Response to the following questions:
Q1. The Wentnor Dairy Company Ltd has run for many years dairy farms in Tasmania. In addition to the farms it has vertically integrated by purchasing factories that produce milk products. These products are then are further developed in other factories owned by the company by producing high grade yoghurts.
The chief financial officer for the company has asked your advice on how AASB 136 Impairment of Assets, should be applied to the company's various activities. In particular she wishes to correctly identify the cash-generating units (CGUs) for the company.
One issue is whether the milk production section is a separate CGU even though the company does not sell milk directly to other entities but uses the products within its own vertically integrated structure or should it should be included in the milk-based products CGU.
Required:
Write a letter to the chief financial officer of The Wentnor Dairy Company Ltd, including the following:
A. Define a CGU.
B. Explain why impairment testing requires the use of CGUs, rather than being based on single assets.
C. Explain the factors that the chief financial officer should consider in determining the CGUs for The Wentnor Dairy Company Ltd.
Pay particular attention to referencing your advice to the relevant paragraphs of the accounting standard.
Q2. When downloading the annual reports it's a good idea not to print the whole report as they can be over 100 pages long.
Review the Woolworths Limited's annual report for 2017
You will find the financial statements.
In the 2016 annual report the financial statements can be found .
You will need the 2016 results when calculating average inventory and average receivables for the 2016 efficiency ratios. You can access the closing market price of Woolworth's shares at : https://au.finance.yahoo.com/quote/WOW.AX/history?period1=1492180200&period2=1498746600&in terval=1d&filter=history&frequency=1d
Required:
Part A : A Calculate the following ratios for 2017 and 2016:
Current and Acid Test ratios
Inventory turnover and days in inventory
Gross profit percentage, accounts receivable turnover and days sales in receivables Debt ratio and debt to equity ratio
Rate of return on net sales ratio and rate of return on total assets ratio Asset turnover ratio and the rate of return on ordinary shareholders equity
Dividend yield and dividend payout.
Part B: Using the ratios calculated in Part A and information gathered from elsewhere in the Annual Reports write a report to a potential investor with your recommendations as to whether Woolworths Limited would make a good investment.
(The report should not be just a re-statement of the ratio calculations but an interpretation of them. Any calculations should be contained within an appendix and not in the body of the report. Remember the report is to a potential investor so the ratios must be of interest to them. Remember a business report will need: a report structure, title (including reference to whom the report is addressed), author, executive summary, introduction, findings, and a conclusion.
C As a rule of thumb the Current Ratio for businesses should be 2:1 and the Acid Test between1.5 to 1 How would you explain these ratios for Woolworths Limited when compared to this rule?
Q3. In Note of the Qantas Annual Report 2017 it states:
Foreign Operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated into Australian Dollars at the exchange rates at the reporting date. The income and expenses of foreign operations are translated into Australian Dollars at the exchange rates at the date of the transactions.
Foreign currency differences are recognised in the Consolidated Statement of Comprehensive Income and accumulated in the Foreign Currency Translation Reserve....
Required:
Explain this note to a reader of the Qantas report. Your explanation should deal with all the elements of a set of financial statements, with the translation methods adopted for each element, including all the component parts of equity, together with description of why foreign exchange differences arise,
where they are recognized and where do they get transferred to.
Q4. Flash in the Pan Ltd
Trial Balances as at 30 June
|
|
|
2018
|
|
2019
|
|
|
Dr $
|
Cr$
|
Dr $
|
Cr$
|
|
Cash
|
65
|
|
65
|
|
|
Accounts receivable
|
16996
|
|
28535
|
|
|
Allowance for doubtful debts
|
|
1300
|
|
2600
|
|
Inventory
|
47471
|
|
78751
|
|
|
Plant and machinery
|
64740
|
|
101920
|
|
|
Accumulated depn - p & m
|
|
7137
|
|
14482
|
|
Fixtures and fittings
|
13000
|
|
10140
|
|
|
Accumulated depn - f&f
|
|
3770
|
|
3900
|
|
Accounts payable
|
|
16258
|
|
15382
|
|
Bank overdraft
|
|
3614
|
|
21923
|
|
Current tax liability
|
|
7800
|
|
10400
|
|
Share capital
|
|
78000
|
|
117000
|
|
General reserve
|
|
13000
|
|
19500
|
|
Retained earnings (opening)
|
|
9290
|
|
11393
|
|
Sales revenue
|
|
221000
|
|
260000
|
|
Gain on sale of machinery
|
|
|
|
130
|
|
Cost of sales
|
78000
|
|
91000
|
|
|
Salaries and wages expenses
|
123035
|
|
129852
|
|
|
Doubtful debts expense
|
3900
|
|
4420
|
|
|
Depreciation expense
|
6630
|
|
7995
|
|
|
Income tax expense
|
7332
|
|
7132
|
|
|
Dividend declared and paid
|
|
|
10400
|
|
|
Transfer to general reserve
|
|
|
6500
|
|
|
|
361169
|
361169
|
476710
|
476710
|
Additional information
1) Fixtures and fittings which had cost $2860 and with accumulated depreciation of $520 were sold during the year in a cash sale.
2) Plant which cost $13,000 was purchased in exchange for the issue of 13,000 shares at a price of $1 each.
3) The bank overdraft is to be included in cash equivalents.
A Prepare a Statement of Cash Flows for Flash in the Pan Ltd for the year ended 30th June 2019 using the direct method.
B The Statement should be accompanied by all the relevant notes (3 in total) including the indirect method.