Accounting for Managers - Assignment Example

Accounting for Managers College: Name: Students ID: Date: Course Name: Unit Code: Time: Instructor: Question 1 a) Prepare a classified balance sheet as at 30th June 2014, using the narrative format. Balance Sheet of Scorpio Pty Ltd as at 30th June 2014 Item Amount ($) Amount ($) Amount ($) Current Assets Cash at Bank 75,000 Accounts Receivable 37,500 Inventory 20,000 Supplies on Hand 10,000 Total Current Assets (A) 142,500 Current Liabilities Accounts Payable 7,500 Total Current Liabilities (B) 7,500 Working Capital (A-B) 135,000 Fixed Assets Land 37,500 Fixtures 9,000 Total Fixed Assets 46,500 Long-Term Liabilities Loan Payable 7,500 Total Long-Term Liabilities 7,500 Total Net Assets 174,000 Owner's Equity Equity 174,000 Total Owner's Equity 174,000 b) Prepare an income statement for Wicked Wizard Pty Ltd, for the year ended 30th June 2014. Wicked Wizard Pty Ltd Income Statement For the Year Ended 30th June 2014 Item Amount ($) Amount ($) Sales 296,000   296,000 Cost of Sales Opening Inventory 10,000 Add: Purchases 120,000 130,000 Less: Closing Stock -13,500 Cost of Sales   -116,500 Gross Profit 179500 Expenses Selling and Distribution 50,000 Administrative 11,000 Finance 1,400 -62,400 Net Profit 117100 Question 2 List and discuss the meaning of four (4) ethical principles from the Code of Ethics, APES 110. A code of ethics is a declaration of conventional values that guide the behaviour of all members by informing them of what conduct is accepted and what conduct they should keep away from. The Accounting Professional and Ethical Standards (APES) board formulated a code of ethics in 2011 (APES 110) which comprises the ethical principles that guide the behaviour of accounting professionals in Australia. The APES 110 Code of Ethics for Professional Accountants lists the following ethical principles (1) Integrity; (2) Objectivity; (3) Professional competence and due care; (4) Confidentiality; and (5) Professional behaviour. Below I discuss the first four principles; Integrity This principle requires each and every one member of the accounting profession to be straightforward and honest in the entire professional along with business relations. Integrity too denotes fair dealing and frankness. Objectivity This principle requires each and every one member of the accounting profession not to give up their professional or business judgment due to preconceived notion, conflict of interest or undue influence of others. All members are required not to carry out a Professional Service if a situation or association biases or unduly influences the member‘s professional opinion with respect to that service. Professional Competence and Due Care This principle basically requires each and every one member of the accounting profession to observe the following two conditions: (1) Keep up professional knowledge and skill at the level requisite to certify that clients or employers are given expert professional service; and (2) Take diligent steps that are consistent with the appropriate procedural and professional standards while offering professional services. Confidentiality This principle basically requires each and every one member of the accounting profession to desist from doing the following: (1) Divulging confidential information outside the firm or employing organisation, which they may have laid their hands on as a result of professional and business relations with no apt and explicit authority or unless it is officially permitted or is a professional right or duty to disclose; and (2) Employing confidential information, which they may have laid their hands on as a result of professional and business relations to their own advantage or the benefit of third parties. Question 3 Comment on the following ratios and provide analysis on the financial health of the entity. Ratio 2014 2013 Profit Margin 6% 12% Days Inventory 120 90 Days Debtors Outstanding 85 65 Current Ratio 2.7:1 1.9:1 Profitability Profitability ratios review earnings performance relative to sales or investment. The ratios try to gauge management’s abilities along with the company’s actions by assessing their performance based on the profits generated by the business. The most common profitability ratio is the profit margin, which is the proportion of profits the company was able to spin out of the sales revenue. The profit margin in this case, declined by 50 per cent from 12 per cent in 2013 to 6 per cent in 2014. This could be due to stiff competition, poor sales, and government policy, among other factors. To improve the profit margin, the entity could diversify its business in future or promote their products. Asset Efficiency Asset efficiency ratios are measures of how well assets are made use of by a company. The ratios can be used to assess the gains produced by specific assets such as inventory, assets or debtors or all a company’s assets together. In the case presented above, the company has evaluated the gains produced from its inventory and debtors. Day’s inventory is the number of days inventory is held within the warehouse while day’s debtors outstanding in the number of days taken to collect debt payments. Day’s inventory ratio went up from 90 days in 2013 to 120 days in 2014, reporting a decline in efficiency. This could be due to manufacturing inefficiencies experienced and the company can improve its production efficiency. Also, day’s debtors outstanding went up from 65 days in 2013 to 85 days in 2014, reporting a decline in efficiency. This could be due to poor supply chain control, poor discount controls or poor debt collection. The company should improve its supply chain and discount control as well as debt collection to improve this efficiency. Liquidity Liquidity ratios evaluate the ability of the company to meet up its short-term obligations using its current assets. The current ratio compares an entity’s current assets to its current liabilities. It helps to determine how well the entity may meet its short-term obligations. In this case, current ratio declined from 1.9 times in 2013 to 2.7 times in 2014. This points to an improvement in liquidity although it could point to the entity adopting a conservative approach. The ratio is above the industrial norm of 2 times meaning that it is able to meet short term obligations. Question 4 Classify each of the following transactions into an operating, investing or financing activity. Indicate if it is a cash inflow or cash outflow. Transaction Classification Inflow/Outflow Collected $20,000 from a customer Operating Inflow Paid wages Operating Outflow Purchased a new truck Investing Outflow Owner withdrew savings Financing outflow Paid supplier for inventory Operating Outflow Paid income tax Operating Outflow Received $200,000 on sale of investments Investing Outflow Cash received for loans/borrowings Financing Inflow Owner contributed capital Financing Outflow Sold a machine Investing Inflow References Steven, M.B. (2006). Financial Analysis: A Controller's Guide. 2nd edn. John Wiley & Sons. Read More