Accounting for JB Hi-Fi and Country Road - Assignment Example

UNTING FОR JB-НI-FI АND СОNTRY RОАD TITLE OF ASSIGNMENT: COURSE CODE: NAME OF GROUP MEMBERS 1. INSTRUCTOR’S NAME: DATE SUBMITTED: I) JB Hi-Fi LTD PART A ANSWERS (50 marks) Question 1 The total current liability of the JB Hi-Fi Ltd decreased as the financial years proceeded. In the fiscal year 2010, the total current liabilities of the organization were $363,139,000. However, as at the end of the exercise of 2011, the total current liabilities decreased to $345,938,000. From financial calculations, this represents a decline in a value of $17,201,000. There are various reasons which can be used to explain the cause of the decline of the total current liabilities for the firm. The organization increased its existing borrowings as found by Agbemava et al. (2016).there was an increment in the other categories from the previous financial year. From the consolidated financial statements some types which have been indicated include the following: the current tax liabilities, the trade and also other receivables, provisions and finally the class of other current liabilities. Question 2 The primary responsibilities of the organization for the fiscal year are the trade and the other payables and also the non-current borrowings. The primary liability comprises of 49% while the latter constitutes of 38%. Overall, when the percentages of the two liabilities are summed together, they will total to 87% which represents the principal liability incurred in the company. Question 3 The items are the employee benefits and also the lease provisions (Benson, 2014). These two issues are clearly shown and indicated in note 23 of the consolidated financial statement of the annual report of the fiscal year ending 2011. It is essential to note that these two items are categorized as liabilities. The nature of these two chosen items can be termed as uncertain. They are yet to be established beyond doubt, and there is no assurance of them. It is clear that the two provisions have been satisfied the definition of requirements as expected. There has been a meaningful gain in the employee benefits by a staggering figure of $809,000 from the information provided in the annual report of 2011. Question four $163,334,000 has been raised through interest-bearing loans in the recent fiscal year. This amount can be derived from cash flow statement from the information provided in the annual report. The amount represents a net inflow from borrowings which have interest. In the previous financial year, there was a repayment of around $20,000,000 in the last year. This compensation is represented by net outflow in the consolidated financial statements. This is a clear indication that the organization has done the considerable expansion regarding developments in the past economic year as noted by Steven (2016). The developments have improved the performance of the organization. Question five Only one of the non-current liabilities is secured which are borrowings. The borrowings done by the company have been secured either through fixed securities or floating securities making them safer. Question six Non-current borrowings totaling $32,000,000 are due for the repayment within two years. The remaining non-current loans which total an estimated value of $244,424,000 are due for repayment within a period of 2-5 years. This information is provided with the note number 41 in the financial information of the consolidated financial statements (Benson, 2014). Beyond the limit of 5 years, there is no more balance reading. Thus, there will be no any non-current borrowings to be paid in that period. Question seven In the financial statements, there are non-current provisions which are the employee benefits and also the lease provisions. In general, they represent the current provisions. They are simply the same as the non-current provisions in the financial information provided. ii) Country Road Limited Part B-answers (50 marks) Question one The income tax expense is not seen in the expense items for income statements of partnership as it is considered in the Country Road Ltd.’s income statement. The deduction of the income tax expense is made by an individual in a partnership. Individual partners pay the deduction on the share of the profits they have received as explained by Agbemava et al. (2016). Deduction of the tax expense is also done on the percentage of loss which partners may receive. This is done only on the partner's income tax returns, not for the partnership. Steven (2016) notes that The IRS ensures that each partner pays his or her income tax by the owners "distributive share." Distributive share can be defined as the portion of the profit which each partner receives in partnership as explained by Price (2012). This is clearly stipulated in the partnership agreement or other cases under the state laws. In case the business partners did not make any agreement, then each is treated as though he or she has obtained the "distributive share" in each financial year. Partners need to understand that they ought to pay their income tax expense on the amount of shares they receive as profit as posited by Brochet et al. (2013). The cost (usually in brackets) is deducted from the total sales without consideration of the amount of money a partner may decide to withdraw from the company. The essence of doing this is that even if an individual may decide to leave profits in the partnership then, every partner will owe income tax on the fair amount of the share gain according to Price (2012). A good example is when an individual partner may decide to cover expenses as a result of expanding the organization for more profits in the future. Question two The total profit is appropriated by taking the net earnings than by summing them with the retained earnings which are already held. Finally, the sum is deducted with any dividends which may have been paid out and then dividend the amount obtained with the number of the outstanding shares of the company as explained by Price (2012). It is important to note that retained earnings are simply the profit that the organization decides to keep instead of sending as dividends to the various stockholders according to Brochet et al. (2013). Typically, the amount of any retained earnings which are not spent in a particular financial period is summed with the net earnings of the next fiscal year to get the retained earnings calculations which are essential in that fiscal year as noted by Steven (2016). The allocation of the total profit which is present differ with that of CRL in that it involves some partners who have to equally share the profit according to Agbemava et al. (2016). For CRL profit was shared by the shareholders depending on the number of shares one has in the company. Harl (2016) explains that in the partnership agreement, there is a