Explain whether the following statements are true or false for an entity using the accrual method of accounting.
(a) Statements of profit or loss are used only by users external to the entity.
(b) Revenue from sales is included in the statement of profit or loss when it is received, not when it is earned.
(c) At the end of a reporting period, accrued expenses need to be included in the profit or loss determination.
(d) At the end of a reporting period, revenue received for services not yet provided needs to be excluded from the profit or loss determination.
> Discuss the difference between profit or loss and comprehensive income.
> Compute the cash from operations in each of the following cases (A and B). All sales and purchases have been made on credit. Sales revenue Depreciation expense Cost of sales Other expenses Dividends paid Increase/(decrease) in: Inventories Accounts r
> Consider the following transactions. • Credit purchases, $12 000. • Cash paid to suppliers, $16 000. • Credit sales, $21 000. • Cost of sales, $15 000. • Cash payme
> In what section of the statement of cash flows (operating, investing or financing) would each of the following items appear? (a) Cash paid to employees. (b) Cash received from debentures. (c) Payment of income tax. (d) Gain/loss from sale of motor vehicl
> Three sisters formed a partnership, FreshGlow, to sell skincare products made from organic ingredients. They have been operating for one year. The bank balance at the end of the year is $34 500. A summary of business transactions is as follows. Sales to
> The following ledger account shows the transactions in an entity’s cash account during the month. Required Prepare a statement of cash flows based on the cash account. Opening balance Receipts from customers Dividends received Sale
> Outline the difference between cash and accrual bases of accounting.
> List four ratios that could help evaluate an entity’s cash adequacy, liquidity, solvency and profitability.
> Outline the difference between the direct method and the indirect method of reporting cash flows. Why is it necessary to present the cash flows using both methods?
> Choose the correct response. The primary purpose of a statement of cash flows is to provide relevant information about: (a) An entity’s ability to meet future obligations. (b) The differences between profit and associated cash receipts and payments. (c)
> Fill in the blanks in the following statement by choosing the words from those in brackets that best complete the statement. Changes in non-current liabilities and equity would usually be classified as cash flows from (operating, financing or investing)
> The accountant for Roadrunner Food Services is preparing its cash budget for November and December 2021. The accountant, Ross Leon, has collected the following information regarding expected credit sales and expected purchases of inventory on credit. Ro
> The ASX convened the ASX Corporate Governance Council (ASXCGC) in August 2002. It was prompted by suggestions from ASIC and government that ASX take a leadership role in formulating a non-legislative response to the corporate governance issues arising fo
> Review the following quote from Colquhoun (2013). Investors assessing the recent reporting season of publicly listed companies will base their opinions of corporate performance largely on a handful of key numbers, all expressed in dollar terms and all de
> The 2017 statement of profit or loss (referred to as consolidated income statement) for Wesfarmers is provided below. Required Using the above information, answer the following questions. (a) Give an example of an expense that would be included in each
> In its 2018 annual report, Qantas Airways referred to ‘underlying profit’ and ‘statutory profit’. Identify the differences in these profit figures. Debate the merits of reporting non-statutory profit figures.
