provided its bank with the following information. The bank manager did ask for a statement showing the current liabilities and assets. What are the current liabilities and assets?
The following information is available concerning Wuffalot Pet Foods Ltd:Current ratio 1.5:1 Non-current liabilities to equity ratio 0.5:1 Issued capital $150 000 Retained profits $50 000 Total assets $400 000 a What is the value of Wuffalot’s current assets?b What is the value of the non-current
Refer to the Woolworths annual financial report for 2018 in Appendix 1.a What were the two major liabilities as at 30 June 2018?b Calculate the following ratios for Woolworths (consolidated accounts):i current ratio ii quick ratio iii gross profit margin iv debt to equity.
Explain the relevance of sources external and internal to the business in the analysis of financial statements.
When comparing similar entities, what steps need to be taken to make the comparisons meaningful?
What are the limitations to analysis that are inherent in the accounting data we are using?
How would you measure financial risk in the short and long term?
What other parts of the annual report would you use in your analysis?
What factors do we need to take into account in order to put a financial analysis in context?
The advantages of high gearing occur when the cost of interest is below the return on assets. Shareholders benefit when this is the case. Interest on debt is tax-deductible while dividends are not.Disadvantages relate to the risk of highly geared companies going bankrupt when interest rates
Working capital is the amount that is left when current liabilities are subtracted from current assets. In order to effectively operate a business, it is important to have adequate working capital. Many new businesses fail to properly plan for the working capital required to pay bills, offer credit
The forms of short-term finance discussed in this chapter are as follows:– Trade credit – where the company benefits from buying goods on credit.– Factoring – selling receivables to another company and obtaining cash immediately.– Bank overdraft – short-term borrowing from a bank or
It is important to match the type of finance with the purpose of raising that finance because this will provide the greatest benefit to the business, and the least risk. Companies should borrow short-term finance for short-term investments and long-term finance for long-term investments. For
Accounts payable (creditors) are sums owing at a point in time, the amounts of which are known. A provision is a liability of uncertain timing or amount. Accruals are liabilities to pay for goods or services that have been received or supplied but have not been paid, invoiced or payment formally
A new retail company is considering potential damages it may be required to pay as a result of potential injuries to customers. It is considering self-insurance and has sought your advice as to the potential impact on its financial statements.a Explain the impact on the financial statements of the
Even though off-balance sheet items are not required to be reported on the balance sheet, the vast majority of items are legitimate.The problem arises when off-balance sheet items involve dealings with questionable entities, such as offshore
Ben was planning to open a fish and chip shop. He has produced the following projections for the first year, based on his experience of this type of business and some careful research:Sales 36 000 Cost of 10-year lease 30 000 Refurbishment 3 000 Equipment 20 000 Rent 2 000 Electricity 900 Wages 8
Read the then Australian Stock Exchange (ASX) company announcement ‘New listing statement in relation to working capital’.Discuss why the company would be requested by the ASX to give such a report. Why is working capital so important?
A friend has been to see the bank manager about borrowing some money to finance the acquisition of a new van and a new machine. The bank manager has said that, in view of the current financial structure of the company, the bank would not be prepared to provide funds unsecured. The latest balance
Below is a brief balance sheet for ABC Ltd. You are a bank manager and ABC Ltd has approached you for a loan to expand its business. ABC Ltd makes chocolate products and has sales of approximately $300 000 per annum. What questions need to be asked before the loan is given or refused?
‘The sub-prime lending crisis caused a meltdown in financial markets around the world and credit markets closed down as banks became increasingly reluctant to lend to other banks. Consequently, debt and equity funds became more difficult to access.’ Explain the meaning of this statement and
Bettause Ltd, maker of plastic mouldings, wishes to expand its business and will need additional capital to do so. A bank has offered the following options:a an overdraft with an interest rate set at 4 per cent above bank rate (the present bank rate is 8 per cent)b a term loan with an annual
Winjet Ltd is a small coastal aircraft operator normally taking on charter work. In a bid to expand its business it wishes to purchase a second-hand Gulfstream jet for $10million. Winjet does not have the funds to make a cash purchase and has approached a business broker to find the funds for the
XYZ Ltd wishes to acquire a new widget machine. The machine costs $30 000 and is expected to have a useful life of five years and no residual value. As it is short of liquid funds, the company has approached a finance broker for help. It is offered two alternatives:a a loan of $30 000 with an
On 1 January 20X4 the Widget Company acquires a piece of equipment which costs $40 000 and has an estimated life of four years with no residual value.The equipment is to be written off at 25 per cent per annum, straight-line. Assume the operating profit for the next four years is $100 000 per annum
ABC Company depreciates its equipment at 20 per cent per annum, straight-line. The company is allowed, for tax purposes, to depreciate at 25 per cent per annum. Assume the company purchases an item of machinery for $100 000 on 1 July 20X3.Assume a tax rate of 30 per cent and an accounting profit of
Net bike purchases for the year amounted to $2 975 345 and the balance of accounts payable on 31 December was $200 376. What was the balance of accounts payable as at the beginning of the year on 1 January?