set ratio for subdivision of the profits to the individual partners. Reasons for the differences in profit allocation between CRL and partnership There are various reasons why the appropriation of the total profits is different between the company and also Country Road Limited. The first reason is that in partnership division of the profits is done according to the responsibility of the individual in the organization. Each may give a particular responsibility to the partners while forming the partnership as explained by Brochet et al. (2013). For instance, a partner may be given responsibilities of monitoring the daily operations of the partnership company (Kim and Lim,2014). For that reason, the partner with many sensitive responsibilities is allocated the high percentage when dividing the profits obtained. This is different for CRL since profit is assigned by shares held in the company. Individuals with the upper percentages of shares often receive the highest profits during appropriation. The second reason for this difference is capital contribution varies for partners. Partners can give money the way they want it (Bhandari and Iyer, 2013). Normally, some partners contribute more while others less bring differences in capital contribution. Some partnership agreements may agree that the individuals to share the profit they have by capital contribution one had made. For that reason, the partners will receive proceeds by the percentages contributions made as per the suggestion of Steven (2016). For the case of CRL, the founders of the company are the ones who contribute the starting capital. However, after a period, they may invite investors who contribute their shares to support the company’s activities. The shareholders only receive a certain percentage of the profit after the company owners have taken their profits (Harl, 2016). Question three The issued capital of CRL company relates to the stock the organization published, but the issued capital of a partnership relate to the amount of stock a partner has an interest in. issued share capital simply means the shares which are of monetary value which an organization is ready to sell to an investor who can purchase shares in the company. In most cases issued capital is often recognized at fair value in case a consideration is received by the company’s owners (Harl, 2016). Bhandari and Iyer (2013) explains that Costs which arise during issuance of the capital are considered in the equity directly. They are valued as share proceeds in Country Road Limited organization. In CRL share capital received after issuance of shares to investors is a primary source of financing equity and can be achieved with the selling of both preference and even ordinary shareholders. This is often dictated by the number and also the selling price an organization sells its shares (Brochet et al., 2013). Question four Partnerships are also expected to prepare a statement of cash flows. the reason is that the cash flow statement is necessary since it shows the cash inflows and also the outflows due to the partnership’s operations and also other activities such as investing and financing as explained by Lee et al. (2013). Typically, the financing activities show the changes in the partnership levels of debt and equity as noted by Bhandari and Iyer (2013). There is various importance of preparation of the cash flow statement. First is that it will inform the partners where the cash is going? Cash flow is effective in informing the partners how they are spending their money according to Lee et al. (2013). Examples include which purchasing equipment, increasing credit to customers. Secondly, cash statement is necessary since it assists the partners in focusing on ways of creating excess cash according to Kim and Lim (2014). For instance, when the partners are collecting receivables from their clients faster they can generate cash. Another example is when the partners opt to pay less for an inventory needed they are building cash but on the other hand spending money an example given by Steven (2016). Thirdly, cash flow statements give a good key performance indicator which is essential in determination the performance of the partnership as noted by Yahya (2013). In case, the partners make more cash their KPI is great. According to Bhandari and Iyer (2013), Cash flow statements are better in evaluating performance compared to income statements. With the help of cash flow statement, organization can create more cash thus increasing the value of their partnership as posited by Yahya (2013). Finally, cash flow statements assist the partners in making important financial decisions as claimed by Kim and Lim (2014). These statements enable the partners to know how they can generate more cash for running the operations of their company by understanding well their cash flows. Cash statements also enable the partners to know what the banks where they have a loan are doing to their money. Generally, purchase of equipment and also payments of bank charges or loans do not show up on the income statement of the partnership. For that reason, it is advisable for the organization to manage properly their cash position to avoiding incidences of running out of money according to Kim and Lim (2014). Partners can use the excess cash made from the profits to grow their company for long-term future success as recommended by Lee et al. (2013). References Agbemava, E., Ahiase, G., Sedzro, E., Adade, T.C., Bediako, A.K., Nyarko, I.K. and Kudo, M.B., 2016. Assessing the Effects of Sound Financial Statement Preparation on the Growth of Small and Medium-Scale Enterprises. The International Journal of Business & Management, 4(3), p.104 Benson, P., 2014. Sharing is caring. Bhandari, S.B. and Iyer, R., 2013. Predicting business failure using cash flow statement based measures. Managerial Finance, 39(7), pp.667-676. Brochet, F., Jagolinzer, A.D. and Riedl, E.J., 2013. Mandatory IFRS adoption and financial statement comparability. Contemporary Accounting Research, 30(4), pp.1373-1400. Harl, N.E., 2016. When is an operating arrangement a partnership?. Ag Decision Maker, 15(1), p.3. Kim, S.C. and Lim, W.K., 2014. The effects of the Partnership in Supply Chain Management with Appling Social Business on the outcome of the SCM. Journal of the Korea Society of Computer and Information, 19(1), pp.95-110. Lee, Y.J., He, J., Wu, M.F., Li, Y.Q. and Chen, C.H., 2013. Preparing Statement of Cash Flows from Taoist Perspectives. Journal of Business & Management, 1(2). Price, J., 2012. Return on equity traps and how to avoid them. Steven, M., 2016. Business Ratios and Formulas-A Comprehensive Guide. Yahya, A., 2013. The Effect of Unique Resource, Innovation Management and Partnership on Business Performance at Digital Creative Industry in Indonesia. International Journal of Innovations in Business, 2(5), p.444. Read More