> Depreciation expense is an allocation of the cost of an asset over the asset’s useful life. Entities assess the useful lives of their various assets. The notes to the accounts for two airlines reveal the following variation in useful-li
> Groupon is a US company with a deal-of-the-day website that features discounted gift certificates usable at local or national companies. Since its formation, it has faced a number of questions relating to its accounting practices. Here are two examples o
> Jim St Cloud operates a wholesale clothing operation called St Cloud’s Designs. All the sales and purchases of the business are made on credit. The opening and closing balances for accounts receivable, inventory and accounts payable are
> The International Accounting Standards Board (IASB) and the US accounting standard–setting board worked on a joint project to develop a new standard on revenue recognition. Podcasts summarizing the project are available on various websites including that
> True Blue Ltd is reviewing its accounting policies and estimations. Detailed below are its current policies and estimations. Using these current policies, the company’s calculated profit figure is $840 000. What would True Blue Ltd&acir
> Samsung Group upholds a belief in shared responsibility — to its people, the planet and society. Samsung Electronics produces a sustainability report that includes the company’s profiles as well as its economic, environmental and social performance indic
> Commentary in Decore Ltd’s yearly summary FY18 notes: Our net profit remained the same as in FY17, the main reason being the contribution we made to our co-worker loyalty program, Give ($100 million), as well as the growing number of co
> Locate the most recent annual financial statements for Samsung Group from its website. Examine the information in the report and answer the following questions about Samsung Group’s statement of changes in equity. Required (a) Identify and state Samsung
> Note 1(d) of JB Hi-Fi Ltd’s 2018 (p. 60) notes to the financial statements states: Estimates and judgements used in the preparation of these financial statements are continually evaluated and are based on historical experience and other factors, includin
> Jacinta Williams had prepared the financial statements for her business, a sole proprietorship, to take to her accountant. Unfortunately, she has misplaced the statement of profit or loss. Her accountant assures her that the profit or loss for the period
> Generate the adjustments needed to the income, expense, asset and/or liability accounts for Board Games Pty Ltd to reflect the following transactions in the entity’s financial statements for the 12-month reporting period ended 31 December 2019 using the
> On 31 December 2018, Narvey Horman sold whitegood appliances to a customer for $8000. The customer paid cash for the whitegoods. Narvey Horman includes a three-year warranty service with the sale of all its whitegoods. Required (a) Explain Narvey Horman
> The following are the revenue recognition policies of Flight Centre Travel (FLT) Group as detailed in the company’s 2017 annual report (pp. 47, 103–104). Accounting policy The group recognises revenue when: • The amount of revenue can be reliably measure
> Beatrice has prepared a statement of profit or loss for the 12-month reporting period ended 30 June on a cash basis, showing a $64 800 profit. The cash-based statement shows the following. Sales ……………………………………………………………………. $416 100 Inventory purchased ……
> The statement of profit or loss for JB Hi-Fi Ltd for the financial year ended 30 June 2018 was provided in figure 6.2. It reports that JB Hi-Fi Ltd increased its gross profit from $1230.5 million in 2017 to $1470.2 million in 2018. Its profit for 2018 wa
> You are the assistant accountant at Sunshine Plantations Pty Ltd and have prepared the following statement of profit or loss for the year ended 31 December 2021. SUNSHINE PLANTATIONS PTY LTD Statement of profit or loss for the year ended 31 December 2021
> ‘The profit represents the increase in the value of an entity during the reporting period.’ Critically evaluate this statement.
> The consolidated statement of cash flows for CSR Ltd for the year ended 31 March 2018 is presented below. Required (a) What information does the statement of cash flows provide? (b) Outline the two different methods of preparing the statement of cash fl
> A list of account balances for Mr Tanner’s business Robotics at the end of the 30 June 2020 reporting period is shown below. Prepare the statement of profit or loss for the reporting period, and the equity balance at the end of the year. …………………………………………
> The following information was obtained from the financial records of Broadbeach Ltd for the year ended 30 June 2018. Prepare the statement of profit or loss for the year ended 30 June 2018. …………………………………………………………………………………………………………………. $’000 Retained earn
> Myer shares slumped when the department store posted a 23.1 per cent slide in profit for the first half of the 2014–15 year. Myer’s profit was mostly hit by a 24-basis-point fall in gross profit margin and a 6.2 per cent increase in the cash cost of doin
> The accountant at AppsGalore, a technology business, has determined that the following adjustments should be made in the entity’s accounts for the year ended 30 June using an accrual-based system. 1. Income earned but not invoiced totalling $21 000. 2. U
> (a) Compare the adjustments necessary on the accounts (income or expense only) of Peter Burrows to reflect: (1) A cash-based; and (2) An accrual-based accounting system (assume the accounting period is for 12 months ending on 31 December 2018). (i) Accru
> In its first year of operation, Harrington Pty Ltd earned $150 000 in services revenue, $30 000 of which was on account and still outstanding at the end of the reporting period. The remaining $120 000 was received in cash from customers. The company paid
> Categorise each of the following expenses into one of the expense types listed at the heads of the columns. Purchases Depreciation of office equipment Sales commission Interest expense Lease charges Sales staff salaries General staff salaries Adverti