Big Bikes makes all bike purchases on credit. For the year ending 31 December accounts payable paid amounted to$3 000
In each of the following situations, describe the way the transactions would be dealt with in the sole proprietor’s financial statements and identify, where appropriate, the effect on the statement of comprehensive income and the balance sheet.a Applied for a bank overdraft.b Granted a bank
Accruals are sums owing at a point of time, the amounts of which are not known with certainty. How would you estimate the liability for the following, and what points need to be considered?a electricity b council rates c telephone d water rates e income taxes.
Refer to the Woolworths 2018 financial report in Appendix 1 and answer the following in relation to the consolidated amounts.a What is the value of trade and other payables?b Calculate what percentage of total liabilities is made up by trade and other payables.c What are the total liabilities in
What is a debenture?
How does a hire-purchase agreement differ from a lease?
What information is a bank likely to require before granting an overdraft to a business?
Explain what is meant by equity finance and how it varies according to the type of business organisation using it.
What is a lease? Give an example.
What form of security is required for each of the forms of short-term finance discussed in this chapter?
What are the main differences between equity and debt finance?
In your own words, describe what accounts payable (e.g.trade creditors) are and when they occur.
Identifiable intangible assets relate to special items like patents, copyright, brand names or trademarks. Unidentifiable assets relate to factors referred to as goodwill, such as a good reputation, good management and a good location.
Because of the effects of changes in other factors, such as the price of the asset, it is unlikely that depreciation will provide for the replacement of a non-current asset. This will mean that the cost of replacement is greater than the original cost.However, it should be borne in mind that the
a Average cost b FIFO c Average cost d FIFO
Earnings management occurs when people use their judgement in relation to financial reporting and the structuring of transactions to achieve particular financial outcomes. The objective may be to influence the perceptions of stakeholders about the underlying economic performance of the company
Two brothers are planning to start a bakery with a store in Melbourne and one in Sydney. They are contemplating the purchase of two stores currently owned by the same company and used as retail outlets for shoes. For this reason, the buildings and fixtures for both shops have the same cost,
A business which manufactured office equipment sold approximately 30 per cent of its products (in dollar volume)and leased the rest. On average, the equipment was leased for five years. The initial cost of the leased equipment was recorded as an asset and was depreciated over the five years. The
Kent Pty Ltd purchased a new machine for its manufacturing plant. While it was clear that both the invoice price of the machine and the transport costs of bringing the machine to the manufacturing plant should be brought to account, there was some uncertainty surrounding the treatment of the
Multiplex Ltd used its own construction crew to extend its existing factories. What would be the most appropriate accounting treatment for the following?a Architects’ fees b Cost of debris removed during construction, following a storm c Cash discounts received for payment of materials purchased
Elvin Company began operations in 20X2 by selling a single product. Data on purchases and sales for the year are as follows:On 3 January 20X3 the president of the company, Robert Bilbo, asks for your advice on costing the 4000-unit physical inventory that was taken on 31 December 20X2. Moreover,
Joan Robbins, the owner of Joan’s Fishing Tackle Shop, marks up the goods in her shop by 30 per cent. Figures for the past financial year, 20X0, are outlined below:$ $Sales 1 550 000 Less Cost of goods sold Opening inventory 168 000 Purchases 1 218 000 1 386 000 Closing inventory 178 500 1 207
Ultra Conservative Ltd is a small credit union with total assets of $50 million, most of which is made up of loans to members, amounting to $46 million. The following selected data relates to the credit union’s first three years.The credit union commenced operations on 1 November 20X1, and by 31
Examine the data on loans and delinquent loans (bad debts) as a percentage of total loans for credit unions and answer the questions below:Asset quality Delinquent loans/total loans Credit union size 20X1 20X2 20X3 20X4 20X5 20X6 Less than $5m 4.79% 3.97% 3.73% 3.76% 3.58% 3.74%$5m to < $10m 3.27%
The plane’s owner agreed to finance the fuel and staffing costs of the tour. During December 20X0, the travel agency sold all of the seats on the plane to passengers for $180 000 in cash. As an advance payment, the Fun Travel Agency paid $30 000 to the plane’s owner.Required Of the $180 000
Fun Travel Agency chartered an aeroplane to tour the Kimberley region for the week commencing 14 February 20X1, at a cost of $150
The equipment was used for 7500 hours during 20X2, 6000 hours in 20X3 and 4500 hours in 20X4.Required Determine the amount of depreciation expense for the years ended 31 December 20X2, 20X3 and 20X4 by:a the straight-line method b the units-of-output method c the reducing-balance method, using
The equipment was expected to have a useful life of three years, or 18 000 operating hours, and a residual value of $25
The Digitup Company purchased mining equipment on 3 January 20X2 for $340
Bazchem bought a machine to produce widgets from Allchem in the USA. The cost of the machine was US$75 000(AUD$1 was worth US50 cents at the time of payment), shipping was US$5000 and insurance to cover all risks from the US factory to Sydney wharf was US$1000. Bazchem paid for these three items
In each of the following situations, discuss the most appropriate method of depreciation, giving reasons for your choice:a land and buildings. The land was purchased for $300 000, and $400 000 was spent on the erection of the factory and office accommodation.b motor vehicles. The business owns a
Using a worksheet, draw up the balance sheet and statement of profit or loss and other comprehensive income for the business whose transactions are set out below:– Month 1: Bert put in $9000 of his own money and transferred his own car into the name of the business. At the time of the transfer,
A lawyer received $20 000 from a client on 1 August 20X0 as a retainer. In return, the lawyer agreed to give legal advice whenever required by the client for a year. Neither the lawyer nor the client knew at this stage when such advice would be sought, if indeed it would be sought at all. Of the
What was the balance of accounts receivable on 31 December 20X8?
