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

Required: A. Calculate the following ratios for 2016. The industry average for similar businesses is shown. (6 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. (4 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? Discuss. (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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