> You have just completed the statement of profit or loss for the reporting period. The CEO (who has no accounting background) is reviewing the statement and asks you to explain why the profit is relatively low compared to the increase in the cash at bank
> Using the information relating to Coconut Plantations Pty Ltd in 6.20, recalculate the depreciation expense to be recorded in the statement of profit or loss for the year in which the machine was purchased and the subsequent year using the diminishing ba
> Coconut Plantations Pty Ltd purchased machinery for its manufacturing process on 1 March 2019. The machinery cost $900 000. Coconut Plantations Pty Ltd estimates that the machinery has a useful life of five years and will have a $75 000 residual value. U
> JB Hi-Fi Ltd’s 2018 annual report includes governance, environmental and social statements, and notes that the company recognises the importance of all these matters to its shareholders, suppliers and customers. Putting this into practice, JB Hi-Fi Ltd d
> Solve the missing items for each independent case. The cost of sales is 60 per cent of sales revenue for each case. Sales revenue 180 000 d. 204 500 875 000 m. Cost of sales a. 102 000 g. j. 66 000 Other expenses b. e. 115 000 k. 32 000 Profit 40 000
> (a) Classify the following as either accounting policy choices or accounting estimations. (i) Impairment of assets. (ii) Employee benefits (long service leave). (iii) First in, first out (FIFO) method of costing inventory. (iv) Depreciation method of mot
> Consider each of the following transactions and examine whether they satisfy the expense definition criteria under the accrual method of accounting. (a) Paid salaries owing from the previous reporting period. (b) Owner withdrew money to purchase a motor
> Consider each of the following transactions and examine whether they satisfy the income definition criteria using the accrual method of accounting. (a) Received cash for services to be provided in the next reporting period. (b) Borrowed money from a bank
> Describe the users who would be interested in the financial position and performance of an entity and explain their interest.
> Outline the importance of strategic planning.
> For the budgets you identified in 9.8 above, discuss the type of information provided in each budget and who in the entity would provide such information.
> State the different types of budgets that may be prepared to construct the master budget.
> Explain why the sales budget is often referred to as the ‘cornerstone’ of budgeting.
> Outline six ways to increase cash inflow during periods of cash shortages identified in a cash budget.
> Explain why it is important to link operational budgets to strategic plans.
> Explain the difference between profit or loss, gross profit and EBIT.
> Discuss the benefits to an entity in preparing a budget for the coming financial year.
> Explain the benefits of preparing a cash budget for an entity.
> Differentiate between authoritarian and participative styles of budgeting.
> What does a favourable variance indicate?
> Explain the main steps in the budgeting process.
> What is a chart of accounts and what is its role in the budgeting process?
> Discuss the differences in the type of budgets applicable for a manufacturer compared to a service provider.
> Earnings before interest and tax (EBIT), rather than profit, is sometimes used as the numerator in the ROA. Discuss the rationale for using EBIT rather than profit.
> The working capital ratio for Butler Business has progressively increased from 1.2 times to 3.0 over the past three years. Discuss whether this trend is favourable.
> Identify what ratios a bank lender would be particularly interested in.
> Explain the difference between income and revenue.
> When calculating the return on asset ratio, the average asset balance is used as the denominator. When calculating the debt ratio, the year-end asset balance is used as the denominator. Explain the rationale for using average asset figures for some ratio
> Read the following extract (Cavanagh, Saunders & Pritchard 2015) about how New South Wales winemakers have maintained their profitability. Maintaining premium wine prices and reacting to trends similar to the latest ‘handbag’ are some of the ways the win
> Standard & Poor’s (S&P) (2018), one of the leading credit rating organisations and a publisher of financial information and research services, identifies its debt rating process as follows. S&P undertakes quantitative and qu
> Your friend has $5000 to invest in the stockmarket and is deciding between an investment in Bamboo Ltd or Panda Ltd. In the most recent reporting period, Panda Ltd made a profit after tax of $1 500 000, compared to Bamboo Ltd’s after-tax profit of $750 0
> Debt collection companies Credit Corp Group and Collection House have reported uplifts in revenue and profits for 2015 suggesting that the debt collection market is flourishing. Speaking about Credit Corp Group’s results, chief executive officer Thomas
> Qantas Airways integrates a sustainability report with its annual review. Locate the most recent sustainability report to address the following questions. The reports can be located at www.qantas.com.au. (Select ‘Investor Centre’, then ‘Annual Reports’ a
> The following financial ratios and information relate to Starbucks Corporation for the period 2008 to 2017. Required (a) Represent the 2017 horizontal analysis of the asset section of the statement of financial position in a pie chart and comment on Sta
> The following financial statements were prepared for the management of Back2Basics Ltd. The statements contain some information that will be disclosed in note form in the general purpose financial statements (GPFS) to be issued. BACK2BASICS LTD Statement
> Lincoln Indicators professes nine golden rules for successful sharemarket investing. The golden rules relate to financial health, management assessment, outlook/forecast, share price value, share price sentiment, liquidity and size, principal activities
> The following table provides a historical summary of key financial ratios for Homer Corporation. Required (a) With reference to the appropriate ratios, analyse the trend in Homer Corporation’s profitability, providing plausible reasons
> If an entity uses an asset evenly over its useful life, predict the method of depreciation the entity would use.
