ACT212 Principles of Accounting Assignment Help and

ACT212 Principles of Accounting - Canadian University Dubai

Learning Outcome 1: Illustrate accounting for liabilities and equity of corporations.
Learning Outcome 2 Employ tools and methods to analyze the financial statement data to guide investment and lending decisions.
Learning Outcome 3 Explainthe major cost and managerial accounting concepts.
Learning Outcome 4 Apply the cost-volume-profit analysis to determine break-even- point and plan profit.
Learning Outcome 5 Prepare operating budgets and discuss their processes for the purposes of planning and doing differential analysis and product pricing.

Question 1

You have been hired as an analyst for Emirates Bank and your team is working on the assessment of DDF Inc., DDF Inc. is a firm that specializes in the production of imported organic food imported from North Africa. Your assistant has provided you with the following data for DDF Inc. and their industry.

 

Ratio

 

2020

 

2019

 

2018

2020-

Industry Average

Long-term debt

0.45

0.40

0.35

0.35

Inventory Turnover

62.65

42.42

32.25

53.25

Depreciation/Total Assets

0.25

0.014

0.018

0.015

Days' sales in receivables

113

98

94

130.25

Debt to Equity

0.75

0.85

0.90

0.88

Profit Margin

0.082

0.07

0.06

0.075

Total Asset Turnover

0.54

0.65

0.70

0.40

Quick Ratio

1.028

1.03

1.029

1.031

Current Ratio

1.33

1.21

1.15

1.25

Times Interest Earned

0.9

4.375

4.45

4.65

Equity Multiplier

1.75

1.85

1.90

1.88

Answer the following questions.

Giventhe information above, your answershould be as complete as possible, but do not use any irrelevant information.

Requirement:

a. In the annual report to the shareholders, the CEO of Flipper Inc wrote, "2018 was a good year for the firm with respect to our ability to meet our short-term obligations. We had higher liquidity largely due to an increase in highly liquid current assets (cash, account receivables and short-term marketable securities)." Was the CEO correct?

b. What can you say about the firm's asset management?

c. You are asked to provide the shareholders with an assessment of the firm's solvency and leverage. Be as complete as possible given the above information, but do not use any irrelevant information.

Question 2

ABC completed the following transactions during a given year:

Transaction

Ratio

1.   Sold obsolete inventory at cost

2    Redeemed debentures by issuing ordinary shares

3.   Issued a share dividend on ordinary shares

4.   Declared a cash dividend on ordinary shares

5.   Paid the GST owing to the tax office

6.   Purchased inventory on credit

7.   Sold inventory for cash

8.   Wrote off a bad debt against Allowance for Doubtful Debts

9.   Collected an account receivable

10. Sold inventory on credit

11. Issued additional ordinary shares for cash

12. Paid trade accounts payable

1.      Profit margin

2.      Return on ordinary equity

3.      Earnings per share

4.      Dividend pay-out

5.      Dividend yield

6.      Quick ratio

7.      Current ratio

8.      Current ratio

9.      Receivable's turnover

10.  Inventory turnover

11.  Debt ratio

12.  Return on assets

Required
State whether each transaction would cause the ratio listed with the transaction to increase, decrease or remain unchanged. Explain your answer.

1. Decrease - will increase sales and cost of sales by the same amount, resulting in a zero change in operating profit.

2. Decrease - issuing additional shares will increase shareholders' equity (denominator), while profit is assumed to remain the same.

3. Decrease - issuing a share dividend will increase the number of ordinary shares on issue (denominator), while profit is assumed to remain the same.

4. Increase - declaring more cash dividend will increase the proportion of profit distributed to shareholders as dividends.

5. Remain unchanged - paying GST owing will affect total assets and total liabilities, not dividend paid or market price per share.

6. Decrease - purchasing inventory on credit will increase current liabilities (denominator), whilst the numerator remains constants as inventory is excluded from the calculation of quick ratio.

7. • Remain unchanged if selling price equals to cost - because the amount received as cash will be the same as the reduction in inventory balance, resulting in zero change in total current assets whilst current liabilities remain constant.
• Increase if selling price is greater than cost of sales - because cash received is greater than the reduction in inventory balance, resulting in the increase in current assets (numerator) whilst current liabilities (denominator) remain constant.

