Assessment Information – Trimester 3, 2015

Assessment Information – Trimester 3, 2015
3 Trimester 2015 – ASSIGNMENT
Page 2 of 4
QUESTION 1 (3 x 10 marks each = 30 marks)
Consider the following independent situations:
A. Laura Prebble, the owner-manager of a small business, had carefully monitored her cash position
over the past financial year, and was pleased to note at the end of the year that the cash position was
strong, and had shown a healthy 50% increase over the year. When presented with the income
statement for the year, she was dismayed to note that the profit earned in the last year had deteriorated
significantly and had become a loss for the current period. In her anger, she accuses you of having
made errors in the accounting since ‘such a silly situation could not possibly exist’.
REQUIRED: Draft a response to Laura.
B. Wayne Deng is reviewing the statement of cash flows for his technology business. The statement
has been provided by his accountant. He is dismayed that the statement shows net cash outflows for
investing activities.
REQUIRED: Discuss if Wayne should be concerned by this.
C. After calculating the current ratio for an entity and finding that the ratio’s value was 5:1, a student
analyst decided that the company was in a sound position for paying its liquid liabilities.
REQUIRED: Discuss the shortcomings of making such a conclusion.
BUS 103 Accounting for Managers
3 Trimester 2015 – ASSIGNMENT
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QUESTION 2 (15 + 10 = 25 marks)
The financial statements for the business of Trinh’s Nail Supplies for the past two years are presented
below.
TRINH’S NAIL SUPPLIES
Comparative Income Statements: for the year ended 30 June
2016 2017
Sales $ 400 000 $ 500 000
Cost of sales 350 000 458 000
Gross profit 50 000 42 000
Interest income 1 000 2 000
Loss on sale of fixtures — 800
51 000 43 200
Office supplies used 10 000 11 000
Other expenses 29 000 29 000
39 000 42 000
Profit $ 12 000 $ 3 200
TRINH’S NAIL SUPPLIES
Comparative Statements of Financial Position as at 30 June
2016 2017
ASSETS
Cash at bank $ 4 400 —
Accounts receivable 42 000 $ 60 000
Inventory 80 000 40 000
Office supplies 2 000 5 000
Freehold property 60 000 80 000
Fixtures 40 000 46 000
Accumulated depreciation – fixtures (16 000) (20 200)
Investments 6 000 16 000
$ 218 400 $ 226 800
LIABILITIES AND EQUITY
Bank overdraft — $ 4 000
Accounts payable $ 26 000 40 000
Trinh, Capital 192 400 182 800
$ 218 400 $ 226 800
Additional information
I. All purchases and sales of inventories are on credit. All purchases of office supplies are for cash.
II. The bank overdraft is considered to be part of the entity’s cash management function.
III. During the year ended 30 June 2017, the owner, Trinh, withdrew $12 800 in cash for personal use.
IV. The entity sold some fixtures for $1200 cash during the current year. These fixtures initially cost
$4200 and had been written down to a carrying amount at the date of sale of $2000.
V. Depreciation of fixtures has been included in ‘other expenses’ for the year ended 30 June 2017. All
remaining other expenses were paid in cash.
REQUIRED:
A. Prepare the statement of cash flows for Trinh’s Nail Supplies for the year ended 30 June 2017,
using the direct method.
B. Comment on the cash flow position of the entity as shown in the statement of cash flows.
BUS 103 Accounting for Managers
3 Trimester 2015 – ASSIGNMENT
Page 4 of 4
QUESTION 3 (18 + 4 + 3 = 25 marks)
The following information relates to the business of Chef One. The owner is concerned about the
profitability and financial structure of his business at 30 June 2017, especially since the bank is
requiring repayment of the business’s overdraft.
30 June 2017 30 June 2016
Revenue (sales on credit)
Cost of sales
Other expenses
Cash and cash equivalents
Inventories
Trade accounts receivable (net)
Non-current assets (net)
Trade accounts payable
K. Pastry, Capital
Non-current liabilities
$140 000
99 500
36 500
(32 000)
54 500
50 000
77 000
18 500
108 000
23 000
$105 000
68 500
28 000
28 000
37 000
28 000
46 000
19 000
120 000

Inventory at 1 July 2016 was $22 500.
REQUIRED:
A. Calculate the following ratios for 2016 and 2017:
i. profit margin
ii. return on capital
iii. current ratio
iv. quick ratio
v. equity ratio
vi. inventory turnover
B. Write a short report to the owner in relation to the profitability and financial stability of the
business.
C. Identify the cash flow ratios that would be useful to calculate to assist the owner to more fully
understand the financial health of the business.