Hi all,
I'm having to do an accounting paper for a business course that I'm doing. The intricacies of accounting is new to me so would be grateful if someone could check over what I have done. I have attached the questions. Answers are below.
The link to the Annual Report is here:
https://www.thewarehousegroup.co.nz/download_file/force/1103/169
Question 1A
i. Trade and Other Receivables. Accounts for supplier rebates not deducted from payable accounts and customer sales made on credit. These are classified as current assets as terms are generally 30 to 60 days. This can be found in section 8.2.
ii. Provisions. Recognised if an entity has a present obligation based on previous events, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation*, such as annual leave, wages, sick leave and customer returns. These are classified as current liabilities as these are expected to be settled within 12 months. These can be found under section 8.4.
iii. Trade and Other Payables. Accounts for goods and services provided to the Group such as trade accounts, payroll, GST etc. These are classified as current liabilities as accounts are usually settled within 60 days. Can be found in section 8.3.
iv. Borrowings. 10.1 – Accounts for monies received with the expectation that it will be repaid such as loans, leases and bonds etc. These are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance date (Annual Report, 2017). These can be found under section 10.1.
v. Contributed Equity Is the total value of stock that shareholders have bought directly from the issuing company. As shares are considered equity, these do appear under assets or liabilities. These can be found in section 11.2.
Question 1B
i. Retail stock would increase by $1m. This would be found in section 8.1. Trade creditors and accruals would increase by $1m. This would be found in section 8.3.
ii. The bank is reduced by $200,000 because cash was invested into Auckland Airport shares. The value of current assets would also increase by $200,000 because the intention is to sell the shares within 6 months. This would be disclosed in section 11.4 – Minority Interests.
iii. The bank is reduced by $300,000 current liabilities reduced by $300,000. This would be disclosed in 10.1 - Net Debt
iv. PPE would increase by $800,000, bank decreases by $800,000*. I would say just Plant and Equipment. Disclosed in 9.1 – Non-Current Assets.
Question 1C
i. Nonphysical assets, such as patents, copyrights, brand and goodwill.
ii. Yes. Goodwill, Brand, Computer Software found in section 9.2
Question 1D
i. Property, plant and equipment are measured at cost
a. Freehold land – Historical cost?
b. Freehold buildings – Historical cost
c. Plant and equipment - Historical cost
ii. Fair value would give you an accurate market value, but would not account for over inflation or speculation, should that have occurred. As Charles Lee put it, “As an investor, when I turn to financial statements, I want a trustworthy and interpretable account of what took place. As soon as we start to anticipate future exchanges, we are in a world of speculation…… The most important component of a company’s market value lies in shareholder expectations about its future earnings. But the purpose of accounting isn’t to make those forecasts, he insists. The purpose is to give shareholders the tools they need to make their own forecasts. (Andrews, 2014)
Question 2C
I disagree. Her business has a D/E ratio of 1.77, meaning that for every $1 of equity, she owes $1.77 in debt. Also, her total profit for the month was -$170.
I'm having to do an accounting paper for a business course that I'm doing. The intricacies of accounting is new to me so would be grateful if someone could check over what I have done. I have attached the questions. Answers are below.
The link to the Annual Report is here:
https://www.thewarehousegroup.co.nz/download_file/force/1103/169
Question 1A
i. Trade and Other Receivables. Accounts for supplier rebates not deducted from payable accounts and customer sales made on credit. These are classified as current assets as terms are generally 30 to 60 days. This can be found in section 8.2.
ii. Provisions. Recognised if an entity has a present obligation based on previous events, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation*, such as annual leave, wages, sick leave and customer returns. These are classified as current liabilities as these are expected to be settled within 12 months. These can be found under section 8.4.
iii. Trade and Other Payables. Accounts for goods and services provided to the Group such as trade accounts, payroll, GST etc. These are classified as current liabilities as accounts are usually settled within 60 days. Can be found in section 8.3.
iv. Borrowings. 10.1 – Accounts for monies received with the expectation that it will be repaid such as loans, leases and bonds etc. These are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance date (Annual Report, 2017). These can be found under section 10.1.
v. Contributed Equity Is the total value of stock that shareholders have bought directly from the issuing company. As shares are considered equity, these do appear under assets or liabilities. These can be found in section 11.2.
Question 1B
i. Retail stock would increase by $1m. This would be found in section 8.1. Trade creditors and accruals would increase by $1m. This would be found in section 8.3.
ii. The bank is reduced by $200,000 because cash was invested into Auckland Airport shares. The value of current assets would also increase by $200,000 because the intention is to sell the shares within 6 months. This would be disclosed in section 11.4 – Minority Interests.
iii. The bank is reduced by $300,000 current liabilities reduced by $300,000. This would be disclosed in 10.1 - Net Debt
iv. PPE would increase by $800,000, bank decreases by $800,000*. I would say just Plant and Equipment. Disclosed in 9.1 – Non-Current Assets.
Question 1C
i. Nonphysical assets, such as patents, copyrights, brand and goodwill.
ii. Yes. Goodwill, Brand, Computer Software found in section 9.2
Question 1D
i. Property, plant and equipment are measured at cost
a. Freehold land – Historical cost?
b. Freehold buildings – Historical cost
c. Plant and equipment - Historical cost
ii. Fair value would give you an accurate market value, but would not account for over inflation or speculation, should that have occurred. As Charles Lee put it, “As an investor, when I turn to financial statements, I want a trustworthy and interpretable account of what took place. As soon as we start to anticipate future exchanges, we are in a world of speculation…… The most important component of a company’s market value lies in shareholder expectations about its future earnings. But the purpose of accounting isn’t to make those forecasts, he insists. The purpose is to give shareholders the tools they need to make their own forecasts. (Andrews, 2014)
Question 2C
I disagree. Her business has a D/E ratio of 1.77, meaning that for every $1 of equity, she owes $1.77 in debt. Also, her total profit for the month was -$170.