8. Remain unchanged - writing-off (estimated) bad debt against allowance for doubtful debts account does not decrease gross accounts receivable (current assets), until the actual bad debt is write-off.

9. Increase - collecting an account receivable will reduce accounts receivable balance (denominator), while net sales revenue is assumed to remain constant.

10. Increase - selling inventory will reduce inventory balance (denominator), while cost of sales (numerator) will increase.

11. Decrease - issuing additional ordinary shares for cash will increase total assets (denominator), whilst total liabilities (numerator) remain the same.

12. Increase - paying accounts payable will decrease total assets (denominator) through reduction in cash, while profit is assumed to remain the same.

Question 3
Financial statements of XYZ Ltd are presented below.

Additional information

• Payables includes $5620 (2019) and $5730 (2018) trade accounts payable; the remainder is accrued expenses.
• Market prices of issued shares at year-end (2019):
Ordinary, $12.00 Preference, $6.70

XYZ LTD

Comparative Statements of Financial Position

as at 31 December

($000)

 

 

2019

 

2018

 

Current assets

Cash and cash equivalents

Receivables (all trade)

Inventories

 

$

 

3 290

8 200

  14 000

 

 

$

 

4 220

7 350

  13 860

 

 

Total current assets

 

25 490

 

 

25 430

 

 

Non-current assets

Property, plant and equipment

 

 

34 380

 

 

 

30 660

 

 

Total non-current assets

 

34 380

 

 

30 660

 

 

Total assets

$

59 870

 

$

56 090

 

 

Current liabilities

Payables

 

$

 

11 560

 

 

$

 

11 980

 

 

Total current liabilities

 

11 560

 

 

11 980

 

 

Non-current liabilities

Interest-bearing liabilities

 

 

19 880

 

 

 

18 900

 

 

Total non-current liabilities

 

19 880

 

 

18 900

 

 

Total liabilities

$

31 440

 

$

30 880

 

 

Equity

Share capital

Retained earnings

 

$

 

15 400

13 030

 

 

$

 

15 400

  9 810

 

 

Total equity

$

28 430

 

 

25 210

 

XYZ LTD

Statement of Profit or Loss

for the year ended 31 December 2019

($000)

 

Revenue (net sales)

Less: Cost of sales

 

 

 

$

110 000

70 200

 

 

Gross profit

 

 

 

 

39 800

 

 

Less: Expenses

Selling and distribution expenses

Administrative expenses

Finance costs

 

 

 

 

 

14 200

9 940

3 120

 

 

Total expenses

 

 

 

 

27 260

 

 

Profit before income tax

Income tax expense

 

 

 

 

12 540

3 816

 

 

Profit

 

 

 

$

8 724

 

XYZ LTD

Statement of Changes in Equity

for the year ended 31 December 2019

($000)

 

Share capital

Ordinary (14 400 000 shares):

Balance at start of period

 

 

 

 

 

$

 

 

14 400

 

 

Balance at end of period

 

 

 

 

14 400

 

 

Preference (500 000 shares):

Balance at start of period

 

 

 

 

 

1 000

 

 

Balance at end of period

 

 

 

 

1 000

 

 

Total share capital

 

 

 

$

15 400

 

 

Retained earnings

Balance at start of period

Total recognised profit for the period

Dividend paid - ordinary

Dividend paid - preference

 

 

 

 

$

 

 

 

9 810

8 724

5 404

   100

 

 

 

 

 

 

Balance at end of period

 

 

 

$

13 030

 

Required

A. Calculate the following ratios for 2019. The industry average for similar businesses is also provided.

Industry average

1.   return on assets                             22.0%

2.   return on ordinary equity              20.0%

3.   profit margin                                  4.0%

4.   earnings per share                         45c

5.   price-earnings ratio                      12.0

6.   dividends yield                               5.0%

7.   dividend pay-out                            70%

8.   current ratio                                  2.5:1

9.   quick ratio                                     1.3:1

10. receivables turnover                      13.0

11. inventory turnover                         6.0

12. debt ratio                                       40.0%

13. times interest earned                      6.0

14. asset turnover                                1.8

B. Given the above industry averages, comment on the company's profitability, liquidity and use of financial gearing.

C. Discuss the limitations of ratios analysis.

Attachment:- Principles of Accounting.rar


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