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Accounting provides much information to help managers make economic decisions in various workplaces

Question 1 Total marks for Q1. (20 marks) Financial statements of Nimbin Pty Ltd are presented below: Nimbin P/L Statement of Financial Position As at 30 June 2013 and 2014 ($000) 2014 2013 Current assets Cash and cash equivalents $1,645 $2,110 Accounts receivables (all trades) 4,100 3,675 Inventories 7,000 6,930 ______ _____ Total current assets 12,745 12,715 ______ ______ Non-current assets Property, plant and equipment 17,190 15,330 _______ ______ Total non-current assets 17,190 15,330 _______ _______ Total assets $29,935 $28,045 ======= ====== Current liabilities Payables $5,780 $5,990 _______ ______ Total current liabilities 5,780 5,990 _______ ______ Non-current liabilities Interest-bearing liabilities 9,940 9,450 _______ _____ Total non-current liabilities 9,940 9,450 _______ _______ Total liabilities $15,720 $15,440 ====== ====== Equity Share capital $7,700 $7,700 Retained earnings 6,515 4,905 _______ _______ Total equity $14,215 $12,605 ====== ====== Nimbin P/L Income Statement As at 30 June 2014 ($000) Revenues (net sales) $55,000 Less: cost of sales 35,100 _______ Gross profit 19,900 _______ Less: Expenses Selling and distribution expenses 7,100 Administrative expenses 4,970 Finance costs 1,560 ______ Total expenses 13,630 ______ Profit before income tax 6,270 Income tax expense 1,908 ______ Profit $4,362 ===== Nimbin P/L Statement of changes in Equity For the year ended 30 June 2014 ($000) Share capital Ordinary (7,200.000 shares) Balance at start of period $7,200 ______ Balance at end of period 7,200 _______ Preference (250,000 shares) Balance at start of period 500 ______ Balance at end of period 500 ______ Total share capital $7,700 ====== Retained Earnings Balance at start of period $4,905 Total income for the period 4,362 Dividends paid – ordinary (2,702) Dividends paid – preference (50) ______ Balance at end of period $6,515 ====== Additional information: Payables include $5,620 (2014) and $5,730 (2013) trade accounts payable; the remainder is accrued expenses. Market prices of issued shares at year-end (2014): Ordinary $12; Preference $6.70.


Required: A. Calculate the following ratios for 2014. The industry average for similar businesses is shown. (14 marks) Industry average 1. Rate of return on total assets 22% 2. Rate of return on ordinary equity 20% 3. Profit margin 4% 4. Earnings per share 45c 5. Price-earnings ratio 12.0 6. Dividend yield 5% 7. Dividend payout 70% 8. Current ratio 2.5:1 9. Quick ratio (acid ratio) 1.3:1 10. Receivables turnover 13 11. Inventory turnover 6 12. Debt ratio 40% 13. Times interest earned 6 14. Assets turnover 1.8 B. Given the above industry averages, comment on the company’s profitability, liquidity and use of financial gearing. (6 marks) Question 2 Total marks for Q5. (10 marks) a) A local restaurant is noted for its fine food, as evidenced by the large number of customers. A customer was heard to remark that the secret of the restaurant’s success was its fine chef. Would you regard the chef as an asset of the business? If so, would you include the chef on the balance sheet of the business and at what value? (2 MARKS) b) Accounting provides much information to help managers make economic decisions in their various workplaces. You are required to provide examples of economic decisions that the following people would need to make with the use of accounting information: (3 MARKS) â–¡ A manager of human resources â–¡ A factory manager â–¡ The management team of an Australian Football League (AFL) club â–¡ The manager of a second-hand clothing charity c) Indicate the effect of each of the following transactions on any or all of the three financial statements of a business: (5 MARKS) 1. Statement of financial position 2. Statement of financial performance 3. Statement of cash flows Apart from indicating the financial statements (s) involved, use appropriate phrases such as ‘increase total asset’, ‘decrease equity’, ‘increase income’, ‘decrease cash flow’ to describe the transaction concerned. 1. Purchase equipment for cash. 2. Provide services to a client, with payment to be received within 40 days. 3. Pay a liability. 4. Invest additional cash into the business by the owner. 5. Collect an account receivable in cash. 6. Pay wages to employees. 7. Receive the electricity bill in the mail, to be paid within 30 days. 8. Sell a piece of equipment for cash. 9. Withdraw cash by the owner for private use. 10. Borrow money on a long-term basis from a bank.

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