> The treasurer of Reality Ltd has recently developed a computer model to help in the prediction of profits, statement of financial position and cash flows. By entering the expected sales figure and the value of various other parameters, the model will pri
> The following values relate to various ratios for an outdoor adventure clothing store for the most recent year. At the end of the year, total assets as per the statement of financial position were $900 000. The ratios relate to the accounts either in res
> Visit the Yahoo! Finance website (http://au.finance.yahoo.com) and call up information on JB Hi-Fi Ltd (symbol: JBH.AX). (a) Identify JB Hi-Fi Ltd’s current share price (day 1), the previous day’s share price (day 0) and the share price return from day 0
> Read the following quote and discuss what you think Fridson and Fernando (2002) mean by ‘passively calculating standard ratios’. Corporations have substantial incentives to exploit the fact that accounting principles are neither fixed for all time nor so
> Users are interested in an entity’s future profitability, asset efficiency, liquidity and capital structure. Describe the ratios that would be of interest to users and the purpose of computing these ratios.
> Summary information from the 2021 statement of profit or loss of Coconut Plantations Pty Ltd is provided below. Sales revenue ………………&a
> The statement of profit or loss figures for the past five years for Victorian Manor are presented below. Using the information: (a) Prepare a trend analysis and comment on the trends (b) Prepare a vertical analysis (using revenue as the base amount) and
> Fit and Fantastic Ltd produces and sells a range of fitness equipment. Its capital expenditure for the current year for new plant was $600 000 and dividends paid were $80 000. Current liabilities and non-current liabilities were $112 000 and $1 400 000 r
> You have been given the following information regarding an entity. One of your friends is interested in investing in it. Help your friend by calculating some cash-based ratios, explaining what the ratios are measuring. Cash from operating activities …………
> It is important for businesses to have efficient processes and systems in place for collecting monies from debtors. The business and industry portal of the Queensland government (www.business.qld.gov.au/business) contains advice for offering credit and m
> Items of income and expenses may be included in the statement of profit or loss only if they can be measured with certainty. Discuss.
> The market performance ratios for Unicycle Ltd are presented next. Calculate the entity’s dividend payout ratio, interpret the ratio and explain why an investor would be interested in this ratio. Comment on Unicycle Ltdâ€
> The following table reports various financial ratios for Qantas and Virgin for 2018. (a) Given that the companies operate in the same industry, write a report explaining what the ratios suggest about the companies’ operating, financing
> An entity has $660 000 of assets, including current assets of $180 000. The following information has also been ascertained about the entity. • The two owners have contributed $150 000 each. • The entity has always distributed all the profits via a famil
> Selected information for two companies competing in the catering industry is presented below. Required (a) Analyse and compare the liquidity, solvency and profitability ratios of the entities. (b) From your calculations in part (a), explain which entity
> The statement of financial position and the statement of profit or loss for Protocol are presented below. (a) Calculate the: (i) Current ratio (ii) Return on assets (use year-end figures) (iii) Return on shareholders’ funds (ownerâ
> Grammar Ltd reports the following information. From this information, calculate and interpret the following ratios (year-end figures have to be used because the comparative year figures are not available) and prepare a report on the financial position a
> Coconut Plantations Pty Ltd’s financial records reveal the following as at 30 June 2021. Net sales (all credit) …………………………………………….. $1 675 000 Cost of sales ………………………………………………………….. 1 025 000 Accounts receivable — beginning …………………………………. 93 010 Accounts
> The statement of financial position for Ambre Ltd is presented below. Perform a horizontal analysis of the change (in absolute and percentage terms) between the year-end figures. Identify any significant variations that warrant further investigation and
> If days inventory for Fab40 retail outlet was 35 days and days creditors was 12 days, calculate what the cash cycle would be if credit sales for a year amounted to $88 000 and the average trade debtors balance at the end of the year was $33 000.
> Discuss what is meant by fundamental analysis and the role it plays in determining buy, hold and sell recommendations.