Which application would you select as being more favourable

Question

Assignment: Accounting for Business- Financial Statements Elements and Financial Statement Analysis

Purpose

Students are required to apply knowledge learned in class and perform independent research of the key topics.

Learning Outcomes:

• Familiar with and readily able to access (refer to) and integrate across:

o The social role and purpose of accounting
o The accounting equation and how it shapes the financial statements
o General Purpose Financial Statements (GPFS)
o Special Purpose Financial Statements (SPFS)

• Understand how to prepare, analyse, and interpret financial ratios from GPFS

• Obtain and contextualise business information for business accounting to explain and apply to business decisions

• Demonstrate the ability to apply, analyse, synthesise and evaluate information from multiple sources to make decisions about the financial performance of entities including assets, liabilities, owner's equity, revenue and expenses

• Apply concepts and theories discussed on a weekly basis

• Use transaction data and financial statement analysis for data-driven decision- making

• Demonstrate the ability to communicate accounting information writing to a professional standard

Length: 1000 words.

Purpose:

This assignment aims to reinforce and extend students' knowledge and understanding of key topics in this course (HC1010) including: Statement of Financial Position, Statement of Financial Performance, Cash Flow Statement, Financial Statement Analysis, Accounting for Business Transactions through independent research and application of knowledge and skills.

Assignment details:

PART A Financial Ratios and Financial Statement analysis (6 marks)

The following financial data relate to Big Bang Pty Ltd for the years ended 30 June Year 2019 and 30 June Year 2018.

Financial item	30 June Year 2019	Year 2018
Net credit sales Cost of goods sold Cash Accounts receivable Inventory Current liabilities	$630 000 290 000 18 000 70 000 130 000 105 000	$490 000 250 000 12 000 60 000 150 000 81 000

Additional information:

The amount of Accounts receivables at 30 June Year 2017 was $78 000 (net). The inventory figure at 30 June Year 2017 was $130 000. The company provides its credit customers 30 days to pay. The average inventory turnover for the industry in which the company operates is 101 days.

a. You are required to explain and calculate the following ratios for the years ended 30 June Year 2019 and 30 June Year 2018:

-  current ratio;

-  quick ratio;

-  accounts receivable turnover (times and in days); and

-  inventory turnover (times and in days).

b. Comment on the short-term solvency, including the efficiency of the business, given the ratio results obtained in your answer in part a.

PART B. Income and Revenue

The core business of Green Apple Ltd involves the sale of anti-virus software. The following took place during the financial year ended 30 June. The company earned $25 000 000 from the sale of software;

$3 000 000 from update downloads; and $50 000 in interest from investing on the short-term money market. The company also received a $2000 discount arising out of the early settlement of a liability; and issued shares in exchange for $500 000 cash during the year.

Discuss whether the foregoing five financial items would meet the definition of income to the company during the year? Give reasons for your answer.

Which, if any, of the items would meet the definition of revenue to the company for the year? Give reasons for your answer.

PART C. Comparing balance sheet

ABC company and XYZ company conduct the same type of business. Both are recently formed entities. the balance sheets of the two companies as at 30 June 2020 are as follows:

ABC Company Balance sheet As at 30 June 2020
	$	$	$	$
Assets
Current assets
Cash at bank	2 400
Accounts receivable	4 800
Total current assets		7 200
Noncurrent Assets
Office equipment	6 000
land	18 000
building	30 000
Total non-current assets		54 000
Total assets			61 200
liabilities
Current liabilities
Accounts payable	21 600
Loan payable due 30 September 2020	31 200
Total current liabilities		52 800
Total liabilities			52 800
Net assets				8 400
Owner's equity
P. Cable Capital	8 400
Total owners' equity				8 400

XYZ Company Balance sheet As at 30 June 2020
	$	$	$	$
Assets
Current assets
Cash at bank	2 000
Accounts receivable	24 000
Total current assets		26 000
Noncurrent Assets
Office equipment	600
land	13 600
building	6 000
Total non-current assets		20 200
Total assets			46 200
liabilities
Current liabilities
Accounts payable	4 800
Loan payable due 30 September 2020	7 200
Total current liabilities		12 000
Total liabilities			12 000
Net assets				34 200
Owner's equity
P. Cable Capital	34 200
Total owners' equity				34 200

You are required to answer the following questions based on the information provided above:

a. Assuming that you are a banker and that the owner of each business has applied for a short- term loan of $6000 (repayable in six months), which application would you select as being the more favourable? Explain.

b. Assuming that you are a businessperson interested in buying one or both companies, and both owners have indicated their intentions to sell, for which business would you be willing to pay the higher price, assuming you will be taking over the existing liabilities of the company? explain.

c. If the existing owners agreed to be accountable for all existing liabilities, how would this change your decision in (b), if at all?

 

Format your assignment according to the following formatting requirements:

1. The answer should be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.

2. The response also includes a cover page containing the title of the assignment, the student's name, the course title, and the date. The cover page is not included in the required page length.

3. Also include a reference page. The Citations and references should follow APA format. The reference page is not included in the required page length.