Net credit sales in 20X9 totalled $1 022 111 and the balance of accounts receivable on 31 December 20X9 was $187
The vehicle was estimated to have a useful life of six years, after which time it could be traded in for $2000.a What was the amount in accumulated depreciation at 31 December 20X5 using the straight-line method?b If the vehicle was traded in for a new one after three years for $11 500, was there a
A vehicle was purchased on 1 Jan 20X0 for $23
On 1 June 20X0 Billy Bond paid $6000 into a business bank account as capital for his new business. The business bought and sold artwork from impoverished artists. Billy marked all merchandise up by 100 per cent on cost. During June, the following transactions were made.Required a Discuss how each
One of the items sold by Bodybuild, a sporting goods company, is cricket bats. One such bat, ‘the Humdinger’, sells well.Beginning inventory, purchases and sales for this item for the month of December were as follows:Required Calculate, using FIFO, the total cost of sales for each sale day and
In each of the following situations, describe the way that the transaction would be dealt with in the accounts of the business and identify, where appropriate, the effect on the balance sheet, the statement of profit or loss and other comprehensive income and the statement of cash flows:a purchase
Toyshop Ltd makes approximately 50 per cent of its sales on credit. Credit sales for six months are as follows. (Assume credit sales are made evenly over each month.)Toyshop gives a 2 per cent discount for those debtors that pay within 15 days. On average, 45 per cent of Toyshop customers pay
Refer to the Woolworths 2018 financial report in Appendix 1.a What is the value of trade and other receivables?b What is the value of inventory?c What is the value of property, plant and equipment? What is the value of property only?
What main categories of inventory are likely to be held by a manufacturing business?
Explain what is included in inventory.
Why is it necessary to value inventory at the lower of cost and net realisable value?
Explain what is meant by the term ‘intangible asset’ and give examples.
An expense has been described as a past or expired benefit. In what way does depreciation differ from other expenses?
How does accounts receivable affect the statement of profit or loss and other comprehensive income?
Discuss the difference between the direct write-off method and the allowance method for writing off bad and doubtful debts.
Why is it necessary to identify accounts receivable?
This transaction would not appear in the statement of cash flows as there is no cash involved. However, it would be reported as a non-cash investing transaction after the statement of cash flows.
The statement of cash flows is based on movements in cash while profit is based on accrual accounting principles (i.e.revenues and expenses are recognised when they are earned or incurred, not when the cash is received or paid).
The statement of cash flows is included in financial statements because it is cash, and not profits, that the entity requires in order to meet its debts. Profitability alone does not ensure that an entity has sufficient cash to be solvent.
The directors of Kowloon Enterprises Ltd are concerned about the results of trading activities reported for the year ended 30 June 20X6, and failure to keep within the limit of the bank overdraft ($12 000)Required a What factors have contributed to this cash problem?b What steps would you recommend
The following statement of cash flows is available for the Bee Pee Company:Required Analyse the statement of cash flows for Bee Pee. What changes to the cash management policies would you recommend to the company? Should the company continue to pay a dividend? 20X0 $m 20X1 $m Cash flows from
All other figures are correct, except the cash balance at the end of the year.
List the errors you find in the following statement of cash flows. The cash balance at the beginning of the year was$70
In an article published in the Business News Western Australia, the following statement was made:SMALL business owners overwhelmingly cite cash flow as their number one concern; many are regularly caught unaware by cash flow shortages, a situation that severely restricts their ability to grow their

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Contemporary Accounting A Strategic Approach For Users 10th Edition Phil Hancock, Peter Robinson, Mike Bazley - Solutions

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